0001493152-19-005305.txt : 20190415 0001493152-19-005305.hdr.sgml : 20190415 20190415151609 ACCESSION NUMBER: 0001493152-19-005305 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 70 CONFORMED PERIOD OF REPORT: 20181231 FILED AS OF DATE: 20190415 DATE AS OF CHANGE: 20190415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFINITY ENERGY RESOURCES, INC CENTRAL INDEX KEY: 0000822746 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 203126427 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17204 FILM NUMBER: 19748435 BUSINESS ADDRESS: STREET 1: 11900 COLLEGE BLVD STREET 2: SUITE 204 CITY: OVERLAND PARK STATE: KS ZIP: 66210 BUSINESS PHONE: 913-948-9512 MAIL ADDRESS: STREET 1: 11900 COLLEGE BLVD STREET 2: SUITE 204 CITY: OVERLAND PARK STATE: KS ZIP: 66210 FORMER COMPANY: FORMER CONFORMED NAME: INFINITY INC DATE OF NAME CHANGE: 19920703 10-K 1 form10-k.htm

 

 

 

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, 2018

 

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   (I.R.S. Employer
incorporation or organization)   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, par value $0.0001

 

Securities registered pursuant to Section 12(g) of the Act: None

 

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 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 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]

 

As of June 30, 2018, the aggregate market value of the Registrant’s common equity held by non-affiliates, computed by reference to the closing price on June 30, 2018 ($0.04 per share) was $308,503.

 

The number of shares of our common stock outstanding as of April 10, 2019 is 7,712,569.

 

Documents incorporated by reference: None

 

 

 

   

 

 

Table of Contents

 

    Page
     
  PART I  
     
Item 1. Business 3
     
Item 1A. Risk Factors 10
     
Item 1B. Unresolved Staff Comments 10
     
Item 2. Properties 10
     
Item 3. Legal Proceedings 12
     
Item 4. Mine Safety Disclosures 12
     
  PART II  
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13
     
Item 6. Selected Financial Data 14
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
     
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 20
     
Item 8. Financial Statements and Supplementary Data 20
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 22
     
Item 9A. Controls and Procedures 22
     
Item 9B. Other Information 22
     
  PART III  
     
Item 10. Directors, Executive Officers and Corporate Governance 23
     
Item 11. Executive Compensation 27
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 31
     
Item 13. Certain Relationships and Related Transactions, and Director Independence 32
     
Item 14. Principal Accounting Fees and Services 32
     
  PART IV  
     
Item 15. Exhibits, Financial Statement Schedules 33
     
SIGNATURES  
     
  Signatures 36

 

 2 

 

 

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.

 

DESCRIPTION OF BUSINESS

 

Overview

 

Infinity Energy Resources, Inc. (the “Company,” “we,” “ours,” and “us”) is an independent energy company whose principal business plan is pursuing an oil and gas exploration opportunity offshore of Nicaragua in the Caribbean Sea. On March 5, 2009, the Nicaraguan government granted us the concessions to explore approximately 1.4 million acres offshore Nicaragua. Since such point we have focused our efforts primarily on these Concessions. Previously we were engaged in the acquisition, exploration and development of natural gas and oil properties in the United States. We ceased all domestic oil and gas exploration and production in the United States by December 2009.

 

The Company is assessing various opportunities and strategic alternatives (the “Strategic Alternatives”) involving the acquisition, exploration and development of natural 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.

 

The Company must obtain new sources of debt and/or equity capital to fund the substantial needs enumerated above, as well as satisfying its existing debt obligations. It is attempting to obtain extensions of the maturity date for its outstanding debt; however, there can be no assurance that it will be able to do so or what the final terms will be if the lenders agree to such extensions. Further, the Company can provide no assurance that it will be able to obtain sufficient new debt/equity capital to pursue any Strategic Alternatives it may consider.

 

Nicaragua

 

We began pursuing an oil and gas exploration opportunity offshore Nicaragua in the Caribbean Sea in 1999. Since such time, we 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” or “Concessions”). 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. In April 2013, the Nicaraguan government formally approved our Environmental Impact Assessment, at which time we commenced significant activity under the initial work plan involving the acquisition of new seismic data on the two Nicaraguan Concessions. We undertook seismic shoots during late 2013 that resulted in the acquisition of new 2-D and 3-D seismic data and have reviewed it to select initial drilling sites for exploratory wells.

 

The Company has had a history of losses. It has a significant working capital deficit, notes payable that are in default and is experiencing substantial liquidity issues. In addition, the Company’s most significant asset and its business plan is focused on the exploration and development of the Nicaraguan Concessions, which are now in default and in risk of being terminated. The Company is now exploring domestic opportunities to utilize its expertise in oil and gas exploration and production including oil field services. The Company may direct its efforts and resources to developing a domestic oil and gas industry asset base through the acquisition of small oil and gas leases/properties and/or oil and gas services businesses in 2019 and beyond.

 

 3 

 

 

The Company has relied on raising debt and equity capital to fund its ongoing maintenance/expenditure obligations under the Nicaraguan Concession, its day-to-day operations and corporate overhead because it has generated no operating revenues or cash flows in recent years. The $1.0 million December 2013 Note (See Note 3) matured in April 2016 and is currently in default and five other notes payable with principal balances of $338,125 as of December 3, 2018 are now either due on demand or currently in default. The Company is seeking resolutions to these defaults, including extensions of the maturity date for these notes payable; however, there can be no assurance that it will be able to obtain such extensions or what the final terms will be if the lenders agree to such extensions.

 

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of December 31, 2018, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment of the 2016, 2017 and 2018 area fees required for both the Perlas and Tyra which total approximately $167,000; and (5) payment of the 2016, 2017 and 2018 training fees required for both the Perlas and Tyra totaling approximately $300,000. The Company is seeking to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. The Company has encountered challenges in this regard because of the political situation in Nicaragua. There can be no assurance whether it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to the Company. The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund the requirements noted above plus finance (i) the shooting of additional seismic on the Tyra Block of the Nicaraguan Concessions if it is unable to negotiate a waiver of such requirement from the Nicaraguan government; (ii) normal day-to-day operations and corporate overhead; and (iii) outstanding debt and other financial obligations as they become due, including the $1.0 million December 2013 Note, and the five notes payable totaling $338,125, which are either due on demand or currently in default and the Replacement Note, if issued. These are substantial operational and financial issues that must be successfully addressed during 2019 or the Company’s ability to satisfy the conditions necessary to maintain its Nicaragua Concessions will be in significant doubt.

 

The Company is seeking new sources of debt and equity capital to fund the substantial needs enumerated above. The Company is attempting to obtain extensions of the maturity dates for its debt or compromises of the debt. There can be no assurance that it will be able to obtain such funding or extensions or what terms.

 

Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financials are issued. The 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.

 

Senior Convertible Note and Warrant Private Placement

 

On May 7, 2015 we completed the private placement with an institutional investor of a $12.0 million principal amount Senior Convertible Note (the “Convertible Note”) and a Warrant (the “Warrant”) exercisable to purchase 1,800,000 shares of our common stock (the “May 2015 Private Placement”). The Convertible Note ranks senior to our existing and future indebtedness and is secured by all our assets, excluding the Nicaraguan Concessions. At the closing, such investor acquired the Convertible Note by paying $450,000 in cash and issuing a secured promissory note, secured by cash, with an aggregate initial principal amount of $9,550,000 (the “Investor Note”). Assuming all amounts payable to us under the Investor Note were paid without any offset or default, the May 2015 Private Placement would have resulted in gross proceeds of $10.0 million before Placement Agent fees and other expenses associated with the transaction, subject to the satisfaction of certain conditions. We used the initial proceeds from the closing to retire certain outstanding obligations, including delinquent 2015 area and training fees of approximately $155,000 owed to the Nicaraguan government relating to our Nicaragua Concessions, and to provide additional working capital.

 

 4 

 

 

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver a new convertible note (the “Replacement Note”) with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The Replacement Note provides for a one-year maturity from May 7, 2017, a conversion price of $0.50 per share and is due in monthly installment payments through May 2018 either in cash or stock, among other terms. The Company continues to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.

 

Business Strategy

 

Our principal objective is to create stockholder value through the development of our Nicaraguan Concessions. We commenced significant activity under the initial work plan and received formal governmental approval of the environmental study in 2013. We have used previously existing reprocessed 2-D seismic data to identify or evaluate the prospects. We had additional 2-D and 3-D seismic mapping done on the Concessions to provide additional data. We have reviewed the data to evaluate the potential oil and gas producing structures and select initial drilling sites for exploratory wells. We have not moved forward due to insufficient capital and necessary Nicaraguan government approvals. We are considering Strategic Alternatives in addition to the Nicaraguan Concessions.

 

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. We completed the May 2015 Private Placement described below. We continue to seek new sources of debt and equity capital in order to fund the substantial needs enumerated above and are considering our Strategic Alternatives; however, there can be no assurance that we will be able to obtain such capital or obtain it on favorable terms or within the timeframe necessary to cure the defaults existing on the Nicaraguan Concessions or to meet our requirements relative to drilling the exploratory wells or meet our other obligations or effect any transaction as part of our Strategic Alternatives. Finally, given the economic and political turmoil currently existing in Nicaragua we are not actively engaged with the Nicaraguan Government to negotiate a way to proceed with the planned exploration and development of the Nicaraguan Concessions. When the current turmoil is resolved and the unrest ceases in Nicaragua we plan to continue seeking joint venture or working interest partners for exploratory drilling operations on the Nicaraguan Concessions. In this connection we may seek 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.

 

Exploration and Development - Nicaraguan Concessions

 

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 the 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. Our 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. The model is based upon preliminary conclusions and is subject to further analysis of our more recent 2-D and 3-D seismic data and interpretation, and various assumptions that cannot be confirmed or disproved until the prospects are drilled. We believe the model supports our long-held belief that the Nicaraguan Concessions have the potential for oil discoveries, although we can offer no assurances in this regard.

 

 5 

 

 

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. 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 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 March 2014 we opened a seismic data room at CGG’s Houston headquarters in order for potential strategic and/or financial partners to view the fully processed results of the seismic survey activities conducted by CGG.

 

The final approval of the EIA by the Nicaraguan government of our environment impact study on April 13, 2013, began Sub-Period 2 for both the Tyra and Perlas Blocks as defined in the Nicaraguan Concessions. The Company believes it has satisfied the acquisition, processing and interpretation of Seismic data required in Sub-Period 2 for both the Perlas and Tyra Blocks. Therefore, it is now in Sub-Period 3 of the exploration phase of the 30-year Concession for both Perlas and Tyra as of June 30, 2015. Sub-Period 3 of the Nicaraguan Concessions required the drilling of at least one exploratory well on the Perlas Block during 2016 and the shooting of additional seismic on the Tyra Block. The Company needs to identify at least one potential drilling site on the Perlas block as required in Sub-Period 3 and will have to perform supplemental EIA work prior to requesting and receiving the permit to drill from the Nicaraguan government. The work plan on the Tyra Block for Sub-Period 3 requires the Company to shoot additional seismic, which is estimated to cost approximately $2,500,000 prior to the commencement of exploratory drilling. The Company is negotiating with the Nicaraguan government to seek a waiver of the additional seismic mapping on the Tyra Block so that it can proceed with exploratory drilling. There can be no assurance whether it will be able to obtain such waiver of the requirement.

 

During late December 2013, we completed the 2-D seismic survey activities in the area as required under both Nicaraguan Concessions at that point. We believe that the newly acquired 2-D seismic data, together with the previously acquired reprocessed 2-D seismic, has helped 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 hydrocarbons (principally oil) in place. In addition, the new 2-D seismic acquired in 2013 provided our first geological information regarding the potential for oil resources in the Cretaceous Zone, which we could not evaluate using less precise older 2-D seismic mapping. We have identified multiple promising sites on the Perlas Block for exploratory drilling and are planning the drilling of initial exploratory wells to determine the existence of commercial hydrocarbon reserves. We believe that we have performed all work necessary to proceed to Sub-Period 3 for the Perlas Block as defined in the Nicaraguan Concessions, which required the drilling of at least one exploratory well on the Perlas Block in 2016. We must first prepare and submit a supplemental EIA to the Nicaraguan government before the drilling permit can be issued on the Perlas Block.

 

The Nicaraguan Government has yet to receive the EIA supplement and may or may not issue the drilling permit; given the status of the Nicaraguan Concessions. The Company will likely have to negotiate with Nicaraguan government new terms and deadlines with regard to the Concessions. However, there can be no assurance that the Company will be able to negotiate new terms and deadlines with the Nicaraguan Government in order to maintain the concessions.

 

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of December 31, 2018, as noted above, and must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund expenses relating to the Concessions. These are substantial operational and financial issues that must be successfully addressed during 2019 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

 

 6 

 

 

Costs incurred during the year ended December 31, 2018 in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.

 

  

Year ended

December 31, 2018

 
Property acquisition costs:     
Proved  $— 
Unproved     
Total property acquisition costs   — 
Development costs   — 
Exploration costs   155,584 
Total costs  $155,584 

 

Exploration costs during the year ended December 31, 2018 primarily related to area Concession and training fees which are accrued to be paid to the Nicaraguan Government for 2018. All costs related to the Nicaraguan Concessions have been expensed as incurred during the year ended December 31, 2018 as the Concessions are in default status and the Nicaraguan Concession assets are considered to be impaired and fully reserved as of December 31, 2018 and 2017.

 

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

 

   December 31, 
   2018   2017 
     
Proved oil and gas properties  $—   $— 
Unproved oil and gas properties   11,176,773    11,021,189 
Total   11,176,773    11,021,189 
Less amounts allocated to revenue sharing interest granted to Note holder for extension of maturity date (See Note 3)   (964,738)   (964,738)
Less accumulated impairment charge on oil and gas properties as of December 31, 2015   (9,720,666)   (9,720,666)
Less amounts charged directly to operations since January 1, 2016   (491,369)   (335,785)
Less accumulated depreciation, depletion and amortization   —    — 
           
Net capitalized costs  $—   $— 

 

Management has performed its impairment tests on its oil and gas properties as of December 31, 2018 and 2017, has concluded that a full impairment reserve should be provided on the costs capitalized for its unproved oil and gas properties consisting solely of the Nicaraguan Concessions. Therefore, an impairment charge of $9,720,666 was charged to operations during the year ended December 31, 2015 which reduced the carrying amount of oil and gas properties to zero. The Nicaraguan Concessions remained fully impaired as of December 31, 2018 and 2017. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. This may provide substantial impediments for the Company and its ability to obtain adequate financing to fund the exploration and development of its Nicaraguan projects and the overall economic viability of the Concessions should hydrocarbons be discovered in commercial quantities.

 

The following charts set forth the minimum work programs required under for the Perlas and Tyra blocks comprising the Concessions in order for the Company to retain them unless it is successful in obtaining extensions, renewals or the renegotiation of the entire Concessions Agreements for the Perlas and Tyra blocks.

 

 7 

 

 

Minimum Work Program – Perlas

 

Block Perlas – Exploration Minimum Work Commitment and Relinquishments
Exploration
Period
(6 Years)		   Duration
(Years)		   Work Commitment   Relinquishment   Irrevocable
Guarantee		  
Sub-Period1   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-Period1   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 Years 1-3   $0.05/hectare
  Years 4-7   $0.10/hectare
  Years 8 & forward   $0.15/hectare
Royalties Recovery Factor 0 – 1.5   Percentage 5%
  1.5 – 3.0   10%
  >3.0   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

 

The Company is in default of the current minimum work plan and is attempting to extend or renegotiate the requirements in order to cure the defaults and maintain the Concessions. There can be no assurance that it will be successful in negotiating such extensions and/or renegotiate the Concessions.

 

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.

 

 8 

 

 

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 the capital necessary to pursue our Nicaraguan Concessions and seeking to acquire the services, equipment, labor and materials necessary to explore, operate and develop those properties. Most 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 the Concessions in the face of this competition.

 

Government Regulation of the Oil and Gas Industry

 

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 us, 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;
   
● 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.

 

 9 

 

 

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 to remain in compliance. 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 oil and natural gas exploration, development, production and transportation operations.

 

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

 

We have two employees, our CEO and CFO, whose salaries have been deferred. We also use outside contractors to perform services.

 

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

 

We own 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.

 

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 by the Nicaraguan government which allowed us to commence our exploration activities. We have acquired new specific geological information from the acquisition of new 2-D and 3-D seismic studies during 2013 and 2014 along with the reprocessing and additional evaluation of existing 2-D seismic data over the Perlas and Tyra Concession blocks. We are in default of several requirements of the minimum work programs under of the Nicaraguan Concession and may not be able to retain the Concessions unless we are successful in obtaining extensions, renewals or the renegotiation of the terms of the Concession Agreements for the Perlas and Tyra blocks. We are pursuing negotiations with Nicaraguan Government officials to attempt to address the pending defaults.

 

 10 

 

 

Proved Reserves Reporting

 

We had no proved reserves as of December 31, 2018 and 2017.

 

Production, Prices and Production Costs

 

We had no production during the years ended December 31, 2018 or 2017.

 

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:

 

   2018   2017 
Property acquisition costs:          
Proved  $—   $— 
Unproved        — 
Total property acquisition costs   —    — 
Development costs   —    — 
Exploration costs   155,584    170,274 
           
Total costs  $155,584   $170,274 

 

Exploration costs during the years ended December 31, 2018 and 2017 are primarily attributable to area fees and training costs required to be paid to the Nicaraguan government.

 

There were no development, exploration or acquisition costs incurred during 2018 and 2017 on our domestic properties.

 

Drilling Activity

 

We had no drilling activity during the years ended December 31, 2018 or 2017.

 

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, 2018.

 

   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 

 

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Item 3. Legal Proceedings.

 

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 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 December 31, 2018 and 2017, which management believes is sufficient to provide for the ultimate resolution of this dispute.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

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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” 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 April 10, 2019 was $0.10 per share. The quotations reflect interdealer bid prices without retail markup, markdown or commission and may not represent actual transactions.

 

Year Ended December 31, 2018   High     Low  
1st Quarter   $ 0.10     $ 0.06  
2nd Quarter   $ 0.08     $ 0.05  
3rd Quarter   $ 0.15     $ 0.05  
4th Quarter   $ 0.10     $ 0.04  

 

Year Ended December 31, 2017   High     Low  
1st Quarter   $ 0.10     $ 0.06  
2nd Quarter   $ 0.11     $ 0.05  
3rd Quarter   $ 0.10     $ 0.05  
4th Quarter   $ 0.09     $ 0.05  

 

Reverse Stock Split

 

In November 2015, the Company filed an amendment to its Certificate of Incorporation to effect a one-for-ten reverse stock split of its issued and outstanding shares of common stock. Its authorized shares and par value per share remain unchanged. All common stock share and per share information in this Annual Report, including the above table reflecting the range of closing prices for the Company’s common stock, have been adjusted to reflect retroactive application of the reverse split, unless otherwise indicated.

 

Holders of Common Stock

 

At December 31, 2018, there were approximately 144 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.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

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 are 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 2005 and 2006 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 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 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 Plan. No stock options or restricted stock has been issued under the 2015 Plan as of December 31, 2018.

 

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As of December 31, 2018, 500,000 shares were available for future grants under the 2015 Plan as all other Plans have now expired.

 

The following table sets forth certain information regarding our stock option plans as of December 31, 2018:

 

    Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights		     Weighted-average
exercise price of
outstanding options,
warrants and rights		     Number of
securities remaining
available for future
issuance under
equity
compensation plans
(excluding
securities reflected
in column (a))		  
Plan category   (a)     (b)     (c)  
Equity compensation plans approved by stockholders   6,200     $ 7.80     500,000  
Option grants not issued under a plan approved by stockholders   332,000       41.85     n/a  
Total   338,200     $ 41.24     500,000  

 

Recent Issuances of Unregistered Securities

 

During the year ended December 31, 2018, the Company conducted the following unregistered sales of securities:

 

  ●

On May 21, 2018, it borrowed $13,125 under an unsecured promissory note with a private third party lender, which note is convertible at a rate of $0.50 per share. The note is due on demand and bears interest at 8% per annum. The Company relied on the exemption from registration set forth in Section 4(a)(2) of the Securities Act for issuance of the credit facility. No compensation was paid in connection with the issuance of the note.

 

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.

 

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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) we have substantial obligations to a number of third parties, including but not limited to, our December 2013 promissory note in the original principal amount of $1,050,000 due in April 2016, which is in default, and the Replacement Note, which we are contesting, 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 meet our obligations under 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 that we may not be able to obtain; (vii) we do not have sufficient resources to conduct required seismic mapping and drilling on our Nicaraguan Concessions, are in default on various requirements of the Concessions and may forfeit our rights to the Concessions unless we can renegotiate their requirements and terms; (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 if we ultimately develop them; (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 a significant effect on us and the other stockholders, including Amegy Bank, NA; (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, including sales of shares of common stock that may be issued to the holder of the Replacement Note upon its conversion; (xxii) possible issuance of common stock subject to options and warrants may dilute the interest of stockholders; (xxiii) whether the Strategic Alternatives will result in an opportunity or transaction; (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 renegotiate or extend the terms of the Nicaraguan Concessions, and on terms favorable to us, or otherwise maintain our interest in the Concessions; and (xxx) whether we will obtain an industry or other financial partner to enable us to explore and develop our Nicaraguan Concessions if we do obtain extensions or renegotiation of the terms of the Concessions.

 

The following information should be read in conjunction with the Financial Statements and Notes presented elsewhere in this annual report on Form 10-K. See Note 1 – “Summary of Significant Accounting Policies,” to the Financial Statements for the Years Ended December 31, 2018 and 2017.

 

 15 

 

 

2018 Operational and Financial Objectives

 

Corporate Activities

 

The Nicaraguan Concessions represent our most substantial asset and are the focal point of our business plan. The Company is in default of various provisions of the 30-year Concession for both the Perlas and Tyra blocks as of December 31, 2018, as noted above.

 

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of December 31, 2018, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment of the 2016, 2017 and 2018 area fees required for both the Perlas and Tyra which total approximately $167,000; and (5) payment of the 2016, 2017 and 2018 training fees required for both the Perlas and Tyra totaling approximately $300,000. The Company is seeking to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. The Company has encountered challenges in this regard because of the political situation in Nicaragua. There can be no assurance whether it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to the Company. The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund the foregoing requirements plus normal day-to-day operations and corporate overhead and outstanding debt and other financial obligations as they become due, including the $1.0 million December 2013 Note, and the five notes payable totaling $338,125, which are either due on demand or currently in default and the Replacement Note, if issued. In light of the foregoing, the Company is considering Strategic Alternatives.

 

These are substantial operational and financial issues that must be successfully addressed during 2019 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

 

The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects.

 

The Company is seeking new outside sources of debt and equity capital to fund the substantial needs enumerated above, as well as satisfying its existing debt obligations. The Company is attempting to obtain extensions of the maturity date for its debt; however, there can be no assurance that it will be able to do so or what the final terms will be if the lenders agree to such extensions.

 

Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financials are issued. The 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.

 

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.

 

 16 

 

 

For the Years Ended December 31, 2018 and 2017

 

Results of Operations

 

Revenue

 

The Company had no revenues in either 2018 or 2017 because it focused on the pursuit of the exploration, development, financing and maintenance of the Nicaraguan Concessions.

 

Production and Other Operating Expenses (income)

 

The Company had no production related operating expenses in either 2018 or 2017. The Company sold its investment in Infinity-Texas in July 2012 and held no developed or undeveloped oil and gas properties in the United States in 2018 and 2017.

 

The Company has no current or planned domestic exploration and development activities. It is not actively working on any domestic property, focusing instead on the exploration, development and financing of the Nicaraguan Concessions.

 

General and Administrative Expenses

 

General and administrative expenses of $208,941 for the year ended December 31, 2018 decreased $260,290, or 55.5%, from $469,231 in the same period in 2017. The decrease in general and administrative expenses is primarily attributable to the Board of Directors discontinuing compensation for the Company’s officers and directors effective January 1, 2018.

 

Interest expense

 

Interest expense increased slightly from $115,782 for the year ended December 31, 2017 to $116,744 for the year ended December 31, 2018. The interest expense is related to various short-term notes outstanding in both periods. These short-term notes have matured and the Company was seeking extensions as of December 31, 2018.

 

The Company’s current financial condition has made traditional bank loans and customary financing terms unattainable; therefore, the Company will need to continue with these types of short-term borrowings with high effective interest rates.

 

Change in Derivative Fair Value

 

The conversion feature of the promissory notes and the common stock purchase warrants issued in connection with short-term notes and the Secured Convertible Note outstanding during 2018 and 2017 are treated as derivative instruments because the promissory notes and warrants contain ratchet and anti-dilution provisions. Accordingly, the Company adjusted the value of the outstanding derivative liabilities to their estimated fair value as of December 31, 2018 and 2017. The mark-to-market process resulted in a gain of $38,681 during the year ended December 31, 2018 and a gain of $79,247 during the year ended December 31, 2017. The decrease in the gain recognized is primarily the result of the relatively stable closing market price of the common stock between the December 31, 2017 ($0.06 per share) and December 31, 2018 ($0.04 per share) and the value of the derivatives tend to decline as the period of time until termination declines.

 

Change in Fair Value of Secured Convertible Note

 

We issued the Secured Convertible Note in the May 2015 Private Placement and elected to account for and record such Note on a fair value basis. On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The Company has recorded the fair value of the Convertible Notes assuming that the remaining par value is $2,197,231 as asserted by the Investor. The change in the estimated fair value of $150,794 during the year ended December 31, 2018 compared to a change of $1,905,109 for 2017. The increased fair value at December 31, 2018 reflects the accretion of value to the Note balance as it reached its maturity date in May 2018. The Company plans to continue to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.

 

 17 

 

 

Income Tax

 

The Company recorded an income tax benefit of $150,000 in the year ended December 31, 2018 compared to $-0- for the year ended December 31, 2017 primarily due to the Tax Cuts and Jobs Act (the “Act”) that became law on December 22, 2017. The Act significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018.

 

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000, which previously was reported as income taxes payable on the Company’s balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, because the Company considered it more likely than not that all the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all of the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the year ended December 31, 2018 as it reduced the corresponding income taxes payable to zero as of December 31, 2018.

 

For income tax purposes, the Company has net operating loss carry-forwards of approximately $66,845,000 as of December 31, 2018, which expire from 2025 through 2038. The Company has provided a 100% valuation allowance against the resulting deferred tax asset due to the uncertainty of realizing the tax benefits from its net operating loss carry-forwards.

 

Net loss

 

As a result of the above, we reported a net loss of $287,798 for the year ended December 31, 2018 compared to a net loss of $2,410,875 for the year ended December 31, 2017. This represents an improvement of $2,123,077.

 

Basic and Diluted Loss per Share

 

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss 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 loss per share was $0.04 for the year ended December 31, 2018, for the reasons previously noted. The basic and diluted loss per share was $0.31 for the year ended December 31, 2017. All outstanding stock options and warrants to purchase common stock were considered antidilutive and therefore excluded from the calculation of diluted loss per share for the year ended December 31, 2018 and 2017 because the exercise prices of the stock options and warrants were substantially higher than market price in 2018 and 2017 and the net loss reported for both years. Potential shares of common stock as of December 31, 2018 that have been excluded from the computation of diluted net loss per share amounted to 2,703,763 shares, which included 2,365,563 outstanding warrants and 338,200 outstanding stock options.

 

 18 

 

 

Liquidity and Capital Resources; Going Concern

 

We have had a history of losses and have generated little or no operating revenues for a number of years as we concentrated on development of our Nicaraguan Concessions, which is a long-term, high-risk/reward exploration project in an otherwise unproven part of the world. Historically, we financed our operations through the issuance of redeemable preferred stock and various short and long-term debt financing that contained some level of detachable warrants to provide the holders with a level of equity participation should we be successful exploring our Nicaraguan Concessions.

 

On December 27, 2013 the Company borrowed $1,050,000 under the December 2013 Note, which is an unsecured credit facility with a private, third-party lender. Effective April 7, 2015 the Company and the lender agreed to extend the maturity date of the December 2013 Note from April 7, 2015 to the earlier of (i) April 7, 2016 or (ii) the payment in full of the Investor Note issued in the May 2015 Private Placement in the principal amount of $9,550,000 (the “New Maturity Date”). All other terms of the Note remained the same and the remaining principal balance was reduced to $1,000,000 as of September 30, 2016 after the $50,000 principal repayment required by the extension agreement.

 

The December 2013 Note may be prepaid without penalty at any time. The December 2013 Note is subordinated to all existing and future senior indebtedness, as such terms are defined in the December 2013 Note. The December 2013 Note matured in April 2016 and is currently in default. The Company is seeking an extension of the maturity date; however, there can be no assurance that it will be able to obtain such extension or what the final terms will be if the lender agrees to such an extension.

 

On May 7, 2015, the Company completed the private placement (the “May 2015 Private Placement”) of a $12.0 million principal amount Secured Convertible Note (the “Note”) and a common stock purchase warrant to purchase 1,800,000 shares of the Company’s common stock (the “Warrant”) with an institutional investor (the “Investor”). At the closing, the Investor acquired the Note by paying $450,000 in cash and issuing a promissory note, secured by cash, with a principal amount of $9,550,000 (the “Investor Note”).

 

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The aggregate outstanding principal balance of $11,687,231 of the Convertible Note included an approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company has recorded the fair value of the Convertible Note assuming that the remaining par value is $2,197,231 as asserted by the Investor. The Company plans to continue to negotiate with the Investor regarding the current default status, the issuance of the Replacement Note under the terms of the financing and taking into consideration the Investor’s minimal funding in the entire transaction, but there can be no assurance that it will be successful in this regard.

 

In July 2015, the Company issued two promissory notes for total cash proceeds of $85,000. The maturity dates of the promissory notes have been extended several times, but they matured in October 2016 and are currently in default. In connection with the origination and extension of the notes, the Company issued warrants exercisable to purchase shares of common stock at an exercise price of $5.60 per share. The warrants are immediately exercisable and terminate five years from their dates of issuance. The Company is seeking an extension of the maturity date of these notes; however, there can be no assurance that it will be able to obtain such extensions or what the final terms will be if the lenders agree to such extensions.

 

In November 2016, the Company issued a $200,000 convertible promissory note which requires no principal or interest payments until its November 2017 maturity date and bears 8% interest. The proceeds of this note were used to retire the Company’s line-of-credit upon its maturity in November 2016 and for general working capital purposes. This note was not retired at its maturity and is now in default. The Company is negotiating with the Holder to resolve this default.

 

In April 2017, the Company borrowed $40,000 under an unsecured credit facility with a private, third-party lender which is convertible at a rate of $5.00 per share. The note required no principal or interest payments until its maturity date of April 19, 2018 and bears interest at 8% per annum. The note is in default and the Company is negotiating with the Holder to resolve this default.

 

 19 

 

 

On May 21, 2018, the Company borrowed $13,125 under an unsecured promissory note with a private third party lender, which is convertible at a rate of $0.50 per share. The note is due on demand and bears interest at 8% per annum.

 

In summary, as of December 31, 2018, the following debt was outstanding: (i) $40,000 on our convertible promissory note, which matured on April 19, 2018 and is in default; (ii) $200,000 on our convertible promissory note, which matured on November 7, 2017 and is currently in default; (iii) the two promissory notes in the total principal amount of $85,000, which matured in October 2016 and are in default; (iv) the Replacement Note with a fair value of $2,197,231 which matured in May 2018 and is currently in technical default; (v) the December 2013 Note in the principal amount of $1,000,000, which was due in April 2016 and is in default; and (vi) $13,125 on our convertible promissory note, which is due on demand.

 

The Company is in default of various provisions of the 30-year Concessions for both Perlas and Tyra blocks as of December 31, 2018, as noted earlier. The Company is pursuing negotiations with Nicaraguan Government officials to address the pending defaults.

 

The Company must raise substantial amounts of debt and equity capital from available sources in the immediate future in order to fund the requirements related to the Nicaraguan Concessions and fund (i) its normal day-to-day operations and corporate overhead, (ii) pay its outstanding debt and other financial obligations as they become due including the $1.0 million December 2013 Note, the $2,197,231 due in 2018 representing the May 2015 Private Placement and the various short-term notes payable totaling $338,125, which are either due on demand or are currently in default. These are substantial operational and financial issues that must be successfully addressed during 2019 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

 

The Company will need to obtain funding in 2018 to fund the substantial needs enumerated above; however, there can be no assurance that it will be able to obtain such capital or obtain it on favorable terms or within the timeframe necessary to cure the foregoing defaults. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan Concessions and meet its other financial requirements.

 

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.

 

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.

 

 20 

 

 

Infinity Energy Resources, Inc.

 

Financial Statements and Accompanying Notes

 

December 31, 2018 and 2017

 

Table of Contents

 

    Page
     
Report of Independent Registered Public Accounting Firm   F-1
     
Balance Sheets   F-2
     
Statements of Operations   F-3
     
Statements of Stockholders’ Deficit   F-4
     
Statements of Cash Flows   F-5
     
Notes to Financial Statements   F-6

 

 21 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors ad Stockholders of

Infinity Energy Resources, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Infinity Energy Resources, Inc. (the “Company”) as of December 31, 2018 and 2017, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Substantial doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the accompanying financial statements, the Company has suffered recurring losses, has no on-going operations, is in default of its obligations under the Nicaraguan oil and gas concessions and has a significant working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

We have served as the Company’s auditor since 2014.

 

New York, New York

April 15, 2019

 

 F-1 

 

 

INFINITY ENERGY RESOURCES, INC.

Balance Sheets

 

   December 31, 2018   December 31, 2017 
         
ASSETS          
Current assets:          
Cash and cash equivalents  $1,367   $6,255 
           
Total current assets   1,367    6,255 
           
Total assets  $1,367   $6,255 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $6,040,948   $6,005,405 
Accrued liabilities (including $788,520 due to related party at December 31, 2018 and 2017)   3,699,747    3,544,361 
Income tax liability   —    150,000 
Accrued interest   509,894    393,151 
Asset retirement obligations   1,716,003    1,716,003 
Secured convertible note payable-current   2,197,231    2,046,437 
           
Convertible notes payable-short term   1,338,125    1,325,000 
Total current liabilities   15,501,948    15,180,357 
           
Derivative liabilities   65,502    104,183 
Total liabilities   15,567,450    15,284,540 
Commitments and contingencies (Note 9)          
Stockholders’ deficit:          
Preferred stock; par value $.0001 per share, 10,000,000 shares authorized; no shares issued or outstanding as of December 31, 2018 and 2017   —    — 
Common stock, par value $.0001 per share, authorized 75,000,000 shares, issued and outstanding 7,712,569 shares at December 31, 2018 and 2017   771    771 
Additional paid-in capital   109,080,273    109,080,273 
Accumulated deficit   (124,647,127)   (124,359,329)
Total stockholders’ deficit   (15,566,083)   (15,278,285)
Total liabilities and stockholders’ deficit  $1,367   $6,255 

 

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

 

 F-2 

 

 

INFINITY ENERGY RESOURCES, INC.

Statements of Operations

 

  

For the Year Ended

December 31,

 
   2018   2017 
Operating expenses:          
General and administrative expenses  $208,941   $469,231 
Total operating expenses   208,941    469,231 
           
Operating loss   (208,941)   (469,231)
           
Other income (expense):          
Interest expense   (116,744)   (115,782)
Change in derivative fair value   38,681    79,247 
Change in fair value of senior convertible note payable   (150,794)   (1,905,109)
           
Total other income (expense)   (228,857)   (1,941,644)
           
Loss before income taxes   (437,798)   (2,410,875)
Income tax benefit (expense)   150,000    — 
           
Net loss  $(287,798)  $(2,410,875)
           
Net loss per share – basic and diluted  $(0.04)  $(0.31)
           
Weighted average shares outstanding – basic and diluted   7,712,569    7,712,569 

 

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

 

 F-3 

 

 

INFINITY ENERGY RESOURCES, INC.

Statements of Stockholders’ Deficit

Years ended December 31, 2018 and 2017

 

    Common Stock     Additional
Paid-in		     Accumulated     Stockholders’  
    Shares     Amount     Capital     Deficit     Deficit  
Balance, December 31, 2016     7,712,569     $  771      $ 109,080,273     $ (121,948,454 )   $  (12,867,410 )
                                         
Net loss     —       —       —       (2,410,875 )     (2,410,875 )
                                         
Balance, December 31, 2017     7,712,569       771       109,080,273       (124,359,329 )     (15,278,285 )
                                         
Net loss     —       —       —       (287,798 )     (287,798 )
                                         
Balance, December 31, 2018     7,712,569     $ 771     $ 109,080,273     $ (124,647,127 )   $ (15,566,083 )

 

See accompanying notes are an integral part of these financial statements.

 

 F-4 

 

 

INFINITY ENERGY RESOURCES, INC.

Statements of Cash Flows

 

  

For the Year Ended

December 31,

 
   2018   2017 
Cash flows from operating activities:          
Net loss  $(287,798)  $(2,410,875)
Adjustments to reconcile net loss to net cash used in operating activities:          
Change in fair value of derivative liability   (38,681)   (79,247)
Change in fair value of senior convertible note   150,794    1,905,109 
           
Change in operations assets and liabilities:          
Decrease in income taxes payable   (150,000)   — 
Increase in accounts payable   35,543    40,076 
Increase in accrued liabilities   155,386    383,071 
Increase in accrued interest   116,743    115,782 
Net cash used in operating activities   (18,013)   (46,084)
           
Cash flows from investing activities   —    — 
Net cash provided by (used in) investing activities   —    — 
           
Cash flows from financing activities:          
Proceeds from issuance of convertible note payable   13,125    40,000 
           
Net cash provided by financing activities   13,125    40,000 
           
Net decrease in cash and cash equivalents   (4,888)   (6,084)
           
Cash and cash equivalents:          
Beginning   6,255    12,339 
Ending  $1,367   $6,255 
Supplemental cash flow information:          
Cash paid for interest  $—   $— 
Cash paid for taxes  $—   $— 

 

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

 

 F-5 

 

 

INFINITY ENERGY RESOURCES, INC.

Notes to Financial Statements

December 31, 2018

 

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

 

Nature of Operations

 

The Company plans to pursue the exploration of potential oil and gas resources in the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain a total of approximately 1.4 million acres. The Company sold its wholly-owned subsidiary Infinity Oil and Gas of Texas, Inc. in 2012 and its wholly-owned subsidiary, Infinity Oil and Gas of Wyoming, Inc., was administratively dissolved in 2009.

 

The Nicaraguan Concessions represent its principal asset and only exploration and development project. On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan Concessions. Infinity conducted activities to develop geological information from the processing and evaluation of 2-D seismic data that was acquired for the Nicaraguan Concessions. The Company identified multiple sites for exploratory drilling and intends to plan the initial exploratory well on the Perlas Block in order to determine the existence of commercial hydrocarbon reserves, subject to receipt from the Nicaraguan government of authorizations for the drilling of up to five wells, financing and satisfaction of other conditions. In order to meet its obligations under the Perlas Block of the Nicaraguan Concession, the Company had to drill its initial exploratory well during 2016, which did not occur. As a result of this and other defaults, the Company is in default of the Perlas development plan and may lose its rights under the Nicaraguan Concessions. The work plan on the Tyra block requires the Company to shoot additional seismic prior to the commencement of exploratory drilling. The Company is seeking a waiver of the additional seismic mapping on the Tyra Block and extension of time to complete its initial well from the Nicaraguan government. It has not been able to pay the 2016, 2017 and 2018 area fees and training fees for both the Perlas and Tyra blocks as required under the Nicaraguan Concessions and is in default. The Company is seeking to negotiate extensions, waivers and/or new Perlas and Tyra Concession agreements with the Nicaraguan government to cure such defaults. It has encountered challenges in this regard because of the political situation in Nicaragua. There can be no assurance whether it will be able to obtain such extensions, waivers and/or new agreements that will cure its various defaults under the Nicaraguan Concessions. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. There can be no assurance whether the Company will be able to cure its various defaults under the Nicaraguan Concessions and obtain adequate financing to fund the exploration and development of its Nicaraguan Concessions.

 

The Company is assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of natural 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.

 

On May 7, 2015, the Company completed the private placement (the “May 2015 Private Placement”) of a $12.0 million principal amount Secured Convertible Note (the “Note”) and a common stock purchase warrant to purchase 1,800,000 shares of the Company’s common stock (the “Warrant”) with an institutional investor (the “Investor”). At the closing, the Investor acquired the Note by paying $450,000 in cash and issuing a promissory note, secured by cash, with a principal amount of $9,550,000 (the “Investor Note”).

 

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver a new convertible note (the “Replacement Note”) representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The Replacement Note provides for a one-year maturity from May 7, 2017, a conversion price of $0.50 per share and is currently in technical default. The Company is continuing to negotiate with the Investor a resolution of this matter regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.

 

 F-6 

 

 

The Note was to mature on the three-year anniversary of its issuance, bore interest at 8% per annum, and was convertible at any time at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). The Note is now in default and the Company has had discussions with the Holder regarding a resolution to the default, but there has been no progress at present. As a part of the May 2015 Private Placement, the Company issued a Warrant to the Investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance for a period of seven years from the date of issuance. The Note ranked senior to the Company’s existing and future indebtedness and is secured by all the assets of the Company, excluding the Concessions. The proposed Replacement Note would have the same security interest as the Convertible Note.

 

In addition, the Company continues to seek offers from industry operators and other third parties for interests in the acreage in the Nicaraguan Concessions in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement.

 

Going Concern

 

As reflected in the accompanying statements of operations, the Company has had a history of losses. The Company has a significant working capital deficit, has notes payable that are in default and is experiencing substantial liquidity issues. In addition, the Company’s most significant asset and its primary business plan is the exploration and development of the Nicaraguan Concessions which are now in default and in risk of being terminated.

 

The Company has relied on raising debt and equity capital to fund its ongoing maintenance/expenditure obligations under the Nicaraguan Concession, for its day-to-day operations and its corporate overhead because it has generated no operating revenues or cash flows in recent years. The $1.0 million December 2013 Note (See Note 3) matured in April 2016 and is currently in default and five other notes payable with principal balances of $338,125 as of December 31, 2018 are now either due on demand or currently in default. The Company is seeking resolutions to these defaults including extensions of the maturity date for these notes payable; however, there can be no assurance that it will be able to obtain such extensions or what the final terms will be if the lenders agree to such extensions.

 

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of December 31, 2018, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment of the 2016, 2017 and 2018 area fees required for both the Perlas and Tyra which total approximately $167,000; and (5) payment of the 2016, 2017 and 2018 training fees required for both the Perlas and Tyra totaling approximately $300,000. The Company is seeking to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. The Company has encountered challenges in this regard because of the political situation in Nicaragua. There can be no assurance whether it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to the Company. The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund the foregoing and (i) normal day-to-day operations and corporate overhead, (ii) outstanding debt and other financial obligations as they become due, including the $1.0 million December 2013 Note, and the five notes payable totaling $338,125, which are either due on demand or currently in default and the Replacement Note, if issued. These are substantial operational and financial issues that must be successfully addressed during 2019 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

 

The Company is seeking sources of debt and equity capital to fund the substantial needs enumerated above. The Company is also attempting to obtain extensions of the maturity date for its debt. There can be no assurance that it will be successful in these regards.

 

Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financials are issued. The 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.

 

 F-7 

 

 

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 with regard to the financial statements include the estimated carrying value of unproved properties, the estimated fair value of derivative liabilities, secured convertible note payable, stock-based awards and overriding royalty interests, and the realization of deferred tax assets.

 

Concentrations

 

The Company’s business plan consists of developing the Nicaraguan Concessions and it expects to be active in Nicaragua for the foreseeable future, given sufficient capital and curing the defaults under the Nicaraguan Concessions and it other financial obligations. The political climate in Nicaragua is unstable and is 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.

 

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

 

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, 2018 and 2017, 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.

 

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.

 

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 deducted from the costs to be amortized, and reported as a period expense when the impairment is recognized. All unproved property costs as of December 31, 2018 and 2017 relate to the Nicaraguan Concessions. In assessing the unproved property costs for impairment, the Company takes into consideration various information including: (i) the terms of the Concessions, (ii) the status of the Company’s compliance with the Nicaraguan Concessions’ requirements, (iii) the ongoing evaluation of the seismic data, (iv) the commodity prices for oil and gas products, (v) the overall environment related to oil and gas exploration and development projects for unproven targets in unproven regions of the world, (vi) the availability of financing for financial and strategic partners, and (vii) other factors that would impact the viability of a significant long-term oil and gas exploration and development project.

 

 F-8 

 

 

The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects. The Company has performed its impairment tests as of December 31, 2018 and 2017 and has concluded that a full impairment reserve should be provided on the costs capitalized for the Nicaraguan Concessions oil and gas properties. All costs related to the Nicaraguan Concessions from January 1, 2016 through December 31, 2018 have been charged to operating expenses as incurred.

 

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, 2018 and 2017, the Company did not have any proved oil and gas properties, and all unproved property costs relate to its 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.

 

Asset Retirement Obligations

 

The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to 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 had divested all of its domestic oil properties that contain operating and abandoned wells as of December 31, 2012, the Company may have obligations related to the divestiture of certain abandoned non-producing domestic leasehold properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management believes the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil and gas properties in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of $734,897 related to its former Texas oil and gas producing properties (included in asset retirement obligations) to recognize the potential personal liability of the Company and its officers for the Infinity-Texas oil and gas properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. In addition, management believes the Company has been relieved from asset retirement obligations related to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however, the Company has recognized since 2012 an additional liability of $981,106 related to its former Wyoming and Colorado oil and gas producing properties (included in asset retirement obligations) to recognize the potential liability of the Company and its officers should the new owner not perform its obligations to reclaim abandoned wells in a timely manner.

 

 F-9 

 

 

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, 2018 and 2017 and during the years 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 2, 3, 5 and 6), those warrants are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in operations.

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

  ● Level 1 — Quoted prices in active markets for identical assets and liabilities.
       
  ● Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).
       
  ● Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value.

 

The estimated fair value of the Company’s Note and various derivative liabilities, which are related to 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, interest rates, the probability of both of 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, 2018 and 2017 were classified under the fair value hierarchy as Level 3.

 

 F-10 

 

 

The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017:

 

December 31, 2018   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Senior convertible note payable   $ —     $ —     $ 2,197,231     $ 2,197,231  
Derivative liabilities     —       —       65,502       65,502  
    $ —     $ —     $ 2,262,733     $ 2,262,733  

 

December 31, 2017   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Senior convertible note payable   $ —     $ —     $ 2,046,437     $ 2,046,437  
Derivative liabilities     —       —       104,183       104,183  
    $ —     $ —     $ 2,150,620     $ 2,150,620  

 

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, 2018 and 2017.

 

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, 2018 and 2017.

 

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, 2017. During the year ended December 31, 2018 the Company determined that the payment of the certain liabilities related to the alternative minimum tax from prior years will be unnecessary, and therefore it reversed the liability and recognized an income tax benefit as described in the following section.

 

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”),which significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018.

 

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000 which previously was reported as income taxes payable on the Company’s balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, the Company considered it more likely than not that all of the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the year ended December 31, 2018 as it reduced the corresponding income taxes payable to zero as of December 31, 2018. The Company will receive no cash from the elimination of this AMT tax credit carryforward because the Company had not previously paid the AMT tax but rather it recorded the income tax liability on the accompanying balance sheet.

 

 F-11 

 

 

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) 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 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.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance on a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The effective date for this ASU, which was deferred by ASU 2015-14 issued in August 2015, is for fiscal years beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09 which revises the structure of the indicators to provide indicators of when the entity is the principal or agent in a revenue transaction, and eliminated two of the indicators (“the entity’s consideration is in the form of a commission” and “the entity is not exposed to credit risk”) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity’s promise to grant a license with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company adopted this ASU on January 1, 2018 using the modified retrospective transition method. Under the modified retrospective method, the Company would recognize the cumulative effect of initially applying the ASU as an adjustment to opening retained earnings at the date of initial application. The Company did not have any material adjustments at the date of adoption. The comparative periods have not been restated.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its financial statements.

 

 F-12 

 

 

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11 “Leases (Topic 842): Targeted Improvements” (ASU 2018-11). ASU 2018-10 clarifies certain areas within ASU 2016-02. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. An entity that elects to use the practical expedients will, in effect, continue to account for leases that commenced before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. ASU 2016-02, ASU 2018-10 and ASU 2018-11 will be effective for the Company’s fiscal year beginning January 1, 2019 and subsequent interim periods. The Company is currently evaluating the impact the adoption of these ASUs will have on the Company’s financial statements.

 

In January 2017, the FASB issued ASU 2017-01 (“ASU 2017-01”), Business Combinations, which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. The first part of the guidance provides a screen to determine when a set is not a business; the second part of the guidance provides a framework to evaluate whether both an input and a substantive process are present. The guidance will be effective after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted for transactions that have not been reported in issued financial statements. The Company does not believe that the adoption of this pronouncement will have an impact on the presentation of its financial statements.

 

In January 2017, FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, Step 2 of the goodwill impairment test, which requires determining the implied fair value of goodwill and comparing it with its carrying amount has been eliminated. Thus, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount (i.e., what was previously referred to as Step 1). In addition, ASU No. 2017-04 requires entities having one or more reporting units with zero or negative carrying amounts to disclose (1) the identity of such reporting units, (2) the amount of goodwill allocated to each, and (3) in which reportable segment the reporting unit is included. ASU No. 2017-04 is effective as follows: (1) for a public business entity that is an SEC filer for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of this standard on our financial statements.

 

In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update will be effective for all interim and annual reporting periods beginning after December 15, 2018. The Company does not believe that the adoption of these amendments have an impact on its financial statements.

 

In March 2018, the FASB issued Accounting Standards Update No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”). ASU 2018-05 adds various SEC paragraphs pursuant to the issuance of the December 2017 SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB No. 118”), which was effective immediately. SAB No.118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the Tax Cuts and Jobs Act. The adoption of ASU 2018-05 had no material impact on the Company’s financial statements as of and for the year ending December 31, 2018. See Note 8, Income Taxes, for disclosures related to this amended guidance.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share based compensation. The guidance is effective for the Company for the fiscal year beginning January 1, 2020. While the exact impact of this standard is not known, the guidance is not expected to have a material impact on the Company’s financial statements, as non-employee stock compensation is nominal relative to the Company’s total expenses as of December 31, 2018.

 

 F-13 

 

 

In October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018-17”). This ASU reduces the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). A VIE is an organization in which consolidation is not based on a majority of voting rights. The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently assessing the impact the adoption of ASU 2018- 17 will have on the Company’s financial statements.

 

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11 “Leases (Topic 842): Targeted Improvements” (ASU 2018-11). ASU 2018-10 clarifies certain areas within ASU 2016-02. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. An entity that elects to use the practical expedients will, in effect, continue to account for leases that commenced before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. ASU 2016-02, ASU 2018-10 and ASU 2018-11 will be effective for the Company’s fiscal year beginning January 1, 2019 and subsequent interim periods. The Company is currently evaluating the impact the adoption of these ASUs will have on the Company’s financial statements.

 

The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

 

Note 2 – Secured Convertible Note Payable

 

Secured Convertible Note (the “Note) payable consists of the following at December 31, 2018 and 2017:

 

   December 31, 2018   December 31, 2017 
Secured convertible note payable, at fair value  $2,197,231   $2,046,437 
Less: Current maturities   (2,197,231)   (2,046,437)
           
Secured convertible note payable, long-term  $—   $— 

 

Following is an analysis of the activity in the Note during the year ended December 31, 2018:

 

   Amount 
Balance at December 31, 2017  $2,046,437 
Funding under the Investor Note during the period   — 
Principal repaid during the period by issuance of common stock   — 
Change in fair value of secured convertible note during the period   150,794 
      
Balance at December 31, 2018  $2,197,231 

 

On May 7, 2015, the Company completed the May 2015 Private Placement of a $12.0 million principal amount secured convertible note (the “Note”) and Warrant to purchase 1,800,000 shares of the Company’s common stock, $0.0001 par value. The placement agent for the Company in the transaction will receive a fee of 6% of cash proceeds, or $600,000, if and when the Company receives the full cash proceeds. It received $27,000 of such amount at the closing. In addition, the placement agent was granted a warrant to purchase 240,000 shares of common stock at $5.00 per share, which warrant is immediately exercisable.

 

The Note and Warrant were issued pursuant to a Securities Purchase Agreement, dated May 7, 2015, by and between the Company and the Investor. The May 2015 Private Placement was made pursuant to an exemption from registration under such Act. At the closing, the Investor acquired the secured convertible note by paying $450,000 in cash and issuing a secured promissory note, secured by cash, with an aggregate initial principal amount of $9,550,000 (the “Investor Note”).

 

 F-14 

 

 

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver a new convertible note (the “Replacement Note”) with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The aggregate outstanding principal balance of $11,687,231 of the Convertible Note included an approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company has recorded the fair value of the Convertible Note assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $1,905,109 during the year ended December 31, 2017. The Replacement Note provides for a maturity date of May 7, 2018, a conversion price of $0.50 per share and is due in monthly installment payments through May 2018 either in cash or stock, among other terms. The Company did not repay the note at its maturity date and the note is now in technical default. It is to be secured to the same extent as the Convertible Note. The Company is continuing to negotiate a resolution of this matter with the Investor regarding the current default status, the issuance of the Replacement Note under the terms of the financing and taking into consideration the Investor’s minimal funding in the entire transaction, but there can be no assurance that it will be successful in this regard.

 

Description of the Secured Convertible Note

 

The Note is senior to the Company’s existing and future indebtedness and is secured by all the assets of the Company, excluding the Nicaraguan Concessions, and to the extent and as provided in the related security documents.

 

The Note was convertible at any time at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). The Note was to mature on the three-year anniversary of the issuance date thereof. If the Company issues or sells shares of its common stock, rights to purchase shares of its common stock, or securities convertible into shares of its common stock for a price per share that is less than the Conversion Price then in effect, the then current Conversion Price will be decreased to equal such lower price. The foregoing adjustments to the Conversion Price for future stock issues will not apply to certain exempt issuances, including issuances pursuant to certain employee benefit plans. In addition, the Conversion Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

 

On the first business day of each month beginning on the earlier of the (i) effectiveness of a registration statement the Company files to register the shares of common stock issuable upon conversion of the Note or exercise of the Warrant, as defined below, or (ii) sixth month following the date of the Note through and including the maturity date (the “Installment Dates”), the Company will pay to the Note holder an amount equal to (i) one-thirtieth (1/30th) of the original principal amount of the Note (or the principal outstanding on the Installment Date, if less) plus (ii) the accrued and unpaid interest with respect to such principal plus (iii) the accrued and unpaid late charges (if any) with respect to such principal and interest. The Investor has the ability to defer or accelerate such monthly payments in its sole discretion.

 

Prior to the maturity date, the Note bore interest at 8% per annum (or 18% per annum during an event of default) with interest payable in cash or in shares of Common Stock monthly in arrears on the first business day of each calendar month following the issuance date.

 

Each monthly payment may be made in cash, in shares of the Company’s common stock, or in a combination of cash and shares of its common stock. The Company’s ability to make such payments with shares of its common stock will be subject to various equity conditions, including the existence of an effective registration statement covering the resale of the shares issued in payment (or, in the alternative, the eligibility of the shares issuable pursuant to the Note and the Warrant, as defined below, for sale without restriction under Rule 144 and without the need for the Company to remain current with its public filing obligations) and certain minimum trading price and trading volume. Such shares will be valued, as of the date on which notice is given by the Company that payment will be made in shares, at the lower of (1) the then applicable Conversion Price and (2) a price that is 80.0% of the arithmetic average of the three lowest weighted average prices of the Company’s common stock during the twenty-trading day period ending two trading days before the applicable determination date (the “Measurement Period”). If the Company elects to pay such monthly payment in shares of the Company’s stock it is required to pre-deliver shares of the Company’s common stock and is required to deliver additional shares, if any, to true-up such number of shares to the number of shares required to be delivered on the applicable Installment Date pursuant to the calculation above.

 

 F-15 

 

 

At any time after the issuance date, the Company had the right to redeem all or any portion of the outstanding principal balance of the Note plus all accrued but unpaid interest and any other charges at a price equal to 125% of such amount provided that (i) the arithmetic average of the closing sale price of the common stock for any twenty (20) consecutive Trading Days equals or exceeds 200% of the Conversion Price and (ii) among other conditions, there is an effective registration statement covering the resale of the shares issued in payment or, in the alternative, the eligibility of the shares issuable pursuant to the Note and the Warrant for sale without restriction under Rule 144 and without the need for the Company to remain current with its public filing obligations. The Investor has the right to convert any or all of the amount to be redeemed into common stock prior to redemption.

 

Upon the occurrence of an event of default under the Note, the Investor may, so long as the event of default is continuing, require the Company to redeem all or a portion of its Note. Each portion of the Note subject to such redemption must be redeemed by the Company, in cash, at a price equal to the greater of (1) 125% of the amount being redeemed, including principal, accrued and unpaid interest, and accrued and unpaid late charges, and (2) the product of (I) the amount being redeemed and (II) the quotient determined by dividing (A) the greatest closing sale price of the shares of common stock during the period beginning on the date immediately preceding the event of default and ending on the date the holder delivers a redemption notice to the Company, by (B) the lowest Conversion Price in effect during such period.

 

Subject to certain conditions, the Investor may also require the Company to redeem all or a portion of its Note in connection with a transaction that results in a Change of Control, as defined in the Note. The Company must redeem each portion of the Note subject to such redemption in cash at a price equal to the greater of (1) 125% of the amount being redeemed (including principal, accrued and unpaid interest, and accrued and unpaid late charges), and (2) the product of (I) the amount being redeemed and (II) the quotient determined by dividing (A) the greatest closing sale price of the shares of common stock during the period beginning on the date immediately preceding the earlier to occur of (i) the consummation of the Change of Control and (ii) the public announcement of such Change of Control and ending on the date the holder delivers a redemption notice to the Company, by (B) the lowest Conversion Price in effect during such period.

 

Description of the Warrant.

 

As a part of the May 2015 Private Placement, the Company issued a Warrant to the Investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance and the exercise prices for the Warrant is subject to adjustment for certain events, such as stock splits and stock dividends. If the Company issues or sells shares of its common stock, rights to purchase shares of its common stock, or securities convertible into shares of its common stock for a price per share that is less than the exercise price then in effect, the exercise price of the Warrant will be decreased to equal such lesser price. Upon each such adjustment, the number of the shares of the Company’s common stock issuable upon exercise of the Warrant will increase proportionately. The foregoing adjustments to the exercise price for future stock issues will not apply to certain exempt issuances, including issuances pursuant to certain employee benefit plans. In addition, the Conversion Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes. The Warrant will expire on the seventh (7th) anniversary of the date of issuance.

 

9.99% Restriction on Conversion of Note and Exercise of Warrant

 

The Investor has no right to convert the Note or exercise the Warrant to the extent that such conversion or exercise would result in the Investor being the beneficial owner in excess of 9.99% of the Company’s common stock. The Company was required to hold a meeting of its shareholders to approve an increase to the number of its authorized shares to meet its obligations under the Purchase Agreement to have reserved 200% of the shares issuable upon conversion of the Note and exercise of the Warrant. The Company held its Annual Meeting of Shareholders on September 25, 2015 and the shareholders approved the reverse split of the Company’s common stock issued and outstanding shares, which satisfied this requirement.

 

 F-16 

 

 

Participation Rights

 

If, during the period beginning on the closing date and ending on the four (4) year anniversary of the closing date, the Company offers, sells, grants any option to purchase, or otherwise disposes of any of its or its subsidiaries’ equity or equity equivalent securities (a “Subsequent Placement”), the Investor will have the right to participate for 50% of any such future Subsequent Placement.

 

Description of the Financial Accounting and Reporting

 

The Company elected to account for the Note on its fair value basis, therefore, the fair value of the Note, including its embedded conversion feature, were estimated together utilizing the Black-Scholes model at December 31, 2018 and 2017.

 

The Company received $450,000 of proceeds at the date of issuance and after repayments and additional funding the net principal balance was $129,960 as of December 31, 2018 and 2017. The fair market value of the Note was estimated to be $682,400 as of the issuance date, $2,046,437 at December 31, 2017 and $2,197,231 as of December 31, 2018. The net change in fair market value of the Note of $150,794 is included in change in fair value of senior secured convertible note payable in the accompanying statement of operations for the year ended December 31, 2018.

 

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The aggregate outstanding principal balance of $11,687,231 of the Convertible Note included an approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company has recorded the fair value of the Convertible Note assuming that the remaining par value is $2,197,231 as asserted by the Investor. The Company is negotiating with the Investor regarding the current default status, the issuance of the Replacement Note under the terms of the financing and taking into consideration the Investor’s minimal funding in the entire transaction, but there can be no assurance that it will be successful in this regard.

 

The Warrant issued to purchase 1,800,000 common shares in connection with the Note was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions. The estimated fair value of the warrant derivative as of December 31, 2018 was $57,092, representing a change of $33,427 from December 31, 2017, which is included in changes in derivative fair value in the accompanying statement of operations for the year ended December 31, 2018. See Note 5.

 

The warrant to purchase 240,000 shares issued as part of the placement fee in connection with the Note was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions. Changes in the fair value of the warrant derivative liability totaled $2,096 (decrease in the derivative liability) through December 31, 2018, which is included in changes in derivative fair value in the accompanying statement of operations for the year ended December 31, 2018. The warrant derivative liability balance related to such warrants was $7,573 and $12,069 as of December 31, 2018 and 2017, respectively. See Note 5.

 

The Company is required to make monthly installment payments in the form of cash, common stock or a combination of both. The Holder suspended such installments during the third and fourth quarters of 2016 and the suspension continued through December 31, 2018.

 

 F-17 

 

 

Note 3 – Debt

 

Debt consists of the following at December 31, 2018 and 2017:

 

   December 31, 2018   December 31, 2017 
Convertible notes payable, short term:          
Note payable, (in default)  $1,000,000   $1,000,000 
Note payable (in default)   200,000    200,000 
Note payable (in default)   40,000    40,000 
Note payable, (in default)   50,000    50,000 
Note payable (in default)   35,000    35,000 
Note payable (due on demand)   13,125    — 
Total notes payable, short-term  $1,338,125   $1,325,000 

 

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 facility is represented by a promissory note (the “December 2013 Note”) with an original maturity date of March 12, 2014.

 

In connection with the December 2013 Note, the Company granted the lender a warrant (the “Warrant”) exercisable to purchase 100,000 shares of its common stock at an exercise price of $15.00 per share. In connection with an extension to April 2015, the parties amended the date for exercise of the Warrant to be a period commencing April 7, 2015 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 failed to pay the Note on or before its New Maturity Date, the number of shares issuable under the Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the Warrant remained the same. The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through the original maturity date and each of the extended maturity dates.

 

In connection with an extension of the December 2013 Note to April 7, 2016, 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 in the future. This percent increased to one percent (1%) when the Company did not pay the December 2013 Note in full by August 7, 2014. Therefore, the revenue sharing agreement is fixed at one percent (1%). The value of the one percent (1.0%) definitive revenue sharing agreement granted to the lender as consideration for the extension of the maturity date to December 7, 2014 was estimated to be $964,738. Such amount was recorded as a reduction of oil and gas properties and as a discount on the renewed note payable and amortized ratably over the extended term of the note.

 

In connection with the extension of the maturity date of the December 2013 Note to April 7, 2016, the Company also (i) issued the lender 20,000 shares of restricted common stock; (ii) decreased the exercise price of the warrant to $5.00 per share and extended the term of the warrant to a period commencing on the New Maturity Date and expiring on the third anniversary of such date; and (iii) paid $50,000 toward amounts due under the December 2013 Note. 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 failed to pay the December 2013 Note on or before its New Maturity Date, the number of shares issuable under the Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the warrant remain the same. The December 2013 Note may be prepaid without penalty at any time. The December 2013 Note is subordinated to all existing and future senior indebtedness, as such terms are defined in the Note. The December 2013 Note is in default and the Company is pursuing a resolution to this default including seeking an extension of the maturity date of this Note (See Note 11) from the holder; however, there can be no assurances such efforts will be successful.

 

 F-18 

 

 

The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The Warrant expired as of December 31, 2018 and can no longer be exercised. The discount has been amortized ratably through the original maturity date and each of the extended maturity dates. The Company recognized the value of the 20,000 shares of common stock issued ($104,000) and the increased value of the outstanding warrants due to the decrease in their exercise price ($68,716) as an additional discount on the note payable to be amortized ratably over the extended term of the underlying note.

 

The discount recorded as of the December 27, 2013 origination date of the Note and as a result of the amendments to the Note terms and extensions of the maturity date has been amortized ratably over the term and extended terms of the note and the remaining unamortized discount was $-0- as of December 31, 2018 and 2017. The related warrant derivative liability balance was $-0- and $31 as of December 31, 2018 and 2017, respectively. See Note 5. The Warrant term has expired as of December 31, 2018 and can no longer be exercised.

 

Other than the December 2013 Note described above, during the year ended December 31, 2018 the Company had short-term notes outstanding with entities or individuals as follows:

 

  ● On November 8, 2016 the Company borrowed a total of $200,000 from an individual under a convertible note payable with the conversion rate of $5.00 per share. The note requires no principal or interest payments until its maturity date of November 7, 2017 and bears interest at 8% per annum. The note was not paid on its original maturity date. The Company is pursuing a resolution of this default including an extension or other resolution with the Holder. There can be no assurance that the Company will be successful in this regard.
     
  ● On April 20, 2017, the Company borrowed $40,000 under an unsecured credit facility with a private, third-party lender which is convertible at a rate of $5.00 per share. The note required no principal or interest payments until its maturity date of April 19, 2018 and bears interest at 8% per annum. The note was not paid on its maturity date. The Company is pursuing a resolution of this default including an extension or other resolution with the Holder. There can be no assurance that the Company will be successful in this regard.
     
  ● 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 the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity 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 the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 10,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as derivative liability. The Company recorded the estimated fair value of the warrant totaling $22,314 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. On October 7, 2015, the note was extended for an additional 90 days or until January 7, 2016 and later to May 7, 2016 and ultimately to October 7, 2016. The Company and its lender are pursuing a resolution of this default. There can be no assurance that the Company will be successful in this regard. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase 5,000 shares of common stock on each extension date at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years. The value of the 5,000 newly issued warrants issued on January 7, 2016 totaled $379 and $131 on May 7, 2016 both of which were amortized over the extension period (through October 7, 2016). The related warrant derivative liability balance was $492 and $920 as of December 31, 2018 and 2017, respectively. See Note 5.

 

 F-19 

 

 

  ● 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 the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity 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 the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 7,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as a derivative liability. The Company recorded the estimated fair value of the warrant totaling $11,827 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. On October 15, 2015, the note was extended for an additional 90 days or until January 15, 2016 and later to October 15, 2016. The Company is currently pursuing a resolution of this default including an additional extension from the Holder. There can be no assurance that the Company will be successful in this regard. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase an aggregate of 3,500 shares of common stock on each extension date at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years. The value of the 3,500 newly issued warrants on January 15, 2016 totaled $267 and $74 on May 15, 2016, both of which were amortized over the extension period (through October 15, 2016). The related warrant derivative liability balance was $345 and $644 as of December 31, 2018 and 2017, respectively. See Note 5.
     
  ● On May 21, 2018, the Company borrowed $13,125 under an unsecured promissory note with a private third lender which is convertible at a rate of $0.50 per share. The note is due on demand and bears interest at 8% per annum.

 

Note 4 – Stock Options

 

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

 

In May 2006, the Company’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,000 shares of the Company’s common stock are 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 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.

 

The Annual Meeting of Stockholders was 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 Plan.

 

As of December 31, 2018, 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 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. The actual forfeiture rate could differ from these estimates. There were no stock options granted during the years ended December 31, 2018 and 2017.

 

 F-20 

 

 

The following table summarizes stock option activity for the year ended December 31, 2018:

 

   Number of Options   Weighted Average Exercise
Price Per
Share		   Weighted
Average
Remaining
Contractual
Term		  Aggregate
Intrinsic
Value		 
Outstanding at December 31, 2017   376,950   $37.82   3.5 years  $— 
Granted   —    —         
Exercised   —    —         
Forfeited   (38,750)   (7.97)        
Outstanding at December 31, 2018   338,200   $41.24   3.1 years  $— 
Outstanding and exercisable at December 31, 2018   338,200   $41.24   3.1 years  $— 

 

The Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $-0- and $-0- during the years ended December 31, 2018 and 2017, respectively.

 

The intrinsic value as of December 31, 2018 related to the vested and unvested stock options as of that date was $-0. The unrecognized compensation cost as of December 31, 2018 related to the unvested stock options as of that date was $-0-.

 

Note 5 – Derivative Instruments

 

Derivatives – Warrants Issued Relative to Notes Payable

 

The estimated fair value of the Company’s derivative liabilities, all of which are related to the detachable warrants issued in connection with various notes payable and the secured convertible note, 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 note payable and warrant agreement terms (Note 2 and 3) and non-performance risk factors, among other items (ASC 820, Fair Value Measurements (“ASC 820”) fair value hierarchy Level 3). The detachable warrants issued in connection with the secured convertible note (See Note 2), the December 2013 Note (See Note 3) and the two other short-term notes payable (See Note 3) contain ratchet and anti-dilution provisions that remain in effect during the term of the warrant while the ratchet and anti-dilution provisions of the other notes payable cease when the related note payable is extinguished. When the note payable containing such ratchet and anti-dilution provisions is extinguished, the derivative liability will be adjusted to fair value and the resulting derivative liability will be transitioned from a liability to equity as of such date. The derivative liability associated with the warrants issued in connection with the secured convertible note payable will remain in effect until such time as the underlying warrant is exercised or terminated and the resulting derivative liability will be transitioned from a liability to equity as of such date.

 

The Company has issued warrants to purchase an aggregate of 2,074,000 shares of common stock in connection with various outstanding debt instruments which require derivative accounting treatment as of December 31, 2018. A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of December 31, 2018 is as follows:

 

  

As of

December 31, 2018

 
     
Volatility – range   237.3% - 272.8%
Risk-free rate   2.51% - 2.59%
Contractual term   1.5 - 3.3 years 
Exercise price  $5.00 - $5.60 
Number of warrants in aggregate   2,074,000 

 

 F-21 

 

 

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, 2017  $104,183 
Warrants issued to originate or extend notes payable (recorded as discount on note payable) -Note 3   — 
Unrealized derivative gains included in other expense for the period   (38,681)
Transition of derivative liability to equity   — 
      
Balance at December 31, 2018  $65,502 

 

The warrant derivative liability consists of the following at December 31, 2018 and 2017:

 

   December 31, 2018   December 31, 2017 
Warrant issued to holder of Secured convertible note (Note 2)  $57,092   $90,519 
Warrant issued to placement agent (Note 2)   7,573    12,069 
Warrant issued to holder of December 2013 Note (Note 3)   —    31 
Warrants issued to holders of notes payable - short term (Note 3)   837    1,564 
Total warrant derivative liability  $65,502   $104,183 

 

Note 6 – Warrants

 

The following table summarizes warrant activity for the year ended December 31, 2018:

 

   Number of
Warrants		   Weighted
Average
Exercise Price
Per Share		 
Outstanding and exercisable at December 31, 2017   2,505,771   $5.25 
Issued for extension of notes payable (Note 3)   —    — 
Issued for extension of line-of-credit (Note 3)   —    — 
Exercised/forfeited   (140,208)   (5.74)
           
Outstanding and exercisable at December 31, 2018   2,365,563   $5.01 

 

The weighted average term of all outstanding common stock purchase warrants was 3.1 years as of December 31, 2018. 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, 2018.

 

Note 7 – Supplemental Oil and Gas Information

 

Estimated Proved Oil and Gas Reserves (Unaudited)

 

As of December 31, 2018 and 2017, 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.

 

 F-22 

 

 

Costs Incurred in Oil and Gas Activities

 

Costs incurred during the year ended December 31, 2018 in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.

 

  

Year ended

December 31, 2018

 
Property acquisition costs:     
Proved  $— 
Unproved     
Total property acquisition costs   — 
Development costs   — 
Exploration costs   155,584 
Total costs  $155,584 

 

Exploration costs during the year ended December 31, 2018 primarily related to area concession and training fees to be paid to the Nicaraguan Government for 2018. All costs related to the Nicaraguan Concessions have been expensed as incurred during the year ended December 31, 2018 as the Concessions are in default status and the Nicaraguan Concession assets are considered to be impaired and fully reserved as of December 31, 2018 and 2017.

 

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

 

   December 31, 
   2018   2017 
     
Proved oil and gas properties  $—   $— 
Unproved oil and gas properties   11,176,773    11,021,189 
Total   11,176,773    11,021,189 
Less amounts allocated to revenue sharing interest granted to Note holder for extension of maturity date (See Note 3)   (964,738)   (964,738)
Less accumulated impairment charge on oil and gas properties as of December 31, 2015   (9,720,666)   (9,720,666)
Less amounts charged directly to operations since January 1, 2016   (491,369)   (335,785)
Less accumulated depreciation, depletion and amortization   —    — 
           
Net capitalized costs  $—   $— 

 

Management has performed its impairment tests on its oil and gas properties as of December 31, 2018 and 2017, has concluded that a full impairment reserve should be provided on the costs capitalized for its unproved oil and gas properties consisting solely of the Nicaraguan Concessions. Therefore, an impairment charge of $9,720,666 was charged to operations during the year ended December 31, 2015 which reduced the carrying amount of oil and gas properties to zero. The Nicaraguan Concessions remained fully impaired as of December 31, 2018 and 2017. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. This may provide substantial impediments for the Company and its ability to obtain adequate financing to fund the exploration and development of its Nicaraguan projects and the overall economic viability of the Concessions should hydrocarbons be discovered in commercial quantities.

 

 F-23 

 

 

Costs Not Being Amortized

 

Oil and gas property costs not being amortized at December 31, 2018, (all accumulated costs have been reserved through an impairment charge as of December 31, 2015 and through direct expense for January 1, 2016 and after) costs by year that the costs were incurred, are as follows:

 

Year Ended December 31,    
2018 (expensed directly)  $155,584 
2017 (expensed directly)   170,274 
2016 (expensed directly)   165,511 
2015   92,568 
2014   115,622 
2013   6,051,411 
2012   581,723 
2011   731,347 
Prior   3,112,733 
Total costs not being amortized  $11,176,773 

 

The above unevaluated costs relate to the Company’s approximate 1,400,000 acre Nicaraguan Concessions.

 

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

 

Note 8 – Income Taxes

 

The provision for income taxes consists of the following:

 

   For the Year Ended 
   December 31, 
   2018   2017 
     
Current income tax expense (benefit)  $(150,000)  $— 
Deferred income tax benefit   —    — 
Total income tax expense (benefit)  $(150,000)  $— 

 

The effective income tax rate on continuing operations varies from the statutory federal income tax rate as follows:

 

   For the Years Ended 
   December 31, 
   2018   2017 
Federal income tax rate   (21.0)%   (34.0)%
State income tax rate   (4.4)   (4.4)
Revaluation of deferred tax assets based on changes in enacted tax laws   —    386.2 
Change in valuation allowance   26.4    (347.8)
AMT Credit carryforward   (34.3)   — 
Other, net   (1.0)   — 
           
Effective tax rate   (34.3)%   —%

 

 F-24 

 

 

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, 
   2018   2017 
   (in thousands) 
Deferred tax assets:          
Accruals and other  $940   $900 
Asset retirement obligations   435    435 
Note payable discounts and derivatives   (510)   (460)
Stock-based compensation   1,190    1,190 
Alternative minimum tax credit carry-forward   —    150 
Net operating loss carry-forward   16,930    16,885 
Gross deferred tax assets   18,985    19,100 
Less valuation allowance   (18,985)   (19,100)
Deferred tax asset  $—   $— 

 

The effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due to the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017. The Act significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018.

 

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000 which previously was reported as income taxes payable on the Company’s balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, the Company considered it more likely than not that all of the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all of the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the year ended December 31, 2018 as it reduced the corresponding income taxes payable to zero as of December 31, 2018. The Company will receive no cash from the elimination of this AMT tax credit carryforward as the Company had not previously paid the AMT tax rather it recorded the income tax liability on the accompanying balance sheet.

 

The Company has incurred operating losses in recent years and it continues to be in a three-year cumulative loss position at December 31, 2018. 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 $66,845,000, which expire from 2025 through 2038.

 

The Company has not completed the filing of tax returns for the tax years 2012 through 2017. 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 not completed its review of whether such ownership changes have occurred, and whether the Company currently is subject to an annual limitation or the possibility of the complete elimination of the net operating loss carry- forwards might have occurred. In addition, the Company may be further limited by additional ownership changes which may occur in the future.

 

 F-25 

 

 

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 financial statements.

 

Note 9 – Commitments and Contingencies

 

The Company has not maintained insurance coverage on its U.S domestic oil and gas properties for several years. 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 relative to its Texas oil and gas properties that were sold in 2012. The ultimate resolution of these compliance issues could have a material adverse impact on the Company’s financial statements.

 

Nicaraguan Concessions

 

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of December 31, 2018, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment of the 2016, 2017 and 2018 area fees required for both the Perlas and Tyra which total approximately $167,000; and (5) payment of the 2016, 2017 and 2018 training fees required for both the Perlas and Tyra totaling approximately $300,000. The Company is seeking a resolution of these defaults including the ability to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. There can be no assurance whether it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to the Company. It must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund these requirements. These are substantial operational and financial issues that must be successfully addressed during 2019 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

 

The Company is seeking debt and equity capital in order to fund the substantial needs enumerated above; however, there can be no assurance that it will be able to obtain such capital or obtain it on favorable terms or within the timeframe necessary to cure the defaults existing on the Nicaraguan Concessions or to meet its ongoing requirements relative to drilling the exploratory wells. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects.

 

The following charts set forth the minimum work programs required under for the Perlas and Tyra blocks comprising the Concessions in order for the Company to retain them unless it is successful in obtaining extensions, renewals or the renegotiation of the entire Concessions Agreements for the Perlas and Tyra blocks.

 

Minimum Work Program – Perlas

 

Block Perlas – Exploration Minimum Work Commitment and Relinquishments

Exploration
Period (6 Years)		  Duration (Years)   Work Commitment  Relinquishment  Irrevocable Guarantee 
Sub-Period1  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 

 

 F-26 

 

 

Minimum Work Program – Tyra

 

Block Tyra – Exploration Minimum Work Commitment and Relinquishments

Exploration
Period (6 Years)		  Duration (Years)   Work Commitment  Relinquishment  Irrevocable Guarantee 
Sub-Period1  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  Years 1-3  $0.05/hectare
   Years 4-7  $0.10/hectare
   Years 8 & forward  $0.15/hectare
Royalties  Recovery Factor 0 – 1.5   Percentage 5%
   1.5 – 3.0   10%
    >3.0   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     

 

Revenue Sharing Commitments

 

On March 23, 2009, the Company entered into a Securities Purchase Agreement, dated effective as of March 23, 2009, with Offshore Finance, LLC, an accredited investor, to issue a subordinated 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. Off-Shore funded a total of $1,275,000 and subsequently converted the subordinated promissory note to common stock.

 

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 will 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 will 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. In connection with its dissolution Off-Shore assigned its RSP to its individual members.

 

 F-27 

 

 

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 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 will 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 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 will 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.

 

In connection with the extension of the December 2013 Note with a $1,050,000 principal balance issued in December 2013, the Company entered into a Revenue Sharing Agreement in May 2014. Infinity assigned to the note holder a monthly payment 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 and any other oil and gas concessions that the Company and its affiliates may acquire in the future. The RSP will 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 Sharing Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions.

 

Lack of Compliance with Law Regarding Domestic Properties

 

Infinity has not been in compliance with existing federal, state and local laws, rules and regulations for its previously owned domestic oil and gas properties and this 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 well prior to December 31, 2018; 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 of $1,716,003 as of December 31, 2018 and 2017 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 Company has not maintained insurance on the domestic properties for a number of years nor has it owned/produced any oil & gas properties for a number of 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.

 

 F-28 

 

 

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 December 31, 2018 and 2017, which management believes is sufficient to provide for the ultimate resolution of this dispute.

 

Note 10 – Related Party Transactions

 

The Company does not have any employees other than the CEO and CFO. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the CFO’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 the CFO’s accounting for such support services and was not billed for any such services during the year ended December 31, 2018 and 2017. The amount due to the CFO’s firm for services previously provided was $762,407 at December 31, 2018 and 2017, and is included in accrued liabilities at both dates.

 

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 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 will 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.

 

 F-29 

 

 

In connection with its subordinated loan, Offshore Finance, LLC was granted a one percent (1%) revenue sharing interest in the Nicaraguan Concessions in connection with a subordinated loan provided previously which was subsequently converted to common stock. 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. In connection with its dissolution, Offshore assigned its RSP to its individual members, which includes the former managing partner of Offshore.

 

As of December 31, 2018 and 2017, the Company had accrued compensation to its officers and directors of $1,829,208 and $1,829,208, respectively. The Board of Directors has authorized the Company to cease compensation for its officers and directors effective January 1, 2018.

 

Note 11 – Subsequent Events

 

The Company has not resolved the various contingencies related to the default status of its Nicaraguan Concessions (See Note 9). The Company continues to attempt to negotiate extensions, waivers or a new Concession agreement with the Nicaraguan Government; however, there can be no assurance that the Company will be successful in that regard. The Company is pursuing meetings with Nicaraguan Government officials to address the pending defaults; however, the political situation in Nicaragua has complicated this task.

 

The Company has not resolved the contingencies regarding its various notes payable related to their default status as described in Notes 2 and 3. The Company continues to pursue resolutions of these defaults including to negotiate extensions, waivers or new note agreements; however, there can be no assurance that the Company will be successful in that regard.

 

**********************

 

 F-30 

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None

 

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, 2018, 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 not effective in assuring that financial statement presentation and disclosure are in conformity with those which are required to be included in our periodic SEC filings.

 

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, 2018. 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, 2018, our internal control over financial reporting was 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.

 

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, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

 22 

 

 

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   57   Chairman, President and Chief Executive Officer
Daniel F. Hutchins   63   Director, Chief Financial Officer, Secretary
Leroy C. Richie   77   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’s 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 18 years of teaching experience preparing CPA candidates for the CPA exam. He has over 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. Mr. Richie has been a director of Infinity since June 1, 1999. 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 its Nominating and Governance and Compensation Committees. Additionally, until 2017, Mr. Richie served as a member of the boards of directors of Columbia Mutual Funds, (or mutual fund companies acquired by or merged with Columbia Mutual Funds), a family of investment companies managed by Ameriprise Financial, Inc. From 2004 to 2015, he was of counsel to the Detroit law firm of Lewis & Munday, P.C. He holds no other public directorships and has not held any others during the previous five years, except for OGE Energy Corp. (2007-2014) and Kerr-McGee Corporation (1998-2005). Mr. Richie serves as Vice-Chairman of the Board of Trustees and Chairman of the Compensation Committee for the Henry Ford Health System, in Detroit. Mr. Richie was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs, where he directed all legal affairs for its 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.

 

 23 

 

 

Board of Directors and Committee Meetings

 

Our Board of Directors held two meetings during the fiscal year ended December 31, 2018. In addition, our Board of Directors acted by unanimous written consent two times during fiscal year ended December 31, 2018. Our directors attended all 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.

 

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.

 

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, 2018, 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 RBSM, LLP, our independent registered public accounting firm for fiscal year 2018 and 2017, the matters the Board, serving the equivalent functions of an audit committee, is required to discuss pursuant Specifically, the Board has discussed with the independent registered public accounting firm the matters required to be discussed by the Public Company Accounting Oversight Board’s Auditing AS 1301 (Communications With Audit Committees), as modified or supplemented. The discussions occurred with management and the independent public accountants about the quality (and not merely the acceptability) of the Company’s accounting principles, the reasonableness of significant estimates, judgments and the transparency of disclosures in the Company’s financial statements.

 

The Board of Directors has also received written disclosures in a letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s independence, and has discussed with the independent registered public accounting firm their independence from the Company and its management. This review also includes discussions of audit and non-audit fees as well as evaluation of the Company’s significant financial policies and accounting systems and controls.

 

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The Board of Directors has also reviewed the independence of the independent registered public accounting firm considering the compatibility of non-audit services with maintaining their independence from the Company. Based on the preceding review and discussions contained in this paragraph, the Board of Directors recommended that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, for filing with the Securities and Exchange Commission.

 

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, 2018 be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 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.

 

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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.

 

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Code of Ethics and Conduct

 

Our Board of Directors has adopted a Code of Ethics and Conduct that is applicable to all 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, 2018, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with during fiscal year 2018.

 

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:

 

2018 - Summary Compensation Table (1)

 

Name and
Principal
Position		  Year   Salary
($)		   Bonus
($)		   Stock
Awards
($)		   Option
Awards
($)		   Non-Equity
Incentive
Plan
Compensation		   Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)		   All Other
Compensation
($)		   Total
($)		 
Stanton Ross (1)   2018   $—   $—   $   —   $—   $           —   $           —   $         —   $— 
CEO   2017   $100,000   $—   $—   $—   $—   $—   $—   $100,000 
                                              
Daniel F Hutchins (2)   2018   $—   $—   $—   $—   $—   $—   $—   $— 
CFO   2017   $100,000   $—   $—   $—   $—   $—   $—   $100,000 

 

(1) The Company’s Board of Directors discontinued compensation for the Company’s officers and directors effective January 1, 2018. In addition, 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 $-0- and $8,000 of his salary in cash during the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, a total of $565,708 of his salary has been accrued but was unpaid.

 

(2) The Company’s Board of Directors discontinued compensation for the Company’s officers and directors effective January 1, 2018. 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 $900,000 of direct compensation was accrued but unpaid as of December 31, 2018. Previously, Mr. Hutchins received other indirect compensation consisting of services billed at the CFO firm’s normal standard billing rate plus out-of-pocket expenses for general corporate and bookkeeping purposes. For the years ended December 31, 2018 and 2017 the Company was billed $-0- for such services. Total amounts accrued for his indirect compensation was $762,407 as of December 31, 2018 and 2017.

 

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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 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. The Company’s Board of Directors discontinued compensation for the Company’s officers and directors effective January 1, 2018.

 

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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 2018 and 2017, the Committee determined that it was appropriate not to grant annual bonuses to the executive officers for 2018 and 2017.

 

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, 2018 and 2017. Information regarding all outstanding equity awards as of December 31, 2018 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

 

(As of December 31, 2018)

 

   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   20,000         —        —   $52.50   2/10/2021   —    —    —    — 
    20,000    —    —   $75.00   8/2/2021   —    —    —    — 
    50,000    —    —   $30.00   11/6/2021   —    —    —    — 
    60,000    —    —   $30.00   1/17/2024   —    —    —    — 
                                            
                                            
                                           
Hutchins   17,500    —    —   $52.50   2/10/2021   —    —    —    — 
    17,500    —    —   $75.00   8/2/2021   —    —    —    — 
    25,000    —    —   $30.00   11/6/2021   —    —    —    — 
    15,000    —    —   $30.00   1/17/2024   —    —    —    — 

 

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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, 2018 and 2017.

 

Name (2)  Year  Fees Earned or Paid in Cash ($)   Stock Awards ($)   Option Awards ($)   Non-Equity Incentive Plan Compensation ($)   Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)   All Other Compensation ($)   Total ($) 
Leroy C. Richie (1)    2018  $—   $—   $—   $           —   $         —   $          —   $— 
   2017  $36,000   $—   $—   $—   $—   $—   $36,000 

 

(1) The Company’s Board of Directors discontinued compensation for the Company’s officers and directors effective January 1, 2018. Mr. Richie received no cash compensation in 2018 and 2017 and has accrued an aggregate of $363,500 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 2018 and 2017. 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.

 

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth, as of March 15, 2019, 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)   559,125    6.41%
Hudson Bay Master Fund, Ltd. (2)   837,764    9.60%

 

(1) Based solely on an Amendment No. 2 to Schedule 13D filed by Amegy Bank NA on May 15, 2015.
   
(2) Based solely on a Schedule 13D filed by Hudson Bay Master Fund, Ltd on January 30, 2017. The Schedule 13D, as filed, reported a total 164,669 shares of Common Stock beneficially owned and 673,055 shares of Common Stock issuable upon conversion of convertible notes and/or upon exercise of warrants held. Hudson Bay Master Fund, Ltd. invested in the May 2015 Private Placement. We issued it a $12.0 million principal amount senior secured convertible note and a warrant exercisable to purchase 1,800,000 shares of our common stock. The convertible note is convertible into common stock at a price of $5.00 per share and the warrant is exercisable at the same price commencing six months after its date of issuance. The maximum number of shares issuable upon the conversion of the convertible note and exercise of the warrant is limited to 9.99% of beneficial ownership of our common stock. The table reflects the total shares that would be issuable under the conversion terms of the note and the exercise of the warrant subject to and limited by the 9.99% ownership blocker.

 

The following table sets forth, as of March 26, 2018, 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)   177,500    2.05%
Leroy C. Richie (3)   65,000    0.75%
Daniel F. Hutchins (4)   93,000    1.07%
           
All officers and directors as a group (3 individuals)   335,500    3.87%

 

(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 exercisable to purchase 150,000 shares of common stock. Mr. Ross has pledged 27,500 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 exercisable to purchase 65,000 shares of common stock.

 

(4) Mr. Hutchins’ total shares include vested options exercisable to purchase 75,000 shares of common stock.

 

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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.

 

The Company does not have any employees other than the CEO and CFO. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the CFO’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 the CFO’s accounting for such support services and was not billed for any such services during the year ended December 31, 2018 and 2017. The amount due to the CFO’s firm for services previously provided was $762,407 at December 31, 2018 and 2017, and is included in accrued liabilities at both dates.

 

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 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 will 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.

 

In connection with its subordinated loan, Offshore Finance, LLC was granted a one percent (1%) revenue sharing interest in the Nicaraguan Concessions in connection with a subordinated loan provided previously which was subsequently converted to common stock. 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. In connection with its dissolution, Offshore assigned its RSP to its individual members, which includes the former managing partner of Offshore.

 

As of December 31, 2018 and 2017, the Company had accrued compensation to its officers and directors of $1,829,208 and $1,829,208, respectively. The Board of Directors has authorized the Company to cease compensation for its officers and directors effective January 1, 2018.

 

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.

 

Item 14. Principal Accounting Fees and Services.

 

Audit and Related Fees

 

The Audit Committee of the Company has appointed RBSM, LLP as the Company’s independent registered public accounting firm for the year ended December 31, 2018 and 2017.

 

The following table is a summary of the fees rendered to us by RBSM, LLP for the years ended December 31, 2018 and 2017:

 

Fee Category:  2018   2017 
Audit Fees  $53,000   $48,500 
Audit-Related Fees   —    — 
Tax Fees   —    — 
All Other Fees   —    — 
Total Fees  $53,000   $48,500 

 

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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 2018 and 2017, 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 RBSM, LLP on the financial statements of the Company for the years ended December 31, 2018 and 2017 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 year ended December 31, 2018 and 2017 there were no disagreements with RBSM, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to RBSM, LLP’s satisfaction would have caused it to make reference to the subject matter of such disagreements in connection with its report on the financial statements for such period.

 

During our fiscal years ended December 31, 2018 and 2017, 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. 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 financial statements or notes in this annual report.

 

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  3. Exhibits:

 

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 Senior 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)
10.41   Third Amendment to Promissory Note, dated November 19, 2014 (10)
10.42   Third Amendment to Common Stock Purchase Warrant, dated November 19, 2014 (10)
10.43   First Amendment to Revenue Sharing Agreement, dated November 19, 2014 (10)
10.44   Revenue Sharing Agreement, dated May 17, 2014 (10)
10.45   Loan Extension Agreement, dated November 19, 2014 (10)
10.46   Securities Purchase Agreement (11)
10.47   Registration Rights Agreement (11)
10.48   Senior Secured Convertible Note (11)

 

 34 

 

 

10.49   Warrant (11)
10.50   Security and Pledge Agreement (11)
10.51   Investor Note (11)
10.52   Form of Guaranty Agreement (11)
10.53   Second Loan Extension Agreement Effective as of April 7, 2015 (12)
10.54   Fourth Amendment to Promissory Note, effective as of April 7, 2015 (12)
10.55   Fourth Amendment to Common Stock Purchase Warrant, effective as of April 7, 2015 (12)
10.56   8% Convertible Promissory Note and Common Stock Purchase Warrant dated December 31, 2014 (13)
10.57   8% Convertible Promissory Note and Common Stock Purchase Warrant dated November 19, 2014 (13)
10.58   8% Convertible Promissory Note and Common Stock Purchase Warrant dated January 7, 2014(13)
10.59   8% Convertible Promissory Note and Common Stock Purchase Warrant dated October 2, 2014(13)
10.60   8% Line-of-Credit Promissory Note and Common Stock Purchase Warrant dated October 23, 2014(13)
10.61   2015 Stock Option Plan (14)
10.62   8% Convertible Promissory Note and Common Stock Purchase Warrant dated November 8, 2016(15)
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)
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

(10) Filed as an Exhibit to Form 8-K by the Company on November 20, 2014

(11) Filed as an Exhibit to Form 8-K by the Company on May 8, 2015

(12) Filed as an Exhibit to Form 8-K by the Company on May 11, 2015

(13) Filed as an Exhibit to Form 8-K by the Company on August 12, 2015

(14) Filed as an Exhibit to Definitive Schedule 14A filed by the Company on August 12, 2015

(15) Filed as an Exhibit to Form 10-K by the Company on April 17, 2017

 

*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.

 

 35 

 

 

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: April 15, 2019

 

  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   April 15, 2019
Stanton E. Ross, Director and Chief Executive Officer    
     
/s/ Leroy C. Richie   April 15, 2019
Leroy C. Richie, Director and Audit Committee Chairman    
     
/s/ Daniel F. Hutchins   April 15, 2019
Daniel F. Hutchins, Director and Chief Financial Officer    

 

 36 

 

 

 EX-31.1 2 ex31-1.htm

 

EXHIBIT 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

 

I, Stanton E. Ross, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Infinity Energy Resources, Inc.;

 

2. Based on my knowledge, this annual 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 annual 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) 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 subsidiaries, is made known to us by others within those entities, particularly during the period(s) in which this annual 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 fiscal 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 and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

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

 

/s/ Stanton E. Ross  
Stanton E. Ross  
Chief Executive Officer  
April 15, 2019  

 

   
 

 

 EX-31.2 3 ex31-2.htm

 

EXHIBIT 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

 

I, Daniel F. Hutchins, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Infinity Energy Resources, Inc.;

 

2. Based on my knowledge, this annual 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 annual 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) 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 subsidiaries, is made known to us by others within those entities, particularly during the period(s) in which this annual 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 fiscal 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 and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

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

 

/s/ Daniel F. Hutchins  
Daniel F. Hutchins  
Chief Financial Officer  
April 15, 2019  

 

   
 

 

 EX-32 4 ex32.htm

 

EXHIBIT 32

 

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, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies to the best of his knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(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.

 

/s/ Stanton E. Ross  
Stanton E. Ross  
Chief Executive Officer  
April 15, 2019  
   
/s/ Daniel F. Hutchins  
Daniel F. Hutchins  
Chief Financial Officer  
April 15, 2019  

 

   
 

 

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Registration Rights Agreement [Member] Replacement Note [Member] Revenue Sharing Agreement [Member] Royalties Recovery Factor Maximum Royalties Recovery Factor Minimum Schedule of minimum exploration work commitment and relinquishments [Table Text Block] Schedule of oil and gas property costs not being amortized [Table Text Block] Schedule of senior secured convertible note payable [Table Text Block] Schedule of warrant derivative liability [Table Text Block] Secured Convertible Note [Member] Securities Purchase Agreement [Member] Senior Convertible Note Payable [Member] Senior Convertible Note Payable One [Member] Senior convertible note payable [Text Block] Senior Secured Convertible Note [Member] Share-based compensation arrangement by share-based payment award, options, outstanding, weighted average remaining contractual term one. 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Weighted average exercise price per warrants exercised. Weigted average of common stock purchase warrants term. 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Document and Entity Information - USD ($)
 12 Months Ended
Dec. 31, 2018
Apr. 10, 2019
Jun. 30, 2018
Document And Entity Information      
Entity Registrant Name INFINITY ENERGY RESOURCES, INC    
Entity Central Index Key 0000822746    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity a Well-known Seasoned Issuer No    
Entity a Voluntary Filer No    
Entity's Reporting Status Current Yes    
Entity Filer Category Non-accelerated Filer    
Entity Small Business Flag true    
Entity Emerging Growth Company false    
Entity Ex Transition Period false    
Entity Shell Company false    
Entity Public Float     $ 308,503
Entity Common Stock, Shares Outstanding   7,712,569  
Trading Symbol IFNY    
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2018    
XML 13 R2.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheets - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 1,367 $ 6,255
Total current assets 1,367 6,255
Total assets 1,367 6,255
Current liabilities:    
Accounts payable 6,040,948 6,005,405
Accrued liabilities (including $788,520 due to related party at December 31, 2018 and 2017) 3,699,747 3,544,361
Income tax liability 150,000
Accrued interest 509,894 393,151
Asset retirement obligations 1,716,003 1,716,003
Secured convertible note payable-current 2,197,231 2,046,437
Convertible notes payable-short term 1,338,125 1,325,000
Total current liabilities 15,501,948 15,180,357
Derivative liabilities 65,502 104,183
Total liabilities 15,567,450 15,284,540
Commitments and contingencies (Note 9)
Stockholders' deficit:    
Preferred stock; par value $.0001 per share, 10,000,000 shares authorized; no shares issued or outstanding as of December 31, 2018 and 2017
Common stock, par value $.0001 per share, authorized 75,000,000 shares, issued and outstanding 7,712,569 shares at December 31, 2018 and 2017 771 771
Additional paid-in capital 109,080,273 109,080,273
Accumulated deficit (124,647,127) (124,359,329)
Total stockholders' deficit (15,566,083) (15,278,285)
Total liabilities and stockholders' deficit $ 1,367 $ 6,255
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheets (Parenthetical) - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Due to related party $ 788,520 $ 788,520
Preferred stock, par value $ .0001 $ .0001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value $ .0001 $ .0001
Common stock, shares authorized 75,000,000 75,000,000
Common stock, shares issued 7,712,569 7,712,569
Common stock, shares outstanding 7,712,569 7,712,569
XML 15 R4.htm IDEA: XBRL DOCUMENT v3.19.1
Statements of Operations - USD ($)
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Operating expenses:    
General and administrative expenses $ 208,941 $ 469,231
Total operating expenses 208,941 469,231
Operating loss (208,941) (469,231)
Other income (expense):    
Interest expense (116,744) (115,782)
Change in derivative fair value 38,681 79,247
Change in fair value of senior convertible note payable (150,794) (1,905,109)
Total other income (expense) (228,857) (1,941,644)
Loss before income taxes (437,798) (2,410,875)
Income tax benefit (expense) 150,000
Net loss $ (287,798) $ (2,410,875)
Net loss per share - basic and diluted $ (0.04) $ (0.31)
Weighted average shares outstanding - basic and diluted 7,712,569 7,712,569
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.19.1
Statements of Stockholders' Deficit - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Total
Balance at Dec. 31, 2016 $ 771 $ 109,080,273 $ (121,948,454) $ (12,867,410)
Balance, shares at Dec. 31, 2016 7,712,569      
Net loss (2,410,875) (2,410,875)
Balance at Dec. 31, 2017 $ 771 109,080,273 (124,359,329) (15,278,285)
Balance, shares at Dec. 31, 2017 7,712,569      
Net loss (287,798) (287,798)
Balance at Dec. 31, 2018 $ 771 $ 109,080,273 $ (124,647,127) $ (15,566,083)
Balance, shares at Dec. 31, 2018 7,712,569      
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.19.1
Statements of Cash Flows - USD ($)
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:    
Net loss $ (287,798) $ (2,410,875)
Adjustments to reconcile net loss to net cash used in operating activities:    
Change in fair value of derivative liability (38,681) (79,247)
Change in fair value of senior convertible note 150,794 1,905,109
Change in operations assets and liabilities:    
Decrease in income taxes payable (150,000)
Increase in accounts payable 35,543 40,076
Increase in accrued liabilities 155,386 383,071
Increase in accrued interest 116,743 115,782
Net cash used in operating activities (18,013) (46,084)
Cash flows from investing activities    
Net cash provided by (used in) investing activities
Cash flows from financing activities:    
Proceeds from issuance of convertible note payable 13,125 40,000
Net cash provided by financing activities 13,125 40,000
Net decrease in cash and cash equivalents (4,888) (6,084)
Cash and cash equivalents:    
Beginning 6,255 12,339
Ending 1,367 6,255
Supplemental cash flow information:    
Cash paid for interest
Cash paid for taxes
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.19.1
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
 12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies

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

 

Nature of Operations

 

The Company plans to pursue the exploration of potential oil and gas resources in the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain a total of approximately 1.4 million acres. The Company sold its wholly-owned subsidiary Infinity Oil and Gas of Texas, Inc. in 2012 and its wholly-owned subsidiary, Infinity Oil and Gas of Wyoming, Inc., was administratively dissolved in 2009.

 

The Nicaraguan Concessions represent its principal asset and only exploration and development project. On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan Concessions. Infinity conducted activities to develop geological information from the processing and evaluation of 2-D seismic data that was acquired for the Nicaraguan Concessions. The Company identified multiple sites for exploratory drilling and intends to plan the initial exploratory well on the Perlas Block in order to determine the existence of commercial hydrocarbon reserves, subject to receipt from the Nicaraguan government of authorizations for the drilling of up to five wells, financing and satisfaction of other conditions. In order to meet its obligations under the Perlas Block of the Nicaraguan Concession, the Company had to drill its initial exploratory well during 2016, which did not occur. As a result of this and other defaults, the Company is in default of the Perlas development plan and may lose its rights under the Nicaraguan Concessions. The work plan on the Tyra block requires the Company to shoot additional seismic prior to the commencement of exploratory drilling. The Company is seeking a waiver of the additional seismic mapping on the Tyra Block and extension of time to complete its initial well from the Nicaraguan government. It has not been able to pay the 2016, 2017 and 2018 area fees and training fees for both the Perlas and Tyra blocks as required under the Nicaraguan Concessions and is in default. The Company is seeking to negotiate extensions, waivers and/or new Perlas and Tyra Concession agreements with the Nicaraguan government to cure such defaults. It has encountered challenges in this regard because of the political situation in Nicaragua. There can be no assurance whether it will be able to obtain such extensions, waivers and/or new agreements that will cure its various defaults under the Nicaraguan Concessions. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. There can be no assurance whether the Company will be able to cure its various defaults under the Nicaraguan Concessions and obtain adequate financing to fund the exploration and development of its Nicaraguan Concessions.

 

The Company is assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of natural 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.

 

On May 7, 2015, the Company completed the private placement (the “May 2015 Private Placement”) of a $12.0 million principal amount Secured Convertible Note (the “Note”) and a common stock purchase warrant to purchase 1,800,000 shares of the Company’s common stock (the “Warrant”) with an institutional investor (the “Investor”). At the closing, the Investor acquired the Note by paying $450,000 in cash and issuing a promissory note, secured by cash, with a principal amount of $9,550,000 (the “Investor Note”).

 

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver a new convertible note (the “Replacement Note”) representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The Replacement Note provides for a one-year maturity from May 7, 2017, a conversion price of $0.50 per share and is currently in technical default. The Company is continuing to negotiate with the Investor a resolution of this matter regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.

The Note was to mature on the three-year anniversary of its issuance, bore interest at 8% per annum, and was convertible at any time at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). The Note is now in default and the Company has had discussions with the Holder regarding a resolution to the default, but there has been no progress at present. As a part of the May 2015 Private Placement, the Company issued a Warrant to the Investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance for a period of seven years from the date of issuance. The Note ranked senior to the Company’s existing and future indebtedness and is secured by all the assets of the Company, excluding the Concessions. The proposed Replacement Note would have the same security interest as the Convertible Note.

 

In addition, the Company continues to seek offers from industry operators and other third parties for interests in the acreage in the Nicaraguan Concessions in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement.

 

Going Concern

 

As reflected in the accompanying statements of operations, the Company has had a history of losses. The Company has a significant working capital deficit, has notes payable that are in default and is experiencing substantial liquidity issues. In addition, the Company’s most significant asset and its primary business plan is the exploration and development of the Nicaraguan Concessions which are now in default and in risk of being terminated.

 

The Company has relied on raising debt and equity capital to fund its ongoing maintenance/expenditure obligations under the Nicaraguan Concession, for its day-to-day operations and its corporate overhead because it has generated no operating revenues or cash flows in recent years. The $1.0 million December 2013 Note (See Note 3) matured in April 2016 and is currently in default and five other notes payable with principal balances of $338,125 as of December 31, 2018 are now either due on demand or currently in default. The Company is seeking resolutions to these defaults including extensions of the maturity date for these notes payable; however, there can be no assurance that it will be able to obtain such extensions or what the final terms will be if the lenders agree to such extensions.

 

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of December 31, 2018, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment of the 2016, 2017 and 2018 area fees required for both the Perlas and Tyra which total approximately $167,000; and (5) payment of the 2016, 2017 and 2018 training fees required for both the Perlas and Tyra totaling approximately $300,000. The Company is seeking to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. The Company has encountered challenges in this regard because of the political situation in Nicaragua. There can be no assurance whether it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to the Company. The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund the foregoing and (i) normal day-to-day operations and corporate overhead, (ii) outstanding debt and other financial obligations as they become due, including the $1.0 million December 2013 Note, and the five notes payable totaling $338,125, which are either due on demand or currently in default and the Replacement Note, if issued. These are substantial operational and financial issues that must be successfully addressed during 2019 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

 

The Company is seeking sources of debt and equity capital to fund the substantial needs enumerated above. The Company is also attempting to obtain extensions of the maturity date for its debt. There can be no assurance that it will be successful in these regards.

 

Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financials are issued. The 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 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 with regard to the financial statements include the estimated carrying value of unproved properties, the estimated fair value of derivative liabilities, secured convertible note payable, stock-based awards and overriding royalty interests, and the realization of deferred tax assets.

 

Concentrations

 

The Company’s business plan consists of developing the Nicaraguan Concessions and it expects to be active in Nicaragua for the foreseeable future, given sufficient capital and curing the defaults under the Nicaraguan Concessions and it other financial obligations. The political climate in Nicaragua is unstable and is 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.

 

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

 

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, 2018 and 2017, 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.

 

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.

 

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 deducted from the costs to be amortized, and reported as a period expense when the impairment is recognized. All unproved property costs as of December 31, 2018 and 2017 relate to the Nicaraguan Concessions. In assessing the unproved property costs for impairment, the Company takes into consideration various information including: (i) the terms of the Concessions, (ii) the status of the Company’s compliance with the Nicaraguan Concessions’ requirements, (iii) the ongoing evaluation of the seismic data, (iv) the commodity prices for oil and gas products, (v) the overall environment related to oil and gas exploration and development projects for unproven targets in unproven regions of the world, (vi) the availability of financing for financial and strategic partners, and (vii) other factors that would impact the viability of a significant long-term oil and gas exploration and development project.

 

The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects. The Company has performed its impairment tests as of December 31, 2018 and 2017 and has concluded that a full impairment reserve should be provided on the costs capitalized for the Nicaraguan Concessions oil and gas properties. All costs related to the Nicaraguan Concessions from January 1, 2016 through December 31, 2018 have been charged to operating expenses as incurred.

 

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, 2018 and 2017, the Company did not have any proved oil and gas properties, and all unproved property costs relate to its 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.

 

Asset Retirement Obligations

 

The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to 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 had divested all of its domestic oil properties that contain operating and abandoned wells as of December 31, 2012, the Company may have obligations related to the divestiture of certain abandoned non-producing domestic leasehold properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management believes the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil and gas properties in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of $734,897 related to its former Texas oil and gas producing properties (included in asset retirement obligations) to recognize the potential personal liability of the Company and its officers for the Infinity-Texas oil and gas properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. In addition, management believes the Company has been relieved from asset retirement obligations related to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however, the Company has recognized since 2012 an additional liability of $981,106 related to its former Wyoming and Colorado oil and gas producing properties (included in asset retirement obligations) to recognize the potential liability of the Company and its officers should the new owner not perform its obligations to reclaim abandoned wells in a timely manner.

 

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, 2018 and 2017 and during the years 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 2, 3, 5 and 6), those warrants are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in operations.

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

  ● Level 1 — Quoted prices in active markets for identical assets and liabilities.
       
  ● Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).
       
  ● Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value.

 

The estimated fair value of the Company’s Note and various derivative liabilities, which are related to 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, interest rates, the probability of both of 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, 2018 and 2017 were classified under the fair value hierarchy as Level 3.

 

The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017:

 

December 31, 2018   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Senior convertible note payable   $ —     $ —     $ 2,197,231     $ 2,197,231  
Derivative liabilities     —       —       65,502       65,502  
    $ —     $ —     $ 2,262,733     $ 2,262,733  

 

December 31, 2017   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Senior convertible note payable   $ —     $ —     $ 2,046,437     $ 2,046,437  
Derivative liabilities     —       —       104,183       104,183  
    $ —     $ —     $ 2,150,620     $ 2,150,620  

 

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, 2018 and 2017.

 

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, 2018 and 2017.

 

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, 2017. During the year ended December 31, 2018 the Company determined that the payment of the certain liabilities related to the alternative minimum tax from prior years will be unnecessary, and therefore it reversed the liability and recognized an income tax benefit as described in the following section.

 

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”),which significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018.

 

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000 which previously was reported as income taxes payable on the Company’s balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, the Company considered it more likely than not that all of the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the year ended December 31, 2018 as it reduced the corresponding income taxes payable to zero as of December 31, 2018. The Company will receive no cash from the elimination of this AMT tax credit carryforward because the Company had not previously paid the AMT tax but rather it recorded the income tax liability on the accompanying balance sheet.

 

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) 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 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.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance on a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The effective date for this ASU, which was deferred by ASU 2015-14 issued in August 2015, is for fiscal years beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09 which revises the structure of the indicators to provide indicators of when the entity is the principal or agent in a revenue transaction, and eliminated two of the indicators (“the entity’s consideration is in the form of a commission” and “the entity is not exposed to credit risk”) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity’s promise to grant a license with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company adopted this ASU on January 1, 2018 using the modified retrospective transition method. Under the modified retrospective method, the Company would recognize the cumulative effect of initially applying the ASU as an adjustment to opening retained earnings at the date of initial application. The Company did not have any material adjustments at the date of adoption. The comparative periods have not been restated.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its financial statements.

 

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11 “Leases (Topic 842): Targeted Improvements” (ASU 2018-11). ASU 2018-10 clarifies certain areas within ASU 2016-02. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. An entity that elects to use the practical expedients will, in effect, continue to account for leases that commenced before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. ASU 2016-02, ASU 2018-10 and ASU 2018-11 will be effective for the Company’s fiscal year beginning January 1, 2019 and subsequent interim periods. The Company is currently evaluating the impact the adoption of these ASUs will have on the Company’s financial statements.

 

In January 2017, the FASB issued ASU 2017-01 (“ASU 2017-01”), Business Combinations, which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. The first part of the guidance provides a screen to determine when a set is not a business; the second part of the guidance provides a framework to evaluate whether both an input and a substantive process are present. The guidance will be effective after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted for transactions that have not been reported in issued financial statements. The Company does not believe that the adoption of this pronouncement will have an impact on the presentation of its financial statements.

 

In January 2017, FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, Step 2 of the goodwill impairment test, which requires determining the implied fair value of goodwill and comparing it with its carrying amount has been eliminated. Thus, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount (i.e., what was previously referred to as Step 1). In addition, ASU No. 2017-04 requires entities having one or more reporting units with zero or negative carrying amounts to disclose (1) the identity of such reporting units, (2) the amount of goodwill allocated to each, and (3) in which reportable segment the reporting unit is included. ASU No. 2017-04 is effective as follows: (1) for a public business entity that is an SEC filer for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of this standard on our financial statements.

 

In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update will be effective for all interim and annual reporting periods beginning after December 15, 2018. The Company does not believe that the adoption of these amendments have an impact on its financial statements.

 

In March 2018, the FASB issued Accounting Standards Update No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”). ASU 2018-05 adds various SEC paragraphs pursuant to the issuance of the December 2017 SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB No. 118”), which was effective immediately. SAB No.118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the Tax Cuts and Jobs Act. The adoption of ASU 2018-05 had no material impact on the Company’s financial statements as of and for the year ending December 31, 2018. See Note 8, Income Taxes, for disclosures related to this amended guidance.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share based compensation. The guidance is effective for the Company for the fiscal year beginning January 1, 2020. While the exact impact of this standard is not known, the guidance is not expected to have a material impact on the Company’s financial statements, as non-employee stock compensation is nominal relative to the Company’s total expenses as of December 31, 2018.

 

In October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018-17”). This ASU reduces the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). A VIE is an organization in which consolidation is not based on a majority of voting rights. The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently assessing the impact the adoption of ASU 2018- 17 will have on the Company’s financial statements.

 

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11 “Leases (Topic 842): Targeted Improvements” (ASU 2018-11). ASU 2018-10 clarifies certain areas within ASU 2016-02. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. An entity that elects to use the practical expedients will, in effect, continue to account for leases that commenced before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. ASU 2016-02, ASU 2018-10 and ASU 2018-11 will be effective for the Company’s fiscal year beginning January 1, 2019 and subsequent interim periods. The Company is currently evaluating the impact the adoption of these ASUs will have on the Company’s financial statements.

 

The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
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Secured Convertible Note Payable
 12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Secured Convertible Note Payable

Note 2 – Secured Convertible Note Payable

 

Secured Convertible Note (the “Note) payable consists of the following at December 31, 2018 and 2017:

 

    December 31, 2018     December 31, 2017  
Secured convertible note payable, at fair value   $ 2,197,231     $ 2,046,437  
Less: Current maturities     (2,197,231 )     (2,046,437 )
                 
Secured convertible note payable, long-term   $ —     $ —  

 

Following is an analysis of the activity in the Note during the year ended December 31, 2018:

 

    Amount  
Balance at December 31, 2017   $ 2,046,437  
Funding under the Investor Note during the period     —  
Principal repaid during the period by issuance of common stock     —  
Change in fair value of secured convertible note during the period     150,794  
         
Balance at December 31, 2018   $ 2,197,231  

 

On May 7, 2015, the Company completed the May 2015 Private Placement of a $12.0 million principal amount secured convertible note (the “Note”) and Warrant to purchase 1,800,000 shares of the Company’s common stock, $0.0001 par value. The placement agent for the Company in the transaction will receive a fee of 6% of cash proceeds, or $600,000, if and when the Company receives the full cash proceeds. It received $27,000 of such amount at the closing. In addition, the placement agent was granted a warrant to purchase 240,000 shares of common stock at $5.00 per share, which warrant is immediately exercisable.

 

The Note and Warrant were issued pursuant to a Securities Purchase Agreement, dated May 7, 2015, by and between the Company and the Investor. The May 2015 Private Placement was made pursuant to an exemption from registration under such Act. At the closing, the Investor acquired the secured convertible note by paying $450,000 in cash and issuing a secured promissory note, secured by cash, with an aggregate initial principal amount of $9,550,000 (the “Investor Note”).

 

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver a new convertible note (the “Replacement Note”) with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The aggregate outstanding principal balance of $11,687,231 of the Convertible Note included an approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company has recorded the fair value of the Convertible Note assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated fair value of $1,905,109 during the year ended December 31, 2017. The Replacement Note provides for a maturity date of May 7, 2018, a conversion price of $0.50 per share and is due in monthly installment payments through May 2018 either in cash or stock, among other terms. The Company did not repay the note at its maturity date and the note is now in technical default. It is to be secured to the same extent as the Convertible Note. The Company is continuing to negotiate a resolution of this matter with the Investor regarding the current default status, the issuance of the Replacement Note under the terms of the financing and taking into consideration the Investor’s minimal funding in the entire transaction, but there can be no assurance that it will be successful in this regard.

 

Description of the Secured Convertible Note

 

The Note is senior to the Company’s existing and future indebtedness and is secured by all the assets of the Company, excluding the Nicaraguan Concessions, and to the extent and as provided in the related security documents.

 

The Note was convertible at any time at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). The Note was to mature on the three-year anniversary of the issuance date thereof. If the Company issues or sells shares of its common stock, rights to purchase shares of its common stock, or securities convertible into shares of its common stock for a price per share that is less than the Conversion Price then in effect, the then current Conversion Price will be decreased to equal such lower price. The foregoing adjustments to the Conversion Price for future stock issues will not apply to certain exempt issuances, including issuances pursuant to certain employee benefit plans. In addition, the Conversion Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

 

On the first business day of each month beginning on the earlier of the (i) effectiveness of a registration statement the Company files to register the shares of common stock issuable upon conversion of the Note or exercise of the Warrant, as defined below, or (ii) sixth month following the date of the Note through and including the maturity date (the “Installment Dates”), the Company will pay to the Note holder an amount equal to (i) one-thirtieth (1/30th) of the original principal amount of the Note (or the principal outstanding on the Installment Date, if less) plus (ii) the accrued and unpaid interest with respect to such principal plus (iii) the accrued and unpaid late charges (if any) with respect to such principal and interest. The Investor has the ability to defer or accelerate such monthly payments in its sole discretion.

 

Prior to the maturity date, the Note bore interest at 8% per annum (or 18% per annum during an event of default) with interest payable in cash or in shares of Common Stock monthly in arrears on the first business day of each calendar month following the issuance date.

 

Each monthly payment may be made in cash, in shares of the Company’s common stock, or in a combination of cash and shares of its common stock. The Company’s ability to make such payments with shares of its common stock will be subject to various equity conditions, including the existence of an effective registration statement covering the resale of the shares issued in payment (or, in the alternative, the eligibility of the shares issuable pursuant to the Note and the Warrant, as defined below, for sale without restriction under Rule 144 and without the need for the Company to remain current with its public filing obligations) and certain minimum trading price and trading volume. Such shares will be valued, as of the date on which notice is given by the Company that payment will be made in shares, at the lower of (1) the then applicable Conversion Price and (2) a price that is 80.0% of the arithmetic average of the three lowest weighted average prices of the Company’s common stock during the twenty-trading day period ending two trading days before the applicable determination date (the “Measurement Period”). If the Company elects to pay such monthly payment in shares of the Company’s stock it is required to pre-deliver shares of the Company’s common stock and is required to deliver additional shares, if any, to true-up such number of shares to the number of shares required to be delivered on the applicable Installment Date pursuant to the calculation above.

 

At any time after the issuance date, the Company had the right to redeem all or any portion of the outstanding principal balance of the Note plus all accrued but unpaid interest and any other charges at a price equal to 125% of such amount provided that (i) the arithmetic average of the closing sale price of the common stock for any twenty (20) consecutive Trading Days equals or exceeds 200% of the Conversion Price and (ii) among other conditions, there is an effective registration statement covering the resale of the shares issued in payment or, in the alternative, the eligibility of the shares issuable pursuant to the Note and the Warrant for sale without restriction under Rule 144 and without the need for the Company to remain current with its public filing obligations. The Investor has the right to convert any or all of the amount to be redeemed into common stock prior to redemption.

 

Upon the occurrence of an event of default under the Note, the Investor may, so long as the event of default is continuing, require the Company to redeem all or a portion of its Note. Each portion of the Note subject to such redemption must be redeemed by the Company, in cash, at a price equal to the greater of (1) 125% of the amount being redeemed, including principal, accrued and unpaid interest, and accrued and unpaid late charges, and (2) the product of (I) the amount being redeemed and (II) the quotient determined by dividing (A) the greatest closing sale price of the shares of common stock during the period beginning on the date immediately preceding the event of default and ending on the date the holder delivers a redemption notice to the Company, by (B) the lowest Conversion Price in effect during such period.

 

Subject to certain conditions, the Investor may also require the Company to redeem all or a portion of its Note in connection with a transaction that results in a Change of Control, as defined in the Note. The Company must redeem each portion of the Note subject to such redemption in cash at a price equal to the greater of (1) 125% of the amount being redeemed (including principal, accrued and unpaid interest, and accrued and unpaid late charges), and (2) the product of (I) the amount being redeemed and (II) the quotient determined by dividing (A) the greatest closing sale price of the shares of common stock during the period beginning on the date immediately preceding the earlier to occur of (i) the consummation of the Change of Control and (ii) the public announcement of such Change of Control and ending on the date the holder delivers a redemption notice to the Company, by (B) the lowest Conversion Price in effect during such period.

 

Description of the Warrant.

 

As a part of the May 2015 Private Placement, the Company issued a Warrant to the Investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance and the exercise prices for the Warrant is subject to adjustment for certain events, such as stock splits and stock dividends. If the Company issues or sells shares of its common stock, rights to purchase shares of its common stock, or securities convertible into shares of its common stock for a price per share that is less than the exercise price then in effect, the exercise price of the Warrant will be decreased to equal such lesser price. Upon each such adjustment, the number of the shares of the Company’s common stock issuable upon exercise of the Warrant will increase proportionately. The foregoing adjustments to the exercise price for future stock issues will not apply to certain exempt issuances, including issuances pursuant to certain employee benefit plans. In addition, the Conversion Price is subject to adjustment upon stock splits, reverse stock splits, and similar capital changes. The Warrant will expire on the seventh (7th) anniversary of the date of issuance.

 

9.99% Restriction on Conversion of Note and Exercise of Warrant

 

The Investor has no right to convert the Note or exercise the Warrant to the extent that such conversion or exercise would result in the Investor being the beneficial owner in excess of 9.99% of the Company’s common stock. The Company was required to hold a meeting of its shareholders to approve an increase to the number of its authorized shares to meet its obligations under the Purchase Agreement to have reserved 200% of the shares issuable upon conversion of the Note and exercise of the Warrant. The Company held its Annual Meeting of Shareholders on September 25, 2015 and the shareholders approved the reverse split of the Company’s common stock issued and outstanding shares, which satisfied this requirement.

 

Participation Rights

 

If, during the period beginning on the closing date and ending on the four (4) year anniversary of the closing date, the Company offers, sells, grants any option to purchase, or otherwise disposes of any of its or its subsidiaries’ equity or equity equivalent securities (a “Subsequent Placement”), the Investor will have the right to participate for 50% of any such future Subsequent Placement.

 

Description of the Financial Accounting and Reporting

 

The Company elected to account for the Note on its fair value basis, therefore, the fair value of the Note, including its embedded conversion feature, were estimated together utilizing the Black-Scholes model at December 31, 2018 and 2017.

 

The Company received $450,000 of proceeds at the date of issuance and after repayments and additional funding the net principal balance was $129,960 as of December 31, 2018 and 2017. The fair market value of the Note was estimated to be $682,400 as of the issuance date, $2,046,437 at December 31, 2017 and $2,197,231 as of December 31, 2018. The net change in fair market value of the Note of $150,794 is included in change in fair value of senior secured convertible note payable in the accompanying statement of operations for the year ended December 31, 2018.

 

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver the Replacement Note with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The aggregate outstanding principal balance of $11,687,231 of the Convertible Note included an approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company has recorded the fair value of the Convertible Note assuming that the remaining par value is $2,197,231 as asserted by the Investor. The Company is negotiating with the Investor regarding the current default status, the issuance of the Replacement Note under the terms of the financing and taking into consideration the Investor’s minimal funding in the entire transaction, but there can be no assurance that it will be successful in this regard.

 

The Warrant issued to purchase 1,800,000 common shares in connection with the Note was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions. The estimated fair value of the warrant derivative as of December 31, 2018 was $57,092, representing a change of $33,427 from December 31, 2017, which is included in changes in derivative fair value in the accompanying statement of operations for the year ended December 31, 2018. See Note 5.

 

The warrant to purchase 240,000 shares issued as part of the placement fee in connection with the Note was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions. Changes in the fair value of the warrant derivative liability totaled $2,096 (decrease in the derivative liability) through December 31, 2018, which is included in changes in derivative fair value in the accompanying statement of operations for the year ended December 31, 2018. The warrant derivative liability balance related to such warrants was $7,573 and $12,069 as of December 31, 2018 and 2017, respectively. See Note 5.

 

The Company is required to make monthly installment payments in the form of cash, common stock or a combination of both. The Holder suspended such installments during the third and fourth quarters of 2016 and the suspension continued through December 31, 2018.
XML 20 R9.htm IDEA: XBRL DOCUMENT v3.19.1
Debt
 12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Debt

Note 3 – Debt

 

Debt consists of the following at December 31, 2018 and 2017:

 

    December 31, 2018     December 31, 2017  
Convertible notes payable, short term:                
Note payable, (in default)   $ 1,000,000     $ 1,000,000  
Note payable (in default)     200,000       200,000  
Note payable (in default)     40,000       40,000  
Note payable, (in default)     50,000       50,000  
Note payable (in default)     35,000       35,000  
Note payable (due on demand)     13,125       —  
Total notes payable, short-term   $ 1,338,125     $ 1,325,000  

 

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 facility is represented by a promissory note (the “December 2013 Note”) with an original maturity date of March 12, 2014.

 

In connection with the December 2013 Note, the Company granted the lender a warrant (the “Warrant”) exercisable to purchase 100,000 shares of its common stock at an exercise price of $15.00 per share. In connection with an extension to April 2015, the parties amended the date for exercise of the Warrant to be a period commencing April 7, 2015 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 failed to pay the Note on or before its New Maturity Date, the number of shares issuable under the Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the Warrant remained the same. The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through the original maturity date and each of the extended maturity dates.

 

In connection with an extension of the December 2013 Note to April 7, 2016, 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 in the future. This percent increased to one percent (1%) when the Company did not pay the December 2013 Note in full by August 7, 2014. Therefore, the revenue sharing agreement is fixed at one percent (1%). The value of the one percent (1.0%) definitive revenue sharing agreement granted to the lender as consideration for the extension of the maturity date to December 7, 2014 was estimated to be $964,738. Such amount was recorded as a reduction of oil and gas properties and as a discount on the renewed note payable and amortized ratably over the extended term of the note.

 

In connection with the extension of the maturity date of the December 2013 Note to April 7, 2016, the Company also (i) issued the lender 20,000 shares of restricted common stock; (ii) decreased the exercise price of the warrant to $5.00 per share and extended the term of the warrant to a period commencing on the New Maturity Date and expiring on the third anniversary of such date; and (iii) paid $50,000 toward amounts due under the December 2013 Note. 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 failed to pay the December 2013 Note on or before its New Maturity Date, the number of shares issuable under the Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the warrant remain the same. The December 2013 Note may be prepaid without penalty at any time. The December 2013 Note is subordinated to all existing and future senior indebtedness, as such terms are defined in the Note. The December 2013 Note is in default and the Company is pursuing a resolution to this default including seeking an extension of the maturity date of this Note (See Note 11) from the holder; however, there can be no assurances such efforts will be successful.

The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The Warrant expired as of December 31, 2018 and can no longer be exercised. The discount has been amortized ratably through the original maturity date and each of the extended maturity dates. The Company recognized the value of the 20,000 shares of common stock issued ($104,000) and the increased value of the outstanding warrants due to the decrease in their exercise price ($68,716) as an additional discount on the note payable to be amortized ratably over the extended term of the underlying note.

 

The discount recorded as of the December 27, 2013 origination date of the Note and as a result of the amendments to the Note terms and extensions of the maturity date has been amortized ratably over the term and extended terms of the note and the remaining unamortized discount was $-0- as of December 31, 2018 and 2017. The related warrant derivative liability balance was $-0- and $31 as of December 31, 2018 and 2017, respectively. See Note 5. The Warrant term has expired as of December 31, 2018 and can no longer be exercised.

 

Other than the December 2013 Note described above, during the year ended December 31, 2018 the Company had short-term notes outstanding with entities or individuals as follows:

 

  ● On November 8, 2016 the Company borrowed a total of $200,000 from an individual under a convertible note payable with the conversion rate of $5.00 per share. The note requires no principal or interest payments until its maturity date of November 7, 2017 and bears interest at 8% per annum. The note was not paid on its original maturity date. The Company is pursuing a resolution of this default including an extension or other resolution with the Holder. There can be no assurance that the Company will be successful in this regard.
     
  ● On April 20, 2017, the Company borrowed $40,000 under an unsecured credit facility with a private, third-party lender which is convertible at a rate of $5.00 per share. The note required no principal or interest payments until its maturity date of April 19, 2018 and bears interest at 8% per annum. The note was not paid on its maturity date. The Company is pursuing a resolution of this default including an extension or other resolution with the Holder. There can be no assurance that the Company will be successful in this regard.
     
  ● 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 the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity 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 the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 10,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as derivative liability. The Company recorded the estimated fair value of the warrant totaling $22,314 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. On October 7, 2015, the note was extended for an additional 90 days or until January 7, 2016 and later to May 7, 2016 and ultimately to October 7, 2016. The Company and its lender are pursuing a resolution of this default. There can be no assurance that the Company will be successful in this regard. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase 5,000 shares of common stock on each extension date at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years. The value of the 5,000 newly issued warrants issued on January 7, 2016 totaled $379 and $131 on May 7, 2016 both of which were amortized over the extension period (through October 7, 2016). The related warrant derivative liability balance was $492 and $920 as of December 31, 2018 and 2017, respectively. See Note 5.

 

 

  ● 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 the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity 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 the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 7,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as a derivative liability. The Company recorded the estimated fair value of the warrant totaling $11,827 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. On October 15, 2015, the note was extended for an additional 90 days or until January 15, 2016 and later to October 15, 2016. The Company is currently pursuing a resolution of this default including an additional extension from the Holder. There can be no assurance that the Company will be successful in this regard. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase an aggregate of 3,500 shares of common stock on each extension date at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years. The value of the 3,500 newly issued warrants on January 15, 2016 totaled $267 and $74 on May 15, 2016, both of which were amortized over the extension period (through October 15, 2016). The related warrant derivative liability balance was $345 and $644 as of December 31, 2018 and 2017, respectively. See Note 5.
     
  ● On May 21, 2018, the Company borrowed $13,125 under an unsecured promissory note with a private third lender which is convertible at a rate of $0.50 per share. The note is due on demand and bears interest at 8% per annum.
XML 21 R10.htm IDEA: XBRL DOCUMENT v3.19.1
Stock Options
 12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Options

Note 4 – Stock Options

 

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

 

In May 2006, the Company’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 47,000 shares of the Company’s common stock are 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 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.

 

The Annual Meeting of Stockholders was 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 Plan.

 

As of December 31, 2018, 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 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. The actual forfeiture rate could differ from these estimates. There were no stock options granted during the years ended December 31, 2018 and 2017.

 

The following table summarizes stock option activity for the year ended December 31, 2018:

 

    Number of Options     Weighted Average Exercise
Price Per
Share		     Weighted
Average
Remaining
Contractual
Term		   Aggregate
Intrinsic
Value		  
Outstanding at December 31, 2017     376,950     $ 37.82     3.5 years   $ —  
Granted     —       —              
Exercised     —       —              
Forfeited     (38,750 )     (7.97 )            
Outstanding at December 31, 2018     338,200     $ 41.24     3.1 years   $ —  
Outstanding and exercisable at December 31, 2018     338,200     $ 41.24     3.1 years   $ —  

 

The Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $-0- and $-0- during the years ended December 31, 2018 and 2017, respectively.

 

The intrinsic value as of December 31, 2018 related to the vested and unvested stock options as of that date was $-0. The unrecognized compensation cost as of December 31, 2018 related to the unvested stock options as of that date was $-0-.
XML 22 R11.htm IDEA: XBRL DOCUMENT v3.19.1
Derivative Instruments
 12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments

Note 5 – Derivative Instruments

 

Derivatives – Warrants Issued Relative to Notes Payable

 

The estimated fair value of the Company’s derivative liabilities, all of which are related to the detachable warrants issued in connection with various notes payable and the secured convertible note, 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 note payable and warrant agreement terms (Note 2 and 3) and non-performance risk factors, among other items (ASC 820, Fair Value Measurements (“ASC 820”) fair value hierarchy Level 3). The detachable warrants issued in connection with the secured convertible note (See Note 2), the December 2013 Note (See Note 3) and the two other short-term notes payable (See Note 3) contain ratchet and anti-dilution provisions that remain in effect during the term of the warrant while the ratchet and anti-dilution provisions of the other notes payable cease when the related note payable is extinguished. When the note payable containing such ratchet and anti-dilution provisions is extinguished, the derivative liability will be adjusted to fair value and the resulting derivative liability will be transitioned from a liability to equity as of such date. The derivative liability associated with the warrants issued in connection with the secured convertible note payable will remain in effect until such time as the underlying warrant is exercised or terminated and the resulting derivative liability will be transitioned from a liability to equity as of such date.

 

The Company has issued warrants to purchase an aggregate of 2,074,000 shares of common stock in connection with various outstanding debt instruments which require derivative accounting treatment as of December 31, 2018. A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of December 31, 2018 is as follows:

 

   

As of

December 31, 2018

  
       
Volatility – range     237.3% - 272.8 %
Risk-free rate     2.51% - 2.59 %
Contractual term     1.5 - 3.3 years  
Exercise price     $5.00 - $5.60  
Number of warrants in aggregate     2,074,000  

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, 2017   $ 104,183  
Warrants issued to originate or extend notes payable (recorded as discount on note payable) -Note 3     —  
Unrealized derivative gains included in other expense for the period     (38,681 )
Transition of derivative liability to equity     —  
         
Balance at December 31, 2018   $ 65,502  

 

The warrant derivative liability consists of the following at December 31, 2018 and 2017:

 

    December 31, 2018     December 31, 2017  
Warrant issued to holder of Secured convertible note (Note 2)   $ 57,092     $ 90,519  
Warrant issued to placement agent (Note 2)     7,573       12,069  
Warrant issued to holder of December 2013 Note (Note 3)     —       31  
Warrants issued to holders of notes payable - short term (Note 3)     837       1,564  
Total warrant derivative liability   $ 65,502     $ 104,183  
XML 23 R12.htm IDEA: XBRL DOCUMENT v3.19.1
Warrants
 12 Months Ended
Dec. 31, 2018
Warrants and Rights Note Disclosure [Abstract]  
Warrants

Note 6 – Warrants

 

The following table summarizes warrant activity for the year ended December 31, 2018:

 

    Number of
Warrants		     Weighted
Average
Exercise Price
Per Share		  
Outstanding and exercisable at December 31, 2017     2,505,771     $ 5.25  
Issued for extension of notes payable (Note 3)     —       —  
Issued for extension of line-of-credit (Note 3)     —       —  
Exercised/forfeited     (140,208 )     (5.74 )
                 
Outstanding and exercisable at December 31, 2018     2,365,563     $ 5.01  

 

The weighted average term of all outstanding common stock purchase warrants was 3.1 years as of December 31, 2018. 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, 2018.
XML 24 R13.htm IDEA: XBRL DOCUMENT v3.19.1
Supplemental Oil and Gas Information
 12 Months Ended
Dec. 31, 2018
Extractive Industries [Abstract]  
Supplemental Oil and Gas Information

Note 7 – Supplemental Oil and Gas Information

 

Estimated Proved Oil and Gas Reserves (Unaudited)

 

As of December 31, 2018 and 2017, 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 during the year ended December 31, 2018 in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.

 

   

Year ended

December 31, 2018

  
Property acquisition costs:        
Proved   $ —  
Unproved        
Total property acquisition costs     —  
Development costs     —  
Exploration costs     155,584  
Total costs   $ 155,584  

 

Exploration costs during the year ended December 31, 2018 primarily related to area concession and training fees to be paid to the Nicaraguan Government for 2018. All costs related to the Nicaraguan Concessions have been expensed as incurred during the year ended December 31, 2018 as the Concessions are in default status and the Nicaraguan Concession assets are considered to be impaired and fully reserved as of December 31, 2018 and 2017.

 

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

 

    December 31,  
    2018     2017  
       
Proved oil and gas properties   $ —     $ —  
Unproved oil and gas properties     11,176,773       11,021,189  
Total     11,176,773       11,021,189  
Less amounts allocated to revenue sharing interest granted to Note holder for extension of maturity date (See Note 3)     (964,738 )     (964,738 )
Less accumulated impairment charge on oil and gas properties as of December 31, 2015     (9,720,666 )     (9,720,666 )
Less amounts charged directly to operations since January 1, 2016     (491,369 )     (335,785 )
Less accumulated depreciation, depletion and amortization     —       —  
                 
Net capitalized costs   $ —     $ —  

 

Management has performed its impairment tests on its oil and gas properties as of December 31, 2018 and 2017, has concluded that a full impairment reserve should be provided on the costs capitalized for its unproved oil and gas properties consisting solely of the Nicaraguan Concessions. Therefore, an impairment charge of $9,720,666 was charged to operations during the year ended December 31, 2015 which reduced the carrying amount of oil and gas properties to zero. The Nicaraguan Concessions remained fully impaired as of December 31, 2018 and 2017. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. This may provide substantial impediments for the Company and its ability to obtain adequate financing to fund the exploration and development of its Nicaraguan projects and the overall economic viability of the Concessions should hydrocarbons be discovered in commercial quantities.

 

Costs Not Being Amortized

 

Oil and gas property costs not being amortized at December 31, 2018, (all accumulated costs have been reserved through an impairment charge as of December 31, 2015 and through direct expense for January 1, 2016 and after) costs by year that the costs were incurred, are as follows:

 

Year Ended December 31,      
2018 (expensed directly)   $ 155,584  
2017 (expensed directly)     170,274  
2016 (expensed directly)     165,511  
2015     92,568  
2014     115,622  
2013     6,051,411  
2012     581,723  
2011     731,347  
Prior     3,112,733  
Total costs not being amortized   $ 11,176,773  

 

The above unevaluated costs relate to the Company’s approximate 1,400,000 acre Nicaraguan Concessions.

 

The Company anticipates that these unproved costs in the table above will be reclassified to proved costs within the next five years.
XML 25 R14.htm IDEA: XBRL DOCUMENT v3.19.1
Income Taxes
 12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

Note 8 – Income Taxes

 

The provision for income taxes consists of the following:

 

    For the Year Ended  
    December 31,  
    2018     2017  
       
Current income tax expense (benefit)   $ (150,000 )   $ —  
Deferred income tax benefit     —       —  
Total income tax expense (benefit)   $ (150,000 )   $ —  

 

The effective income tax rate on continuing operations varies from the statutory federal income tax rate as follows:

 

    For the Years Ended  
    December 31,  
    2018     2017  
Federal income tax rate     (21.0 )%     (34.0 )%
State income tax rate     (4.4 )     (4.4 )
Revaluation of deferred tax assets based on changes in enacted tax laws     —       386.2  
Change in valuation allowance     26.4       (347.8 )
AMT Credit carryforward     (34.3 )     —  
Other, net     (1.0 )     —  
                 
Effective tax rate     (34.3 )%     — %

 

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,  
    2018     2017  
    (in thousands)  
Deferred tax assets:                
Accruals and other   $ 940     $ 900  
Asset retirement obligations     435       435  
Note payable discounts and derivatives     (510 )     (460 )
Stock-based compensation     1,190       1,190  
Alternative minimum tax credit carry-forward     —       150  
Net operating loss carry-forward     16,930       16,885  
Gross deferred tax assets     18,985       19,100  
Less valuation allowance     (18,985 )     (19,100 )
Deferred tax asset   $ —     $ —  

 

The effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due to the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017. The Act significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018.

 

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000 which previously was reported as income taxes payable on the Company’s balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, the Company considered it more likely than not that all of the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all of the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the year ended December 31, 2018 as it reduced the corresponding income taxes payable to zero as of December 31, 2018. The Company will receive no cash from the elimination of this AMT tax credit carryforward as the Company had not previously paid the AMT tax rather it recorded the income tax liability on the accompanying balance sheet.

 

The Company has incurred operating losses in recent years and it continues to be in a three-year cumulative loss position at December 31, 2018. 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 $66,845,000, which expire from 2025 through 2038.

 

The Company has not completed the filing of tax returns for the tax years 2012 through 2017. 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 not completed its review of whether such ownership changes have occurred, and whether the Company currently is subject to an annual limitation or the possibility of the complete elimination of the net operating loss carry- forwards might have occurred. In addition, the Company 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 financial statements.
XML 26 R15.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies
 12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 9 – Commitments and Contingencies

 

The Company has not maintained insurance coverage on its U.S domestic oil and gas properties for several years. 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 relative to its Texas oil and gas properties that were sold in 2012. The ultimate resolution of these compliance issues could have a material adverse impact on the Company’s financial statements.

 

Nicaraguan Concessions

 

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of December 31, 2018, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment of the 2016, 2017 and 2018 area fees required for both the Perlas and Tyra which total approximately $167,000; and (5) payment of the 2016, 2017 and 2018 training fees required for both the Perlas and Tyra totaling approximately $300,000. The Company is seeking a resolution of these defaults including the ability to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. There can be no assurance whether it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to the Company. It must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund these requirements. These are substantial operational and financial issues that must be successfully addressed during 2019 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

 

The Company is seeking debt and equity capital in order to fund the substantial needs enumerated above; however, there can be no assurance that it will be able to obtain such capital or obtain it on favorable terms or within the timeframe necessary to cure the defaults existing on the Nicaraguan Concessions or to meet its ongoing requirements relative to drilling the exploratory wells. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects.

 

The following charts set forth the minimum work programs required under for the Perlas and Tyra blocks comprising the Concessions in order for the Company to retain them unless it is successful in obtaining extensions, renewals or the renegotiation of the entire Concessions Agreements for the Perlas and Tyra blocks.

 

Minimum Work Program – Perlas

 

Block Perlas – Exploration Minimum Work Commitment and Relinquishments

Exploration
Period (6 Years)		   Duration (Years)     Work Commitment   Relinquishment   Irrevocable Guarantee  
Sub-Period1   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-Period1   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   Years 1-3   $ 0.05/hectare  
    Years 4-7   $ 0.10/hectare  
    Years 8 & forward   $ 0.15/hectare  
Royalties   Recovery Factor 0 – 1.5     Percentage 5 %
    1.5 – 3.0     10 %
     >3.0     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        

 

Revenue Sharing Commitments

 

On March 23, 2009, the Company entered into a Securities Purchase Agreement, dated effective as of March 23, 2009, with Offshore Finance, LLC, an accredited investor, to issue a subordinated 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. Off-Shore funded a total of $1,275,000 and subsequently converted the subordinated promissory note to common stock.

 

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 will 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 will 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. In connection with its dissolution Off-Shore assigned its RSP to its individual members.

 

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 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 will 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 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 will 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.

 

In connection with the extension of the December 2013 Note with a $1,050,000 principal balance issued in December 2013, the Company entered into a Revenue Sharing Agreement in May 2014. Infinity assigned to the note holder a monthly payment 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 and any other oil and gas concessions that the Company and its affiliates may acquire in the future. The RSP will 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 Sharing Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions.

 

Lack of Compliance with Law Regarding Domestic Properties

 

Infinity has not been in compliance with existing federal, state and local laws, rules and regulations for its previously owned domestic oil and gas properties and this 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 well prior to December 31, 2018; 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 of $1,716,003 as of December 31, 2018 and 2017 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 Company has not maintained insurance on the domestic properties for a number of years nor has it owned/produced any oil & gas properties for a number of 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:

 

● 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 December 31, 2018 and 2017, which management believes is sufficient to provide for the ultimate resolution of this dispute.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.19.1
Related Party Transactions
 12 Months Ended
Dec. 31, 2018
Related Party Transactions [Abstract]  
Related Party Transactions

Note 10 – Related Party Transactions

 

The Company does not have any employees other than the CEO and CFO. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the CFO’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 the CFO’s accounting for such support services and was not billed for any such services during the year ended December 31, 2018 and 2017. The amount due to the CFO’s firm for services previously provided was $762,407 at December 31, 2018 and 2017, and is included in accrued liabilities at both dates.

 

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 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 will 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.

 

In connection with its subordinated loan, Offshore Finance, LLC was granted a one percent (1%) revenue sharing interest in the Nicaraguan Concessions in connection with a subordinated loan provided previously which was subsequently converted to common stock. 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. In connection with its dissolution, Offshore assigned its RSP to its individual members, which includes the former managing partner of Offshore.

 

As of December 31, 2018 and 2017, the Company had accrued compensation to its officers and directors of $1,829,208 and $1,829,208, respectively. The Board of Directors has authorized the Company to cease compensation for its officers and directors effective January 1, 2018.
XML 28 R17.htm IDEA: XBRL DOCUMENT v3.19.1
Subsequent Events
 12 Months Ended
Dec. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events

Note 11 – Subsequent Events

 

The Company has not resolved the various contingencies related to the default status of its Nicaraguan Concessions (See Note 9). The Company continues to attempt to negotiate extensions, waivers or a new Concession agreement with the Nicaraguan Government; however, there can be no assurance that the Company will be successful in that regard. The Company is pursuing meetings with Nicaraguan Government officials to address the pending defaults; however, the political situation in Nicaragua has complicated this task.

 

The Company has not resolved the contingencies regarding its various notes payable related to their default status as described in Notes 2 and 3. The Company continues to pursue resolutions of these defaults including to negotiate extensions, waivers or new note agreements; however, there can be no assurance that the Company will be successful in that regard.
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.19.1
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies (Policies)
 12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations

Nature of Operations

 

The Company plans to pursue the exploration of potential oil and gas resources in the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain a total of approximately 1.4 million acres. The Company sold its wholly-owned subsidiary Infinity Oil and Gas of Texas, Inc. in 2012 and its wholly-owned subsidiary, Infinity Oil and Gas of Wyoming, Inc., was administratively dissolved in 2009.

 

The Nicaraguan Concessions represent its principal asset and only exploration and development project. On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan Concessions. Infinity conducted activities to develop geological information from the processing and evaluation of 2-D seismic data that was acquired for the Nicaraguan Concessions. The Company identified multiple sites for exploratory drilling and intends to plan the initial exploratory well on the Perlas Block in order to determine the existence of commercial hydrocarbon reserves, subject to receipt from the Nicaraguan government of authorizations for the drilling of up to five wells, financing and satisfaction of other conditions. In order to meet its obligations under the Perlas Block of the Nicaraguan Concession, the Company had to drill its initial exploratory well during 2016, which did not occur. As a result of this and other defaults, the Company is in default of the Perlas development plan and may lose its rights under the Nicaraguan Concessions. The work plan on the Tyra block requires the Company to shoot additional seismic prior to the commencement of exploratory drilling. The Company is seeking a waiver of the additional seismic mapping on the Tyra Block and extension of time to complete its initial well from the Nicaraguan government. It has not been able to pay the 2016, 2017 and 2018 area fees and training fees for both the Perlas and Tyra blocks as required under the Nicaraguan Concessions and is in default. The Company is seeking to negotiate extensions, waivers and/or new Perlas and Tyra Concession agreements with the Nicaraguan government to cure such defaults. It has encountered challenges in this regard because of the political situation in Nicaragua. There can be no assurance whether it will be able to obtain such extensions, waivers and/or new agreements that will cure its various defaults under the Nicaraguan Concessions. The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. There can be no assurance whether the Company will be able to cure its various defaults under the Nicaraguan Concessions and obtain adequate financing to fund the exploration and development of its Nicaraguan Concessions.

 

The Company is assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of natural 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.

 

On May 7, 2015, the Company completed the private placement (the “May 2015 Private Placement”) of a $12.0 million principal amount Secured Convertible Note (the “Note”) and a common stock purchase warrant to purchase 1,800,000 shares of the Company’s common stock (the “Warrant”) with an institutional investor (the “Investor”). At the closing, the Investor acquired the Note by paying $450,000 in cash and issuing a promissory note, secured by cash, with a principal amount of $9,550,000 (the “Investor Note”).

 

On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to deliver a new convertible note (the “Replacement Note”) representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The Replacement Note provides for a one-year maturity from May 7, 2017, a conversion price of $0.50 per share and is currently in technical default. The Company is continuing to negotiate with the Investor a resolution of this matter regarding the issuance of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.

The Note was to mature on the three-year anniversary of its issuance, bore interest at 8% per annum, and was convertible at any time at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). The Note is now in default and the Company has had discussions with the Holder regarding a resolution to the default, but there has been no progress at present. As a part of the May 2015 Private Placement, the Company issued a Warrant to the Investor giving it the right to purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable commencing nine months from the date of issuance for a period of seven years from the date of issuance. The Note ranked senior to the Company’s existing and future indebtedness and is secured by all the assets of the Company, excluding the Concessions. The proposed Replacement Note would have the same security interest as the Convertible Note.

 

In addition, the Company continues to seek offers from industry operators and other third parties for interests in the acreage in the Nicaraguan Concessions in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement.
Going Concern

Going Concern

 

As reflected in the accompanying statements of operations, the Company has had a history of losses. The Company has a significant working capital deficit, has notes payable that are in default and is experiencing substantial liquidity issues. In addition, the Company’s most significant asset and its primary business plan is the exploration and development of the Nicaraguan Concessions which are now in default and in risk of being terminated.

 

The Company has relied on raising debt and equity capital to fund its ongoing maintenance/expenditure obligations under the Nicaraguan Concession, for its day-to-day operations and its corporate overhead because it has generated no operating revenues or cash flows in recent years. The $1.0 million December 2013 Note (See Note 3) matured in April 2016 and is currently in default and five other notes payable with principal balances of $338,125 as of December 31, 2018 are now either due on demand or currently in default. The Company is seeking resolutions to these defaults including extensions of the maturity date for these notes payable; however, there can be no assurance that it will be able to obtain such extensions or what the final terms will be if the lenders agree to such extensions.

 

The Company was in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of December 31, 2018, including (1) the drilling of at least one exploratory well on the Perlas Block; (2) the shooting of additional seismic on the Tyra Block; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment of the 2016, 2017 and 2018 area fees required for both the Perlas and Tyra which total approximately $167,000; and (5) payment of the 2016, 2017 and 2018 training fees required for both the Perlas and Tyra totaling approximately $300,000. The Company is seeking to extend, renew and/or renegotiate the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. The Company has encountered challenges in this regard because of the political situation in Nicaragua. There can be no assurance whether it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to the Company. The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund the foregoing and (i) normal day-to-day operations and corporate overhead, (ii) outstanding debt and other financial obligations as they become due, including the $1.0 million December 2013 Note, and the five notes payable totaling $338,125, which are either due on demand or currently in default and the Replacement Note, if issued. These are substantial operational and financial issues that must be successfully addressed during 2019 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate its Nicaragua Concessions will be in significant doubt.

 

The Company is seeking sources of debt and equity capital to fund the substantial needs enumerated above. The Company is also attempting to obtain extensions of the maturity date for its debt. There can be no assurance that it will be successful in these regards.

 

Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financials are issued. The 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

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 with regard to the financial statements include the estimated carrying value of unproved properties, the estimated fair value of derivative liabilities, secured convertible note payable, stock-based awards and overriding royalty interests, and the realization of deferred tax assets.
Concentrations

Concentrations

 

The Company’s business plan consists of developing the Nicaraguan Concessions and it expects to be active in Nicaragua for the foreseeable future, given sufficient capital and curing the defaults under the Nicaraguan Concessions and it other financial obligations. The political climate in Nicaragua is unstable and is 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.
Foreign Currency

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

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, 2018 and 2017, 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.
Oil and Gas Properties

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.

 

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 deducted from the costs to be amortized, and reported as a period expense when the impairment is recognized. All unproved property costs as of December 31, 2018 and 2017 relate to the Nicaraguan Concessions. In assessing the unproved property costs for impairment, the Company takes into consideration various information including: (i) the terms of the Concessions, (ii) the status of the Company’s compliance with the Nicaraguan Concessions’ requirements, (iii) the ongoing evaluation of the seismic data, (iv) the commodity prices for oil and gas products, (v) the overall environment related to oil and gas exploration and development projects for unproven targets in unproven regions of the world, (vi) the availability of financing for financial and strategic partners, and (vii) other factors that would impact the viability of a significant long-term oil and gas exploration and development project.

 

The current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund the exploration and development of its Nicaraguan projects. The Company has performed its impairment tests as of December 31, 2018 and 2017 and has concluded that a full impairment reserve should be provided on the costs capitalized for the Nicaraguan Concessions oil and gas properties. All costs related to the Nicaraguan Concessions from January 1, 2016 through December 31, 2018 have been charged to operating expenses as incurred.

 

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, 2018 and 2017, the Company did not have any proved oil and gas properties, and all unproved property costs relate to its 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.
Asset Retirement Obligations

Asset Retirement Obligations

 

The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to 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 had divested all of its domestic oil properties that contain operating and abandoned wells as of December 31, 2012, the Company may have obligations related to the divestiture of certain abandoned non-producing domestic leasehold properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management believes the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil and gas properties in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of $734,897 related to its former Texas oil and gas producing properties (included in asset retirement obligations) to recognize the potential personal liability of the Company and its officers for the Infinity-Texas oil and gas properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. In addition, management believes the Company has been relieved from asset retirement obligations related to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however, the Company has recognized since 2012 an additional liability of $981,106 related to its former Wyoming and Colorado oil and gas producing properties (included in asset retirement obligations) to recognize the potential liability of the Company and its officers should the new owner not perform its obligations to reclaim abandoned wells in a timely manner.
Derivative Instruments

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, 2018 and 2017 and during the years 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 2, 3, 5 and 6), those warrants are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in operations.
Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

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

 

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

 

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

 

  ● Level 1 — Quoted prices in active markets for identical assets and liabilities.
       
  ● Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).
       
  ● Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value.

 

The estimated fair value of the Company’s Note and various derivative liabilities, which are related to 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, interest rates, the probability of both of 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, 2018 and 2017 were classified under the fair value hierarchy as Level 3.

 

The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017:

 

December 31, 2018   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Senior convertible note payable   $ —     $ —     $ 2,197,231     $ 2,197,231  
Derivative liabilities     —       —       65,502       65,502  
    $ —     $ —     $ 2,262,733     $ 2,262,733  

 

December 31, 2017   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Senior convertible note payable   $ —     $ —     $ 2,046,437     $ 2,046,437  
Derivative liabilities     —       —       104,183       104,183  
    $ —     $ —     $ 2,150,620     $ 2,150,620  

 

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, 2018 and 2017.
Income Taxes

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, 2018 and 2017.

 

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, 2017. During the year ended December 31, 2018 the Company determined that the payment of the certain liabilities related to the alternative minimum tax from prior years will be unnecessary, and therefore it reversed the liability and recognized an income tax benefit as described in the following section.

 

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”),which significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018.

 

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000 which previously was reported as income taxes payable on the Company’s balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, the Company considered it more likely than not that all of the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the year ended December 31, 2018 as it reduced the corresponding income taxes payable to zero as of December 31, 2018. The Company will receive no cash from the elimination of this AMT tax credit carryforward because the Company had not previously paid the AMT tax but rather it recorded the income tax liability on the accompanying balance sheet.
Net Income (Loss) Per Share

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) 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 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.
Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance on a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The effective date for this ASU, which was deferred by ASU 2015-14 issued in August 2015, is for fiscal years beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09 which revises the structure of the indicators to provide indicators of when the entity is the principal or agent in a revenue transaction, and eliminated two of the indicators (“the entity’s consideration is in the form of a commission” and “the entity is not exposed to credit risk”) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity’s promise to grant a license with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company adopted this ASU on January 1, 2018 using the modified retrospective transition method. Under the modified retrospective method, the Company would recognize the cumulative effect of initially applying the ASU as an adjustment to opening retained earnings at the date of initial application. The Company did not have any material adjustments at the date of adoption. The comparative periods have not been restated.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its financial statements.

 

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11 “Leases (Topic 842): Targeted Improvements” (ASU 2018-11). ASU 2018-10 clarifies certain areas within ASU 2016-02. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. An entity that elects to use the practical expedients will, in effect, continue to account for leases that commenced before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. ASU 2016-02, ASU 2018-10 and ASU 2018-11 will be effective for the Company’s fiscal year beginning January 1, 2019 and subsequent interim periods. The Company is currently evaluating the impact the adoption of these ASUs will have on the Company’s financial statements.

 

In January 2017, the FASB issued ASU 2017-01 (“ASU 2017-01”), Business Combinations, which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. The first part of the guidance provides a screen to determine when a set is not a business; the second part of the guidance provides a framework to evaluate whether both an input and a substantive process are present. The guidance will be effective after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted for transactions that have not been reported in issued financial statements. The Company does not believe that the adoption of this pronouncement will have an impact on the presentation of its financial statements.

 

In January 2017, FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, Step 2 of the goodwill impairment test, which requires determining the implied fair value of goodwill and comparing it with its carrying amount has been eliminated. Thus, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount (i.e., what was previously referred to as Step 1). In addition, ASU No. 2017-04 requires entities having one or more reporting units with zero or negative carrying amounts to disclose (1) the identity of such reporting units, (2) the amount of goodwill allocated to each, and (3) in which reportable segment the reporting unit is included. ASU No. 2017-04 is effective as follows: (1) for a public business entity that is an SEC filer for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of this standard on our financial statements.

 

In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update will be effective for all interim and annual reporting periods beginning after December 15, 2018. The Company does not believe that the adoption of these amendments have an impact on its financial statements.

 

In March 2018, the FASB issued Accounting Standards Update No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”). ASU 2018-05 adds various SEC paragraphs pursuant to the issuance of the December 2017 SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB No. 118”), which was effective immediately. SAB No.118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the Tax Cuts and Jobs Act. The adoption of ASU 2018-05 had no material impact on the Company’s financial statements as of and for the year ending December 31, 2018. See Note 8, Income Taxes, for disclosures related to this amended guidance.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share based compensation. The guidance is effective for the Company for the fiscal year beginning January 1, 2020. While the exact impact of this standard is not known, the guidance is not expected to have a material impact on the Company’s financial statements, as non-employee stock compensation is nominal relative to the Company’s total expenses as of December 31, 2018.

 

In October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018-17”). This ASU reduces the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). A VIE is an organization in which consolidation is not based on a majority of voting rights. The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently assessing the impact the adoption of ASU 2018- 17 will have on the Company’s financial statements.

 

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11 “Leases (Topic 842): Targeted Improvements” (ASU 2018-11). ASU 2018-10 clarifies certain areas within ASU 2016-02. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. An entity that elects to use the practical expedients will, in effect, continue to account for leases that commenced before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. ASU 2016-02, ASU 2018-10 and ASU 2018-11 will be effective for the Company’s fiscal year beginning January 1, 2019 and subsequent interim periods. The Company is currently evaluating the impact the adoption of these ASUs will have on the Company’s financial statements.

 

The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
XML 30 R19.htm IDEA: XBRL DOCUMENT v3.19.1
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies (Tables)
 12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017:

 

December 31, 2018   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Senior convertible note payable   $ —     $ —     $ 2,197,231     $ 2,197,231  
Derivative liabilities     —       —       65,502       65,502  
    $ —     $ —     $ 2,262,733     $ 2,262,733  

 

December 31, 2017   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Senior convertible note payable   $ —     $ —     $ 2,046,437     $ 2,046,437  
Derivative liabilities     —       —       104,183       104,183  
    $ —     $ —     $ 2,150,620     $ 2,150,620  
XML 31 R20.htm IDEA: XBRL DOCUMENT v3.19.1
Secured Convertible Note Payable (Tables)
 12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Schedule of Secured Convertible Note Payable

Secured Convertible Note (the “Note) payable consists of the following at December 31, 2018 and 2017:

 

    December 31, 2018     December 31, 2017  
Secured convertible note payable, at fair value   $ 2,197,231     $ 2,046,437  
Less: Current maturities     (2,197,231 )     (2,046,437 )
                 
Secured convertible note payable, long-term   $ —     $ —  
Schedule of Activity in Secured Convertible Note

Following is an analysis of the activity in the Note during the year ended December 31, 2018:

 

    Amount  
Balance at December 31, 2017   $ 2,046,437  
Funding under the Investor Note during the period     —  
Principal repaid during the period by issuance of common stock     —  
Change in fair value of secured convertible note during the period     150,794  
         
Balance at December 31, 2018   $ 2,197,231  
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.19.1
Debt (Tables)
 12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Schedule of Debt Outstanding

Debt consists of the following at December 31, 2018 and 2017:

 

    December 31, 2018     December 31, 2017  
Convertible notes payable, short term:                
Note payable, (in default)   $ 1,000,000     $ 1,000,000  
Note payable (in default)     200,000       200,000  
Note payable (in default)     40,000       40,000  
Note payable, (in default)     50,000       50,000  
Note payable (in default)     35,000       35,000  
Note payable (due on demand)     13,125       —  
Total notes payable, short-term   $ 1,338,125     $ 1,325,000  
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.19.1
Stock Options (Tables)
 12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Summary of Stock Option Activity

The following table summarizes stock option activity for the year ended December 31, 2018:

 

    Number of Options     Weighted Average Exercise
Price Per
Share		     Weighted
Average
Remaining
Contractual
Term		   Aggregate
Intrinsic
Value		  
Outstanding at December 31, 2017     376,950     $ 37.82     3.5 years   $ —  
Granted     —       —              
Exercised     —       —              
Forfeited     (38,750 )     (7.97 )            
Outstanding at December 31, 2018     338,200     $ 41.24     3.1 years   $ —  
Outstanding and exercisable at December 31, 2018     338,200     $ 41.24     3.1 years   $ —  
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.19.1
Derivative Instruments (Tables)
 12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of Estimated Fair Value of Derivative Liabilities

A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of December 31, 2018 is as follows:

 

   

As of

December 31, 2018

  
       
Volatility – range     237.3% - 272.8 %
Risk-free rate     2.51% - 2.59 %
Contractual term     1.5 - 3.3 years  
Exercise price     $5.00 - $5.60  
Number of warrants in aggregate     2,074,000  
Summary of Changes in Fair Value Derivative Financial Instruments

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, 2017   $ 104,183  
Warrants issued to originate or extend notes payable (recorded as discount on note payable) -Note 3     —  
Unrealized derivative gains included in other expense for the period     (38,681 )
Transition of derivative liability to equity     —  
         
Balance at December 31, 2018   $ 65,502  
Schedule of Warrant Derivative Liability

The warrant derivative liability consists of the following at December 31, 2018 and 2017:

 

    December 31, 2018     December 31, 2017  
Warrant issued to holder of Secured convertible note (Note 2)   $ 57,092     $ 90,519  
Warrant issued to placement agent (Note 2)     7,573       12,069  
Warrant issued to holder of December 2013 Note (Note 3)     —       31  
Warrants issued to holders of notes payable - short term (Note 3)     837       1,564  
Total warrant derivative liability   $ 65,502     $ 104,183  
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.19.1
Warrants (Tables)
 12 Months Ended
Dec. 31, 2018
Warrants and Rights Note Disclosure [Abstract]  
Summary of Warrant Activity

The following table summarizes warrant activity for the year ended December 31, 2018:

 

    Number of
Warrants		     Weighted
Average
Exercise Price
Per Share		  
Outstanding and exercisable at December 31, 2017     2,505,771     $ 5.25  
Issued for extension of notes payable (Note 3)     —       —  
Issued for extension of line-of-credit (Note 3)     —       —  
Exercised/forfeited     (140,208 )     (5.74 )
                 
Outstanding and exercisable at December 31, 2018     2,365,563     $ 5.01  
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.19.1
Supplemental Oil and Gas Information (Tables)
 12 Months Ended
Dec. 31, 2018
Extractive Industries [Abstract]  
Schedule of Costs Incurred in Connection with Oil and Gas Acquisition, Exploration and Development Activities

Costs incurred during the year ended December 31, 2018 in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.

 

   

Year ended

December 31, 2018

  
Property acquisition costs:        
Proved   $ —  
Unproved        
Total property acquisition costs     —  
Development costs     —  
Exploration costs     155,584  
Total costs   $ 155,584  
Aggregate Cost and Related Accumulated Depreciation, Depletion, Impairment and Amortization

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

 

    December 31,  
    2018     2017  
       
Proved oil and gas properties   $ —     $ —  
Unproved oil and gas properties     11,176,773       11,021,189  
Total     11,176,773       11,021,189  
Less amounts allocated to revenue sharing interest granted to Note holder for extension of maturity date (See Note 3)     (964,738 )     (964,738 )
Less accumulated impairment charge on oil and gas properties as of December 31, 2015     (9,720,666 )     (9,720,666 )
Less amounts charged directly to operations since January 1, 2016     (491,369 )     (335,785 )
Less accumulated depreciation, depletion and amortization     —       —  
                 
Net capitalized costs   $ —     $ —  
Schedule of Oil and Gas Property Costs Not Being Amortized

Oil and gas property costs not being amortized at December 31, 2018, (all accumulated costs have been reserved through an impairment charge as of December 31, 2015 and through direct expense for January 1, 2016 and after) costs by year that the costs were incurred, are as follows:

 

Year Ended December 31,      
2018 (expensed directly)   $ 155,584  
2017 (expensed directly)     170,274  
2016 (expensed directly)     165,511  
2015     92,568  
2014     115,622  
2013     6,051,411  
2012     581,723  
2011     731,347  
Prior     3,112,733  
Total costs not being amortized   $ 11,176,773  
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.19.1
Income Taxes (Tables)
 12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Schedule of Components of Income Tax Expense (Benefit)

The provision for income taxes consists of the following:

 

    For the Year Ended  
    December 31,  
    2018     2017  
       
Current income tax expense (benefit)   $ (150,000 )   $ —  
Deferred income tax benefit     —       —  
Total income tax expense (benefit)   $ (150,000 )   $ —  
Schedule of Income Statutory Federal Income Tax Rate

The effective income tax rate on continuing operations varies from the statutory federal income tax rate as follows:

 

    For the Years Ended  
    December 31,  
    2018     2017  
Federal income tax rate     (21.0 )%     (34.0 )%
State income tax rate     (4.4 )     (4.4 )
Revaluation of deferred tax assets based on changes in enacted tax laws     —       386.2  
Change in valuation allowance     26.4       (347.8 )
AMT Credit carryforward     (34.3 )     —  
Other, net     (1.0 )     —  
                 
Effective tax rate     (34.3 )%     — %
Schedule of Deferred Tax Assets and Liabilities

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,  
    2018     2017  
    (in thousands)  
Deferred tax assets:                
Accruals and other   $ 940     $ 900  
Asset retirement obligations     435       435  
Note payable discounts and derivatives     (510 )     (460 )
Stock-based compensation     1,190       1,190  
Alternative minimum tax credit carry-forward     —       150  
Net operating loss carry-forward     16,930       16,885  
Gross deferred tax assets     18,985       19,100  
Less valuation allowance     (18,985 )     (19,100 )
Deferred tax asset   $ —     $ —  
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies (Tables)
 12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Minimum Exploration Work Commitment and Relinquishments by Individual Blocks

The following charts set forth the minimum work programs required under for the Perlas and Tyra blocks comprising the Concessions in order for the Company to retain them unless it is successful in obtaining extensions, renewals or the renegotiation of the entire Concessions Agreements for the Perlas and Tyra blocks.

 

Minimum Work Program – Perlas

 

Block Perlas – Exploration Minimum Work Commitment and Relinquishments

Exploration
Period (6 Years)		   Duration (Years)     Work Commitment   Relinquishment   Irrevocable Guarantee  
Sub-Period1   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-Period1   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  
Schedule of Contractual and Fiscal Terms

Contractual and Fiscal Terms

 

Training Program   US $50,000 per year, per block      
Area Fee   Years 1-3   $ 0.05/hectare  
    Years 4-7   $ 0.10/hectare  
    Years 8 & forward   $ 0.15/hectare  
Royalties   Recovery Factor 0 – 1.5     Percentage 5 %
    1.5 – 3.0     10 %
     >3.0     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        
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.19.1
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative)
 12 Months Ended
May 04, 2017
USD ($)
May 04, 2017
USD ($)
Apr. 20, 2017
$ / shares
Nov. 08, 2016
$ / shares
May 31, 2015
shares
May 07, 2015
USD ($)
shares
Dec. 27, 2013
Dec. 31, 2018
USD ($)
a
$ / shares
shares
Dec. 31, 2017
USD ($)
Jul. 15, 2015
$ / shares
Jul. 07, 2015
$ / shares
Principal amount of senior secured convertible notes                 $ 510,000    
Conversion price per share | $ / shares     $ 5.00 $ 5.00           $ 5.60 $ 5.60
Percentage of debt bears interest     8.00% 8.00%         8.00% 8.00% 8.00%
Debt maturity date     Apr. 19, 2018 Nov. 07, 2017              
Note payable               $ 1,338,125 $ 1,325,000    
Additional liability               1,716,003 1,716,003    
Deferred tax asset, valuation allowance net                  
Income tax rate percentage               21.00% 34.00%    
Effective income tax percentage               (4.40%) (4.40%)    
Net operating loss carry-forward               $ 66,845,000      
Corresponding income tax payable               0      
Income tax benefit (expense)               $ (150,000)    
AMT Credit [Member]                      
Effective income tax percentage               50.00%      
Net operating loss carry-forward               $ 150,000      
Infinity-Texas [Member]                      
Percentage of sale of stock               100.00%      
Former Texas Oil and Gas Producing Properties [Member]                      
Additional liability               $ 734,897      
Former Wyoming and Colorado Oil and Gas Producing Properties [Member]                      
Additional liability               $ 981,106      
Measurement Input, Discount Rate [Member]                      
Discount percentage               10.00%      
Perlas Block [Member]                      
Letters of credit               $ 1,356,227      
Tyra Block [Member]                      
Letters of credit               278,450      
Perlas Block and Tyra Block [Member]                      
Payments of area fees               167,000      
Payments of training fees               $ 300,000      
Private Placement [Member]                      
Issuance of Warrant to purchase shares of common stock | shares         1,800,000     1,800,000      
Conversion price per share | $ / shares               $ 5.00      
Debt instrument, term               3 years      
Percentage of debt bears interest               8.00%      
Common stock exercise price per share | $ / shares               $ 5.00      
Warrants term               7 years      
Secured Convertible Note [Member]                      
Conversion price per share | $ / shares               $ 5.00      
Percentage of debt bears interest               8.00%      
Secured Convertible Note [Member] | May 2015 Private Placement [Member]                      
Principal amount of senior secured convertible notes           $ 12,000,000          
Investor Promissory Note [Member] | May 2015 Private Placement [Member]                      
Principal amount of senior secured convertible notes           $ 9,550,000          
Issuance of Warrant to purchase shares of common stock | shares           1,800,000          
Senior Secured Convertible Note [Member] | May 2015 Private Placement [Member]                      
Note payments for cash and issuing promissory note           $ 450,000          
Convertible Note [Member]                      
Debt instruments principal amount $ 9,490,000 $ 9,490,000                  
Convertible debt outstanding 9,490,000 9,490,000           $ 11,687,231      
Conversion price per share | $ / shares               $ 0.50      
Replacement Note [Member]                      
Convertible debt outstanding $ 2,197,231 2,197,231                  
Debt maturity date description one-year maturity from May 7, 2017                    
Additional amount funded from related parties $ 510,000 $ 510,000                  
December 2013 Note [Member]                      
Principal amount of senior secured convertible notes               $ 1,000,000      
Debt maturity date             Mar. 12, 2014 Apr. 30, 2016      
Five Other Notes Payable [Member]                      
Note payable               $ 338,125      
December 2013 Note [Member] | Tyra Block [Member]                      
Principal amount of senior secured convertible notes               $ 1,000,000      
Nicaraguan Concessions [Member]                      
Nature of operations oil and gas resources acres | a               1,400,000      
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.19.1
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies - Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Senior convertible note payable $ 2,197,231 $ 2,046,437
Derivative liabilities 65,502 104,183
Fair Value, Measurements, Recurring [Member]    
Senior convertible note payable 2,197,231 2,046,437
Derivative liabilities 65,502 104,183
Fair value on liabilities 2,262,733 2,150,620
Fair Value, Measurements, Recurring [Member] | Level 1 [Member]    
Senior convertible note payable
Derivative liabilities
Fair value on liabilities
Fair Value, Measurements, Recurring [Member] | Level 2 [Member]    
Senior convertible note payable
Derivative liabilities
Fair value on liabilities
Fair Value, Measurements, Recurring [Member] | Level 3 [Member]    
Senior convertible note payable 2,197,231 2,046,437
Derivative liabilities 65,502 104,183
Fair value on liabilities $ 2,262,733 $ 2,150,620
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.19.1
Secured Convertible Note Payable (Details Narrative) - USD ($)
 12 Months Ended
May 04, 2017
May 04, 2017
May 31, 2015
May 07, 2015
Dec. 31, 2018
Dec. 31, 2017
Apr. 20, 2017
Nov. 08, 2016
Oct. 15, 2015
Oct. 07, 2015
Jul. 15, 2015
Jul. 07, 2015
Notes payable principal balance           $ 510,000            
Common stock, par value         $ .0001 $ .0001            
Warrants price per share                 $ 5.60 $ 5.60 $ 5.60 $ 5.60
Change in fair value of senior convertible note payable         $ 150,794 $ 1,905,109            
Conversion price per share             $ 5.00 $ 5.00     $ 5.60 $ 5.60
Percentage of debt bears interest           8.00% 8.00% 8.00%     8.00% 8.00%
Proceeds from issuance of secured convertible debt         450,000              
Liquidated principal balances         129,960 $ 129,960            
Fair market value of note estimated of issuance date         682,400              
Fair market value of secured convertible note         2,197,231 2,046,437            
Change in fair value of derivative liability         (38,681)              
Convertible Note [Member]                        
Notes principal $ 9,490,000 $ 9,490,000                    
Convertible debt outstanding 9,490,000 9,490,000     $ 11,687,231              
Debt original issue of discount 2,000,000 2,000,000                    
Change in fair value of senior convertible note payable           1,905,109            
Conversion price per share         $ 0.50              
Replacement Note [Member]                        
Convertible debt outstanding 2,197,231 2,197,231                    
Additional amount funded from related parties $ 510,000 $ 510,000                    
Secured Convertible Note [Member]                        
Conversion price per share         $ 5.00              
Percentage of debt bears interest         8.00%              
Percentage of debt default interest rate         18.00%              
Debt conversion weighted average price common stock rate         80.00%              
Percentage of debt conversion rate         125.00%              
Redeemed percentage of debt         125.00%              
Secured Convertible Note [Member] | Minimum [Member]                        
Debt conversion weighted average price common stock rate         125.00%              
Percentage of debt conversion rate         200.00%              
Registration Rights Agreement [Member]                        
Percentage of resale of shares of issuance of common stock         130.00%              
Participation Rights [Member]                        
Percentage of participation rights         50.00%              
May 2015 Private Placement [Member]                        
Notes payable principal balance       $ 12,000,000                
Issuance of warrant to purchase shares of common stock       1,800,000                
Common stock, par value       $ 0.0001                
Percentage of fee received of cash proceeds       6.00%                
Proceeds from issuance of common stock       $ 600,000                
Received amount at closing       27,000                
Private Agent [Member]                        
Notes payable principal balance       $ 9,550,000                
Issuance of warrant to purchase shares of common stock       240,000                
Warrants price per share       $ 5.00                
Private Placement [Member]                        
Issuance of warrant to purchase shares of common stock     1,800,000   1,800,000              
Warrants price per share     $ 5.00                  
Conversion price per share         $ 5.00              
Percentage of debt bears interest         8.00%              
Private Placement [Member] | Securities Purchase Agreement [Member]                        
Note payments for cash and issuing promissory note       $ 450,000                
Percentage of debt conversion rate         200.00%              
Percentage of beneficial owner of excess         9.99%              
Secured Convertible Note Payable [Member]                        
Issuance of warrant to purchase shares of common stock         1,800,000              
Secured Convertible Note Payable [Member] | Warrant [Member]                        
Derivative liability         $ 57,092 33,427            
Secured Convertible Note Payable One [Member]                        
Issuance of warrant to purchase shares of common stock         240,000              
Derivative liability         $ 7,573 $ 12,069            
Change in fair value of derivative liability         $ 2,096              
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.19.1
Secured Convertible Note Payable - Schedule of Secured Convertible Note Payable (Details) - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Debt Disclosure [Abstract]    
Secured convertible note payable, at fair value $ 2,197,231 $ 2,046,437
Less: Current maturities (2,197,231) (2,046,437)
Secured convertible note payable, long-term
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.19.1
Secured Convertible Note Payable - Schedule of Activity in Secured Convertible Note (Details)
 12 Months Ended
Dec. 31, 2018
USD ($)
Debt Disclosure [Abstract]  
Balance, beginning $ 2,046,437
Funding under the Investor Note during the period
Principal repaid during the period by issuance of common stock
Change in fair value of secured convertible note during the period 150,794
Balance, ending $ 2,197,231
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.19.1
Debt (Details Narrative) - USD ($)
 12 Months Ended
Apr. 20, 2017
Nov. 08, 2016
May 15, 2016
May 07, 2016
Jan. 15, 2016
Jan. 07, 2016
Oct. 15, 2015
Oct. 07, 2015
Jul. 15, 2015
Jul. 07, 2015
Dec. 27, 2013
Dec. 31, 2018
Dec. 31, 2017
May 21, 2018
Debt maturity date Apr. 19, 2018 Nov. 07, 2017                        
Issuance of warrants exercisable to purchase of common stock           5,000   5,000 3,500 5,000        
Warrants exercise price per share             $ 5.60 $ 5.60 $ 5.60 $ 5.60        
Increase of warrants issuance                 7,000 10,000        
Warrants exercise price drops price per share                 $ 5.60 $ 5.60        
Common stock issued                       7,712,569 7,712,569  
Common stock issued value                       $ (771) $ (771)  
Proceeds from convertible debt $ 40,000 $ 200,000             $ 35,000 $ 50,000   $ 13,125 $ 40,000  
Conversion price per share $ 5.00 $ 5.00             $ 5.60 $ 5.60        
Debt instruments interest rate 8.00% 8.00%             8.00% 8.00%     8.00%  
Warrants expiration period             5 years 5 years 5 years 5 years        
Estimated fair value of conversion feature and warrants     $ 74 $ 131 $ 267 $ 379     $ 11,827 $ 22,314        
Common stock at exercise price               $ 5.60   $ 5.60        
Debt maturity extended date             Jan. 15, 2016 Jan. 07, 2016            
Debt maturity extended later date             Oct. 15, 2016 May 07, 2016            
Purchase of warrants                 3,500     2,074,000    
Number of warrants issued newly during the period             3,500              
December 2013 Note [Member]                            
Proceeds from unsecured credit facility                     $ 1,050,000      
Debt maturity date                     Mar. 12, 2014 Apr. 30, 2016    
Issuance of warrants exercisable to purchase of common stock                     100,000      
Warrants exercise price per share                     $ 15.00      
Increase of warrants issuance                     1,333,333      
Warrants exercise price drops price per share                     $ 0.75      
December 2013 Note to April 7, 2016 One [Member]                            
Estimated revenue                       $ 964,738    
December 2013 Note to April 7, 2016 Two [Member]                            
Warrants exercise price per share                       $ 5.00    
Increase of warrants issuance                       1,333,333    
Warrants exercise price drops price per share                       $ 0.75    
Restricted common stock issued                       20,000    
Repayment of debt                       $ 50,000    
Common stock issued                       20,000    
Common stock issued value                       $ (104,000)    
Increased value of the outstanding warrants                       (68,716)    
December 2013 Note [Member]                            
Unamortized debt discount                       0 $ 0  
Derivative liability                       0 31  
Convertible Note Payable [Member]                            
Derivative liability                       492 920  
Convertible Notes Payable One [Member]                            
Derivative liability                       $ 345 $ 644  
Conversion price per share                           $ 0.50
Debt instruments interest rate                           8.00%
Unsecured credit facility                           $ 13,125
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.19.1
Debt - Schedule of Debt Outstanding (Details) - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Total notes payable, short-term $ 1,338,125 $ 1,325,000
Notes Payable (In Default) One [Member]    
Total notes payable, short-term 1,000,000 1,000,000
Notes Payable (In Default) Two [Member]    
Total notes payable, short-term 200,000 200,000
Notes Payable (In Default) Three [Member]    
Total notes payable, short-term 40,000 40,000
Notes Payable (In Default) Four [Member]    
Total notes payable, short-term 50,000 50,000
Notes Payable (In Default) Five [Member]    
Total notes payable, short-term 35,000 35,000
Notes Payable Six (Due on Demand) [Member]    
Total notes payable, short-term $ 13,125
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.19.1
Stock Options (Details Narrative) - USD ($)
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Stock-based compensation expense in connection with vesting of options granted $ 0 $ 0
Share based vested and unvested stock options, intrinsic value 0  
Unrecognized compensation cost related to unvested stock options $ 0  
2006 Equity Incentive Plan [Member]    
Issuance of reserved common stock, shares 47,000  
Stock date of granted expiration period 10 years  
2005 Equity Incentive Plan [Member]    
Issuance of reserved common stock, shares 47,500  
2015 Stock Option and Restricted Stock Plan [Member]    
Issuance of reserved common stock, shares 500,000  
Shares available for future grants under all plans 500,000  
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.19.1
Stock Options - Summary of Stock Option Activity (Details)
 12 Months Ended
Dec. 31, 2018
USD ($)
$ / shares
shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Number of Options, Outstanding, Beginning | shares 376,950
Number of Options, Granted | shares
Number of Options, Exercised | shares
Number of Options, Forfeited | shares (38,750)
Number of Options, Outstanding, Ending | shares 338,200
Number of Options, Outstanding and Exercisable | shares 338,200
Weighted Average Exercise Price Per Share, Outstanding, Beginning | $ / shares $ 37.82
Weighted Average Exercise Price Per Share, Granted | $ / shares
Weighted Average Exercise Price Per Share, Exercised | $ / shares
Weighted Average Exercise Price Per Share, Forfeited | $ / shares (7.97)
Weighted Average Exercise Price Per Share, Outstanding, Ending | $ / shares 41.24
Weighted Average Exercise Price Per Share, Outstanding and Exercisable | $ / shares $ 41.24
Weighted Average Remaining Contractual Term, Outstanding, Beginning 3 years 6 months
Weighted Average Remaining Contractual Term, Outstanding, Ending 3 years 1 month 6 days
Weighted Average Remaining Contractual Term, Outstanding and Exercisable 3 years 1 month 6 days
Aggregate Intrinsic Value, Outstanding, Beginning | $
Aggregate Intrinsic Value, Outstanding, Ending | $
Aggregate Intrinsic Value, Outstanding and Exercisable | $
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.19.1
Derivative Instruments (Details Narrative) - shares
Dec. 31, 2018
Jul. 15, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]    
Issued warrant to purchase shares of common stock 2,074,000 3,500
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.19.1
Derivative Instruments - Schedule of Estimated Fair Value of Derivative Liabilities (Details) - $ / shares
 12 Months Ended
Dec. 31, 2018
Jul. 15, 2015
Number of warrants in aggregate 2,074,000 3,500
Volatility Rate [Member] | Minimum [Member]    
Fair value assumptions, measurement input, percentage 237.30%  
Volatility Rate [Member] | Maximum [Member]    
Fair value assumptions, measurement input, percentage 272.80%  
Risk Free Interest Rate [Member] | Minimum [Member]    
Fair value assumptions, measurement input, percentage 2.51%  
Risk Free Interest Rate [Member] | Maximum [Member]    
Fair value assumptions, measurement input, percentage 2.59%  
Measurement Input, Expected Term [Member] | Minimum [Member]    
Fair value assumptions, measurement input, term 1 year 6 months  
Measurement Input, Expected Term [Member] | Maximum [Member]    
Fair value assumptions, measurement input, term 3 years 3 months 19 days  
Measurement Input, Exercise Price [Member] | Minimum [Member]    
Fair value assumptions, measurement input, exercise price $ 5.00  
Measurement Input, Exercise Price [Member] | Maximum [Member]    
Fair value assumptions, measurement input, exercise price $ 5.60  
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.19.1
Derivative Instruments - Summary of Changes in Fair Value Derivative Financial Instruments (Details)
 12 Months Ended
Dec. 31, 2018
USD ($)
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Beginning balance $ 104,183
Warrants issued to originate or extend notes payable (recorded as discount on note payable) - Note 3
Unrealized derivative gains included in other expense for the period (38,681)
Transition of derivative liability to equity
Ending balance $ 65,502
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.19.1
Derivative Instruments - Schedule of Warrant Derivative Liability (Details) - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]    
Warrant issued to holder of Secured convertible note (Note 2) $ 57,092 $ 90,519
Warrant issued to placement agent (Note 2) 7,573 12,069
Warrant issued to holder of December 2013 Note (Note 3) 31
Warrants issued to holders of notes payable - short term (Note 3) 837 1,564
Total warrant derivative liability $ 65,502 $ 104,183
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.19.1
Warrants (Details Narrative) - Warrant [Member]
 12 Months Ended
Dec. 31, 2018
USD ($)
Weighted average of purchase warrants term 3 years 1 month 6 days
Common stock purchase warrants and intrinsic value $ 0
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.19.1
Warrants - Summary of Warrant Activity (Details) - Warrant [Member]
 12 Months Ended
Dec. 31, 2018
$ / shares
shares
Number of warrants outstanding and exercisable, beginning balance | shares 2,505,771
Number of warrants, issued for extension of notes payable | shares
Number of warrants, issued for extension of line-of-credit | shares
Number of warrants, exercised/forfeited | shares (140,208)
Number of warrants outstanding and exercisable, ending balance | shares 2,365,563
Weighted Average Exercise Price Per Share, Outstanding and exercisable | $ / shares $ 5.25
Weighted Average Exercise Price Per Share, issued for extension of notes payable | $ / shares
Weighted Average Exercise Price Per Share, issued for extension of line-of-credit | $ / shares
Weighted average exercise price per share, exercised/forfeited | $ / shares (5.74)
Weighted Average Exercise Price Per Share, Outstanding and exercisable | $ / shares $ 5.01
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.19.1
Supplemental Oil and Gas Information (Details Narrative)
 12 Months Ended
Dec. 31, 2015
USD ($)
Dec. 31, 2018
a
Impairment charge | $ $ 9,720,666  
Nicaraguan Concessions [Member]    
Unevaluated costs, acre of land | a   1,400,000
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.19.1
Supplemental Oil and Gas Information - Schedule of Costs Incurred in Connection with Oil and Gas Acquisition, Exploration and Development Activities (Details)
 12 Months Ended
Dec. 31, 2018
USD ($)
Extractive Industries [Abstract]  
Proved
Unproved
Total property acquisition costs
Development costs
Exploration costs 155,584
Total costs $ 155,584
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.19.1
Supplemental Oil and Gas Information - Aggregate Cost and Related Accumulated Depreciation, Depletion, Impairment and Amortization (Details) - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Extractive Industries [Abstract]    
Proved oil and gas properties
Unproved oil and gas properties 11,176,773 11,021,189
Total 11,176,773 11,021,189
Less amounts allocated to revenue sharing interest granted to Note holder for extension of maturity date (See Note 3) (964,738) (964,738)
Less accumulated impairment charge on oil and gas properties (9,720,666) (9,720,666)
Less amounts charged directly to operations (491,369) (335,785)
Less accumulated depreciation, depletion and amortization
Net capitalized costs
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.19.1
Supplemental Oil and Gas Information - Schedule of Oil and Gas Property Costs Not Being Amortized (Details)
Dec. 31, 2018
USD ($)
Extractive Industries [Abstract]  
2018 (expensed directly) $ 155,584
2017 (expensed directly) 170,274
2016 (expensed directly) 165,511
2015 92,568
2014 115,622
2013 6,051,411
2012 581,723
2011 731,347
Prior 3,112,733
Total costs not being amortized $ 11,176,773
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.19.1
Income Taxes (Details Narrative) - USD ($)
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Corporate tax rate (34.30%) 0.00%
Effective income tax percentage (4.40%) (4.40%)
Net operating loss carry-forward $ 66,845,000  
Income tax expense (benefit) (150,000)
Corresponding income tax payable $ 0  
Percentage on valuation allowance 100.00%  
Net operating loss carry-forward balance expires Expire from 2025 through 2038  
Change in ownership percentage 50.00%  
AMT Credit [Member]    
Corporate tax rate 21.00%  
Income tax description However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation's AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable.  
Effective income tax percentage 50.00%  
Net operating loss carry-forward $ 150,000  
XML 59 R48.htm IDEA: XBRL DOCUMENT v3.19.1
Income Taxes - Schedule of Components of Income Tax Expense (Benefit) (Details) - USD ($)
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Income Tax Disclosure [Abstract]    
Current income tax expense (benefit) $ (150,000)
Deferred income tax benefit
Total income tax expense (benefit) $ (150,000)
XML 60 R49.htm IDEA: XBRL DOCUMENT v3.19.1
Income Taxes - Schedule of Income Statutory Federal Income Tax Rate (Details)
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Income Tax Disclosure [Abstract]    
Federal income tax rate (21.00%) (34.00%)
State income tax rate (4.40%) (4.40%)
Revaluation of deferred tax assets based on changes in enacted tax laws 0.00% 386.20%
Change in valuation allowance 26.40% (347.80%)
AMT Credit carryforward (34.30%) (0.00%)
Other, net (1.00%) 0.00%
Effective tax rate (34.30%) 0.00%
XML 61 R50.htm IDEA: XBRL DOCUMENT v3.19.1
Income Taxes - Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Income Tax Disclosure [Abstract]    
Accruals and other $ 940 $ 900
Asset retirement obligations 435 435
Note payable discounts and derivatives (510) (460)
Stock-based compensation 1,190 1,190
Alternative minimum tax credit carry-forward 150
Net operating loss carry-forward 16,930 16,885
Gross deferred tax assets 18,985 19,100
Less valuation allowance (18,985) (19,100)
Deferred tax asset
XML 62 R51.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies (Details Narrative) - USD ($)
 1 Months Ended 12 Months Ended
Dec. 08, 2014
Aug. 15, 2014
Sep. 08, 2009
Jun. 06, 2009
Mar. 23, 2009
Oct. 31, 2012
Dec. 31, 2018
Dec. 31, 2013
Dec. 31, 2017
Asset retirement obligations             $ 1,716,003   $ 1,716,003
Seeking of reclamation costs           $ 30,000      
Estimated liability relating each operating well           45,103      
Total estimated liability relating to all operating wells           $ 780,000      
Payment for demand   $ 56,000              
Payment for investor relations services   $ 7,000              
Number of shares issuance of common stock   15,000           15,000  
Payments made for new issued common stock               $ 14,000  
Number of shares issued during period settlement of final termination agreement   2,800              
Damages amount   $ 79,594              
Cambrian Consultants America, Inc [Member]                  
Default judgment granted against the company $ 96,877                
Securities Purchase Agreement [Member] | Offshore Finance, LLC [Member]                  
Secured subordinated promissory notes         $ 1,275,000        
Percentage of revenue sharing Interest         1.00%        
Amount funded by Off-Shore         $ 1,275,000        
Percentage of payment of revenue to Off-Shore         1.00%        
Revenue Sharing Agreement [Member]                  
Percentage of revenue       1.00%          
Revenue Sharing Agreement [Member] | Jeff Roberts [Member]                  
Percentage of payment of revenue to Jeff Roberts     1.00%            
December 2013 Note [Member] | Revenue Sharing Agreement [Member]                  
Percentage of revenue             1.00%    
Notes payable principal balance             $ 1,050,000    
Perlas Block [Member]                  
Letters of credit             1,356,227    
Tyra Block [Member]                  
Letters of credit             278,450    
Perlas Block and Tyra Block [Member]                  
Payments of area fees             167,000    
Payments of training fees             $ 300,000    
XML 63 R52.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies - Schedule of Minimum Exploration Work Commitment and Relinquishments by Individual Blocks (Details)
 12 Months Ended
Dec. 31, 2018
USD ($)
Sub-Period 1 [Member] | Perlas Block [Member]  
Duration 2 years
Minimum Work Commitment Environmental Impact Study - Acquisition & interpretation of 333km of new 2D seismic - Acquisition, processing & interpretation of 667km of new 2D seismic (or equivalent in 3D)
Relinquishment 26km2
Irrevocable Guarantee $ 443,100
Sub-Period 1 [Member] | Tyra Block [Member]  
Duration 1 year 6 months
Minimum Work Commitment Environmental Impact Study - Acquisition & interpretation of 667km of existing 2D seismic - Acquisition of 667km of new 2D seismic (or equivalent in 3D)
Relinquishment 26km2
Irrevocable Guarantee $ 408,450
Sub-Period 2 Optional [Member] | Perlas Block [Member]  
Duration 1 year
Minimum Work Commitment Acquisition, processing & interpretation of 200km2 of 3D seismic
Relinquishment 53km2
Irrevocable Guarantee $ 1,356,227
Sub-Period 2 Optional [Member] | Tyra Block [Member]  
Duration 6 months
Minimum Work Commitment Processing & interpretation of the 667km 2D seismic (or equivalent in 3D) acquired in the previous sub-period
Relinquishment 40km2
Irrevocable Guarantee $ 278,450
Sub-Period 3 Optional [Member] | Perlas Block [Member]  
Duration 1 year
Minimum Work Commitment Drilling of one exploration well to the Cretaceous or 3,500m, whichever is Shallower
Relinquishment 80km2
Irrevocable Guarantee $ 10,220,168
Sub-Period 3 Optional [Member] | Tyra Block [Member]  
Duration 2 years
Minimum Work Commitment Acquisition, processing & interpretation of 250km2 of new 3D seismic
Relinquishment 160km2
Irrevocable Guarantee $ 1,818,667
Sub-Period 4 Optional [Member] | Perlas Block [Member]  
Duration 2 years
Minimum Work Commitment Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower - Geochemical analysis
Relinquishment All acreage except areas with discoveries
Irrevocable Guarantee $ 10,397,335
Sub-Period 4 Optional [Member] | Tyra Block [Member]  
Duration 2 years
Minimum Work Commitment Drilling of one exploration well to the Cretaceous or 3,500m, whichever is shallower - Geochemical analysis
Relinquishment All acreage except areas with discoveries
Irrevocable Guarantee $ 10,418,667
XML 64 R53.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies - Schedule of Contractual and Fiscal Terms (Details)
 12 Months Ended
Dec. 31, 2018
USD ($)
Factor
$ / shares
Amount of contract per year, per block | $ $ 50,000
Natural Gas Royalties Market value at production
Percentage of Natural Gas Royalties 5.00%
Corporate Tax 30.00%
Percentage of social contribution of net profit 3.00%
Percentage of social contribution of net profit for each autonomous region 1.50%
Investment protection ICSID arbitration OPIC insurance
Factor One [Member]  
Royalties recovery factor, minimum 0
Royalties recovery factor, maximum 1.5
Percentage of royalties 5.00%
Factor Two [Member]  
Royalties recovery factor, minimum 1.5
Royalties recovery factor, maximum 3.0
Percentage of royalties 10.00%
Factor Three [Member]  
Royalties recovery factor, maximum 3.0
Percentage of royalties 15.00%
Period One [Member]  
Period of area fee per hectare, minimum 1 year
Period of area fee per hectare, maximum 3 years
Area fee per hectare | $ / shares $ 0.05
Period Two [Member]  
Period of area fee per hectare, minimum 4 years
Period of area fee per hectare, maximum 7 years
Area fee per hectare | $ / shares $ 0.10
Period Three [Member]  
Period of area fee per hectare, maximum 8 years
Area fee per hectare | $ / shares $ 0.15
XML 65 R54.htm IDEA: XBRL DOCUMENT v3.19.1
Related Party Transactions (Details Narrative) - USD ($)
 12 Months Ended
Jun. 06, 2009
Dec. 31, 2018
Dec. 31, 2017
Officers and Directors [Member]      
Percentage of revenue 1.00%    
Accrued compensation   $ 1,829,208 $ 1,829,208
Offshore Finance, LLC [Member]      
Percentage of revenue   1.00%  
CFO's Firm [Member]      
Due to related party for consideration of services   $ 762,407 $ 762,407
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