0001493152-20-019713.txt : 20201021 0001493152-20-019713.hdr.sgml : 20201021 20201021132847 ACCESSION NUMBER: 0001493152-20-019713 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 70 CONFORMED PERIOD OF REPORT: 20200930 FILED AS OF DATE: 20201021 DATE AS OF CHANGE: 20201021 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17204 FILM NUMBER: 201250178 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-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020.

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________.

 

Commission File Number: 0-17204

 

INFINITY ENERGY RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   20-3126427

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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

(Address of principal executive offices) (Zip Code)

 

(913) 948-9512

(Registrant’s telephone number, including area code)

 

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

 

Title of each class   Trading Symbol(s)   Name of exchange on which registered
   

 

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

 

  Large accelerated filer [  ]   Accelerated filer [  ]
  Non-accelerated filer [  ]   Smaller reporting company [X]
      Emerging growth company [  ]

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of capital, as of the latest practicable date:

 

Class   Outstanding at October 20, 2020
Common Stock, $0.0001 par value per share   18,548,265

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I - Financial Information  
Item 1. Financial Statements  
Condensed Balance Sheets: September 30, 2020 (Unaudited) and December 31, 2019 3
Condensed Statements of Operations: Three and nine months ended September 30, 2020 and 2019 (Unaudited) 4
Condensed Statement of Stockholders’ Deficit: Three and nine months ended September 30, 2020 and 2019 (Unaudited) 5
Condensed Statements of Cash Flows: Nine months ended September 30, 2020 and 2019 (Unaudited) 6
Notes to Condensed Financial Statements (Unaudited) 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
Item 4. Controls and Procedures 36
PART II - Other Information  
Item 1. Legal Proceedings 37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
Item 3. Defaults Upon Senior Securities 37
Item 4. Mine Safety Disclosures 37
Item 5. Other Information 37
Item 6. Exhibits 37
Signatures 38

 

2

 

 

PART I - FINANCIAL INFORMATION

 

INFINITY ENERGY RESOURCES, INC.

Condensed Balance Sheets

 

  

September 30,

2020

  

December 31,

2019

 
   (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $73,235   $1,785 
Deposit to acquire oil and gas property   75,000     
           
Total current assets   148,235    1,785 
           
Total assets  $148,235   $1,785 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $1,234,335   $6,091,453 
Accrued liabilities (including $788,520 due to related party at
September 30, 2020 and December 31, 2019)
   3,747,468    3,777,580 
Accrued interest   37,787    528,684 
Asset retirement obligations   1,716,003    1,716,003 
Notes payable, net   129,094    1,104,125 
           
Total current liabilities   6,864,687    13,217,845 
           
Derivative liabilities   868    1,116 
Total liabilities   6,865,555    13,218,961 
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 September 30, 2020 and December 31, 2019        
Common stock, par value $.0001 per share, 75,000,000 shares authorized, 18,548,265 and 12,310,733 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively   1,855    1,231 
Additional paid-in capital   110,270,518    109,583,945 
Accumulated deficit   (116,989,693)   (122,802,352)
Total stockholders’ deficit   (6,717,320)   (13,217,176)
Total liabilities and stockholders’ deficit  $148,235   $1,785 

 

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

 

3

 

 

INFINITY ENERGY RESOURCES, INC.

Statements of Operations

(Unaudited)

 

   Three months ended
September 30,
   Nine months ended
September 30,
 
   2020   2019   2020   2019 
                 
Operating expenses:                    
General and administrative expenses  $120,168   $9,911   $226,235   $139,059 
                     
Total operating expenses   120,168    9,911    226,235    139,059 
                     
Operating loss   (120,168)   (9,911)   (226,235)   (139,059)
                     
Other income (expense):                    
Interest expense   (67,370)   (19,967)   (111,496)   (70,266)
Gain on extinguishment of liabilities   6,150,142        6,150,142    2,413,280 
Change in derivative fair value   824    (127,284)   248    (190,092)
Total other income (expense)   6,083,596    (147,251)   6,038,894    2,152,922 
                     
Income (loss) before income taxes   5,963,428    (157,162)   5,812,659    2,013,863 
Income tax (expense) benefit                
                     
Net income (loss)  $5,963,428   $(157,162)  $5,812,659   $2,013,863 
                     
Basic and diluted net income (loss) per share:                    
Basic  $0.40   $(0.02)  $0.44   $0.25 
Diluted  $0.36   $(0.02)  $0.43   $0.25 
Weighted average shares outstanding – basic   14,820,900    8,699,978    13,147,455    8,129,779 
Weighted average shares outstanding – diluted   16,641,125    8,699,978    13,754,197    8,129,779 

 

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

 

4

 

 

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Stockholders’ Deficit

(Unaudited)

 

   Common Stock   Additional
Paid-in
   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Deficit 
Balance, December 31, 2018   7,712,569   $771   $109,080,273   $(124,647,127)  $  (15,566,083)
                          
Net loss               (171,618)   (171,618)
                          
Balance, March 31, 2019   7,712,569    771    109,080,273    (124,818,745)   (15,737,701)
                          
Issuance of common shares pursuant to exchange agreements   605,816    61    29,308        29,369 
                          
Issuance of common stock purchase warrants pursuant to exchange agreements           70,549        70,549 
                          
Net income               2,342,643    2,342,643 
                          
Balance, June 30, 2019   8,318,385    832    109,180,130    (122,476,102)   (13,295,140)
                          
Issuance of common shares pursuant to Private Placement   1,375,000    137    137,363        137,500 
                          
Net loss               (157,162)   (157,162)
                          
Balance, September 30, 2019   9,693,385   $969   $109,317,493   $(122,633,264)  $(13,314,802)

 

   Common Stock   Additional Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Deficit 
Balance, December 31, 2019   12,310,733   $1,231   $109,583,945   $(122,802,352)  $(13,217,176)
                          
Stock-based compensation           24,308        24,308 
                          
Net loss               (84,765)   (84,765)
                          
Balance, March 31, 2020   12,310,733    1,231    109,608,253    (122,887,117)     (13,277,633)
                          
Stock-based compensation           24,308        24,308 
                          
Net loss               (66,004)   (66,004)
                          
Balance, June 30, 2020   12,310,733    1,231    109,632,561    (122,953,121)   (13,319,329)
                          
Stock-based compensation           105,825        105,825 
                          
Issuance of common shares in consideration for deposit to acquire oil and gas property   500,000    50    74,950        75,000 
                          
Issuance of common shares pursuant to exchange agreements   737,532    74    132,682        132,756 
                          
Beneficial conversion feature on issuance of convertible note with detachable warrants to purchase common           325,000        325,000 
                          
Issuance of restricted stock   5,000,000    500    (500)        
                          
Net income               5,963,428    5,963,428 
                          
Balance, September 30, 2020   18,548,265   $1,855   $110,270,518   $(116,989,693)  $(6,717,320)

 

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

 

5

 

 

INFINITY ENERGY RESOURCES, INC.

Condensed Statements of Cash Flows

(Unaudited)

 

  

For the Nine Months Ended

September 30,

 
   2020   2019 
Cash flows from operating activities:          
Net income  $5,812,659   $2,013,863 
Adjustments to reconcile net income to net cash used in operating activities:          
Change in fair value of derivative liability   (248)   190,092 
Stock-based compensation   154,441     
Gain on exchange of debt and warrant obligations   (1,310,006)   (2,413,280)
Gain on derecognition of liabilities   (4,840,136)    
Amortization of discount on convertible note payable   44,094     
           
Change in operations assets and liabilities:          
Decrease in accounts payable   (16,982)   (5,740)
Increase (decrease) in accrued liabilities   (30,112)   77,721 
Increase in accrued interest   51,865    70,266 
Net cash used in operating activities   (134,425)   (67,078)
           
Cash flows from investing activities          
Deposit to acquire oil and gas property       (50,000)
           
Net cash used in investing activities       (50,000)
           
Cash flows from financing activities:          
Repayment of notes payable pursuant to exchange agreement   (100,000)    
Repayment of notes payable - related party   (41,000)    
Repayment of notes payable   (19,125)    
Proceeds from convertible note payable   325,000    56,000 
Proceeds from private placement of common stock       137,500 
Proceeds from issuance of note payable - related party   41,000     
           
Net cash provided by financing activities   205,875    193,500 
           
Net increase in cash and cash equivalents   71,450    76,422 
           
Cash and cash equivalents:          
Beginning   1,785    1,367 
Ending  $73,235   $77,789 
Supplemental cash flow information:          
Cash paid for interest  $15,536   $ 
Cash paid for taxes  $   $ 
Supplemental disclosure of non-cash investing and financing activities:          
Beneficial conversion feature on issuance of convertible note payable with detachable warrants to purchase common stock  $325,000   $ 
Issuance of common shares for deposit to acquire oil and gas property  $75,000   $ 
Issuance of restricted common stock  $500   $500 
Exchange of secured convertible note payable  $   $2,197,231 
Exchange of convertible notes payable - short term  $   $240,000 
Issuance of common shares pursuant to exchange agreements  $132,756   $29,369 
Issuance of common stock purchase warrants pursuant to exchange agreements  $   $70,549 

 

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

 

6

 

 

INFINITY ENERGY RESOURCES, INC.

Notes to Condensed Financial Statements

September 30, 2020

(Unaudited)

 

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

 

Unaudited Interim Financial Information

 

Infinity Energy Resources, Inc. (collectively, “we,” “ours,” “us,” “Infinity” or the “Company”) has prepared the accompanying condensed financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These financial statements are unaudited and, in our opinion, include all adjustments consisting of normal recurring adjustments and accruals necessary for a fair presentation of our condensed balance sheets, statements of operations, statements of stockholders’ deficit and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2020 due to various factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes in Item 8, “Financial Statements and Supplementary Data,” of our Annual Report on Form 10-K, filed with the SEC.

 

Nature of Operations

 

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

 

We also began 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. As a result, on July 31, 2019, we acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for oil & gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). We paid a nonrefundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020, and in connection with the acquisition of the new Option, the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. There can be no assurance that the Company will obtain adequate financing in order to close on the acquisition prior to November 1, 2020 regardless of the reduced price or to enable it to conduct such subsequent capital raise, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

 

7

 

 

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

 

We intend to complete the acquisition of the Properties prior to the Option termination date of November 1, 2020, subject to successfully obtaining adequate financing.

 

We must obtain new sources of debt and/or equity capital to fund the substantial needs enumerated above, as well as satisfying our existing debt obligations. We are attempting to obtain extensions of the maturity date for our outstanding debt; however, there can be no assurance that we will be able to do so or what the final terms will be if the lenders agree to such extensions. Further, we can provide no assurance that we will be able to obtain sufficient new debt/equity capital to exercise the Option.

 

COVID–19 PANDEMIC

 

The unaudited condensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of September 30, 2020. Economies throughout the world have been and continue to be severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the outbreak of the coronavirus (Covid-19). In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus because of the substantial and abrupt decrease in the demand for oil and gas globally. In addition, the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by the outbreak of the virus and we cannot forecast with any certainty when the disruptions caused by it will cease to impact our business and the results of our operations. In reading this quarterly report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused by the outbreak of Covid-19.

 

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 Nicaraguan 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 Concessions. 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.

 

We relied on raising debt and equity capital to fund our ongoing maintenance/expenditure obligations under the Nicaraguan Concession, our day-to-day operations and corporate overhead because we have 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 was in default was paid off on September 24, 2020. The Company has two other notes payable with principal balances of $85,000 as of September 30, 2020 are now in default. In January 2020, we abandoned the Concessions.

 

Going Concern

 

The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund the (i) acquisition of the Properties under the Option; (ii) normal day-to-day operations and corporate overhead; and (iii) outstanding debt and other financial obligations as they become due, as described below. These are substantial operational and financial issues that must be successfully addressed during 2020.

 

8

 

 

The Company is seeking new sources of debt and equity capital to fund the needs enumerated above. The Company is attempting to obtain extensions of the maturity dates for its debt or compromises regarding its debt. In addition, the Company will seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. The Company has extinguished and/or restructured certain obligations that were in default during 2019 and 2020; however, there can be no assurance that it will be able to obtain such new funding, extensions or additional restructurings or on what terms.

 

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

 

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, stock-based awards and overriding royalty interests, and the realization of deferred tax assets.

 

Beneficial Conversion Feature of Convertible Notes Payable

 

The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options, Emerging Issues Task Force (“EITF”) 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF 00-27, Application of Issue No 98-5 To Certain Convertible Instruments. The Beneficial Conversion Feature (“BCF”) of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible note when issued and also records the estimated fair value of any warrants issued with those convertible notes. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.

 

The BCF of a convertible note is measured by allocating a portion of the note’s proceeds to the warrants, if applicable, and as a reduction of the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants on an allocated fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense using interest method.

 

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 condensed 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.

 

9

 

 

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 September 30, 2020 and December 31, 2019 and during the periods then ended, the Company had no oil and natural gas derivative arrangements outstanding.

 

As a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company (Notes 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 derivative liabilities, which are related to detachable warrants issued in connection with various notes payable, (See Note 5 - Derivative Instruments) were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, par value $0.001 per share (the “Common Stock”), 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 (See Note 5 - Derivative Instruments) and non-performance risk factors, among other items. The fair values for the warrant derivatives as of September 30, 2020 and December 31, 2019 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 September 30, 2020 and December 31, 2019:

 

September 30, 2020  Level 1   Level 2   Level 3   Total 
Liabilities:                    
Derivative liabilities  $   $   $868   $868 
                     
   $   $   $868   $868 

 

December 31, 2019  Level 1   Level 2   Level 3   Total 
Liabilities:                    
Derivative liabilities  $   $   $1,116   $1,116 
                     
   $   $   $1,116   $1,116 

 

There were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the periods ended September 30, 2020 and December 31, 2019.

 

10

 

 

Basic and Diluted Earnings (Loss) Per Share

 

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

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. The Company adopted ASU 2019-12 for fiscal year ending December 31, 2020 and the adoption resulted in no impact on the Company’s financial position, cash flows or results of operations.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have yet been issued. If an entity early adopts these amendments in an interim period, it should reflect any adjustments as of the beginning of the annual period that includes that interim period. In addition, an entity that elects to early adopt the standard is required to adopt all of the amendments in the same period (i.e., an entity cannot select which amendments to early adopt). The Company is still evaluating the specific effect of this change. The Company will adopt ASU 2019-12 for fiscal year ending December 31, 2021.

 

Management does not believe that there are any other recently issued and effective or not yet effective pronouncements that would have or are expected to have any significant effect on the Company’s financial position, cash flows or results of operations.

 

Note 2 – Secured Convertible Note Payable

 

The Company’s Senior Secured Convertible Note Payable in the principal amount of $12.0 million, issued in May 2015 (the “Note”), was paid off and all related liabilities extinguished in 2019, therefore there was no balance outstanding as of September 30, 2020 and December 31, 2019.

 

Following is an analysis of the activity in the Note during the nine months ended September 30, 2019:

 

   Amount 
Balance at December 31, 2018  $2,197,231 
Funding under the Investor Note (as defined below) during the period    
Principal repaid during the period by issuance of Common Stock    
Change in fair value of Note during the period    
Exchange of Note payable for Common Stock   2,197,231 
      
Balance at September 30, 2019  $ 

 

11

 

 

On May 7, 2015, the Company completed a private placement in May 2015 (the “May 2015 Private Placement”) of the Note and a warrant to purchase 1,800,000 shares of Common Stock (the “Warrant”). The placement agent for the Company in the transaction received a fee of 6% of the 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 (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 “Placement Agent Warrant”).

 

The Note and Warrant were issued pursuant to a Securities Purchase Agreement, dated May 7, 2015, by and between the Company and an institutional investor (the “Investor”). The May 2015 Private Placement was made pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “33 Act”). At the closing, the Investor acquired the 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 Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested that 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 Note. The aggregate outstanding principal balance of $11,687,231 of the Note included an approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company had recorded the fair value of the Replacement Note assuming that the remaining par value was $2,197,231, as asserted by the Investor. The Replacement Note provided for a maturity date of May 7, 2018, a conversion price of $0.50 per share and was due in monthly installment payments through May 2018 either in cash or Common Stock, among other terms. The Company did not repay the Replacement Note at its maturity and it was therefore in technical default. The Replacement Note was to be secured to the same extent as the Note. The Company and the Investor have negotiated a resolution of these outstanding matters regarding the default status and the issuance of the Replacement Note under the terms of the financing.

 

On May 23, 2019, the Company and the Investor agreed to an omnibus resolution to these outstanding matters and entered into an exchange agreement (the “Exchange Agreement”) and a side-letter agreement (the “Side-Letter Agreement”), as described below:

 

Exchange Agreement: Under the Exchange Agreement, the Investor exchanged all of its rights under the original securities issued in the May 2015 Private Placement (the “Original Securities”), including: (i) the Note, subject to the Optional Offset (as defined in the Investor Note), with a current balance of $2,197,231; (ii) the related accrued interest under the Note, with a balance of $28,643; (iii) the Warrant; (iv) the Security and Pledge Agreement entered into by the Company and the Investor in connection with the May 2015 Private Placement; (v) the Guaranty made in favor of the Investor in connection with the May 2015 Private Placement; and (vi) the Registration Rights Agreement entered into by the Company and the Investor in connection with the May 2015 Private Placement, for 770,485 fully paid and nonassessable shares of Common Stock and certain rights (the “Rights”) to acquire additional securities in the future, which may be exercised for additional shares of Common Stock.

 

As a result of the exchange transactions described above, the Investor no longer owns any of the Original Securities, including any rights thereunder, and the Company cancelled the certificate(s) and other physical documentation evidencing the Investor’s ownership of the Original Securities.

 

12

 

 

Side-Letter Agreement: Concurrent with the Exchange Agreement, the Company and the Investor also entered into the Side-Letter Agreement, which provides that on November 23, 2019, the Company will, if required under the Side-Letter Agreement, issue additional shares of Common Stock to the Investor based on an increase in the Number of Fully-Diluted Shares Outstanding (as defined below) of the Company from the execution date of the Exchange Agreement to the six-month anniversary of the Exchange Agreement (the “True-Up Shares”). The issuance of the True-Up Shares, if any, shall provide the Investor with Rights to acquire additional Right Shares (as defined in the Exchange Agreement) to be calculated according to the following formula:

 

  A-B= aggregate number of Right Shares
     
  A = 9.99% of shares of Common Stock outstanding on November 23, 2019 (calculated based on the Number of Fully-Diluted Shares Outstanding (as defined below))
     
  B = The shares of Common Stock Issued to the Investor contemporaneously with the Exchange Agreement

 

For the purposes of the Side-Letter Agreement, “Number of Fully-Diluted Shares Outstanding” means, as of any time of determination, the sum of (i) the aggregate number of issued and outstanding shares of Common Stock as of such time of determination; (ii) the aggregate maximum number of shares of Common Stock issuable on an as-converted and as-exchanged basis, as applicable (excluding any exercise of warrants to purchase Common Stock), pursuant to all capital stock and all other securities of the Company or any of its subsidiaries (excluding any warrants to purchase Common Stock and all Rights issued pursuant to the Exchange Agreement) outstanding as of such time of determination (or issuable pursuant to agreements in effect as of such time) that are at any time and under any circumstances (after issuance thereof, if applicable), directly or indirectly, convertible into or exchangeable for, or which otherwise entitles the holder thereof to acquire, Common Stock (assuming, for such purpose, that each such security is convertible or exchangeable, as applicable, at the lowest price per share for which one share of Common Stock is at any time, directly or indirectly, issuable upon the conversion or exchange, as applicable, of any such security and without regards to any limitations on conversion or exchange applicable thereto); and (iii) without duplication with clause (ii) above, the aggregate maximum number of shares of Common Stock issuable pursuant to any agreement (excluding any warrants to purchase Common Stock and all Rights issued pursuant to the Exchange Agreement) of any person with the Company or any of its subsidiaries in effect as of such time of determination (assuming, for such purpose, that the shares of Common Stock, directly or indirectly, issued pursuant to such agreement is issued at the lowest price per share for which one share of Common Stock is at any time, directly or indirectly, issuable pursuant to such agreement).

 

Notwithstanding the foregoing, if any warrants to purchase Common Stock are outstanding (or issuable upon conversion or exchange of securities outstanding) as of such six-month anniversary (each, an “Outstanding Warrant”), on such six-month anniversary, the Company shall issue the Investor an additional Right to acquire a warrant (the “New Warrant”) exercisable for up to 9.99% of the shares of Common Stock issuable upon exercise of all Outstanding Warrants as of such six-month anniversary (the “New Warrant Shares”). The New Warrant Shares shall be of like tenor to the Outstanding Warrants.

 

Pursuant to the Side-Letter Agreement, the Company also agreed that from the execution date of the Exchange Agreement until twelve (12) months from such date, the Company will not raise capital at a price that is below $0.10 per share of Common Stock (as adjusted for stock splits, stock dividends, stock combinations, recapitalizations and similar events) without the Investor’s consent.

 

On May 30, 2019, the Company and the Investor entered into Amendment No. 1 to Exchange Agreement (the “Amendment”). Following execution of the Exchange Agreement on May 23, 2019, the Company and the Investor became aware of an inadvertent error regarding the number of shares of Common Stock to be issued to the Investor pursuant to the Exchange Agreement. The Company and the Investor agreed to amend the Exchange Agreement so it reflects the correct number of shares of Common Stock to be issued and to ensure that the Investor does not beneficially own in excess of 9.99% of the shares of Common Stock outstanding immediately following the effective date of the Exchange Agreement. Pursuant to the Amendment, the Company and the Investor agreed that the number of shares of Common Stock to be issued to the Investor would be an aggregate of 605,816 shares, instead of the 770,485 shares stated in the Exchange Agreement.

 

Consistent with the developments above, effective November 23, 2019, the parties finalized the reconciliation pursuant to the Side-Letter Agreement described above and the related issuance of the True-Up Shares. Pursuant to the provisions of the Side-Letter Agreement, the parties agreed to the issuance of an additional 567,348 shares of Common Stock and the issuance of a warrant to purchase 61,380 shares of Common Stock at an exercise price of $0.50 per share, with an expiration date of June 19, 2026.

 

13

 

 

Following is an analysis of gain on exchange of the debt and warrant obligations pursuant to the Exchange Agreement, which was finalized on November 23, 2019:

 

   Amount 
Obligations extinguished on the date of exchange, May 23, 2019:     
Note balance at the date of exchange, May 23, 2019  $2,197,231 
Accrued interest on the Note at the date of exchange, May 23, 2019   28,643 
Fair value of Warrant Derivative at the date of exchange, May 23, 2019   116,731 
Securities issued in exchange for the obligations extinguished on the date of exchange, May 23, 2019 and the finalization of the Side-Letter Agreement at November 23, 2019:     
605,816 shares of Common Stock issued on the date of exchange May 23, 2019 valued at $0.121 per share, the closing market price on May 23, 2019   (73,304)
567,348 shares of Common Stock issued pursuant to the finalization of the Side-Letter agreement on November 23, 2019   (68,082)
      
Issuance of warrants to purchase 61,380 shares of Common Stock issued pursuant to the finalization of the Side-Letter agreement on November 23, 2019   (7,358)
      
Gain on exchange of debt and warrant obligations  $2,193,861 

 

Prior to the finalization of the Side-Letter Agreement, the estimate of the gain on exchange of debt and warrant obligations related to the Note as of September 30, 2019 was $2,161,441.

 

In addition, the Company issued the Placement Agent Warrant in May 2015 to purchase 240,000 shares of Common Stock issued as part of the placement fee in connection with the Note. The Placement Agent Warrant contained an expiration date of May 7, 2022 and an exercise price of $5.00 per share and is subject to certain price protection and dilution provisions. Such warrant was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions.

 

On June 4, 2019, the Company entered into an exchange agreement with the Placement Agent to extinguish the Placement Agent Warrant, including its certain price protection and dilution provisions, for a new warrant to purchase up to 50,000 shares of Common Stock with a termination date of June 4, 2026 at an exercise price of $0.50 per share without any price protection or dilution provisions.

 

The estimated fair value of the Placement Agent Warrant derivative as of May 23, 2019, the date of the exchange agreement with the Placement Agent, was $37,368, representing a change of $29,795 from January 1, 2019.

 

As a result of the exchange agreement with the Placement Agent, the Company extinguished the derivative liability of $37,368 attributable to the Placement Agent Warrant and recognized the estimated value of the new warrant of $7,985 as of June 4, 2019, the date of such exchange agreement. The resulting $29,383 difference between the estimated fair value of the Placement Agent Warrant extinguished and the new warrant issued to the Placement Agent was recorded as a gain on exchange of debt and warrant obligations, effective June 4, 2019.

 

A summary of the estimated gain on exchange and extinguishment of debt and warrant obligations as of and for the nine months ended September 30, 2019 follows:

 

   Amount 
Exchange of secured convertible note – estimated at September 30, 2019 (See Note 2 above)  $2,161,441 
Warrant issued to Placement Agent and exchanged on June 4, 2019 (See Note 2 above)   29,383 
Convertible note exchanged on June 19, 2019 (See Note 3)   222,456 
      
Gain on exchange of debt and warrant obligations  $2,413,280 

 

14

 

 

Note 3 – Debt

 

Debt consists of the following at September 30, 2020 and December 31, 2019:

 

   September 30, 2020   December 31, 2019 
Notes payable, short term:          
Convertible note payable, (less discount of $321,074 and $-0- as of  September 30, 2020 and December 31, 2019, respectively)  $44,094   $ 
Note payable (in default)       1,000,000 
Note payable (in default)   50,000    50,000 
Note payable (in default)   35,000    35,000 
Note payable (due on demand)       19,125 
Total notes payable, short-term  $129,094   $1,104,125 

 

Convertible Note Payable – Short-term

 

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

 

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

 

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

 

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

 

15

 

 

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

 

The Note contains a BCF because the convertible portion or feature of the August Note provides a rate of conversion that is below market value and therefore is “in-the-money” when issued. The Company has recorded the BCF related to the issuance of the August Note when issued and also recorded the estimated fair value of the detachable August Warrant issued with the August Note.

 

The BCF of the August Note was measured by allocating a portion of the August Note’s proceeds to the detachable August Warrant (utilizing black-scholes methodology), and as a reduction of the carrying amount of the August Note equal to the intrinsic value of the conversion feature, both of which were credited to additional paid-in-capital as of the issuance date. The value of the proceeds received from the August Note was then allocated between the conversion features and August Warrant on an allocated fair value basis. The allocated value of the BCF and August Warrant exceeded the proceeds received from issuance of the August Note which was recorded as a discount from the face amount of the August Note. The discount is amortized over the term of the August Note under the interest method and is charged to interest expense.

 

Following is an analysis of the August Note as of its issuance date:

 

   Amount 
Allocation of August Note:     
Amount allocated to beneficial conversion feature  $221,006 
Amount allocated to detachable August Warrants   103,994 
Amount allocated to original issue discount   40,169 
      
Par value of August Note   365,169 
Less: Discount   (365,169)
      
August Note balance – Net of discount on date of issuance   $ 

 

Following is a summary of the August Note as of and for the nine months ended September 30, 2020 follows:

 

   Amount 
Balance December 31, 2019  $ 
Issuance of August Note    
Amortization of discount for the nine months ended September 30, 2020   44,094 
      
Balance September 30, 2020, August Note – Net of discount  $44,094 

 

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 “December 2013 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 Company and such lender amended the date for exercise of the December 2013 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 December 2013 Note to the new April 2015 maturity date (the “New Maturity Date”). If the Company failed to pay the December 2013 Note on or before the New Maturity Date, the number of shares issuable under the December 2013 Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the December 2013 Warrant remained the same. The December 2013 Warrant has been treated as a derivative liability whereby the value of December 2013 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. The December 2013 Warrant expired as of September 30, 2020 and is no longer exercisable.

 

16

 

 

In connection with an additional extension of the December 2013 Note to April 7, 2016, the Company agreed to enter into a definitive revenue sharing agreement with the lender (the “Revenue Sharing Agreement”) 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 percentage 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 December 2013 Note and amortized ratably over the extended term of such note. Such prospective Revenue Sharing Agreement is void with the abandonment of the Nicaraguan Concessions.

 

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 December 2013 Warrant to $5.00 per share and extended the term of the December 2013 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 December 2013 Note to the New Maturity Date. If the Company failed to pay the December 2013 Note on or before the New Maturity Date, the number of shares issuable under the December 2013 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 Company failed to make the required payment previously described and the reset of the terms of the December 2013 Warrant occurred, however such warrant expired in March 2017 unexercised. 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 was in default and the parties agreed to a resolution to this default, including completing the extinguishment of the note balance, accrued interest and revenue sharing agreement through an exchange agreement which is further described below.

 

The December 2013 Warrant was treated as a derivative liability whereby the value of the December 2013 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 was 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 December 2013 Warrant expired in 2019 and is not deemed outstanding as of September 30, 2020 and December 31, 2019. The discount was 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 December 2013 Note to be amortized ratably over the extended term of such note.

 

On September 24, 2020, the Company entered into an Exchange and Settlement Agreement (the “September Exchange Agreement”) with the December 2013 Note holder (the “Holder”), pursuant to which the Holder agreed to exchange the December 2013 Note in the original principal amount of $1,050,000, representing outstanding principal balance of $1,000,000 and accrued and unpaid interest thereon (which totaled $542,762 as of September 24, 2020), for (i) a cash payment in the amount of $100,000 and (ii) 737,532 newly issued shares of Common Stock (the “Exchange”).

 

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

 

17

 

 

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

 

A summary of the gain on exchange and extinguishment of debt and the related accrued interest as of and for the nine months ended September 30, 2020 follows:

 

   Amount 
Principal balance of December 2013 Note extinguished as a result of the Exchange  $1,000,000 
      
Accrued interest extinguished as a result of the Exchange   542,762 
      
Total obligations extinguished as a result of the Exchange   1,542,762 
      
Cash payment to Holder as a result of the Exchange   (100,000)
      
Value of Common Stock issued as a result of the Exchange   (132,756)
      
Gain on extinguishment of debt and related accrued interest  $1,310,006 

 

Other notes payable

 

The following notes were extinguished on June 19, 2019:

 

  On November 8, 2016, the Company borrowed a total of $200,000 from an individual under a convertible note payable with a conversion rate of $5.00 per share. The note required no principal or interest payments until its maturity date of November 7, 2017 and bore interest at 8% per annum. The note was not paid on its original maturity date.
     
  On April 20, 2017, the Company borrowed $40,000 under an unsecured credit facility with a private, third-party lender which was 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 bore interest at 8% per annum. The note was not paid on its maturity date.

 

On June 19, 2019, the Company and the holder of these two convertible notes entered into an exchange agreement whereby such notes with an unpaid principal balance of $240,000 and related accrued interest totaling $45,020 were extinguished. Under such exchange agreement, the Company issued the individual a new warrant exercisable to purchase up to 570,000 shares of Common Stock at an exercise price of $0.50 per share, with a termination date of June 19, 2026 and without any price protection or dilution provisions in exchange for the extinguishment of such notes and related accrued interest. The Black-Scholes valuation of the warrant issued to the holder on June 19, 2019 totaled $62,564.

 

Following is an analysis of gain on extinguishment of the obligations pursuant to such exchange agreement on June 19, 2019:

 

   Amount 
Obligations extinguished on the date of exchange, June 19, 2019:     
Convertible notes balance at the date of exchange, June 19, 2019  $240,000 
Accrued interest on the convertible notes at the date of exchange, June 19, 2019   45,020 
      
Securities issued in exchange for the obligations extinguished on the date of the exchange, June 19, 2019:     
Value of the stock purchase warrant issued on the date of exchange, June 19, 2019   (62,564)
      
Gain on exchange of debt and warrant obligations  $222,456 

 

18

 

 

Other than the December 2013 Note, at September 30, 2020, the Company had short-term notes outstanding with entities or individuals as follows:

 

 
 
On July 7, 2015, the Company borrowed a total of $50,000 from an individual under a convertible note payable with the conversion rate of $5.60 per share. The term of such note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the individual a warrant for the purchase of 5,000 shares of Common Stock at $5.60 per share for a period of five years from the date of such note. The terms of such note and warrant provide that should such note, and related 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 such warrant requires that such warrant be accounted for as derivative liability. The Company recorded the estimated fair value of such warrant totaling $22,314 as a discount on such note payable and as a derivative liability in the same amount, as of the origination date. On October 7, 2015, such note was extended for an additional 90 days, or until January 7, 2016, and later to May 7, 2016 and then to October 7, 2016. The Company did not repay such note by October 7, 2016. The Company and such 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 holder of such note 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 are immediately exercisable and expire in five years. The value of the 5,000 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 $511 and $662 as of September 30, 2020 and December 31, 2019, 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 such 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 such note. The terms of such note and warrant provide that should such note, and related 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 such warrant requires that such warrant be accounted for as a derivative liability. The Company recorded the estimated fair value of such warrant totaling $11,827 as a discount on such note payable and as a derivative liability in the same amount, as of the origination date. On October 15, 2015, such note was extended for an additional 90 days, or until January 15, 2016, and later to October 15, 2016. The Company did not repay such note by October 15, 2016. The Company is 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 are immediately exercisable and expire in five years. The value of the 3,500 warrants on January 15, 2016 totaled $267 and $74 on October 2016, both of which were amortized over the extension period (through October 15, 2016). The related warrant derivative liability balance was $357 and $454 as of September 30, 2020 and December 31, 2019, respectively. See Note 5.
     
  On May 21, 2018, the Company borrowed $13,125 under an unsecured promissory note with a private third-party lender, which is convertible into Common Stock at a rate of $0.50 per share. During June 2019 and August 2019, the Company borrowed an additional $50,500 and $5,500, respectively, from this same third-party lender under the same terms. Such note is due on demand and bears interest at 8% per annum. In October 2019 the Company repaid $50,000 in principal on this demand note and the remaining balance of $19,125 was paid off on August 19, 2020.

 

19

 

 

  On May 13, 2020, the Company borrowed $41,000 from its Chairman, Chief Executive Officer and President in the form of an unsecured promissory note bearing 6% interest and due on demand. The proceeds were used for general working capital purposes. The outstanding principal on such note totaling $41,000 was paid off in full on August 19, 2020. During the nine months ended September 30, 2020, the Company accrued and paid a total of $654 of interest on this related party note payable.  

 

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 June 2005, the Company’s stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), under which both incentive and non-statutory stock options were available for grant to employees, officers, non-employee directors and consultants. An aggregate of 47,500 shares of Common Stock were reserved for issuance under the 2005 Plan and 2006 Plan; however, the 2005 Plan and the 2006 Plan have now expired, and no further issuances can be made. 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 could have been granted to employees, officers, non-employee directors and consultants. 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 Plan and 2006 Plan.

 

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 of Common Stock for issuance under the 2015 Plan.

 

As of September 30, 2020, 500,000 shares were available for future grants under the 2015 Plan. All other Company 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 nine months ended September 30, 2020 and 2019.

 

The following table summarizes stock option activity for the nine months ended September 30, 2020:

 

   Number of Options   Weighted Average Exercise
Price Per
Share
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2019   332,000   $41.86    2.29 years   $ 
Granted                  
Exercised                  
Forfeited                  
Outstanding at September 30, 2020   332,000   $41.86    1.54 years   $ 
Outstanding and exercisable at September 30, 2020   332,000   $41.86    1.54 years   $ 

 

20

 

 

The Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $-0- and $-0- during the nine months ended September 30, 2020 and 2019, respectively.

 

The intrinsic value as of September 30, 2020 related to the vested and unvested stock options as of that date was $-0-. The unrecognized compensation cost as of September 30, 2020 related to the unvested stock options as of that date was $-0-

 

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

 

A summary of all restricted stock activity under the equity compensation plans for the nine months ended September 30, 2020 is as follows:

 

   Number of
Restricted
shares
   Weighted
average
grant date
fair value
 
Nonvested balance, December 31, 2019   750,000   $0.13 
Granted   5,000,000    0.13 
Vested   (625,000)   (0.13)
Forfeited        
Nonvested balance, September 30, 2020   5,125,000   $0.13 

 

The Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted granted aggregating $154,441 and $-0- during the nine months ended September 30, 2020 and 2019, respectively.

 

The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of September 30, 2020, there were $569,284 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next twenty-one months in accordance with the respective vesting scale.

 

The nonvested balance of restricted stock vests as follows:

 

Years ended  Number of
shares
 
     
2020 (October 1, 2020 through December 31, 2020)   2,000,000 
2021   3,125,000 
Total   5,125,000 

 

21

 

 

Note 5 – Derivative Instruments

 

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, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, interest rates, the probability of both the downward adjustment of the exercise price and the upward adjustment to the number of warrants as provided by the warrant agreement terms (Note 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 two other short-term notes payable (See Note 3) contain ratchet and anti-dilution provisions that remain in effect during the term of the warrants while the ratchet and anti-dilution provisions of the other notes payable cease when the related note payable is extinguished. When the related notes 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 Company issued warrants to purchase an aggregate of 25,500 shares of Common Stock, in connection with various outstanding debt instruments which require derivative accounting treatment as of September 30, 2020 and December 31, 2019. A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of September 30, 2020 and December 31, 2019 is as follows:

 

   As of
September 30, 2020
   As of
December 31, 2019
 
         
Volatility – range   374.5%   316.2%
Risk-free rate   0.28%   1.69%
Contractual term   0.1 – .8 years    0.5 – 1.3 years 
Exercise price  $5.60   $5.60 
Number of warrants in aggregate   25,500    34,000 

 

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, 2019  $1,116 
Unrealized derivative gains included in other income/expense for the period   (248)
      
Balance at September 30, 2020  $868 

 

Note 6 – Warrants

 

The following table summarizes warrant activity for the nine months ended September 30, 2020:

 

   Number of
Warrants
   Weighted
Average
Exercise Price
Per Share
 
Outstanding and exercisable at December 31, 2019   946,943   $1.78 
Issued   800,000    0.50 
Exercised/forfeited   (200,063)   (5.03)
           
Outstanding and exercisable at September 30, 2020   1,546,880   $0.70 

 

The weighted average term of all outstanding common stock purchase warrants was 5.1 years as of September 30, 2020. 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 September 30, 2020.

 

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Note 7 – Income Taxes

 

The effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due to the net operating loss history of the Company maintaining a full reserve on all net deferred tax assets during the nine months ended September 30, 2020 and 2019. In addition, the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017 which 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.

 

The Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at September 30, 2020. 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 $66,950,000 in accordance with its 2019 Federal Income tax return as filed, which expire from 2025 through 2038.

 

The Company has recently completed the filing of its tax returns for the tax years 2012 through 2019. 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 as of September 30, 2020, 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.

 

Note 8 – Gain on Extinguishment of Liabilities

 

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

 

A summary of the estimated gain on exchange and extinguishment of trade payables, debt and warrant obligations as of and for the nine months ended September 30, 2020 and 2019 follows:

 

   September 30, 2020   September 30, 2019 
Notes payable, short term:          
Gain on extinguishment of debt and related accrued interest (See Note 3 above)  $1,310,006   $ 
Extinguishment of trade payables   4,840,136     
Exchange of secured convertible note – estimated at September 30, 2019 (See Note 2 above)       2,161,441 
Warrant issued to Placement Agent and exchanged on June 4, 2019 (See Note 2 above)       29,383 
Convertible note exchanged on June 19, 2019 (See Note 3)       222,456 
Total notes payable, short-term  $6,150,142   $2,413,280 

 

The Company incurred trade payable obligations totaling $4,840,136 during 2013 which were extinguished in 2020 pursuant to the relevant Statute of Limitations.

 

23

 

 

Note 9 – Commitments and Contingencies

 

The Company did not maintain insurance coverage on its U.S domestic oil and gas properties for a period of time that it owned oil and gas leases through its subsidiaries. Therefore, the Company was not in compliance with Federal and State laws regarding the U.S. domestic oil and gas properties it previously owned. The Company’s known compliance issues relate to the Texas Railroad Commission regarding the capping of abandoned wells, administrative filings and renewal permits relative to its Texas oil and gas properties that were sold in 2012 through a sale of its wholly-owned subsidiary Infinity Texas. 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 Concessions as of September 30, 2020, including (1) the drilling of at least one exploratory well on the Perlas concession block; (2) the shooting of additional seismic on the Tyra concession block; (3) the provision of the Ministry of Energy of Nicaragua with the required letters of credit in the amounts totaling $1,356,227 for the Perlas concession block and $278,450 for the Tyra concession block for exploration requirements on the leases; (4) payment of the 2016, 2017, 2018 and 2019 area fees required for both of the Concessions, which total approximately $194,485; and (5) payment of the 2016, 2017, 2018 and 2019 training fees required for both of the Concessions, totaling approximately $350,000. The Company had been 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; however, the political climate, domestic issues and other factors caused the Company to halt such efforts and abandon the Concessions in January 2020.

 

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 the Company’s former subsidiaries, Infinity Wyoming and Infinity Texas, were disposed during and prior to 2012; however, the Company may remain liable for certain asset retirement costs should the new owners not complete their obligations properly plug abandoned wells. Management believes the total asset retirement obligations recorded of $1,716,003 as of September 30, 2020 and December 31, 2019 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.

 

Binding Term Sheet to Acquire Domestic Oil and Gas Properties

 

On July 31, 2019, we acquired the Option from Core to purchase the production and mineral rights/leasehold for the Properties. We paid a nonrefundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020, and in connection with the acquisition of the new Option, the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. There can be no assurance that the Company will obtain adequate financing in order to close on the acquisition prior to November 1, 2020 regardless of the reduced price or to enable it to conduct such subsequent capital raise, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

 

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

 

24

 

 

We intend to complete the acquisition of the Properties prior to the Option termination date of November 1, 2020, subject to successfully obtaining adequate financing. We must obtain new sources of debt and/or equity capital to fund the acquisition, develop and operate the Properties. Further, we can provide no assurance that we will be able to obtain sufficient new debt/equity capital to exercise the Option.

 

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.

 

As part of the claims and legal actions referred to above, the Company is currently involved in court litigation as follows:

 

In October 2012 the State of Texas filed a lawsuit naming Infinity Texas, such subsidiary’s corporate officers and the Company, 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 the Company 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 September 30, 2020 and December 31, 2019, which management believes is sufficient to provide for the ultimate resolution of this dispute.

 

25

 

 

Note 10 – Related Party Transactions

 

The Company does not have any employees other than its Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the Company’s Chief Financial Officer’s accounting firm at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and other administrative fees. The Company no longer utilizes its Chief Financial Officer’s accounting firm for such support services and was not billed for any such services during the nine months ended September 30, 2020 and 2019. The amount due to such firm for services previously provided was $762,407 as of September 30, 2020 and December 31, 2019 and is included in accrued liabilities at both dates.

 

The Company’s Chief Operating Officer is a non-controlling member of Core. The Company acquired an Option from Core to purchase the production and mineral rights/leasehold for the Properties. The Company paid a nonrefundable deposit of $50,000 in 2019 to bind the original Option, which gave it the right to acquire the Properties for $2.5 million prior to December 31, 2019. On September 2, 2020, the parties acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020, and in connection with the acquisition of the new Option, the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. The Company issued 500,000 shares of Common Stock valued at $75,000 to Core in order to bind the new Option. There can be no assurance that the Company will obtain adequate financing in order to close on the acquisition prior to November 1, 2020 regardless of the reduced price or to enable it to conduct such subsequent capital raise, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

 

As of September 30, 2020 and December 31, 2019, the Company had accrued compensation to its officers and directors of $1,829,208. The Board of Directors authorized the Company to cease compensation for its officers and directors, effective January 1, 2018.

 

On May 13, 2020, the Company borrowed $41,000 from its Chairman, CEO & President in the form of an unsecured promissory note bearing 6% interest and due on demand. The proceeds were used for general working capital purposes. The entire principal balance of the note was retired on August 19, 2020 and there is no remaining balance as of September 30, 2020. During the nine months ended September 30, 2020, the Company accrued and paid a total of $654 of interest on this related party note payable.

 

Note 11 –Net Earnings (Loss) Per Share

 

The calculation of the weighted average number of shares outstanding and loss per share outstanding for the three and nine months ended September 30, 2020 and 2019 are as follows:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2020   2019   2020   2019 
Numerator for basic income per share -
Net income (loss)
  $5,963,428   $(157,162)  $5,812,659   $2,013,863 
                     
Less: Interest expense on convertible debt   46,529        46,529     
                     
Numerator for diluted income per share –
Net income (loss)
  $6,009,957   $(157,162)  $5,859,188   $2,013,863 
                     
Denominator for basic loss per share – weighted average shares outstanding   14,820,900    8,699,978    13,147,455    8,129,779 
                     
Dilutive effect of convertible debt outstanding   1,820,225         606,742      
                     
Dilutive effect of shares issuable under stock options and warrants outstanding                
                     
 Denominator for diluted loss per share – adjusted weighted average shares outstanding   16,641,125    8,699,978    13,754,197    8,129,779 
                     
Net loss per share:                    
Basic  $0.40   $(0.02)  $0.44   $0.25 
Diluted  $0.36   $(0.02)  $0.43   $0.25 

 

26

 

 

Basic loss per share is based upon the weighted average number of shares of Common Stock outstanding during the period. For the three and nine months ended September 30, 2020, the shares issuable upon conversion of the convertible debt issued on August 19, 2020 were considered Common Stock equivalents and therefore its dilutive effect was included in the computation of diluted income per share. All shares issuable upon conversion of convertible debt (other than the convertible debt issued on August 19, 2020) and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

 

For the three and nine months ended September 30, 2019, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

 

Note 12 Subsequent Events

 

COVID–19 PANDEMIC

 

The unaudited condensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of September 30, 2020. Continuing after such date, we believe that our efforts to raise necessary capital will likely be adversely impacted by the outbreak of the coronavirus (Covid-19) and we cannot forecast with any certainty when the disruptions caused by it will cease to impact our business and the results of our operations in subsequent quarterly periods. In reading this quarterly report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties to the results of our operations in such subsequent periods caused by the outbreak of Covid-19.

 

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

 

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

 

Note Regarding Forward Looking Statements

 

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

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.

 

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this quarterly report on Form 10-Q to be accurate as of the date hereof. Changes may occur after that date, and we will not update that information except as required by law.

 

As used in this quarterly report, “Infinity,” the “Company,” “we,” “us” and “our” refer collectively to Infinity Energy Resources, Inc., its predecessors and subsidiaries or one or more of them as the context may require.

 

Overview

 

The Company is an oil and natural gas exploration, development and production company, which is primarily in the business of drilling and operating oil & gas wells. Since 2009, the Company has planned 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. However, in January 2020, the Company abandoned the Concessions. The Company has also assessed various opportunities and strategic alternatives involving the acquisition, exploration and development of 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, such as in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). The Company intends to complete the acquisition of the Properties prior to the end of 2020, subject to successful renegotiations and obtaining adequate financing.

 

2020 Operational and Financial Objectives

 

COVID–19 PANDEMIC

 

The unaudited condensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of September 30, 2020. Economies throughout the world continue to be severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the outbreak of the coronavirus (Covid-19). In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus because of the substantial and abrupt decrease in the demand for oil and gas globally. In addition, the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by the outbreak of the virus and we cannot forecast with any certainty when the disruptions caused by it will cease to impact our business and the results of our operations. In reading this quarterly report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused by the outbreak of Covid-19.

 

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Corporate Activities

 

The Company’s 2020 operating objectives have focused on the resolution of obligations in default and to acquire the Properties.

 

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

 

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

 

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

 

The Company used the proceeds of the August Note to pay off $60,125 in principal balance of notes payable that were in default, to pay the $100,000 required by the exchange agreement described below and for general working capital.

 

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

 

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

 

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

 

Option to Acquire Oil and Gas Properties - On July 31, 2019, we acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for the Properties. We paid a nonrefundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020, and in connection with the acquisition of the new Option, the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. There can be no assurance that the Company will obtain adequate financing in order to close on the acquisition prior to November 1, 2020 regardless of the reduced price or to enable it to conduct such subsequent capital raise, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

 

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

 

We intend to complete the acquisition of the Properties prior to the Option termination date of November 1, 2020, subject to successfully obtaining adequate financing.

 

Off-Balance Sheet Arrangements

 

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

 

Comparison of the Three Months Ended September 30, 2020 and 2019

 

Results of Operations

 

Revenue

 

The Company had no revenues in either 2020 or 2019 because it increasingly focused on the acquisition of domestic oil and gas properties, resulting in its acquisition of the Option for the Properties on July 31, 2019.

 

Production and Other Operating Expenses (Income)

 

The Company had no production related operating expenses in either 2020 or 2019. The Company sold its investment in its former subsidiary, Infinity Oil and Gas of Texas, Inc. (“Infinity Texas”), in July 2012 and held no developed or undeveloped oil and gas properties in the United States in 2020 and 2019.

 

The Company has no domestic exploration and development activities.

 

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General and Administrative Expenses

 

General and administrative expenses was $120,168 for the three months ended September 30, 2020, an increase of $110,257, or 1,112%, from our general and administrative expenses of $9,911 for the same period in 2019. The increase in general and administrative expenses is primarily attributable to stock-based compensation expense totaling $105,825 related to the restricted stock granted to our officers, directors and certain consultants during the three months ended September 30, 2020. The restricted stock granted will continue to be amortized through June 2022.

 

Interest Expense

 

Interest expense increased $47,403, or 237%, to $67,370 for the three months ended September 30, 2020, from $19,967 for the three months ended September 30, 2019. The increase is primarily attributable to the August Note, which has a principal balance of $365,169 and bears interest at an 8% rate. The Company used the proceeds of the August Note to pay off $60,125 in principal balance of notes payable that were in default, to pay the $100,000 required by the Exchange Agreement and for general working capital.

 

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

 

Gain on Extinguishment of Liabilities

 

The gain on extinguishment of liabilities is attributable to two transactions that extinguished outstanding liabilities during the three months ended September 30, 2020; (i) the Exchange Agreement, which extinguished a promissory note with an outstanding principal balance of $1,000,000, $542,762 in accrued interest and other obligations previously outstanding and resulting in a total gain of $1,310,006, and (ii) the extinguishment of trade payable obligations totaling $4,840,136 that arose during 2013 which were extinguished in 2020 pursuant to the relevant statute of limitations.

 

No similar extinguishments of liabilities occurred during the three months ended September 30, 2019.

 

Change in Derivative Fair Value

 

The conversion feature in certain of the Company’s outstanding promissory notes and common stock purchase warrants issued in connection with short-term notes outstanding during 2020 and 2019 are treated as derivative instruments because such notes and warrants contain ratchet and anti-dilution provisions. The market-to-market process resulted in a gain of $824 during the three months ended September 30, 2020 and a loss of $127,284 during the three months ended September 30, 2019.

 

Income Tax

 

The Company recorded no income tax benefit (expense) in the three months ended September 30, 2020. The Company has been in a cumulative tax loss position and has substantial net operating loss carryforwards available for its utilization at September 30, 2020. The Company has continued to carry a 100% reserve on its net deferred tax assets and therefore recorded no income tax expense on its income before income taxes during the three months ended September 30, 2020 and 2019.

 

Net Income (Loss)

 

As a result of the above, the Company reported net income of $5,963,428 for the three months ended September 30, 2020, compared to a net loss of $157,162 for the same period in 2019. This represents an improvement of $6,120,590.

 

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Basic and Diluted Net Income (Loss) per Share

 

Basic net income (loss) per share is computed by dividing the net loss by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of Common Stock and Common Stock equivalents outstanding during the period. Common Stock equivalents included in the diluted computation represent shares of Common Stock issuable upon the assumed conversion of convertible debt and 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 Stock equivalents would have an anti-dilutive effect. In addition, in periods in which there is net income and the effect of including Common Stock equivalents in the diluted per share calculations would be anti-dilutive (such as when the conversion or exercise price of the Common Stock equivalents are higher than the average closing market price per share) such anti-dilutive Common Stock equivalents would also be excluded from the calculation of basic and diluted weighted average shares outstanding.

 

During the three months ended September 30, 2020, the shares of Common Stock issuable upon conversion of the August Note were considered Common Stock equivalents and therefore the dilutive effect of such issuance was included in the computation of diluted income per share. All shares of Common Stock issuable upon conversion of convertible debt (other than the August Note) and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share for the three months ended September 30, 2020.

 

During the three months ended September 30, 2019, all of the Common Stock equivalents outstanding were anti-dilutive because of the net losses incurred during such period and their respective conversion or exercise prices were higher than the average closing market price per share during such period. Therefore, all of the Common Stock equivalents outstanding during the three months ended September 30, 2019 were excluded from the diluted weighted average shares outstanding and diluted income per share calculations.

 

The basic and diluted net earnings per share were $0.40 and $0.36 for the three months ended September 30, 2020, respectively. The basic and diluted net loss per share were both $0.02 for the three months ended September 30, 2019.

 

Potential equivalent shares of Common Stock as of September 30, 2020 totaled 5,822,700 shares of Common Stock, which included 3,943,820 shares of Common Stock underlying convertible debt, 1,546,880 shares of Common Stock underlying outstanding warrants and 332,000 shares of Common Stock underlying outstanding stock options.

 

Comparison of the Nine months Ended September 30, 2020 and 2019

 

Results of Operations

 

Revenue

 

The Company had no revenues in either 2020 or 2019 because it increasingly focused on the acquisition of domestic oil and gas properties, resulting in its acquisition of the Option on September 2, 2020.

 

Production and Other Operating Expenses (Income)

 

The Company had no production related operating expenses in either 2020 or 2019. 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 2020 and 2019.

 

The Company has no domestic exploration and development activities.

 

General and Administrative Expenses

 

General and administrative expenses was $226,235 for the nine months ended September 30, 2020, an increase of $87,176, or 63%, from our general and administrative expenses of $139,059 in the same period in 2019. The increase in general and administrative expenses is primarily attributable to stock based compensation expense totaling $154,441 related to the restricted stock granted to our officers, directors and certain consultants during the nine months ended September 30, 2020, offset by the abandonment of our Nicaraguan Concessions, which reduced our general and administrative expenses by $77,784. The restricted stock granted to our officers, directors and certain consultants will continue be amortized through June 2022.

 

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Interest Expense

 

Interest expense increased to $111,496 for the nine months ended September 30, 2020, compared to $70,266 for the nine months ended September 30, 2019, an increase of $41,230, or 59%. The Company issued the August Note, which has a principal balance of $365,169 and bears interest at an 8% rate. The Company used the proceeds of the August Note to pay off $60,125 in principal balance of notes payable that were in default, to pay the $100,000 required by the Exchange Agreement and for general working capital.

 

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

 

Gain on Extinguishment of Liabilities

 

The gain on extinguishment of liabilities is attributable to two transactions that extinguished outstanding liabilities during the nine months ended September 30, 2020; (i) the Exchange Agreement which extinguished a promissory note with an outstanding principal balance of $1,000,000, $542,762 in accrued interest and other obligations previously outstanding and resulting in a total gain of $1,310,006, and (ii) the extinguishment of trade payable obligations totaling $4,840,136 that arose during 2013 which were extinguished in 2020 pursuant to the relevant statute of limitations.

 

The gain on extinguishment of liabilities during the 2019 period was attributable to the extinguishment of a senior secured convertible note in the principal amount of $12 million issued by the Company in May 2015 (the “May 2015 Note”), which had an approximate principal balance of $2.2 million, short term notes payable with a principal balance totaling $240,000 and a warrant to purchase 240,000 shares of Common Stock issued to the placement agent for the Company’s May 2015 private placement transaction during the nine months ended September 30, 2019. The Company and the holders of these obligations agreed to extinguish the existing obligations (which were in default) in exchange for the issuance of shares of Common Stock or new warrants to purchase shares of Common Stock with no price or dilution protection. Upon exchange of such securities, the existing obligations were cancelled and such note holders signed agreements which released the Company of all obligations related to such securities. As a result, the Company extinguished such original securities/obligations and recorded the issuance of the new obligations at their fair value on the date of exchange, resulting in an estimated total gain of $2,413,280 during the nine months ended September 30, 2019.

 

Change in Derivative Fair Value

 

The conversion feature in certain outstanding promissory notes and common stock purchase warrants issued in connection with short-term notes outstanding during 2020 and 2019 are treated as derivative instruments because such notes and warrants contain ratchet and anti-dilution provisions. The market-to-market process resulted in a gain of $248 during the nine months ended September 30, 2020, compared to a loss of $190,092 during the nine months ended September 30, 2019.

 

Income Tax

 

The Company recorded no income tax benefit (expense) in the nine months ended September 30, 2020. The Company has been in a cumulative tax loss position and has substantial net operating loss carryforwards available for its utilization at September 30, 2020. The Company has continued to carry a 100% reserve on its net deferred tax assets and therefore recorded no income tax expense on its income before income taxes during the nine months ended September 30, 2020 and 2019.

 

Net Income (Loss)

 

The Company reported net income of $5,812,659 for the nine months ended September 30, 2020, compared to net income of $2,013,863 for the same period in 2019. This represents an improvement of $3,798,796.

 

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Basic and Diluted Net Income (Loss) per Share

 

Basic net income (loss) per share is computed by dividing the net loss by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of Common Stock and Common Stock equivalents outstanding during the period. Common Stock equivalents included in the diluted computation represent shares of Common Stock issuable upon the assumed conversion of convertible debt and 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 Stock equivalents would have an anti-dilutive effect. In addition, in periods in which there is net income and the effect of including Common Stock equivalents in the diluted per share calculations would be anti-dilutive (such as when the conversion or exercise price of the Common Stock equivalents are higher than the average closing market price per share) such anti-dilutive Common Stock equivalents would also be excluded from the calculation of basic and diluted weighted average shares outstanding.

 

During the nine months ended September 30, 2020, the shares of Common Stock issuable upon conversion of the August Note were considered Common Stock equivalents and therefore its dilutive effect was included in the computation of diluted income per share. All shares of Common Stock issuable upon conversion of convertible debt (other than the August Note) and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share for the nine months ended September 30, 2020.

 

During the nine months ended September 30, 2019, all of the Common Stock equivalents outstanding were anti-dilutive because of their respective conversion or exercise prices were higher than the average closing market price per share during such period. Therefore, all of the Common Stock equivalents outstanding during the nine months ended September 30, 2019 were excluded from the diluted weighted average shares outstanding and diluted income per share calculations.

 

The basic and diluted net earnings per share were $0.44 and $0.43 for the nine months ended September 30, 2020, respectively. The basic and diluted net earnings per share were both $0.25 for the nine months ended September 30, 2019.

 

Potential equivalent shares of Common Stock as of September 30, 2020 totaled 5,822,700 shares of Common Stock, which included 3,943,820 shares of Common Stock underlying the conversion of debt, 1,546,880 shares of Common Stock underlying outstanding warrants and 332,000 shares of Common Stock underlying outstanding stock options.

 

Liquidity and Capital Resources; Going Concern

 

We have had a history of losses and have generated little or no operating revenues for a number of years, as we concentrated on development of our Nicaraguan Concessions, which was a long-term, high-risk/reward exploration project in an otherwise unproven part of the world. We abandoned the Nicaragua development project in early 2020 due to the challenging economic and political issues in Nicaragua and the oil and gas industry in general. We are now assessing various opportunities and strategic alternatives involving the acquisition, exploration and development of 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. As a result, we have acquired the Option to purchase the Properties. We intend to acquire, develop and commence operations on the Properties during the remainder of 2020 and in 2021. The exercise of the Option will require us to raise substantial capital to accomplish our operating plan, which cannot be assured. Historically, we financed our operations through the issuance of equity and various short and long-term debt financing that contained some level of detachable warrants to provide the holders with a level of equity participation.

 

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Issuance of Convertible Notes Payable

 

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

 

The Company used the proceeds of the August Note to pay off $60,125 in principal balance of notes payable that were in default, to pay the $100,000 required by the Exchange Agreement and for general working capital.

 

The convertible note payable is further described in Note 3 of the Notes to the Unaudited Condensed Financial Statements, entitled “Debt.”

 

Related Party Debt Obligation

 

On May 13, 2020, the Company borrowed $41,000 from its Chairman, Chief Executive Officer and President in the form of an unsecured promissory note bearing 6% interest and due on demand. This note was paid off in full on August 19, 2020. The proceeds from such issuance were used for general working capital purposes.

 

Senior Secured Convertible Note

 

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

 

On May 23, 2019, and as amended on May 30, 2019, the Company and such investor agreed to an omnibus resolution to these outstanding matters and entered into an exchange agreement and side-letter agreement, which are described in Note 2 of the Notes to the Condensed Financial Statements, entitled “Debt.”

 

Extinguishment of Liabilities

 

On September 24, 2020, the Company entered into the Exchange Agreement with the Holder, pursuant to which the Holder agreed to exchange its 8% promissory note in the original principal amount of $1,050,000, representing outstanding principal balance of $1,000,000 and accrued and unpaid interest thereon (which totaled $542,762 as of September 24, 2020), for (i) a cash payment in the amount of $100,000 and (ii) 737,532 newly issued shares of Common Stock. The closing of the Exchange occurred concurrently with the execution of the Exchange Agreement. At the closing, the Company made the $100,000 cash payment and issued 737,532 shares of Common Stock (valued at $132,756 based on the closing market price of the Common Stock on the date of the Exchange) to the Holder and the underlying documents and obligations summarized above were surrendered and/or cancelled.

 

The Company incurred trade payable obligations totaling $4,840,136 during 2013 which were extinguished during the nine months ended September 30, 2020 pursuant to the relevant statute of limitations.

 

Short-Term Notes Outstanding

 

On July 7, 2015 and July 15, 2015, the Company borrowed a total of $85,000 from two individuals under convertible notes payable with the conversion rate of $5.60 per share. The original terms of such notes were for a period of 90 days and such notes bore interest at 8% per annum. In connection with the issuance of such notes, the Company issued warrants for the purchase of a total of 34,000 shares of Common Stock with exercise prices of $5.60 per share, which are exercisable for a period of five years from the date of their issuance. Such notes were not paid at maturity and are in default as of September 30, 2020. The Company is attempting to negotiate a resolution to the defaults, but there can be no assurance that it will be successful in that regard.

 

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In summary, as of September 30, 2020, the following debt was outstanding: (i) two promissory notes issued in July 2015 in the total principal amount of $85,000, which have matured and are in now in default; (ii) and the unsecured convertible note payable in the principal amount of $365,169 and due August 19, 2021.

 

Capital Expenditures

 

On July 31, 2019, we acquired the Option from Core to purchase the production and mineral rights/leasehold for the Properties. We paid a nonrefundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020, and in connection with the acquisition of the new Option, the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. There can be no assurance that the Company will obtain adequate financing in order to close on the acquisition prior to November 1, 2020 regardless of the reduced price or to enable it to conduct such subsequent capital raise, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

 

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

 

We intend to complete the acquisition of the Properties prior to the Option termination date of November 1, 2020, subject to successfully obtaining adequate financing. We must obtain new sources of debt and/or equity capital to fund the acquisition, develop and operate the Properties. Further, we can provide no assurance that we will be able to obtain sufficient new debt/equity capital to exercise the Option.

 

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 unaudited condensed financials are issued. The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on their evaluation as of September 30, 2020, the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are not effective in assuring that financial statement presentation and disclosure are in conformity with those which are required to be included in our periodic SEC filings.

 

Changes in Internal Control Over Financial Reporting

 

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

 

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

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The information regarding certain legal proceedings in which Infinity Energy, Inc. (the “Company”, “we”, “us” or “our”) are involved is set forth in Note 9 of the Notes to the Unaudited Condensed Financial Statements, entitled “Commitments and Contingencies – Litigation”, which is included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and such information is incorporated by reference into this Item 1.

 

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

 

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

 

On August 19, 2020, the Company granted an aggregate of 5,000,000 shares of the Company’s restricted common stock, par value $0.0001 per share, to its two executive officers, a board member and a consultant outside of the Company’s existing equity compensation plans, and pursuant to certain Restricted Stock Agreements, each dated August 19, 2020. Such shares were issued in consideration for such individuals’ past and continued services to the Company as its executive officers and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as such executive officers had sufficient sophistication and knowledge of the Company, and such issuances did not involve any form of general solicitation or general advertising.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

(c) Exhibits.

 

31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

37

 

 

SIGNATURES

 

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

 

Infinity Energy Resources, Inc.    
       
By: /s/ Stanton E. Ross   Dated: October 21, 2020
  Stanton E. Ross    
  Chief Executive Officer    
  (Principal Executive Officer)    
       
By: /s/ Daniel F. Hutchins   Dated: October 21, 2020
  Daniel F. Hutchins    
  Chief Financial Officer    
  (Principal Financial and Accounting Officer)    
       
By: /s/ John Loeffelbein   Dated: October 21, 2020
  John Loeffelbein    
  Chief Operating Officer    

 

38

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 Quarterly Report on Form 10-Q of Infinity Energy Resources, Inc.;

 

2. Based on my knowledge, this quarterly 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 quarterly 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 quarterly 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  
October 21, 2020  

 

 
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 Quarterly Report on Form 10-Q of Infinity Energy Resources, Inc.;

 

2. Based on my knowledge, this quarterly 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 quarterly 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 quarterly 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  
October 21, 2020  

 

 

 

EX-32.1 4 ex32-1.htm

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Infinity Energy Resources, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies 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  
October 21, 2020  
   
/s/ Daniel F. Hutchins  
Daniel F. Hutchins  
Chief Financial Officer  
October 21, 2020  

 

 

 

 

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settlement of final termination agreement Damages amount Due to related party for consideration of services Number of shares of common stock Number of shares of common stock, value Accrued compensation Related party note payable Numerator for basic income per share - Net income (loss) Less: Interest expense on convertible debt Numerator for diluted income per share - Net income (loss) Denominator for basic loss per share - weighted average shares outstanding Dilutive effect of convertible debt outstanding Dilutive effect of shares issuable under stock options and warrants outstanding Denominator for diluted loss per share - adjusted weighted average shares outstanding AMT Credit [Member] ATM Credit [Member] Accredited Investor [Member]. 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Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Oct. 20, 2020
Cover [Abstract]    
Entity Registrant Name INFINITY ENERGY RESOURCES, INC  
Entity Central Index Key 0000822746  
Document Type 10-Q  
Document Period End Date Sep. 30, 2020  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business Flag true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   18,548,265
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2020  
XML 12 R2.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Balance Sheets - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 73,235 $ 1,785
Deposit to acquire oil and gas property 75,000
Total current assets 148,235 1,785
Total assets 148,235 1,785
Current liabilities:    
Accounts payable 1,234,335 6,091,453
Accrued liabilities (including $788,520 due to related party at September 30, 2020 and December 31, 2019) 3,747,468 3,777,580
Accrued interest 37,787 528,684
Asset retirement obligations 1,716,003 1,716,003
Notes payable, net 129,094 1,104,125
Total current liabilities 6,864,687 13,217,845
Derivative liabilities 868 1,116
Total liabilities 6,865,555 13,218,961
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 September 30, 2020 and December 31, 2019
Common stock, par value $.0001 per share, 75,000,000 shares authorized, 18,548,265 and 12,310,733 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 1,855 1,231
Additional paid-in capital 110,270,518 109,583,945
Accumulated deficit (116,989,693) (122,802,352)
Total stockholders' deficit (6,717,320) (13,217,176)
Total liabilities and stockholders' deficit $ 148,235 $ 1,785
XML 13 R3.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Balance Sheets (Parenthetical) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Accrued liabilities 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 $ 0.0001 $ 0.0001
Common stock, shares authorized 75,000,000 75,000,000
Common stock, shares issued 18,548,265 12,310,733
Common stock, shares outstanding 18,548,265 12,310,733
XML 14 R4.htm IDEA: XBRL DOCUMENT v3.20.2
Statements of Operations (Unaudited) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Operating expenses:        
General and administrative expenses $ 120,168 $ 9,911 $ 226,235 $ 139,059
Total operating expenses 120,168 9,911 226,235 139,059
Operating loss (120,168) (9,911) (226,235) (139,059)
Other income (expense):        
Interest expense (67,370) (19,967) (111,496) (70,266)
Gain on extinguishment of liabilities 6,150,142 6,150,142 2,413,280
Change in derivative fair value 824 (127,284) 248 (190,092)
Total other income (expense) 6,083,596 (147,251) 6,038,894 2,152,922
Income (loss) before income taxes 5,963,428 (157,162) 5,812,659 2,013,863
Income tax (expense) benefit
Net income (loss) $ 5,963,428 $ (157,162) $ 5,812,659 $ 2,013,863
Basic and diluted net income (loss) per share:        
Basic $ 0.40 $ (0.02) $ 0.44 $ 0.25
Diluted $ 0.36 $ (0.02) $ 0.43 $ 0.25
Weighted average shares outstanding - basic 14,820,900 8,699,978 13,147,455 8,129,779
Weighted average shares outstanding - diluted 16,641,125 8,699,978 13,754,197 8,129,779
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Condensed Statements of Stockholders' Deficit (Unaudited) - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Total
Balance at Dec. 31, 2018 $ 771 $ 109,080,273 $ (124,647,127) $ (15,566,083)
Balance, shares at Dec. 31, 2018 7,712,569      
Net income (loss) (171,618) (171,618)
Balance at Mar. 31, 2019 $ 771 109,080,273 (124,818,745) (15,737,701)
Balance, shares at Mar. 31, 2019 7,712,569      
Balance at Dec. 31, 2018 $ 771 109,080,273 (124,647,127) (15,566,083)
Balance, shares at Dec. 31, 2018 7,712,569      
Net income (loss)       2,013,863
Balance at Sep. 30, 2019 $ 969 109,317,493 (122,633,264) (13,314,802)
Balance, shares at Sep. 30, 2019 9,693,385      
Balance at Mar. 31, 2019 $ 771 109,080,273 (124,818,745) (15,737,701)
Balance, shares at Mar. 31, 2019 7,712,569      
Issuance of common shares pursuant to exchange agreements $ 61 29,308 29,369
Issuance of common shares pursuant to exchange agreements, shares 605,816      
Issuance of common stock purchase warrants pursuant to exchange agreements 70,549 70,549
Net income (loss) 2,342,643 2,342,643
Balance at Jun. 30, 2019 $ 832 109,180,130 (122,476,102) (13,295,140)
Balance, shares at Jun. 30, 2019 8,318,385      
Issuance of common shares pursuant to Private Placement $ 137 137,363 137,500
Issuance of common shares pursuant to Private Placement, shares 1,375,000      
Net income (loss) (157,162) (157,162)
Balance at Sep. 30, 2019 $ 969 109,317,493 (122,633,264) (13,314,802)
Balance, shares at Sep. 30, 2019 9,693,385      
Balance at Dec. 31, 2019 $ 1,231 109,583,945 (122,802,352) (13,217,176)
Balance, shares at Dec. 31, 2019 12,310,733      
Stock-based compensation 24,308 24,308
Net income (loss) (84,765) (84,765)
Balance at Mar. 31, 2020 $ 1,231 109,608,253 (122,887,117) (13,277,633)
Balance, shares at Mar. 31, 2020 12,310,733      
Balance at Dec. 31, 2019 $ 1,231 109,583,945 (122,802,352) (13,217,176)
Balance, shares at Dec. 31, 2019 12,310,733      
Net income (loss)       5,812,659
Balance at Sep. 30, 2020 $ 1,855 110,270,518 (116,989,693) (6,717,320)
Balance, shares at Sep. 30, 2020 18,548,265      
Balance at Mar. 31, 2020 $ 1,231 109,608,253 (122,887,117) (13,277,633)
Balance, shares at Mar. 31, 2020 12,310,733      
Stock-based compensation 24,308 24,308
Net income (loss) (66,004) (66,004)
Balance at Jun. 30, 2020 $ 1,231 109,632,561 (122,953,121) (13,319,329)
Balance, shares at Jun. 30, 2020 12,310,733      
Issuance of common shares pursuant to exchange agreements $ 74 132,682 132,756
Issuance of common shares pursuant to exchange agreements, shares 737,532      
Stock-based compensation 105,825 105,825
Issuance of common shares in consideration for deposit to acquire oil and gas property $ 50 74,950 75,000
Issuance of common shares in consideration for deposit to acquire oil and gas property, shares 500,000      
Beneficial conversion feature on issuance of convertible note with detachable warrants to purchase common 325,000 325,000
Issuance of restricted stock $ 500 (500)
Issuance of restricted stock, shares 5,000,000      
Net income (loss) 5,963,428 5,963,428
Balance at Sep. 30, 2020 $ 1,855 $ 110,270,518 $ (116,989,693) $ (6,717,320)
Balance, shares at Sep. 30, 2020 18,548,265      
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities:    
Net income $ 5,812,659 $ 2,013,863
Adjustments to reconcile net income to net cash used in operating activities:    
Change in fair value of derivative liability (248) 190,092
Stock-based compensation 154,441
Gain on exchange of debt and warrant obligations (1,310,006) (2,413,280)
Gain on derecognition of liabilities (4,840,136)
Amortization of discount on convertible note payable 44,094
Change in operations assets and liabilities:    
Decrease in accounts payable (16,982) (5,740)
Increase (decrease) in accrued liabilities (30,112) 77,721
Increase in accrued interest 51,865 70,266
Net cash used in operating activities (134,425) (67,078)
Cash flows from investing activities    
Deposit to acquire oil and gas property (50,000)
Net cash used in investing activities (50,000)
Cash flows from financing activities:    
Repayment of notes payable pursuant to exchange agreement (100,000)
Repayment of notes payable - related party (41,000)
Repayment of notes payable (19,125)
Proceeds from convertible note payable 325,000 56,000
Proceeds from private placement of common stock 137,500
Proceeds from issuance of note payable - related party 41,000
Net cash provided by financing activities 205,875 193,500
Net increase in cash and cash equivalents 71,450 76,422
Cash and cash equivalents:    
Beginning 1,785 1,367
Ending 73,235 77,789
Supplemental cash flow information:    
Cash paid for interest 15,536
Cash paid for taxes
Supplemental disclosure of non-cash investing and financing activities:    
Beneficial conversion feature on issuance of convertible note payable with detachable warrants to purchase common stock 325,000
Issuance of common shares for deposit to acquire oil and gas property 75,000
Issuance of restricted common stock 500 500
Exchange of secured convertible note payable 2,197,231
Exchange of convertible notes payable - short term 240,000
Issuance of common shares pursuant to exchange agreements 132,756 29,369
Issuance of common stock purchase warrants pursuant to exchange agreements $ 70,549
XML 17 R7.htm IDEA: XBRL DOCUMENT v3.20.2
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2020
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

 

Unaudited Interim Financial Information

 

Infinity Energy Resources, Inc. (collectively, “we,” “ours,” “us,” “Infinity” or the “Company”) has prepared the accompanying condensed financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These financial statements are unaudited and, in our opinion, include all adjustments consisting of normal recurring adjustments and accruals necessary for a fair presentation of our condensed balance sheets, statements of operations, statements of stockholders’ deficit and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2020 due to various factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes in Item 8, “Financial Statements and Supplementary Data,” of our Annual Report on Form 10-K, filed with the SEC.

 

Nature of Operations

 

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

 

We also began 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. As a result, on July 31, 2019, we acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for oil & gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). We paid a nonrefundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020, and in connection with the acquisition of the new Option, the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. There can be no assurance that the Company will obtain adequate financing in order to close on the acquisition prior to November 1, 2020 regardless of the reduced price or to enable it to conduct such subsequent capital raise, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

 

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

 

We intend to complete the acquisition of the Properties prior to the Option termination date of November 1, 2020, subject to successfully obtaining adequate financing.

 

We must obtain new sources of debt and/or equity capital to fund the substantial needs enumerated above, as well as satisfying our existing debt obligations. We are attempting to obtain extensions of the maturity date for our outstanding debt; however, there can be no assurance that we will be able to do so or what the final terms will be if the lenders agree to such extensions. Further, we can provide no assurance that we will be able to obtain sufficient new debt/equity capital to exercise the Option.

 

COVID–19 PANDEMIC

 

The unaudited condensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of September 30, 2020. Economies throughout the world have been and continue to be severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the outbreak of the coronavirus (Covid-19). In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus because of the substantial and abrupt decrease in the demand for oil and gas globally. In addition, the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by the outbreak of the virus and we cannot forecast with any certainty when the disruptions caused by it will cease to impact our business and the results of our operations. In reading this quarterly report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused by the outbreak of Covid-19.

 

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 Nicaraguan 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 Concessions. 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.

 

We relied on raising debt and equity capital to fund our ongoing maintenance/expenditure obligations under the Nicaraguan Concession, our day-to-day operations and corporate overhead because we have 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 was in default was paid off on September 24, 2020. The Company has two other notes payable with principal balances of $85,000 as of September 30, 2020 are now in default. In January 2020, we abandoned the Concessions.

 

Going Concern

 

The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund the (i) acquisition of the Properties under the Option; (ii) normal day-to-day operations and corporate overhead; and (iii) outstanding debt and other financial obligations as they become due, as described below. These are substantial operational and financial issues that must be successfully addressed during 2020.

 

The Company is seeking new sources of debt and equity capital to fund the needs enumerated above. The Company is attempting to obtain extensions of the maturity dates for its debt or compromises regarding its debt. In addition, the Company will seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. The Company has extinguished and/or restructured certain obligations that were in default during 2019 and 2020; however, there can be no assurance that it will be able to obtain such new funding, extensions or additional restructurings or on what terms.

 

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

 

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, stock-based awards and overriding royalty interests, and the realization of deferred tax assets.

 

Beneficial Conversion Feature of Convertible Notes Payable

 

The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options, Emerging Issues Task Force (“EITF”) 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF 00-27, Application of Issue No 98-5 To Certain Convertible Instruments. The Beneficial Conversion Feature (“BCF”) of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible note when issued and also records the estimated fair value of any warrants issued with those convertible notes. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.

 

The BCF of a convertible note is measured by allocating a portion of the note’s proceeds to the warrants, if applicable, and as a reduction of the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants on an allocated fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense using interest method.

 

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 condensed 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 September 30, 2020 and December 31, 2019 and during the periods then ended, the Company had no oil and natural gas derivative arrangements outstanding.

 

As a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company (Notes 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 derivative liabilities, which are related to detachable warrants issued in connection with various notes payable, (See Note 5 - Derivative Instruments) were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, par value $0.001 per share (the “Common Stock”), 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 (See Note 5 - Derivative Instruments) and non-performance risk factors, among other items. The fair values for the warrant derivatives as of September 30, 2020 and December 31, 2019 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 September 30, 2020 and December 31, 2019:

 

September 30, 2020   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Derivative liabilities   $     $     $ 868     $ 868  
                                 
    $     $     $ 868     $ 868  

 

December 31, 2019   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Derivative liabilities   $     $     $ 1,116     $ 1,116  
                                 
    $     $     $ 1,116     $ 1,116  

 

There were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the periods ended September 30, 2020 and December 31, 2019.

 

Basic and Diluted Earnings (Loss) Per Share

 

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

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. The Company adopted ASU 2019-12 for fiscal year ending December 31, 2020 and the adoption resulted in no impact on the Company’s financial position, cash flows or results of operations.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have yet been issued. If an entity early adopts these amendments in an interim period, it should reflect any adjustments as of the beginning of the annual period that includes that interim period. In addition, an entity that elects to early adopt the standard is required to adopt all of the amendments in the same period (i.e., an entity cannot select which amendments to early adopt). The Company is still evaluating the specific effect of this change. The Company will adopt ASU 2019-12 for fiscal year ending December 31, 2021.

 

Management does not believe that there are any other recently issued and effective or not yet effective pronouncements that would have or are expected to have any significant effect on the Company’s financial position, cash flows or results of operations.

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Secured Convertible Note Payable
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Secured Convertible Note Payable

Note 2 – Secured Convertible Note Payable

 

The Company’s Senior Secured Convertible Note Payable in the principal amount of $12.0 million, issued in May 2015 (the “Note”), was paid off and all related liabilities extinguished in 2019, therefore there was no balance outstanding as of September 30, 2020 and December 31, 2019.

 

Following is an analysis of the activity in the Note during the nine months ended September 30, 2019:

 

    Amount  
Balance at December 31, 2018   $ 2,197,231  
Funding under the Investor Note (as defined below) during the period      
Principal repaid during the period by issuance of Common Stock      
Change in fair value of Note during the period      
Exchange of Note payable for Common Stock     2,197,231  
         
Balance at September 30, 2019   $  

 

On May 7, 2015, the Company completed a private placement in May 2015 (the “May 2015 Private Placement”) of the Note and a warrant to purchase 1,800,000 shares of Common Stock (the “Warrant”). The placement agent for the Company in the transaction received a fee of 6% of the 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 (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 “Placement Agent Warrant”).

 

The Note and Warrant were issued pursuant to a Securities Purchase Agreement, dated May 7, 2015, by and between the Company and an institutional investor (the “Investor”). The May 2015 Private Placement was made pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “33 Act”). At the closing, the Investor acquired the 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 Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal of the Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested that 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 Note. The aggregate outstanding principal balance of $11,687,231 of the Note included an approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company had recorded the fair value of the Replacement Note assuming that the remaining par value was $2,197,231, as asserted by the Investor. The Replacement Note provided for a maturity date of May 7, 2018, a conversion price of $0.50 per share and was due in monthly installment payments through May 2018 either in cash or Common Stock, among other terms. The Company did not repay the Replacement Note at its maturity and it was therefore in technical default. The Replacement Note was to be secured to the same extent as the Note. The Company and the Investor have negotiated a resolution of these outstanding matters regarding the default status and the issuance of the Replacement Note under the terms of the financing.

 

On May 23, 2019, the Company and the Investor agreed to an omnibus resolution to these outstanding matters and entered into an exchange agreement (the “Exchange Agreement”) and a side-letter agreement (the “Side-Letter Agreement”), as described below:

 

Exchange Agreement: Under the Exchange Agreement, the Investor exchanged all of its rights under the original securities issued in the May 2015 Private Placement (the “Original Securities”), including: (i) the Note, subject to the Optional Offset (as defined in the Investor Note), with a current balance of $2,197,231; (ii) the related accrued interest under the Note, with a balance of $28,643; (iii) the Warrant; (iv) the Security and Pledge Agreement entered into by the Company and the Investor in connection with the May 2015 Private Placement; (v) the Guaranty made in favor of the Investor in connection with the May 2015 Private Placement; and (vi) the Registration Rights Agreement entered into by the Company and the Investor in connection with the May 2015 Private Placement, for 770,485 fully paid and nonassessable shares of Common Stock and certain rights (the “Rights”) to acquire additional securities in the future, which may be exercised for additional shares of Common Stock.

 

As a result of the exchange transactions described above, the Investor no longer owns any of the Original Securities, including any rights thereunder, and the Company cancelled the certificate(s) and other physical documentation evidencing the Investor’s ownership of the Original Securities.

 

Side-Letter Agreement: Concurrent with the Exchange Agreement, the Company and the Investor also entered into the Side-Letter Agreement, which provides that on November 23, 2019, the Company will, if required under the Side-Letter Agreement, issue additional shares of Common Stock to the Investor based on an increase in the Number of Fully-Diluted Shares Outstanding (as defined below) of the Company from the execution date of the Exchange Agreement to the six-month anniversary of the Exchange Agreement (the “True-Up Shares”). The issuance of the True-Up Shares, if any, shall provide the Investor with Rights to acquire additional Right Shares (as defined in the Exchange Agreement) to be calculated according to the following formula:

 

  A-B= aggregate number of Right Shares
     
  A = 9.99% of shares of Common Stock outstanding on November 23, 2019 (calculated based on the Number of Fully-Diluted Shares Outstanding (as defined below))
     
  B = The shares of Common Stock Issued to the Investor contemporaneously with the Exchange Agreement

 

For the purposes of the Side-Letter Agreement, “Number of Fully-Diluted Shares Outstanding” means, as of any time of determination, the sum of (i) the aggregate number of issued and outstanding shares of Common Stock as of such time of determination; (ii) the aggregate maximum number of shares of Common Stock issuable on an as-converted and as-exchanged basis, as applicable (excluding any exercise of warrants to purchase Common Stock), pursuant to all capital stock and all other securities of the Company or any of its subsidiaries (excluding any warrants to purchase Common Stock and all Rights issued pursuant to the Exchange Agreement) outstanding as of such time of determination (or issuable pursuant to agreements in effect as of such time) that are at any time and under any circumstances (after issuance thereof, if applicable), directly or indirectly, convertible into or exchangeable for, or which otherwise entitles the holder thereof to acquire, Common Stock (assuming, for such purpose, that each such security is convertible or exchangeable, as applicable, at the lowest price per share for which one share of Common Stock is at any time, directly or indirectly, issuable upon the conversion or exchange, as applicable, of any such security and without regards to any limitations on conversion or exchange applicable thereto); and (iii) without duplication with clause (ii) above, the aggregate maximum number of shares of Common Stock issuable pursuant to any agreement (excluding any warrants to purchase Common Stock and all Rights issued pursuant to the Exchange Agreement) of any person with the Company or any of its subsidiaries in effect as of such time of determination (assuming, for such purpose, that the shares of Common Stock, directly or indirectly, issued pursuant to such agreement is issued at the lowest price per share for which one share of Common Stock is at any time, directly or indirectly, issuable pursuant to such agreement).

 

Notwithstanding the foregoing, if any warrants to purchase Common Stock are outstanding (or issuable upon conversion or exchange of securities outstanding) as of such six-month anniversary (each, an “Outstanding Warrant”), on such six-month anniversary, the Company shall issue the Investor an additional Right to acquire a warrant (the “New Warrant”) exercisable for up to 9.99% of the shares of Common Stock issuable upon exercise of all Outstanding Warrants as of such six-month anniversary (the “New Warrant Shares”). The New Warrant Shares shall be of like tenor to the Outstanding Warrants.

 

Pursuant to the Side-Letter Agreement, the Company also agreed that from the execution date of the Exchange Agreement until twelve (12) months from such date, the Company will not raise capital at a price that is below $0.10 per share of Common Stock (as adjusted for stock splits, stock dividends, stock combinations, recapitalizations and similar events) without the Investor’s consent.

 

On May 30, 2019, the Company and the Investor entered into Amendment No. 1 to Exchange Agreement (the “Amendment”). Following execution of the Exchange Agreement on May 23, 2019, the Company and the Investor became aware of an inadvertent error regarding the number of shares of Common Stock to be issued to the Investor pursuant to the Exchange Agreement. The Company and the Investor agreed to amend the Exchange Agreement so it reflects the correct number of shares of Common Stock to be issued and to ensure that the Investor does not beneficially own in excess of 9.99% of the shares of Common Stock outstanding immediately following the effective date of the Exchange Agreement. Pursuant to the Amendment, the Company and the Investor agreed that the number of shares of Common Stock to be issued to the Investor would be an aggregate of 605,816 shares, instead of the 770,485 shares stated in the Exchange Agreement.

 

Consistent with the developments above, effective November 23, 2019, the parties finalized the reconciliation pursuant to the Side-Letter Agreement described above and the related issuance of the True-Up Shares. Pursuant to the provisions of the Side-Letter Agreement, the parties agreed to the issuance of an additional 567,348 shares of Common Stock and the issuance of a warrant to purchase 61,380 shares of Common Stock at an exercise price of $0.50 per share, with an expiration date of June 19, 2026.

 

Following is an analysis of gain on exchange of the debt and warrant obligations pursuant to the Exchange Agreement, which was finalized on November 23, 2019:

 

    Amount  
Obligations extinguished on the date of exchange, May 23, 2019:        
Note balance at the date of exchange, May 23, 2019   $ 2,197,231  
Accrued interest on the Note at the date of exchange, May 23, 2019     28,643  
Fair value of Warrant Derivative at the date of exchange, May 23, 2019     116,731  
Securities issued in exchange for the obligations extinguished on the date of exchange, May 23, 2019 and the finalization of the Side-Letter Agreement at November 23, 2019:        
605,816 shares of Common Stock issued on the date of exchange May 23, 2019 valued at $0.121 per share, the closing market price on May 23, 2019     (73,304 )
567,348 shares of Common Stock issued pursuant to the finalization of the Side-Letter agreement on November 23, 2019     (68,082 )
         
Issuance of warrants to purchase 61,380 shares of Common Stock issued pursuant to the finalization of the Side-Letter agreement on November 23, 2019     (7,358 )
         
Gain on exchange of debt and warrant obligations   $ 2,193,861  

 

Prior to the finalization of the Side-Letter Agreement, the estimate of the gain on exchange of debt and warrant obligations related to the Note as of September 30, 2019 was $2,161,441.

 

In addition, the Company issued the Placement Agent Warrant in May 2015 to purchase 240,000 shares of Common Stock issued as part of the placement fee in connection with the Note. The Placement Agent Warrant contained an expiration date of May 7, 2022 and an exercise price of $5.00 per share and is subject to certain price protection and dilution provisions. Such warrant was treated as a derivative liability for accounting purposes due to its ratchet and anti-dilution provisions.

 

On June 4, 2019, the Company entered into an exchange agreement with the Placement Agent to extinguish the Placement Agent Warrant, including its certain price protection and dilution provisions, for a new warrant to purchase up to 50,000 shares of Common Stock with a termination date of June 4, 2026 at an exercise price of $0.50 per share without any price protection or dilution provisions.

 

The estimated fair value of the Placement Agent Warrant derivative as of May 23, 2019, the date of the exchange agreement with the Placement Agent, was $37,368, representing a change of $29,795 from January 1, 2019.

 

As a result of the exchange agreement with the Placement Agent, the Company extinguished the derivative liability of $37,368 attributable to the Placement Agent Warrant and recognized the estimated value of the new warrant of $7,985 as of June 4, 2019, the date of such exchange agreement. The resulting $29,383 difference between the estimated fair value of the Placement Agent Warrant extinguished and the new warrant issued to the Placement Agent was recorded as a gain on exchange of debt and warrant obligations, effective June 4, 2019.

 

A summary of the estimated gain on exchange and extinguishment of debt and warrant obligations as of and for the nine months ended September 30, 2019 follows:

 

    Amount  
Exchange of secured convertible note – estimated at September 30, 2019 (See Note 2 above)   $ 2,161,441  
Warrant issued to Placement Agent and exchanged on June 4, 2019 (See Note 2 above)     29,383  
Convertible note exchanged on June 19, 2019 (See Note 3)     222,456  
         
Gain on exchange of debt and warrant obligations   $ 2,413,280  

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Debt
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Debt

Note 3 – Debt

 

Debt consists of the following at September 30, 2020 and December 31, 2019:

 

    September 30, 2020     December 31, 2019  
Notes payable, short term:                
Convertible note payable, (less discount of $321,074 and $-0- as of  September 30, 2020 and December 31, 2019, respectively)   $ 44,094     $  
Note payable (in default)           1,000,000  
Note payable (in default)     50,000       50,000  
Note payable (in default)     35,000       35,000  
Note payable (due on demand)           19,125  
Total notes payable, short-term   $ 129,094     $ 1,104,125  

 

Convertible Note Payable – Short-term

 

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

 

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

 

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

 

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

 

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

 

The Note contains a BCF because the convertible portion or feature of the August Note provides a rate of conversion that is below market value and therefore is “in-the-money” when issued. The Company has recorded the BCF related to the issuance of the August Note when issued and also recorded the estimated fair value of the detachable August Warrant issued with the August Note.

 

The BCF of the August Note was measured by allocating a portion of the August Note’s proceeds to the detachable August Warrant (utilizing black-scholes methodology), and as a reduction of the carrying amount of the August Note equal to the intrinsic value of the conversion feature, both of which were credited to additional paid-in-capital as of the issuance date. The value of the proceeds received from the August Note was then allocated between the conversion features and August Warrant on an allocated fair value basis. The allocated value of the BCF and August Warrant exceeded the proceeds received from issuance of the August Note which was recorded as a discount from the face amount of the August Note. The discount is amortized over the term of the August Note under the interest method and is charged to interest expense.

 

Following is an analysis of the August Note as of its issuance date:

 

    Amount  
Allocation of August Note:        
Amount allocated to beneficial conversion feature   $ 221,006  
Amount allocated to detachable August Warrants     103,994  
Amount allocated to original issue discount     40,169  
         
Par value of August Note     365,169  
Less: Discount     (365,169 )
         
August Note balance – Net of discount on date of issuance   $  

 

Following is a summary of the August Note as of and for the nine months ended September 30, 2020 follows:

 

    Amount  
Balance December 31, 2019   $  
Issuance of August Note      
Amortization of discount for the nine months ended September 30, 2020     44,094  
         
Balance September 30, 2020, August Note – Net of discount   $ 44,094  

 

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 “December 2013 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 Company and such lender amended the date for exercise of the December 2013 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 December 2013 Note to the new April 2015 maturity date (the “New Maturity Date”). If the Company failed to pay the December 2013 Note on or before the New Maturity Date, the number of shares issuable under the December 2013 Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the December 2013 Warrant remained the same. The December 2013 Warrant has been treated as a derivative liability whereby the value of December 2013 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. The December 2013 Warrant expired as of September 30, 2020 and is no longer exercisable.

 

In connection with an additional extension of the December 2013 Note to April 7, 2016, the Company agreed to enter into a definitive revenue sharing agreement with the lender (the “Revenue Sharing Agreement”) 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 percentage 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 December 2013 Note and amortized ratably over the extended term of such note. Such prospective Revenue Sharing Agreement is void with the abandonment of the Nicaraguan Concessions.

 

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 December 2013 Warrant to $5.00 per share and extended the term of the December 2013 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 December 2013 Note to the New Maturity Date. If the Company failed to pay the December 2013 Note on or before the New Maturity Date, the number of shares issuable under the December 2013 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 Company failed to make the required payment previously described and the reset of the terms of the December 2013 Warrant occurred, however such warrant expired in March 2017 unexercised. 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 was in default and the parties agreed to a resolution to this default, including completing the extinguishment of the note balance, accrued interest and revenue sharing agreement through an exchange agreement which is further described below.

 

The December 2013 Warrant was treated as a derivative liability whereby the value of the December 2013 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 was 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 December 2013 Warrant expired in 2019 and is not deemed outstanding as of September 30, 2020 and December 31, 2019. The discount was 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 December 2013 Note to be amortized ratably over the extended term of such note.

 

On September 24, 2020, the Company entered into an Exchange and Settlement Agreement (the “September Exchange Agreement”) with the December 2013 Note holder (the “Holder”), pursuant to which the Holder agreed to exchange the December 2013 Note in the original principal amount of $1,050,000, representing outstanding principal balance of $1,000,000 and accrued and unpaid interest thereon (which totaled $542,762 as of September 24, 2020), for (i) a cash payment in the amount of $100,000 and (ii) 737,532 newly issued shares of Common Stock (the “Exchange”).

 

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

 

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

 

A summary of the gain on exchange and extinguishment of debt and the related accrued interest as of and for the nine months ended September 30, 2020 follows:

 

    Amount  
Principal balance of December 2013 Note extinguished as a result of the Exchange   $ 1,000,000  
         
Accrued interest extinguished as a result of the Exchange     542,762  
         
Total obligations extinguished as a result of the Exchange     1,542,762  
         
Cash payment to Holder as a result of the Exchange     (100,000 )
         
Value of Common Stock issued as a result of the Exchange     (132,756 )
         
Gain on extinguishment of debt and related accrued interest   $ 1,310,006  

 

Other notes payable

 

The following notes were extinguished on June 19, 2019:

 

  On November 8, 2016, the Company borrowed a total of $200,000 from an individual under a convertible note payable with a conversion rate of $5.00 per share. The note required no principal or interest payments until its maturity date of November 7, 2017 and bore interest at 8% per annum. The note was not paid on its original maturity date.
     
  On April 20, 2017, the Company borrowed $40,000 under an unsecured credit facility with a private, third-party lender which was 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 bore interest at 8% per annum. The note was not paid on its maturity date.

 

On June 19, 2019, the Company and the holder of these two convertible notes entered into an exchange agreement whereby such notes with an unpaid principal balance of $240,000 and related accrued interest totaling $45,020 were extinguished. Under such exchange agreement, the Company issued the individual a new warrant exercisable to purchase up to 570,000 shares of Common Stock at an exercise price of $0.50 per share, with a termination date of June 19, 2026 and without any price protection or dilution provisions in exchange for the extinguishment of such notes and related accrued interest. The Black-Scholes valuation of the warrant issued to the holder on June 19, 2019 totaled $62,564.

 

Following is an analysis of gain on extinguishment of the obligations pursuant to such exchange agreement on June 19, 2019:

 

    Amount  
Obligations extinguished on the date of exchange, June 19, 2019:        
Convertible notes balance at the date of exchange, June 19, 2019   $ 240,000  
Accrued interest on the convertible notes at the date of exchange, June 19, 2019     45,020  
         
Securities issued in exchange for the obligations extinguished on the date of the exchange, June 19, 2019:        
Value of the stock purchase warrant issued on the date of exchange, June 19, 2019     (62,564 )
         
Gain on exchange of debt and warrant obligations   $ 222,456  

 

Other than the December 2013 Note, at September 30, 2020, the Company had short-term notes outstanding with entities or individuals as follows:

 

  On July 7, 2015, the Company borrowed a total of $50,000 from an individual under a convertible note payable with the conversion rate of $5.60 per share. The term of such note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the individual a warrant for the purchase of 5,000 shares of Common Stock at $5.60 per share for a period of five years from the date of such note. The terms of such note and warrant provide that should such note, and related 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 such warrant requires that such warrant be accounted for as derivative liability. The Company recorded the estimated fair value of such warrant totaling $22,314 as a discount on such note payable and as a derivative liability in the same amount, as of the origination date. On October 7, 2015, such note was extended for an additional 90 days, or until January 7, 2016, and later to May 7, 2016 and then to October 7, 2016. The Company did not repay such note by October 7, 2016. The Company and such 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 holder of such note 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 are immediately exercisable and expire in five years. The value of the 5,000 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 $511 and $662 as of September 30, 2020 and December 31, 2019, 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 such 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 such note. The terms of such note and warrant provide that should such note, and related 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 such warrant requires that such warrant be accounted for as a derivative liability. The Company recorded the estimated fair value of such warrant totaling $11,827 as a discount on such note payable and as a derivative liability in the same amount, as of the origination date. On October 15, 2015, such note was extended for an additional 90 days, or until January 15, 2016, and later to October 15, 2016. The Company did not repay such note by October 15, 2016. The Company is 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 are immediately exercisable and expire in five years. The value of the 3,500 warrants on January 15, 2016 totaled $267 and $74 on October 2016, both of which were amortized over the extension period (through October 15, 2016). The related warrant derivative liability balance was $357 and $454 as of September 30, 2020 and December 31, 2019, respectively. See Note 5.
     
  On May 21, 2018, the Company borrowed $13,125 under an unsecured promissory note with a private third-party lender, which is convertible into Common Stock at a rate of $0.50 per share. During June 2019 and August 2019, the Company borrowed an additional $50,500 and $5,500, respectively, from this same third-party lender under the same terms. Such note is due on demand and bears interest at 8% per annum. In October 2019 the Company repaid $50,000 in principal on this demand note and the remaining balance of $19,125 was paid off on August 19, 2020.

 

  On May 13, 2020, the Company borrowed $41,000 from its Chairman, Chief Executive Officer and President in the form of an unsecured promissory note bearing 6% interest and due on demand. The proceeds were used for general working capital purposes. The outstanding principal on such note totaling $41,000 was paid off in full on August 19, 2020. During the nine months ended September 30, 2020, the Company accrued and paid a total of $654 of interest on this related party note payable.

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.20.2
Stock Options
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [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 June 2005, the Company’s stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), under which both incentive and non-statutory stock options were available for grant to employees, officers, non-employee directors and consultants. An aggregate of 47,500 shares of Common Stock were reserved for issuance under the 2005 Plan and 2006 Plan; however, the 2005 Plan and the 2006 Plan have now expired, and no further issuances can be made. 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 could have been granted to employees, officers, non-employee directors and consultants. 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 Plan and 2006 Plan.

 

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 of Common Stock for issuance under the 2015 Plan.

 

As of September 30, 2020, 500,000 shares were available for future grants under the 2015 Plan. All other Company 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 nine months ended September 30, 2020 and 2019.

 

The following table summarizes stock option activity for the nine months ended September 30, 2020:

 

    Number of Options     Weighted Average Exercise
Price Per
Share
    Weighted
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2019     332,000     $ 41.86       2.29 years     $  
Granted                            
Exercised                            
Forfeited                            
Outstanding at September 30, 2020     332,000     $ 41.86       1.54 years     $  
Outstanding and exercisable at September 30, 2020     332,000     $ 41.86       1.54 years     $  

 

The Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $-0- and $-0- during the nine months ended September 30, 2020 and 2019, respectively.

 

The intrinsic value as of September 30, 2020 related to the vested and unvested stock options as of that date was $-0-. The unrecognized compensation cost as of September 30, 2020 related to the unvested stock options as of that date was $-0-

 

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

 

A summary of all restricted stock activity under the equity compensation plans for the nine months ended September 30, 2020 is as follows:

 

    Number of
Restricted
shares
    Weighted
average
grant date
fair value
 
Nonvested balance, December 31, 2019     750,000     $ 0.13  
Granted     5,000,000       0.13  
Vested     (625,000 )     (0.13 )
Forfeited            
Nonvested balance, September 30, 2020     5,125,000     $ 0.13  

 

The Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted granted aggregating $154,441 and $-0- during the nine months ended September 30, 2020 and 2019, respectively.

 

The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of September 30, 2020, there were $569,284 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next twenty-one months in accordance with the respective vesting scale.

 

The nonvested balance of restricted stock vests as follows:

 

Years ended   Number of
shares
 
       
2020 (October 1, 2020 through December 31, 2020)     2,000,000  
2021     3,125,000  
Total     5,125,000  

XML 21 R11.htm IDEA: XBRL DOCUMENT v3.20.2
Derivative Instruments
9 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments

Note 5 – Derivative Instruments

 

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, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, interest rates, the probability of both the downward adjustment of the exercise price and the upward adjustment to the number of warrants as provided by the warrant agreement terms (Note 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 two other short-term notes payable (See Note 3) contain ratchet and anti-dilution provisions that remain in effect during the term of the warrants while the ratchet and anti-dilution provisions of the other notes payable cease when the related note payable is extinguished. When the related notes 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 Company issued warrants to purchase an aggregate of 25,500 shares of Common Stock, in connection with various outstanding debt instruments which require derivative accounting treatment as of September 30, 2020 and December 31, 2019. A comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of September 30, 2020 and December 31, 2019 is as follows:

 

    As of
September 30, 2020
    As of
December 31, 2019
 
             
Volatility – range     374.5 %     316.2 %
Risk-free rate     0.28 %     1.69 %
Contractual term     0.1 – .8 years       0.5 – 1.3 years  
Exercise price   $ 5.60     $ 5.60  
Number of warrants in aggregate     25,500       34,000  

 

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, 2019   $ 1,116  
Unrealized derivative gains included in other income/expense for the period     (248 )
         
Balance at September 30, 2020   $ 868  

XML 22 R12.htm IDEA: XBRL DOCUMENT v3.20.2
Warrants
9 Months Ended
Sep. 30, 2020
Warrants and Rights Note Disclosure [Abstract]  
Warrants

Note 6 – Warrants

 

The following table summarizes warrant activity for the nine months ended September 30, 2020:

 

    Number of
Warrants
    Weighted
Average
Exercise Price
Per Share
 
Outstanding and exercisable at December 31, 2019     946,943     $ 1.78  
Issued     800,000       0.50  
Exercised/forfeited     (200,063 )     (5.03 )
                 
Outstanding and exercisable at September 30, 2020     1,546,880     $ 0.70  

 

The weighted average term of all outstanding common stock purchase warrants was 5.1 years as of September 30, 2020. 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 September 30, 2020.

XML 23 R13.htm IDEA: XBRL DOCUMENT v3.20.2
Income Taxes
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

Note 7 – Income Taxes

 

The effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due to the net operating loss history of the Company maintaining a full reserve on all net deferred tax assets during the nine months ended September 30, 2020 and 2019. In addition, the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017 which 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.

 

The Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at September 30, 2020. 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 $66,950,000 in accordance with its 2019 Federal Income tax return as filed, which expire from 2025 through 2038.

 

The Company has recently completed the filing of its tax returns for the tax years 2012 through 2019. 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 as of September 30, 2020, 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.

XML 24 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Gain on Extinguishment of Liabilities
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Gain on Extinguishment of Liabilities

Note 8 – Gain on Extinguishment of Liabilities

 

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

 

A summary of the estimated gain on exchange and extinguishment of trade payables, debt and warrant obligations as of and for the nine months ended September 30, 2020 and 2019 follows:

 

    September 30, 2020     September 30, 2019  
Notes payable, short term:                
Gain on extinguishment of debt and related accrued interest (See Note 3 above)   $ 1,310,006     $  
Extinguishment of trade payables     4,840,136        
Exchange of secured convertible note – estimated at September 30, 2019 (See Note 2 above)           2,161,441  
Warrant issued to Placement Agent and exchanged on June 4, 2019 (See Note 2 above)           29,383  
Convertible note exchanged on June 19, 2019 (See Note 3)           222,456  
Total notes payable, short-term   $ 6,150,142     $ 2,413,280  

 

The Company incurred trade payable obligations totaling $4,840,136 during 2013 which were extinguished in 2020 pursuant to the relevant Statute of Limitations.

XML 25 R15.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 9 – Commitments and Contingencies

 

The Company did not maintain insurance coverage on its U.S domestic oil and gas properties for a period of time that it owned oil and gas leases through its subsidiaries. Therefore, the Company was not in compliance with Federal and State laws regarding the U.S. domestic oil and gas properties it previously owned. The Company’s known compliance issues relate to the Texas Railroad Commission regarding the capping of abandoned wells, administrative filings and renewal permits relative to its Texas oil and gas properties that were sold in 2012 through a sale of its wholly-owned subsidiary Infinity Texas. 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 Concessions as of September 30, 2020, including (1) the drilling of at least one exploratory well on the Perlas concession block; (2) the shooting of additional seismic on the Tyra concession block; (3) the provision of the Ministry of Energy of Nicaragua with the required letters of credit in the amounts totaling $1,356,227 for the Perlas concession block and $278,450 for the Tyra concession block for exploration requirements on the leases; (4) payment of the 2016, 2017, 2018 and 2019 area fees required for both of the Concessions, which total approximately $194,485; and (5) payment of the 2016, 2017, 2018 and 2019 training fees required for both of the Concessions, totaling approximately $350,000. The Company had been 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; however, the political climate, domestic issues and other factors caused the Company to halt such efforts and abandon the Concessions in January 2020.

 

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 the Company’s former subsidiaries, Infinity Wyoming and Infinity Texas, were disposed during and prior to 2012; however, the Company may remain liable for certain asset retirement costs should the new owners not complete their obligations properly plug abandoned wells. Management believes the total asset retirement obligations recorded of $1,716,003 as of September 30, 2020 and December 31, 2019 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.

 

Binding Term Sheet to Acquire Domestic Oil and Gas Properties

 

On July 31, 2019, we acquired the Option from Core to purchase the production and mineral rights/leasehold for the Properties. We paid a nonrefundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020, and in connection with the acquisition of the new Option, the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. There can be no assurance that the Company will obtain adequate financing in order to close on the acquisition prior to November 1, 2020 regardless of the reduced price or to enable it to conduct such subsequent capital raise, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

 

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

 

We intend to complete the acquisition of the Properties prior to the Option termination date of November 1, 2020, subject to successfully obtaining adequate financing. We must obtain new sources of debt and/or equity capital to fund the acquisition, develop and operate the Properties. Further, we can provide no assurance that we will be able to obtain sufficient new debt/equity capital to exercise the Option.

 

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.

 

As part of the claims and legal actions referred to above, the Company is currently involved in court litigation as follows:

 

In October 2012 the State of Texas filed a lawsuit naming Infinity Texas, such subsidiary’s corporate officers and the Company, 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 the Company 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 September 30, 2020 and December 31, 2019, which management believes is sufficient to provide for the ultimate resolution of this dispute.

XML 26 R16.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party Transactions
9 Months Ended
Sep. 30, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

Note 10 – Related Party Transactions

 

The Company does not have any employees other than its Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. In previous years, certain general and administrative services (for which payment is deferred) had been provided by the Company’s Chief Financial Officer’s accounting firm at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and other administrative fees. The Company no longer utilizes its Chief Financial Officer’s accounting firm for such support services and was not billed for any such services during the nine months ended September 30, 2020 and 2019. The amount due to such firm for services previously provided was $762,407 as of September 30, 2020 and December 31, 2019 and is included in accrued liabilities at both dates.

 

The Company’s Chief Operating Officer is a non-controlling member of Core. The Company acquired an Option from Core to purchase the production and mineral rights/leasehold for the Properties. The Company paid a nonrefundable deposit of $50,000 in 2019 to bind the original Option, which gave it the right to acquire the Properties for $2.5 million prior to December 31, 2019. On September 2, 2020, the parties acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020, and in connection with the acquisition of the new Option, the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. The Company issued 500,000 shares of Common Stock valued at $75,000 to Core in order to bind the new Option. There can be no assurance that the Company will obtain adequate financing in order to close on the acquisition prior to November 1, 2020 regardless of the reduced price or to enable it to conduct such subsequent capital raise, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

 

As of September 30, 2020 and December 31, 2019, the Company had accrued compensation to its officers and directors of $1,829,208. The Board of Directors authorized the Company to cease compensation for its officers and directors, effective January 1, 2018.

 

On May 13, 2020, the Company borrowed $41,000 from its Chairman, CEO & President in the form of an unsecured promissory note bearing 6% interest and due on demand. The proceeds were used for general working capital purposes. The entire principal balance of the note was retired on August 19, 2020 and there is no remaining balance as of September 30, 2020. During the nine months ended September 30, 2020, the Company accrued and paid a total of $654 of interest on this related party note payable.

XML 27 R17.htm IDEA: XBRL DOCUMENT v3.20.2
Net Earnings (Loss) Per Share
9 Months Ended
Sep. 30, 2020
Basic and diluted net income (loss) per share:  
Net Earnings (Loss) Per Share

Note 11 –Net Earnings (Loss) Per Share

 

The calculation of the weighted average number of shares outstanding and loss per share outstanding for the three and nine months ended September 30, 2020 and 2019 are as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2020     2019     2020     2019  
Numerator for basic income per share -
Net income (loss)
  $ 5,963,428     $ (157,162 )   $ 5,812,659     $ 2,013,863  
                                 
Less: Interest expense on convertible debt     46,529             46,529        
                                 
Numerator for diluted income per share –
Net income (loss)
  $ 6,009,957     $ (157,162 )   $ 5,859,188     $ 2,013,863  
                                 
Denominator for basic loss per share – weighted average shares outstanding     14,820,900       8,699,978       13,147,455       8,129,779  
                                 
Dilutive effect of convertible debt outstanding     1,820,225               606,742          
                                 
Dilutive effect of shares issuable under stock options and warrants outstanding                        
                                 
 Denominator for diluted loss per share – adjusted weighted average shares outstanding     16,641,125       8,699,978       13,754,197       8,129,779  
                                 
Net loss per share:                                
Basic   $ 0.40     $ (0.02 )   $ 0.44     $ 0.25  
Diluted   $ 0.36     $ (0.02 )   $ 0.43     $ 0.25  

 

Basic loss per share is based upon the weighted average number of shares of Common Stock outstanding during the period. For the three and nine months ended September 30, 2020, the shares issuable upon conversion of the convertible debt issued on August 19, 2020 were considered Common Stock equivalents and therefore its dilutive effect was included in the computation of diluted income per share. All shares issuable upon conversion of convertible debt (other than the convertible debt issued on August 19, 2020) and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

 

For the three and nine months ended September 30, 2019, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

XML 28 R18.htm IDEA: XBRL DOCUMENT v3.20.2
Subsequent Events
9 Months Ended
Sep. 30, 2020
Subsequent Events [Abstract]  
Subsequent Events

Note 12 – Subsequent Events

 

COVID–19 PANDEMIC

 

The unaudited condensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of September 30, 2020. Continuing after such date, we believe that our efforts to raise necessary capital will likely be adversely impacted by the outbreak of the coronavirus (Covid-19) and we cannot forecast with any certainty when the disruptions caused by it will cease to impact our business and the results of our operations in subsequent quarterly periods. In reading this quarterly report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties to the results of our operations in such subsequent periods caused by the outbreak of Covid-19.

XML 29 R19.htm IDEA: XBRL DOCUMENT v3.20.2
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Unaudited Interim Financial Information

Unaudited Interim Financial Information

 

Infinity Energy Resources, Inc. (collectively, “we,” “ours,” “us,” “Infinity” or the “Company”) has prepared the accompanying condensed financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These financial statements are unaudited and, in our opinion, include all adjustments consisting of normal recurring adjustments and accruals necessary for a fair presentation of our condensed balance sheets, statements of operations, statements of stockholders’ deficit and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2020 due to various factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes in Item 8, “Financial Statements and Supplementary Data,” of our Annual Report on Form 10-K, filed with the SEC.

Nature of Operations

Nature of Operations

 

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

 

We also began 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. As a result, on July 31, 2019, we acquired an option (the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral rights/leasehold for oil & gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres (the “Properties”). We paid a nonrefundable deposit of $50,000 to bind the Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms as the previous Option, however the Option now permits the Company to purchase the Properties at a reduced price of $900,000 at any time prior to November 1, 2020, and in connection with the acquisition of the new Option, the Company has agreed to immediately conduct a capital raise of between approximately $2-10 million to fund its acquisition and development of the Properties. There can be no assurance that the Company will obtain adequate financing in order to close on the acquisition prior to November 1, 2020 regardless of the reduced price or to enable it to conduct such subsequent capital raise, particularly in light of recent events including the coronavirus pandemic and its impact on the oil and gas industry.

 

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

 

We intend to complete the acquisition of the Properties prior to the Option termination date of November 1, 2020, subject to successfully obtaining adequate financing.

 

We must obtain new sources of debt and/or equity capital to fund the substantial needs enumerated above, as well as satisfying our existing debt obligations. We are attempting to obtain extensions of the maturity date for our outstanding debt; however, there can be no assurance that we will be able to do so or what the final terms will be if the lenders agree to such extensions. Further, we can provide no assurance that we will be able to obtain sufficient new debt/equity capital to exercise the Option.

 

COVID–19 PANDEMIC

 

The unaudited condensed financial statements contained in this quarterly report on Form 10-Q as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of September 30, 2020. Economies throughout the world have been and continue to be severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the outbreak of the coronavirus (Covid-19). In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus because of the substantial and abrupt decrease in the demand for oil and gas globally. In addition, the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by the outbreak of the virus and we cannot forecast with any certainty when the disruptions caused by it will cease to impact our business and the results of our operations. In reading this quarterly report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused by the outbreak of Covid-19.

 

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 Nicaraguan 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 Concessions. 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.

 

We relied on raising debt and equity capital to fund our ongoing maintenance/expenditure obligations under the Nicaraguan Concession, our day-to-day operations and corporate overhead because we have 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 was in default was paid off on September 24, 2020. The Company has two other notes payable with principal balances of $85,000 as of September 30, 2020 are now in default. In January 2020, we abandoned the Concessions.

Going Concern

Going Concern

 

The Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund the (i) acquisition of the Properties under the Option; (ii) normal day-to-day operations and corporate overhead; and (iii) outstanding debt and other financial obligations as they become due, as described below. These are substantial operational and financial issues that must be successfully addressed during 2020.

 

The Company is seeking new sources of debt and equity capital to fund the needs enumerated above. The Company is attempting to obtain extensions of the maturity dates for its debt or compromises regarding its debt. In addition, the Company will seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement. The Company has extinguished and/or restructured certain obligations that were in default during 2019 and 2020; however, there can be no assurance that it will be able to obtain such new funding, extensions or additional restructurings or on what terms.

 

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

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, stock-based awards and overriding royalty interests, and the realization of deferred tax assets.

Beneficial Conversion Feature of Convertible Notes Payable

Beneficial Conversion Feature of Convertible Notes Payable

 

The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options, Emerging Issues Task Force (“EITF”) 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF 00-27, Application of Issue No 98-5 To Certain Convertible Instruments. The Beneficial Conversion Feature (“BCF”) of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible note when issued and also records the estimated fair value of any warrants issued with those convertible notes. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.

 

The BCF of a convertible note is measured by allocating a portion of the note’s proceeds to the warrants, if applicable, and as a reduction of the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants on an allocated fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense using interest method.

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 condensed 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 September 30, 2020 and December 31, 2019 and during the periods then ended, the Company had no oil and natural gas derivative arrangements outstanding.

 

As a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company (Notes 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 derivative liabilities, which are related to detachable warrants issued in connection with various notes payable, (See Note 5 - Derivative Instruments) were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, par value $0.001 per share (the “Common Stock”), 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 (See Note 5 - Derivative Instruments) and non-performance risk factors, among other items. The fair values for the warrant derivatives as of September 30, 2020 and December 31, 2019 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 September 30, 2020 and December 31, 2019:

 

September 30, 2020   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Derivative liabilities   $     $     $ 868     $ 868  
                                 
    $     $     $ 868     $ 868  

 

December 31, 2019   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Derivative liabilities   $     $     $ 1,116     $ 1,116  
                                 
    $     $     $ 1,116     $ 1,116  

 

There were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the periods ended September 30, 2020 and December 31, 2019.

Basic and Diluted Earnings (Loss) Per Share

Basic and Diluted Earnings (Loss) Per Share

 

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. The Company adopted ASU 2019-12 for fiscal year ending December 31, 2020 and the adoption resulted in no impact on the Company’s financial position, cash flows or results of operations.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have yet been issued. If an entity early adopts these amendments in an interim period, it should reflect any adjustments as of the beginning of the annual period that includes that interim period. In addition, an entity that elects to early adopt the standard is required to adopt all of the amendments in the same period (i.e., an entity cannot select which amendments to early adopt). The Company is still evaluating the specific effect of this change. The Company will adopt ASU 2019-12 for fiscal year ending December 31, 2021.

 

Management does not believe that there are any other recently issued and effective or not yet effective pronouncements that would have or are expected to have any significant effect on the Company’s financial position, cash flows or results of operations.

XML 30 R20.htm IDEA: XBRL DOCUMENT v3.20.2
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2020
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 September 30, 2020 and December 31, 2019:

 

September 30, 2020   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Derivative liabilities   $     $     $ 868     $ 868  
                                 
    $     $     $ 868     $ 868  

 

December 31, 2019   Level 1     Level 2     Level 3     Total  
Liabilities:                                
Derivative liabilities   $     $     $ 1,116     $ 1,116  
                                 
    $     $     $ 1,116     $ 1,116  

XML 31 R21.htm IDEA: XBRL DOCUMENT v3.20.2
Secured Convertible Note Payable (Tables)
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Schedule of Activity in Secured Convertible Note

Following is an analysis of the activity in the Note during the nine months ended September 30, 2019:

 

    Amount  
Balance at December 31, 2018   $ 2,197,231  
Funding under the Investor Note (as defined below) during the period      
Principal repaid during the period by issuance of Common Stock      
Change in fair value of Note during the period      
Exchange of Note payable for Common Stock     2,197,231  
         
Balance at September 30, 2019   $  

Schedule of Gain on Exchange of Debt and Warrant Obligations

Following is an analysis of gain on exchange of the debt and warrant obligations pursuant to the Exchange Agreement, which was finalized on November 23, 2019:

 

    Amount  
Obligations extinguished on the date of exchange, May 23, 2019:        
Note balance at the date of exchange, May 23, 2019   $ 2,197,231  
Accrued interest on the Note at the date of exchange, May 23, 2019     28,643  
Fair value of Warrant Derivative at the date of exchange, May 23, 2019     116,731  
Securities issued in exchange for the obligations extinguished on the date of exchange, May 23, 2019 and the finalization of the Side-Letter Agreement at November 23, 2019:        
605,816 shares of Common Stock issued on the date of exchange May 23, 2019 valued at $0.121 per share, the closing market price on May 23, 2019     (73,304 )
567,348 shares of Common Stock issued pursuant to the finalization of the Side-Letter agreement on November 23, 2019     (68,082 )
         
Issuance of warrants to purchase 61,380 shares of Common Stock issued pursuant to the finalization of the Side-Letter agreement on November 23, 2019     (7,358 )
         
Gain on exchange of debt and warrant obligations   $ 2,193,861  

Schedule of Gain on Exchange Extinguishment of Debt and Warrant Obligations

A summary of the estimated gain on exchange and extinguishment of debt and warrant obligations as of and for the nine months ended September 30, 2019 follows:

 

    Amount  
Exchange of secured convertible note – estimated at September 30, 2019 (See Note 2 above)   $ 2,161,441  
Warrant issued to Placement Agent and exchanged on June 4, 2019 (See Note 2 above)     29,383  
Convertible note exchanged on June 19, 2019 (See Note 3)     222,456  
         
Gain on exchange of debt and warrant obligations   $ 2,413,280  
XML 32 R22.htm IDEA: XBRL DOCUMENT v3.20.2
Debt (Tables)
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Schedule of Debt Outstanding

Debt consists of the following at September 30, 2020 and December 31, 2019:

 

    September 30, 2020     December 31, 2019  
Notes payable, short term:                
Convertible note payable, (less discount of $321,074 and $-0- as of  September 30, 2020 and December 31, 2019, respectively)   $ 44,094     $  
Note payable (in default)           1,000,000  
Note payable (in default)     50,000       50,000  
Note payable (in default)     35,000       35,000  
Note payable (due on demand)           19,125  
Total notes payable, short-term   $ 129,094     $ 1,104,125  

Schedule of Debt Date of Issuance

Following is an analysis of the August Note as of its issuance date:

 

    Amount  
Allocation of August Note:        
Amount allocated to beneficial conversion feature   $ 221,006  
Amount allocated to detachable August Warrants     103,994  
Amount allocated to original issue discount     40,169  
         
Par value of August Note     365,169  
Less: Discount     (365,169 )
         
August Note balance – Net of discount on date of issuance   $  

Schedule of Note Net of Discount

Following is a summary of the August Note as of and for the nine months ended September 30, 2020 follows:

 

    Amount  
Balance December 31, 2019   $  
Issuance of August Note      
Amortization of discount for the nine months ended September 30, 2020     44,094  
         
Balance September 30, 2020, August Note – Net of discount   $ 44,094  

Schedule of Gain on Extinguishment of Debt

A summary of the gain on exchange and extinguishment of debt and the related accrued interest as of and for the nine months ended September 30, 2020 follows:

 

    Amount  
Principal balance of December 2013 Note extinguished as a result of the Exchange   $ 1,000,000  
         
Accrued interest extinguished as a result of the Exchange     542,762  
         
Total obligations extinguished as a result of the Exchange     1,542,762  
         
Cash payment to Holder as a result of the Exchange     (100,000 )
         
Value of Common Stock issued as a result of the Exchange     (132,756 )
         

 Gain on extinguishment of debt and related accrued interest

  $ 1,310,006  

 

Following is an analysis of gain on extinguishment of the obligations pursuant to such exchange agreement on June 19, 2019:

 

    Amount  
Obligations extinguished on the date of exchange, June 19, 2019:        
Convertible notes balance at the date of exchange, June 19, 2019   $ 240,000  
Accrued interest on the convertible notes at the date of exchange, June 19, 2019     45,020  
         
Securities issued in exchange for the obligations extinguished on the date of the exchange, June 19, 2019:        
Value of the stock purchase warrant issued on the date of exchange, June 19, 2019     (62,564 )
         
Gain on exchange of debt and warrant obligations   $ 222,456  
XML 33 R23.htm IDEA: XBRL DOCUMENT v3.20.2
Stock Options (Tables)
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Summary of Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2020:

 

    Number of Options     Weighted Average Exercise
Price Per
Share
    Weighted
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2019     332,000     $ 41.86       2.29 years     $  
Granted                            
Exercised                            
Forfeited                            
Outstanding at September 30, 2020     332,000     $ 41.86       1.54 years     $  
Outstanding and exercisable at September 30, 2020     332,000     $ 41.86       1.54 years     $  

Schedule of Restricted Stock Unit Activity

A summary of all restricted stock activity under the equity compensation plans for the nine months ended September 30, 2020 is as follows:

 

    Number of
Restricted
shares
    Weighted
average
grant date
fair value
 
Nonvested balance, December 31, 2019     750,000     $ 0.13  
Granted     5,000,000       0.13  
Vested     (625,000 )     (0.13 )
Forfeited            
Nonvested balance, September 30, 2020     5,125,000     $ 0.13  

Schedule of Nonvested Restricted Stock Unit Activity

The nonvested balance of restricted stock vests as follows:

 

Years ended   Number of
shares
 
       
2020 (October 1, 2020 through December 31, 2020)     2,000,000  
2021     3,125,000  
Total     5,125,000  

XML 34 R24.htm IDEA: XBRL DOCUMENT v3.20.2
Derivative Instruments (Tables)
9 Months Ended
Sep. 30, 2020
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 September 30, 2020 and December 31, 2019 is as follows:

 

    As of
September 30, 2020
    As of
December 31, 2019
 
             
Volatility – range     374.5 %     316.2 %
Risk-free rate     0.28 %     1.69 %
Contractual term     0.1 – .8 years       0.5 – 1.3 years  
Exercise price   $ 5.60     $ 5.60  
Number of warrants in aggregate     25,500       34,000  

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, 2019   $ 1,116  
Unrealized derivative gains included in other income/expense for the period     (248 )
         
Balance at September 30, 2020   $ 868  

XML 35 R25.htm IDEA: XBRL DOCUMENT v3.20.2
Warrants (Tables)
9 Months Ended
Sep. 30, 2020
Warrants and Rights Note Disclosure [Abstract]  
Summary of Warrant Activity

The following table summarizes warrant activity for the nine months ended September 30, 2020:

 

    Number of
Warrants
    Weighted
Average
Exercise Price
Per Share
 
Outstanding and exercisable at December 31, 2019     946,943     $ 1.78  
Issued     800,000       0.50  
Exercised/forfeited     (200,063 )     (5.03 )
                 
Outstanding and exercisable at September 30, 2020     1,546,880     $ 0.70  

XML 36 R26.htm IDEA: XBRL DOCUMENT v3.20.2
Gain on Extinguishment of Liabilities (Tables)
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Schedule of Estimated Gain on Exchange and Extinguishment of Debt

A summary of the estimated gain on exchange and extinguishment of trade payables, debt and warrant obligations as of and for the nine months ended September 30, 2020 and 2019 follows:

 

    September 30, 2020     September 30, 2019  
Notes payable, short term:                
Gain on extinguishment of debt and related accrued interest (See Note 3 above)   $ 1,310,006     $  
Extinguishment of trade payables     4,840,136        
Exchange of secured convertible note – estimated at September 30, 2019 (See Note 2 above)           2,161,441  
Warrant issued to Placement Agent and exchanged on June 4, 2019 (See Note 2 above)           29,383  
Convertible note exchanged on June 19, 2019 (See Note 3)           222,456  
Total notes payable, short-term   $ 6,150,142     $ 2,413,280  
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.20.2
Net Earnings (Loss) Per Share (Tables)
9 Months Ended
Sep. 30, 2020
Basic and diluted net income (loss) per share:  
Schedule of Net Earnings (Loss) Per Share

The calculation of the weighted average number of shares outstanding and loss per share outstanding for the three and nine months ended September 30, 2020 and 2019 are as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2020     2019     2020     2019  
Numerator for basic income per share -
Net income (loss)
  $ 5,963,428     $ (157,162 )   $ 5,812,659     $ 2,013,863  
                                 
Less: Interest expense on convertible debt     46,529             46,529        
                                 
Numerator for diluted income per share –
Net income (loss)
  $ 6,009,957     $ (157,162 )   $ 5,859,188     $ 2,013,863  
                                 
Denominator for basic loss per share – weighted average shares outstanding     14,820,900       8,699,978       13,147,455       8,129,779  
                                 
Dilutive effect of convertible debt outstanding     1,820,225               606,742          
                                 
Dilutive effect of shares issuable under stock options and warrants outstanding                        
                                 
 Denominator for diluted loss per share – adjusted weighted average shares outstanding     16,641,125       8,699,978       13,754,197       8,129,779  
                                 
Net loss per share:                                
Basic   $ 0.40     $ (0.02 )   $ 0.44     $ 0.25  
Diluted   $ 0.36     $ (0.02 )   $ 0.43     $ 0.25  

XML 38 R28.htm IDEA: XBRL DOCUMENT v3.20.2
Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative)
9 Months Ended 12 Months Ended
Sep. 02, 2020
USD ($)
Jul. 31, 2019
USD ($)
a
Apr. 20, 2017
Nov. 08, 2016
Dec. 27, 2013
Sep. 30, 2020
USD ($)
a
$ / shares
Dec. 31, 2019
USD ($)
$ / shares
Debt maturity date     Apr. 19, 2018 Nov. 07, 2017      
Notes payable current           $ 129,094 $ 1,104,125
Common stock, par value | $ / shares           $ 0.0001 $ 0.0001
December 2013 Note [Member]              
Principal amount of senior secured convertible notes           $ 1,000,000  
December 2013 Note [Member]              
Debt maturity date         Mar. 12, 2014 Apr. 30, 2016  
Two Other Notes Payable [Member]              
Notes payable current           $ 85,000  
Core Energy, LLC [Member]              
Contiguous acres | a   11,000          
Core Energy, LLC [Member] | Purchase Option, Prior to December 31, 2019 [Member]              
Non refundable deposits   $ 50,000         $ 50,000
Acquisition of oil and gas properties   $ 2,500,000         $ 2,500,000
Acquisition of oil and gas properties, description   If the Company is able to complete the acquisition, the purchase will include the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand zone with an approximate depth of 3,600 feet.          
Core Energy, LLC [Member] | Purchase Option, Prior to November 1, 2020 [Member]              
Acquisition of oil and gas properties $ 900,000            
Core Energy, LLC [Member] | Purchase Option, Prior to November 1, 2020 [Member] | Minimum [Member]              
Acquisition of oil and gas properties 2,000,000            
Core Energy, LLC [Member] | Purchase Option, Prior to November 1, 2020 [Member] | Maximum [Member]              
Acquisition of oil and gas properties $ 10,000,000            
Nicaraguan Concessions [Member]              
Nature of operations oil and gas resources acres | a           1,400,000  
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.20.2
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 ($)
Sep. 30, 2020
Dec. 31, 2019
Derivative liabilities $ 868 $ 1,116
Fair Value, Measurements, Recurring [Member]    
Derivative liabilities 868 1,116
Fair value on liabilities 868 1,116
Fair Value, Measurements, Recurring [Member] | Level 1 [Member]    
Derivative liabilities
Fair value on liabilities
Fair Value, Measurements, Recurring [Member] | Level 2 [Member]    
Derivative liabilities
Fair value on liabilities
Fair Value, Measurements, Recurring [Member] | Level 3 [Member]    
Derivative liabilities 868 1,116
Fair value on liabilities $ 868 $ 1,116
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.20.2
Secured Convertible Note Payable (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 02, 2020
Nov. 23, 2019
Jun. 04, 2019
May 30, 2019
May 23, 2019
May 04, 2017
Oct. 31, 2016
May 07, 2016
Jan. 15, 2016
Jan. 07, 2016
Jul. 15, 2015
Jul. 07, 2015
May 07, 2015
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Apr. 20, 2017
Nov. 08, 2016
Oct. 15, 2015
Oct. 07, 2015
May 31, 2015
Warrant to purchase shares of common stock                           25,500   25,500   34,000          
Warrants price per share                     $ 5.60 $ 5.60                 $ 5.60 $ 5.60  
Debt original issue of discount                           $ 365,169   $ 365,169              
Additional amount funded from related parties                               41,000            
Conversion price per share                     $ 5.60 $ 5.60             $ 5.00 $ 5.00      
Accrued interest                           37,787   37,787   $ 528,684          
Number of shares issued, value $ 75,000                           $ 137,500                
Change in fair value derivatives                           824 $ (127,284) 248 (190,092)            
Estimated fair value of conversion feature and warrants             $ 74 $ 131 $ 267 $ 379 $ 11,827 $ 22,314                      
Warrant [Member]                                              
Warrant to purchase shares of common stock     50,000                                       240,000
Warrants price per share     $ 0.50                                       $ 5.00
Warrant expiration date     Jun. 04, 2026                                       May 07, 2022
Investor Note [Member]                                              
Notes payable principal balance           $ 9,490,000                                  
Additional amount funded from related parties           510,000                                  
Convertible Note [Member]                                              
Notes payable principal balance                           $ 11,687,231   $ 11,687,231              
Convertible debt outstanding           9,490,000                                  
Cancellation of convertible note principal amount           9,490,000                                  
Debt original issue of discount           2,000,000                                  
Replacement Note [Member]                                              
Notes payable principal balance           $ 2,197,231                                  
Conversion price per share           $ 0.50                                  
Exchange Agreement [Member] | Derivative [Member]                                              
Gain on exchange of debt and warrant obligations     $ 29,383                                        
Extinguishment of debt     37,368                                        
Estimated fair value of conversion feature and warrants     $ 7,985                                        
Exchange Agreement [Member] | Warrant [Member]                                              
Fair value of the original warrant derivative         $ 37,368                                    
Change in fair value derivatives         $ 29,795                                    
Side-letter Agreement [Member]                                              
Warrant to purchase shares of common stock   61,380                                          
Warrants price per share   $ 0.50                                          
Percentage of fully diluted shares outstanding   9.99%                                          
Number of shares issued, value   $ 567,348                                          
Warrant expiration date   Jun. 19, 2026                                          
Gain on exchange of debt and warrant obligations                                 $ 2,161,441            
Side-letter Agreement [Member] | Minimum [Member]                                              
Sale of stock, price per share         $ 0.10                                    
Side-letter Agreement [Member] | New Warrant [Member]                                              
Percentage of fully diluted shares outstanding         9.99%                                    
Exchange Agreement Amendment 1 [Member]                                              
Percentage of fully diluted shares outstanding       9.99%                                      
Number of shares issued, value       $ 605,816                                      
May 2015 Private Placement [Member]                                              
Notes payable principal balance                         $ 12,000,000                    
Warrant to purchase shares of common stock                         1,800,000                    
Percentage of fee received of cash proceeds                         6.00%                    
Proceeds from issuance of common stock                         $ 600,000                    
Received amount at closing                         $ 27,000                    
May 2015 Private Placement [Member] | Exchange Agreement [Member] | Convertible Note Payable [Member]                                              
Convertible debt outstanding         $ 2,197,231                                    
Accrued interest         $ 28,643                                    
May 2015 Private Placement [Member] | Registration Rights Agreement [Member] | Convertible Note Payable [Member]                                              
Common stock, capital shares reserved for future issuance         770,485                                    
Placement Agent [Member]                                              
Warrant to purchase shares of common stock                         240,000                    
Warrants price per share                         $ 5.00                    
Private Placement Memorandum [Member] | Securities Purchase Agreement [Member]                                              
Notes payable principal balance                         $ 9,550,000                    
Note payments for cash and issuing promissory note                         $ 450,000                    
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.20.2
Secured Convertible Note Payable - Schedule of Activity in Secured Convertible Note (Details)
9 Months Ended
Sep. 30, 2019
USD ($)
Debt Disclosure [Abstract]  
Balance, beginning $ 2,197,231
Funding under the Investor Note (as defined below) during the period
Principal repaid during the period by issuance of Common Stock
Change in fair value of Note during the period
Exchange of Note payable for Common Stock 2,197,231
Balance, ending
XML 42 R32.htm IDEA: XBRL DOCUMENT v3.20.2
Secured Convertible Note Payable - Schedule of Gain on Exchange of Debt and Warrant Obligations (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Gain on exchange of debt and warrant obligations $ 6,150,142 $ 6,150,142 $ 2,413,280
Exchange Agreement on May 23, 2019 [Member]        
Gain on exchange of debt and warrant obligations     2,193,861  
Exchange Agreement on May 23, 2019 [Member] | Convertible Note [Member]        
Gain on exchange of debt and warrant obligations     2,197,231  
Exchange Agreement on May 23, 2019 [Member] | Accrued Interest [Member]        
Gain on exchange of debt and warrant obligations     28,643  
Exchange Agreement on May 23, 2019 [Member] | Warrant Derivative [Member]        
Gain on exchange of debt and warrant obligations     116,731  
Exchange Agreement on May 23, 2019 [Member] | Exchange of Securities [Member]        
Gain on exchange of debt and warrant obligations     (73,304)  
Side-Letter Agreement on November 23, 2019 [Member] | Common Shares Issued [Member]        
Gain on exchange of debt and warrant obligations     (68,082)  
Side-Letter Agreement on November 23, 2019 [Member] | Warrants Shares Issued [Member]        
Gain on exchange of debt and warrant obligations     $ (7,358)  
XML 43 R33.htm IDEA: XBRL DOCUMENT v3.20.2
Secured Convertible Note Payable - Schedule of Gain on Exchange of Debt and Warrant Obligations (Details) (Parenthetical) - $ / shares
12 Months Ended
Sep. 02, 2020
Nov. 23, 2019
May 23, 2019
Dec. 31, 2013
Number of shares issued 500,000     15,000
Exchange Agreement on May 23, 2019 [Member] | Exchange of Securities [Member]        
Number of shares issued     605,816  
Shares issued price per share     $ 0.121  
Side-Letter Agreement on November 23, 2019 [Member] | Common Shares Issued [Member]        
Number of shares issued   567,348    
Side-Letter Agreement on November 23, 2019 [Member] | Warrants Shares Issued [Member]        
Number of shares issued   61,380    
XML 44 R34.htm IDEA: XBRL DOCUMENT v3.20.2
Secured Convertible Note Payable - Schedule of Gain on Exchange Extinguishment of Debt and Warrant Obligations (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Gain on exchange of debt and warrant obligations $ 6,150,142 $ 6,150,142 $ 2,413,280
Exchange Agreement on June 30, 2019 [Member] | Exchange of Secured Convertible Note [Member]        
Gain on exchange of debt and warrant obligations       2,161,441
Exchange Agreement on June 4, 2019 [Member] | Warrant Issued Placement Agent [Member]        
Gain on exchange of debt and warrant obligations       29,383
Exchange Agreement on June 19, 2019 [Member]        
Gain on exchange of debt and warrant obligations       2,413,280
Exchange Agreement on June 19, 2019 [Member] | Convertible Note Exchanged [Member]        
Gain on exchange of debt and warrant obligations       $ 222,456
XML 45 R35.htm IDEA: XBRL DOCUMENT v3.20.2
Debt (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Sep. 24, 2020
Sep. 02, 2020
Aug. 19, 2020
May 13, 2020
Jun. 19, 2019
May 21, 2018
Apr. 20, 2017
Nov. 08, 2016
Oct. 31, 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
Oct. 31, 2019
Aug. 31, 2019
Jun. 30, 2019
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2013
Dec. 31, 2019
Debt maturity date             Apr. 19, 2018 Nov. 07, 2017                                  
Debt instrument, conversion price             $ 5.00 $ 5.00             $ 5.60 $ 5.60                  
Warrants term                         5 years 5 years 5 years 5 years                  
Issuance of warrants exercisable to purchase of common stock                         3,500 5,000 3,500 5,000                  
Warrants exercise price per share                         $ 5.60 $ 5.60 $ 5.60 $ 5.60                  
Proceeds from unsecured credit facility             $ 40,000                                    
Increase of warrants issuance                             7,000 10,000                  
Warrants exercise price drops price per share                             $ 5.60 $ 5.60                  
Number of shares issued   500,000                                           15,000  
Number of shares issued, value   $ 75,000                                     $ 137,500        
Repayments of notes payable                                           $ 19,125    
Proceeds from convertible debt               $ 200,000             $ 35,000 $ 50,000           325,000 $ 56,000    
Debt instruments interest rate             8.00% 8.00%             8.00% 8.00%                  
Estimated fair value of conversion feature and warrants                 $ 74 $ 131 $ 267 $ 379     $ 11,827 $ 22,314                  
Debt maturity extended date                         Jan. 15, 2016 Jan. 07, 2016                      
Debt maturity extended later date                         Oct. 15, 2016 May 07, 2016                      
Accrued interest related party note payable                                           $ 654      
Two Convertible Notes [Member]                                                  
Debt maturity date         Jun. 19, 2026                                        
Issuance of warrants exercisable to purchase of common stock         570,000                                        
Warrants exercise price per share         $ 0.50                                        
Accrued and unpaid interest         $ 45,020                                        
Unpaid principal balance         240,000                                        
Estimated fair value of conversion feature and warrants         $ 62,564                                        
Exchange and Settlement Agreement [Member]                                                  
Debt instrument, face amount $ 1,050,000                                                
Issuance of warrants exercisable to purchase of common stock 100,000                                                
Number of shares issued 737,532                                                
Debt instrument, principal balance $ 1,000,000                                                
Accrued and unpaid interest 542,762                                                
Repayments of notes payable $ 100,000                                                
September Exchange Agreement [Member]                                                  
Issuance of warrants exercisable to purchase of common stock 100,000                                                
Number of shares issued 737,532                                                
Number of shares issued, value $ 132,756                                                
Repayments of notes payable $ 100,000                                                
Senior Unsecured Convertible Note [Member] | Securities Purchase Agreement [Member]                                                  
Debt maturity date     Aug. 19, 2021                                            
Debt instrument, face amount     $ 365,169                                            
Debt instrument, convertible     3,943,820                                            
Debt instrument, conversion price     $ 0.10                                            
Warrants term     5 years                                            
Issuance of warrants exercisable to purchase of common stock     800,000                                            
Warrants exercise price per share     $ 0.50                                            
Repayment of debt     $ 325,000                                            
Debt instrument description     The August Note bears interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full or in part by the Company at any time in an amount equal to 115% of the principal amount of the August Note and any accrued and unpaid interest, and shall be mandatorily repaid in cash in an amount equal to 115% of the principal amount of the August Note and any accrued and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,500,000. The August Note is convertible at any time by the August Investor and the Company shall have the right to request that the August Investor convert the August Note in full or in part at the Fixed Conversion Price in the event that the VWAP (as defined in the August Note) of the Common Stock exceeds $0.75 for twenty consecutive trading days. In addition, pursuant to the August Note, so long as the August Note remains outstanding, the Company shall not enter into any financing transactions pursuant to which the Company sells its securities at a price lower than the Fixed Conversion Price without written consent of the August Investor. The conversion of the August Note and the exercise of the August Warrant are each subject to beneficial ownership limitations such that the August Investor may not convert the August Note or exercise the August Warrant to the extent that such conversion or exercise would result in the August Investor being the beneficial owner in excess of 4.99% (or, upon election of the August Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company. The Company and the August Investor agreed that for so long as the August Note and August Warrant remains outstanding, the August Investor has a right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to an amount equal to thirty-five percent (35%) of the such subsequent financing.                                            
Proceeds from debt     $ 2,500,000                                            
December 2013 Note [Member]                                                  
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                
Proceeds from unsecured credit facility                                 $ 1,050,000                
Warrant expiration date description                                 The Company issued no additional warrants to the lender in connection with the extension of the December 2013 Note to the new April 2015 maturity date.                
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]                                                  
Warrant expiration date description                                           The Company issued no additional warrants to the lender in connection with the extension of the December 2013 Note to the New Maturity Date. If the Company failed to pay the December 2013 Note on or before the New Maturity Date, the number of shares issuable under the December 2013 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 Company failed to make the required payment previously described and the reset of the terms of the December 2013 Warrant occurred, however such warrant expired in March 2017 unexercised. The December 2013 Note may be prepaid without penalty at any time.      
Percentage of revenue sharing agreement description                                           In connection with an additional extension of the December 2013 Note to April 7, 2016, the Company agreed to enter into a definitive revenue sharing agreement with the lender (the "Revenue Sharing Agreement") 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 percentage 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 December 2013 Note and amortized ratably over the extended term of such note. Such prospective Revenue Sharing Agreement is void with the abandonment of the Nicaraguan Concessions.      
Estimated revenue                                           $ 964,738      
December 2013 Note to April 7, 2016 Two [Member]                                                  
Warrants exercise price per share                                           $ 5.00      
Repayment of debt                                           $ 50,000      
Increase of warrants issuance                                           1,333,333      
Warrants exercise price drops price per share                                           $ 0.75      
Restricted common stock issued                                           20,000      
Number of shares issued                                           20,000      
Number of shares issued, value                                           $ (104,000)      
Increased value of the outstanding warrants                                           (68,716)      
Convertible Note Payable [Member]                                                  
Derivative liability                                           995     $ 662
Convertible Notes Payable One [Member]                                                  
Derivative liability                                           $ 357     $ 454
Unsecured Promissory Note [Member]                                                  
Debt instrument, face amount     19,125                                            
Repayments on unsecured promissory note                                   $ 50,000              
Unsecured Promissory Note [Member] | Chairman Chief Executive Officer and President [Member]                                                  
Debt instrument, face amount     $ 41,000                                            
Proceeds from convertible debt       $ 41,000                                          
Debt instruments interest rate       6.00%                                          
Unsecured Promissory Note [Member] | Private Third Lender [Member]                                                  
Debt instrument, conversion price           $ 0.50                                      
Proceeds from convertible debt           $ 13,125                         $ 5,500 $ 50,500          
Debt instruments interest rate           8.00%                                      
XML 46 R36.htm IDEA: XBRL DOCUMENT v3.20.2
Debt - Schedule of Debt Outstanding (Details) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Sep. 30, 2019
Total notes payable, short-term $ 129,094 $ 1,104,125  
Convertible Notes Payable [Member]      
Total notes payable, short-term 44,094  
Note Payable (In Default) One [Member]      
Total notes payable, short-term 1,000,000  
Notes Payable (In Default) Two [Member]      
Total notes payable, short-term 50,000 50,000  
Notes Payable (In Default) Three [Member]      
Total notes payable, short-term 35,000 35,000  
Note Payable (Due on Demand) Four [Member]      
Total notes payable, short-term $ 19,125  
XML 47 R37.htm IDEA: XBRL DOCUMENT v3.20.2
Debt - Schedule of Debt Outstanding (Details) (Parenthetical) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Debt discount $ 365,169  
Convertible Notes Payable [Member]    
Debt discount $ 321,074 $ 0
XML 48 R38.htm IDEA: XBRL DOCUMENT v3.20.2
Debt - Schedule of Debt Date of Issuance (Details)
Sep. 30, 2020
USD ($)
Par value of August Note $ 365,169
Less: Discount (365,169)
August Note balance - Net of discount on date of issuance
Amount Allocated to Beneficial Conversion Feature [Member]  
Par value of August Note 221,006
Amount Allocated to Detachable August Warrants [Member]  
Par value of August Note 103,994
Amount Allocated to Original Issue Discount [Member]  
Par value of August Note $ 40,169
XML 49 R39.htm IDEA: XBRL DOCUMENT v3.20.2
Debt - Schedule of Note Net of Discount (Details) - USD ($)
9 Months Ended
Nov. 08, 2016
Jul. 15, 2015
Jul. 07, 2015
Sep. 30, 2020
Sep. 30, 2019
Debt Disclosure [Abstract]          
Balance, beginning       $ 2,197,231
Issuance of August Note $ 200,000 $ 35,000 $ 50,000 325,000 56,000
Amortization of discount for the nine months ended September 30, 2020       44,094  
Balance, ending       $ 44,094
XML 50 R40.htm IDEA: XBRL DOCUMENT v3.20.2
Debt - Schedule of Gain on Extinguishment of Debt (Details) - USD ($)
3 Months Ended 9 Months Ended
Jun. 19, 2019
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Gain on extinguishment of debt and related accrued interest   $ 6,150,142 $ 6,150,142 $ 2,413,280
Gain on exchange of debt and warrant obligations       1,310,006 2,413,280
Exchange Agreement [Member]          
Gain on extinguishment of debt and related accrued interest       1,310,006  
Exchange Agreement [Member] | Principal Balance of December 2013 Note extinguished as a Result of the Exchange [Member]          
Gain on extinguishment of debt and related accrued interest       1,000,000  
Exchange Agreement [Member] | Accrued Interest Extinguished as a Result of the Exchange [Member]          
Gain on extinguishment of debt and related accrued interest       542,762  
Exchange Agreement [Member] | Obligations Extinguished as a Result of the Exchange [Member]          
Gain on extinguishment of debt and related accrued interest       1,542,762  
Exchange Agreement [Member] | Cash Payment to Holder as a Result of the Exchange [Member]          
Gain on extinguishment of debt and related accrued interest       (100,000)  
Exchange Agreement [Member] | Value of Common Stock Issued as a Result of the Exchange [Member]          
Gain on extinguishment of debt and related accrued interest       $ (132,756)  
Exchange Agreement on June 19, 2019 [Member]          
Gain on extinguishment of debt and related accrued interest         $ 2,413,280
Gain on exchange of debt and warrant obligations $ 222,456        
Exchange Agreement on June 19, 2019 [Member] | Convertible Note [Member]          
Gain on exchange of debt and warrant obligations 240,000        
Exchange Agreement on June 19, 2019 [Member] | Accrued Interest on Convertible Notes [Member]          
Gain on exchange of debt and warrant obligations 45,020        
Exchange Agreement on June 19, 2019 [Member] | Stock Purchase Warrant [Member]          
Gain on exchange of debt and warrant obligations $ (62,564)        
XML 51 R41.htm IDEA: XBRL DOCUMENT v3.20.2
Stock Options (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Number of options granted
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  
Stock-based compensation expense 154,441
Unrecognized compensation costs to non-vested restricted stock grants $ 569,284  
2005 Equity Incentive Plan [Member]    
Issuance of reserved common stock, shares 47,500  
2005 Plan and 2006 Plan [Member]    
Stock date of granted expiration period 10 years  
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 52 R42.htm IDEA: XBRL DOCUMENT v3.20.2
Stock Options - Summary of Stock Option Activity (Details) - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Share-based Payment Arrangement [Abstract]    
Number of Options, Outstanding, Beginning 332,000  
Number of Options, Granted
Number of Options, Exercised  
Number of Options, Forfeited  
Number of Options, Outstanding, Ending 332,000  
Number of Options, Outstanding and Exercisable 332,000  
Weighted Average Exercise Price Per Share, Outstanding, Beginning $ 41.86  
Weighted Average Exercise Price Per Share, Granted  
Weighted Average Exercise Price Per Share, Exercised  
Weighted Average Exercise Price Per Share, Forfeited  
Weighted Average Exercise Price Per Share, Outstanding, Ending 41.86  
Weighted Average Exercise Price Per Share, Outstanding and Exercisable $ 41.86  
Weighted Average Remaining Contractual Term, Outstanding, Beginning 2 years 3 months 15 days  
Weighted Average Remaining Contractual Term, Outstanding, Ending 1 year 6 months 14 days  
Weighted Average Remaining Contractual Term, Outstanding and Exercisable 1 year 6 months 14 days  
Aggregate Intrinsic Value, Outstanding, Beginning  
Aggregate Intrinsic Value, Outstanding, Ending  
Aggregate Intrinsic Value, Outstanding and Exercisable  
XML 53 R43.htm IDEA: XBRL DOCUMENT v3.20.2
Stock Options - Schedule of Restricted Stock Unit Activity (Details) - Restricted Stock [Member]
9 Months Ended
Sep. 30, 2020
$ / shares
shares
Number of Restricted shares, Nonvested balance, beginning | shares 750,000
Number of Restricted shares, Granted | shares 5,000,000
Number of Restricted shares, Vested | shares (625,000)
Number of Restricted shares, Forfeited | shares
Number of Restricted shares, Nonvested balance, end | shares 5,125,000
Weighted average grant date fair value, Nonvested balance, beginning | $ / shares $ 0.13
Weighted average grant date fair value, Granted | $ / shares 0.13
Weighted average grant date fair value, Vested | $ / shares (0.13)
Weighted average grant date fair value, Forfeited | $ / shares
Weighted average grant date fair value, Nonvested balance, end | $ / shares $ 0.13
XML 54 R44.htm IDEA: XBRL DOCUMENT v3.20.2
Stock Options - Schedule of Nonvested Restricted Stock Unit Activity (Details) - 2020 (July 1, 2020 through December 31, 2020) [Member]
9 Months Ended
Sep. 30, 2020
USD ($)
2020 (October 1, 2020 through December 31, 2020) $ 2,000,000
2021 3,125,000
Total $ 5,125,000
XML 55 R45.htm IDEA: XBRL DOCUMENT v3.20.2
Derivative Instruments (Details Narrative) - shares
Sep. 30, 2020
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]    
Warrant to purchase shares of common stock 25,500 34,000
XML 56 R46.htm IDEA: XBRL DOCUMENT v3.20.2
Derivative Instruments - Schedule of Estimated Fair Value of Derivative Liabilities (Details)
9 Months Ended 12 Months Ended
Sep. 30, 2020
$ / shares
shares
Dec. 31, 2019
$ / shares
shares
Number of warrants in aggregate | shares 25,500 34,000
Derivative [Member] | Volatility - Range [Member]    
Fair value assumptions, measurement input 374.5 316.2
Derivative [Member] | Risk-Free Rate [Member]    
Fair value assumptions, measurement input 0.28 1.69
Derivative [Member] | Contractual Term [Member] | Minimum [Member]    
Fair value assumptions, measurement input, term 1 month 6 days 6 months
Derivative [Member] | Contractual Term [Member] | Maximum [Member]    
Fair value assumptions, measurement input, term 9 months 18 days 1 year 3 months 19 days
Derivative [Member] | Exercise Price [Member]    
Fair value assumptions, measurement input, exercise price | $ / shares $ 5.60 $ 5.60
XML 57 R47.htm IDEA: XBRL DOCUMENT v3.20.2
Derivative Instruments - Summary of Changes in Fair Value Derivative Financial Instruments (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]        
Beginning balance     $ 1,116  
Unrealized derivative gains included in other income/expense for the period $ (824) $ 127,284 (248) $ 190,092
Ending balance $ 868   $ 868  
XML 58 R48.htm IDEA: XBRL DOCUMENT v3.20.2
Warrants (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2020
Oct. 15, 2015
Oct. 07, 2015
Jul. 15, 2015
Jul. 07, 2015
Weighted average of purchase warrants term   5 years 5 years 5 years 5 years
Warrant [Member]          
Weighted average of purchase warrants term 5 years 1 month 6 days        
Common stock purchase warrants and intrinsic value $ 0        
XML 59 R49.htm IDEA: XBRL DOCUMENT v3.20.2
Warrants - Summary of Warrant Activity (Details) - Warrant [Member]
9 Months Ended
Sep. 30, 2020
$ / shares
shares
Number of warrants, Outstanding and exercisable, beginning balance | shares 946,943
Number of warrants, Issued | shares 800,000
Number of warrants, Exercised/forfeited | shares (200,063)
Number of warrants, Outstanding and exercisable, ending balance | shares 1,546,880
Weighted Average Exercise Price Per Share, Outstanding and exercisable, beginning balance | $ / shares $ 1.78
Weighted Average Exercise Price Per Share, Issued pursuant to exchange agreements | $ / shares 0.50
Weighted Average Exercise Price Per Share, Exercised/forfeited | $ / shares (5.03)
Weighted Average Exercise Price Per Share, Outstanding and exercisable, ending balance | $ / shares $ 0.70
XML 60 R50.htm IDEA: XBRL DOCUMENT v3.20.2
Income Taxes (Details Narrative)
9 Months Ended
Sep. 30, 2020
USD ($)
Income Tax Disclosure [Abstract]  
Corporate tax rate 21.00%
Percentage on valuation allowance 100.00%
Net operating loss carry-forward $ 66,950,000
Net operating loss carry-forward balance expires Expire from 2025 through 2038.
Change in ownership percentage 50.00%
XML 61 R51.htm IDEA: XBRL DOCUMENT v3.20.2
Gain on Extinguishment of Liabilities (Details Narrative)
Dec. 31, 2013
USD ($)
Debt Disclosure [Abstract]  
Trade payable $ 4,840,136
XML 62 R52.htm IDEA: XBRL DOCUMENT v3.20.2
Gain on Extinguishment of Liabilities - Schedule of Estimated Gain on Exchange and Extinguishment of Debt (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Gain on extinguishment of liabilities $ 6,150,142 $ 6,150,142 $ 2,413,280
Gain on Extinguishment of Debt and Related Accrued Interest [Member]        
Gain on extinguishment of liabilities     1,310,006
Extinguishment Of Trade Payables [Member]        
Gain on extinguishment of liabilities     4,840,136
Exchange of Secured Convertible Note - Estimated at September 30, 2019 [Member]        
Gain on extinguishment of liabilities     2,161,441
Warrant Issued to Placement Agent and Exchanged on June 4, 2019 [Member]        
Gain on extinguishment of liabilities     29,383
Convertible Note Exchanged on June 19, 2019 [Member]        
Gain on extinguishment of liabilities     $ 222,456
XML 63 R53.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies (Details Narrative) - USD ($)
1 Months Ended 9 Months Ended 12 Months Ended
Sep. 02, 2020
Jul. 31, 2019
Dec. 08, 2014
Aug. 15, 2014
Oct. 18, 2013
Oct. 31, 2012
Sep. 30, 2020
Dec. 31, 2019
Dec. 31, 2013
Asset retirement obligations           $ 45,103 $ 1,716,003 $ 1,716,003  
Related Party Transactions $ 900,000                
Seeking of reclamation costs           30,000      
Estimated liability relating each operating well           45,103      
Total estimated liability relating to all operating wells           $ 780,000      
Liability relating to all operating wells, description           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.      
Payment for investor relations services                 $ 14,000
Number of shares issued 500,000               15,000
Torrey Hills Capital, Inc [Member]                  
Payment for demand       $ 56,000          
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            
Minimum [Member]                  
Capital raise $ 2,000,000                
Maximum [Member]                  
Capital raise $ 10,000,000                
Consulting Agreement [Member]                  
Payment for investor relations services         $ 7,000        
Number of shares issued         15,000        
Core Energy, LLC [Member] | Purchase Option, Prior to December 31, 2019 [Member]                  
Non refundable deposits   $ 50,000           50,000  
Acquisition of oil and gas properties   $ 2,500,000           $ 2,500,000  
Block Perlas [Member]                  
Letters of credit             1,356,227    
Block Tyra [Member]                  
Letters of credit             278,450    
Perlas Block and Tyra Block [Member] | 2016 [Member]                  
Payments of area fees             194,485    
Payments of training fees             350,000    
Perlas Block and Tyra Block [Member] | 2017 [Member]                  
Payments of area fees             194,485    
Payments of training fees             350,000    
Perlas Block and Tyra Block [Member] | 2018 [Member]                  
Payments of area fees             194,485    
Payments of training fees             350,000    
Perlas Block and Tyra Block [Member] | 2019 [Member]                  
Payments of area fees             194,485    
Payments of training fees             $ 350,000    
XML 64 R54.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party Transactions (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 02, 2020
May 13, 2020
Jul. 31, 2019
Nov. 08, 2016
Jul. 15, 2015
Jul. 07, 2015
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Dec. 31, 2013
Apr. 20, 2017
Related Party Transactions $ 900,000                      
Number of shares of common stock 500,000                   15,000  
Number of shares of common stock, value $ 75,000           $ 137,500          
Proceeds from convertible debt       $ 200,000 $ 35,000 $ 50,000   $ 325,000 $ 56,000      
Debt instruments interest rate       8.00% 8.00% 8.00%           8.00%
Related party note payable               41,000      
Unsecured Promissory Note [Member] | Chairman Chief Executive Officer and President [Member]                        
Proceeds from convertible debt   $ 41,000                    
Debt instruments interest rate   6.00%                    
Related party note payable               654        
Officers and Directors [Member]                        
Accrued compensation               1,829,208   $ 1,829,208    
Minimum [Member]                        
Capital raise 2,000,000                      
Maximum [Member]                        
Capital raise $ 10,000,000                      
Core Energy, LLC [Member] | Purchase Option, Prior to December 31, 2019 [Member]                        
Non refundable deposits     $ 50,000             50,000    
Acquisition of oil and gas properties     $ 2,500,000             2,500,000    
CFO's Firm [Member]                        
Due to related party for consideration of services               $ 762,407   $ 762,407    
XML 65 R55.htm IDEA: XBRL DOCUMENT v3.20.2
Net Earnings (Loss) Per Share - Schedule of Net Earnings (Loss) Per Share (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Jun. 30, 2020
Mar. 31, 2020
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Sep. 30, 2020
Sep. 30, 2019
Basic and diluted net income (loss) per share:                
Numerator for basic income per share - Net income (loss) $ 5,963,428 $ (66,004) $ (84,765) $ (157,162) $ 2,342,643 $ (171,618) $ 5,812,659 $ 2,013,863
Less: Interest expense on convertible debt 46,529         46,529
Numerator for diluted income per share - Net income (loss) $ 6,009,957     $ (157,162)     $ 5,859,188 $ 2,013,863
Denominator for basic loss per share - weighted average shares outstanding 14,820,900     8,699,978     13,147,455 8,129,779
Dilutive effect of convertible debt outstanding 1,820,225           606,742  
Dilutive effect of shares issuable under stock options and warrants outstanding        
Denominator for diluted loss per share - adjusted weighted average shares outstanding 16,641,125     8,699,978     13,754,197 8,129,779
Basic $ 0.40     $ (0.02)     $ 0.44 $ 0.25
Diluted $ 0.36     $ (0.02)     $ 0.43 $ 0.25
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