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, 2017.





|[  ] | 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 ofincorporation or organization) |  | (I.R.S.
    EmployerIdentification 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)



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]



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



| | Large
    accelerated filer [  ]                                             |  | Accelerated
    filer [  ]       
| | ---------------------------------------------------------------------------- |  | ---------------------------------
| | Non-accelerated
    filer [  ] (Do not check if a smaller reporting company) |  | Smaller
    reporting company [X]



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 November 10, 2017
|----------------------------------- |  | ------------------------------------
|Common
    Stock, $0.0001 par value |  | 7,712,569                           


























TABLE
OF CONTENTS



|                                                                                                              | Page
|------------------------------------------------------------------------------------------------------------- | ----
|PART
    I Financial Information                                                                              |     
|Item
    1. Financial Statements                                                                              |     
|Condensed
    Balance Sheets: September 30, 2017 (unaudited) and December 31, 2016                            | 3   
|Condensed
    Statements of Operations: Three and nine months ended September 30, 2017 and 2016 (Unaudited)   | 4   
|Condensed
    Statement of Changes in Stockholders’ Deficit: Nine months ended September 30, 2017 (Unaudited) | 5   
|Condensed
    Statements of Cash Flows: Nine months ended September 30, 2017 and 2016 (Unaudited)             | 6   
|Notes
    to Condensed Financial Statements (Unaudited)                                                       | 7   
|Item
    2. Management’s Discussion and Analysis of Financial Condition and Results of Operations             | 27  
|Item
    3. Quantitative and Qualitative Disclosures About Market Risk                                        | 35  
|Item
    4. Controls and Procedures                                                                           | 35  
|PART
    II Other Information                                                                                 |     
|Item
    1. Legal Proceedings                                                                                 | 36  
|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  
|Exhibits                                                                                                      | 39  



2







PART
I - FINANCIAL INFORMATION



ITEM
1. FINANCIAL STATEMENTS



INFINITY
ENERGY RESOURCES, INC.

Condensed
Balance Sheets



|                                                                                                                                                                  |  | September
    30, 2017 |              |   | December
    31, 2016 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------------ | - | --------------------- | -
|                                                                                                                                                                  |  |                        | (unaudited)  |   |                       |  
|ASSETS                                                                                                                                                            |  |                        |              |   |                       |  
|Current assets:                                                                                                                                                   |  |                        |              |   |                       |  
|Cash
    and cash equivalents                                                                                                                                     |  | $                      | 6,936        |   |                       | $
|                                                                                                                                                                  |  |                        |              |   |                       |  
|Total
    current assets                                                                                                                                          |  |                        | 6,936        |   |                       |  
|                                                                                                                                                                  |  |                        |              |   |                       |  
|Total
    assets                                                                                                                                                  |  | $                      | 6,936        |   |                       | $
|                                                                                                                                                                  |  |                        |              |   |                       |  
|LIABILITIES AND
    STOCKHOLDERS’ DEFICIT                                                                                                                         |  |                        |              |   |                       |  
|Current liabilities:                                                                                                                                              |  |                        |              |   |                       |  
|Accounts payable                                                                                                                                                  |  | $                      | 6,000,216    |   |                       | $
|Accrued liabilities
    (including $788,520 due to related party at September 30, 2017 and December 31, 2016)                                                     |  |                        | 3,446,906    |   |                       |  
|Income tax liability                                                                                                                                              |  |                        | 150,000      |   |                       |  
|Accrued interest                                                                                                                                                  |  |                        | 364,104      |   |                       |  
|Asset retirement
    obligations                                                                                                                                  |  |                        | 1,716,003    |   |                       |  
|Secured convertible
    note payable-current                                                                                                                      |  |                        | 1,989,222    |   |                       |  
|Convertible notes
    payable-short term                                                                                                                          |  |                        | 1,325,000    |   |                       |  
|Total
    current liabilities                                                                                                                                     |  |                        | 14,991,451   |   |                       |  
|                                                                                                                                                                  |  |                        |              |   |                       |  
|Secured convertible note payable-long
    term                                                                                                                    |  |                        | —            |   |                       |  
|Derivative liabilities                                                                                                                                            |  |                        | 105,079      |   |                       |  
|Total long-term
    liabilities                                                                                                                                   |  |                        | 105,079      |   |                       |  
|Commitments and contingencies (Note
    8)                                                                                                                        |  |                        |              |   |                       |  
|Stockholders’ deficit:                                                                                                                                            |  |                        |              |   |                       |  
|Preferred stock;
    par value $.0001 per share, 10,000,000 shares authorized; No shares issued or outstanding as of September 30, 2017 and December
    31, 2016 |  |                        | —            |   |                       |  
|Common stock, par value $.0001 per
    share, authorized 75,000,000 shares, issued and outstanding 7,712,569 shares at September 30, 2017 and December 31, 2016   |  |                        | 771          |   |                       |  
|Additional paid-in
    capital                                                                                                                                    |  |                        | 109,080,273  |   |                       |  
|Accumulated deficit                                                                                                                                               |  |                        | (124,170,638 | ) |                       |  
|Total
    stockholders’ deficit                                                                                                                                   |  |                        | (15,089,594  | ) |                       |  
|Total
    liabilities and stockholders’ deficit                                                                                                                   |  | $                      | 6,936        |   |                       | $



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



3









INFINITY
ENERGY RESOURCES, INC.

Condensed
Statements of Operations(Unaudited)



|                                                             |  | Three
    months ended  September 30, |           |   | Nine
    months ended  September 30, |  
|------------------------------------------------------------ |  | ------------------------------------- | --------- | - | ------------------------------------ | -
|                                                             |  | 2017                                  |           |   | 2016                                 |  
|                                                             |  |                                       |           |   |                                      |  
|Operating expenses:                                          |  |                                       |           |   |                                      |  
|General
    and administrative expenses                      |  | $                                     | 103,531   |   |                                      | $
|Stock-based
    compensation                                 |  |                                       | —         |   |                                      |  
|Total
    operating expenses                                 |  |                                       | 103,531   |   |                                      |  
|                                                             |  |                                       |           |   |                                      |  
|Operating
    loss                                           |  |                                       | (103,531  | ) |                                      |  
|                                                             |  |                                       |           |   |                                      |  
|Other income (expense):                                      |  |                                       |           |   |                                      |  
|Interest expense                                             |  |                                       | (29,048   | ) |                                      |  
|Change in fair value
    of secured convertible note payable |  |                                       | (166,431  | ) |                                      |  
|Change
    in derivative fair value                          |  |                                       | 40,186    |   |                                      |  
|Total
    other income (expense)                             |  |                                       | (155,293  | ) |                                      |  
|                                                             |  |                                       |           |   |                                      |  
|Loss before income
    taxes                                 |  |                                       | (258,824  | ) |                                      |  
|Income tax expense
    (benefit)                             |  |                                       | —         |   |                                      |  
|                                                             |  |                                       |           |   |                                      |  
|Net loss                                                     |  | $                                     | (258,824  | ) |                                      | $
|                                                             |  |                                       |           |   |                                      |  
|Basic and diluted net loss per share:                        |  |                                       |           |   |                                      |  
|Basic                                                        |  | $                                     | (0.03     | ) |                                      | $
|Diluted                                                      |  | $                                     | (0.03     | ) |                                      | $
|Weighted average shares outstanding
    – basic and diluted  |  |                                       | 7,712,569 |   |                                      |  



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



4









INFINITY
ENERGY RESOURCES, INC.

Condensed
Statement of Changes in Stockholders’ Deficit

Nine
months ended September 30, 2017

(Unaudited)



|                            |  | Common
    Stock |           |  | Additional
    Paid-in |   |     | Accumulated |  |   | Stockholders’ | 
|--------------------------- |  | ---------------- | --------- |  | ---------------------- | - | --- | ----------- |  | - | ------------- | 
|                            |  | Shares           |           |  | Amount                 |   |     | Capital     |  |   | Deficit       | 
|Balance, December 31, 2016  |  |                  | 7,712,569 |  |                        | $ | 771 |             |  | $ | 109,080,273   | 
|                            |  |                  |           |  |                        |   |     |             |  |   |               | 
|Net
    loss                |  |                  | —         |  |                        |   | —   |             |  |   | —             | 
|                            |  |                  |           |  |                        |   |     |             |  |   |               | 
|Balance, September 30, 2017 |  |                  | 7,712,569 |  |                        | $ | 771 |             |  | $ | 109,080,273   | 



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



5









INFINITY
ENERGY RESOURCES, INC.

Condensed
Statements of Cash Flows

(unaudited)



|                                                                                                    |  | Nine
    months ended September 30, |           
|--------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ----------
|                                                                                                    |  | 2017                                |           
|                                                                                                    |  |                                     |           
|Cash flows from operating activities:                                                               |  |                                     |           
|Net
    loss                                                                                        |  | $                                   | (2,222,184
|Adjustments to reconcile
    net loss to net cash used in operating activities:                     |  |                                     |           
|Stock-based compensation                                                                            |  |                                     | —         
|Change in fair value
    of derivative liability                                                    |  |                                     | (78,351   
|Change in fair value
    of senior convertible note                                                 |  |                                     | 1,847,894 
|Amortization of
    debt discount                                                                   |  |                                     | —         
|Change in operations
    assets and liabilities:                                                    |  |                                     |           
|Increase
    in accounts payable and accrued liabilities                                            |  |                                     | 407,238   
|Net cash used in
    operating activities                                                           |  |                                     | (43,403   
|                                                                                                    |  |                                     |           
|Cash
    flows from investing activities:                                                           |  |                                     | —         
|Net cash provided
    by (used in) investing activities                                             |  |                                     | —         
|                                                                                                    |  |                                     |           
|Cash flows from financing activities:                                                               |  |                                     |           
|Proceeds
    from issuance of senior convertible note payable                                       |  |                                     | 40,000    
|Net
    cash provided by financing activities                                                       |  |                                     | 40,000    
|                                                                                                    |  |                                     |           
|Net decrease in
    cash and cash equivalents                                                       |  |                                     | (5,403    
|                                                                                                    |  |                                     |           
|Cash and cash equivalents:                                                                          |  |                                     |           
|Beginning                                                                                           |  |                                     | 12,339    
|Ending                                                                                              |  | $                                   | 6,936     
|Supplemental cash flow information:                                                                 |  |                                     |           
|Cash paid for interest                                                                              |  | $                                   | —         
|Cash paid for taxes                                                                                 |  | $                                   | —         
|Supplemental noncash disclosures:                                                                   |  |                                     |           
|Issuance of common
    stock for principal and interest payments on senior convertible note payable |  | $                                   | —         
|Warrant derivatives
    issued in connection with notes payable and extensions                      |  | $                                   | —         
|Issuance of common
    stock purchase warrants for debt issuance costs                              |  | $                                   | —         



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



6









INFINITY
ENERGY RESOURCES, INC.

Notes
to Condensed Financial Statements

(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 balance
sheets, statements of operations, 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 2017 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



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



The
Company has been pursuing exploration and development of the Nicaraguan Concessions, which represents its principal asset and
only exploration and development project. On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan Concessions.
Infinity has conducted activities to develop geological information from the processing and evaluation of 2-D seismic data that
was acquired for the Nicaraguan Concessions. The Company has identified multiple sites for exploratory drilling and intends to
plan the initial exploratory well on the Perlas Block in order to determine the existence of commercial hydrocarbon reserves,
subject to receipt from the Nicaraguan government of authorizations for the drilling of up to five wells, financing and satisfaction
of other conditions. In order to meet its obligations under the Perlas Block of the Nicaraguan Concession, the Company had to
drill its initial exploratory well during 2016, which did not occur. As a result of this and other defaults, the Company is in
default of the Perlas development plan and may lose its rights under the Nicaraguan Concessions. The work plan on the Tyra block
now requires the Company to shoot additional seismic prior to the commencement of exploratory drilling. The Company is seeking
a waiver of the additional seismic mapping on the Tyra Block and extension of time to complete its initial well from the Nicaraguan
government. The Company has not been able to pay the 2016 and 2017 area fees and training fees for both the Perlas and Tyra blocks
as required under the Nicaraguan Concessions and is in technical default. The Company is attempting to negotiate extensions, waivers
and/or new Perlas and Tyra Concession agreements with the Nicaraguan government at September 30, 2017 to cure such defaults. There
can be no assurance whether it will be able to obtain such extensions, waivers and/or new agreements that will cure its various
defaults under the Nicaraguan Concessions. The current environment for oil and gas development projects, especially discoveries
in otherwise undeveloped regions of the world, is very challenging given the depressed commodity prices for oil and gas products
and the resulting industry-wide reduction in capital expenditure budgets for exploration and development projects. There can be
no assurance whether the Company will be able to cure its various defaults under the Nicaraguan Concessions and obtain adequate
financing to fund the exploration and development of its Nicaraguan Concessions.



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



7









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



The
Note was to mature on the three-year anniversary of its issuance, bore interest at 8% per annum, and was convertible at any time
at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”).
As a part of the May 2015 Private Placement, the Company issued a Warrant to the Investor giving it the right to purchase up to
an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The Warrant is exercisable
commencing nine months from the date of issuance for a period of seven years from the date of issuance. The Note ranked senior
to the Company’s existing and future indebtedness and is secured by all the assets of the Company, excluding the Concessions.
The proposed Replacement Note would have the same security interest as the Convertible Note.



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



Going
Concern



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



The
Company has relied on raising debt and equity capital in recent years in order to fund its ongoing maintenance/expenditure obligations
under the Nicaraguan Concession, for its day-to-day operations and its corporate overhead because it has generated no operating
revenues or cash flows in recent history. The $1.0 million December 2013 Note (See Note 3) matured in April 2016 and is currently
in technical default and two other notes payable with principal balances of $85,000 as of September 30, 2017 are now in default.
The Company is seeking extensions of the maturity date for these notes payable; however, there can be no assurance that it will
be able to obtain such extensions or what the final terms will be if the lenders agree to such extensions. The Company and its
lenders are assessing the status of the Nicaraguan Concessions and what effect that may have on the extension or renewal of these
notes.



The
Company is in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of September 30, 2017,
including (1) the drilling of at least one exploratory well on the Perlas Block during 2016; (2) the shooting of additional seismic
on the Tyra Block during 2016; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts
totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment
of the 2016 and 2017 area fees required for both the Perlas and Tyra which total $97,243; and (5) payment of the 2016 and 2017
training fees required for both the Perlas and Tyra totaling $175,000. The Company is seeking to extend, renew and/or renegotiate
the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. There can be no assurance whether
it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to
the Company. The Company has held meetings and is pursuing additional meetings with Nicaraguan Government officials in order to
address the pending defaults.



8









The
Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund:
(1) the annual training program and area fees for 2016 and 2017; (2) required letters of credit to the Nicaraguan Government;
(3) the drilling of at least one exploratory well on the Perlas Block of the Nicaraguan Concessions during 2017; (4) the shooting
of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement
from the Nicaraguan government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debt and other financial
obligations as they become due, including the $1.0 million December 2013 Note, and the two notes payable totaling $85,000, which
are in technical default and the Replacement Note, if issued. These are substantial operational and financial issues that must
be successfully addressed during 2017 or the Company’s ability to satisfy the conditions necessary to maintain and/or renegotiate
its Nicaragua Concessions will be in significant doubt.



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



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



Management
Estimates



The
preparation of financial statements in conformity with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates with regard to the financial statements include
the estimated carrying value of unproved properties, the estimated fair value of derivative liabilities, secured convertible note
payable, stock-based awards and overriding royalty interests, and the realization of deferred tax assets.



Concentrations



The
Company’s business plan consists of developing the Nicaraguan Concessions and it expects to be active in Nicaragua for the
foreseeable future, given sufficient capital and curing the defaults under the Nicaraguan Concessions. The political climate in
Nicaragua could become unstable and subject to radical change over a short period of time. In the event of a significant negative
change in political and economic stability in the vicinity of the Nicaraguan Concessions or of the inability of the Company to
obtain sufficient financing, the Company might be forced to abandon or suspend its efforts and its rights under its Nicaraguan
Concessions.



Foreign
Currency



The
United States dollar is the functional currency for the Company’s operations. Although the Company’s acquisition and
exploration activities have been conducted in Nicaragua, a significant portion of the payments incurred for exploration activities
are denominated in United States dollars. The Company expects that a significant portion of its required and discretionary expenditures
in the foreseeable future will also be denominated in United States dollars. Any foreign currency gains and losses are included
in the results of operations in the period in which they occur. The Company does not have any cash accounts denominated in foreign
currencies.



9









Cash
and Cash Equivalents



For
purposes of reporting cash flows, cash consists of cash on hand and demand deposits with financial institutions. Although the
Company had minimal cash as of September 30, 2017 and December 31, 2016, it is the Company’s policy that all highly liquid
investments with a maturity of three months or less when purchased would be cash equivalents and would be included along with
cash as cash and equivalents.



Oil
and Gas Properties



The
Company follows the full cost method of accounting for exploration and development activities. Accordingly, all costs incurred
in the acquisition, exploration, and development of properties (including costs of surrendered and abandoned leaseholds, delay
lease rentals, dry holes and seismic costs) and the fair value of estimated future costs of site restoration, dismantlement, and
abandonment activities are capitalized. Overhead related to development activities is also capitalized during the acquisition
phase.



Depletion
of proved oil and gas properties is computed on the units-of-production method, with oil and gas being converted to a common unit
of measure based on relative energy content, whereby capitalized costs, as adjusted for estimated future development costs and
estimated asset retirement costs, are amortized over the total estimated proved reserve quantities. Investments in unproved properties,
including capitalized interest and internal costs, are not depleted pending determination of the existence of proved reserves.



Unproved
properties are assessed periodically (at least annually) to ascertain whether impairment has occurred. Unproved properties whose
costs are individually significant are assessed individually by considering the primary lease terms of the properties, the holding
period of the properties, geographic and geologic data obtained relating to the properties, and estimated discounted future net
cash flows from the properties. Estimated discounted future net cash flows are based on discounted future net revenues associated
with probable and possible reserves, risk adjusted as appropriate. Where it is not practicable to assess individually the amount
of impairment of properties for which costs are not individually significant, such properties are grouped for purposes of assessing
impairment. The amount of impairment assessed is deducted from the costs to be amortized, and reported as a period expense when
the impairment is recognized. All unproved property costs as of September 30, 2017 and December 31, 2016 relate to the Nicaraguan
Concessions. In assessing the unproved property costs for impairment, the Company takes into consideration various information
including: (i) the terms of the Concessions, (ii) the status of the Company’s compliance with the Nicaraguan Concessions’
requirements, (iii) the ongoing evaluation of the seismic data, (iv) the commodity prices for oil and gas products, (v) the overall
environment related to oil and gas exploration and development projects for unproven targets in unproven regions of the world,
(vi) the availability of financing for financial and strategic partners, and (vii) other factors that would impact the viability
of a significant long-term oil and gas exploration and development project.



The
current environment for oil and gas development projects, especially discoveries in otherwise undeveloped regions of the world,
is very challenging given the depressed commodity prices for oil and gas products and the resulting industry-wide reduction in
capital expenditure budgets for exploration and development projects. These are substantial impediments for the Company to obtain
adequate financing to fund the exploration and development of its Nicaraguan projects. The Company has performed its impairment
tests as of September 30, 2017 and December 31, 2016 and has concluded that a full impairment reserve should be provided on the
costs capitalized for the Nicaraguan Concessions oil and gas properties. All costs related to the Nicaraguan Concessions from
January 1, 2016 through September 30, 2017 have been charged to operating expenses as incurred.



Pursuant
to full cost accounting rules, the Company must perform a “ceiling test” each quarter. The ceiling test provides that
capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of
(1) the present value of future net revenue from estimated production of proved oil and gas reserves using prices based on the
arithmetic mean of the previous 12 months’ first-of month prices and current costs, including the effects of derivative
instruments accounted for as cash flow hedges, but excluding the future cash outflows associated with settling asset retirement
obligations that have been accrued on the balance sheet, and a discount factor of 10%; plus (2) the cost of properties not being
amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized,
if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. If capitalized
costs exceed the ceiling, the excess must be charged to expense and may not be reversed in future periods. As of September 30,
2017 and December 31, 2016, the Company did not have any proved oil and gas properties, and all unproved property costs relate
to its Nicaraguan Concessions.



10









Proceeds
from the sales of oil and gas properties are accounted for as adjustments to capitalized costs with no gain or loss recognized,
unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas,
in which case the gain or loss would be recognized in the determination of the Company’s net earnings/loss.



Asset
Retirement Obligations



The
Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities
to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding
increase in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the asset retirement liability
is required to be accreted each period. The Company’s asset retirement obligations consist of costs related to the plugging
of wells, the removal of facilities and equipment, and site restoration on oil and gas properties. Capitalized costs are depleted
as a component of the full cost pool using the units of production method. Although the Company had divested all of its domestic
oil properties that contain operating and abandoned wells as of December 31, 2012, the Company may have obligations related to
the divestiture of certain abandoned non-producing domestic leasehold properties should the new owner not perform its obligations
to reclaim abandoned wells in a timely manner. Management believes the Company has been relieved from asset retirement obligation
related to Infinity-Texas because of the sale of its Texas oil and gas properties in 2011 and its sale of 100% of the stock in
Infinity-Texas in 2012. The Company has recognized an additional liability of $734,897 related to its former Texas oil and gas
producing properties (included in asset retirement obligations) to recognize the potential personal liability of the Company and
its officers for the Infinity-Texas oil and gas properties should the new owner not perform its obligations to reclaim abandoned
wells in a timely manner. In addition, management believes the Company has been relieved from asset retirement obligations related
to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however, the Company has recognized
since 2012 an additional liability of $981,106 related to its former Wyoming and Colorado oil and gas producing properties (included
in asset retirement obligations) to recognize the potential liability of the Company and its officers should the new owner not
perform its obligations to reclaim abandoned wells in a timely manner.



Derivative
Instruments



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



The
purpose of hedging is to provide a measure of stability to the Company’s cash flows in an environment of volatile oil and
gas prices and to manage the exposure to commodity price risk. As of September 30, 2017 and December 31, 2016 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 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 receivable, accounts payable and accrued liabilities and short term notes represent
the estimated fair value due to the short-term nature of the accounts.



11









The
carrying value of the Company’s debt under its line-of-credit with related party represents its estimated fair value due
to its short-term nature, its rate of interest, associated fees and expenses and initially recorded discount.



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



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



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



The
estimated fair value of the Company’s Note and various derivative liabilities, which are related to detachable warrants
issued in connection with various notes payable, were estimated using a closed-ended option pricing model utilizing assumptions
related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock, interest
rates, the probability of both of the downward adjustment of the exercise price and the upward adjustment to the number of warrants
as provided by the warrant agreement terms and non-performance risk factors, among other items. The fair values for the warrant
derivatives as of September 30, 2017 and December 31, 2016 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, 2017 and December 31, 2016:



|September
    30, 2017              |  | Level
    1 |   |  | Level
    2 |   |   | Level
    3 |  |   | Total     | 
|----------------------------------- |  | ----------- | - |  | ----------- | - | - | ----------- |  | - | --------- | 
|Liabilities:                        |  |             |   |  |             |   |   |             |  |   |           | 
|Senior
    convertible note payable |  | $           | — |  |             | $ | — |             |  | $ | 1,989,222 | 
|Derivative
    liabilities          |  |             | — |  |             |   | — |             |  |   | 105,079   | 
|                                    |  | $           | — |  |             | $ | — |             |  | $ | 2,094,301 | 



|December
    31, 2016               |  | Level
    1 |   |  | Level
    2 |   |   | Level
    3 |  |   | Total   | 
|----------------------------------- |  | ----------- | - |  | ----------- | - | - | ----------- |  | - | ------- | 
|Liabilities:                        |  |             |   |  |             |   |   |             |  |   |         | 
|Senior
    convertible note payable |  | $           | — |  |             | $ | — |             |  | $ | 141,328 | 
|Derivative
    liabilities          |  |             | — |  |             |   | — |             |  |   | 183,430 | 
|                                    |  | $           | — |  |             | $ | — |             |  | $ | 324,758 | 



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, 2017 and December 31, 2016.



Net
Income (Loss) per Share



Pursuant
to FASB ASC Topic 260, Earnings per Share, basic net income (loss) per share is computed by dividing the net income (loss)
by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed
by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common and common equivalent
shares outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon
assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in
which net losses are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations,
as the inclusion of common share equivalents would have an anti-dilutive effect.



12









Reclassifications



Certain
amounts in the prior period were reclassified to conform to the current period’s financial statement presentation. These
reclassifications had no effect on previously reported net loss or accumulated deficit.



Note
2 – Secured Convertible Note Payable



Secured
Convertible Note (the “Note) payable consists of the following at September 30, 2017 and December 31, 2016:



|                                                    |  | September
    30, 2017 |            |   | December
    31, 2016 |  
|--------------------------------------------------- |  | ---------------------- | ---------- | - | --------------------- | -
|Secured
    convertible note payable, at fair value |  | $                      | 1,989,222  |   |                       | $
|Less:
    Current maturities                        |  |                        | (1,989,222 | ) |                       |  
|                                                    |  |                        |            |   |                       |  
|Secured
    convertible note payable, long-term     |  | $                      | —          |   |                       | $



Following
is an analysis of the activity in the secured convertible note during the nine months ended September 30, 2017:



|                                                                       |  | Amount |          
|---------------------------------------------------------------------- |  | ------ | ---------
|Balance
    at December 31, 2016                                       |  | $      | 141,328  
|Funding
    under the Investor Note during the period                  |  |        | —        
|Principal
    repaid during the period by issuance of common stock     |  |        | —        
|Change
    in fair value of secured convertible note during the period |  |        | 1,847,894
|                                                                       |  |        |          
|Balance
    at September 30, 2017                                      |  | $      | 1,989,222



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



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



On
May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the
Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal
outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal
of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had
an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to
deliver a new convertible note (the “Replacement Note”) with respect to the remaining principal balance of $2,197,231
to replace the Convertible Note. The aggregate outstanding principal balance of $11,687,231 of the Convertible Note included an
approximate $2.0 million original issue discount; however, the Investor funded only $510,000 under the Investor Note. The Company
has recorded the fair value of the Convertible Note assuming that the remaining par value is $2,197,231 as asserted by the Investor,
resulting in a change in the estimated fair value of $1,847,894 during the nine months ended September 30, 2017. The Replacement
Note provides for a one-year maturity from May 7, 2017, a conversion price of $0.50 per share and is due in monthly installment
payments through May 2018 either in cash or stock, among other terms. It is to be secured to the same extent as the Convertible
Note. The Company plans to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing
and taking into consideration the Investor’s minimal funding in the entire transaction, but there can be no assurance that
it will be successful in this regard.





13







Description
of the Secured Convertible Note



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



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



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



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



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



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



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





14







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



Description
of the Warrant.



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



9.99%
Restriction on Conversion of Note and Exercise of Warrant



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



Registration
Rights Agreement



In
connection with the May 2015 Private Placement, the Company and the Investor entered into a Registration Rights Agreement under
which the Company is required, on or before 45 days after the closing of the May 2015 Private Placement, to file a registration
statement with the Securities and Exchange Commission (the “SEC”) covering the resale of 130% of the shares of the
Company’s common stock issuable pursuant to the Note and Warrant and to use its best efforts to have the registration declared
effective as soon as practicable. The Company will be subject to certain monetary penalties, as set forth in the Registration
Rights Agreement, if the registration statement is not filed or does not remain available for the resale (subject to certain allowable
grace periods) of the Registrable Securities, as such term is defined in the Registration Rights Agreement. The Company filed
the required registration statement on Form S-1 on June 19, 2015 and the Securities and Exchange Commission declared the Form
S-1 effective on October 9, 2015 and has thereby satisfied this requirement.





15







Participation
Rights



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



Description
of the Financial Accounting and Reporting



The
Company elected to account for the Note on its fair value basis, therefore, the fair value of the Note, including its embedded
conversion feature, were estimated together utilizing a binomial lattice model on its origination date and the Black-Scholes model
at September 30, 2017. Such assumptions included the following:



|                       |  | Upon Issuance |                                                    |   | As
                                         of September
                                         30, 2017 |  
|---------------------- |  | ------------- | -------------------------------------------------- | - | ---------------------------------------------------------------------------------------------------------- | -
|                       |  |               |                                                    |   |                                                                                                            |  
|Volatility
    – range |  |               | 102.6                                              | % |                                                                                                            |  
|Risk-free
    rate     |  |               | 1.00                                               | % |                                                                                                            |  
|Contractual
    term   |  |               | 3.0
                                         years |   |                                                                                                            |  
|Conversion
    price   |  | $             | 5.00                                               |   |                                                                                                            | $
|Par value
    of note  |  | $             | 540,000                                            |   |                                                                                                            | $



The
Company received $450,000 of proceeds at the date of issuance and after repayments and additional funding the net principal balance
was $129,960 as of September 30, 2017. The fair market value of the Note was estimated to be $682,400 as of the issuance date,
$141,328 at December 31, 2016 and $1,989,222 as of September 30, 2017. The net change in fair market value of the Note of $1,847,894
and $67,591 is included in change in fair value of senior secured convertible note payable in the accompanying statement of operations
for the nine months ended September 30, 2017 and 2016, respectively.



On
May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the
Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal
outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal
of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had
an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to
deliver the Replacement Note with respect to the remaining principal balance of $2,197,231 to replace the Convertible Note. The
aggregate outstanding principal balance of $11,687,231 of the Convertible Note included an approximate $2.0 million original issue
discount; however, the Investor funded only $510,000 under the Investor Note. The Company has recorded the fair value of the Convertible
Notes assuming that the remaining par value is $2,197,231 as asserted by the Investor, resulting in a change in the estimated
fair value of $1,847,894 during the nine months ended September 30, 2017. The Company plans to negotiate with the Investor regarding
the issuance of the Replacement Note under the terms of the financing and taking into consideration the Investor’s minimal
funding in the entire transaction, but there can be no assurance that it will be successful in this regard.



The
Warrant issued to purchase 1,800,000 common shares in connection with the Note was treated as a derivative liability for accounting
purposes due to its ratchet and anti-dilution provisions. The estimated fair value of the warrant derivative as of September 30,
2017 was $90,909, representing a change of $64,552 from December 31, 2016, which is included in changes in derivative fair value
in the accompanying statement of operations for the nine months ended September 30, 2017. See Note 5.



The
warrant to purchase 240,000 shares issued as part of the placement fee in connection with the Note was treated as a derivative
liability for accounting purposes due to its ratchet and anti-dilution provisions. Changes in the fair value of the warrant derivative
liability totaled $8,607 (decrease in the derivative liability) through September 30, 2017, which is included in changes in derivative
fair value in the accompanying statement of operations for the nine months ended September 30, 2017. The warrant derivative liability
balance related to such warrants was $12,121 and $20,728 as of September 30, 2017 and December 31, 2016, respectively. See Note
5.





16







The
Company is required to make monthly installment payments in the form of cash, common stock or a combination of both. The Holder
has suspended such installments during the third and fourth quarters of 2016 and the nine months ended September 30, 2017.



Note
3 – Debt



Debt
consists of the following at September 30, 2017 and December 31, 2016:



|                                           |  | September
    30, 2017 |           |  | December
    31, 2016 |  
|------------------------------------------ |  | ---------------------- | --------- |  | --------------------- | -
|Convertible
    notes payable, short term: |  |                        |           |  |                       |  
|Note
    payable, (in default)             |  | $                      | 1,000,000 |  |                       | $
|Note
    payable                           |  |                        | 200,000   |  |                       |  
|Note
    payable                           |  |                        | 40,000    |  |                       |  
|Note
    payable, (in default)             |  |                        | 50,000    |  |                       |  
|Note
    payable (in default)              |  |                        | 35,000    |  |                       |  
|Total
    notes payable, short-term        |  | $                      | 1,325,000 |  |                       | $



Line-of-Credit
with Related Party



The
Company entered into a line-of-credit facility on September 23, 2013 that provided it with borrowing capacity on a revolving basis
up to a maximum of $50,000, which was increased to $75,000 at August 28, 2015 and an initial maturity of November 28, 2013. The
line of credit was convertible to common stock at a rate of $5.00 per share. The entity providing the credit facility is owned
by an officer of another corporation for which Infinity’s president and chairman of the board serves as president and chairman
of the board. The facility was unsecured, bore interest at 8% per annum, and was paid off at its maturity in November 2016.



Note
Payable – Short-term



On
December 27, 2013 the Company borrowed $1,050,000 under an unsecured credit facility with a private, third-party lender. The facility
is represented by a promissory note (the “December 2013 Note”) with an original maturity date of March 12, 2014.



In
connection with the December 2013 Note, the Company granted the lender a warrant (the “Warrant”) exercisable to purchase
100,000 shares of its common stock at an exercise price of $15.00 per share. In connection with an extension to April 2015, the
parties amended the date for exercise of the Warrant to be a period commencing April 7, 2015 and expiring on the third anniversary
of such date. The Company issued no additional warrants to the lender in connection with the extension of the Note to the New
Maturity Date. If the Company fails to pay the Note on or before its New Maturity Date, the number of shares issuable under the
Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the Warrant remain the same.
The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded
as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting
date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount
is amortized ratably through the original maturity date and each of the extended maturity dates.



In
connection with an extension of the December 2013 Note to April 7, 2016, the Company agreed to enter into a definitive revenue
sharing agreement with the lender to grant the lender under the revenue sharing agreement an irrevocable right to receive a monthly
payment equal to one half of one percent (1/2%) of the gross revenue derived from the share of all hydrocarbons produced at the
wellhead from the Nicaraguan Concessions and any other oil and gas concessions that the Company and its affiliates may acquire
in the future. This percent increased to one percent (1%) when the Company did not pay the December 2013 Note in full by August
7, 2014. Therefore, the revenue sharing agreement is fixed at one percent (1%). The value of the one percent (1.0%) definitive
revenue sharing agreement granted to the lender as consideration for the extension of the maturity date to December 7, 2014 was
estimated to be $964,738. Such amount was recorded as a reduction of oil and gas properties and as a discount on the renewed note
payable and amortized ratably over the extended term of the note.





17







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



The
Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded
as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting
date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount
is amortized ratably through the original maturity date and each of the extended maturity dates. The Company recognized the value
of the 20,000 shares of common stock issued ($104,000) and the increased value of the outstanding warrants due to the decrease
in their exercise price ($68,716) as an additional discount on the note payable to be amortized ratably over the extended term
of the underlying note.



The
discount recorded as of the December 27, 2013 origination date of the note and as a result of the amendments to the Note terms
and extensions of the maturity date has been amortized ratably over the term and extended terms of the note and the remaining
unamortized discount was $-0- as of September 30, 2017 and December 31, 2016. The related warrant derivative liability balance
was $449 and $4,429 as of September 30, 2017 and December 31, 2016, respectively. See Note 5.



Other
than the Note described above, during the nine months ended September 30, 2017 the Company had short-term notes outstanding with
entities or individuals as follows:



| | ● | On
    November 8, 2016 the Company borrowed a total of $200,000 from an individual under a convertible note payable with the conversion
    rate of $5.00 per share. The note requires no principal or interest payments until its maturity date of November 7, 2017 and
    bears interest at 8% per annum.  The note was not paid on its original maturity date. The Company is currently pursuing
    an extension from the Holder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ● | On
    April 20, 2017, the Company borrowed $40,000 under an unsecured credit facility with a private, third-party lender which is
    convertible at a rate of $5.00 per share. The note requires no principal or interest payments until its maturity date of April
    19, 2018 and bears interest at 8% per annum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ● | On
    July 7, 2015 the Company borrowed a total of $50,000 from an individual under a convertible note payable with the conversion
    rate of $5.60 per share. The term of the note was for a period of 90 days and bears interest at 8% per annum. In connection
    with the loan, the Company issued the entity a warrant for the purchase of 5,000 shares of common stock at $5.60 per share
    for a period of five years from the date of the note. The terms of the note and warrant provide that should the note and interest
    not be paid in full by its maturity date, the number of warrants automatically increases to 10,000 shares and the exercise
    price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted
    for as derivative liability. The Company recorded the estimated fair value of the warrant totaling $22,314 as a discount on
    note payable and as a derivative liability in the same amount, as of the origination date. On October 7, 2015, the note was
    extended for an additional 90 days or until January 7, 2016 and later to May 7, 2016 and ultimately to October 7, 2016. The
    Company is currently pursuing an additional extension from the Holder. The Company and its lender are assessing the status
    of the Nicaraguan Concessions and what effect that may have on the extension or renewal of these notes. In consideration,
    the Company granted the lender common stock purchase warrants exercisable to purchase 5,000 shares of common stock on each
    extension date at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years.
    The value of the 5,000 newly issued warrants issued on January 7, 2016 totaled $379 and $131 on May 7, 2016 both of which
    were amortized over the extension period (through October 7, 2016). The related warrant derivative liability balance was $942
    and $1,654 as of September 30, 2017 and December 31, 2016, respectively. See Note 5.





18







| | ● | On
    July 15, 2015, the Company borrowed a total of $35,000 from an individual under a convertible note payable with the conversion
    rate of $5.60 per share. The term of the note was for a period of 90 days and bears interest at 8% per annum. In connection
    with the loan, the Company issued the entity a warrant for the purchase of 3,500 shares of common stock at $5.60 per share
    for a period of five years from the date of the note. The terms of the note and warrant provide that should the note and interest
    not be paid in full by its maturity date, the number of warrants automatically increases to 7,000 shares and the exercise
    price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted
    for as a derivative liability. The Company recorded the estimated fair value of the warrant totaling $11,827 as a discount
    on note payable and as a derivative liability in the same amount, as of the origination date. On October 15, 2015, the note
    was extended for an additional 90 days or until January 15, 2016 and later to October 15, 2016. The Company is currently pursuing
    an additional extension from the Holder. The Company and its lender are assessing the status of the Nicaraguan Concessions
    and what effect that may have on the extension or renewal of these notes. In consideration, the Company granted the lender
    common stock purchase warrants exercisable to purchase an aggregate of 3,500 shares of common stock on each extension date
    at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years. The value of
    the 3,500 newly issued warrants on January 15, 2016 totaled $267 and $74 on May 15, 2016, both of which are being amortized
    over the extension period (through October 15, 2016). The related warrant derivative liability balance was $658 and $1,158
    as of September 30, 2017 and December 31, 2016, respectively. See Note 5.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note
4 – Stock Options



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



In
May 2006, the Company’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which
both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants.
An aggregate of 47,000 shares of the Company’s common stock are reserved for issuance under the 2006 Plan. In June 2005,
the Company’s stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), under which both incentive
and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of
47,500 shares of the Company’s common stock were reserved for issuance under the 2005 and 2006 Plans; however, such Plans
have now expired and no further issuances can be made. Options granted under the 2005 Plan and 2006 Plan allow for the purchase
of common stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately
or as directed by the Company’s Board of Directors and generally expire ten years after the date of grant. The Company also
has issued other stock options not pursuant to a formal plan with terms similar to the 2005 and 2006 Plans.



The
Annual Meeting of Stockholders was held on September 25, 2015 and the stockholders approved the Infinity Energy Resources, Inc.
2015 Stock Option and Restricted Stock Plan (the “2015 Plan”) and reserved 500,000 shares for issuance under the Plan.



As
of September 30, 2017, 500,000 shares were available for future grants under the 2015 Plan as all other Plans have now expired.





19







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, 2017.



The
following table summarizes stock option activity for the nine months ended September 30, 2017:



|                                                      |  | Number
    of Options |         |   | Weighted
    Average Exercise 
    Price Per
    Share |   |        | Weighted
    Average
    Remaining
    Contractual
    Term |  |  | Aggregate
    Intrinsic 
    Value                 | 
|----------------------------------------------------- |  | --------------------- | ------- | - | ------------------------------------------------------ | - | ------ | ----------------------------------------------------------- |  |  | -------------------------------------------------- | 
|Outstanding
    at December 31, 2016                  |  |                       | 393,450 |   |                                                        | $ | 37.46  |                                                             |  |  | 4.6
                                         years | 
|Granted                                               |  |                       | —       |   |                                                        |   | —      |                                                             |  |  |                                                    | 
|Exercised                                             |  |                       | —       |   |                                                        |   | —      |                                                             |  |  |                                                    | 
|Forfeited                                             |  |                       | (16,500 | ) |                                                        |   | (31.94 | )                                                           |  |  |                                                    | 
|Outstanding
    at September 30, 2017                 |  |                       | 376,950 |   |                                                        | $ | 37.82  |                                                             |  |  | 4.1
                                         years | 
|Outstanding
    and exercisable at September 30, 2017 |  |                       | 376,950 |   |                                                        | $ | 37.82  |                                                             |  |  | 4.1
                                         years | 



The
Company recorded stock-based compensation expense in connection with the vesting of options granted aggregating $-0- and $7,598
during the nine months ended September 30, 2017 and 2016, respectively.



The
intrinsic value as of September 30, 2017 related to the vested and unvested stock options as of that date was $-0. The unrecognized
compensation cost as of September 30, 2017 related to the unvested stock options as of that date was $-0-.



Note
5 – Derivative Instruments



Derivatives
– Warrants Issued Relative to Notes Payable



The
estimated fair value of the Company’s derivative liabilities, all of which are related to the detachable warrants issued
in connection with various notes payable and the secured convertible note, were estimated using a closed-ended option pricing
model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s
common stock, interest rates, the probability of both the downward adjustment of the exercise price and the upward adjustment
to the number of warrants as provided by the note payable and warrant agreement terms (Note 2 and 3) and non-performance risk
factors, among other items (ASC 820, Fair Value Measurements (“ASC 820”) fair value hierarchy Level 3). The
detachable warrants issued in connection with the secured convertible note (See Note 2), the December 2013 Note (See Note 3) and
the two other short-term notes payable (See Note 3) contain ratchet and anti-dilution provisions that remain in effect during
the term of the warrant while the ratchet and anti-dilution provisions of the other notes payable cease when the related note
payable is extinguished. When the note payable containing such ratchet and anti-dilution provisions is extinguished, the derivative
liability will be adjusted to fair value and the resulting derivative liability will be transitioned from a liability to equity
as of such date. The derivative liability associated with the warrants issued in connection with the secured convertible note
payable will remain in effect until such time as the underlying warrant is exercised or terminated and the resulting derivative
liability will be transitioned from a liability to equity as of such date.



The
Company has issued warrants to purchase an aggregate of 2,174,000 common shares in connection with various outstanding debt instruments
which require derivative accounting treatment as of September 30, 2017. A comparison of the assumptions used in calculating estimated
fair value of such derivative liabilities as of September 30, 2017 is as follows:





20







|                                    |  | As
    of  September 30, 2017 |                                                         
|----------------------------------- |  | ----------------------------- | --------------------------------------------------------
|                                    |  |                               |                                                         
|Volatility
    – range              |  |                               | 207.7%
                                         - 294.2 
|Risk-free
    rate                  |  |                               | 1.62%
                                         - 2.16   
|Contractual
    term                |  |                               | 0.5
                                         - 4.6 years
|Exercise price                      |  |                               | $5.00
                                         - $5.60  
|Number
    of warrants in aggregate |  |                               | 2,174,000                                               





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, 2016                                                                        |  | $      | 183,430
|Warrants
    issued to originate or extend notes payable (recorded as discount on note payable) -Note 3 |  |        | —      
|Unrealized
    derivative gains included in other expense for the period                                |  |        | (78,351
|Transition
    of derivative liability to equity                                                        |  |        | —      
|                                                                                                        |  |        |        
|Balance
    at September 30, 2017                                                                       |  | $      | 105,079



The
warrant derivative liability consists of the following at September 30, 2017 and December 31, 2016:



|                                                                      |  | September
    30, 2017 |         |  | December
    31, 2016 |  
|--------------------------------------------------------------------- |  | ---------------------- | ------- |  | --------------------- | -
|Warrant
    issued to holder of Secured convertible note (Note 2)     |  | $                      | 90,909  |  |                       | $
|Warrant
    issued to placement agent (Note 2)                        |  |                        | 12,121  |  |                       |  
|Warrant
    issued to holder of December 2013 Note (Note 3)           |  |                        | 449     |  |                       |  
|Warrants
    issued to holders of notes payable - short term (Note 3) |  |                        | 1,600   |  |                       |  
|Total
    warrant derivative liability                                |  | $                      | 105,079 |  |                       | $



Note
6 – Warrants



The
following table summarizes warrant activity for the nine months ended September 30, 2017:



|                                                      |  | Number
    of Warrants |           |   | Weighted
    Average Exercise Price Per Share |  
|----------------------------------------------------- |  | ---------------------- | --------- | - | --------------------------------------------- | -
|Outstanding
    and exercisable at December 31, 2016  |  |                        | 2,517,771 |   |                                               | $
|Issued
    for extension of notes payable (Note 3)    |  |                        | —         |   |                                               |  
|Issued
    for extension of line-of-credit (Note 3)   |  |                        | —         |   |                                               |  
|Exercised/forfeited                                   |  |                        | (12,000   | ) |                                               |  
|                                                      |  |                        |           |   |                                               |  
|Outstanding
    and exercisable at September 30, 2017 |  |                        | 2,505,771 |   |                                               | $





21







The
weighted average term of all outstanding common stock purchase warrants was 4.1 years as of September 30, 2017. 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, 2017.



Note
7 – Income Taxes



For
income tax purposes, the Company has net operating loss carry-forwards of approximately $66,270,000, which expire from 2025 through
2030. The Company has provided a 100% valuation allowance due to the uncertainty of realizing the tax benefits from its net deferred
tax asset.



The
Company has not completed the filing of tax returns for the tax years 2012 through 2016. Therefore, all such tax returns are open
to examination by the Internal Revenue Service.



The
Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss
carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Current estimates
prepared by the Company on a preliminary basis indicate that no ownership changes have occurred, and are currently not subject
to an annual limitation, but may be further limited by additional ownership changes which may occur in the future.



Note
8 – Commitments and Contingencies



The
Company has not maintained insurance coverage on its U.S domestic oil and gas properties for several years. The Company is not
in compliance with Federal and State laws regarding the U.S. domestic oil and gas properties. The Company’s known compliance
issues relate to the Texas Railroad Commission regarding administrative filings and renewal permits relative to its Texas oil
and gas properties that were sold in 2012. The ultimate resolution of these compliance issues could have a material adverse impact
on the Company’s financial statements.



Nicaraguan
Concessions



The
Company is in default of various provisions of the 30-year Concession for both Perlas and Tyra blocks as of September 30, 2017,
including (1) the drilling of at least one exploratory well on the Perlas Block during 2016; (2) the shooting of additional seismic
on the Tyra Block during 2016; (3) the provision of the Ministry of Energy with the required letters of credit in the amounts
totaling $1,356,227 for the Perlas block and $278,450 for the Tyra block for exploration requirements on the leases; (4) payment
of the 2016 and 2017 area fees required for both the Perlas and Tyra which total $97,243; and (5) payment of the 2016 and 2017
training fees required for both the Perlas and Tyra totaling $175,000. The Company is seeking to extend, renew and/or renegotiate
the terms of the Nicaraguan Concessions with the Nicaraguan government to cure the defaults. There can be no assurance whether
it will be able to extend, renew and/or renegotiate the Nicaraguan Concessions and whether any new terms will be favorable to
the Company. The Company has held meetings and is pursuing additional meetings with Nicaraguan Government officials in order to
address the pending defaults.



The
Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund:
(1) the annual training program and area fees for 2016 and 2017; (2) required letters of credit to the Nicaraguan Government;
(3) the drilling of at least one exploratory well on the Perlas Block of the Nicaraguan Concessions during 2017; (4) the shooting
of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement
from the Nicaraguan government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debt and other financial
obligations as they become due including the $1.0 million December 2013 Note, and the notes payable totaling $285,000, which currently
are in technical default and resolution of the Replacement Note matter. These are substantial operational and financial issues
that must be successfully addressed during 2017 or the Company’s ability to satisfy the conditions necessary to maintain
and/or renegotiate its Nicaragua Concessions will be in significant doubt.





22







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



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



Minimum
Work Program – Perlas



|Block
    Perlas – Exploration Minimum Work Commitment and Relinquishments | 
|-------------------------------------------------------------------------- | 
|Exploration
    Period (6 Years)                                           | 
|Sub-Period1                                                                | 
|Sub-Period
    2 Optional                                                  | 
|Sub-Period
    3 Optional                                                  | 
|Sub-Period
    4 Optional                                                  | 



Minimum
Work Program – Tyra



|Block
    Tyra – Exploration Minimum Work Commitment and Relinquishments | 
|------------------------------------------------------------------------ | 
|ExplorationPeriod (6 Years)                                              | 
|Sub-Period1                                                              | 
|Sub-Period
    2 Optional                                                | 
|Sub-Period
    3 Optional                                                | 
|Sub-Period
    4 Optional                                                | 





23







Contractual
and Fiscal Terms







|Training
    Program      |  | US
    $50,000 per year, per block                         |  |   |                                                                           |  
|------------------------- |  | ---------------------------------------------------------- |  | - | ------------------------------------------------------------------------- | -
|Area
    Fee              |  | Years
    1-3                                              |  | $ | 0.05
                                         /hectare                    |  
|                          |  | Years
    4-7                                              |  | $ | 0.10
                                         /hectare                    |  
|                          |  | Years
    8 & forward                                      |  | $ | 0.15
                                         /hectare                    |  
|Royalties                 |  | Recovery
    Factor 0 – 1.5                                |  |   | Percentage
                                         5                     | %
|                          |  | 1.5
    – 3.0                                              |  |   | 10                                                                        | %
|                          |  | >3.0                                                       |  |   | 15                                                                        | %
|                          |  |                                                            |  |   |                                                                           |  
|Natural
    Gas Royalties |  | Market
    value at production                             |  |   | 5                                                                         | %
|Corporate
    Tax         |  | Rate
    no higher than 30%                                |  |   |                                                                           |  
|Social
    Contribution   |  | 3%
    of the net profit (1.5% for each autonomous region) |  |   |                                                                           |  
|Investment
    Protection |  |                                                            |  |   | ICSID
                                         arbitration OPIC insurance |  







Revenue
Sharing Commitments



On
March 23, 2009, the Company entered into a Securities Purchase Agreement, dated effective as of March 23, 2009, with Offshore
Finance, LLC, an accredited investor, to issue a subordinated promissory note in the aggregate principal amount of up to $1,275,000
and a one percent (1%) revenue sharing interest in the Nicaraguan Concessions. Off-Shore funded a total of $1,275,000 and subsequently
converted the subordinated promissory note to common stock.



Under
the Revenue Sharing Agreement (the “Revenue Agreement”), Infinity assigned to Off-Shore a monthly payment (the “RSP”)
equal to the revenue derived from one percent (1%) of Infinity’s share of the hydrocarbons produced at the wellhead from
the Nicaraguan Concessions. The RSP will bear its proportionate share of all costs incurred to deliver the hydrocarbons to the
point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional
costs. The RSP will be paid to Off-Shore by the last day of each month based on the revenue received by Infinity from the purchaser
of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation
for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for
Off-Shore. In connection with its dissolution Off-Shore assigned its RSP to its individual members.



On
June 6, 2009, the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided. Infinity
assigned to officers and directors a monthly payment equal to the revenue derived from one percent (1%) of Infinity’s share
of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP will bear its proportionate share of all
costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production,
severance and similar taxes, and certain additional costs.



The
RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production
during the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to
maintain or develop the Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for officers and
directors.



The
Company intends to seek joint venture or working interest partners (the “Farmout”) prior to the commencement of any
exploratory drilling operations on the Nicaraguan Concessions. On September 8, 2009, the Company entered into a Revenue Sharing
Agreement with Jeff Roberts to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing
and assisting in the Farmout. Infinity assigned to Jeff Roberts a monthly payment equal to the revenue derived from one percent
(1%) of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP will bear
its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including
its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Jeff Roberts by the
last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month
from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the
Nicaraguan Concessions, and does not create any rights in the Nicaraguan Concessions for Jeff Roberts.



In
connection with the extension of the December 2013 Note with a $1,050,000 principal balance issued in December 2013, the Company
entered into a Revenue Sharing Agreement in May 2014. Infinity assigned to the note holder a monthly payment equal to the revenue
derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan
Concessions and any other oil and gas concessions that the Company and its affiliates may acquire in the future. The RSP will
bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser,
including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last
day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from
the Nicaraguan Concessions. The Revenue Sharing Agreement does not create any obligation for Infinity to maintain or develop the
Nicaraguan Concessions.





24







Lack
of Compliance with Law Regarding Domestic Properties



Infinity
has not been in compliance with existing federal, state and local laws, rules and regulations for its previously owned domestic
oil and gas properties and this could have a material or significantly adverse effect upon the liquidity, capital expenditures,
earnings or competitive position of Infinity. All domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas
were disposed of prior to September 30, 2017; however, the Company may remain liable for certain asset retirement costs should
the new owners not complete their obligations. Management believes the total asset retirement obligations recorded of $1,716,003
as of September 30, 2017 and December 31, 2016 are sufficient to cover any potential noncompliance liabilities relative to the
plugging of abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former
oil and gas properties. The Company has not maintained insurance on the domestic properties for a number of years nor has it owned/produced
any oil & gas properties for a number of years.



Litigation



The
Company is subject to numerous claims and legal actions in which vendors are claiming breach of contract due to the Company’s
failure to pay amounts due. The Company believes that it has made adequate provision for these claims in the accompanying financial
statements.



The
Company is currently involved in litigation as follows:



|● | In
    October 2012 the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas,
    seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties.
    The Company engaged in negotiations with the State of Texas in late 2012 and early 2013 and reached a settlement agreement
    that would reduce the aggregate liability, in this action and any extension of this to other Texas wells, to $45,103, which
    amount has been paid. Certain performance obligations remain which must be satisfied in order to finally settle and dismiss
    the matter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | Pending
    satisfactory performance of the performance obligations and their acceptance by the State of Texas, the officers have potential
    liability regarding the above matter, and the officers are held personally harmless by indemnification provisions of the Company.
    Therefore, to the extent they might actually occur, these liabilities are the obligations of the Company. Management estimates
    that the liabilities associated with this matter will not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas
    operated wells. This related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is included
    in the asset retirement obligation on the accompanying balance sheets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|● | Cambrian
    Consultants America, Inc. (“Cambrian”) filed an action in the District Court of Harris County, Texas, number CV2014-55719,
    on September 26, 2014 against Infinity Energy Resources, Inc. resulting from certain professional consulting services provided
    for quality control and management of seismic operations during November and December 2013 on the Nicaraguan Concessions.
    Cambrian provided these services pursuant to a Master Consulting Agreement with Infinity, dated November 20, 2013, and has
    claimed breach of contract for failure to pay amounts due. On December 8, 2014, a default judgment was entered against the
    Company in the amount of $96,877 plus interest and attorney fees. The Company has included the impact of this litigation as
    a liability in its accounts payable. The Company will seek to settle the default judgment when it has the financial resources
    to do so.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|● | Torrey
    Hills Capital, Inc. (“Torrey”) notified the Company by letter, dated August 15, 2014, of its demand for the payment
    of $56,000, which it alleged was unpaid and owed under a consulting agreement dated October 18, 2013. The parties entered
    into a consulting agreement under which Torrey agreed to provide investor relations services in exchange for payment of $7,000
    per month and the issuance of 15,000 shares of common stock. The agreement was for an initial three month-term with automatic
    renewals unless terminated upon 30 days’ written notice by either party. The Company made payments totaling $14,000
    and issued 15,000 shares of common stock during 2013. The Company contends that Torrey breached the agreement by not performing
    the required services and that it had provided proper notice of termination to Torrey. Furthermore, the Company contends that
    the parties agreed to settle the dispute on or about June 19, 2014 under which it would issue 2,800 shares of common stock
    in full settlement of any balance then owed and final termination of the agreement. Torrey disputed the Company’s contentions
    and submitted the dispute to binding arbitration. The Company was unable to defend itself and the arbitration panel awarded
    Torrey a total of $79,594 in damages. The Company has accrued this amount in accounts payable as of September 30, 2017 and
    December 31, 2016, which management believes is sufficient to provide for the ultimate resolution of this dispute.





25







Note
9 – Related Party Transactions



The
Company does not have any employees other than the CEO and CFO. In previous years, certain general and administrative services
(for which payment is deferred) had been provided by the CFO’s accounting firm at its standard billing rates plus out-of-pocket
expenses consisting primarily of accounting, tax and other administrative fees. The Company no longer utilizes the CFO’s
accounting for such support services and was not billed for any such services during the nine months ended September 30, 2017
and 2016. The amount due to the CFO’s firm for services previously provided was $762,407 at September 30, 2017 and December
31, 2016, and is included in accrued liabilities at both dates.



On
June 6, 2009, the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided. Infinity
assigned to officers and directors a monthly payment equal to the revenue derived from one percent (1%) of Infinity’s share
of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP will bear its proportionate share of all
costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production,
severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue
received by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions. The Revenue
Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions and does not create any
rights in the Nicaraguan Concessions for officers and directors.



In
connection with its subordinated loan, Offshore Finance, LLC was granted a one percent (1%) revenue sharing interest in the Nicaraguan
Concessions in connection with a subordinated loan provided previously which was subsequently converted to common stock. The managing
partner of Offshore and the Company’s CFO are partners in the accounting firm which the Company used for general corporate
purposes in the past. In connection with its dissolution, Offshore assigned its RSP to its individual members, which includes
the former managing partner of Offshore.



As
of September 30, 2017 and December 31, 2016, the Company had accrued compensation to its officers and directors of $1,770,208
and $1,601,208, respectively.



The
Company entered into a line-of-credit facility on September 23, 2013 that provided it with borrowing capacity on a revolving basis
up to a maximum of $50,000, which was increased to $75,000 at August 28, 2015 and an initial maturity of November 28, 2013. The
line of credit was convertible to common stock at a rate of $5.00 per share. The entity providing the credit facility is owned
by an officer of another corporation for which Infinity’s president and chairman of the board serves as president and chairman
of the board. The facility was unsecured, bore interest at 8% per annum, and was renewed at its maturity several times until it
was paid in full on its extended maturity date on November 28, 2016. In consideration for the origination of the line of credit
facility and the various renewals, the Company granted the lender common stock purchase warrants. On February 28, 2016, the Company
extended the line-of-credit expiration date to May 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise
price of $5.00 per share, which warrants were immediately exercisable and expire on February 28, 2021. On May 28, 2016, the Company
extended the line-of-credit expiration date to August 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise
price of $5.00 per share, which warrants were immediately exercisable and expire on May 28, 2021. On August 28, 2016, the Company
extended the line-of-credit expiration date to November 28, 2016 and issued a warrant to purchase 10,000 common shares at an exercise
price of $5.00 per share, which warrants were immediately exercisable and expire on August 28, 2021.



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





26









ITEM
2.MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



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, which are intended to be covered
by the safe harbors created thereby. In some cases, you can identify forward-looking statements by terminology such as “may,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “continue,” “intends,” and other variations of these
words or comparable words. In addition, any statements that refer to expectations, projections or other characterizations of events,
circumstances or trends and that do not relate to historical matters are forward-looking statements. To the extent that there
are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition,
involve risks and uncertainties. In any forward-looking statement, where we express an expectation or belief as to future results
or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will be achieved or accomplished. The actual results or events may differ
materially from those anticipated and as reflected in forward-looking statements included herein. Factors that may cause actual
results or events to differ from those anticipated in the forward-looking statements included herein include the risk factors
described below.



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



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



Factors
that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to
be adversely affected include, but are not limited to: (i) we have a history of losses, are experiencing substantial liquidity
problems and our continuation as a going concern; (ii) we have substantial obligations to a number of third parties, including
our December 2013 in the original principal amount of $1,050,000 due in April 2016, notes with total principal balance of $325,000
and the Replacement Note that we have been requested to execute in May 2017 and due May 2018, and there can be no assurance that
we will be able to meet them; (iii) we require working capital for our operations and obligations for the next 12 months and capital
to continue our exploration and development efforts on the Nicaraguan Concessions, including our defaults under the letter of
credit and other requirements of the Nicaraguan Concessions to maintain our rights to the Concessions, and there can be no assurances
we will be able to obtain the necessary waivers or revised compliance terms or do so on a basis favorable to us to maintain the
Nicaraguan Concessions; (iv) we and our independent registered public accounting firm have concluded that there exists substantial
doubt about our ability to continue as a going concern; (v) our Nicaraguan Concessions and planned future exploration activities
are in a country with a developing economy and are subject to the risks of political and economic instability associated with
such economies; (vi) exploration and development of our Nicaraguan Concessions will require large amounts of capital or a commercial
relationship with an industry operator which we may not be able to obtain; (vii) we do not have sufficient resources to conduct
required seismic mapping on our Nicaraguan Concessions; (viii) the oil and gas exploration business involves a high degree of
business and financial risk; (ix) we will be subject to regulations affecting our activities with the Nicaraguan Concessions;
(x) our operations may be adversely affected by changes in the fiscal regime of Nicaragua; (xi) we are continuing to negotiate
with our creditors and may face additional claims in the future; (xii) oil prices may be affected by regional factors; (xiii)
any future production will be contingent on successful exploration, development and acquisitions to establish reserves and revenue
in the future; (xv) the oil and gas industry is highly competitive; (xvi) exploratory drilling is an uncertain process with many
risks; (xvii) oil and gas prices are volatile, and declines in prices would hurt our revenues and ability to achieve profitable
operations; (xviii) our common stock is traded through the Pink Sheets, which may not have the visibility or liquidity that we
seek for our common stock; (xix) we depend on key personnel; (xx) sufficient voting power by coalitions of a few of our larger
stockholders to make corporate governance decisions that could have significant effect on us and the other stockholders, including
Amegy Bank, NA; (xxi) sale of substantial amounts of our common stock that may have a depressive effect on the market price of
the outstanding shares of our common stock, including sales of shares of common stock issued to the Investor holding the Warrants
and upon its conversion of the Replacement Note, if it is issued; (xxii) possible issuance of common stock subject to options
and warrants may dilute the interest of stockholders; (xxiii) our ability to comply with Sarbanes-Oxley Act of 2002 Section 404
as it may be required; (xxiv) our nonpayment of dividends and lack of plans to pay dividends in the future; (xxv) future sale
or issuance of a substantial number of shares of our common stock that could depress the trading price of our common stock, lower
our value and make it more difficult for us to raise capital; (xxvi) our additional securities available for issuance, which,
if issued, could adversely affect the rights of the holders of our common stock; (xxvii) our stock price is likely to be highly
volatile due to a number of factors, including a relatively limited public float; (xxviii) indemnification of our officers and
directors; and (xxix) whether we will be able to find an industry or other financial partner to enable us to explore and develop
our Nicaraguan Concessions and meet our other obligations.





27







The
following information should be read in conjunction with the Condensed Financial Statements and Notes presented elsewhere in this
quarterly report on Form 10-Q. See Note 1 – “Nature of Operations, Basis of Presentation and Summary of Significant
Accounting Policies,” to the Condensed Financial Statements for the Three and Nine months ended September 30, 2017 and
2016.



2017
Operational and Financial Objectives



Corporate
Activities



The
Nicaraguan Concessions represent our most substantial asset and is the focal point of our business plan. The Company is in default
of various provisions of the 30-year Concession for both the Perlas and Tyra blocks as of September 30, 2017, as noted above.



The
Company must raise substantial amounts of debt and equity capital from other sources in the immediate future to fund its obligations
under the Concessions. The most immediate funding needs include the following: (1) the annual training program and area fees for
2016 and 2017; (2) required letters of credit to the Nicaraguan Government; (3) the drilling of at least one exploratory well
on the Perlas Block of the Nicaraguan Concessions during 2017; (4) the shooting of additional seismic on the Tyra Block of the
Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement from the Nicaraguan government; (5) normal
day-to-day operations and corporate overhead; and (6) outstanding debt and other financial obligations as they become due, including
the $1.0 million December 2013 Note, and the notes payable totaling $285,000, which currently are in technical default and the
notes payable aggregating $240,000 that will become due in November 2017 and April 2018. These are substantial operational and
financial issues that the Company must successfully address during 2017 and 2018 or its ability to satisfy the conditions necessary
to remain viable and maintain its Nicaragua Concessions will be in significant doubt. The Company is seeking new outside sources
of debt and equity capital in order to fund the substantial needs enumerated above; however, there can be no assurance that it
will be able to obtain such capital or obtain it on favorable terms or within the timeframe necessary to cure the technical defaults
existing on the Nicaraguan Concessions or to meet its ongoing working capital requirements. The current environment for oil and
gas development projects, especially discoveries in otherwise undeveloped regions of the world, is very challenging given the
depressed commodity prices for oil and gas products, and the resulting industry-wide reduction in capital expenditure budgets
for exploration and development projects. These are substantial impediments for the Company to obtain adequate financing to fund
the exploration and development of its Nicaraguan projects.



During
2017 and 2018 we will also seek offers from industry operators and other third parties for interests in the acreage in the Nicaraguan
Concessions in exchange for cash and a carried interest in exploration and development operations or other joint venture arrangement.
Accordingly, we intend to finance our business strategy through external financing, which may include debt and equity capital
raised in public and private offerings, joint ventures, sale of working or other interests, employment of working capital and
cash flow from operations, if any, and net proceeds from the sales of assets.





28







Our
ability to complete these activities is dependent on a number of factors, including, but not limited to:



| | ● | The
    availability of the capital resources required to fund the activities;                                           
| | - | -------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                          
| | ● | The
    availability of third party contractors for completion services; and                                             
| |   |                                                                                                                          
| | ● | The
    approval by regulatory agencies of applications for permits to conduct exploration activities in a timely manner.



We
are considering the acquisition of domestic oil and gas properties with both proven and unproven reserves. We believe that the
current distressed state for oil and gas properties and the resulting decline in valuations may yield an opportunity for us to
accumulate undervalued domestic oil and gas assets at attractive prices and terms with the objective of achieving positive cash
flows despite the decline in natural gas and crude oil commodity prices. We are seeking financing for such cash generating oil
and gas properties at reasonable cost of capital. This initiative is intended to provide us with positive cash flows to address
immediate working capital needs until the environment improves for exploration projects such as the Nicaraguan Concessions. No
assurances can be given regarding our ability to identify, acquire and finance such domestic properties or whether such properties
would provide positive cash flow.



Off-Balance
Sheet Arrangements



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



For
the Three Months Ended September 30, 2017 and 2016



Results
of Operations



Revenue



The
Company had no revenues in either 2017 or 2016 as it focused solely on the pursuit of the exploration, development, financing
and maintenance of the Nicaraguan Concessions.



Production
and Other Operating Expenses (income)



The
Company had no production related operating expenses in either 2017 or 2016. 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 2017 and 2016.



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



General
and Administrative Expenses



General
and administrative expenses of $103,531 for the three months ended September 30, 2017 decreased by $4,172, or 4%, from $107,703
in the same period in 2016. The decrease in general and administrative expenses is primarily attributable to a decrease in expenses
attributable to the Nicaraguan Concessions as the Company has ceased many of the ancillary activities as it attempts to clarify
the status of the Concession itself with the Nicaraguan Government.





29







Stock-based
compensation



Stock-based
compensation expenses were $-0- for the three months ended September 30, 2017 compared to $-0- during the same period in 2016.
The Company has had minimal resources to pay employees, consultants and other service providers. Therefore, it has issued stock
options to compensate and motivate its officers, directors and other service providers in previous years that vest generally over
a two-year period. The Company did not grant any stock options in 2017 and 2016. All outstanding stock options were fully vested
as of September 30, 2017 as all stock options became fully vested in January 2016. Therefore, there was no stock-based compensation
expense during the three months ended September 30, 2017 compared to 2016.



Interest
expense



Interest
expense remained virtually the same at $27,455 for the three months ended September 30, 2016 compared to $29,048 for the three
months ended September 30, 2017.



The
Company’s current financial condition has made traditional bank loans and customary financing terms unattainable; therefore,
the Company may find it necessary to continue with short-term borrowings with high effective interest rates especially as the
notes currently in default are negotiated and extended.



Change
in Fair Value of Secured Convertible Note



We
issued the Secured Convertible Note in the May 2015 Private Placement and elected to account for and record such Note on a fair
value basis. On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section
7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate
principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate
principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible
Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the
Company to deliver the Replacement Note representing the remaining principal balance of $2,197,231 to replace the Convertible
Note. The Company has recorded the fair value of the Convertible Notes assuming that the remaining par value is $2,197,231 as
asserted by the Investor, resulting in a change in the estimated fair value of $166,431 during the three months ended September
30, 2017 compared to a change of $2,807 for the 2016 period. The Company plans to negotiate with the Investor regarding the issuance
of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded $510,000
in the entire transaction, but there can be no assurance that it will be successful in this regard.



Change
in Derivative Fair Value



The
conversion feature of the promissory notes and the common stock purchase warrants issued in connection with short-term notes and
the Secured Convertible Note outstanding during 2017 and 2016 are treated as derivative instruments because the promissory notes
and warrants contain ratchet and anti-dilution provisions. Accordingly, we adjusted the value of the outstanding derivative liabilities
to their estimated fair value as of September 30, 2017 and 2016. The mark-to-market process resulted in a gain of $40,186 during
the three months ended September 30, 2017 and a gain of $50,062 during the three months ended September 30, 2016. The decrease
in the gain recognized is primarily the result of the smaller change in the closing market price of our common stock between the
September 30, 2017 ($0.06 per share) and June 30, 2017 ($0.08 per share) compared to the corresponding period in 2016 ($0.03 at
September 30, 2016 versus $0.07 at June 30, 2016). Generally, the fair value of the derivative liability declines when the market
value of the underlying common stock decreases compared to the derivatives exercise price.



Income
Tax



For
income tax purposes, the Company has net operating loss carry-forwards of approximately $66,270,000 as of September 30, 2017,
which expire from 2025 through 2030. The Company has provided a 100% valuation allowance against the resulting deferred tax asset
due to the uncertainty of realizing the tax benefits from its net operating loss carry-forwards.





30







For
the three months ended September 30, 2017 and 2016, the Company realized net losses and it anticipates operating losses and additional
tax losses for the foreseeable future and does not believe that utilization of its tax loss carryforward is more likely than not.
Therefore, because of the uncertainty as to the ultimate utilization of the Company’s loss carryforwards, any deferred tax
asset at September 30, 2017 that resulted from anticipated benefit from future utilization of such carryforward has been fully
offset by a valuation allowance.



Net
loss



As
a result of the above, we reported a net loss of $258,824 for the three months ended September 30, 2017 compared to a net loss
of $87,903 for the three months ended September 30, 2016. This represents a deterioration of $170,921.



Basic
and Diluted Loss per Share



Basic
net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common and common equivalent
shares outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon
assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in
which net losses from continuing operations are incurred, weighted average shares outstanding is the same for basic and diluted
loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.



The
basic and diluted loss per share was $0.03 for the three months ended September 30, 2017, for the reasons previously noted. The
basic and diluted loss per share was $0.01 for the three months ended September 30, 2016. All outstanding stock options and warrants
to purchase common stock were considered antidilutive and therefore excluded from the calculation of diluted loss per share for
the three months ended September 30, 2017 and 2016 because the exercise price of the stock options and warrants were substantially
higher than market price in 2017 and 2016 and the net loss reported for both periods. Potential shares of common stock as of September
30, 2017 that have been excluded from the computation of diluted net loss per share amounted to 2,882,721 shares, which included
2,505,771 outstanding warrants and 376,950 outstanding stock options.



For
the Nine months Ended September 30, 2017 and 2016



Results
of Operations



Revenue



The
Company had no revenues in either 2017 or 2016 as it focused solely on the pursuit of the exploration, development, financing
and maintenance of the Nicaraguan Concessions.



Production
and Other Operating Expenses (income)



The
Company had no production related operating expenses in either 2017 or 2016. 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 2017 and 2016.



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



General
and Administrative Expenses



General
and administrative expenses of $365,906 for the nine months ended September 30, 2017 increased by $26,707, or 7.9%, from $339,199
in the same period in 2016. The increase in general and administrative expenses is primarily attributable to an increase in Delaware
Franchise taxes and an increase in professional fees in particular audit fees, related to the annual audit and various filings
with the Securities and Exchange Commission.





31







Stock-based
compensation



Stock-based
compensation expenses was $-0- for the nine months ended September 30, 2017 compared to $7,598 during the same period in 2016.
The Company has had minimal resources to pay employees, consultants and other service providers. Therefore, it has issued stock
options to compensate and motivate its officers, directors and other service providers in previous years that vest generally over
a two-year period. The Company did not grant any stock options in 2017 and 2016. All outstanding stock options are fully vested
as of September 30, 2017 as all stock options became fully vested in January 2016.



Interest
expense



Interest
expense decreased to $86,735 for the nine months ended September 30, 2017 as compared to $134,972 for the nine months ended September
30, 2016. The decrease is the result of the debt discount becoming fully amortized in early 2016 as $53,297 was amortized to interest
expense in 2016 and $-0- on the 2017 period. The debt discount resulted from the issuance of detachable common stock purchase
warrants in connection with short-term borrowings.



The
Company’s current financial condition has made traditional bank loans and customary financing terms unattainable; therefore,
the Company may find it necessary to continue with of short-term borrowings with high effective interest rates especially as the
notes currently in default are negotiated and extended.



Change
in Fair Value of Secured Convertible Note



We
issued the Secured Convertible Note in the May 2015 Private Placement and elected to account for and record such Note on a fair
value basis. On May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section
7(a) of the Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate
principal outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate
principal of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible
Note had an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the
Company to deliver the Replacement Note representing the remaining principal balance of $2,197,231 to replace the Convertible
Note. The Company has recorded the fair value of the Convertible Notes assuming that the remaining par value is $2,197,231 as
asserted by the Investor, resulting in a change in the estimated fair value of $1,847,894 during the nine months ended September
30, 2017 as compared to $67,591 in the comparable period in 2016. The Company plans to negotiate with the Investor regarding the
issuance of the Replacement Note under the terms of the financing and taking into consideration that the Investor only funded
$510,000 in the entire transaction, but there can be no assurance that it will be successful in this regard.



Change
in Derivative Fair Value



The
conversion feature of the promissory notes and the common stock purchase warrants issued in connection with short-term notes and
the Secured Convertible Note outstanding during 2017 and 2016 are treated as derivative instruments because the promissory notes
and warrants contain ratchet and anti-dilution provisions. Accordingly, we adjusted the value of the outstanding derivative liabilities
to their estimated fair value as of September 30, 2017 and 2016. The mark-to-market process resulted in a gain of $78,351 during
the nine months ended September 30, 2017 compared to a gain of $167,830 during the nine months ended September 30, 2016. The decrease
in the gain recognized is primarily the result of the change in the closing market price of our common stock between the September
30, 2017 ($0.06 per share) and December 31, 2016 ($0.10 per share) compared to the corresponding period in 2016 ($0.03 at September
30, 2016 versus $0.16 at December 31, 2015). Generally, the fair value of the derivative liability declines when the market value
of the underlying common stock decreases compared to the derivatives exercise price.



Income
Tax



For
income tax purposes, the Company has net operating loss carry-forwards of approximately $66,270,000 as of September 30, 2017,
which expire from 2025 through 2030. The Company has provided a 100% valuation allowance against the resulting deferred tax asset
due to the uncertainty of realizing the tax benefits from its net operating loss carry-forwards.



For
the nine months ended September 30, 2017 and 2016, the Company realized net losses and the Company anticipates operating losses
and additional tax losses for the foreseeable future and does not believe that utilization of its tax loss carryforward is more
likely than not. Therefore, because of the uncertainty as to the ultimate utilization of the Company’s loss carryforwards,
any deferred tax asset at September 30, 2017 that resulted from anticipated benefit from future utilization of such carryforward
has been fully offset by a valuation allowance.





32







Net
loss



As
a result of the above, we reported a net loss of $2,222,184 for the nine months ended September 30, 2017 compared to a net loss
of $381,530 for the nine months ended September 30, 2016. This represents a deterioration of $1,840,654.



Basic
and Diluted Loss per Share



Basic
net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common and common equivalent
shares outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon
assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in
which net losses from continuing operations are incurred, weighted average shares outstanding is the same for basic and diluted
loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.



The
basic and diluted loss per share was $0.29 for the nine months ended September 30, 2017, for the reasons previously noted. The
basic and diluted loss per share was $0.06 for the nine months ended September 30, 2016. All outstanding stock options and warrants
to purchase common stock were considered antidilutive and therefore excluded from the calculation of diluted loss per share for
the nine months ended September 30, 2017 and 2016 because the exercise price of the stock options and warrants were substantially
higher than market price in 2017 and 2016 and the net loss reported for both periods. Potential shares of common stock as of September
30, 2017 that have been excluded from the computation of diluted net loss per share amounted to 2,882,721 shares, which included
2,505,771 outstanding warrants and 376,950 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 is a long-term, high-risk/reward exploration project in an otherwise unproven part of the
world. Historically, we financed our operations through the issuance of redeemable preferred stock and various short and long-term
debt financing that contained some level of detachable warrants to provide the holders with a level of equity participation should
we be successful exploring our Nicaraguan Concessions.



In
the first quarter 2015, we were able to increase our line-of-credit to a maximum of $100,000, which provided us some liquidity,
but were unable to obtain other sources of capital. On February 28, 2015, the short-term note holders of maturing debt exercised
their right to convert principal balances totaling $475,000 and accrued interest totaling $28,630 into 100,726 shares of common
stock at an exchange rate of $5.00 per share. In addition, on September 30, 2015, the lender who provides the line-of-credit facility
converted a partial principal balance totaling $50,000 into 10,000 shares of common stock at a price of $5.00 per share. Such
debt to equity conversions helped to reduce our near term cash needs.



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





33







In
November 2016, the Company issued a $200,000 convertible promissory note which required no principal or interest payments until
its November 2017 maturity date and bears 8% interest. The proceeds of this note were used to pay off the Company’s line-of-credit
upon its maturity in November 2017 and for general working capital purposes. The Company is seeking an extension of the maturity
date of this note.



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



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



On
May 7, 2015, the Company completed the May 2015 Private Placement of $12.0 million Secured Convertible Note and a Warrant exercisable
to purchase 1,800,000 shares of the Company’s common stock with an institutional investor. At the closing of the May 2015
Private Placement, the investor acquired the Convertible Note by paying $450,000 in cash and issuing the Investor Note, secured
by cash, with a principal amount of $9,550,000. The Company used the initial proceeds from the closing to retire certain outstanding
obligations, including the 2015 area and training fees of approximately $155,000 owed to the Nicaraguan government relating to
its Nicaragua Concessions, and to provide additional working capital.



The
Convertible Note was to mature on the three-year anniversary of its issuance, bore interest at 8% per annum, and was convertible
at any time at the option of the holder into shares of the Company’s common stock at $5.00 per share (the “Conversion
Price”). As a part of the May 2015 Private Placement, the Company issued a Warrant to the investor giving it the right to
purchase up to an aggregate of 1,800,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The
Warrant is exercisable commencing nine months from the date of issuance for a period of seven years from the date of issuance.



The
investor has no right to convert the Convertible Note or exercise the Warrant to the extent that such conversion or exercise would
result in the investor being the beneficial owner of in excess of 9.99% of the Company’s common stock. The Convertible Note
ranks senior to the Company’s existing and future indebtedness and is secured by all of the assets of the Company, excluding
the Nicaraguan Concessions.



On
May 4, 2017, the Investor notified the Company that it elected to effect an Investor Optional Offset under Section 7(a) of the
Investor Note of the full $9,490,000 principal amount outstanding under the Investor Note against $9,490,000 in aggregate principal
outstanding under the Convertible Note. It did so by surrendering and concurrently cancelling $9,490,000 in aggregate principal
of the Convertible Note in exchange for the satisfaction in full and cancellation of the Investor Note. The Convertible Note had
an aggregate outstanding principal balance of $11,687,231 as of the date of the exchange. The Investor requested the Company to
deliver the Replacement Note representing the remaining principal balance of $2,197,231 to replace the Convertible Note. The Company
has recorded the fair value of the Convertible Notes assuming that the remaining par value is $2,197,231 as asserted by the Investor,
resulting in a change in the estimated fair value of $1,847,894 during the nine months ended September 30, 2017. The Company plans
to negotiate with the Investor regarding the issuance of the Replacement Note under the terms of the financing and taking into
consideration that the Investor only funded $510,000 in the entire transaction, but there can be no assurance that it will be
successful in this regard.



WestPark
Capital acted as placement agent for the Company in the May 2015 Private Placement and received a fee of 6% of cash proceeds,
or $600,000, if and when the Company receives the full cash proceeds. It received $27,000 of such amount at the closing plus the
reimbursement of legal fees totaling $7,500. The Company also issued WestPark a warrant exercisable to purchase 240,000 shares
of common stock at a price of $5.00 per share. The warrant was exercisable from the date of issuance for a period of seven years.





34







In
summary, as of September 30, 2017, the following debt was outstanding: (i) $200,000 on our convertible promissory note, which
was due November 7, 2017 and for which we are seeking an extension; (ii) $40,000 on our convertible promissory note, which is
due April 19, 2018; (iii) the two promissory notes in the total principal amount of $85,000, which matured in October 2016 are
currently in technical default and for which we are seeking extensions; (iv) the Replacement Note, if issued, with a fair value
of $1,989,222, which is due in monthly installment payments through May 2018 either in cash or stock; and (v) the December 2013
Note in the principal amount of $1,000,000, which was due in April 2016 and is currently in technical default. We are seeking
to extend the maturity date to cure the technical defaults; however, there can be no assurance that we will be able to obtain
such extensions or what the final terms will be if the lenders agree to such extensions. We intend to seek additional capital
through the sale of equity or short-term debt financing to provide the funds necessary to meet our obligations when they come
due and to provide working capital to fund normal operations, although we can provide no assurances that we will be successful
in this regard. Our current financial condition has made traditional bank loans and normal financing terms unattainable; therefore,
we may find it necessary to continue with the type of short-term borrowings with high effective interest rates that we have used
in the past.



The
Company is in default of various provisions of the 30-year Concessions for both Perlas and Tyra blocks as of September 30, 2017,
as noted earlier. The Company is currently pursuing meetings with Nicaraguan Government officials in order to address the pending
defaults.



The
Company must raise substantial amounts of debt and equity capital from other sources in the immediate future in order to fund:
(1) the annual training program and area fees for 2016 and 2017; (2) required letters of credit to the Nicaraguan Government;
(3) the drilling of at least one exploratory well on the Perlas Block of the Nicaraguan Concessions during 2017; (4) the shooting
of additional seismic on the Tyra Block of the Nicaraguan Concessions should it be unable to negotiate a waiver of such requirement
from the Nicaraguan government; (5) normal day-to-day operations and corporate overhead; and (6) outstanding debt and other financial
obligations as they become due including the $1.0 million December 2013 Note, and the two notes payable totaling $85,000, which
currently are in technical default, and the Replacement Note, if issued. These are substantial operational and financial issues
that must be successfully addressed during 2017 or the Company’s ability to satisfy the conditions necessary to maintain
and/or renegotiate its Nicaragua Concessions will be in significant doubt.



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



Due
to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as
a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue
as a going concern.



ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



(Not
Applicable)



ITEM
4. CONTROLS AND PROCEDURES



Evaluation
of Disclosure Controls and Procedures





35







Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures
to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934. Based on their evaluation as of September 30, 2017, 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 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.



PART
II -OTHER
INFORMATION



ITEM
1. LEGAL PROCEEDINGS



The
Company is currently involved in litigation as follows:



|● | In
    October 2012 the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas,
    seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties.
    The Company engaged in negotiations with the State of Texas in late 2012 and early 2013 and reached a settlement agreement
    that would reduce the aggregate liability, in this action and any extension of this to other Texas wells, to $45,103, which
    amount has been paid. Certain performance obligations remain which must be satisfied in order to finally settle and dismiss
    the matter.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|  | Pending
    satisfactory performance of the performance obligations and their acceptance by the State of Texas, the officers have potential
    liability regarding the above matter, and the officers are held personally harmless by indemnification provisions of the Company.
    Therefore, to the extent they might actually occur, these liabilities are the obligations of the Company. Management estimates
    that the liabilities associated with this matter will not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas
    operated wells. This related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is included
    in the asset retirement obligation on the accompanying balance sheets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|● | Cambrian
    Consultants America, Inc. (“Cambrian”) filed an action in the District Court of Harris County, Texas, number CV2014-55719,
    on September 26, 2014 against Infinity Energy Resources, Inc. resulting from certain professional consulting services provided
    for quality control and management of seismic operations during November and December 2013 on the Nicaraguan Concessions.
    Cambrian provided these services pursuant to a Master Consulting Agreement with Infinity, dated November 20, 2013, and has
    claimed breach of contract for failure to pay amounts due. On December 8, 2014, a default judgment was entered against the
    Company in the amount of $96,877 plus interest and attorney fees. The Company has included the impact of this litigation as
    a liability in its accounts payable. The Company will seek to settle the default judgment when it has the financial resources
    to do so.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|● | Torrey
    Hills Capital, Inc. (“Torrey”) notified the Company by letter, dated August 15, 2014, of its demand for the payment
    of $56,000, which it alleged was unpaid and owed under a consulting agreement, dated October 18, 2013. The parties entered
    into a consulting agreement under which Torrey agreed to provide investor relations services in exchange for payment of $7,000
    per month and the issuance of 15,000 shares of common stock. The agreement was for an initial three month-term with automatic
    renewals unless terminated upon 30 days’ written notice by either party. The Company made payments totaling $14,000
    and issued 15,000 shares of common stock during 2013. The Company contends that Torrey breached the agreement by not performing
    the required services and that it had provided proper notice of termination to Torrey. Furthermore, the Company contends that
    the parties agreed to settle the dispute on or about June 19, 2014 under which it would issue 2,800 shares of common stock
    in full settlement of any balance then owed and final termination of the agreement. Torrey disputed the Company’s contentions
    and submitted the dispute to binding arbitration. The Company was unable to defend itself and the arbitration panel awarded
    Torrey a total of $79,594 in damages. The Company has accrued this amount in accounts payable as of September 30, 2017 and
    December 31, 2016, which management believes is sufficient to provide for the ultimate resolution of this dispute.





36







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



None



ITEM
3. DEFAULTS UPON SENIOR SECURITIES



The
Company has not resolved the various contingencies related to the default status of its Nicaraguan Concessions (See Note 8). The
Company continues to attempt to negotiate extensions, waivers or a new Concession agreement with the Nicaraguan Government; however,
there can be no assurance that the Company will be successful in that regard. The Company is currently pursuing meetings with
Nicaraguan Government officials in order to address the pending defaults.



On
December 27, 2013 the Company borrowed $1,050,000 under an unsecured credit facility with a private, third-party lender which
facility has an outstanding principal balance of $1,000,000. The facility is represented by a promissory note (the “Note”)
that matured in April 2016, and is currently in technical default. The Company is seeking an extension of the maturity date; however,
there can be no assurance that it will be able to obtain an extension or what the final terms will be if the lender agrees to
such extension. The Company and its lender is assessing the status of the Nicaraguan Concessions and what effect that may have
on the extension or renewal of the Note.



During
July 2015 the Company borrowed a total of $85,000 under an unsecured credit facility with two private, third-party lenders which
facility has an outstanding principal balance of $85,000 as of September 30, 2017. The facility is represented by promissory notes
that matured in October 2016, and is currently in technical default. The Company is seeking an extension of the maturity dates;
however, there can be no assurance that it will be able to obtain extensions or what the final terms will be if the lenders agree
to such extensions. The Company and its lenders are assessing the status of the Nicaraguan Concessions and what effect that may
have on the extension or renewal of these notes.



On
November 8, 2016 the Company borrowed a total of $200,000 from an individual under a convertible note payable with the conversion
rate of $5.00 per share. The note requires no principal or interest payments until its maturity date of November 7, 2017 and bears
interest at 8% per annum. The note was not paid on its original maturity date. The Company is currently pursuing an extension
from the Holder.



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   | Certification
    of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley
    Act)





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.



|Signature                  |  | Capacity                                         |  | Date                   
|-------------------------- |  | ------------------------------------------------ |  | -----------------------
|                           |  |                                                  |  |                        
|/s/
    Stanton E. Ross    |  | Chief
    Executive Officer                      |  | November  14
    , 2017
|Stanton
    E. Ross        |  | (Principal
    Executive Officer)                |  |                        
|                           |  |                                                  |  |                        
|/s/
    Daniel F. Hutchins |  | Chief
    Financial Officer                      |  | November  14
    , 2017
|Daniel
    F. Hutchins     |  | (Principal
    Financial and Accounting Officer) |  |                        



38







Index
of 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   | Certification
    of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley
    Act)





39