##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 0-17204
 
 INFINITY ENERGY RESOURCES, INC.
  Delaware
    
    20-3126427(State of Incorporation)
    
    (I.R.S. Employer Identification Number)
 
 (720) 932-7800
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þNon-accelerated filer  o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PART I Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statement of Changes in Stockholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II Other InformationItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 5. Other Information
    
    
    23Item 6. Exhibits
    
    
    23Signatures
    
    
    24Exhibits
    
    
    25Certification of Principal Executive Officer Pursuant to Section 302Certification of Principal Financial Officer Pursuant to Section 302Certifications Pursuant to Section 906
  2




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 June 30,
    
    December 31,2008
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,238
    
    
    $
    741Accounts receivable
    
    
    741
    
    
    
    1,164Prepaid expenses and other
    
    
    237
    
    
    
    104Prepaid severance taxes
    
    
    
    
    
    
    675Total current assets
    
    
    2,216
    
    
    
    2,684Oil and gas properties, using full cost accounting,
net of accumulated depreciation, depletion,
amortization and ceiling write-down:Proved
    
    
    7,290
    
    
    
    21,429Unproved
    
    
    11,556
    
    
    
    17,097Other assets, net
    
    
    232
    
    
    
    1,090Total assets
    
    $
    21,294
    
    
    $
    42,300LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of debt
    
    $
    9,910
    
    
    $
    22,000Accounts payable
    
    
    1,405
    
    
    
    5,472Accrued liabilities
    
    
    2,818
    
    
    
    4,973Current portion of asset retirement obligations
    
    
    432
    
    
    
    423Total current liabilities
    
    
    14,565
    
    
    
    32,868Long-term liabilities:Production taxes payable and other liabilities
    
    
    99
    
    
    
    426Asset retirement obligations, less current portion
    
    
    518
    
    
    
    1,087Derivative liabilities
    
    
    119
    
    
    
    194Total liabilities
    
    
    15,301
    
    
    
    34,575Commitments and contingenciesStockholders equity:Preferred stock, par value $.0001 per share;
10,000,000 authorized shares, no shares issued
and outstanding
    
    
    
    
    
    
    Common stock, par value $.0001 per share;
75,000,000 authorized shares, 17,869,375 (2008)
and 17,871,157 (2007) shares issued and
outstanding
    
    
    2
    
    
    
    2Additional paid-in-capital
    
    
    79,716
    
    
    
    79,371Accumulated deficit
    
    
    (73,725
    )
    
    
    (71,648
    )Total stockholders equity
    
    
    5,993
    
    
    
    7,725Total liabilities and stockholders equity
    
    $
    21,294
    
    
    $
    42,300
  3




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
 For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2008
    
    2007
    
    2008
    
    2007RevenueOil and gas sales
    
    $
    1,286
    
    
    $
    2,533
    
    
    $
    2,486
    
    
    $
    4,632Operating expensesOil and gas production expenses
    
    
    622
    
    
    
    1,262
    
    
    
    1,402
    
    
    
    3,320Oil and gas production taxes
    
    
    41
    
    
    
    166
    
    
    
    68
    
    
    
    301General and administrative expenses
    
    
    812
    
    
    
    753
    
    
    
    1,609
    
    
    
    1,717Depreciation, depletion, amortization and accretion
    
    
    385
    
    
    
    1,871
    
    
    
    777
    
    
    
    3,004Ceiling write-down of oil and gas properties
    
    
    
    
    
    
    15,750
    
    
    
    
    
    
    
    15,750Total operating expenses
    
    
    1,860
    
    
    
    19,802
    
    
    
    3,856
    
    
    
    24,092Operating loss
    
    
    (574
    )
    
    
    (17,269
    )
    
    
    (1,370
    )
    
    
    (19,460
    )Other income (expense)Interest expense, net of capitalization
    
    
    (320
    )
    
    
    
    
    
    
    (776
    )
    
    
    Change in derivative fair value
    
    
    1
    
    
    
    1,223
    
    
    
    (34
    )
    
    
    (351
    )Other
    
    
    68
    
    
    
    (13
    )
    
    
    103
    
    
    
    (28
    )Total other income (expense)
    
    
    (251
    )
    
    
    1,210
    
    
    
    (707
    )
    
    
    (379
    )Net income (loss)
    
    $
    (825
    )
    
    $
    (16,059
    )
    
    $
    (2,077
    )
    
    $
    (19,839
    )Basic and diluted net income (loss) per share:Net income (loss)
    
    $
    (0.05
    )
    
    $
    (0.90
    )
    
    $
    (0.12
    )
    
    $
    (1.11
    )Weighted average shares outstanding:Basic and diluted
    
    
    17,869
    
    
    
    17,871
    
    
    
    17,869
    
    
    
    17,871
  4




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (UNAUDITED)
  AccumulatedAdditional
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    Accumulated
    
    Comprehensive
    
    StockholdersShares
    
    Amount
    
    
    Capital
    
    Deficit
    
    Loss
    
    EquityBalance, December 31, 2007
    
    
    17,871,157
    
    
    $
    2
    
    
    
    $ 79,371
    
    
    
    $ (71,648
    )
    
    
    $           
    
    
    
    $   7,725Forfeiture of common stock
    
    
    (1,782
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    345Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,077
    )
    
    
    (2,077
    )
    
    
    (2,077
    )Reclassifications
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $     (2,077
    )Balance, June 30, 2008
    
    
    17,869,375
    
    
    $
    2
    
    
    
    $ 79,716
    
    
    
    $ (73,725
    )
    
    
    $           
    
    
    
    $   5,993
  5




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  For the Six MonthsEnded June 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (2,077
    )
    
    $
    (19,839
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation, depletion, amortization and accretion
    
    
    777
    
    
    
    3,004Ceiling write-down of oil and gas properties
    
    
    
    
    
    
    15,750Non-cash stock-based compensation expense
    
    
    345
    
    
    
    585Change in fair value of derivative instruments
    
    
    (75
    )
    
    
    (1,069
    )Unrealized loss on commodity derivative instruments
    
    
    
    
    
    
    1,565Gain on sales of assets
    
    
    (17
    )
    
    
    Change in operating assets and liabilities:Decrease in accounts receivable
    
    
    423
    
    
    
    87(Increase) decrease in prepaid expenses and other
    
    
    518
    
    
    
    (107
    )Decrease in accounts payable and accrued liabilities
    
    
    (2,569
    )
    
    
    (1,029
    )Net cash used in operating activities
    
    
    (2,675
    )
    
    
    (1,053
    )Cash flows from investing activities:Capital expenditures  exploration and production
    
    
    (3,267
    )
    
    
    (15,808
    )Decrease in
other assets
    
    
    852
    
    
    
    Proceeds from sale of fixed assets
    
    
    17,677
    
    
    
    Net cash provided by (used in) investing activities
    
    
    15,262
    
    
    
    (15,808
    )Cash flows from financing activities:(Repayment of) proceeds from borrowings on debt
    
    
    (12,090
    )
    
    
    17,000Debt issuance costs
    
    
    
    
    
    
    (865
    )Repayment of notes payable
    
    
    
    
    
    
    (25
    )Net cash (used in) provided by financing activities
    
    
    (12,090
    )
    
    
    16,110Net increase (decrease) in cash and cash equivalents
    
    
    497
    
    
    
    (751
    )Cash and cash equivalents, beginning of period
    
    
    741
    
    
    
    872Cash and cash equivalents, end of period
    
    $
    1,238
    
    
    $
    121
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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
 Nature of Operations
  Basis of Presentation
    Liquidity; Going Concern
   7




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Management Estimates
  Oil and Gas Properties
     8




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As ofJune 30,
    
    December 31,2008
    
    2007(in thousands)Proved oil and gas properties
    
    $
    90,090
    
    
    
    $  131,532Unproved oil and gas properties
    
    
    11,556
    
    
    
    17,097Total
    
    
    101,646
    
    
    
    148,629Less accumulated depreciation, depletion, amortization and ceiling write-downs
    
    
    (82,800
    )
    
    
    (110,103
    )Net capitalized costs
    
    $
    18,846
    
    
    
    $    38,526
 Derivative Instruments
 Accounting for Derivative Instruments
and Hedging Activities
   Income Taxes
  Comprehensive Income (Loss)
  9




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Cash and cash equivalents
  Prepaid Severance Taxes
  Asset Retirement Obligations
 Accounting for Asset Retirement Obligations
 2008
    
    2007(in thousands)Asset retirement obligations at beginning of period
    
    
    $  1,510
    
    
    
    $  1,602Accretion expense
    
    
    44
    
    
    
    48Liabilities incurred
    
    
    
    
    
    
    33Liabilities settled
    
    
    
    
    
    
    (259
    )Liabilities settled through sale of assets
    
    
    (604
    )
    
    
    Revisions of estimates
    
    
    
    
    
    
    52Asset retirement obligations at end of period
    
    
    950
    
    
    
    1,476Less: current portion of asset retirement obligations
    
    
    (432
    )
    
    
    (432
    )Asset retirement obligations, less current portion
    
    
    $     518
    
    
    
    $  1,044
 Capitalized Interest
  Intangible Assets
  10




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Fair Value of Financial Instruments
     Earnings Per Share
  Recent Accounting Pronouncements
 Fair Value Measurements
  The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115
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Amendment of FASB
Interpretation No. 39 Offsetting of Amounts Related to Certain
Contracts
 Business Combinations Accounting and Reporting of Noncontrolling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51 Business Combinations
 Disclosure about Derivative instruments and
Hedging Activities  an amendment to FASB Statement No. 133
 Note 2 Debt
  As ofJune 30,
    
    December 31,2008
    
    2007(in thousands)Revolving Credit Facility
    
    $
    9,910
    
    
    
    $  22,000Less current portion
    
    
    (9,910
    )
    
    
    (22,000
    )Long-term debt
    
    $
    
    
    
    
    $         
 Revolving Credit Facility
  12




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Senior Secured Notes Facility
  Note 3  Stock Options
 Share-Based Payment
 Options Under Employee Option Plans
   13




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Six Months Ended June 30,2008
    
    2007Expected term (in years)
    
    
    5.5
    
    
    5.5  10.0Expected stock price volatility
    
    
    140
    %
    
    
    55% - 61
    %Expected dividends
    
    
    
    
    
    
    Risk-free rate
    
    
    3.34
    %
    
    
    4.66% - 4.71
    %
  Weighted Average
    
    Aggregate
    
    Weighted AverageExercise
    
    Intrinsic Value
    
    RemainingNumber of Options
    
    Price Per Share
    
    (in thousands)
    
    Contractual TermOutstanding at January 1, 2008
    
    
    1,226,500
    
    
    
    $   5.42Granted
    
    
    550,000
    
    
    
    0.38Forfeited or expired
    
    
    (247,500
    )
    
    
    4.95Outstanding at June 30, 2008
    
    
    1,529,000
    
    
    
    3.68
    
    
    
    $        -
    
    
    
    8.5 yearsExercisable at June 30, 2008
    
    
    1,529,000
    
    
    
    3.68
    
    
    
    $        -
    
    
    
    8.5 years
   Note 4  Derivative Instruments
 Commodity Derivatives
   Other Derivatives
  14




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Note 5  Commitments and Contingencies
 Delivery Commitments
   15




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   FORWARD-LOOKING STATEMENTS
  
    
    Infinitys business strategy and anticipated trends in Infinitys business and its
future results of operations;
    
    Infinitys ability to continue as a going concern;
    
    Infinitys ability to obtain an extension of the forbearance period or a new
forbearance agreement from Amegy;
    
    Infinitys ability to repay the significant borrowing base deficiency under the
Revolving Credit Facility;
    
    possible requirement and efforts to sell assets of Infinity-Texas;
    
    the timing of anticipated production from wells under the Farmout Agreement in
2008;
    
    the impact of limitations relating to future general and administrative costs on
future operations;
    
    the impact of cash flows on future operations;
    
    our need for external financing in 2008 and beyond;
    
    our plans with respect to the exploration and development of our offshore Nicaragua
concessions;
    
    our ability to obtain final central government approval for our Nicaragua contract
and concessions;
    
    success of the Companys plans to move forward with exploration in Nicaragua;
    
    our planned capital expenditures in 2008;
    
    commencement and progress of exploration, drilling and completion activities;
    
    availability of drilling rigs and other support equipment;
    
    the connection of Infinitys wells to third party pipeline systems;
    
    the abandonment of wells and the costs associated therewith;
    
    the availability of financing on acceptable terms;
    
    the impact of governmental regulation;
    
    the timing of engineering and environmental impact studies and permitting;
    
    title to assets and related liens and encumbrances; and
    
    receipt of sufficient rights-of-way grants and permits to operate our business,
 
 
    
    covenants and debt service obligations may adversely affect our cash flow and our
ability to raise capital;
    
    failure to obtain forbearance or waivers of events of default under the Revolving
Credit Facility;
    
    failure to achieve success under the Farmout Agreement;
    
    fluctuations in oil and natural gas prices and production;
    
    inaccurate estimations of required capital expenditures;
    
    uncertainties inherent in estimating quantities of oil and gas reserves and
projecting future rates of production and timing of development activities;
    
    operating hazards could result in substantial losses against which we not be
adequately insured;
    
    an increase in the cost of oil and gas drilling, completion and production and of
materials, fuel and labor costs;
    
    the availability, conditions and timing of required government approvals and third
party financing;
    
    a decline in demand for Infinitys oil and gas production; and
    
    changes in general economic conditions.
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2008 Operational and Financial Objectives
    
    
    The availability of the capital resources required to fund the activity;
    
    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.
  Overview of Exploration and Production Activity
  17




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For the Three
    
    For the SixMonths Ended
    
    Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Production:Natural gas (MMcf)
    
    
    105.9
    
    
    
    244.3
    
    
    
    227.3
    
    
    
    473.3Crude oil (thousands of barrels)
    
    
    -
    
    
    
    17.0
    
    
    
    0.3
    
    
    
    30.5Total (MMcfe)
    
    
    105.9
    
    
    
    346.3
    
    
    
    228.8
    
    
    
    656.3Financial Data (thousands of dollars):Total revenue
    
    $
    1,286
    
    
    $
    2,533
    
    
    $
    2,486
    
    
    $
    4,632Production expenses
    
    
    622
    
    
    
    1,262
    
    
    
    1,402
    
    
    
    3,320Production taxes
    
    
    41
    
    
    
    166
    
    
    
    68
    
    
    
    301Financial Data per Unit ($  per Mcfe):Total revenue
    
    $
    12.14
    
    
    $
    7.31
    
    
    $
    10.87
    
    
    $
    7.05Production expenses
    
    
    5.87
    
    
    
    3.64
    
    
    
    6.12
    
    
    
    5.06Production taxes
    
    
    0.39
    
    
    
    0.48
    
    
    
    0.30
    
    
    
    0.46
  Results of operations for the three months ended June 30, 2008 compared to the three months ended
June 30, 2007
 Net Income (Loss)
  Revenue
  Production expenses and taxes
  General and Administrative Expenses
  Depreciation, Depletion, Amortization and Accretion
  18




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Ceiling Write-Down
  Other Income (Expense)
  Income Tax
  Results of operations for the six months ended June 30, 2008 compared to the six months ended June
30, 2007
 Net Income (Loss)
  Revenue
  Production expenses and taxes
  General and Administrative Expenses
  Depreciation, Depletion, Amortization and Accretion
  19




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Ceiling Write-Down
  Other Income (Expense)
  Income Tax
  Liquidity and Capital Resources
       20




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Off-Balance Sheet Arrangement
  Outlook for 2008
     Critical Accounting Policies and Estimates
  
    
    Reserve estimates,
    
    Unproved properties,
    
    Fair value of derivatives,
    
    Asset retirement obligations,
    
    Valuation of tax asset, and
    
    Oil and gas properties, depreciation and full cost ceiling test.
 21




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Recent Accounting Pronouncements
 Business Combinations Accounting and Reporting of Noncontrolling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51 Business Combinations
 Disclosure about Derivative instruments and
Hedging Activities  an amendment to FASB Statement No. 133
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Commodity Risk
     Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
  22




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PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act)
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SIGNATURES
  Signature
    
    Capacity
    
    Date/s/ Stanton E. Ross
    
    Chief Executive Officer
    
    August 15, 2008Stanton E. Ross
    
    (Principal Executive Officer)/s/ Daniel F. Hutchins
    
    Chief Financial Officer
    
    August 15, 2008Daniel F. Hutchins
    
    (Principal Financial and Accounting Officer)
 24




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Index of Exhibits
 31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
1350 (Section 906 of theSarbanes-Oxley Act)
 25