UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





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FORM
10-Q



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|[X]  |  | QUARTERLY
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------
|     |  | For
the quarterly period ended June 30, 2012.                                                                                      
|[  ] |  | 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



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INFINITY ENERGY RESOURCES,
INC.

(Exact name of registrant as specified
in its charter)



---





|Delaware                                                       |  | 20-3126427                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)





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

(Address of principal executive offices) (Zip
Code)



(913) 948-9512

(Registrant’s telephone number, including
area code)



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 common stock, as of the latest practicable date:

|Class                              |  |  | Outstanding at September 24, 2012
|---------------------------------- |  |  | ---------------------------------
|Preferred Stock, $0.0001 par value |  |  |                                  
|Common Stock, $0.0001 par value    |  |  |                                  
























TABLE OF CONTENTS



|PART I Financial Information                                                                                                            |  |    
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|Item 1. Financial Statements                                                                                                            |  |    
|Consolidated Balance Sheets: June 30, 2012 (Unaudited) and December 31, 2011                                                            |  | F-1
|Consolidated Statements of Operations (Unaudited): Three Months and Six Months Ended June 30, 2012                                      |  | F-3
|Consolidated Statements of Changes in Stockholders’ Equity: Six Months Ended June 30, 2012 (Unaudited) and Year Ended December 31, 2011 |  | F-4
|Consolidated Statements of Cash Flows (Unaudited): Six Months Ended June 30, 2012 and 2011                                              |  | F-5
|Notes to Consolidated Financial Statements                                                                                              |  | F-6
|Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations                                           |  | 3  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                      |  | 7  
|Item 4. Controls and Procedures                                                                                                         |  | 8  
|                                                                                                                                        |  |    
|PART II Other Information                                                                                                               |  |    
|Item 1. Legal Proceedings                                                                                                               |  | 8  
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                                     |  | 8  
|Item 3. Defaults Upon Senior Securities                                                                                                 |  | 8  
|Item 4. Mine Safety Disclosures                                                                                                         |  | 8  
|Item 5. Other Information                                                                                                               |  | 8  
|Item 6. Exhibits                                                                                                                        |  | 8  
|Signatures                                                                                                                              |  | 9  
|Exhibits                                                                                                                                |  | 10 





2







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets





|                                                                                                                                    |  | June 30, 2012 |           |  | December 31, 2011 |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- |  | ----------------- | -
|                                                                                                                                    |  | (Unaudited)   |           |  |                   |  
|ASSETS                                                                                                                              |  |               |           |  |                   |  
|Current assets                                                                                                                      |  |               |           |  |                   |  
|Cash and cash equivalents                                                                                                           |  | $             | 133       |  |                   | $
|Accounts receivable                                                                                                                 |  |               | 2,992     |  |                   |  
|Prepaid expenses                                                                                                                    |  |               | -         |  |                   |  
|Deferred income tax                                                                                                                 |  |               | -         |  |                   |  
|Total current assets                                                                                                                |  |               | 3,125     |  |                   |  
|                                                                                                                                    |  |               |           |  |                   |  
|Oil and gas properties, using full cost accounting, net of accumulated depreciation, depletion, amortization and ceiling write-down |  |               |           |  |                   |  
|Unproved                                                                                                                            |  |               | 4,231,454 |  |                   |  
|                                                                                                                                    |  |               |           |  |                   |  
|Total assets                                                                                                                        |  | $             | 4,234,579 |  |                   | $
|                                                                                                                                    |  |               |           |  |                   |  



See notes to consolidated financial statements.



F-1







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)





|                                                                                                                                                                                   |  | June 30, 2012 |              |   | December 31, 2011 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------------ | - | ----------------- | -
|                                                                                                                                                                                   |  | (Unaudited)   |              |   |                   |  
|LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                              |  |               |              |   |                   |  
|Current liabilities                                                                                                                                                                |  |               |              |   |                   |  
|Revolving credit facility to bank                                                                                                                                                  |  | $             | -            |   |                   | $
|Note payable to vendor                                                                                                                                                             |  |               | 278,022      |   |                   |  
|Current portion, subordinated note payable to related party, net of discount of  $0 at June 30, 2012 and $83,088 at December 31, 2011                                              |  |               | -            |   |                   |  
|Accrued interest on subordinated note                                                                                                                                              |  |               | -            |   |                   |  
|Accounts payable                                                                                                                                                                   |  |               | 3,493,482    |   |                   |  
|Accrued liabilities                                                                                                                                                                |  |               | 5,162,600    |   |                   |  
|Accrued interest and fees – bank and other                                                                                                                                         |  |               | 313,965      |   |                   |  
|Current portion of asset retirement obligations                                                                                                                                    |  |               | 432,027      |   |                   |  
|Total current liabilities                                                                                                                                                          |  |               | 9,680,096    |   |                   |  
|                                                                                                                                                                                   |  |               |              |   |                   |  
|Long-term liabilities                                                                                                                                                              |  |               |              |   |                   |  
|Asset retirement obligations, less current portion                                                                                                                                 |  |               | 913,873      |   |                   |  
|Derivative liabilities                                                                                                                                                             |  |               | -            |   |                   |  
|Total long-term liabilities                                                                                                                                                        |  |               | 913,873      |   |                   |  
|                                                                                                                                                                                   |  |               |              |   |                   |  
|Total liabilities                                                                                                                                                                  |  |               | 10,593,969   |   |                   |  
|                                                                                                                                                                                   |  |               |              |   |                   |  
|Redeemable, convertible preferred stock, par value $.0001, 6%
    cumulative   dividend, authorized 10,000,000 shares:                                                             |  |               |              |   |                   |  
|Series A, 130,000 shares issued and outstanding at June 30, 2012, none at December 31, 2011, liquidation preference $13,000,000 plus undeclared dividends of $169,000              |  |               | 10,260,957   |   |                   |  
|Series B (related party), 15,016 shares issued and outstanding at June 30, 2012, none at December 31, 2011, liquidation preference $1,501,600 plus undeclared dividends of $19,521 |  |               | 1,168,112    |   |                   |  
|                                                                                                                                                                                   |  |               |              |   |                   |  
|Commitments and contingencies (Note 6)                                                                                                                                             |  |               |              |   |                   |  
|                                                                                                                                                                                   |  |               |              |   |                   |  
|Stockholders’ deficit                                                                                                                                                              |  |               |              |   |                   |  
|Common stock, par value $.0001, authorized 75,000,000 shares, issued and    outstanding 20,668,575 shares at June 30, 2012 and 18,668,575 shares at    December 31, 2011           |  |               | 2,066        |   |                   |  
|Additional paid-in capital                                                                                                                                                         |  |               | 90,076,846   |   |                   |  
|Accumulated deficit                                                                                                                                                                |  |               | (107,867,371 | ) |                   |  
|Total stockholders’ deficit                                                                                                                                                        |  |               | (17,788,459  | ) |                   |  
|                                                                                                                                                                                   |  |               |              |   |                   |  
|Total liabilities and stockholders’ deficit                                                                                                                                        |  | $             | 4,234,579    |   |                   | $



See notes to consolidated financial statements.



F-2







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)





|                                                                                             |  | For the Three Months Ended |            |   | For the Six Months Ended |  
|-------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------ | -
|                                                                                             |  | June 30,                   |            |   | June 30,                 |  
|                                                                                             |  | 2012                       |            |   | 2011                     |  
|                                                                                             |  |                            |            |   |                          |  
|Operating expenses                                                                           |  |                            |            |   |                          |  
|General and administrative expenses                                                          |  | $                          | 246,878    |   |                          | $
|Accretion expense                                                                            |  |                            | 29,616     |   |                          |  
|Total operating expenses                                                                     |  |                            | 276,494    |   |                          |  
|                                                                                             |  |                            |            |   |                          |  
|Operating loss                                                                               |  |                            | (276,494   | ) |                          |  
|                                                                                             |  |                            |            |   |                          |  
|Other income (expense)                                                                       |  |                            |            |   |                          |  
|Interest expense, net of capitalization                                                      |  |                            | (27,854    | ) |                          |  
|Change in derivative fair value                                                              |  |                            | -          |   |                          |  
|Other                                                                                        |  |                            | -          |   |                          |  
|Total other income (expense)                                                                 |  |                            | (27,854    | ) |                          |  
|                                                                                             |  |                            |            |   |                          |  
|Net (loss)                                                                                   |  |                            | (304,348   | ) |                          |  
|                                                                                             |  |                            |            |   |                          |  
|Accrual
    of 6% dividend payable on Series A and B redeemable, convertible preferred stock |  |                            | (188,521   | ) |                          |  
|                                                                                             |  |                            |            |   |                          |  
|Accretion of Series A and B redeemable, convertible preferred stock                          |  |                            | (390,713   | ) |                          |  
|                                                                                             |  |                            |            |   |                          |  
|Loss applicable to common shareholders                                                       |  | $                          | (883,582   | ) |                          | $
|                                                                                             |  |                            |            |   |                          |  
|                                                                                             |  |                            |            |   |                          |  
|Basic and diluted net loss per share                                                         |  | $                          | (0.04      | ) |                          | $
|                                                                                             |  |                            |            |   |                          |  
|Weighted average shares outstanding-basic and diluted                                        |  |                            | 20,382,861 |   |                          |  



See notes to consolidated financial statements.



F-3







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’
Deficit

For the Six Months Ended June 30, 2012 (Unaudited)
and

Year Ended December 31, 2011



|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         | Additional |               |         |  |   |              |   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ---------- |  | ------- | ------ | ----- | ----------- | ------- | ---------- | ------------- | ------- |  | - | ------------ | - | 
|                                                                                                                                                                                     |  | Common Stock |            |  | Paid-in |        |       | Accumulated |         |            | Stockholders’ |        
|                                                                                                                                                                                     |  |              | Shares     |  |         | Amount |       |             | Capital |            |               | Deficit |  |   | Deficit      |  
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Balance,
    December 31, 2010                                                                                                                                                       |  |              | 18,668,575 |  |         | $      | 1,866 |             |         | $          | 80,107,816    |         |  | $ | (103,572,691 | ) | 
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Issuance
    of stock options                                                                                                                                                        |  |              | -          |  |         |        | -     |             |         |            | 214,906       |         |  |   | -            |   | 
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Net
    loss                                                                                                                                                                         |  |              | -          |  |         |        | -     |             |         |            | -             |         |  |   | (3,529,599   | ) | 
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Balance,
    December 31, 2011                                                                                                                                                       |  |              | 18,668,575 |  |         |        | 1,866 |             |         |            | 80,322,722    |         |  |   | (107,102,290 | ) | 
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Issuance
    of common stock                                                                                                                                                         |  |              | 2,000,000  |  |         |        | 200   |             |         |            | 2,979,800     |         |  |   | -            |   | 
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Accretion
    of Series A and B redeemable, convertible preferred stock                                                                                                              |  |              | -          |  |         |        | -     |             |         |            | (390,713      | )       |  |   | -            |   | 
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Accrual
    of 6% dividend payable on Series A and B redeemable, convertible preferred stock                                                                                         |  |              | -          |  |         |        | -     |             |         |            | (188,521      | )       |  |   | -            |   | 
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Excess
    of debt forgiven by creditors over fair value of common and redeemable, convertible preferred Series A and B stock issued
    in exchange (Note 3) net of tax of $700,000 |  |              | -          |  |         |        | -     |             |         |            | 7,353,558     |         |  |   | -            |   | 
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Net
    loss                                                                                                                                                                         |  |              | -          |  |         |        | -     |             |         |            | -             |         |  |   | (765,081     | ) | 
|                                                                                                                                                                                     |  |              |            |  |         |        |       |             |         |            |               |         |  |   |              |   | 
|Balance,
    June 30, 2012                                                                                                                                                           |  |              | 20,668,575 |  |         | $      | 2,066 |             |         | $          | 90,076,846    |         |  | $ | (107,867,371 | ) | 



See notes to consolidated financial statements.





F-4







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)





|                                                                                                                                                                     |  | For the Six Months Ended |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                                                                                                                     |  | June 30,                 |           
|                                                                                                                                                                     |  | 2012                     |           
|Cash flows from operating activities                                                                                                                                 |  |                          |           
|Net loss                                                                                                                                                             |  | $                        | (765,081  
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities                                                                             |  |                          |           
|Amortization of debt discount, net of capitalized amounts of $62,316 in 2012 and $91,265 in 2011                                                                     |  |                          | 20,772    
|Accretion of asset retirement obligations                                                                                                                            |  |                          | 58,581    
|Stock-based compensation                                                                                                                                             |  |                          | -         
|Change in fair value of derivative liability                                                                                                                         |  |                          | (118,685  
|Loan commitment fees paid with debt proceeds                                                                                                                         |  |                          | -         
|Change in operating assets and liabilities                                                                                                                           |  |                          |           
|(Increase) decrease in prepaid expenses and other                                                                                                                    |  |                          | 7,500     
|Increase in accounts payable and accrued liabilities                                                                                                                 |  |                          | 809,517   
|Application of debt proceeds to reduce accrued liability                                                                                                             |  |                          | -         
|Net cash provided by (used in) operating activities                                                                                                                  |  |                          | 12,604    
|                                                                                                                                                                     |  |                          |           
|Cash flows from investing activities                                                                                                                                 |  |                          |           
|Investment in oil and gas properties                                                                                                                                 |  |                          | (284,758  
|Net cash used in investing activities                                                                                                                                |  |                          | (284,758  
|                                                                                                                                                                     |  |                          |           
|Cash flows from financing activities                                                                                                                                 |  |                          |           
|Proceeds from debt and subordinated note payable                                                                                                                     |  |                          | 272,070   
|Repayment of notes                                                                                                                                                   |  |                          | -         
|Checks written in excess of cash                                                                                                                                     |  |                          | -         
|Net cash provided by financing activities                                                                                                                            |  |                          | 272,070   
|                                                                                                                                                                     |  |                          |           
|Net increase (decrease) in cash and cash equivalents                                                                                                                 |  |                          | (84       
|                                                                                                                                                                     |  |                          |           
|Cash and cash equivalents                                                                                                                                            |  |                          |           
|Beginning                                                                                                                                                            |  |                          | 217       
|Ending                                                                                                                                                               |  | $                        | 133       
|                                                                                                                                                                     |  |                          |           
|Supplemental noncash disclosures                                                                                                                                     |  |                          |           
|Noncash capitalized overhead and interest                                                                                                                            |  | $                        | 102,616   
|                                                                                                                                                                     |  |                          |           
|Noncash transaction: debt, subordinated note payable and related accrued interest and other fees satisfied by issuance of Common and Series A and B Preferred shares |  | $                        | 21,883,393



See notes to consolidated financial statements.





F-5







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes
to Consolidated 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. and its subsidiaries (collectively, “we,” “ours,” “us,” “Infinity”
or the “Company”) has prepared the accompanying consolidated financial statements pursuant to the rules and regulations
of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated 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 consolidated 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
2012 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 consolidated financial statements should be read in conjunction with the audited
consolidated 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



We are engaged in the
exploration of the Perlas and Tyra concession blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions”).



Basis of Presentation



The consolidated financial
statements include the accounts of Infinity Energy Resources, Inc. and its wholly-owned subsidiaries, Infinity Oil and Gas of Texas,
Inc. (“Infinity-Texas”) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”). All significant
intercompany balances and transactions have been eliminated in consolidation.



The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States.



On March 5, 2009 Infinity
signed the contracts relating to its Nicaraguan Concessions. Infinity is conducting an environmental study and the development
of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired for the Nicaraguan
Concessions. Infinity is seeking offers from other industry operators and other third parties for interests in the acreage in exchange
for cash and a carried interest in exploration and development operations. The funds raised through the subordinated note transaction
described below and Forbearance advances from Amegy Bank, N.A. (“Amegy”) were used to fund these expenditures (see
Notes 2 and 3). These funds will not be sufficient to cover our expected operating exploration costs.



Going Concern



As reflected in
the accompanying Consolidated Statements of Operations, the Company has had a history of losses. In addition, the Company has a
significant working capital deficit and is currently experiencing substantial liquidity issues. Further, as discussed in Note 2
and below, the Company was at December 31, 2011 operating under the Fifth Forbearance Agreement with Amegy under the Revolving
Credit Facility, which agreement expired on that date. After December 31, additional advances of $272,070 were made by Amegy accumulating
to a total advance of $1,668,828 as of February 28, 2012.



On February 28,
2012, we signed definitive agreements with Amegy and Off-Shore relating to outstanding debt and other obligations we owed to them.
Under these documents, we agreed to issue to Amegy 130,000 shares of Series A Preferred and 2,000,000 shares of common stock as
payment in full of all debt and related obligations owed Amegy; the Company and Amegy also agreed to cancel a warrant held by Amegy
exercisable to purchase 968,000 shares of the Company’s common stock that had been issued in February 2011. In addition,
we agreed to issue Off-Shore 15,016 shares of Series B Preferred in conversion, exchange and payment in full of all debt and other
obligations we owed to Off-Shore. The transactions with Amegy and Off-Shore closed on April 13, 2012 and are described more fully
in Note 3.



F-6







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes
to Consolidated Financial Statements

(Unaudited)



Although the cash
outflow necessary to pay Amegy has been eliminated under terms of the Stock Purchase Agreement, the Company is still in need of
additional cash infusion to meet its obligations under the Nicaraguan Concessions, and is searching for sources of additional equity
financing. There is no assurance that the equity funds will be received.



The Company has
classified the entire balance outstanding under the Revolving Credit Facility at December 31, 2011 as a current liability in the
accompanying Consolidated Balance Sheets.



The Company conducted
an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic
data acquired over its Nicaraguan Concessions. It issued letters of credit totaling $851,550 for this initial work on the leases.
The Company commenced certain activity under the initial work plan and is waiting for governmental approval of the environmental
study. The Company intends to seek joint venture or working interest partners prior to the commencement of any exploration or drilling
operations on the Nicaraguan Concessions.



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.



Management Estimates



The preparation of consolidated
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 consolidated 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 consolidated financial statements include
the initial fair value of redeemable convertible preferred shares, the estimated carrying value of unproved properties, the estimated
cost and timing related to asset retirement obligations, the estimated fair value of derivative liabilities and stock based awards,
and the realization of deferred tax assets.



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 exploration and development activities is also capitalized. In the quarters ended June 30,
2012 and 2011, the Company capitalized direct costs, overhead costs and interest as follows:



|                         |  | For the Six Months |         |  | For the Three Months |  
|------------------------ |  | ------------------ | ------- |  | -------------------- | -
|                         |  | Ended June 30,     |         |  | Ended June 30,       |  
|                         |  | 2012               |         |  | 2011                 |  
|                         |  |                    |         |  |                      |  
|Direct costs             |  | $                  | 284,758 |  |                      | $
|Overhead costs           |  |                    | 25,000  |  |                      |  
|Total non-interest costs |  |                    | 309,758 |  |                      |  
|Interest costs           |  |                    | 77,616  |  |                      |  
|                         |  | $                  | 387,374 |  |                      | $



Costs associated
with production and general corporate activities are expensed in the period incurred.



F-7









INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



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 added to the costs to be amortized, or is reported as a period expense, as appropriate. All unproved property costs as of
June 30, 2012 and December 31, 2011 relate to the Company’s Nicaraguan Concessions that were entered into in March
2009. In assessing the unproved property costs for impairment, the Company takes into consideration the terms of the
government concessions, the status of the ongoing environmental study, evaluation of the seismic data and plans to seek
industry participation in the future exploration and development.



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 June 30, 2012
and 2011, the Company did not have any proved oil and gas properties, and all unproved property costs relate to the Company’s
Nicaraguan Concessions.



Proceeds
from the sales of oil and gas properties are accounted for as adjustments to capitalized costs with no gain or loss recognized,
unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas,
in which case the gain or loss would be recognized in the determination of the Company’s net earnings/loss. During 2011
the Company sold its oil and gas properties in Texas, the costs associated with which were entirely written off in prior periods,
in return for a non-interest-bearing note with repayment conditional upon net profit from sales of oil and gas from the properties.
Due to the uncertainty of when and in what amount payments on the note will be received, the Company has recorded the note net
of a 100% valuation reserve and has recognized no gain or loss on this transaction. Any related gains will be recognized when
and if payments are received.



Concentrations



The Company’s significant asset is the Nicaraguan Concessions and it expects to be active in Nicaragua for the foreseeable future, given sufficient
capital. 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, it
may be forced to abandon or suspend its efforts.



Derivative Instruments



The Company accounts for
derivative instruments or hedging activities under the provisions of ASC 815 (formerly Statement of Financial Accounting Standards
(“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities.) 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.







F-8







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



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 June 30, 2012 and December 31, 2011 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 but no longer outstanding
at June 30, 2012 (see Note 5), those warrants were required to be accounted for as derivatives at estimated fair value, with changes
in fair value recognized in earnings. Such derivatives were outstanding at December 31, 2011 and were cancelled effective April
13, 2012 as part of the transaction in which the Company’s debt, subordinated note payable and related accrued interest and
other fees, in addition to its derivative liability associated with the warrants, were satisfied by the issuance of common and
Series A and B redeemable, convertible preferred stock (Note 4).



Income Taxes



The Company uses
the asset and liability method of accounting for income taxes. This method requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of
assets and liabilities. The tax benefits of tax loss carryforwards and other deferred taxes are recorded as an asset to the extent
that management assesses the utilization of such assets to be more likely than not. We routinely assess the realizability of our
deferred income tax assets, and a valuation allowance is recognized if it is determined that deferred income tax assets may not
be fully utilized in future periods. We consider future taxable earnings in making such assessments. Numerous judgments and assumptions
are inherent in the determination of future taxable earnings, including such factors as future operating conditions. When the future
utilization of some portion of the deferred tax asset is determined not to be more likely than not, a valuation allowance is provided
to reduce the recorded deferred tax asset. When the Company can project that a portion of the deferred tax asset can be realized
through application of a portion of tax loss carryforward, the Company will record that utilization as a deferred tax benefit and
recognize a deferred tax asset in the same amount. There can be no assurance that facts and circumstances will not materially change
and require us to adjust our deferred income tax asset valuation allowance in a future period. We are potentially subject to taxation
in many jurisdictions, and the calculation of income tax liabilities (if any) involves dealing with uncertainties in the application
of complex income tax laws and regulations in various taxing jurisdictions. We recognize certain income tax positions that meet
a more-likely-than not recognition threshold. If we ultimately determine that the payment of these liabilities will be unnecessary,
we will reverse the liability and recognize an income tax benefit. The Company recognized a deferred tax asset, net of valuation
allowance, of $0 at June 30, 2012 and $700,000 at December 31, 2011 related to the anticipated use of net operating losses to offset
taxable income triggered by the transaction with Amegy and Off-Shore that closed in April 2012 (see Note 4). As recorded, the Company
did not realize any gain in association with the transaction, and the deferred tax asset set up at December 31, 2011 was recorded
as a reduction in additional paid-in capital.

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 June 30, 2012 and December 31, 2011, 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.

Asset Retirement
Obligations



The Company records
estimated future asset retirement obligations pursuant to the provisions of ASC 410 (formerly SFAS No. 143, Accounting for
Asset Retirement Obligations.) 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 has recognized full impairment of the value of all remaining
domestic oil and gas properties in prior periods, and has sold all of its Texas oil and gas properties in 2011, the Company
may retain title to certain abandoned non-producing domestic leasehold properties. Management believes
the Company may retain some asset retirement obligation related to properties sold and properties retained, although it believes
a significant portion of such obligation may be relieved upon the sale of its ownership of Infinity-Texas in July 2012 (see Note
8). As such, it has continued to maintain the asset retirement obligation as a liability in its financial statements and, in accordance
with ASC 410, to accrete such obligation regularly. The following table summarizes the activity for the Company’s asset retirement
obligations for the period ended June 30, 2012:





F-9







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



|Asset retirement obligations at beginning of period   |  | $ | 1,287,319 |  
|----------------------------------------------------- |  | - | --------- | -
|Accretion expense, six months ended June 30, 2012     |  |   | 58,581    |  
|Asset retirement obligations at end of period         |  |   | 1,345,900 |  
|Less: current portion of asset retirement obligations |  |   | (432,027  | )
|Asset retirement obligations, less current portion    |  | $ | 913,873   |  



Capitalized Interest
and Debt Discount Amortization



The Company capitalizes
interest costs and debt discount amortization to oil and gas properties on expenditures made in connection with exploration and
development projects that are not subject to current depletion. Such costs are capitalized only for the period that activities
are in progress to bring these projects to their intended use. Interest costs and debt discount amortization capitalized for the
quarters ended June 30, 2012 and 2011 were $0 and $63,030, respectively, and for the six months ended June 30, 2012 and 2011 were
$77,616 and $121,865, respectively.



Fair Value of Financial
Instruments



As defined in ASC
820, fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would
use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.
These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances
based upon observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(level 1 measurement), pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable
and are valued using models or other valuation methodologies (level 2 measurement), and the lowest priority to unobservable inputs
(level 3 measurement). There were no changes in valuation techniques or reclassifications of fair value measurements between levels
1, 2 or 3 during the quarter ended June 30, 2012 or year ended December 31, 2011.



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



The carrying value
of the Company’s debt under its Revolving Credit Facility represented its estimated fair value due to its short-term nature,
its adjustable rate of interest, associated fees and expenses and initially recorded discount.



The estimated fair
value of the Company’s non-current derivative liabilities, all of which related to warrants, was estimated using a “Black-Scholes”
model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s
common stock, interest rates, and non-performance risk factors, among other items (ASC 820, Fair Value Measurements ("ASC
820") fair value hierarchy Level 2).



The estimated fair
value of the Company’s Series A and B redeemable convertible preferred stock was determined based upon estimates of the expected
occurrence and timing of certain future events, such as the date such shares might be redeemed or converted (assumed to be December
31, 2013); an estimate of discount rates to be utilized in determining net present value of the preferred stock, based upon rates
observed in similar or analogous, but not identical, market transactions, upon past Company-specific effective borrowing rates,
and the assessment of each instrument’s specific rights and obligations. (ASC 820, Fair Value Measurements ("ASC
820") fair value hierarchy Level 3).



F-10







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



Net Income (Loss)
Per Common Share



Pursuant to FASB ASC Topic
260, Earnings Per Share, basic net income (loss) per share is computed by dividing the net income (loss) attributable to
common shareholders 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.



For the six month and
three month periods ended June 30, 2012 and 2011, all options, warrants, and the shares issuable upon conversion of the redeemable
convertible preferred stock outstanding were excluded from the calculation of diluted net loss per share because they were anti-dilutive.



During the six months
and the quarter ending June 30, 2012 the Company had outstanding an additional 2,000,000 shares of common stock for the period
April 13 through June 30, 2012. Weighted average common shares outstanding for both the quarter and six months ended June 30, 2012
reflect the effects of the shares outstanding for this period. The calculation of loss per common share for the quarter and six
months ended June 30, 2012 reflects these amounts which are attributable to the preferred shareholders as increases in the net
loss for those periods allocable to common shareholders.



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



Recent Accounting
Pronouncements



Effective January 1, 2011,
the Company adopted ASC 820 guidance that requires enhanced disclosure in the level 3 reconciliation for fair value measurements.
The adoption had no impact on the consolidated financial position, results of operations or cash flows of the Company. Refer to
the discussion elsewhere in this note as to other information concerning our assets and liabilities measured at fair value.



In December 2011, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-11 which requires that an entity
disclose both gross and net information about instruments and transactions that are either eligible for offset in the balance sheet
or subject to an agreement similar to a master netting agreement, including derivative instruments. ASU 2011-11 was issued in order
to facilitate comparison between GAAP and IFRS financial statements by requiring enhanced disclosures, but does not change existing
GAAP that permits balance sheet offsetting. This authoritative guidance is effective for annual reporting periods beginning on
or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the provisions of
ASU 2011-11 and assessing the impact, if any, it may have on the Company’s financial position or results of operations.



F-11







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



Note 2 — Debt



Debt consists of the following
at December 31, 2011 (no debt was outstanding at June 30, 2012):



|                                                          |  | December
    31, 2011 |           
|--------------------------------------------------------- |  | --------------------- | ----------
|                                                          |  |                       |           
|Revolving credit facility to bank, current                |  | $                     | 11,407,252
|                                                          |  |                       |           
|Subordinated note payable, related party, net of discount |  | $                     | 1,186,353 
|Less current portion                                      |  |                       | (1,186,353
|Long-term portion, subordinated note payable              |  | $                     | -         



Revolving Credit
Facility



On January 10,
2007, the Company entered into a reserve-based revolving credit facility (the “Revolving Credit Facility”) with Amegy.
Under the related loan agreement (the “Loan Agreement”) between Infinity, Infinity-Texas and Infinity-Wyoming (each
wholly-owned subsidiaries of the Company and together, the “Guarantors”) and Amegy, Infinity could borrow, repay and
re-borrow on a revolving basis up to the aggregate sums permitted under the then current borrowing base. Amounts borrowed under
the Revolving Credit Facility are collateralized by substantially all of the assets of Infinity and its subsidiaries and are guaranteed
by Infinity’s subsidiaries. The Revolving Credit Facility contains certain standard continuing covenants and agreements and
requires the Company to maintain certain financial ratios and thresholds. Per the terms of the loan agreement, amounts borrowed
bear interest at 5.5%, or at 11.0% if the loan is in default. The Company accrued interest at 11.0% on the balance of the loan
during the three months ended March 31, 2012 and 2011 and during the six months ended June 30, 2011. No interest was accrued on
the loan balance after March 31, 2012 and the loans were satisfied with the distribution of common and redeemable convertible preferred
stock effective April 13, 2012.



The Company entered
into four separate forbearance agreements resulting from its breach of certain covenants in the Loan Agreement during the period
2007 through 2010.



Effective as of
February 16, 2011 the Company entered into a Fifth Forbearance Agreement under the Loan Agreement. This agreement relates to the
breach by the Company and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan
Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”).
Under this Agreement, Amegy agreed to forbear from exercising any remedies under the Loan Agreement and related loan documents
and to waive the Existing Defaults for the forbearance period commencing as of January 31, 2011 and continuing through December
31, 2011, unless otherwise extended or earlier terminated by Amegy due to a further default under the Agreement. In connection
with the Fifth Forbearance Agreement, the term of the Loan Agreement and related note was extended until December 31, 2011.



Amegy initially
approved additional Forbearance Period advances of $1,050,000, which was increased to $1,260,000 on September 12, 2011, with an
interest rate of prime plus 2% and the personal guarantee of the Company’s President and CEO for up to $500,000 of the advances.
At December 31, 2011, $500,000 of the advances was personally guaranteed by the Company’s CEO. No additional compensation
was granted for the personal guarantee. As of December 31, 2011 advances of $1,396,758 had been made, with $232,464 used to reduce
prior obligations to Amegy, $56,084 used to repay hedge termination fees, and $21,000 used to pay current commitment fees in accordance
with the Fifth Forbearance Agreement. As of December 31, 2011, Amegy had advanced a total amount of $1,396,758, which was $136,758
in excess of the approved maximum for advances. From January 1, 2012 through February 28, 2012, Amegy made additional advances
of $272,070 for a total advance of $1,668,828.

On February 28,
2012, we signed definitive agreements with Amegy and Off-Shore relating to outstanding debt and other obligations we owed to them.
The transactions contemplated under these agreements became effective April 13, 2012. These transactions are more fully discussed
in Note 3.





F-12







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)

In 2011, Infinity
had granted Amegy a warrant to purchase 931,561 shares of the Company’s common stock (the “Amegy Warrant”) at
an exercise price of $5.01 per share during a ten-year period following the issuance of the warrant (Note 5). The Amegy Warrant
was cancelled as part of the agreement the Company and Amegy entered into on February 28, 2012 and which became effective April
13, 2012 (see Note 3). The Company recorded a debt discount equal to the estimated fair value of the Amegy Warrant on the date
of issuance in the amount of $535,626, and expensed $311,985 in forbearance fees associated with the Fifth Forbearance Agreement
(see below) during the three months ended June 30, 2011 ($619,274 during the six months ended June 30, 2011), which amounts are
included in the accompanying consolidated statements of operations as interest expense for those periods. Because the Fifth Forbearance
Agreement ceased its effectiveness after December 31, 2011, and the Company and Amegy were in the process of negotiating and signing
an agreement to exchange equity securities in full payment of the Company’s obligations to Amegy, no further forbearance
fees were accrued after that date. Interest expense recognized during the quarter and the six months ended June 30, 2011 related
to the accretion of the debt discount was $153,036 and $229,554, respectively (none during the quarter and six months ended June
30, 2012).



The Company’s
intention has been to market and sell all remaining assets of Infinity-Wyoming and Infinity-Texas and to apply the net sales proceeds,
if any, to payment of the revolving note, and in December 2011 the Company sold its Texas assets; no proceeds have yet been received.



The following information
relates to the Fifth Forbearance Agreement, which was in effect as of December 31, 2011, but which was cancelled effective with
the closing of the agreement between the Company and Amegy effective on April 13, 2012:



Under the
Fifth Forbearance Agreement, any cash receipts of the Company were deposited in a lockbox held by Amegy as restricted cash. All
cash disbursements had to be approved by Amegy.



The Company
also agreed to pay Amegy a monthly forbearance/waiver fee of 1.0% of the average daily outstanding principal balance of the revolving
note through December 31, 2011. If any cash equity contributions to the Company are used to pay monthly interest due under the
agreement, Amegy agreed to credit the Company 300% of the amount of the equity contributions as a reduction in interest cost.



If Infinity
failed to comply with the terms of the Fifth Forbearance Agreement, Amegy would be entitled to impose a default interest rate (prime
plus 6.5%) or to declare an event of default, at which point the entire unpaid principal balance of the loan, together with all
accrued and unpaid interest and other amounts then owing to Amegy would become immediately due and payable. Amegy or other creditors
may take action to enforce their rights with respect to outstanding obligations, and Infinity may be forced to liquidate. Because
substantially all of the Company’s assets were pledged as collateral under the Revolving Credit Facility, if Amegy declared
an event of default, it would be entitled to foreclose on and take possession of the Company’s assets, including its rights
under the Nicaraguan Concessions.

Infinity
has accrued interest, forbearance and additional fees due in connection with the Forbearance Agreements of $0 and $7,896,442 as
of June 30, 2012 and December 31, 2011, respectively.



Subordinated Note
Payable to Related Party



Effective March
5, 2009, the Company entered into two contracts relating to its Nicaraguan Concessions, as awarded by the Republic of Nicaragua
in 2003. In addition, the Company entered into a subordinated loan with Off-Shore Finance, LLC, a Nevada limited liability company
(“Off-Shore”), and a related party (see Note 7) in an aggregate amount of $1,275,000, which was released as the Company
needed funds for the Nicaraguan Concessions. Amegy allowed the subordinated loans to be secured by the assets of the Company, subject
to Amegy’s security interest. The note bore interest at 6% and would have been due March 23, 2012. This note has been retired
under the agreement between the Company and Off-Shore dated February 28, 2012, under which Off-Shore accepted 15,016 shares of
the Company’s Class B Preferred Stock in full payment of the note and its related accrued interest at such date (see also
Note 4).





F-13







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



Further, Amegy allowed
the Company to grant a one percent revenue sharing interest with respect to the Nicaraguan Concessions to Off-Shore to obtain the
subordinated loan.



In connection with the
issuance of the Subordinated Note Payable discussed above, the Company recorded a debt discount, through a reduction to unproved
properties, of $637,620, which was amortized over the maturity of the Note utilizing the effective interest method and was fully
amortized as of the date the debt was effectively satisfied (April 13, 2012) by issuance of Series B preferred shares. During the
period amortization of the discount was occurring, the Company capitalized a portion of the amortization of debt discount to oil
and gas properties on expenditures made in connection with exploration and development projects that are not subject to current
depletion. By policy, amortization of debt discount was capitalized only for the period that activities are in progress to bring
these projects to their intended use. Total subordinated note payable debt discount amortized during the quarters ended June 30,
2012 and 2011 were $0 and $63,640, respectively, of which $0 and $47,730, respectively, were capitalized to oil and gas properties.
Such amortization for the six months ended June 30, 2012 and 2011 was $83,088 and $121,867, respectively, of which $62,316 and
$91,265, respectively, were capitalized.



Interest Bearing Liabilities to Vendors



At June 30, 2012 and December
31, 2011, the Company had a note payable to a vendor of $278,022 bearing interest at 18% and had also agreed to pay interest at
8% on certain accrued liabilities aggregating $410,500. The total amount of interest expense accrued relating to these liabilities
for the quarters ending June 30, 2012 and 2011 was $27,496 and $24,565, respectively, and for the six months ended June 30, 2012
and 2011 was $54,153 and $48,519, respectively. The interest accrued on these liabilities is included in accrued interest and fees
- bank and other.



Note 3  — Cancellation of Debt and Related
Obligations and Issuance of Securities in Exchange for Debt



On February 28, 2012,
the Company signed definitive agreements with Amegy and Off-Shore relating to outstanding debt and other obligations owed them.
In accordance with these agreements, on April 13, 2012, the Company issued Amegy 2,000,000 shares of common stock and 130,000 shares
of Series A redeemable convertible preferred stock, and issued Off-Shore 15,016 shares of Series B redeemable convertible preferred
stock. Amegy also agreed to cancel the Amegy Warrant (that had originally been issued in February 2011), exercisable to purchase
931,561 shares of common stock. In aggregate, the Company cancelled debt, accrued interest and fees and the derivative liability
that had been recorded relative to the Amegy Warrant in the aggregate amount of $21,883,393.



The Series A and Series
B redeemable convertible preferred stock have a 6% annual dividend and are convertible into common stock at a price of $6.50 per
share. Both series of preferred stock automatically convert into common stock if the average of the closing prices of the common
stock for 30 consecutive trading days equals at least $7.50 per share. The Company has the right to redeem both series of preferred
stock at any point for an amount equal to their issue price of $100 per share plus all accrued and unpaid dividends; however the
Series A preferred stock has a higher liquidation preference and must be redeemed prior to any redemption of Series B preferred
stock. Commencing January 1, 2013, the Series A preferred stock will vote with the common stock on all matters presented to the
holders of the common stock. Beginning January 1, 2014, the Series A preferred shareholders will have a majority vote on all such
matters and the right to elect a majority of the Board of Directors, if the Series A preferred stock has not been redeemed or converted
into common stock. Series B preferred stock has no voting privileges. Neither series of preferred stock is transferrable for 180
days after issuance.



The common stock issued
to Amegy has been recorded at a value equal to the closing price of the shares of the Company’s common stock on April 13,
2012, the date the agreement was effective, a total of $2,980,000. Taking into consideration the rights and preferences accruing
to the preferred stock issued, as summarized above, the Company has classified both Series A and B preferred stock as mezzanine
securities on the accompanying consolidated balance sheet at June 30, 2012 and accordingly has recorded such stock at their estimated
fair value. That estimated fair value was $9,743,210 for Series A preferred and $1,106,625 for Series B preferred at the date of
issuance, April 13, 2012. During the period April 13 through June 30, 2012, the recorded fair value of Series A and B preferred
shares accreted (increased in calculated present value) by $348,747 and $41,966, respectively, to $10,091,957 and $1,148,591, respectively,
at the latter date. Both Series A and B preferred are being accreted to their face values over a period commencing April 14, 2012
through December 31, 2013. Accrued dividends payable on the preferred shares in the amount of $188,521 have been recorded as of
June 30, 2012. In addition, a $700,000 deferred tax benefit recorded at December 31, 2011 in anticipation that the Company would
recognize a gain from the above transaction during 2012 has been applied in this transaction.



F-14







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



The aggregate amount of
debt, warrant derivative and other related liabilities cancelled in the transaction exceeded the recorded amounts for common stock
and Series A and B preferred stock, and the deferred tax benefit application, in the amount of $7,353,558. Management believes
that, because of the extent and exclusivity of the financing provided by Amegy and Off-Shore to the Company since 2009, the continued
willingness of Amegy to forbear from existing remedies allowed it under its 2007 agreement, while continuing to provide the Company
advances necessary to satisfy funding requirements of the Nicaraguan Concessions, in addition to voting privileges accorded the
Series A preferred stockholders commencing in 2013, the appropriate accounting for this excess is to regard it as an addition to
additional paid-in capital.



Following tabular presentation
summarizes the transaction as recorded by the Company as of April 13, 2012:



|Debt and related liabilities at April 13, 2012:                                                                                                                                                     |  |   |            |  |  |   |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- |  |  | - | ---------- | 
|Note and line of credit borrowing, Amegy Bank                                                                                                                                                       |  | $ | 11,679,322 |  |  |   |            | 
|Subordinated note payable, Off-Shore                                                                                                                                                                |  |   | 1,269,441  |  |  |   |            | 
|Accrued interest and other fees due Amegy                                                                                                                                                           |  |   | 8,201,314  |  |  |   |            | 
|Accrued interest due Off-Shore                                                                                                                                                                      |  |   | 251,238    |  |  |   |            | 
|Derivative liability related to Amegy warrant                                                                                                                                                       |  |   | 482,078    |  |  | $ | 21,883,393 | 
|                                                                                                                                                                                                    |  |   |            |  |  |   |            | 
|Equities issued in exchange for above, at estimated fair value on April 13, 2012:                                                                                                                   |  |   |            |  |  |   |            | 
|Common stock                                                                                                                                                                                        |  |   | 2,980,000  |  |  |   |            | 
|Redeemable, convertible preferred stock, Series A                                                                                                                                                   |  |   | 9,743,210  |  |  |   |            | 
|Redeemable, convertible preferred stock, Series B                                                                                                                                                   |  |   | 1,106,625  |  |  |   | 13,829,835 | 
|                                                                                                                                                                                                    |  |   |            |  |  |   | 8,053,558  | 
|Deferred income tax asset applied in recording transaction                                                                                                                                          |  |   |            |  |  |   | 700,000    | 
|                                                                                                                                                                                                    |  |   |            |  |  |   |            | 
|Excess of debt forgiven by creditors over fair value of common and Series A and B redeemable, convertible preferred stock issued in exchange, recorded as an addition to additional paid-in capital |  |   |            |  |  | $ | 7,353,558  | 



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.



During the six
months ended June 30, 2012, no stock options were granted or forfeited. During the six months ended June 30, 2011 (in February
2011), the Company granted options to purchases 550,000 shares of common stock at $5.25/share, expiring ten years after issuance.



F-15







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



The following table summarizes
stock option activity as of and for the periods ended June 30, 2012 and December 31, 2011:



|                                                 |  | Number
ofOptions |           |  | WeightedAverageExercisePrice PerShare |   |      | WeightedAverageRemainingContractualTerm |  |  | Aggregate
Intrinsic
Value | 
|------------------------------------------------ |  | ---------------- | --------- |  | ------------------------------------- | - | ---- | --------------------------------------- |  |  | ------------------------- | 
|Outstanding and exercisable at January 1, 2011   |  |                  | 903,500   |  |                                       | $ | 2.92 |                                         |  |  | 5.8 years                 | 
|Granted in February 2011                         |  |                  | 550,000   |  |                                       | $ | 5.25 |                                         |  |  |                           | 
|Granted in August 2011                           |  |                  | 600,000   |  |                                       | $ | 7.50 |                                         |  |  |                           | 
|Outstanding and exercisable at December 31, 2011 |  |                  | 2,053,500 |  |                                       | $ | 4.88 |                                         |  |  | 7.3 years                 | 
|Granted in 2012                                  |  |                  | -         |  |                                       |   |      |                                         |  |  |                           | 
|Outstanding and exercisable at June 30, 2012     |  |                  | 2,053,500 |  |                                       | $ | 4.88 |                                         |  |  | 6.8 years                 | 



The Company recognized
expense in connection with options granted of $0 and $152,353 during the six months ended June 30, 2012 and 2011, respectively,
and no such expense was recognized in either of the quarters ended June 30, 2012 or 2011. The weighted average grant date fair
value of the February 2011 options granted was $0.28. There was no unrecognized compensation cost as of June 30, 2012 or December
31, 2011 related to unvested stock and stock options, as all options granted vested immediately and are currently exercisable.



Note 5 — Derivative Instruments and
Warrants



Commodity Derivatives



As of June 30, 2012 and
December 31, 2011, the Company had no oil and natural gas derivative arrangements outstanding.



Derivatives –
Amegy Fifth Forbearance Warrant



On February 16,
2011, in connection with the signing of the Fifth Forbearance Agreement (see Note 2) the Company granted Amegy the Amegy Warrant
exercisable to purchase 931,561 shares of the Company’s common stock at an exercise price of $5.01 per share during a ten-year
period following the issuance of the Warrant. The Amegy Warrant was cancelled under the agreements between the Company and Amegy
dated February 28, 2012 (effective April 13, 2012). See Note 3.



The Amegy
Warrant was subject to a registration rights agreement under which the Company has 120 days after the notification by Amegy
to have such underlying shares registered. The Amegy Warrant was cancelled under the agreements between the Company and Amegy
dated February 28, 2012 (effective April 13, 2012). See Notes 2 and 3.



In addition, the Amegy
Warrant contained provisions upon which Amegy had the right, upon certain conditions, to put the Warrant to the Company at fair
value. It also contained a provision under which the $5.01 per share exercise price is to be re-priced upon the issuance by the
Company of equity instruments at a price less than $5.01. Further, the Company was required, during the period the Warrant could
be exercised, to have authorized and reserved 110% of the number of shares of common stock required for the exercise of the shares
to be issued under the Amegy Warrant. As a result of Amegy’s conditional ability to put the Warrant back to the Company,
it has classified the estimated fair of the Amegy Warrant (derivative liability) as a noncurrent liability in the accompanying
consolidated balance sheet as of December 31, 2011. Prospective changes in the fair value of the Amegy Warrant were recorded in
the consolidated statement of operations until it was cancelled. During the six months ended June 30, 2012 the Company
recorded an income item of $118,685 representing the net decrease in fair value of the Amegy Warrant for the period, but no amount
was recorded as income or expense during the quarter ended that same date. For the six months ended June 30, 2011 the Company recorded
income of $37,833 representing the net decrease in fair value of the Amegy Warrant for the period from its issuance to June 30,
2011, and during the quarter then ended, the Company recorded $760,048 representing the decrease in fair value of the Amegy Warrant
for the period April 1, 2011 through June 30, 2011.





F-16







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



Note 6 —
Commitments and Contingencies



The Company has
no insurance coverage on its U.S domestic oil and gas properties. 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. The ultimate resolution of these compliance issues could have a significant
adverse impact on the Company’s financial statements.



Nicaraguan Concessions



The significant
terms and work commitments associated with the Nicaraguan Concessions by area (Perlas and Tyra blocks) are summarized below. Within
15 days of entering an exploration sub-period, the Company is required to provide an irrevocable guarantee (“Irrevocable
Guarantee”) in favor of the Nicaraguan Ministry of Energy, payable in Nicaragua, in an amount equal to the estimated cost
of such exploration sub-period, subject to an accumulated credit carry forward for the excess of work performed in the preceding
exploration sub-period, as provided in the agreements relating to the Nicaraguan Concessions.



As of December
31, 2011 and September 14, 2012, the Company is in Sub-Period 1 for both Perlas and Tyra. The Company has provided Environmental
Impact Studies to the Nicaraguan Ministry of Energy effective April 2011 and is awaiting approval of these studies before proceeding
to Sub-Period 2. In accordance with the concession agreements, the Company has provided the Ministry of Energy with the required
letters of credit in the amounts of $443,100 for Perlas (expiring March 2013) and $408,450 for Tyra (expiring September 2012).
The Company has also made all required expenditures related to the concessions for training programs and as “area fees,”
for 2011, 2010 and, in early 2012, for that year. The Company considers it is fully in compliance with the terms of the Nicaraguan
Concession agreements.



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                                                  | 



F-17







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



Minimum Work Program - Tyra



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



Contractual and Fiscal Terms



|Training Program      |  | US $50,000 per year, per block                        
|--------------------- |  | ------------------------------------------------------
|Area Fee              |  | Yr 1-3 
Yr 4-7 
Yr 8 fwd                              
|Royalties             |  | Recovery
Factor0 – 1.5
1.5 – 3.0
>3.0                 
|Natural Gas Royalties |  | Market value at production                            
|Corporate Tax         |  | Rate no higher than 30%                               
|Social Contribution   |  | 3% of the net profit (1.5% for each autonomous region)
|Investment Protection |  | ICSID arbitration 
OPIC insurance                     





The minimum
cash commitment budgeted for the Nicaraguan Concessions for 2012 is approximately $1,590,300, of which approximately $298,967
has been incurred and paid through September 24, 2012. See Note 1 for discussion of Going Concern.

Delivery Commitments



In June 2005, the
Company entered into a long-term gas gathering contract for natural gas production from the Company’s properties in Erath
County, Texas, under which the Company was to pay a gathering fee of $0.35 per Mcf gathered. The contract contains minimum
delivery volume commitments through December 31, 2011 associated with firm transportation rights. The aggregate amount owing
related to the shortfalls, $2,845,458 (which had been entirely accrued prior to 2011), was included within current liabilities
in the accompanying consolidated balance sheets at June 30, 2012 and December 31, 2011.



Revenue Sharing
Commitments



On March 23, 2009, the
Company entered into a Securities Purchase Agreement, dated effective as ofMarch 23, 2009, with
Off-Shore,an accredited investor, to issue a subordinated secured 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. As of December
31, 2009, Off-Shore had funded $1,275,000 (the “Funding Amount”).



F-18







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



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 shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale
to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The
RSP shall be paid 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.
At any time within three (3) years from the date of the Revenue Agreement, Infinity has the right to
redeem the RSP by paying Off-Shore an amount as follows: (i) until March 22, 2010, a sum equal to three (3) times the Funding Amount,
or $3,825,000; (ii) until March 22, 2011, a sum equal to five (5) times the Funding Amount, $6,375,000; or (iii) until March 22,
2012, a sum equal to ten (10) times the Funding Amount, or $12,750,000. Upon the redemption of the RSP by Infinity, the Revenue
Agreement shall terminate. As of March 23, 2012, the Company had not exercised its right to redeem and such redemption right expired.



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



The Company intends to
seek joint venture or working interest partners (the “Farmout”) prior to the commencement of any exploratory drilling
operations on these 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 (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 shall bear
its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including
its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid 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.



On September 8, 2009 the
Company entered into a Revenue Sharing Agreement with Thompson Knight Global Energy Services (“Thompson Knight”) 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 Thompson Knight 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 shall bear its proportionate share
of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production,
severance and similar taxes, and certain additional costs. The RSP shall be paid to Thompson Knight 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 Thompson Knight.



Lack of Compliance
with Law Regarding Domestic Properties



Infinity is not in compliance
with existing federal, state and local laws, rules and regulations for its domestic properties and this could have a material or
significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of Infinity. For the year
ended December 31, 2008 the remaining values of Infinity-Texas and Infinity-Wyoming were written down to zero as the Company focused
solely on the development of the Nicaraguan Concessions. Management believes the estimate of the Company’s asset retirement
obligations consisting of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration
on oil and gas properties is sufficient to cover any noncompliance liabilities. The Company no longer carries insurance on the
domestic properties.



F-19







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



Contingent Fees



In addition to the Revenue
Sharing Agreement with Thompson Knight to assist the Company with its technical studies of gas and oil holdings in Nicaragua and
managing and assisting in the Farmout, the Company agreed to compensate Thompson Knight a success fee of 5% of the upfront cash
fee paid to Infinity by a third party earning an interest in the Nicaragua asset up to $20 million and 10% of any amount exceeding
the $20 million. A 2% success fee would be paid to Thompson Knight of the remaining cash investment in subsequent years. At such
time the Company enters into an agreement with a partner on the Nicaragua Concession and the Company receives and collects up to
$20,000,000 in upfront fees, Messrs. Ross and Hutchins shall receive a bonus of 5% of the first $20,000,000 and 10% of any amount
over $20,000,000, which amount is to be divided 50% to each officer. As of June 30, 2012 and December 31, 2011, no amounts had
been accrued under these contingent fee arrangements.



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 balance sheets.



The Company is currently
involved in the following material litigation:



(i) Exterran Energy Solutions, L.P.,
f/k/a Hanover Compression Limited Partnership, filed an action in the District Court of Erath County, Texas, number CV30512, on
March 31, 2010 against Infinity Oil and Gas of Texas, Inc., Infinity Energy Resources, Inc., Longhorn Properties, LLC, and Forest
Oil Corporation. Exterran Energy Solutions, L.P. provided certain gas compressor and related equipment pursuant to a Gas Compressor/Production
Equipment Master Rental & Servicing Agreement with Infinity dated January 3, 2005 in Erath County, Texas and is claiming breach
of contract for failure to pay amounts due.



(ii) LDH Gas Development, L.P. filed
an action in the District Court of Harris County, Texas, number 201030709, on May 14, 2010 against Infinity Oil and Gas of Texas,
Inc. In May 2005 LDH Gas Development, L.P. entered into a Gas Purchase Agreement with Infinity Oil and Gas of Texas, Inc.
In the agreement, LDH agreed to purchase specified quantities of gas from leasehold interests held by Infinity that are located
close to LDH’s Gathering System, and is claiming breach of gas purchase agreement for failure to meet minimum quantities
of gas.



The Company has included
the impacts of the foregoing litigation as liabilities in its accounts payable and accrued liabilities because it does not dispute
the amounts owed. In 2009 the Company recorded the amounts claimed in the foregoing lawsuits, which are $445,521 in the Exterran
Energy Solutions action and $929,208 in the LDH Gas Development action. In 2010 it recorded $1,916,250 in the LDH Gas Development
action. The aggregate amount owing LDH related to the shortfalls, $2,845,458 was included within current liabilities in the accompanying
consolidated balance sheets at June 30, 2012 and December 31, 2011. The Company will seek to settle the lawsuits when it has the
financial resources to do so. Both suits are in the discovery stage.



Note 7 — Related Party Transactions



The corporate office was
located in Denver, Colorado until November 2008 when the Denver office was closed. The corporate office moved to the business office
of the CFO of the Company. The Company currently does not have any employees and the staff of the CFO provides the office services.
These services are billed at the CFO firm’s standard billing rate plus out-of-pocket expenses. For the quarters ended June
30, 2012 and 2011, the Company was billed $56,868 and $54,897, respectively, and for the six months ended June 30, 2012 and 2011,
the Company was billed $143,583 and $111,235, respectively. The amount due to the CFO’s firm for services provided was $648,468
at June 30, 2012 and $514,885 at December 31, 2011.



F-20







INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements

(Unaudited)



The Company entered into
a subordinated loan with Off-Shore in the aggregate amount of $1,275,000 for funds for the Nicaraguan Concessions. This note was
satisfied by the Company’s issuance of shares of Series B redeemable convertible preferred stock effective April 13, 2012
to Off-Shore (see Note 3). The managing partner of Off-Shore and the CFO are business partners in the firm which the Company uses
for its corporate office. The Series B preferred stock continues to be held by Off-Shore.



While the relationship
with Amegy Bank was ongoing and debt was outstanding (through April 13, 2012), the Company’s CEO personally guaranteed up
to $500,000 of the Forbearance advances. His guarantee obligation was never called upon and he was not compensated by the Company
for such guarantee.



As of June 30, 2012 and
December 31, 2011, the Company had accrued compensation to its officers and directors of $862,708 and $744,708, respectively.



Note 8 — Subsequent Events



Sale of Stock
of Infinity Oil and Gas of Texas



Effective July
31, 2012, the Company sold its 100% interest in its consolidated subsidiary, Infinity Oil and Gas of Texas (IOG-Texas). The Company
will record this transaction in the third quarter of 2012.



Funds Advanced
by Third Party

On August 28, 2012,
the Company borrowed $250,000 from an unrelated third party entity. The Company issued a short-term note to such party. The
note bears an annual interest rate of 8%, and matures February 28, 2013. The Company also issued the creditor a warrant
exercisable to purchase 120,000 shares of the Company’s common stock at a price of $2.50 per share, and expiring in
August 2017. The warrant contains a penalty provision to the effect that, should the note not be paid at maturity date, the
exercise price per share will be reduced to $0.10 and the number of shares that may be purchased under the warrant shall
increase to 1,200,000. The transaction recording this borrowing and warrant provision will be recorded in the third
quarter.



F-21







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



The following information
should be read in conjunction with the Unaudited Consolidated Financial Statements and Notes presented elsewhere in this Quarterly
Report on Form 10-Q. Infinity follows the full-cost method of accounting for oil and gas properties. See “Summary of Significant
Accounting Policies,” included in Note 1 to the Consolidated Financial Statements for the Six Months Ended June 30,
2012 and the Year Ended December 31, 2011.



Infinity Energy Resources,
Inc. and its subsidiaries, (collectively, “Infinity,” "Company," “we,” “us” and “our”)
are engaged in the acquisition and exploration of oil and gas properties offshore Nicaragua in the Caribbean Sea.



On March 5, 2009 Infinity
signed the contracts relating to its Nicaraguan Concessions. Infinity has submitted an environmental study and the development
of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the Nicaraguan
Concessions located offshore. Infinity is currently seeking offers from other industry operators for interests in the acreage in
exchange for cash and a carried interest in exploration and development operations. The funds raised through the subordinated note
transaction and Forbearance advances from the bank were used to fund these expenses. No assurance can be given that these funds
will be sufficient to cover the exploration and development cost until a partner is found.



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.



FORWARD-LOOKING STATEMENTS



This Report on Form 10-Q
for the six months ended June 30, 2012, 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. 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 in Item 1A of our Registration Statement on Form 10 filed on May 13, 2011, as amended on July 1, 2011.



Factors that could cause
or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected
include, but are not limited to: (i) we have a history of losses and are experiencing substantial liquidity problems; (ii) we
have been unable to satisfy most of our current liabilities; (iii) we require working capital for our operations for the next
12 months and capital to continue our exploration and development efforts on the Nicaraguan Concessions and there can be no assurances
we will be able to obtain it or do so on terms favorable to us; (iv) we and our independent registered public accounting firm
have concluded that there exists substantial doubt about our ability to continue as a going concern; (v) our Nicaraguan Concessions
and planned future exploration activities are in a country with a developing economy and are subject to the risks of political
and economic instability associated with such economies; (vi) exploration and development of our Nicaraguan Concessions will require
large amounts of capital or a commercial relationship with an industry operator which we may not be able to obtain; (vii) we may
not have sufficient resources to conduct 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; (xiv) the oil and gas industry is highly competitive; (xv) exploratory drilling is an uncertain
process with many risks; (xvi) oil and gas prices are volatile, and declines in prices would hurt our revenues and ability to
achieve profitable operations; (xvii) our common stock is traded on the Over the Counter QB Tier Market (OTCQB); (xviii) we depend
on key personnel; (xix) sufficient voting power by coalitions of a few of our larger stockholders to make corporate governance
decisions that could have significant





3







effect on us and the other stockholders; (xx) 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; (xxi) our issuance of common
and Series A redeemable convertible preferred stock to Amegy and Series B redeemable convertible preferred stock to Off-Shore
diluted the ownership interests of our existing stockholders and the possible issuance of additional common stock subject to options
and warrants that may dilute the interest of stockholders; (xxii) our ability to comply with Sarbanes-Oxley Act of 2002 Section
404; (xxiii) our nonpayment of dividends and lack of plans to pay dividends in the future; (xxiv) future sale 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; (xxv) our additional securities available for issuance, which, if issued, could adversely affect
the rights of the holders of our common stock; (xxvi) our stock price is likely to be highly volatile due to a number of factors,
including a relatively limited public float; and (xxvii) indemnification of our officers and directors.



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 Form 10-Q to be accurate as of the date hereof. Changes may occur after that date, and we will
not update that information except as required by law in the normal course of our public disclosure practices.



2012 Operational and Financial Objectives



Corporate Activities



On April 14, 2011,
we announced that we had completed and filed with the Nicaraguan government the Environmental Impact Assessment (“EIA”)
covering proposed seismic activities on the 1.4 million-acres in our Nicaraguan Concessions. The filing of the EIA will be followed
by a “comment period” during which there will be interaction among Infinity; the Ministerio
del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua
that are nearest the Nicaraguan Concessions. During this process, we will continue to maintain our relationship with the autonomous
regions. After the EIA has been formally approved, Infinity expects to be cleared to commence 3-D seismic mapping activities in
the area, although no assurances can be offered in this regard.



Subject
to obtaining sufficient capital, we plan to commence our seismic mapping activities. The 3-D seismic program will seek to further
evaluate the structures that were previously identified with 2-D seismic in the Eocene Zone. Our geological consultants have estimated
that these Eocene structures may contain recoverable oil in place. In addition, 3-D seismic should provide our first look at the
potential for oil resources in the Cretaceous Zone, which we could not evaluate using less precise 2-D seismic mapping.

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, net proceeds
from the sales of assets.

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 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.
|- |  | ---------------------------------------------------------------------------------------------------------------------



Results of operations for the six months
ended June 30, 2012 compared to the six months ended June 30, 2011



Infinity incurred a net
loss applicable to common shareholders of $1,252,911, or $0.06 per diluted share, for the six months ended June 30, 2012 compared
to a net loss of $2,050,620, or $0.11 per diluted share, for the six months ended June 30, 2011.In 2012, the Company's
Series A and Series B redeemable convertible preferred stock was outstanding from April 13 until June 30. The 6% cumulative dividend
accrued relative to the period, as well as the accretion in the value ascribed to the preferred shares between those dates (which
represent value attributable to holders of the preferred rather than common shares) increase the Company's net loss of $765,081
to arrive at net loss applicable to common shareholders in the determination of basic and diluted net loss per share.



4







Revenue



The Company had
no revenues in either the six months ending June 30, 2012 or 2011. The Company focused solely on the exploration, development and
financing of the Nicaraguan Concessions.



General and Administrative Expenses



General and administrative
expenses in the six months ended June 30, 2012 were $79,971 less than for the six months ended June 30, 2011. This decrease was
attributable to the decrease in officer compensation expense of $138,504 due to the cost of stock options granted in 2011, with
no such options granted in 2012, offset by increases in legal and professional expenses in the 2012 period over 2011 of approximately
$74,000.



Other income (expense)



Interest expense net of
amounts capitalized to oil and gas properties decreased from $1,514,623 for the six months ended June 30, 2011 to $383,994 for
the six months ended June 30, 2012. This significant decrease was entirely attributable to the fact that all debt due Amegy and
Off-Shore outstanding for the entire period in 2011 was satisfied effective April 13, 2012 by the issuance of common and Series
A and B redeemable convertible preferred stock (see Note 3). Also, the 2011 period reflected the accrual of forbearance fees due
Amegy for the entire period and the accrual of such fees ceased effective December 31, 2011. No forbearance fees were reflected
within the comparative 2012 period.



The fair value of the
Company’s derivative liability, related to the Amegy Warrant (cancelled effective April 13, 2012 -- see Note 3), decreased
in the six months ended June 30, 2012, resulting in an other income item in the amount of $118,685. During the same period in 2011
the fair value of the derivative liability decreased by a lesser amount, $37,833. The derivative value, which is required to be
presented in accordance with generally accepted accounting principles, primarily reflects the liability associated with remaining
life of the Amegy Warrant with changes in fair value being principally impacted by the volatility of the Company’s stock
price.



Income Tax



Infinity reflected no
net tax benefit or expense in the six month periods ended June 30 in either 2012 or 2011. The net operating losses generated in
those periods increased Infinity’s gross deferred tax asset related to future ability to utilize net operating losses to
reduce future income tax outlays. For the most part, due to uncertainty as to the ultimate ability of the Company to utilize its
net deferred tax asset, the Company has recognized no net deferred tax benefit, and has, as a result, offset its gross deferred
tax benefit with a 100% valuation allowance. A deferred tax benefit (asset) had been created at December 31, 2011 in anticipation
of the recognition of a taxable gain from the exchange of common and preferred shares for all outstanding Amegy and Off-Shore debt
and accrued related interest and other fees, as well as the Amegy warrant (Note 3). The Company determined in the six months ended
June 30, 2012, when the exchange occurred, that no gain recognition would be appropriate, and the deferred tax asset was applied
against additional paid-in capital recognized as the result of the exchange.



Results of operations for the three months
ended June 30, 2012 compared to the three months ended June 30, 2011



Infinity incurred a net
loss applicable to common shareholders of $792,178, or $0.04 per diluted share, for the three months ended June 30, 2012 compared
to a net loss of $248,044, or $0.01 per diluted share, for the three months ended June 30, 2011.In 2012, the Company's
Series A and Series B redeemable convertible preferred stock was outstanding from April 13 until June 30. The 6% cumulative dividend
accrued relative to the period, as well as the accretion in the value ascribed to the preferred shares between those dates (which
represent value attributable to holders of the preferred rather than common shares) increased the Company's actual net loss of
$304,438 to arrive at net loss applicable to common shareholders in the determination of basic and diluted net loss per share.



Revenue



The Company had
no revenues in either the three months ending June 30, 2012 or 2011. The Company focused solely on the exploration, development
and financing of the Nicaraguan Concessions.



5







General and Administrative Expenses



General and administrative
expenses in the three months ended June 30, 2012 were $74,290 more than for the three months ended June 30, 2011. This increase
was almost entirely attributable to increases in legal and professional expenses in the 2012 period over 2011 of nearly $74,000.



Other income (expense)



Interest expense
net of amounts capitalized to oil and gas properties decreased from $808,967 for the three months ended June 30, 2011 to
$27,854 for the three months ended June 30, 2012. This significant decrease is entirely attributable to the fact that all
debt due Amegy and Off-Shore outstanding for the entire period in 2011 was satisfied effective April 13, 2012 by the issuance
of common stock and Series A and Series B redeemable convertible preferred stock (see Note 3). The interest expensed in the
three months ended June 30, 2012 related to a note and open account due certain vendors.



The fair value of the
Company’s derivative liability, related to the Amegy Warrant (cancelled effective April 13, 2012 -- see Note 3), fluctuated
significantly during the first six months of 2011 and decreased in value by some $760,000, presented as other income, in the three
months ended June 30, 2011. The derivative liability was cancelled in the transactions recorded April 13, 2012 and no change in
the value of the liability from April 1 to April 13, 2012 was recorded. The derivative value, which is required to be presented
in accordance with generally accepted accounting principles, primarily reflects the liability associated with remaining life of
the warrants with changes in fair value being principally impacted by the volatility of the Company’s stock price.



Income Tax



Infinity reflected no
net tax benefit or expense in the three month periods ended June 30 in either 2012 or 2011. The net operating losses generated
in those periods increased Infinity’s gross deferred tax asset related to future ability to utilize net operating losses
to reduce future income tax outlays. For the most part, due to uncertainty as to the ultimate ability of the Company to utilize
its net deferred tax asset, the Company recognized no net deferred tax benefit, and, as a result, offset its gross deferred tax
benefit with a 100% valuation allowance. A deferred tax benefit (asset) had been created at December 31, 2011 in anticipation of
the recognition of a taxable gain from the exchange of common and preferred shares for all outstanding Amegy and Off-Shore debt
and accrued related interest and other fees, as well as the Amegy Warrant (Note 3). The Company determined in the three months
ended June 30, 2012, when the exchange occurred, that no gain recognition would be appropriate, and the deferred tax asset was
applied against additional paid-in capital recognized as the result of the exchange.



Liquidity and Capital Resources; Going Concern



We have had a history
of losses. In addition, we have a significant working capital deficit and are currently experiencing substantial liquidity issues.
As also discussed in Note 2 of the Financial Statements, as of December 31, 2011 we were operating under the Fifth Forbearance
Agreement with Amegy under the Revolving Credit Facility. We had entered into the Fifth Forbearance under the Revolving Credit
Facility as a result of our failure to meet substantially all financial and certain other covenants during 2007, 2008, 2009 and
2010. Under this Agreement, Amegy agreed to forebear from exercising any remedies under the Revolving Credit Facility, the revolving
note and the related loan documents and to temporarily waive the covered events of default through December 31, 2011.



We continued to
operate under the Fifth Forbearance Agreement through February 28, 2012, when definitive agreements with Amegy and Off-Shore relating
to outstanding debt and other obligations we owed to them were signed. Effective April 13, 2012, the transactions contemplated
under these agreements closed and the Company exchanged common stock and Series A and Series B redeemable convertible preferred
stock shares in satisfaction of all the outstanding Amegy and Off-Shore debt, related accrued interest and other fees, and the
Amegy Warrant. At December 31, 2011 the entirety of the debt and related accruals was classified as current liability on the accompanying
consolidated balance sheet and the derivative liability related to the Amegy Warrant was classified as a long-term liability; these
balances were no longer outstanding at June 30, 2012.



We estimate that
we will require approximately $2,800,000 in working capital for the next 12 months, but not including annual salaries of $200,000
to our officers, which we will continue to defer if we do not have sufficient capital, and not including obligations that we owe
to third parties. The foregoing includes $1,590,300 for expenditures projected to be required under the Nicaraguan Concessions,
which would occur after our receipt of approved EIA and other approvals. We can offer no assurances regarding the receipt of such
approvals or, if received, their timing.





6







We conducted an
environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic
data acquired over our Nicaraguan Concessions. We issued letters of credit totaling $851,550 and entered into a subordinated loan
with Off-Shore, in an aggregate amount of $1,275,000, which was released as the Company needed funds for the initial work on the
Nicaraguan Concessions. We commenced significant activity under the initial work plan and are waiting for governmental approval
of the environmental study.



We plan to raise
capital to satisfy the foregoing needs through an offering of our equity or debt securities and/or through a commercial relationship
with other industry operators, which may involve the granting of revenue or other interests in the Nicaraguan Concessions in exchange
for cash and a carried interest in exploration and development operations or the creation of a joint venture or other strategic
partnership. There can be no assurance that we will obtain such funding or obtain it on terms acceptable to us. Further, if we
cannot meet our obligations respecting the Nicaraguan Concessions, we will lose our rights to them.



Due to the uncertainties
related to these matters, there exists substantial doubt about our 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 we be unable to continue as a going concern.



Critical Accounting Policies and
Estimates



The discussion
and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States of America. We believe certain critical
accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Our significant accounting policies are summarized in the notes to our consolidated financial statements included in Item 1, “Financial
Statements”, of this quarterly report.



The application of our
accounting policies regarding income taxes and full cost accounting for oil and gas properties and the sale of oil and gas properties
are critical to two accounting estimates made in 2011.



As noted above, the Company
reflected a $700,000 deferred income tax benefit for the year ended December 31, 2011 in conformity with the Company’s policy
for accounting for income taxes. The deferred tax benefit recorded in 2011 reflected anticipated 2012 net earnings as the result
of recording of the effects of the agreements signed in February 2012 (effective April 13, 2012) with Amegy and Off-Shore (see
Note 3), net of projected 2012 operating expenses, which at the time were interpreted as an estimate that it was more likely than
not that the Company would utilize a portion of its deferred tax asset in 2012. When the transactions recording the aforementioned
were re-evaluated and recorded in the six months ended June 30, 2012, it was determined that the recognition of a gain on the exchange
of common and preferred shares for the debt and related accruals would not be appropriate. Thus, the deferred tax benefit recognized
and reflected in 2011 was applied as a reduction in the amount of additional paid-in capital recorded in the exchange transaction.
The remainder of the deferred tax asset at December 31, 2011 and all such deferred tax asset at June 30, 2012 has been reduced
to $0 by valuation allowances.



Also, as noted above,
in 2011 the Company sold its oil and gas properties in Texas, the cost associated with which were entirely written off in prior
periods, in return for a non-interest-bearing note with repayment conditional upon net profit from sales of oil and gas from the
properties. Due to the uncertainty of when and in what amount payments on the note will be received, the Company has recorded the
note net of a 100% valuation reserve and has recognized no gain or loss on this transaction. Any related gains will be recognized
when and if payments are received. The treatment of this Texas sale transaction conforms to the Company’s policy regarding
sale of oil and gas properties.



At June 30, 2012, and
as of December 31, 2011, there have been no material changes or updates to our critical accounting policies.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK



(Not Applicable)



7







ITEM 4. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



Our Chief Executive Officer,
Stanton Ross and Chief Financial Officer, Daniel F. Hutchins evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based on the evaluation,
Messrs. Ross and Hutchins have concluded that the Company’s disclosure controls and procedures are effective in timely 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



ITEM 1. LEGAL PROCEEDINGS



There were no material
developments in the material litigation in which the Company is currently involved as set forth in our Registration Statement on
Form 10 filed on May 13, 2011 and Amendment No.1 filed on July 1, 2011.



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



None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. MINE SAFETY DISCLOSURES



None.



ITEM 5. OTHER INFORMATION



None.



ITEM 6. EXHIBITS



| | (c) | Exhibits.
| | --- | ---------



|31.1 |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                
|31.2 |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         
|     |  |                                                                                                                                                
|32   |  | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act)





8







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                      |  |                   
|Stanton E. Ross         |  | (Principal Executive Officer)                |  | September 27, 2012
|                        |  |                                              |  |                   
|/s/ Daniel F. Hutchins  |  | Chief Financial Officer                      |  |                   
|Daniel F. Hutchins      |  | (Principal Financial and Accounting Officer) |  | September 27, 2012



9







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)



10