##### Table of Contents



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




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##### 



TABLE OF CONTENTS
 PART I Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statement of Changes in Stockholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    21PART II Other InformationItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibits
    
    
    23EX-31.1EX-31.2EX-32
  2




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    476
    
    
    $
    741Accounts receivable
    
    
    854
    
    
    
    1,164Prepaid expenses and other
    
    
    350
    
    
    
    104Prepaid severance taxes
    
    
    
    
    
    
    675Total current assets
    
    
    1,680
    
    
    
    2,684Oil and gas properties, using full cost accounting,
net of accumulated depreciation, depletion,
amortization and ceiling write-down:Proved
    
    
    3,483
    
    
    
    21,429Unproved
    
    
    11,667
    
    
    
    17,097Other assets, net
    
    
    235
    
    
    
    1,090Total assets
    
    $
    17,065
    
    
    $
    42,300LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of debt
    
    $
    9,910
    
    
    $
    22,000Accounts payable
    
    
    1,226
    
    
    
    5,472Accrued liabilities
    
    
    3,203
    
    
    
    4,973Current portion of asset retirement obligations
    
    
    432
    
    
    
    423Total current liabilities
    
    
    14,771
    
    
    
    32,868Long-term liabilities:Production taxes payable and other liabilities
    
    
    125
    
    
    
    426Asset retirement obligations, less current portion
    
    
    524
    
    
    
    1,087Derivative liabilities
    
    
    292
    
    
    
    194Total liabilities
    
    
    15,712
    
    
    
    34,575Commitments and contingenciesStockholders equity:Preferred stock, par value $.0001 per share;
10,000,000 authorized shares, no shares issued
and outstanding
    
    
    
    
    
    
    Common stock, par value $.0001 per share;
75,000,000 authorized shares, 17,869,375 (2008)
and 17,871,157 (2007) shares issued and
outstanding
    
    
    2
    
    
    
    2Additional paid-in-capital
    
    
    79,716
    
    
    
    79,371Accumulated deficit
    
    
    (78,365
    )
    
    
    (71,648
    )Total stockholders equity
    
    
    1,353
    
    
    
    7,725Total liabilities and stockholders equity
    
    $
    17,065
    
    
    $
    42,300
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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenueOil and gas sales
    
    $
    1,062
    
    
    $
    2,460
    
    
    $
    3,548
    
    
    $
    7,092Operating expensesOil and gas production expenses
    
    
    772
    
    
    
    1,162
    
    
    
    2,174
    
    
    
    4,482Oil and gas production taxes
    
    
    48
    
    
    
    179
    
    
    
    116
    
    
    
    480General and administrative expenses
    
    
    484
    
    
    
    965
    
    
    
    2,093
    
    
    
    2,682Depreciation, depletion, amortization and accretion
    
    
    359
    
    
    
    1,228
    
    
    
    1,136
    
    
    
    4,232Ceiling write-down of oil and gas properties
    
    
    3,500
    
    
    
    
    
    
    
    3,500
    
    
    
    15,750Total operating expenses
    
    
    5,163
    
    
    
    3,534
    
    
    
    9,019
    
    
    
    27,626Operating loss
    
    
    (4,101
    )
    
    
    (1,074
    )
    
    
    (5,471
    )
    
    
    (20,534
    )Other income (expense)Interest expense, net of capitalization
    
    
    (366
    )
    
    
    (641
    )
    
    
    (1,142
    )
    
    
    (641
    )Change in derivative fair value
    
    
    (173
    )
    
    
    4,842
    
    
    
    (207
    )
    
    
    4,491Other
    
    
    
    
    
    
    (3
    )
    
    
    103
    
    
    
    (31
    )Total other income (expense)
    
    
    (539
    )
    
    
    4,198
    
    
    
    (1,246
    )
    
    
    3,819Net income (loss) from continuing operations
    
    
    (4,640
    )
    
    
    3,124
    
    
    
    (6,717
    )
    
    
    (16,715
    )Income from discontinued operations
    
    
    
    
    
    
    99
    
    
    
    
    
    
    
    99Net income (loss)
    
    $
    (4,640
    )
    
    $
    3,223
    
    
    $
    (6,717
    )
    
    $
    (16,616
    )Basic and diluted net income (loss) per share:Net income (loss) from continuing operations
    
    $
    (0.26
    )
    
    $
    0.18
    
    
    $
    (0.38
    )
    
    $
    (0.93
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (0.26
    )
    
    $
    0.18
    
    
    $
    (0.38
    )
    
    $
    (0.93
    )Weighted average shares outstanding:Basic and diluted
    
    
    17,869
    
    
    
    17,871
    
    
    
    17,869
    
    
    
    17,871
  4




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (UNAUDITED)
  AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalance, December 31, 2007
    
    
    17,871,157
    
    
    $
    2
    
    
    $
    79,371
    
    
    $
    (71,648
    )
    
    $
    
    
    
    $
    7,725Forfeiture of common stock
    
    
    (1,782
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    345Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,717
    )
    
    
    (6,717
    )
    
    
    (6,717
    )Reclassifications
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6,717
    )Balance, September 30, 2008
    
    
    17,869,375
    
    
    $
    2
    
    
    $
    79,716
    
    
    $
    (78,365
    )
    
    $
    
    
    
    $
    1,353
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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  For the Nine MonthsEnded September 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (6,717
    )
    
    $
    (16,616
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation, depletion, amortization and accretion
    
    
    1,136
    
    
    
    4,232Ceiling write-down of oil and gas properties
    
    
    3,500
    
    
    
    15,750Non-cash stock-based compensation expense
    
    
    345
    
    
    
    875Amortization of loan discount and costs
    
    
    
    
    
    
    174Change in fair value of derivative instruments
    
    
    98
    
    
    
    (5,309
    )Unrealized loss on commodity derivative instruments
    
    
    
    
    
    
    1,165Gain on sales of assets
    
    
    (17
    )
    
    
    Change in operating assets and liabilities:Decrease in accounts receivable
    
    
    310
    
    
    
    (173
    )(Increase) decrease in prepaid expenses and other
    
    
    400
    
    
    
    (170
    )Decrease in accounts payable and accrued liabilities
    
    
    (2,337
    )
    
    
    (4,925
    )Net cash used in operating activities
    
    
    (3,282
    )
    
    
    (4,997
    )Cash flows from investing activities:Capital expenditures  exploration and production
    
    
    (3,422
    )
    
    
    (16,720
    )Decrease in other assets
    
    
    852
    
    
    
    Proceeds from sale of oil and gas properties
    
    
    17,677
    
    
    
    Net cash provided by (used in) investing activities
    
    
    15,107
    
    
    
    (16,720
    )Cash flows from financing activities:(Repayment of) proceeds from borrowings on debt
    
    
    (12,090
    )
    
    
    22,000Debt issuance costs
    
    
    
    
    
    
    (865
    )Repayment of notes payable
    
    
    
    
    
    
    (38
    )Net cash (used in) provided by financing activities
    
    
    (12,090
    )
    
    
    21,097Net decrease in cash and cash equivalents
    
    
    (265
    )
    
    
    (620
    )Cash and cash equivalents, beginning of period
    
    
    741
    
    
    
    872Cash and cash equivalents, end of period
    
    $
    476
    
    
    $
    252
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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
 Nature of Operations
  Basis of Presentation
    Liquidity; Going Concern
    7




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Management Estimates
  Oil and Gas Properties
       8




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As ofSeptember 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Proved oil and gas properties
    
    $
    90,134
    
    
    $
    131,532Unproved oil and gas properties
    
    
    11,667
    
    
    
    17,097Total
    
    
    101,801
    
    
    
    148,629Less accumulated depreciation, depletion, amortization and ceiling write-downs
    
    
    (86,651
    )
    
    
    (110,103
    )Net capitalized costs
    
    $
    15,150
    
    
    $
    38,526
 Derivative Instruments
 Accounting for Derivative Instruments
and Hedging Activities
   Income Taxes
  Comprehensive Income (Loss)
  Cash and cash equivalents
  Prepaid Severance Taxes
  9




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Asset Retirement Obligations
 Accounting for Asset Retirement Obligations
 2008
    
    
    2007(in thousands)Asset retirement obligations at beginning of period
    
    $
    1,510
    
    
    $
    1,602Accretion expense
    
    
    50
    
    
    
    78Liabilities incurred
    
    
    
    
    
    
    63Liabilities settled
    
    
    
    
    
    
    (385
    )Liabilities settled through sale of assets
    
    
    (604
    )
    
    
    Revisions of estimates
    
    
    
    
    
    
    125Asset retirement obligations at end of period
    
    
    956
    
    
    
    1,483Less: current portion of asset retirement obligations
    
    
    (432
    )
    
    
    (705
    )Asset retirement obligations, less current portion
    
    $
    524
    
    
    $
    778
 Capitalized Interest
  Intangible Assets
  Fair Value of Financial Instruments
    Fair Value Measurements
 10




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Earnings Per Share
  Recent Accounting Pronouncements
 Business Combinations Accounting and Reporting of Noncontrolling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51 Business Combinations
 Disclosure about Derivative instruments and
Hedging Activities  an amendment to FASB Statement No. 133
 Note 2 Debt
  As ofSeptember 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Revolving Credit Facility
    
    $
    9,910
    
    
    $
    22,000Less current portion
    
    
    (9,910
    )
    
    
    (22,000
    )Long-term debt
    
    $
    
    
    
    $
    
 Revolving Credit Facility
   11




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Senior Secured Notes Facility
  12




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Note 3  Stock Options
 Share-Based Payment
 Options Under Employee Option Plans
   Nine Months Ended September 30,2008
    
    2007Expected term (in years)
    
    
    5.5
    
    
    
    5.5 - 10.0Expected stock price volatility
    
    
    140
    %
    
    
    55% - 62
    %Expected dividends
    
    
    
    
    
    
    Risk-free rate
    
    
    3.34
    %
    
    
    4.57% - 4.86
    %
  Weighted Average
    
    
    Aggregate
    
    
    Weighted AverageExercise
    
    
    Intrinsic Value
    
    
    RemainingNumber of Options
    
    
    Price Per Share
    
    
    (in thousands)
    
    
    Contractual TermOutstanding at January 1, 2008
    
    
    1,226,500
    
    
    $
    5.42Granted
    
    
    550,000
    
    
    
    0.38Forfeited or expired
    
    
    (281,500
    )
    
    
    4.82Outstanding at September 30, 2008
    
    
    1,495,000
    
    
    
    3.68
    
    
    $
    
    
    
    8.3 yearsExercisable at September 30, 2008
    
    
    1,495,000
    
    
    
    3.68
    
    
    $
    
    
    
    8.3 years
  13




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Note 4  Derivative Instruments
 Commodity Derivatives
   Other Derivatives
  Note 5  Commitments and Contingencies
 Delivery Commitments
   14




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   FORWARD-LOOKING STATEMENTS
  
    
    Infinitys business strategy and anticipated trends in Infinitys business and its
future results of operations;
    
    Infinitys ability to continue as a going concern;
    
    Infinitys ability to comply with the terms of the Third Forbearance Agreement with
Amegy;
    
    Infinitys ability to repay the significant borrowing base deficiency under the
Revolving Credit Facility;
    
    the requirement and efforts to sell assets of Infinity-Wyoming;
    
    the impact of limitations relating to future general and administrative costs on
future operations;
    
    the impact of cash flows on future operations;
    
    expected cash flow from operations in 2008;
    
    our need for external financing in 2008 and beyond;
    
    our plans with respect to the exploration and development of our offshore Nicaragua
concessions;
    
    our ability to obtain final central government approval for our Nicaragua contract
and concessions;
    
    Infinitys ability to obtain subordinated debt financing and the use of proceeds if
so obtained;
    
    our planned capital expenditures in 2008; and
    
    commencement and progress of exploration, drilling and completion activities.
  
    
    covenants and debt service obligations may adversely affect our cash flow and our
ability to raise capital;
    
    our inability to maintain compliance with the terms of the Third Forbearance
Agreement or to obtain forbearance or waivers in the event that an event of default
occurs;
    
    failure to achieve success under the Farmout Agreement;
    
    fluctuations in oil and natural gas prices and production;
    
    inaccurate estimations of required capital expenditures;
    
    uncertainties inherent in estimating quantities of oil and gas reserves and
projecting future rates of production and timing of development activities;
    
    operating hazards could result in substantial losses against which we not be
adequately insured;
    
    availability of drilling rigs and other support equipment;
    
    the connection of Infinitys wells to third party pipeline systems;
    
    the abandonment of wells and the costs associated therewith;
    
    the availability of financing on acceptable terms;
    
    the impact of governmental regulation;
    
    the timing of engineering and environmental impact studies and permitting;
    
    title to assets and related liens and encumbrances;
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
    
    receipt of sufficient rights-of-way grants and permits to operate our business,
    
    an increase in the cost of oil and gas drilling, completion and production and of
materials, fuel and labor costs;
    
    the availability, conditions and timing of required government approvals and third
party financing;
    
    a decline in demand for Infinitys oil and gas production; and
    
    changes in general economic conditions.
 2008 Operational and Financial Objectives
    
    
    The availability of the capital resources required to fund the activities;
    
    The availability of third party contractors for completion services; and
    
    The approval by regulatory agencies of applications for permits to conduct
exploration activities in a timely manner.
  Overview of Exploration and Production Activity
   16




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For the Three
    
    For the NineMonths Ended
    
    Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Production:Natural gas (MMcf)
    
    
    108.3
    
    
    
    251.0
    
    
    
    335.6
    
    
    
    724.3Crude oil (thousands of barrels)
    
    
    
    
    
    
    14.8
    
    
    
    0.3
    
    
    
    45.3Total (MMcfe)
    
    
    108.3
    
    
    
    339.8
    
    
    
    337.4
    
    
    
    996.1Financial Data (thousands of dollars):Total revenue
    
    $
    1,062
    
    
    $
    2,460
    
    
    $
    3,548
    
    
    $
    7,092Production expenses
    
    
    772
    
    
    
    1,162
    
    
    
    2,174
    
    
    
    4,482Production taxes
    
    
    48
    
    
    
    179
    
    
    
    116
    
    
    
    480Financial Data per Unit ($  per Mcfe):Total revenue
    
    $
    9.81
    
    
    $
    7.24
    
    
    $
    10.52
    
    
    $
    7.12Production expenses
    
    
    7.13
    
    
    
    3.42
    
    
    
    6.44
    
    
    
    4.50Production taxes
    
    
    0.44
    
    
    
    0.53
    
    
    
    0.34
    
    
    
    0.48
  Results of operations for the three months ended September 30, 2008 compared to the three months
ended September 30, 2007
 Net Income (Loss)
  Revenue
  Production expenses and taxes
  General and Administrative Expenses
  Depreciation, Depletion, Amortization and Accretion
  Ceiling Write-Down
  17




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Other Income (Expense)
  Income Tax
  Results of operations for the nine months ended September 30, 2008 compared to the nine months
ended September 30, 2007
 Net Income (Loss)
  Revenue
  Production expenses and taxes
  General and Administrative Expenses
  Depreciation, Depletion, Amortization and Accretion
  Ceiling Write-Down
  Other Income (Expense)
  Income Tax
  18




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Liquidity and Capital Resources
         Off-Balance Sheet Arrangement
  19




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Outlook for 2008
    Critical Accounting Policies and Estimates
  
    
    Reserve estimates,
    
    Unproved properties,
    
    Fair value of derivatives,
    
    Asset retirement obligations,
    
    Valuation of tax asset, and
    
    Oil and gas properties, depreciation and full cost ceiling test.
 Recent Accounting Pronouncements
 Business Combinations Accounting and Reporting of Noncontrolling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51 Business Combinations
 Disclosure about Derivative instruments and
Hedging Activities  an amendment to FASB Statement No. 133
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Commodity Risk
  20




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

Stanton E. Ross
    
    Chief Executive Officer
(Principal Executive Officer)
    
    November 6, 2008/s/ Daniel F. Hutchins

Daniel F. Hutchins
    
    Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    November 6, 2008
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Index of Exhibits
 31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act)
 23