UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

to

FORM 10

Registrant’s telephone number, including area code       (913) 948-9512

Securities to be registered pursuant to Section 12(b) of the Act:               None
Title of each class	Name of each exchange on which
to be so registered	each class is to be registered

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

Common Stock, par value $0.0001

(Title of class)

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 the Exchange Act.

Large accelerated filer  o		Accelerated filer  o
Non-accelerated filer    o	(Do not check if a smaller reporting company)	Smaller reporting company  x

 

TABLE OF CONTENTS

Item 1.	Business	3
Item 1A.	Risk Factors	11
Item 2.	Financial Information	23
Item 3.	Properties	27
Item 4.	Security Ownership of Certain Beneficial Owners and Management	31
Item 5.	Directors and Executive Officers	32
Item 6.	Executive Compensation	33
Item 7.	Certain Relationships and Related Transactions, and Director Independence	37
Item 8.	Legal Proceedings	39
Item 9.	Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters	39
Item 10.	Recent Sales of Unregistered Securities	40
Item 11.	Description of Registrant’s Securities to be Registered	40
Item 12.	Indemnification of Directors and Officers	41
Item 13.	Financial Statements and Supplementary Data	42
Item 14.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	42
Item 15.	Financial Statements and Exhibits	42

ITEM 1.                 BUSINESS

GENERAL

Infinity Energy Resources, Inc. was incorporated as a Colorado corporation in April 1987 and reincorporated as a Delaware corporation in September 2005.  As used in this registration statement, the terms “Infinity,” "Company," “we,” “us” and “our” refer collectively to Infinity Energy Resources, Inc., its predecessors and subsidiaries or one or more of them as the context may require.  Infinity is an independent energy company that was engaged in the acquisition, exploration and development of natural gas and oil properties in the United States through our wholly-owned subsidiaries, Infinity Oil and Gas of Texas, Inc. (“Infinity-Texas”) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”).  We are pursuing an oil and gas exploration opportunity offshore of Nicaragua in the Caribbean Sea.  We previously operated in the Fort Worth Basin of north central Texas and Wyoming and still hold leases in those regions.

From January 1, 2002 through December 31, 2004, we produced natural gas and oil and grew our production through exploration and development drilling exclusively in the Rocky Mountain region. Beginning in 2005, our primary exploration focus shifted to the Fort Worth Basin in north central Texas. During 2005, 2006 and 2007, we drilled gas wells and had production in the Fort Worth Basin.

On December 15, 2006, we sold our oilfield services subsidiaries, Consolidated Oil Well Services, Inc. and CIS-Oklahoma, Inc. to Q Consolidated Oil Well Services, LLC, a Delaware limited liability company.

On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by it in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”).  In addition, concurrent with the sale, on December 27, 2007, Infinity-Texas entered into a Farmout and Acquisition Agreement (“Farmout Agreement”) for certain oil and gas leaseholds owned by Infinity-Texas in Erath County, Texas. The Farmout Agreement provided that Forest would operate and earn a 75% interest in the spacing unit for each well in a ten-well drilling program. If Forest completed the drilling program, Forest Oil would have earned a 50% interest in the approximate 25,000 remaining undeveloped net acres and existing Erath County infrastructure owned by Infinity-Texas. The drilling obligation under the Farmout Agreement was not completed and Infinity-Texas retained its interest. Infinity-Texas retained 100% of its interest in all currently completed wells and 100 acres surrounding each completed well; however, due to non production the domestic acreage may be lost.  For the year end December 31, 2008 we wrote down to zero the remaining value of the Infinity-Texas and Infinity-Wyoming oil and gas assets because they were not economical to operate.  We are now focused solely on the development of the Perlas and Tyra concession blocks offshore Nicaragua (the “Nicaraguan Concessions”).

Our corporate office is located at 11900 College Boulevard Suite 204 Overland Park, Kansas 66210. Our telephone number is (913) 948-9512.

Nicaragua

Since 1999, we have pursued an oil and gas exploration opportunity offshore Nicaragua in the Caribbean Sea. Over such time period, we have built relationships with the Instituto Nicaraguense de Energia (“INE”) and undertook the geological and geophysical research that helped us to become one of only six companies qualified to bid on offshore blocks in the first international bidding round held by INE in January 2003.

On March 5, 2009, we signed the contracts relating to our Nicaraguan Concessions. We are conducting 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 concession blocks offshore Nicaragua.  The funds raised through the subordinated note transaction described below were used to fund these expenses.  Effective February 16, 2011, we entered into a Fifth Forbearance Agreement (the "Fifth Forbearance")  with Amegy Bank ("Amegy") under which advances of $1,050,000 were approved.  As of December 31, 2010, advances of $454,053 had been made under the Fifth Forbearance.  As of March 31, 2011 advances of $848,119 had been made with remaining advances of $201,881 available for the balance of 2011.  No assurance can be given that these funds will be sufficient to cover the exploration cost until a partner is found.

We conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired for our Nicaraguan Concessions.  We issued letters of credit totaling approximately $1.0 million for this initial work on the leases.  We commenced significant activity under the initial work plan and are waiting for governmental approval of the environmental study.  We intend to seek joint venture or working interest partners prior to the commencement of any exploratory drilling operations on these concessions.  In this regard, we are seeking commercial relationships 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.

We have entered into revenue sharing agreements relating to the Nicaraguan Concessions as follows:  (i) in connection with a financing in March 2009; (ii) as compensation for past services rendered by our directors and officers; and (iii) as compensation for services rendered by two independent consultants.  These revenue sharing agreements assign a total 4% of 100% of our revenues derived from our share of hydrocarbons produced at the wellhead from the Nicaraguan Concessions.  The revenue sharing agreements do not create any obligation for us to develop the Nicaraguan Concessions and do not create any ownership rights in the Nicaraguan Concessions themselves.  See Item 6, "Executive Compensation - Director Compensation," Item 7, "Certain Relationships and Related Transactions and Director Independence," and Note 7 - "Commitments and Contingencies" to the Consolidated Financial Statements for the years ended December 31, 2010 and 2009.

Infinity-Texas

Infinity-Texas was engaged in the acquisition, exploration, development and production of natural gas in the Fort Worth Basin of north central Texas. This subsidiary is a Delaware corporation with its headquarters located in Overland Park, Kansas.

Infinity-Texas was formed in June 2004 to acquire, explore, develop and produce natural gas from the Barnett Shale formation and other producing formations in the Fort Worth Basin.

During the year ended December 31, 2008, Infinity Texas property was not cash flowing and operations were scaled back.  The main salt water disposal well was struck by lightning in April, 2009 and we made the decision to cease operations under the force majeure clause of the leases.  Infinity-Texas currently is not operating and it continues to seek potential buyers or operators.  We entered into a contingent sales contract for the Texas based assets in 2010 for $800,000, but the vendors refused to release their liens on the wells in exchange for partial payment and the escrow funds were returned to the buyer. Currently acreage and leases may be lost due to nonproduction.  For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate  and as such, were written down to zero as we have focused solely on the development of the Nicaraguan Concessions.

Infinity-Wyoming

Infinity-Wyoming was engaged in the acquisition, exploration, development and production of natural gas, condensate and crude oil in the Rocky Mountain region in Wyoming and Colorado. This subsidiary is a Wyoming corporation.  On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by it   in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest.  Following the sale, Infinity-Wyoming had no wells producing crude oil or natural gas and it is inactive.

Revolving Credit Facility and Fifth Forbearance Agreement

On January 10, 2007, we entered into a reserve-based revolving credit facility (the “Revolving Credit Facility”) with Amegy. Under the related loan agreement (the “Loan Agreement”) between us, Infinity-Texas and Infinity-Wyoming (each a wholly-owned subsidiary and together, the “Guarantors”) and Amegy, we could borrow, repay and re-borrow on a revolving basis up to the aggregate sums permitted under the borrowing base, $22,000,000 (reduced to $10,500,000 effective as of August 10, 2007 and subsequently reduced to $3,806,000 effective as of March 26, 2008) and subsequently reduced to $2,900,000 on December 4, 2009. The Revolving Credit Facility had an initial term of two years. Amounts borrowed bear interest at a stated rate of 5.5% at December 31, 2010 and 2009. Interest payments were due on a monthly basis, and principal payments may be required to meet a borrowing base deficiency or monthly borrowing commitment reductions. The borrowing base under the Revolving Credit Facility and the applicable interest rate was subject to adjustment at least once every three months. Amounts borrowed under the Revolving Credit Facility are collateralized by substantially all of the assets of us and our subsidiaries and are guaranteed by our subsidiaries. The Revolving Credit Facility contains certain standard continuing covenants and agreements and requires us to maintain certain financial ratios and thresholds.

We previously entered into four separate forbearance agreements resulting from our breach of certain covenants in the Loan Agreement.  Effective as of February 16, 2011, we entered into the Fifth Forbearance under the Loan Agreement.  The Fifth Forbearance relates to the breach by us 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 the Fifth Forbearance, the borrowing base remained at $2,900,000.  The borrowing base is not subject to redetermination by Amegy during the period from January 31, 2010 to December 31, 2011 (the "Forbearance Period"). The borrowing base deficiency of $9,229,530 must be paid by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital.  Under the Fifth Forbearance, Amegy agrees to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the Forbearance Period, unless otherwise extended or earlier terminated by Amegy due to a further default under the Loan Agreement.  In connection with the Fifth Forbearance, the maturity date of the Loan Agreement and related note was extended until December 31, 2011.  On such date, we will owe Amegy $11,060,494 plus accrued interest, forbearance and additional fees of $6,118,539, for a total of $17,179,033.  There can be no assurance that Amegy will extend the maturity date after December 31, 2011 or that we will be able to raise sufficient funds to retire the obligation.

During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place.  In addition, under the Fifth Forbearance Amegy agrees, upon our request, to issue one or more letters of credit in an amount not to exceed $850,000 as security for our obligations with respect to the Nicaragua Concessions.

Amegy approved additional Forbearance Period advances of $1,050,000 with an interest rate of prime plus 2% plus the personal guarantee of our President and Chief Executive Officer for up to $500,000 of such advances.  At December 31, 2010, $454,053 of advances had been made to us, $232,462 of which had been personally guaranteed by our President.  As of March 31, 2011, advances of $848,119 had been made to us, $500,000 of which had been guaranteed by such officer.  Accordingly, there was $201,881 available for advances during the remainder of 2011 at such point.

In connection with the Fifth Forbearance, effective February 16, 2011, we granted Amegy a common stock purchase warrant exercisable to purchase 931,561 shares of our common stock at a price of $5.01 per share for a ten-year period following the issuance of the warrant.

BUSINESS STRATEGY

Our principal objective is to create stockholder value through the development of our Nicaraguan Concessions. We will seek to commence the geological and geophysical exploration of the Nicaraguan Concessions while also seeking joint venture or working interest partners.

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.  Essentially all of our assets serve as collateral under our Amegy credit facility, and as such, any disposition of material assets would require its approval.

EXPLORATION AND PRODUCTION

Nicaragua Oil and Natural Gas Concessions

Preliminary analyses and interpretation of available 2-D seismic data by independent consultants has revealed that the Nica-Tinkham Ridge, the single most important structure in the basin, traverses both of the blocks (Tyra and Perlas) in Infinity’s offshore concessions and controlled the deposition of Eocene and possibly younger reef systems.  Such preliminary analyses have identified four prospects covering over 547 square miles.  The Company’s consultants, Brazilian-based Consultoria em Geologia Geofísica e Informática do Petróleo LTDA (“CGGIP”) and its senior geological consultant, Luciano Seixas Chagas, working in concert with Thompson & Knight Global Energy Services LLC, are building a credible model suggesting that the Eocene geologic zone alone has a potential that hydrocarbons could be present, based upon certain assumptions involving porosity, saturation, recovery and other parameters.  This model is also subject to the complex geology of the region and the fact that the reef system has never been drilled.  While 2-D seismic data is not sufficient to identify or evaluate prospects in the deeper Cretaceous zone, the Company and its consultants continue to believe that Cretaceous, as well as Eocene, hydrocarbons could be present within the Nicaraguan Concessions, although it can offer no assurances in this regard.

These estimates are based upon preliminary conclusions and are subject to further analysis, additional seismic data and interpretation, and various assumptions that cannot be confirmed or disproved until the prospects are drilled. We believe these estimate and model support our long-held belief that the Nicaraguan Concessions have the potential for multiple oil discoveries.  We are seeking to partner with a larger entity that has the resources to assist in the further exploration and development of the Nicaraguan Concessions.

In April 2011 we filed with the Nicaraguan government an Environmental Impact Assessment ("EIA") covering proposed seismic activities on our Nicaraguan Concessions.  The filing of the EIA will be followed by a comment period during which there will be interaction between us 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 to the Nicaraguan Concessions.  After the EIA has been formally approved, we expect to be cleared to commence 3-D seismic mapping activities in the area.  We cannot predict what portions of the Nicaraguan Concessions will be available for 3-D seismic mapping activities.  Mapping with 3-D seismic generally provides a better perspective on the amount of hydrocarbons that might be present in a formation.  To the extent we do not have the resources to conduct 3-D seismic mapping on a substantial portion of the Nicaraguan Concessions, our knowledge of the size of the potential hydrocarbon reservoir will be diminished.  This could have a material adverse impact on our ability to attract joint venture or other parties to assist us in the exploration and development of the Nicaraguan Concessions.

For the year end December 31, 2008 we wrote down to zero the remaining value of the Infinity-Texas and Infinity-Wyoming oil and gas assets as they were determined to be uneconomic, and we focused solely on the development of the Nicaraguan Concessions.

 

Customers and Markets

We have no production and no customers.

Competition

We will compete in virtually all facets of our businesses with numerous other companies in the oil and gas industry, including many that have significantly greater financial and other resources, as we seek to commence the geological and geophysical exploration of our Nicaraguan Concessions and to obtain joint venture, working interest or other financial partners.  Such competitors will be able to pay more for desirable oil and gas leases and to evaluate, bid for, and purchase a greater number of properties than our financial or personnel resources permit.

Our business strategy includes highly competitive oil and natural gas exploration, development and production. We face intense competition from a large number of independent exploration and development companies as well as major oil and gas companies in a number of areas such as:

•

Obtaining financing to pursue our Nicaraguan Concessions; and

•

Seeking to acquire the services, equipment, labor and materials necessary to explore, operate and develop those properties.

Many of our competitors have financial and technological resources substantially exceeding those available to us. We cannot be sure that we will be successful in developing and operating profitable properties in the face of this competition.

Government Regulation of the Oil and Gas Industry

General

Infinity’s business is affected by numerous laws and regulations, including, among others, laws and regulations relating to energy, environment, conservation and tax. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and/or criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to Infinity, we cannot predict the overall effect of such laws and regulations on our future operations.

The following discussion contains summaries of certain laws and regulations and is qualified as mentioned above.

Nicaraguan Regulatory Considerations

In April 2011 we filed with the Nicaraguan government an Environmental Impact Assessment ("EIA") covering proposed seismic activities on our Nicaraguan Concessions.  The filing of the EIA will be followed by a comment period during which there will be interaction between us 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 to the Nicaraguan Concessions.  After the EIA has been formally approved, we expect to be cleared to commence 2-D and 3-D seismic mapping activities in the area, although no assurance can be offered in this regard.

If we commence operations in Nicaragua we will be subject to legal and regulatory oversight by its energy-related agencies, such as the Nicaraguan Energy Institute, with respect to its energy or hydrocarbons laws.  In such case, from time to time, in varying degrees, political developments and federal and state laws and regulations affect our operations in Nicaragua.  In particular, price controls, taxes and other laws relating to the crude oil and natural gas industry, changes in these laws and changes in administrative regulations have affected and in the future could affect crude oil and natural gas production, operations and economics.  We cannot predict how Nicaraguan agencies or courts will interpret existing laws and regulations or the effect these adoptions and interpretations may have on our business or financial condition at that point.

Our business will also be subject to laws and regulations promulgated by federal and local authorities, including the Ministry of Energy and Mines, relating to the exploration for, and the development, production and marketing of, crude oil and natural gas, as well as safety matters.  Legal requirements may be frequently changed and subject to interpretation and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our future operations in Nicaragua.  In such event. we may be required to make significant expenditures to comply with governmental laws and regulations.

Further, future operations in Nicaragua will be subject to complex federal and local environmental laws and regulations.  The discharge of natural gas, crude oil, or other pollutants into the air, soil or water may give rise to significant liabilities on our part to government agencies and third parties and may require us to incur substantial costs of remediation.  In addition, in the future we may incur costs and penalties in addressing regulatory agency procedures involving instances of possible non-compliance.

Federal Regulation of the Sale of Oil and Gas

Various aspects of Infinity’s oil and natural gas operations are regulated by agencies of the federal government. The Federal Energy Regulatory Commission (“FERC”) regulates the transportation of natural gas in interstate commerce pursuant to the Natural Gas Act of 1938 (“NGA”) and the Natural Gas Policy Act of 1978 (“NGPA”). In the past, the federal government has regulated the prices at which oil and gas could be sold. While “first sales” by producers of natural gas and all sales of crude oil, condensate and natural gas liquids can currently be made at uncontrolled market prices, Congress could reenact price controls in the future. Deregulation of wellhead sales in the natural gas industry began with the enactment of the NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act (the “Decontrol Act”). The Decontrol Act removed all NGA and NGPA price and non-price controls affecting wellhead sales of natural gas effective January 1, 1993.

Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B, 636-C and 636-D (“Order No. 636”), which require interstate pipelines to provide transportation services separate, or “unbundled,” from the pipelines’ sales of gas. Also, Order No. 636 requires pipelines to provide open access transportation on a nondiscriminatory basis that is equal for all natural gas shippers. Although Order No. 636 would not directly regulate Infinity’s production domestic activities if any, FERC has stated that it intends for Order No. 636 to foster increased competition within all phases of the natural gas industry.

Regulation of Operations

Any future exploration and production operations of Infinity-Texas and Infinity-Wyoming would be subject to various types of regulation at the federal, state, and local levels. These regulations include requiring permits and drilling bonds for the drilling of wells and regulating the location of wells, the method of drilling and casing wells, and the surface use and restoration of properties upon which wells are drilled. Many states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and gas properties, the establishment of maximum rates of production from oil and gas wells and the regulation of spacing, plugging and abandonment of such wells. The operation and production, if any, of Infinity-Wyoming’s properties would be subject to the rules and regulations of the Wyoming Oil and Gas Conservation Commission (WYOGCC) and the Colorado Oil and Gas Conservation Commission (COGCC). In addition a portion of the properties are on federal lands and are subject to Onshore Orders 1 and 2, The National Historic Preservation Act (NHPA), National Environmental Policy Act (NEPA) and the Endangered Species Act. Any future operation and production of properties of Infinity-Texas would be subject to the rules and regulations of the Railroad Commission of Texas (RRC).

Additional proposals and proceedings that might affect the oil and gas industry are pending before Congress, the FERC, BLM, MMS, state commissions and the courts. Infinity cannot predict when or whether any such proposals and proceedings may become effective. In the past, the natural gas industry has been heavily regulated. There is no assurance that the regulatory approach currently pursued by various agencies will continue indefinitely.  Infinity may not be in compliance with certain 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.  The Company’s known compliance issues relate to the Texas Railroad Commission regarding administrative filings and renewal permits.

Environmental and Land Use Regulation

Various federal, state and local laws and regulations relating to the protection of the environment affect our operations and costs. The areas affected include:

•

unit production expenses primarily related to the control and limitation of air emissions, spill prevention and the disposal of produced water;

•

capital costs to drill development wells resulting from expenses primarily related to the management and disposal of drilling fluids and other oil and natural gas exploration wastes;

•

capital costs to construct, maintain and upgrade equipment and facilities;

•

operational costs associated with ongoing compliance and monitoring activities; and

•

exit costs for operations that we are responsible for closing, including costs for dismantling and abandoning wells and remediating environmental impacts.

The environmental and land use laws and regulations affecting oil and natural gas operations have been changed frequently in the past, and in general, these changes have imposed more stringent requirements that increase operating costs and/or require capital expenditures in order to remain in compliance. Our business operations are not in compliance with current laws and regulations. Failure to comply with these requirements can result in civil and/or criminal fines and liability for non-compliance, clean-up costs and other environmental damages. It is also possible that unanticipated developments or changes in law could cause us to make environmental expenditures significantly greater than those we currently expect.

The following is a summary discussion of the framework of key environmental and land use regulations and requirements affecting our oil and natural gas exploration, development, production and transportation operations.

Discharges to Waters.   The Federal Water Pollution Control Act of 1972, as amended (the “Clean Water Act”), and comparable state statutes impose restrictions and controls, primarily through the issuance of permits, on the discharge of produced waters and other oil and natural gas wastes into regulated waters and wetlands. These controls have become more stringent over the years, and it is possible that additional restrictions will be imposed in the future, including potential restrictions on the use of hydraulic fracturing. These laws prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and other substances related to the oil and natural gas industry into onshore, coastal and offshore waters without a permit.

The Clean Water Act also regulates storm water discharges from industrial properties and construction activities and requires separate permits and implementation of a storm water management plan establishing best management practices, training, and periodic monitoring. Certain operations are also required to develop and implement “Spill Prevention, Control, and Countermeasure” plans or Facility Response Plans to address potential oil spills.

The Clean Water Act provides for civil, criminal and administrative penalties for unauthorized discharges of oil, hazardous substances and other pollutants. It also imposes substantial potential liability for the costs of removal or remediation associated with discharges of oil or hazardous substances. State laws governing discharges to water also provide varying civil, criminal and administrative penalties and impose liabilities in the case of a discharge of petroleum or its derivatives, or other hazardous substances into regulated waters.

Oil Spill Regulations.   The Oil Pollution Act of 1990, as amended (the “OPA”), amends and augments oil spill provisions of the Clean Water Act, imposing potentially unlimited liability on responsible parties, without regard to fault, for the costs of cleanup and other damages resulting from an oil spill in U.S. waters. Responsible parties include (i) owners and operators of onshore facilities and pipelines and (ii) lessees or permit tees of offshore facilities.

Air Emissions.   Our operations are subject to local, state and federal regulations governing emissions of air pollution. Administrative enforcement actions for failure to comply strictly with air pollution regulations or permits are generally resolved by payment of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could require us to forego construction, modification or operation of certain air emission sources. Air emissions from oil and natural gas operations also are regulated by oil and natural gas permitting agencies including the MMS, BLM and state agencies.

We may generate wastes, including hazardous wastes that are subject to the federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes, although certain oil and natural gas exploration and production wastes currently are exempt from regulation under RCRA. The EPA has limited the disposal options for certain wastes that are designated as hazardous under RCRA (“Hazardous Wastes”). Furthermore, it is possible that certain wastes generated by our historical oil and natural gas operations that are currently exempt from treatment as Hazardous Wastes may in the future be designated as Hazardous Wastes, and therefore be subject to more rigorous and costly operating, disposal and clean-up requirements. State and federal oil and natural gas regulations also provide guidelines for the storage and disposal of solid wastes resulting from the production of oil and natural gas, both on- and off-shore.

Superfund.   Under some environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund law, and similar state statutes, responsibility for the entire cost of cleanup of a contaminated site, as well as natural resource damages, can be imposed upon any current or former site owners or operators, or upon any party who discharged one or more designated substances (“Hazardous Substances”) at the site, regardless of the lawfulness of the original activities that led to the contamination. CERCLA also authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the potentially responsible parties the costs of such action. Although CERCLA generally exempts petroleum from the definition of Hazardous Substances, in the course of our operations we may have generated and may generate wastes that fall within CERCLA’s definition of Hazardous Substances. We may also be an owner or operator of facilities at which Hazardous Substances have been released by previous owners or operators. We may be responsible under CERCLA for all or part of the costs to clean up facilities at which such substances have been released and for natural resource damages. We have not, to our knowledge, been identified as a potentially responsible party under CERCLA, nor are we aware of any prior owners or operators of our properties that have been so identified with respect to their ownership or operation of those properties.

Abandonment and Remediation Requirements.   Federal, state and local regulations provide detailed requirements for the abandonment of wells, closure or decommissioning of production and transportation facilities, and the environmental restoration of operations sites. The Colorado Oil and Gas Conservation Commission, Wyoming Oil and Gas Conservation Commission and the Texas Railroad Commission are the principal state agencies and BLM the primary federal agency responsible for regulating the drilling, operation, maintenance and abandonment of all oil and natural gas wells in the state. State and BLM regulations require operators to post performance bonds.

Potentially Material Costs Associated with Environmental Regulation of Our Oil and Natural Gas Operations.   Significant potential costs relating to environmental and land use regulations associated with our existing properties and operations include those relating to (i) plugging and abandonment of facilities, (ii) clean-up costs and damages due to spills or other releases and (iii) civil penalties imposed for spills, releases or non-compliance with applicable laws and regulations.

Infinity-Texas and Infinity-Wyoming own or lease properties that are being used for the disposal of drilling and produced fluids from exploration, development and production of oil and gas. Although these subsidiaries follow operating and disposal practices that they considers appropriate under applicable laws and regulations, hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by the subsidiaries or on or under other locations where such wastes were taken for disposal. Infinity could incur liability under the Comprehensive Environmental Response, Compensation and Liability Act or comparable state statutes for contamination caused by wastes it generated or for contamination existing on properties it owns or leases, even if the contamination was caused by the waste disposal practices of the prior owners or operators of the properties. In addition, it is not uncommon for landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of produced fluids or other pollutants into the environment.

Title to Properties

Currently domestic acreage and leases may be lost due to nonproduction.  For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate  and as such, were written down to zero as the Company focused solely on the development of the Nicaraguan concessions.

Operating Hazards and Insurance

The oil and natural gas business involves a variety of operating risks, such as those described under “Risk Factors.” Infinity was unable to maintain insurance against potential risks and losses.

 In addition, pollution and environmental risks are not insured. If a significant accident or other event occurs not covered by insurance, it could adversely affect us.

Employees

On December 31, 2010, Infinity and its subsidiaries had two employees with all salaries deferred.  We also use outside contractors to perform services.

Exploration and Development

 

We incurred exploration expenditures on our Nicaraguan Concessions in the fiscal years ended December 31, 2010 and 2009 of $510,811 and $680,738, respectively.

ITEM 1A.              RISK FACTORS

We have been unable to comply with certain requirements of our Revolving Credit Facility and may not be able to repay our borrowing base deficiency under the Revolving Credit Facility or satisfy other current liabilities.

Effective as of February 16, 2011, we entered into a Fifth Forbearance under the Loan Agreement.  This agreement relates to the breach by us 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, the borrowing base was not reduced from $2,900,000.  The borrowing base is not subject to redetermination by Amegy during the Forbearance Period. The borrowing base deficiency must be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital.  Under this Agreement, Amegy agrees to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the Forbearance Period, unless otherwise extended or earlier terminated by Amegy due to a further default under the Agreement.  In connection with the Fifth Forbearance, the maturity date of the Loan Agreement and related note was extended until December 31, 2011.  The balance due on such date is $11,060,494 plus accrued interest, forbearance and other fees of $6,118,539, for a total of $17,179,033.  We are attempting to raise capital 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.  If we are not able to pay the note in full on or before such date, there can be no assurance that Amegy will extend the maturity date.

During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place.  In addition, Amegy agrees, upon our request, to issue one or more letters of credit in an amount not to exceed $850,000 as security for our obligations with respect to the Nicaragua Concessions.

Additional Forbearance Period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the personal guarantee of our CEO for up to $500,000 of the advances.  At December 31, 2010, $454,053 of advances had been made to us, $232,462 of which had been personally guaranteed by the Company’s CEO.  As of March 31, 2011 advances of $848,119 had been made under the Fifth Forbearance with remaining advances of $201,881 available for the remainder of 2011 at that point.

If we fail 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 our assets are collateral under the Revolving Credit Facility, if Amegy declares an event of default, it would be entitled to foreclose on and take possession of the Company’s assets.

These matters, as well as the other risk factors related to our liquidity and financial position raise substantial doubt as to our ability to continue as a going concern.  Even after sale of our remaining assets, we will likely be left with significant continuing liquidity concerns.

We have a history of losses and are experiencing substantial liquidity problems.

We incurred a net loss in our fiscal years ended December 31, 2010 and 2009 of approximately $3.8 million and $6.9 million, respectively, and a net loss of approximately $1.0 million for the three months ended March 31, 2011, In addition, we are currently experiencing substantial liquidity problems.  Although we are operating under the Fifth Forbearance with Amegy, the current Forbearance Period expires on December, 31, 2011 and under the terms of the Loan Agreement, at such time we are required to repay the approximately $10.2 million borrowing base deficiency.  We do not have the funds to repay such deficiency or to satisfy various other existing debts and obligations.  If we cannot find a satisfactory resolution to our liquidity problems, we may be forced to cease operations and may be required to liquidate.

If we are able to address our immediate liquidity problems, our history of losses may impair our ability to obtain financing for maintenance and development of our Nicaraguan Concessions and other business activities on favorable terms or at all. It may also impair our ability to attract investors if we attempt to raise additional capital, to grow our business or for other business purposes, by selling additional debt or equity securities in a private or public offering.  If we are unable to obtain additional financing, we may be unable to maintain and develop our Nicaraguan Concessions.

We are continuing to negotiate with our creditors and may face additional claims in the future.

We continue to have substantial liabilities, in addition to amounts owed to Amegy, which we are currently unable to pay.  We continue to negotiate with our creditors to mitigate and settle our known liabilities to them or their claims of liabilities and in some cases, to secure releases of liens which have been filed on certain of our properties.  Various suits have been filed to enforce payments of liabilities and we are working to address these suits We may incur additional liabilities if our liquidity situation deteriorates further and may face additional claims from creditors seeking to protect their interests in light of our announcements regarding our financial condition and business plans. We are not able to predict our success in attempting to negotiate with these parties nor the expense related to such negotiations or in defending any litigation related to these claims.  These creditors may take action to force us into bankruptcy involuntarily.  In addition, if we are unable to manage our current liabilities or substantial additional claims are asserted against us, we may be forced to seek protection under the Bankruptcy Code.

Inability to conduct Seismic Mapping.

We cannot predict what portions of the Nicaraguan Concessions will be available for 3-D seismic mapping activities.  Mapping with 3-D seismic generally provides a better perspective on the possible hydrocarbons present than a 2-D seismic mapping does.  To the extent we do not have the resources to conduct 3-D seismic mapping on a substantial portion of the Nicaraguan Concessions, our knowledge of the size of the potential hydrocarbon reservoir will be diminished.  As a result, this could have a material adverse impact on our ability to attract joint venture or other parties to assist us in the exploration and development of the Nicaraguan Concessions.

If we are unable to obtain lien releases on our Texas properties, a sale may continue to be delayed and will be jeopardized.

Various liens have been filed on properties in Texas.  The presence of these liens has delayed any sale of the Texas properties.  We continue to work with our creditors to mitigate and settle our liabilities and obtain releases for these liens, but we are unable to predict our success in attempting to settle with these parties and obtain releases.  If we are unable to have such liens released it could have a substantial adverse impact on us.

We may be unable to continue to operate due to our inability to obtain supplies and services.

We rely on a number of suppliers for day-to-day operations. We are experiencing delays in our ability to satisfy trade payables. In addition, as creditors react to news of our deteriorating financial situation, we may have further difficulties in obtaining supplies and services on a timely and cost-effective basis, and may be unable to obtain such supplies and services at all.  Our inability to obtain the requisite supplies and services would have a substantial adverse impact on our ability to continue our operations and we could be forced to liquidate.

Our reduced exploration and development activities have caused us to lose certain leases and we may continue to lose substantial acreage.

We have had no exploration and development activities to conserve cash.  We are not actively working on any domestic property.  This has caused us to lose certain leases, and we are likely to continue to lose acreage as our liquidity concerns continue.  If we are unable to resolve our liquidity issues in the near term, these losses could have a material adverse impact on our business, prospects and financial condition.

Our common stock is traded on the Pink Sheets.

Our common stock is traded on the Pink Sheets, which may negatively impact shareholder value, access to capital markets and the liquidity of our common stock.

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.

Nicaragua has from time to time experienced economic or political instability. We may be materially adversely affected by risks associated with conducting operations in countries with developing economies, including:

• political instability and violence;

• war and civil disturbance;

• acts of terrorism;

• expropriation or nationalization;

• changing fiscal regimes;

• fluctuations in currency exchange rates;

• high rates of inflation;

• underdeveloped industrial and economic infrastructure; and

• unenforceability of contractual rights.

• adherence to the Foreign Corrupt Practice Act by our contractors and/or representatives.

We cannot accurately predict the effect of these factors on our concessions. In addition, legislation in the United States regulating foreign trade, investment and taxation could have a material adverse effect on our financial condition, results of operations and cash flows.

Oil and gas prices are volatile, and declines in prices would hurt our ability to achieve profitable operations.

The carrying value of oil and gas properties will depend heavily on prevailing market prices for oil and gas. We expect the market for oil and gas to continue to be volatile for the foreseeable future.

Various factors beyond our control affect prices of oil and gas, including:

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worldwide and domestic supplies of oil and gas;

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political instability or armed conflict in oil or gas producing regions;

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the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil prices;

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production controls;

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the price and level of foreign imports;

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worldwide economic conditions;

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marketability of production;

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the level of consumer demand and particularly from rapidly developing countries, such as China and India;

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the price, availability and acceptance of alternative fuels;

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the price, availability and capacity of commodity processing and gathering facilities, and pipeline transportation;

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weather conditions; and

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actions of federal, state, local and foreign authorities.

These external factors and the volatile nature of the energy markets generally make it difficult to estimate future prices of oil and gas. Significant declines in oil and natural gas prices for an extended period may cause various negative effects on our business, including:

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further impairing our financial condition, cash flows and liquidity;

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limiting our ability to finance planned capital expenditures;

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reducing our revenue, operating income and profitability; and

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reducing the carrying value of our oil and natural gas properties.

A charge to earnings and book value would occur if there is a further ceiling write-down of the carrying value of our oil and gas properties. Impairments can occur when oil and gas prices are depressed or unusually volatile. Once incurred, a ceiling write-down of oil and gas properties is not reversible at a later date when better industry conditions may exist. We review, on a quarterly basis, the carrying value of our oil and gas properties under the full cost accounting rules of the SEC. Under these rules, costs of proved oil and gas properties may not exceed the present value of estimated future net revenue after giving effect to cash flow from hedges but excluding the future cash out flows associated with settling asset retirement obligations, discounted at 10%, net of taxes.  Application of the ceiling test generally requires pricing future revenue at the unescalated prices in effect as of the end of each fiscal quarter, after giving effect to our cash flow hedge positions, if any, and requires a write-down for accounting purposes if the ceiling is exceeded, even if prices were depressed for only a short period of time.

We recorded an aggregate ceiling write-down of the remaining value of the domestic properties at December 31, 2008. A decrease in oil or gas prices (which continue to remain volatile), an increase in production costs, a decrease in estimated gas production in future periods, or the reclassification of development costs to properties subject to depletion without an increase in associated proved reserves could result in a ceiling write-down during future periods.

Prices may be affected by regional factors.

The prices that we may receive for the natural gas production, if any, from our Wyoming and Texas properties will be determined mainly by factors affecting the regional supply of, and demand for, natural gas, which include the degree to which pipeline and processing infrastructure exists in the region. Regional differences could cause negative basis differentials, which could be significant, between the published indices generally used to establish the price that we receive for regional natural gas production and the actual price that we receive for any natural gas production.

Forward sales and hedging transactions may limit our potential gains or expose us to losses.

To manage our exposure to price risks in the marketing of our natural gas, we have in the past and may in the future enter into fixed price natural gas physical delivery contracts for a portion of our current or future production. These transactions could limit our potential gains if natural gas prices were to rise substantially over the prices established by the contracts. In addition, such transactions may expose us to the risk of financial loss in certain circumstances, including instances in which:

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our production is less than expected;

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the counterparties to our contracts fail to perform under the contracts; or

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our production costs on the contracted production significantly increase.

Exploration and development of our Nicaraguan Concessions will require large amounts of capital which we may not be able to obtain.

We expect that our primary exploration and development activities in Nicaragua will take place only upon us finding a financial or industry partner.  In order to undertake such activities, we will need to obtain large amounts of additional capital, subjecting existing shareholders to potential significant dilution.  The terms under which such capital may be available, if at all, may not be on acceptable terms to us.  Our potential sources of financing for these activities in the longer term would include cash availability under credit facilities, if any, and future sales of equity securities or subordinated debt securities, as well as joint venture or other partners, which would dilute our interest in the Nicaraguan Concessions.

Future cash flows and the availability of financing are subject to a number of variables, such as:

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our success in locating and producing new reserves;

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prices of crude oil and natural gas;

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the level of production from existing wells; and

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amounts of necessary working capital and expenses.

Issuing equity securities to satisfy our financing or refinancing requirements could cause substantial dilution to existing stockholders. Debt financing could lead to:

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all or a substantial portion of our operating cash flow, if any, being dedicated to the payment of principal and interest;

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an increase in interest expense as the amount of debt outstanding increases or as variable interest rates increase;

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increased vulnerability to competitive pressures and economic downturns; and

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restrictions on our operations that may be contained in any contract entered into with lenders.

In order to obtain capital, we could enter into partnerships with another oil and gas company or companies in which we would maintain a carried or reduced working interest in the oil and gas properties. However, this would reduce our ownership and control over the projects and could significantly reduce our future revenue generated from oil and gas production.  If we failed to raise sufficient capital on a timely basis, we will lose our rights to the Nicaraguan Concessions.  See Item 3, "Properties - Present Activities."

Information concerning our reserves, future net cash flow estimates, and potential future ceiling write-downs is uncertain.

As of December 31, 2010 and 2009, we did not have any proved reserves.

As of December 31, 2010, we had approximately $3.1 million invested in unproved oil and gas properties not subject to amortization. During 2011, a portion of the investment in unproved oil and gas properties may be reclassified to the full cost pool subject to depletion and the ceiling test, following our required periodic evaluation of the fair value of our unproved properties. The amount of any such reclassification could be significant. We could be required to write down a portion of the full cost pool of oil and gas properties subject to amortization upon reclassification of the unproved oil and gas property costs.

The oil and gas exploration business involves a high degree of business and financial risk.

The business of exploring for and developing oil and gas properties involves a high degree of business and financial risk. Property acquisition decisions generally are based on assumptions about the quantity, quality, production costs, marketability, and sales price for the acreage or reserves being acquired. Although available geological and geophysical information can provide information about the potential of a property, it is impossible to predict accurately the ultimate production potential, if any, of a particular property or well. Any decision to acquire a property is also influenced by our subjective judgment as to whether we will be able to locate the reserves, drill and equip the wells to produce the reserves, operate the wells economically, and market the production from the wells.

If we commence operations again, they will be dependent upon the availability of certain resources, including drilling rigs, steel casing, water, chemicals, and other materials necessary to support our development plans and maintenance requirements. The lack of availability of one or more of these resources at an acceptable price could have a material adverse affect on our business.

The successful completion of an oil or gas well does not ensure a profit on investment. A variety of factors may negatively affect the commercial viability of any particular well, including:

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defects in title;

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the absence of producible quantities of oil and gas;

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insufficient formation attributes, such as porosity, to allow production;

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water production requiring disposal; and

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improperly pressured reservoirs from which to produce the reserves.

In addition, market-related factors may cause a well to become uneconomic or only marginally economic, such as:

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availability and cost of equipment and transportation for the production;

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demand for the oil and gas produced; and

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price for the oil and gas produced.

Our business is subject to operating hazards that could result in substantial losses against which we may not be insured.

The oil and natural gas business involves operating hazards, any of which could cause substantial losses, such as:

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well blowouts;

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craterings;

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explosions;

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uncontrollable flows of oil, natural gas or well fluids;

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fires;

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formations with abnormal pressures;

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pipeline ruptures or spills; and

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releases of toxic gas and other environmental hazards and pollution.

As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. This insurance has deductibles or self-insured retentions and contains certain coverage exclusions. Our insurance premiums can be increased or decreased based on the claims we make under insurance policies. The insurance does not cover damages from breach of contract by us or based on alleged fraud or deceptive trade practices. Whenever possible, we obtain agreements from customers that limit our liability; however, insurance and customer agreements do not provide complete protection against losses and risks and losses could occur for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverage. The Company no longer carries insurance on the domestic properties.  The occurrence of an event that is not covered by insurance would materially harm our business, financial condition and results of operations.

In addition, we may be liable for environmental damage caused by previous owners of property we own or lease. As a result, we may face substantial potential liabilities to third parties or governmental entities that could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur losses. An event that is not covered by insurance, such as losses resulting from pollution and environmental risks that are not insured, would cause us to incur material losses.

Our future production is contingent on successful exploration, development and acquisitions to establish reserves and revenue in the future.

Our future natural gas and oil production is highly dependent on our level of success in finding or acquiring additional reserves. The business of exploring for, developing or acquiring reserves is capital intensive. Exploration will require significant additional capital expenditures and successful drilling operations. In our current financial situation, we are unable to engage in significant exploration or development efforts or acquisitions of additional properties, and if we are unable to address our liquidity problems and make the necessary capital investment our future operations will be impaired.

Exploratory drilling is an uncertain process with many risks.

Exploratory drilling involves numerous risks, including the risk that we will not find commercially productive natural gas or oil reservoirs. The cost of drilling, completing and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations, including:

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unexpected drilling conditions;

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pressure or irregularities in formations;

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equipment failures or accidents;

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adverse weather conditions;

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defects in title;

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compliance with governmental requirements, rules and regulations; and

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shortages or delays in the availability of drilling rigs, the delivery of equipment and adequately trained personnel.

Our future drilling activities may not be successful, and we cannot be sure of our overall drilling success rate. Unsuccessful drilling activities would result in significant expenses being incurred without any financial gain.

Our business depends on transportation facilities owned by others.

The marketability of future gas production, if any, depends in part on the availability, proximity and capacity of pipeline systems owned by third parties. Generally, we historically have delivered natural gas through gas gathering systems and gas pipelines that we do not own under interruptible or short-term transportation agreements. In the event that we are able to resume production, the transportation of our gas may be interrupted due to capacity constraints on the applicable system, or for maintenance or repair of the system. Our ability to produce and market natural gas on a commercial basis could be harmed by any significant change in the cost or availability of markets, systems or pipelines.

We will be subject to regulations affecting our activities with the Nicaraguan Concessions

    If we commence operations in Nicaragua we will be subject to legal and regulatory oversight by its energy-related agencies such as the Nicaraguan Energy Institute, with respect to its energy or hydrocarbons laws. In such case, from time to time, in varying degrees, political developments and federal and state laws and regulations affect our operations in Nicaragua. In particular, price controls, taxes and other laws relating to the crude oil and natural gas industry, changes in these laws and changes in administrative regulations have affected and in the future could affect crude oil and natural gas production, operations and economics. We cannot predict how Nicaraguan agencies or courts will interpret existing laws and regulations or the effect these adoptions and interpretations may have on our business or financial condition at that point.

   Our business will also be subject to laws and regulations promulgated by federal and local authorities, including the Ministry of Energy and Mines, relating to the exploration for, and the development, production and marketing of, crude oil and natural gas, as well as safety matters.  Legal requirements may be frequently changed and subject to interpretation and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our future operations in Nicaragua.  In such event. we may be required to make significant expenditures to comply with governmental laws and regulations.

   Further, future operations in Nicaragua will be subject to complex federal and local environmental laws and regulations.  The discharge of natural gas, crude oil, or other pollutants into the air, soil or water may give rise to significant liabilities on our part to government agencies and third parties and may require us to incur substantial costs of remediation.  In addition, in the future we may incur costs and penalties in addressing regulatory agency procedures involving instances of possible non-compliance.

 

Our operations may be adversely affected by changes in the fiscal regime of Nicaragua.

The fiscal regime in Nicaragua will impact us through laws and regulations governing royalties, taxes or level of government participation in oil and gas projects.  Fiscal regimes may change over time.  A change in the fiscal regime of Nicaragua may result in an increase or decrease in the amount of government take, and a corresponding decrease or increase in the revenues of an oil and gas company operating in that particular country.

Governments are currently experiencing fiscal problems triggered by the lingering effects of the global financial crisis, associated recession and current slower economic growth rates.  Higher unemployment and slower growth rates, coupled with a reduced tax base, have resulted in reduced government revenues, while government expenditures have increased due to the need for public entitlement or economic stimulus programs. Many countries have generated budget deficits or even approached insolvency and there has been social unrest in many regions.

Due to pressures from local constituents as well as the Organization for Economic Cooperation and Development (OECD) to address these negative fiscal situations and initiate deficit reduction measures, many governments are seeking additional revenue sources, including increases in government take from oil and gas projects.

 

The oil and gas industry is heavily regulated and we must comply with complex governmental regulations.

Federal, state and local authorities extensively regulate the oil and gas industry and the drilling and completion of oil and gas wells. Legislation and regulations affecting the industry are under constant review for amendment or expansion, raising the possibility of changes that may adversely affect, among other things, the pricing and production or marketing of oil and gas. Noncompliance with statutes and regulations may lead to substantial penalties and the overall regulatory burden on the industry increases the cost of doing business and, in turn, decreases profitability. Federal, state and local authorities regulate various aspects of oil and gas drilling, service and production activities, including the drilling of wells through permit and bonding requirements, the spacing of wells, the unitization or pooling of oil and gas properties, environmental matters, safety standards, the sharing of markets, production limitations, plugging and abandonment, and restoration.

Our operations are subject to complex and constantly changing environmental laws and regulations adopted by federal, state and local government authorities. It can be costly to drill, equip and operate a water disposal well. New laws or regulations, or changes to current requirements, could result in our incurring significant additional costs. We could face significant liabilities to government and third parties for discharges of oil, natural gas or other pollutants into the air, soil or water, and we could have to spend substantial amounts on investigations, litigation and remediation.

Although we believe that we are in substantial compliance with all applicable laws and regulations, we cannot be certain that existing laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations, will not harm our business, results of operations and financial condition. Laws and regulations applicable to us include those relating to:

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land use restrictions;

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drilling bonds and other financial responsibility requirements;

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spacing of wells;

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emissions into the air;

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unitization and pooling of properties;

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habitat and endangered species protection, reclamation and remediation;

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the containment and disposal of hazardous substances, oil field waste and other waste materials;

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the use of underground storage tanks;

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the use of underground injection wells, which affects the disposal of water from our wells;

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safety precautions;

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the prevention of oil spills;

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the closure of production facilities;

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operational reporting; and

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taxation.

Under these laws and regulations, we could be liable for:

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personal injuries;

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property and natural resource damages;

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releases or discharges of hazardous materials;

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well reclamation costs;

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oil spill clean-up costs;

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other remediation and clean-up costs;

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plugging and abandonment costs, which may be particularly high in the case of offshore facilities;

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governmental sanctions, such as fines and penalties; and

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other environmental damages.

Any noncompliance with these laws and regulations could subject us to material administrative, civil or criminal penalties or other liabilities.

Our operations and facilities are subject to numerous environmental laws, rules and regulations, including laws concerning:

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the containment and disposal of hazardous substances, oilfield waste and other waste materials;

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the use of underground storage tanks; and

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the use of underground injection wells.

Compliance with and violations of laws protecting the environment may become more costly. Sanctions for failure to comply with these laws, rules and regulations, many of which may be applied retroactively, may include:

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administrative, civil and criminal penalties;

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revocation of permits; and

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corrective action orders.

In the United States, environmental laws and regulations typically impose strict liability. Strict liability means that in some situations we could be exposed to liability for cleanup costs and other damages as a result of our conduct, even if such conduct was lawful at the time it occurred, or as a result of the conduct of prior operators or other third parties. Cleanup costs, natural resource damages and other damages arising as a result of environmental laws and regulations, and costs associated with changes in environmental laws and regulations, could be substantial. From time to time, claims have been made against us under environmental laws.

The oil and gas industry is highly competitive.

We operate in the highly competitive areas of oil and natural gas acquisition, exploration, development and production with many other companies. We face intense competition from a large number of independent companies as well as major oil and natural gas companies in a number of areas such as:

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acquisition of desirable producing properties or new leases for future exploration;

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marketing our oil and natural gas production;

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arranging for growth capital on attractive terms; and

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seeking to acquire or secure the equipment, service, labor, other personnel and materials necessary to explore, operate and develop those properties.

Many of our competitors have financial and technological resources substantially exceeding those available to us. Many oil and gas properties are sold in a competitive bidding process in which we may lack technological information or expertise or financial resources available to other bidders. We cannot be sure that we will be successful in acquiring and developing profitable properties in the face of this competition.

We depend on key personnel.

The loss of key members of our management team, or difficulty attracting and retaining experienced technical personnel, could reduce our competitiveness and prospects for future success. Our success depends on the continued services of our executive officers and a limited number of other senior management and technical personnel. Loss of the services of any of these people could have a material adverse effect on our operations. We do not have employment agreements with any of our executive officers. Our exploratory drilling success and the success of other activities integral to our operations will depend, in part, on our ability to attract and retain experienced explorers, engineers and other professionals. Competition for experienced explorers, engineers and some other professionals is extremely intense. If we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.

ITEM 2.

FINANCIAL INFORMATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in this Registration Statement on Form 10. 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 years ended December 31, 2010 and 2009.

Infinity Energy Resources, Inc. and its subsidiaries, Infinity-Texas and Infinity-Wyoming (collectively, “Infinity,” "Company," “we,” “us” and “our”) are engaged in the acquisition, exploration, development and production of natural gas and crude oil in the United States and 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 described below 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.

On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by the Company in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”).  The transaction resulted in the sale of approximately 62% of the Company’s proved reserve quantities and 73% of the standardized measure of discounted future net cash flow at that time.  In addition, concurrent with the sale, on December 27, 2007, Infinity-Texas entered into a Farmout and Acquisition Agreement (the “Farmout Agreement”) for certain oil and gas leases owned by Infinity-Texas in Erath County, Texas. The Farmout Agreement provides that Forest would operate and earn a 75% interest in the spacing unit for each well in a ten-well drilling program. If Forest had completed the drilling program, Forest would have earned a 50% interest in the approximate 25,000 remaining undeveloped net acres and existing Erath County infrastructure owned by Infinity-Texas. Infinity-Texas retains 100% of its interest in all previously completed wells and 100 acres surrounding each such completed well.  Forest did not complete the terms of the Farmout and Acquisition Agreement and did not earn any interest in the properties.

For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as such properties were deemed to be uneconomical and the Company focused solely on the development of the Nicaraguan concessions.

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.

2011 Operational and Financial Objectives

Corporate Activities

On April 14, 2011 we announced that we had completed and filed with the Nicaraguan government its Environmental Impact Assessment (“EIA”) covering proposed seismic activities on its 1.4 million-acre oil and gas concessions in the Caribbean Sea offshore Nicaragua.  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 during the fourth quarter of 2011 or in the first quarter of 2012.  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.  Essentially all of our assets serve as collateral under our Amegy credit facility, and as such, any disposition of material assets would require its approval.

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.

For three months ended March 31, 2011 and 2010

Infinity incurred a net loss of $1,003,365, or $0.05 per diluted share, for the three months ended March 31, 2011 compared to a net loss of $1,004,406, or $0.05 per diluted share, for the three months ended March 31, 2010.

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, we were operating under the Fourth Forbearance Agreement with Amegy Bank, N. A. (“Amegy”) under the Revolving Credit Facility.

We 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 are required to repay the borrowing base deficiency of $8,160,494 by December 31, 2011, among other items noted below.  We intend to repay such amount through the sale of assets, refinancing of the loan or some other means of raising capital, although there can be no assurances in this regard.  We continue to operate under the Fifth Forbearance Agreement and there can be no assurance Amegy will continue under the agreement after December 31, 2011 if we are unable to pay the amount due in full at such point.

We have classified all $10,242,956 outstanding under the Revolving Credit Facility at December 31, 2010 as current liabilities in the accompanying Consolidated Balance Sheets.

Under the Fifth Forbearance Amegy made available $1,050,000 in advances to us.  Amegy had advanced $454,053 of such amount as of December 31, 2011, $56,085 of which were applied to fees and penalties we owed to Amegy.  As of March 31, 2011, Amegy had advanced $848,119 to us, leaving a balance available of $201,881 to us for the remainder of 2011 at such point.  We estimate that we will require approximately $250,000 in working capital, including the cost of our becoming a reporting company under the Securities Exchange Act of 1934 through this registration statement 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.  The foregoing also does not include amounts for seismic mapping of the Nicaraguan Concessions, which would be required expenditures after our receipt of the EIA and other approvals.  We can offer no estimates regarding the receipt of such approvals or their timing.   See Item 3. "Properties - Present Activities" for our obligations under the Nicaraguan Concessions.  In addition, we are required to repay the amounts due to Amegy under the Fifth Forbearance on December 31, 2011, which include $11,060,494 plus penalties and fees of $6,118,539, for a total of $17,179,033.

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 Finance, LLC, a Nevada limited liability company (“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.  If we are not able to pay the Amegy obligation on or before its maturity date, there can be no assurance that Amegy will extend the maturity date.  Further, if we cannot meet our obligations respecting the Nicaraguan Concession, 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.

For the fiscal years ended December 31, 2010 and 2009

Results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009

Net Loss

Infinity incurred a net loss of $3.8 million, or $0.20 per diluted share, in 2010 compared to a net loss of $7 million, or $0.38 per diluted share, in 2009. The change between periods was the result of the items discussed below.

Revenue

 

Revenue decreased from $0.5 million in 2009 to zero in 2010 as the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as such properties were shut in and as the Company focused solely on the development of the Nicaraguan concessions.  The Company continued to produce nominal gas volumes in 2009 prior to the properties being shut-in.

Production and Other Operating Expenses

Oil and gas production expenses continued to accrue due to limited production in 2009. Operating expenses were incurred in 2010 to bring the Texas wells in compliance with State requirements for a potential sell of the property. Off-Shore had made available working capital of up to $300,000 in 2009 to bring the wells into compliance.  A contingent sales contract for the Texas property was entered into in 2009 and 2010, but could not be closed due to trade vendors unwilling to release liens on the properties for partial settlement of payables.  The Company is in default on the leases relating to these shut-in wells, even though the leases have terminated.  Further, the Company has obligations to plug the wells.  The Company has recorded the estimated cost of such activities as a liability on its Consolidated Financial Statements and has discontinued its efforts to sell the property.

In June 2005, the Company entered into a long-term gas gathering contract for natural gas production from its properties in Erath County, Texas, under which it pays 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 Company is unable to fulfill its commitment under this contract and has recorded a liability in Consolidated Financial Statements for the balance of the contract.  As of December 31, 2010 and 2009, the Company had accrued approximately $1,916,250 for 2010 and $929,208 for 2009 relating to the contract.  The accrued liability at December 31, 2010 includes the Company's liability, along with estimated legal expenses, through December 31, 2011, the termination date of the contract.

The Company intends to seek to settle these lawsuits when it has the financial resources to do so.  See Item 8. "Legal Proceedings."

 

We have had no domestic exploration and development activities to conserve cash.  We are not actively working on any domestic property.  This has caused us to lose certain leases, and we are likely to continue to lose acreage as our liquidity concerns continue.  If we are unable to resolve our liquidity issues in the near term, these losses could have a material adverse impact on our business, prospects and financial condition.

Production Taxes

Oil and gas production taxes for 2010 decreased to $6,481 from $24,151 in 2009 as a result of the decrease in revenue and production.

General and Administrative Expenses

General and administrative expenses decreased to $0.6 million for 2010, from $2.1 million in the prior year. The decrease was due the Company's filing to cease reporting under the Securities Exchange Act of 1934 and closing of the Denver office at the end of 2008.

Depreciation, Depletion, Amortization and Accretion

Infinity recognized depreciation, depletion, amortization and accretion (“DD&A”) expense of approximately $95,000 during 2010, compared to DD&A expense of approximately $88,000 in the prior year. The higher DD&A expense was due higher asset retirement obligations expense.

Ceiling Write-down

 

For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as such properties were deemed to be uneconomical to operate and the Company focused solely on the development of the Nicaraguan concessions.

Other Income (Expense)

Other income and expense was a net expense of $.6 million in 2010 compared to a net expense of $3 million in the prior year. The change of was principally due the change in the fair value of derivative liabilities from a $1.3 million expense in 2009 to $1.3 million in income in 2010 resulting from fluctuations in the price of the Company's common stock.

Income Tax

Infinity reflected no net tax benefit or expense in 2010 and 2009. The net operating losses generated in those periods increased Infinity’s net deferred tax asset. Due to uncertainty as to the ultimate utilization of the Company’s net deferred tax asset, as of December 31, 2010 and 2009, the Company recorded a full valuation allowance for its net deferred tax asset.

ITEM 3.

PROPERTIES

This section is an explanation and detail of some of the relevant project groupings from our overall inventory of projects and prospects. Our principal focus is our Nicaraguan Concessions, which are located in the Caribbean Sea, offshore Nicaragua. Our prior years' operations were primarily focused in the Fort Worth Basin of Texas and the Greater Green River and Sand Wash Basins in the Rocky Mountain region.

Nicaragua

Subsequent to being awarded two concessions in 2003, we negotiated a number of key terms and conditions of an exploration and production contract covering the approximate 1.4 million acre Tyra (approximately 823,000 acres in the north) and Perlas (approximately 566,000 acres in the south) concession areas offshore Nicaragua. The contract, which was finalized in May 2006, contemplates an exploration period of up to six years with four sub-phases and a production period of up to 30 additional years (with a potential five-year extension). Our six-year exploration period commences after we receive our EIA clearance from the various governmental agencies in Nicaragua.  We have completed and submitted an environmental study and have developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data to be acquired over the Perlas and Tyra concession blocks.  We have not commenced significant activity under the initial work plan, because we have not received the specific requirements associated with the conduct of the environmental study from the responsible governmental agency.

Given sufficient capital, we expect that our exploration offshore Nicaragua will focus on Eocene and Cretaceous Carbonate reservoirs and our management and consultants believe: (i) numerous analogies can be made between the our concession block and production from fractured Cretaceous carbonates in Mexico, Venezuela and Guatemala and (ii) the presence of Cretaceous source rocks onshore Honduras and Nicaragua can be projected into the offshore Caribbean Shelf. We plan to seek offers from industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations.  No assurance can be given that any such transactions will be consummated or the terms of such transaction.

Fort Worth Basin

For purposes of presentation, we divide our Fort Worth Basin operations into two main property areas: Erath and Hamilton Counties, Texas and Comanche County, Texas.

Erath and Hamilton Counties, Texas

Infinity- Texas limited production in 2009 in this area, which is located in the southwest portion of the Fort Worth Basin in north central Texas.  There was no production in 2010.  A contingent sales contract for the Texas property was entered into in 2009 and 2010, but could not be closed due to trade vendors unwilling to release liens on the properties for partial settlement of payables.  The Company believes that all of the leases have terminated and has discontinued all sales efforts.

Comanche County, Texas

Infinity-Texas produced only insignificant amounts of natural gas from the field and has not produced from this field since   2007.  The Company believes that all of the leases have terminated and has discontinued all operations.

Northwest Colorado

For purposes of presentation, we divide our northwest Colorado operations into two main property areas: Sand Wash Prospect and Piceance Basin Prospect.

Sand Wash Prospect

Infinity-Wyoming has not produced from the Sand Wash Prospect since 2007.

Piceance Basin Prospect

Infinity-Wyoming has not produced from the Piceance Basin Prospect since 2007.

Proved Reserves Reporting

Infinity had no proved reserves as of December 31, 2010 and 2009.

Production, Prices and Production Costs

The following table provides statistical information for the years ended December 31, 2010 and 2009:

There were no development, exploration or acquisition costs incurred during 2010 and 2009 on the Company’s domestic properties.

Acreage Data

 

The following table sets forth the gross and net acres of developed and undeveloped oil and gas leases held by Infinity-Texas and Infinity-Wyoming as of December 31, 2010. Developed acreage is acreage assigned to producing wells for the spacing unit of the producing formation.  Domestic acreage may be lost due to nonproduction.  For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero due to uneconomical operating conditions, because of the termination of certain of the leases and because the Company is focusing solely on the development of the Nicaraguan Concessions.

Present Activities

Infinity holds a 100% interest in the Perlas Block (560,000 acres/2,268 km) and Tyra Block (826,000 acres/3,342 km) located in shallow waters offshore Nicaragua  The sub-periods start on the acceptance of the EIA.  The Company submitted the EIA to the Nicaraguan government on April 14, 2011.  Management cannot predict the length of the EIA review process.

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 concession agreements.

 

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 pays a gathering fee of $0.35 per Mcf gathered. In December 2006, under provisions of the contract, the Company reduced the minimum daily delivery volumes by 50%.

The contract contains minimum delivery volume commitments through June 30, 2015 associated with firm transportation rights. As of December 31, 2010 and 2009, the Company had accrued approximately $929,000, respectively for each year, as delivery commitment shortfalls under the contract.  The Company has no current production to meet the delivery commitments for 2011 to 2015.

ITEM 4.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of June 21, 2011, the number and percentage of outstanding shares of common stock beneficially owned by each person known by us to beneficially own more than five percent of such stock. We have no other class of capital stock outstanding.

 

(1)

Based solely on a Schedule 13D, there are no 5% stockholders other than Stanton E. Ross, our Chairman, Chief Executive Officer and President.

The following table sets forth, as of June 21, 2011, the number and percentage of outstanding shares of common stock beneficially owned by each director of the Company, each named officer of the Company, and all our directors and executive officers as a group.  We have no other class of capital stock outstanding.

(1)

The address of these persons is c/o 8000 West 110th Street, Suite 200, Overland Park, KS 66210.

(2)

The percent of Common Stock owned is calculated using the sum of (A) the number of shares of Common Stock owned and (B) the number of warrants and options of the Beneficial Owner that are exercisable within 60 days, as the numerator, and the sum of (Y) the total number of shares of Common Stock outstanding (18,668,575) and (Z) the number of warrants and options of the Beneficial Owner that are exercisable within 60 days as the denominator

(3)

Mr. Ross’s shares include vested options to purchase 540,000  shares of common stock exercisable within 60 days. Mr. Ross had pledged a total of 929,200 common shares to purchase common stock to financial institutions and one individual as collateral for personal loans.  Earlier this year, the financial institution notified Mr. Ross that he was in default under a loan that it had made to him and that it planned to sell all or part of the pledged shares to satisfy the obligation. It has sold 440,000 shares as of June 21, 2011, which is reflected in total in the table.  Mr. Ross does not agree with such action, but has not been able to, and in all likelihood, will not be able to stop such sales in the future.

(4)

Mr. Richie’s total shares include vested options to purchase 320,750 shares of common stock exercisable within 60 days.

(5)

Mr. Hutchins’ total shares include vested options to purchase 180,750 shares of common stock exercisable within 60 days.

ITEM 5.

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names, positions and ages of our directors and executive officers. Our directors were elected by the majority written consent of our stockholders in lieu of a meeting. Our directors are typically elected at each annual meeting and serve for one year and until their successors are elected and qualify. Officers are elected by our board of directors and their terms of office are at the discretion of our board.

 

Stanton E. Ross .   From March 1992 to June 2005, Mr. Ross was Infinity’s Chairman and President and served as an officer and director of each of its subsidiaries. He resigned all of these positions with Infinity in June 2005, except Chairman, but was reappointed as Infinity’s President in October 2006. Mr. Ross has served as Chairman, President and Chief Executive Officer of Digital Ally, Inc. (“Digital”) since September 2005. Digital is a publicly held company where common stock is traded on the Nasdaq Capital Market under the symbol DGLY. From 1991 until March 1992, he founded and served as President of Midwest Financial, a financial services corporation involved in mergers, acquisitions and financing for corporations in the Midwest. From 1990 to 1991, Mr. Ross was employed by Duggan Securities, Inc., an investment banking firm in Overland Park, Kansas, where he primarily worked in corporate finance. From 1989 to 1990, he was employed by Stifel, Nicolaus & Co., a member of the New York Stock Exchange, where he was an investment executive. From 1987 to 1989, Mr. Ross was self-employed as a business consultant. From 1985 to 1987, Mr. Ross was President and founder of Kansas Microwave, Inc., which developed a radar detector product. From 1981 to 1985, he was employed by Birdview Satellite Communications, Inc., which manufactured and marketed home satellite television systems, initially as a salesman and later as National Sales Manager.  Mr. Ross devotes such time to the business of the Company as he deems necessary to discharge his fiduciary duties to it.  Mr. Ross estimated that he divided his time equally between Infinity and Digital through the first quarter of 2007.  Thereafter, he estimates that he has devoted approximately 85% of his time to Digital and 15% to the Company.  Mr. Ross holds no public company directorships other than with Digital and Infinity currently and for the previous five years.  The Company believes that Mr. Ross’ broad entrepreneurial, financial and business experience and his experience with micro-cap public companies and role as Chairman, President and CEO qualify him to serve as a director.

Daniel F. Hutchins . Mr. Hutchins was appointed to serve as Chief Financial Officer of Infinity effective as of August 13, 2007. Mr. Hutchins was elected a Director of Digital in December 2007 and serves as Chairman of Digital’s Audit Committee and is its financial expert. He is also a member of Digital's Compensation and Strategic Planning Committees.  He was previously a member of the Advisory Board of Digital Ally. Mr. Hutchins, a Certified Public Accountant, has been a Principal with the accounting firm of Hutchins & Haake, LLC since 1985.  From 1981 to 1985 he was an accountant with a regional CPA firm, Mize Houser.  From 1977 to 1981 he was with Deloitte & Touche, LLP. He has served on the boards of various non-profit groups and is a member of the American Institute of Certified Public Accountants. Mr. Hutchins earned his Bachelor of Business Administration degree in Accounting at Washburn University in Topeka, Kansas in 1977. Mr. Hutchins holds no other public company directorships currently and for the previous five years.  The Company believes that Mr. Hutchins’ significant experience in finance and accounting gives him the qualifications to serve as a director.

Leroy C. Richie .  Since June 1, 1999 Mr. Richie has been a director of Infinity and he is the sole member of the Compensation Committee of the Board.  Mr. Richie has been the Lead Outside Director of Digital since September 2005.  He is also a member Digital’s Audit and Compensation Committees and is the Chairman of Digital’s Nominating and Governance Committee.  Additionally, Mr. Richie serves as a member of the boards of directors of the following corporations and serves in the additional capacities noted:  OGE Energy Corp., Chairman of the Compensation Committee and a member of the Corporate Governance Committee; RiverSource Funds, member of the board of directors of the mutual fund family managed by Ameriprise Financial, Inc., Vibration Control Technologies, LLC, Great Lakes Assemblies, LLC and Gulf Shore Assemblies, LLC.  Since 2004, he has been of counsel to the Detroit law firm of Lewis & Munday, P.C.  From September 2000 to November 2004, he was Chairman and Chief Executive Officer of Q Standards World Wide, Inc.  From April 1999 to August 2000, he was President of Capitol Coating Technologies, Inc.  Mr. Richie was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs, where he directed all legal affairs for that company’s automotive operations from 1986 until his retirement in 1997.  Before joining Chrysler, he served as director of the New York office of the Federal Trade Commission.  Mr. Richie received a B.A. from City College of New York, where he was valedictorian, and a J.D. from the New York University School of Law, where he was awarded an Arthur Garfield Hays Civil Liberties Fellowship.  The Company believes that Mr. Richie’s extensive experience as a lawyer and as an officer or director of public companies gives him the qualifications and skills to serve as a director.

There is no family relationship between any of our directors, director nominees and executive officers.

(1)

Due to the financial condition of the Company, Mr. Ross has deferred the receipt of his salary since January 2009. As of December 31, 2010, a total of $135,208 of salary has accrued.  $64,792 of deferred salary was to exercise 249,200 shares at $0.26 in July 2010.

(2)

Mr. Hutchins began serving the Company as Vice President, Chief Financial Officer in August 2007.  Commencing in August 2007, Mr. Hutchins has been compensated at a rate of $100,000 per year.  Since January 2009 he has deferred his compensation, which totaled $200,000 as of December 31, 2010.  The firm of Hutchins and Haake, LLC provides accounting, tax, bookkeeping and administrative services to the Company.  Amounts that Hutchins and Haake would otherwise have billed to the Company are after deduction of Mr. Hutchins' annual salary of $100,000.  Mr. Hutchins charges the Company his standard rate of $195 per hour for the foregoing services that he renders through his accounting firm.  All compensation and expenses accruing to Mr. Hutchins and his accounting firm are included in general and administrative expenses of the Company.  The amount shown as "All Other Compensation" consists of services billed by him and others through Hutchins and Haake plus out-of-pocket expenses.  For the years ending 2010 and 2009, Hutchins and Haake, LLC billed the Company $142,117 and $175,990, respectively, which amounts are net of Mr. Hutchins' salary of $100,000 per year.   Due to the Company's financial situation, it has paid nothing to Mr. Hutchins or his firm for the periods shown and has accrued such amounts,

(3)

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 8/8ths, or 100%, of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  Such 1% interest is allocated 40% to Stanton E. Ross, 35% to Daniel F. Hutchins and 25% to Leroy C. Richie.  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 Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.

Compensation Policies and Objectives

We structure compensation for executive officers, including the named executive officers, to drive performance, to accomplish both our short-term and long-term objectives, and to enable us to attract, retain and motivate well qualified executives by offering competitive compensation and by rewarding superior performance. We also seek to link our executives’ total compensation to the interests of our shareholders. To accomplish this, our board of directors relies on the following elements of compensation, each of which is discussed in more detail below:

·

salary;

·

annual performance-based cash awards;

·

equity incentives in the form of stock and/or stock options; and

·

other benefits.

Our board of directors believes that our executive compensation package, consisting of these components, is comparable to the compensation provided in the market in which we compete for executive talent and is critical to accomplishing our recruitment and retention aims.

Leroy C. Richie is the sole member of the Compensation Committee in 2010.  Mr. Richie is not currently and has not ever been an officer or employee of Infinity or its subsidiaries.  In setting the amounts of each component of an executive’s compensation and considering the overall compensation package, the Compensation Committee generally considers the following factors:

Benchmarking— For executive officers, the board of directors considers the level of compensation paid to individuals in comparable executive positions of other oil and gas exploration and production companies of a similar size. The board of directors believes that these companies are the most appropriate for review because they are representative of the types of companies with which we compete to recruit and retain executive talent. The information reviewed by the board of directors includes data on salary, annual and long-term cash incentive bonuses and equity compensation, as well as total compensation.

Internal Equity— The board of directors considers the salary level for each executive officer and each position in overall management in order to reflect their relative value to us.

Individual Performance— The board of directors considers the individual responsibilities and performance of each named executive officer, which is based in part on the board of directors’ assessment of that individual’s performance as well as the evaluation of the individual by the Chief Executive Officer.

All executive officers are eligible for annual cash bonuses and equity incentive awards that reinforce the relationship between pay and performance by conditioning compensation on the achievement of the Company’s short- and long-term financial and operating goals, including operating profits, reserve finding costs, and growth in the Company’s daily oil and gas production and estimated proved, probable and possible recoverable oil and gas reserves.

Components of Executive Compensation

The following provides an analysis of each element of compensation, what each element is designed to reward and why the board of directors chose to include it as an element of our executive compensation.

Salaries

Salaries for executive officers are intended to incentivize the officers to focus on executing the Company’s day-to-day business and are reviewed annually. Changes are typically effective in April of each year and are based on the factors discussed above. Compensation arrangements with Mr. Hutchins were determined by the Compensation Committee through arms-length negotiations.

Annual Bonuses

The awarding of annual bonuses to executives is at the Compensation Committee’s discretion. The objective of the annual bonus element of compensation is to align the interest of executive officers with the achievement of superior Company performance for the year and also to encourage and reward extraordinary individual performance. In light of the Company’s operating results for 2010 and lack of financial resources, no bonuses were paid to the executive officers in 2010.

Stock Options

Including an equity component in executive compensation closely aligns the interests of the executives and our shareholders and rewards executives consistent with shareholder gains. Stock options produce value for executives only if our stock price increases over the exercise price, which is set at the market price on the date of grant. Also, through vesting and forfeiture provisions, stock options serve to encourage executive officers to remain with the Company. Awards made other than pursuant to the annual equity grants are typically made to newly hired or recently promoted employees.

In determining the stock option grants for Messrs. Ross and Hutchins, the Compensation Committee considered the number of options previously granted that remained outstanding, the number and value of shares underlying the options being granted and the related effect on dilution.  Such Committee also took into account the number of shares that remained available for grant under our stock incentive plans. Awards were made to key employees, with weighted distribution toward individuals with the greatest responsibilities.  Messrs. Ross and Hutchins were granted 200,000 and 175,000 options, respectively, in February 2011 and 249,200 and 155,750 options, respectively, in April 2009.  Information regarding outstanding equity awards as of December 31, 2010, as well as for grants to date in 2011, for the named executive officers is set forth below in the “Outstanding Equity Awards at Fiscal Year End” table.

(1)

In February 2011, the following options were issued at an exercise price of $5.25 and will expire on 02/09/2021:  200,000 shares to Stanton E. Ross and 175,000 shares to Daniel F. Hutchins.

Other Elements of Executive Compensation

We have not provided cash perquisites to our executive officers given our limited funds.

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 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions, which amounts is allocated 40% to Stanton E. Ross, 35% to Daniel F. Hutchins and 25% to Leroy C. Richie.  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.

Director Compensation

The following table discloses the cash, equity awards and other compensation earned, paid or awarded, as the case may be, to each of the Company’s directors during the fiscal years ended December 31, 2010 and 2009.

(1)

Mr. Richie received no cash compensation in 2010, but has accrued $111,500 for his services on the Board since January 1, 2008.  In February 2011 he was granted 125,000 stock options for his service on the Board. Such options vested immediately, are exercisable at a price of $5.25 per share and will expire on February 9, 2021.  In April 2009 he was granted 155,750 stock options that vested immediately and are exercisable at a price of $0.26 per share for a ten-year term.

(2)

Mr. Ross’ and Mr. Hutchins’ compensation and option awards are noted in the Executive Compensation table because neither of them received compensation or stock options for their services as a director.

(3)

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 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions, of which 25% was allocated to Mr. Richie.  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 Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.

(4)

Robert O. Lorenz resigned from his position as a member of the Company’s Board of Directors on March 16, 2009.

Compensation Committee Interlocks and Insider Participation

Leroy C. Richie is the sole member of the Compensation Committee in 2010.  Mr. Richie is not currently and has not ever been an officer or employee of Infinity or its subsidiaries.

ITEM 7.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The charter for the Company’s Audit Committee includes a requirement for the Audit Committee to review and approve any transaction involving the Company and a related party at least once a year or upon any significant change in the transaction or relationship. For these purposes, a “related party transaction” includes any transaction required to be disclosed pursuant to Item 404 of Regulation S-K.

On June 6, 2009 we entered into a revenue sharing agreement with Messrs. Ross, Richie and Hutchins for services provided.  We assigned to them a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths, or 100%, of our share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions, which amount is allocated 40% to Stanton E. Ross, 35% to Daniel F. Hutchins and 25% to Leroy C. Richie.  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 agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights in them for officers and directors

On March 23, 2009, the Company entered into a Securities Purchase Agreement dated effective as of March 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 with respect to the Nicaragua Concessions.  As of   December 31, 2009 Off-Shore had funded $1,275,000 (the “Funding Amount”) to Infinity.  The managing partner of Off-Shore and Mr. Hutchins, the CFO of Infinity are business partners in the firm which the Company uses for its corporate office.

In connection with the foregoing loan, the Company entered into a 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 8/8ths, or 100%, of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  The RSP bears 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 Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the 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, or $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.

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 interim CFO provides the office services.  The accounting firm of Hutchins and Haake, LLC, an affiliate of Daniel F. Hutchins, a director and the Chief Financial Officer, billed the Company at its standard billing rates for its services plus out-of-pocket expenses.  For the years 2010 and 2009 such firm billed the Company $142,117  $175,990, respectively.  The amount due to Mr. Hutchins firm for services provided was $323,929 for December 31, 2010 and $183,850 at December 13, 2009.  Due to the Company's financial situation, it has been unable to pay any of these amounts and it has accrued them for such periods.  See Item 6, "Executive Compensation."

Under the Fifth Forbearance, Additional Forbearance Period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the provision of the personal guarantee of Stanton E. Ross, the Company’s President and Chief Executive Officer, for up to $500,000 of the advances. At March 31, 2011, he had personally guaranteed $500,000 of the advances.

Our board of directors undertook its annual review of the independence of the directors and considered whether any director had a material relationship with us or our management that could compromise his ability to exercise independent judgment in carrying out his responsibilities.  As a result of this review, the board affirmatively determined that Leroy C. Richie is an “independent director” as such term is used under the rules and regulations of the Securities and Exchange Commission.

In February 2011, we granted options to purchase 50,000 shares of common stock to a partner of Quarles & Brady, LP, our outside legal counsel.  Such options are exercisable at $5.25 per share until February 9, 2021.  In June 2009 it also issued such person options to exercisable to purchase 30,000 shares of common stock at a price of $0.78 per share for a term of ten years.

ITEM 8.

LEGAL PROCEEDINGS

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:

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.

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 accrued the amount of the delivery shortfall through the end of the contract period as a liability.

 

The Company has included the foregoing as liabilities in its accounts payable and accrued interest because it does not dispute the amounts payable.  The Company has fully recorded the amounts claimed in the foregoing lawsuits including estimated attorney's fees, which are $445,521 in the Exterran Energy Solutions action and $929,208 in the LDH Development action.  The Company will seek to settle the lawsuits when it has the financial resources to do so.  Both suits are in the discovery stage.

 

ITEM 9.

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Approximate Number of Holders of Common Stock

At December 31 2010, there were approximately 400 stockholders of record of Infinity’s $0.0001 par value common stock and an estimated 400 beneficial holders whose common stock is held in street name by brokerage houses.

Dividends

Holders of common stock are entitled to receive such dividends as may be declared by Infinity’s Board of Directors. Infinity has not declared nor paid and does not anticipate declaring or paying any dividends on its common stock in the near future. Any future determination as to the declaration and payment of dividends will be at the discretion of Infinity’s board of directors and will depend on then-existing conditions, including Infinity’s financial condition, results of operations, contractual restrictions, capital requirements, business prospects and such other factors as the board deems relevant. Pursuant to the terms of its Credit Facility, Infinity is prohibited from paying dividends.

Securities Authorized for Issuance under Equity Compensation Plans

In May 2006, the Infinity’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 470,000 shares of the Infinity’s common stock are reserved for issuance under the 2006 Plan. Options granted under the 2006 Plan allow for the purchase of common stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Infinity’s Board of Directors and generally expire ten years after the date of grant. Infinity also has other equity incentive plans with terms similar to the 2006 Plan. As of December 31, 2010, 148,463 shares were available for future grants under all plans.

The following table sets forth certain information regarding the stock option plans adopted by Infinity as of December 31, 2010:

ITEM 10.

RECENT SALES OF UNREGISTERED SECURITIES

Infinity had no sales of unregistered securities in the past three years, except the issuance of warrants to Amegy on February 16, 2011 in connection with the Fifth Forbearance.  Such warrants are exercisable for a ten year term to purchase 931,561 shares of our common stock at a price of $5.01 per share.   We issued the warrants for nominal consideration.

ITEM 11.

DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED

Common Stock .

General . Infinity is authorized to issue 75,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001.