UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 15, 2021 (April 6, 2021)
Infinity Energy Resources, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 000-17204 | 20-3126437 | ||
|
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
11900 College Blvd.
Suite 310
Overland Park, KS 66210
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (913) 948-9512
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| — | — | — |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
EXPLANATORY NOTE
On April 6, 2021 Infinity Energy Resources, Inc. (“Infinity”) filed a Current Report on Form 8-K (the “Original 8-K”) to report the completion by Infinity, of the previously announced acquisition of certain oil and gas related interests in the Central Kansas Uplift Field in Kansas from Core Energy, LLC (“Core Energy”) for $900,000 in cash paid at closing (the “Acquired Oil & Gas Properties”). This Current Report on Form 8-K/A amends Item 9.01 of the Original 8-K to present certain financial statements for Core Energy and to present certain unaudited pro forma financial information in connection with the acquisition of the Acquired Oil & Gas Properties.
Unless stated otherwise in this Amended Form 8-K or exhibits hereto, this Amended Form 8-K does not amend any other item of the Original 8-K filed with the Commission on April 6, 2021, or purport to provide an update or a discussion of any developments at the Company or Core Energy, LLC, a Kansas limited liability company, subsequent to the filing date of the Original Report.
On December 14, 2020, the Company entered into an asset purchase and sale agreement (the “Agreement”) with Core Energy, as well as all of the members of Core, Mandalay LLC and Coal Creek Energy, LLC, to purchase certain oil and gas properties in the Central Kansas Uplift geological formation, covering over 11,000 contiguous acres, including, among other things, the production and mineral rights to and a leasehold interest in the Acquired Oil & Gas Properties and all contracts, agreements and instruments by which the Acquired Oil & Gas Properties are bound.
The acquisition of the Acquired Oil & Gas Properties under the Agreement is a significant acquisition for purposes of Item 2.01 of the Current Report on Form 8-K. As a result, the Company prepared the accompanying unaudited pro forma condensed financial statements in accordance with Article 11 of Regulation S-X.
The accompanying unaudited pro forma financial statements give effect to the acquisition under the Agreement as if the acquisition occurred at the beginning of the earliest period presented. The pro forma financial statements and adjustments thereunder are described in the accompanying notes. They are based upon information and assumptions available at the time of the filing of this Current Report on Form 8-K/A.
Item 9.01.Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
| The Statements of Revenues and Direct Operating Expenses of the Oil and Gas Properties Acquired by Infinity Energy Resources, Inc. from Core Energy, LLC for the years ended March 31, 2021 and 2020, together with independent auditors’ report thereon, are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference. |
(b)Pro Forma Financial Information
| The unaudited pro forma balance sheet of Infinity Energy Resources, Inc. as of March 31, 2021, and the pro forma statement of operations for the year ended year ended December 31, 2020, are filed as Exhibit 99.2 to this Current Report on Form 8-K/A and are incorporated herein by reference. |
(d) Exhibits
| 99.1 |
|
| 99.2 | Unaudited pro forma balance sheet of Infinity Energy Resources, Inc. as of March 31, 2021, and the pro forma statement of operations for the year ended year ended December 31, 2020. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: June 15, 2021 | Infinity Energy Resources, Inc. | |
| By: | /s/ Stanton E. Ross | |
| Name: | Stanton E. Ross | |
| Title: | Chairman, President and Chief Executive Officer | |
EXHIBIT INDEX
| 99.1 |
|
| 99.2 | Unaudited pro forma balance sheet of Infinity Energy Resources, Inc. as of March 31, 2021, and the pro forma statement of operations for the year ended year ended December 31, 2020. |
EXHIBIT 99.1
Independent Auditors’ Report
The Board of Directors and shareholders
Infinity Energy Resources, Inc.
We have audited the accompanying Statements of Revenues and Direct Operating Expenses of the Oil and Gas Properties Acquired by Infinity Energy Resources, Inc. (the “Statements”) from Core Energy, LLC (the Acquired Oil & Gas Properties) as described in Note 1, for the years ended March 31, 2021 and 2020.
Management’s Responsibility for the Statements
Management is responsible for the preparation and fair presentation of these statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Statements based on our audits. We conducted our audits in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
The accompanying Statements of the Acquired Oil & Gas Properties were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 1. The presentation is not intended to be a complete presentation of the Acquired Oil & Gas Properties described above.
Opinion
In our opinion, the Statements referred to above present fairly, in all material respects, the Revenues and Direct Operating Expenses of the Oil and Gas Properties Acquired by Infinity Energy Resources, Inc. for the years ended March 31, 2021 and 2020, in accordance with accounting principles generally accepted in the United States of America.
/s/ RBSM LLP
New York, New York
June 15, 2021
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF THE OIL & GAS PROPERTIES ACQUIRED BY INFINITY ENERGY RESOURCES, INC. FROM
CORE ENERGY, LLC
|
For
the Years
Ended March 31, |
||||||||
| 2021 | 2020 | |||||||
| Oil and gas revenues | $ | 63,836 | $ | 206,522 | ||||
| Direct operating expenses: | ||||||||
| Oil and gas production costs | 197,421 | 212,748 | ||||||
| Oil and gas production taxes | 3,063 | 9,264 | ||||||
| Total direct operating expenses | 200,484 | 222,012 | ||||||
|
Direct operating expenses in excess of oil and gas revenues
|
$ | (136,648 | ) | $ | (15,490 | ) | ||
The accompanying notes are an integral part of this financial statement
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF THE OIL AND GAS PROPERTIES ACQUIRED BY INFINITY ENERGY RESOURCES, INC. FROM CORE ENERGY, LLC
| 1. | BASIS OF PRESENTATION |
On April 1, 2021, Infinity Energy Resources, Inc. (“Infinity”) closed on the previously announced definitive agreement to acquire, effective January 1, 2021, certain existing production, equipment and mineral rights/leasehold for oil & gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological formation covering over 11,000 contiguous acres in Kansas (the “Oil & Gas Properties”) from Core Energy, LLC (“Core”). The total consideration for the transaction was approximately $900,000, subject to final post-closing adjustments.
The accompanying statements include revenues from the sale of crude oil production and direct operating expenses associated with the Oil & Gas Properties for the periods prior to the closing date. Revenues and direct operating expenses are presented on the accrual basis of accounting and were derived from Core’s historical accounting records. During the periods presented, the Oil & Gas Properties were not accounted for or operated as a separate division or entity by Core, therefore, certain expenses such as depreciation, depletion and amortization, general and administrative, interest and corporate income taxes were not allocated to the Oil & Gas Properties. Accordingly, complete separate financial statements reflecting the financial position, results of operations and cash flows of the Oil & Gas Properties prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) are not presented because the information necessary to prepare such statements is neither readily available on an individual property basis, nor practicable to obtain in these circumstances. As such, the accompanying statements are not intended to be a complete presentation of the revenues and expenses of the Oil & Gas Properties and are not indicative of the results of the operation of the Oil & Gas Properties going forward due to the omission of various expenses as described above. Accordingly, the accompanying statements of revenues and direct operating expenses of the Oil & Gas Properties are presented in lieu of the GAAP financial statements required under Item 3-05 of Securities and Exchange Commission (“SEC”) Regulation S-X.
Revenue Recognition
Oil and gas revenues are recognized when production is sold to purchasers at a fixed or determinable price, delivery has occurred, title has transferred and collectability is reasonably assured. Oil and gas revenues have been presented on the sales method of accounting whereby revenue is recognized for all oil and gas sold to purchasers, regardless of whether the sales are proportionate to the ownership interest in the property. Revenues are reported net of royalties and other revenue interests of third parties.
Direct Operating Expenses
Direct operating expenses are recognized when incurred and include (a) lease operating expenses which consist of lease and well repairs and maintenance, gathering and transportation, utilities and other direct operating expenses (b) production taxes and (c) ad valorem taxes.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues and direct operating expenses during the reporting period. These estimates and assumptions are based on management’s best estimates and judgment. Actual results may differ from the estimates and assumptions used in the preparation of the combined statements of revenues and direct operating expenses. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management evaluates subsequent events through the date the financial statements are issued.
Oil & Gas Properties
We follow the full cost method of accounting under which all costs associated with property acquisition, exploration and development activities are capitalized. We also capitalize internal costs that can be directly identified with our acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities.
Proved properties are amortized/depleted using the units of production method (UOP). Currently we only have operations in the United States of America. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarter by the cost of these reserves. The amortization base in the UOP calculation includes the sum of proved property, net of accumulated depreciation, depletion and amortization (DD&A), estimated future development costs (future costs to access and develop proved reserves) and asset retirement costs, less related salvage value.
The cost of unproved properties are excluded from the amortization calculation until it is determined whether or not proved reserves can be assigned to such properties or until development projects are placed into service. Geological and geophysical costs not associated with specific properties are recorded as proved property immediately. Unproved properties are reviewed for impairment quarterly.
Under the full-cost-method of accounting, the net book value of oil and gas properties, less deferred income taxes, may not exceed a calculated “ceiling.” The ceiling limitation is (a) the present value of future net revenues computed by applying current prices of oil & gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil & gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount factor of 10 percent and assuming continuation of existing economic conditions plus (b) the cost of properties not being amortized plus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized less (d) income tax effects related to differences between book and tax basis of properties. Future cash outflows associated with settling accrued retirement obligations are excluded from the calculation. Estimated future cash flows are calculated using end-of-period costs and an un-weighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months held flat for the life of the production, except where prices are defined by contractual arrangements.
Any excess of the net book value of proved oil and gas properties, less related deferred income taxes, over the ceiling is charged to expense and reflected as additional DD&A in the statement of operations
Proceeds from the sale or disposition of oil and gas properties are accounted for as a reduction to capitalized costs unless a significant portion (greater than 25%) of our reserve quantities are sold, in which case a gain or loss is recognized in income.
Asset Retirement Obligations
The asset retirement obligation relates to the plug and abandonment costs when our wells are no longer useful. We determine the value of the liability by obtaining quotes for this service and estimate the increase we will face in the future. We then discount the future value based on an intrinsic interest rate that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future, however, we monitor the costs of the abandoned wells and we will adjust this liability if necessary.
Major Purchasers
For the years ended March 31, 2021, and 2020 we sold our produced crude oil to CHS McPherson Refinery Inc. on a month-to-month basis.
| 2. | COMMITMENTS AND CONTINGENCIES |
Pursuant to the terms of the purchase and sale agreement between Core and Infinity, certain liabilities arising in connection with ownership of the Oil & Gas Properties prior to the effective date are retained by Core. Management is not aware of any legal, environmental or other commitments or contingencies that would have a material effect on the statements of revenues and direct operating expenses.
**********************
EXHIBIT 99.2
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On April 1, 2021, the Company completed the previously announced acquisition of certain oil and gas properties and interests from Core Energy, LLC, effective as of January 1, 2021 (the “Oil & Gas Properties Acquisition”). On December 14, 2020, the Company entered into an asset purchase and sale agreement (the “Agreement”) with Core Energy, as well as all of the members of Core, Mandalay LLC and Coal Creek Energy, LLC, to purchase certain oil and gas properties in the Central Kansas Uplift geological formation, covering over 11,000 contiguous acres, including, among other things, the production and mineral rights to and a leasehold interest in the Oil & Gas Properties and all contracts, agreements and instruments. The Agreement provided for an aggregate purchase price consisting of $900,000 in cash at closing.
The following unaudited pro forma financial statements present our unaudited pro forma balance sheet as of March 31, 2021, and unaudited pro forma statement of operations for the year ended December 31, 2020. The unaudited pro forma statement of operations has been developed by applying pro forma adjustments to our historical statements of operations for the year ended December 31, 2020 to give effect to the Oil & Gas Properties Acquisition, as if these transactions had occurred on January 1, 2020. The unaudited pro forma statement of operations is derived by combining our historical statement of operations for the year ended December 31, 2020 with the statement of revenues and direct operating expenses of the oil and gas properties acquired by Infinity Energy Resources, Inc. from Core Energy, LLC for the year ended March 31, 2021 as required by Regulation S-X 11-02 (c)(3).
The unaudited pro forma balance sheet has been developed by applying pro forma adjustments to our historical balance sheet to give effect to the Oil & Gas Properties Acquisition, as if the transaction had occurred on March 31, 2021.
The unaudited pro forma financial statements are for illustrative and informational purposes only and are not intended to represent or be indicative of what our results of operations would have been had the above transaction occurred as of or on the dates indicated. The unaudited pro forma financial statements also should not be considered representative of our future results of operations.
The pro forma adjustments related to the Oil & Gas Properties Acquisition are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable and are subject to change. Accordingly, these pro forma adjustments are preliminary and have been made solely for the purpose of providing these unaudited pro forma financial statements. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material. The differences, if any, could have a material impact on the accompanying unaudited pro forma financial statements and our future results of operations.
INFINITY ENERGY RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 2021
(Unaudited)
| Historical |
Proforma Adjustments |
Proforma | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 1,413,686 | $ | (900,000 | ) | [2a] | $ | 513,686 | ||||
| Total current assets | 1,413,686 | (900,000 | ) | 513,686 | ||||||||
| Properties and Equipment: | ||||||||||||
| Oil and gas properties subject to depletion and amortization | — | 913,425 | [2a] | 913,425 | ||||||||
| Total properties and equipment | — | 913,425 | 913,425 | |||||||||
| Total assets | $ | 1,413,686 | $ | 13,425 | $ | 1,427,111 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 850,691 | $ | — | $ | 850,691 | ||||||
| Accrued liabilities | 1,163,259 | — | 1,163,259 | |||||||||
| Accrued interest | 38,708 | — | 38,708 | |||||||||
| Asset retirement obligations | 1,716,003 | 13,425 | [2a] | 1,729,428 | ||||||||
| Notes payable, net | 85,000 | — | 85,000 | |||||||||
| Total current liabilities | 3,853,661 | 13,425 | 3,867,086 | |||||||||
| Convertible promissory notes | 28,665 | — | 28,665 | |||||||||
| Derivative liabilities | 122 | — | 122 | |||||||||
| Total liabilities | 3,882,448 | 13,425 | 3,895,873 | |||||||||
| Commitments and contingencies | ||||||||||||
| Stockholders’ deficit: | ||||||||||||
| Preferred stock; par value $.0001 per share, 10,000,000 shares authorized; Series A Convertible – 27,778 shares authorized with stated/liquidation value of $100 per share, 22,776 shares issued and outstanding as of March 31, 2021 | 2 | — | 2 | |||||||||
| Common stock, par value $.0001 per share, 75,000,000 shares authorized, 18,548,265 shares issued and outstanding at March 31, 2021 | 1,855 | 1,855 | ||||||||||
| Additional paid-in capital | 114,819,589 | — | 114,819,589 | |||||||||
| Accumulated deficit | (117,290,208 | ) | — | (117,290,208 | ) | |||||||
| Total stockholders’ deficit | (2,468,762 | ) | — | (2,468,762 | ) | |||||||
| Total liabilities and stockholders’ deficit | $ | 1,413,686 | $ | 13,425 | $ | 1,427,111 | ||||||
The accompanying notes an integral part of this unaudited pro forma condensed financial statements
INFINITY ENERGY RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2020
(Unaudited)
| Infinity | Acquired | Pro Forma | ||||||||||||||
| Historical | Properties [2d] | Adjustments | Pro Forma | |||||||||||||
| Oil and gas revenues | $ | — | $ | 63,836 | $ | — | $ | 63,836 | ||||||||
| Costs and operating expenses: | ||||||||||||||||
| Oil and gas production costs | — | 197,421 | — | 197,421 | ||||||||||||
| Oil and gas production taxes | — | 3,063 | — | 3,063 | ||||||||||||
| Depreciation, depletion and amortization | — | — | 123,336 | [2b] | 123,336 | |||||||||||
| Asset retirement accretion | — | — | 1,114 | [2c] | 1,114 | |||||||||||
| General and administrative expenses | 316,299 | — | — | 316,299 | ||||||||||||
| Total costs and operating expenses | 316,299 | 200,484 | 124,450 | 641,233 | ||||||||||||
| Operating loss | (316,299 | ) | (136,648 | ) | (124,450 | ) | (577,397 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (210,931 | ) | — | — | (210,931 | ) | ||||||||||
| Gain on extinguishment of liabilities | 6,150,142 | — | — | 6,150,142 | ||||||||||||
| Change in derivative fair value | 795 | — | — | 795 | ||||||||||||
| Total other income | 5,940,006 | — | — | 5,940,006 | ||||||||||||
| Income (loss) before income taxes | 5,623,707 | (136,648 | ) | (124,450 | ) | 5,362,609 | ||||||||||
| Income tax (expense) benefit | — | — | — | — | ||||||||||||
| Net income (loss) | $ | 5,623,707 | $ | (136,648 | ) | $ | (124,450 | ) | $ | 5,362,609 | ||||||
The accompanying notes an integral part of this unaudited pro forma condensed financial statements
INFINITY ENERGY RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRO FORMA PRESENTATION
These pro forma financial statements present our unaudited pro forma balance sheet as of March 31, 2021, unaudited pro forma statement of operations for the year ended December 31, 2020. These unaudited statements have been developed by applying pro forma adjustments to our historical financial statements to give effect to the Oil & Gas Properties Acquisition.
The unaudited pro forma financial statements were prepared in accordance with Regulation S-X Article 11 of the Securities and Exchange Commission.
The pro forma adjustments related to the purchase price allocation of the Oil & Gas Properties Acquisition are preliminary and are subject to revisions as additional information becomes available. Revisions to the preliminary purchase price allocation may have a significant impact on the pro forma amounts of depreciation, depletion, amortization, and accretion expense. The pro forma adjustments related to the Oil & Gas Properties Acquisition reflect the fair values of the assets as of April 1, 2021 (the closing date of the transaction). The pro forma adjustments related to this acquisition do not necessarily reflect the fair values that would have been recorded if the applicable acquisition had occurred on January 1, 2020 with respect to the Proforma Statement of Operations or March 31, 2021 with respect to the Proforma Balance Sheet.
The unaudited pro forma financial statements should be read together with our historical financial statements and the related notes as of and for the year ended December 31, 2020 for the Company and the historical statement of revenues and direct operating expenses for the Oil & Gas Properties Acquired by Infinity Energy Resources, Inc from Core Energy, LLC for the year ended March 31, 2021. Based on Securities and Exchange Act of 1934 Regulation S-X 11-02 (c)(3), the proforma statement of revenues for the year ended December 31, 2020 is derived from the statement of revenues and direct operating expenses for the Oil & Gas Properties Acquired by Infinity Energy Resources, Inc from Core Energy, LLC for the year ended March 31, 2021 and our historical statement of operations for the year ended December 31, 2020 since they are different by less than 93 days.
The pro forma financial information presented gives effect to pro forma events that are (1) directly attributable to the Oil & Gas Properties Acquisition, (2) factually supportable and (3) with respect to the pro forma statements of operations, expected to have a continuing impact. The pro forma financial information is not necessarily indicative of financial results that would have been attained had the Oil & Gas Properties Acquisition occurred on the date indicated or which could be achieved in the future. The pro forma adjustments are based on currently available information and certain estimates and assumptions. However, our management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma financial statements.
NOTE 2. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
The accompanying unaudited pro forma combined financial statements reflect the following pro forma adjustments:
| (a) | Represents the preliminary purchase price allocation for the Oil & Gas Properties Acquisition of $900,000 in cash. The Oil & Gas Property Acquisition will qualify as an asset acquisition. As such, Infinity will recognize the assets acquired and liabilities to be assumed at their fair values as the date of closing. The estimated fair value of the Oil & Gas Properties acquired approximate the value of the consideration paid, and the asset retirement obligation to be assumed, which management has concluded approximates the fair value that would be paid by a typical market participant. As a result, neither goodwill nor a bargain purchase gain will be recognized related to the acquisition. While the proposed transaction is subject to purchase price adjustments, the following table summarizes estimates of the assets to be acquired and the liabilities to be assumed: |
| Oil and gas properties subject to depletion and amortization | $ | 913,425 | ||
| Assumption of asset retirement obligation | (13,425 | ) | ||
| Total Identifiable Net Assets | $ | 900,000 |
|
The Company estimated the amount of the asset retirement obligation assumed was $13,425 as of the date of acquisition. The obligation relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development, or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support wells at the conclusion of their useful lives. |
||
| (b) | Represents the increase in depreciation, depletion and amortization expense computed on the straight-line method based on the estimated useful life of the underlying assets following the preliminary purchase price allocation to proved oil and gas properties, as if the Oil & Gas Properties Acquisition was consummated on January 1, 2020. | |
| (c) | Represents the increase in asset retirement obligation accretion expense computed on estimated plugging and abandonment costs and timing for each existing well following the preliminary purchase price allocation to proved oil and gas properties, as if the Oil & Gas Properties Acquisition was consummated on January 1, 2020. | |
| (d) | Represents the historical direct revenues and direct operating expenses of the Oil & Gas Properties Acquisition. |