| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Basis of Presentation: On November 15, 2023 (the “Closing Date”),
the Company consummated a business combination which resulted in the acquisition of Pogo Resources, LLC, a Texas limited liability Company
(“Pogo” or “Pogo Resources”) and its subsidiary LH Operating, LLC, a Texas limited liability company (“LHO”,
and collectively, the “Pogo Business”) (the “Acquisition”). The Company was deemed the accounting acquirer in
the Acquisition based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations,
and the Pogo Business was deemed to be the Predecessor entity. Accordingly, the historical consolidated financial statements of the Pogo
Business became the historical financial statements of the Company’s upon consummation of the Acquisition. As a result, the financial
statements included in this report reflect (i) the historical operating results of Pogo Business prior to the Acquisition (“Predecessor”)
and (ii) the combined results of the companies, including Pogo Business following the closing of the Acquisition (“Successor”).
The accompanying financial statements include a Predecessor period, which was the three and six months ended June 30, 2023, and Successor
period for the three and six months ended June 30, 2024. As a result of the Acquisition, the results of operations, financial position
and cash flows of the Predecessor and Successor may not be directly comparable. A black-line between the Successor and Predecessor periods
has been placed in the consolidated financial statements and in the tables to the notes to the consolidated financial statements to highlight
the lack of comparability between these two periods as the Acquisition resulted in a new basis of accounting for the Pogo Business. See
Note 3 for additional information. The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and in accordance with the instructions to Condensed Form 10-Q and Article 8 of Regulation
S-X of the SEC. Certain information or footnote disclosures normally included
in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of
the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation
of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial
position, operating results and cash flows for the period presented. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K as filed with the SEC on May
2, 2024. The interim results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected
for the year ending December 31, 2024 or for any future periods. Revision of previously issued financial statements During the preparation of its financial statements
for the three months ended June 30, 2024, the Company determined that certain lease operating expenses incurred during the three months
ended March 31, 2024 should have been capitalized as oil and gas development costs. The error was determined to not be material to these
previously reported numbers, and therefore the previously issued consolidated financial statements are not re-issued. The impact to depletion
expense of these adjustments was trivial. The following tables summarize the changes made
to the affected financial statements and results of operations.
March 31, Adjustments March 31,
As Reported As Revised
ASSETS
Total current assets $ 6,243,105 $ - $ 6,243,105
Crude oil and natural gas properties, successful efforts method:
Proved Properties 94,834,573 824,007 95,658,580
Accumulated depreciation, depletion, amortization and impairment (828,201 ) - (828,201 )
Total oil and natural gas properties, net 94,006,372 824,007 94,830,379
Other property, plant and equipment, net 20,000 - 20,000
TOTAL ASSETS $ 100,269,477 $ 824,007 $ 101,093,484
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities
Total current liabilities $ 30,507,059 $ - $ 30,507,059
Long-term debt, net of current portion and discount 31,385,711 - 31,385,711
Warrant liability 5,625,934 - 5,625,934
Deferred tax liability 4,731,204 230,657 4,961,861
Asset retirement obligations 937,302 - 937,302
Long-term derivative instrument liabilities 388,642 - 388,642
Other liabilities 675,000 - 675,000
Total for non-current liabilities 43,743,793 230,657 43,974,450
Total liabilities 74,250,852 230,657 74,481,509
Commitments and Contingencies
Stockholders’ (deficit) equity
Preferred stock, $0.0001 par value; 1,000,000 authorized shares, 0 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively - - -
Class A Common stock, $0.0001 par value; 100,000,000 authorized shares, 5,235,131 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 524 - 524
Class B Common stock, $0.0001 par value; 20,000,000 authorized shares, 1,800,000 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 180 - 180
Additional paid in capital 17,017,104 - 17,017,104
Accumulated deficit (24,405,597 ) 593,350 (23,812,247 )
Total stockholders’ (deficit) attributable to HNR Acquisition Corp (7,387,789 ) 593,350 (6,794,439 )
Noncontrolling interest 33,406,414 - 33,406,414
Total stockholders’ equity 26,018,625 593,350 26,611,975
Total liabilities and stockholders’ equity 100,269,477 824,007 101,093,484
Three (Successor) Adjustments Three (Successor)
As Reported As Revised
Revenues $ 3,283,099 $ - $ 3,283,099
Expenses
Production taxes, transportation and processing $ 428,280 $ - $ 428,280
Lease operating 3,123,525 (824,007 ) 2,299,518
Depletion, depreciation and amortization 476,074 - 476,074
Accretion of asset retirement obligations 33,005 - 33,005
General and administrative 2,309,824 - 2,309,824
Total expenses 6,370,708 (824,007 ) 5,546,701
Operating income (loss) (3,087,609 ) (824,007 ) (2,263,602 )
Total other income (expenses) (3,631,179 ) - (3,631,179 )
Income (loss) before income taxes (6,718,788 ) 824,007 (5,894,781 )
Income tax provision 1,431,936 (230,657 ) 1,201,279
Net income (loss) (5,286,852 ) 593,350 (4,693,502 )
Net income (loss) attributable to noncontrolling interests - - -
Net income (loss) attributable to HNR Acquisition Corp. $ (5,286,852 ) $ 593,350 $ (4,693,502 )
Weighted average share outstanding, common stock - basic and diluted 5,235,131 5,235,131 5,235,131
Net income (loss) per share of common stock – basic and diluted $ (1.01 ) 0.11 $ (0.90 )
Total
Class
A Class
B Stockholders’
Total
Common
Stock Common
Stock Additional Accumulated HNR Noncontrolling Stockholders’
Shares Amount Shares Amount Capital deficit Corp. Interest Equity
As Reported
Balance
– December 31, 2023 5,235,131 $ 524 1,800,000 $ 180 $ 16,317,856 $ (19,118,745 ) $ (2,800,185 ) $ 33,406,414 $ 30,606,229
Share-based
compensation - - 699,248 699,248 - 699,248
Net
loss - - - - (5,286,852 ) (5,286,852 ) - (5,286,852 )
Balance
– March 31, 2024 5,235,131 $ 524 1,800,000 $ 180 $ 17,017,104 $ (24,405,597 ) $ (7,387,789 ) $ 33,406,414 $ 26,018,625
Adjustment $ 593,350 $ 593,350 $ - $ 593,350
As
Revised
Balance
– December 31, 2023 5,235,131 $ 524 1,800,000 $ 180 $ 16,317,856 $ (19,118,745 ) $ (2,800,185 ) $ 33,406,414 $ 30,606,229
Share-based
compensation - - 699,248 699,248 - 699,248
Net
loss - - - - (4,693,502 ) (4,693,502 ) - (4,693,502 )
Balance
– March 31, 2024 5,235,131 $ 524 1,800,000 $ 180 $ 17,017,104 $ (23,812,247 ) $ (6,794,439 ) $ 33,406,414 $ 26,611,975
Three Adjustments Three
As Reported As Revised
Operating activities:
Net income (loss) $ (5,286,852 ) $ 593,350 $ (4,693,502 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, and amortization expense 476,074 - 476,074
Accretion of asset retirement obligations 33,005 - 33,005
Equity-based compensation 699,248 - 699,248
Deferred income tax benefit (1,431,936 ) 230,657 (1,201,279 )
Amortization of operating lease right-of-use assets - - -
Amortization of debt issuance costs 813,181 - 813,181
Change in fair value of unsettled derivatives 1,860,093 - 1,860,093
Change in fair value of warrant liability 624,055 - 624,055
Change in fair value of forward purchase agreement 349,189 - 349,189
Change in other property, plant, and equipment, net - - -
Changes in operating assets and liabilities:
Accounts receivable (23,985 ) - (23,985 )
Prepaid expenses and other assets 59,758 - 59,758
Related party note receivable interest income - - -
Accounts payable (581,535 ) (1,230,720 ) (1,812,255 )
Accrued liabilities and other 3,161,477 - 3,161,477
Royalties payable 560,392 - 560,392
Royalties payable – related party 214,394 - 214,394
Net cash provided by operating activities 1,526,558 (406,713 ) 1,119,845
Investing activities:
Development of crude oil and gas properties (977,716 ) 406,713 (571,003 )
Purchases of other equipment (20,000 ) - (20,000 )
Net cash used in investing activities (997,716 ) 406,713 (591,003 )
Financing activities:
Net cash used in financing activities (670,924 ) - (670,924 )
Net change in cash and cash equivalents (142,082 ) - (142,082 )
Cash and cash equivalents at beginning of period 3,505,454 - 3,505,454
Cash and cash equivalents at end of period $ 3,363,372 $ - $ 3,363,372
Cash paid during the period for:
Interest on debt $ 1,387,458 $ - $ 1,387,458
Income taxes $ - $ - $ -
Amounts included in the measurement of operating lease liabilities $ - $ - $ -
Supplemental disclosure of non-cash investing and financing activities:
Debt discount related to warrants issued with Private Notes Payable $ 223,908 $ - $ 223,908
Accrued purchases of property and equipment at period end $ 65,203 $ 1,230,720 $ 1,295,923 Principles of Consolidation The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated
in consolidation. Emerging Growth Company: Section 102(b)(1) of the JOBS Act exempts
emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that
is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Securities Exchange Act of 1934) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended
transition period which means that when a standard is issued or revised and it has different application dates for public or private companies,
the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised
standard. This may make comparison of the Company’s consolidated financial statements with another public company which is neither
an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible
because of the potential differences in accounting standards used. Use of Estimates The preparation of financial statements in conformity
with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates and assumptions reflected in the financial statements include: i) estimates of proved
reserves of oil and natural gas, which affect the calculation of depletion, depreciation, and amortization (“DD&A”) and
impairment of proved oil and natural gas properties, ii) impairment of undeveloped properties and other assets, iii) depreciation of property
and equipment; and iv) the valuation of commodity derivative instruments. These estimates are based on information available as of the
date of the financial statements; therefore, actual results could differ materially from management’s estimates using different
assumptions or under different conditions. Future production may vary materially from estimated oil and natural gas proved reserves. Actual
future prices may vary significantly from price assumptions used for determining proved reserves and for financial reporting. Net Income (Loss) Per Share: Net income (loss) per share of common stock is
computed by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding
during the period, excluding shares of common stock subject to forfeiture. The Company’s Class B Common shares do not
have economic rights to the undistributed earnings of the Company, and are not considered participating securities under ASC 260. As such,
they are excluded from the calculation of net income (loss) per common share. The Company has not considered the effect of the
warrants sold in the Initial Public Offering and private placement warrants to purchase an aggregate of 6,847,500 shares and
warrants to purchase 4,413,000 shares issued in connection with Private Notes Payable in the calculation of diluted income per share,
since the effective of those instruments would be anti-dilutive. As a result, diluted income (loss) per share of common stock is
the same as basic loss per share of common stock for the period presented. Cash The Company considers all cash on hand, depository
accounts held by banks, money market accounts and investments with an original maturity of three months or less to be cash equivalents.
The Company’s cash and cash equivalents are held in financial institutions in amounts that exceed the insurance limits of the Federal
Deposit Insurance Corporation. The Company believes its counterparty risks are minimal based on the reputation and history of the institutions
selected. Accounts Receivable Accounts receivable consist
of receivables from crude oil and natural gas purchasers and are generally uncollateralized. Accounts receivables are typically due within
30 to 60 days of the production date and 30 days of the billing date and are stated at amounts due from purchasers and industry
partners. Amounts are considered past due if they have been outstanding for 60 days or more. No interest is typically charged on
past due amounts. The Company reviews
its need for an allowance for doubtful accounts on a periodic basis and determines the allowance, if any, by considering the length of
time past due, previous loss history, future net revenues associated with the debtor’s ownership interest in oil and natural gas
properties operated by the Company and the debtor’s ability to pay its obligations, among other things. The Company believes its
accounts receivable are fully collectible. Accordingly, no allowance for doubtful accounts has been provided. As of June 30, 2024
and December 31, 2023, the Company had approximately 99% and 96% of accounts receivable with two customers, respectively. Crude Oil and Natural
Gas Properties The Company accounts
for its crude oil and natural gas properties under the successful efforts method of accounting. Under this method, costs of proved developed
producing properties, successful exploratory wells and developmental dry hole costs are capitalized. Internal costs that are directly
related to acquisition and development activities, including salaries and benefits, are capitalized. Internal costs related to production
and similar activities are expensed as incurred. Capitalized costs are depleted by the unit-of-production method based on estimated proved
developed producing reserves. The Company calculates quarterly depletion expense by using the estimated prior period-end reserves as the
denominator. The process of estimating and evaluating crude oil and natural gas reserves is complex, requiring significant decisions in
the evaluation of available geological, geophysical, engineering, and economic data. The data for a given property may also change substantially
over time because of numerous factors, including additional development activity, evolving production history and a continual reassessment
of the viability of production under changing economic conditions. As a result, revisions in existing reserve estimates occur. Capitalized
development costs of producing oil and natural gas properties are depleted over proved developed reserves and leasehold costs are depleted
over total proved reserves. Upon the sale or retirement of significant portions of or complete fields of depreciable or depletable property,
the net book value thereof, less proceeds or salvage value, is recognized as a gain or loss. Exploration costs, including
geological and geophysical expenses, seismic costs on unproved leaseholds and delay rentals are expensed as incurred. Exploratory well
drilling costs, including the cost of stratigraphic test wells, are initially capitalized, but charged to expense if the well is determined
to be economically nonproductive. The status of each in-progress well is reviewed quarterly to determine the proper accounting treatment
under the successful efforts method of accounting. Exploratory well costs continue to be capitalized so long as the Company has identified
a sufficient quantity of reserves to justify completion as a producing well, is making sufficient progress assessing reserves with economic
and operating viability, and the Company remains unable to make a final determination of productivity. If an in-progress exploratory
well is found to be economically unsuccessful prior to the issuance of the financial statements, the costs incurred prior to the end of
the reporting period are charged to exploration expense. If the Company is unable to make a final determination about the productive status
of a well prior to issuance of the financial statements, the costs associated with the well are classified as suspended well costs until
the Company has had sufficient time to conduct additional completion or testing operations to evaluate the pertinent geological and engineering
data obtained. At the time the Company can make a final determination of a well’s productive status, the well is removed from suspended
well status and the resulting accounting treatment is recorded. The Successor recognized
depreciation, depletion, and amortization expense totaling $522,542 and $998,616 for the three and six months ended June 30, 2024, respectively,
and the Predecessor recognized $441,611 and $858,992 for the three and six months ended June 30, 2023, respectively. Impairment of Oil
and Gas Properties Proved oil and natural
gas properties are reviewed for impairment when events and circumstances indicate a possible decline in the recoverability of the carrying
amount of such property. The Company estimates the expected future cash flows of its oil and natural gas properties and compares the undiscounted
cash flows to the carrying amount of the oil and natural gas properties, on a field-by-field basis, to determine if the carrying amount
is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will write down the carrying
amount of the oil and natural gas properties to estimated fair value. The Company and the Predecessor
did not recognize any impairment of oil and natural gas properties in the periods presented. Asset Retirement Obligations The Company recognizes
the fair value of an asset retirement obligation (“ARO”) in the period in which it is incurred if a reasonable estimate of
fair value can be made. The asset retirement obligation is recorded as a liability at its estimated present value, with an offsetting
increase recognized in oil and natural gas properties on the consolidated balance sheets. Periodic accretion of the discounted value of
the estimated liability is recorded as an expense in the consolidated statements of operations. Other Property and
Equipment, net Other property and equipment
are recorded at cost. Other property and equipment are depreciated over its estimated useful life on a straight-line basis. The Company
expenses maintenance and repairs in the period incurred. Upon retirements or dispositions of assets, the cost and related accumulated
depreciation are removed from the consolidated balance sheet with the resulting gains or losses, if any, reflected in operations. Materials and supplies
are stated at the lower of cost or market and consist of oil and gas drilling or repair items such a tubing, casing, and pumping units.
These items are primarily acquired for use in future drilling or repair operations and are carried at lower of cost or market. The Company reviews its
long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. If such assets are considered impaired, the impairment to be recorded is measured by the amount by which the carrying amount
of the asset exceeds its estimated fair value. The estimated fair value is determined using either a discounted future cash flow model
or another appropriate fair value method. Derivative Instruments The Company uses derivative
financial instruments to mitigate its exposure to commodity price risk associated with oil prices. The Company’s derivative financial
instruments are recorded on the consolidated balance sheets as either an asset or a liability measured at fair value. The Company has
elected not to apply hedge accounting for its existing derivative financial instruments, and as a result, the Company recognizes the change
in derivative fair value between reporting periods currently in its consolidated statements of operations. The fair value of the Company’s
derivative financial instruments is determined using industry-standard models that consider various inputs including: (i) quoted
forward prices for commodities, (ii) time value of money and (iii) current market and contractual prices for the underlying
instruments, as well as other relevant economic measures. Realized gains and losses from the settlement of derivative financial instruments
and unrealized gains and unrealized losses from valuation changes in the remaining unsettled derivative financial instruments are reported
in a single line item as a component of revenues in the consolidated statements of operations. Cash flows from derivative contract settlements
are reflected in operating activities in the accompanying consolidated statements of cash flows. See Note 4 for additional information
about the Company’s derivative instruments. The Company’s credit
risk related to derivatives is a counterparties’ failure to perform under derivative contracts owed to the Company. The Company
uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments.
Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk
is mitigated by the Company’s credit risk policies and procedures. The Company has entered
into International Swap Dealers Association Master Agreements (“ISDA Agreements”) with its derivative counterparty. The terms
of the ISDA Agreements provide the Company and the counterparty with rights of set off upon the occurrence of defined acts of default
by either the Company or a counterparty to a derivative, whereby the party not in default may set off all derivative liabilities owed
to the defaulting party against all derivative asset receivables from the defaulting party. Product Revenues The Company accounts
for sales in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers The Company enters into
contracts with customers to sell its oil and natural gas production. Revenue from these contracts is recognized when the Company’s
performance obligations under these contracts are satisfied, which generally occurs with the transfer of control of the oil and natural
gas to the purchaser. Control is generally considered transferred when the following criteria are met: (i) transfer of physical custody,
(ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar
rights. Given the nature of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company
expects to receive in accordance with the price specified in the contract. Consideration under oil and natural gas marketing contracts
is typically received from the purchaser one to two months after production. Most of the Company’s
oil marketing contracts transfer physical custody and title at or near the wellhead or a central delivery point, which is generally when
control of the oil has been transferred to the purchaser. The majority of the oil produced is sold under contracts using market-based
pricing, which price is then adjusted for differentials based upon delivery location and oil quality. To the extent the differentials
are incurred at or after the transfer of control of the oil, the differentials are included in oil revenues on the statements of operations,
as they represent part of the transaction price of the contract. If other related costs are incurred prior to the transfer of control
of the oil, those costs are included in production taxes, transportation and processing expenses on the Company’s consolidated statements
of operations, as they represent payment for services performed outside of the contract with the customer. The Company’s natural
gas is sold at the lease location. Most of the Company’s natural gas is sold under gas purchase agreements. Under the gas purchase
agreements, the Company receives a percentage of the net production from the sale of the natural gas and residue gas, less associated
expenses incurred by the buyer. The Company does not
disclose the value of unsatisfied performance obligations under its contracts with customers as it applies the practical expedient in
accordance with ASC 606. The expedient, as described in ASC 606-10-50-14(a), applies to variable consideration that is recognized
as control of the product is transferred to the customer. Since each unit of product represents a separate performance obligation, future
volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required. Customers The Company and the Predecessor,
respectively, sold 100% of its crude oil and natural gas production to two customers for the six months ended June 30, 2024 and 2023.
Inherent to the industry is the concentration of crude oil, natural gas and natural gas liquids (“NGLs”) sales to a limited
number of customers. This concentration has the potential to impact the Company’s overall exposure to credit risk in that its customers
may be similarly affected by changes in economic and financial conditions, commodity prices or other conditions. Given the liquidity in
the market for the sale of hydrocarbons, the Company believes the loss of any single purchaser, or the aggregate loss of several purchasers,
could be managed by selling to alternative purchasers in the operating areas. Warranty Obligations The Company provides
an assurance-type warranty that guarantees its products comply with agreed-upon specifications. This warranty is not sold separately and
does not convey any additional goods or services to the customer; therefore, the warranty is not considered a separate performance obligation.
As the Company typically incurs minimal claims under the warranties, no liability is estimated at the time goods are delivered, but rather
at the point of a claim. Other Revenue Other revenue is generated
from the fees the Company charges a single customer for the disposal of water, saltwater, brine, brackish water, and other water (collectively,
“Water”) into the Company’s water injection system. Revenue recognized under the agreement is variable in nature and
primarily based on the volume of Water accepted during the period. Warrant Liabilities The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance
in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ASC 480, Distinguishing Liabilities from
Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants
are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants
meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s
own common stock, among other conditions for equity classification. This assessment is conducted at the time of warrant issuance and as
of each subsequent quarterly period end date while the warrants are outstanding. In accordance with Accounting
Standards Codification ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, the warrants issued in connection
with the Private Notes Payable do not meet the criteria for equity classification due to the redemption right whereby the holder may require
the Company to settle the warrant in cash 18 months after the closing of the MIPA, and must be recorded as liabilities. The warrants are
measured at fair value at inception and at each reporting date in accordance with ASC 820 , Fair Value Measurement Forward Purchase Agreement Valuation The Company has determined
that the Forward Purchase Agreement Put Option, including the Maturity Consideration, within the Forward Purchase Agreement is (i) a freestanding
financial instrument and (ii) a liability (i.e., an in-substance written put option). This liability was recorded as a liability at fair
value on the consolidated balance sheet as of the reporting date in accordance with ASC 480. The fair value of the liability was estimated
using a Monte-Carlo Simulation in a risk-neutral framework. Specifically, the future stock price is simulated assuming a Geometric Brownian
Motion (“GBM”). For each simulated path, the forward purchase value is calculated based on the contractual terms and then
discounted back to present. Finally, the value of the forward is calculated as the average present value over all simulated paths. The
model also considered the likelihood of a dilutive offering of common stock. Concentration of Credit Risk Financial instruments that potentially subject
the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal
Depository Insurance Coverage (“FDIC”) of $250,000. As of June 30, 2024, the Company’s cash balances exceeded the FDIC
limit by $2,728,905. At June 30, 2024, the Company had not experienced losses on this account and management believes the Company is not
exposed to significant risks on such account. Income Taxes The Company follows the asset and liability method
of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company is subject
to income tax examinations by major taxing author |
