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ERNEST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 8 Note 1 - Nature of Operations and Principles of Consolidation Business Activities Ernest Energy, Inc. (“Ernest Energy”) is a Delaware corporation that was incorporated in August 2022. Ernest Energy specializes in software development, technology integration, and project management for the construction industry. Ernest Energy operates in the State of Florida and serves residential and commercial customers. Ernest Energy has three wholly-owned subsidiaries: Electrik Pros, LLC, HMO Energy, Inc. and Airsmith Pros, Inc. Electrik Pros, LLC ("Electrik Pros") is an electrical contractor. The majority of its construction work is generally performed under fixed-price contracts. The length of its contracts varies but typically ranges from 6 to 18 months. In addition, Electrik Pros provides electrical maintenance and construction services. The members of Electrik Pros are not liable for the debts of Electrik Pros. Airsmith Pros, Inc. ("Airsmith Pros") is an HVAC and mechanical contractor. The majority of its construction work is generally performed under fixed-price contracts. The length of its contracts varies but typically ranges from 6 to 18 months. In addition, Airsmith Pros provides mechanical maintenance and construction services. HMO Energy, Inc. is a software development and project management company that provides services for the construction industry. It was merged into Ernest Energy in February 2024. Principles of Consolidation The consolidated financial statements include the accounts of Ernest Energy and its wholly- owned subsidiaries Electric Pros, HMO Energy Inc., and Airsmith Pros (collectively referred to as the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. Note 2 - Summary of Significant Accounting Policies Revenue and Cost Recognition The Company recognizes its revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). The guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. ASC 606 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. An entity should apply the following five-step process to recognize revenue: (1) Identify the contract with a customer; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to the performance obligations in the contract; and (5) Recognize revenue when (or as) the entity satisfies a performance obligation.