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ERNEST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 21 Note 11 - Stock-Based Compensation The Company has an Incentive Stock Options Plan (the “2022 Stock Plan”), in order to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees and consultants, and to promote success of the Company’s businesses. The 2022 Stock Plan provided the holders of stock options an election to early exercise prior to vesting. The Company has the right, but not the obligation, to repurchase early exercised options without transferring any appreciation to the employee if the employee terminates employment before the end of the original vesting period. The maximum aggregate number of shares that may be issued under the Plan is 1,055,001 shares. At December 31, 2023, the 2022 Stock Plan had granted 224,012 options with an average strike price of $0.08; 108,611 options were exercised early with cash paid of $5,431 or $0.05 per share; 23,668 options were canceled/forfeited and returned to the option pool; and 91,733 options remained outstanding. The total number of vested options is 80,464, including 33,891 which were exercised early. Note 12 - Contingencies The Company is contingently liable to its surety under a general indemnity agreement. Under this agreement, the Company agrees to indemnify the surety for any payments made on its behalf. The Company believes that all contingent liabilities will be satisfied by its performance on the specific contracts covered by the agreement. The Company at times may be involved in various legal proceedings and litigation arising in the ordinary course of business. The Company intends to vigorously dispute liability for all claims. Management is of the opinion that the outcome of such proceedings and litigation will not have a material adverse effect on the Company’s consolidated financial statements. The contingent liability of $245,000 on the accompanying consolidated balance sheet relates to the purchase of Electrik Pros, LLC in 2022. In accordance with the purchase agreement, the Company makes performance-based deferred payments based on revenue attainment metrics. Note 13 - Income Taxes The benefit from income taxes is summarized as follows: Deferred: Federal and state 643$ The net deferred tax asset includes the following components: Deferred tax asset 385,819$ Valuation allowance - Deferred tax liability (144,096) Net deferred tax asset 241,723$