HNR Acquisition p(HNRA) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial instruments, debt, equity, and related party transactions Condensed Consolidated Balance Sheets | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :------------------ | | Total Assets | $105,963,996 | $102,705,017 | | Total Liabilities | $67,747,584 | $74,985,546 | | Total Stockholders' Equity | $38,216,412 | $27,719,471 | | Cash and cash equivalents | $3,060,971 | $2,971,558 | | Total current assets | $5,875,645 | $5,159,105 | | Total current liabilities | $27,607,625 | $36,390,779 | Condensed Consolidated Statements of Operations | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(2,873,155) | $(5,331,297) | | Total revenues | $9,147,746 | $8,343,894 | | Operating loss | $(299,487) | $(2,592,703) | | Net income (loss) per share – basic and diluted | $(0.15) | $(1.00) | | Gain (loss) on derivative instruments, net | $804,408 | $(2,080,725) | Condensed Consolidated Statements of Changes in Stockholders' Equity | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :------------------ | | Total Stockholders' Equity | $38,216,412 | $27,719,471 | - Key Equity Changes (Six Months Ended June 30, 2025): * Shares issued under equity line of credit: $7,024,332 * Shares issued for conversion of note payables: $4,550,428 * Shares issued for acquisition of oil and gas leases: $547,600 * Shares issued for acquisition of oil and gas equipment: $547,600 * Net loss: $(2,873,155)[15] Condensed Consolidated Statements of Cash Flows | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net change in cash and cash equivalents | $89,413 | $(441,706) | | Net cash provided by (used in) operating activities | $(1,796,949) | $2,250,267 | | Net cash used in investing activities | $(2,638,532) | $(1,212,769) | | Net cash provided by (used in) financing activities | $4,524,894 | $(1,479,204) | | Proceeds from sale of common stock (H1 2025) | $7,024,332 | - | Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS - EON Resources, Inc. is an independent oil and natural gas company focused on the Permian Basin (Grayburg-Jackson Field in Eddy County, New Mexico)[21] - The company faces substantial doubt about its ability to continue as a going concern due to a working capital deficit of $21,731,980 and negative cash flow from operations of $1,796,949 for the six months ended June 30, 2025[22] - Management plans to alleviate going concern issues by improving profitability through cost streamlining, maintaining active hedge positions, and issuing additional Class A Common Stock under a $150,000,000 Common Stock Purchase Agreement[22] | Metric | June 30, 2025 | | :--------------------------------- | :------------ | | Cash | $3,060,971 | | Working Capital Deficit | $21,731,980 | | Negative Cash Flow from Operations (H1 2025) | $1,796,949 | | Cash Proceeds from Common Stock Purchase Agreement (through June 30, 2025) | $9,652,666 (from 13,000,000 shares) | NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The company's unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC rules[24] - The company revised its previously issued financial statements for the three months ended March 31, 2025, due to an overstated asset retirement obligation liability and related accretion expense, which was deemed immaterial[26][28] - Key accounting methods include the successful efforts method for crude oil and natural gas properties, fair value accounting for derivative instruments (without hedge accounting), and ASC 606 for revenue recognition[42][52][55] | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Effective Income Tax Rate | 29% | 23% | NOTE 3 — DERIVATIVES - The company uses crude price differential swaps to manage commodity price risk for oil and natural gas, without applying hedge accounting[74][78][52] | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net gain (loss) on derivatives | $804,408 | $(2,080,725) | | Net derivative asset (June 30, 2025 / Dec 31, 2024) | $674,314 | $106,397 | NOTE 4 — LONG-TERM DEBT AND NOTES PAYABLE | Debt Instrument | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :------------------ | | Total Debt | $43,405,137 | $44,093,512 | | Senior Secured Term Loan | $21,386,735 | $23,696,417 | | Seller Promissory Note | $15,000,000 | $15,000,000 | | Convertible Notes Payable | $5,650,000 | $891,363 | | Merchant Cash Advances | $1,368,402 | $948,982 | | Current portion of long term debt | $6,121,756 | $9,080,910 | - The company recognized a gain on extinguishment of liabilities of $299,601 during the six months ended June 30, 2025, primarily from exchanging notes payable and warrant liabilities for convertible note agreements[209] - During H1 2025, the company issued $9,166,500 in new convertible notes and converted $3,516,500 principal and $396 accrued interest into 8,956,383 Class A Common Stock shares[100][101] | Maturity Period | Principal Amount | | :--------------------------------- | :--------------- | | 12 months ended June 30, 2026 | $6,537,788 | | 12 months ended June 30, 2027 | $31,217,349 | | 12 months ended June 30, 2028 | $5,650,000 | | Total | $43,405,137 | NOTE 5 — STOCKHOLDERS' EQUITY | Stock Class | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :------------------ | | Class A Common Stock Outstanding | 34,345,107 shares | 10,323,205 shares | | Class B Common Stock Outstanding | 0 shares | 500,000 shares | - Significant share issuances during H1 2025 include 10,770,000 shares under the Common Stock Purchase Agreement for $7,024,332 cash, 9,953,980 shares for convertible note conversions, and 2,000,000 shares for oil and gas asset acquisitions[140][118][127][129] - The Purchase, Sale, Termination and Exchange Agreement (PSTE) was amended, extending the Outside Date to September 15, 2025, and adjusting the ORRI purchase price, Seller Note principal, and share consideration[117] NOTE 6 — FAIR VALUE OF FINANCIAL INSTRUMENTS - Derivative instruments are measured at fair value using Level 2 inputs, resulting in a net derivative asset of $674,314 as of June 30, 2025 (vs. $106,397 at Dec 31, 2024)[147] - Warrant liabilities, due to redemption rights, are accounted for as liabilities and measured at fair value using Level 3 inputs. The estimated fair value was $0 as of June 30, 2025, as all such warrants were exchanged into convertible notes (vs. $5,681,849 at Dec 31, 2024)[149] NOTE 7 — RELATED PARTY TRANSACTIONS | Related Party | Transaction Type | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :----------------- | :------------ | :------------------ | | Alexandria VMA Capital, LLC (CEO-controlled) | Referral Fee Payable | $233,000 | $403,000 | | Mr. Caravaggio (CEO) | Private Notes Payable exchanged for Convertible Note | $268,500 (principal of new note) | - | | Donald Orr (Former President) | Settlement Agreement (cash & Class A shares) | $75,000 cash, 200,000 shares | - | NOTE 8 — COMMITMENTS AND CONTINGENCIES - The company accrues reserves for probable and estimable loss contingencies related to legal actions, but is not currently involved in litigation expected to have a material adverse effect[155][241] | Liability Type | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :------------------ | | Environmental Remediation Liability | $675,000 | $675,000 | NOTE 9 — SUBSEQUENT EVENTS - Subsequent to June 30, 2025, the company issued 2,800,000 shares under the Common Stock Purchase Agreement for $973,440 cash and 156,250 shares from the conversion of $50,000 in convertible notes[158] - On July 11, 2025, the company entered into a Note Purchase Agreement with White Lion for up to $1,200,000 in convertible promissory notes, with an initial closing of $600,000 for $564,000 cash[159] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial condition, operational results, liquidity, and critical accounting estimates, addressing the company's going concern uncertainty Overview - EON Resources, Inc. is an independent oil and natural gas company focused on the Permian Basin (Grayburg-Jackson Field and South Justice Field), primarily using waterflooding recovery methods[162] | Metric | Six Months Ended June 30, 2025 | Year Ended December 31, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Average Daily Production (BOE/day) | 708 | 798 | | Change (YoY) | -11.3% | - | - The decrease in production is attributed to increased well downtime, water injection flowline repairs/replacements, and the conveyance of a 10% Override royalty interest[164] Selected Factors That Affect Our Operating Results - Operating results are substantially dependent on commodity prices, production volumes, success of development activities, fair value changes in derivative instruments, and operating expenses[165] - Regional factors in the Permian Basin, such as weather, infrastructure limitations, transportation capacity, and regulatory matters, also affect operations[165] | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Oil Price Differential (per Bbl) | $0.84 (premium) | $(4.57) (discount) | | Natural Gas Price Differential (per Mcf) | $(0.05) (discount) | $0.34 (premium) | Market Conditions | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Average NYMEX Oil Price (per Bbl) | $68.23 | $79.64 | | Average NYMEX Natural Gas Price (per Mcf) | $3.67 | $2.11 | | Effect of Settled Derivatives on Realized Oil Price (per Bbl) | +$2.00 | -$3.16 | | Average Realized Oil Price (after derivatives & differentials, per Bbl) | $69.07 | $75.07 | - Average NYMEX oil prices decreased by 14% YoY, while natural gas prices increased by 74% YoY for the six months ended June 30, 2025[171][172] Results of Operations (Three months ended June 30, 2025 Compared to Three months ended June 30, 2024) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Total Revenues | $4,583,148 | $5,060,795 | | Oil and Natural Gas Sales (excluding derivatives) | $3,588,580 | $5,014,043 | | Production Volumes (MBOE) | 60 | 71 | | Net Gain (Loss) on Derivatives | $889,479 | $(83,478) | | Total Expenses | $4,790,860 | $5,389,896 | | General and Administrative Expenses | $1,941,044 | $2,323,662 | | Interest Expense | $1,678,538 | $2,030,317 | - Total revenues decreased by 9.4% due to a 28% decrease in oil and natural gas sales and a 15% decrease in production volumes, partially offset by a significant gain on derivative contracts[174][175][176][177] - Total expenses decreased by 11.1%, driven by lower general and administrative expenses (down 16.5%) and reduced DD&A[174][184][182] Results of Operations (Six months ended June 30, 2025 Compared to Six months ended June 30, 2024) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | $9,147,746 | $8,343,894 | | Oil and Natural Gas Sales (excluding derivatives) | $8,120,717 | $10,163,801 | | Production Volumes (MBOE) | 128 | 147 | | Net Gain (Loss) on Derivatives | $804,408 | $(2,080,725) | | Total Expenses | $9,447,233 | $10,936,597 | | Lease Operating Expenses | $3,914,775 | $4,393,699 | | Depletion, Depreciation and Amortization | $555,265 | $998,616 | | General and Administrative Expenses | $4,025,589 | $4,633,486 | | Interest Expense | $3,422,784 | $3,890,899 | - Total revenues increased by 9.6% despite a 20% decrease in oil and natural gas sales and a 13% decrease in production volumes, primarily due to a significant shift from a derivative loss to a gain[193][194][195][196] - Total expenses decreased by 13.6%, driven by lower lease operating expenses (down 10.9%), DD&A (down 44.4%), and general and administrative expenses (down 13.1%)[193][199][201][203] Liquidity, Capital Resources and Going Concern - As of June 30, 2025, the company had $3,060,971 in cash (including $2,600,000 restricted) and a working capital deficit of $21,731,979, raising substantial doubt about its ability to continue as a going concern[211] | Metric | Six Months Ended June 30, 2025 | Year Ended December 31, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Cash Flow from Operations | $(1,796,949) | $3,700,686 | - Management plans to address the going concern by streamlining costs, maintaining active hedge positions, and utilizing its $150 million Common Stock Purchase Agreement, which has provided $10,435,066 in cash proceeds to date[212] Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(1,796,949) | $3,435,257 | | Net cash used in investing activities | $(2,638,532) | $(3,430,552) | | Net cash (used in) provided by financing activities | $4,524,894 | $(670,924) | | Net change in cash and cash equivalents | $89,413 | $(666,219) | - Net cash provided by financing activities ($4,524,894) primarily from common stock sales ($7,024,332) offset negative cash flows from operating and investing activities, resulting in a net increase in cash[217] Off-Balance Sheet Arrangements - The company did not have any off-balance sheet arrangements as of June 30, 2025[218] Contractual obligations - The company has contractual commitments under its Senior Secured Term Loan, Seller Note, Private Notes Payable, and commodity derivative contracts[219] - Other liabilities include environmental contingencies and asset retirement obligations, for which settlement amounts and timings are not precisely determinable[220] Critical Accounting Estimates - Key critical accounting estimates include proved reserve estimates (impacting depletion and impairment), impairment of proved oil and gas properties, and asset retirement obligations[222][225][226] - These estimates involve significant judgment and assumptions, and are subject to revision based on new data, changing economic conditions, and evolving regulations[222][227] New Accounting Pronouncements - The effects of new accounting pronouncements are discussed in Note 2 to the consolidated financial statements[231] Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk As a smaller reporting company, EON Resources, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[232] Item 4. Controls and Procedures Disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting, with management planning remediation Evaluation of Disclosure Controls and Procedures - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2025[234] - A material weakness was identified in internal control over financial reporting, related to insufficient accounting personnel, lack of segregation of duties, proper accounting for complex financial instruments, and inadequate controls for oil and gas activities[234][235] Changes in Internal Control over Financial Reporting - Management determined that the company did not maintain effective internal control over financial reporting as of June 30, 2025, due to the identified material weakness[237] - Remediation plans include hiring additional accounting staff, providing enhanced access to accounting literature and research materials, and increasing communication among personnel and third-party professionals[238] Part II. Other Information Item 1. Legal Proceedings The company is not currently involved in any legal proceedings that are expected to have a materially adverse effect on its financial condition or results of operations - The company is not currently involved in litigation that is expected to have a materially adverse effect on its financial condition or results of operations[241] Item 1A. Risk Factors As of the date of this Quarterly Report, there have been no material changes to the risk factors previously disclosed in the company's annual report on Form 10-K filed on April 16, 2025 - No material changes to risk factors have occurred since the annual report on Form 10-K filed April 16, 2025[242] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report during the period - None[243] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report during the period - None[244] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable[245] Item 5. Other Information During the three months ended June 30, 2025, no directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - None of the company's directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[246] Item 6. Exhibits This section lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q, including amendments to agreements, organizational documents, and certifications - The section lists various exhibits, including amendments to the Purchase, Sale, Termination and Exchange Agreement, organizational documents, and certifications[249] Part III. Signatures Signatures This section contains the required signatures of the company's authorized officers, including the Chief Executive Officer and Chief Financial Officer, certifying the report - The report was signed by Dante Caravaggio (Chief Executive Officer) and Mitchell B. Trotter (Chief Financial Officer) on August 14, 2025[255]