1. ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Operations

During the three months ended June 30, 2026, the Company changed its name from "U.S. Energy Corp." to "Big Sky Industrial Inc." (ticker:BSIN). Big Sky Industrial Inc. and its wholly-owned subsidiaries are referred to as the “Company” in these Notes to Condensed Consolidated Financial Statements. The Company is incorporated in the State of Delaware and its principal business activities are focused on the acquisition, exploration and development of industrial gas and oil and natural gas properties in the United States.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included.

For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 13, 2026. The Company’s significant accounting policies are also described in Note 1 in those Consolidated Financial Statements.   There have been no material changes to those policies during the three and six months ended June 30, 2026.

Our financial condition as of June 30, 2026, and operating results for the three and six months ended June 30, 2026, are not necessarily indicative of the financial condition and results of operations that may be expected for any future interim period or for the year ending December 31, 2026.

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 assets and liabilities, 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 include oil and natural gas reserves that are used in the calculation of depreciation, depletion, amortization ("DD&A") and impairment of the carrying value of evaluated oil and natural gas properties, and the cost and timing of future asset retirement obligations. The Company evaluates its estimates on an on-going basis and bases its estimates on historical experience and on various other assumptions the Company believes to be reasonable. Due to inherent uncertainties, including the future prices of oil and natural gas, these estimates could change in the near term and such changes could be material.

Principles of Consolidation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in conformity with GAAP and include the accounts of Big Sky Industrial Inc. and its wholly-owned subsidiaries. Big Sky Industrial Inc. accounts for its share of oil and natural gas exploration and production activities, and industrial gas activities in which it has a direct working interest, by reporting its proportionate share of assets, liabilities, revenues, costs, and cash flows within the relevant lines on the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, and Condensed Consolidated Statements of Cash Flows. All inter-company balances and transactions have been eliminated in consolidation.

Industry Segment and Geographic Information

The Company operates primarily in the exploration and production segment of the oil and gas industry, conducting onshore operations within the United States. All current revenues are derived from the production and sale of oil and natural gas.

In addition, the Company has commenced development activities related to industrial gas assets. These activities are currently in the development stage and have not yet generated revenues. Development activities primarily consist of resource evaluation, permitting, engineering and related capital expenditures.

The Company manages its operations as a single reportable segment under Accounting Standards Codification (ASC) 280 Segment Reporting. The Company’s Chief Executive Officer serves as the Chief Operating Decision Maker (“CODM”) and reviews financial information on a consolidated basis for purposes of allocating resources and assessing performance. While industrial gas development costs and capital expenditures are tracked separately for internal project management purposes, such activities do not currently constitute a separate operating segment, as discrete operating results are not reviewed by the CODM and no revenues have been generated.

The Company’s principal oil and natural gas properties and operations are located in:

The CODM evaluates performance primarily based on operating income (loss), defined as revenues less lease operating expenses. Other significant items reviewed include total assets, depreciation, depletion and amortization (“DD&A”), general and administrative expense, gain or loss on derivative activity, interest expense and income tax expense (benefit). These amounts are presented in the Consolidated Balance Sheets and Consolidated Statements of Operations.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2024, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires additional disaggregation of certain expense captions presented on the face of the income statement, including further detail regarding the nature of expenses such as employee compensation, depreciation, and amortization. The guidance is intended to enhance transparency into the composition of an entity’s expenses.

The amendments in ASU 2024-03 are effective for public business entities for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years. Early adoption is permitted.

The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures. The Company expects the adoption will result in expanded disclosures but does not anticipate a material impact on its results of operations, financial position, or cash flows.

Related Party Transaction

During the six months ended June 30, 2026, the Company entered into a consulting engagement with a related party, as defined under applicable accounting guidance. The related party relationship arises from the entity being controlled by a member of the Company’s board of directors. The Company engaged the related party to provide electrical infrastructure consulting services in connection with the development of its industrial gas processing facility. For the six months ended June 30, 2026, the Company incurred approximately $50,000 in costs related to these services. The arrangement provided for a fixed fee of up to $50,000, and the Company believes the terms are customary and reasonable for similar services. The Company’s Audit Committee reviewed and approved the engagement in accordance with the Company’s related party transaction policy.