U.S. SECURITIES AND EXCHANGE

COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 20222023

Commission File Number 333-153168

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. YesxNo o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesxNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 or the Exchange Act). Yes oNox

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

54,514,76559,157,420 shares of common stock issued and outstanding as of April 14, 2022.2023.

ITEM 1. FINANCIAL STATEMENTS

The following unaudited condensed consolidated financial statements (“financial(the “financial statements”) have been prepared by Laredo Oil, Inc. (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations; nevertheless,regulations of the SEC. Nevertheless, the Company believes that the disclosures in the financial statements are adequate to make the information presented not misleading. However, exceptThese financial statements and the notes attached hereto should be read in conjunction with the financial statements and notes included in the Company’s annual report on Form 10-K, which was filed with the SEC on September 13, 2022. Except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended May 31, 2021. These financial statements and the notes attached hereto should be read in conjunction with the financial statements and notes2022 included in the Company’s Form 10-K, which was filed with the SEC on September 14, 2021.10-K. In the opinion of management of the Company, all adjustments, including normal recurring adjustments necessary to present fairly the financial position of Laredo Oil, Inc.the Company as of February 28, 2022,2023, and the results of its operations for the three and nine month periods then ended and cash flows for the nine monththree and nine-month periods then ended, have been included.included in the financial statements. The results of operations for the three and nine monthnine-month periods ended February 28, 20222023 are not necessarily indicative of the results for the full fiscal year ending May 31, 2022.2023.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

For the three and nine months ended February 28, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

The accompanying condensed consolidated financial statements have been prepared by the management of Laredo Oil, Inc. (“the Company”(the “Company”). In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company as of and for the periods presented have been made.

The Company was incorporated under the laws of the State of Delaware on March 31, 2008, under the name of “Laredo Mining, Inc.” with authorized common stock of 90,000,000 shares at $0.0001 par value and authorized preferred stock of 10,000,000 shares at $0.0001 par value. On October 21, 2009, the Company changed its name was changed to “Laredo Oil, Inc.”

Laredo Oil, Inc. (“the Company”)The Company is an oil exploration and production, (“or E&P”)&P, company, primarily engaged in acquisition and exploration efforts for mineral properties. From June 14, 2011 to December 31, 2020, the Company was a management services company, managing the acquisition and conventional operation of mature oil fields and the further recovery of stranded oil from those fields using enhanced oil recovery (“EOR”) methods for its then sole customer, Stranded Oil Resources Corporation (“SORC”), a wholly owned subsidiary of Alleghany Corporation (“Alleghany”).

From its inception through October 2009, the Company was primarily engaged in acquisition and exploration efforts for mineral properties. After a change in control in October 2009, the Company shifted its focus to locating mature oil fields, with the intention of acquiring those oil fields and recovering stranded oil using EOR methods. TheHowever, the Company was unable to raise the capital required to purchase any suitable oil fields. On June 14, 2011, the Company entered into several agreements with SORC (collectively, the “2011 SORC Agreements”) to seek recovery of stranded crude oil from mature, declining oil fields by using the EOR method known as Underground Gravity Drainage, (“UGD”). Such agreementsor UGD. The 2011 SORC Agreements consisted of (i) a license agreement between the Company and SORC (the “SORC License Agreement”), (ii) a license agreement between the Company and Mark See, the Company’s Chairman and Chief Executive Officer (“CEO”) (the “MS-Company License Agreement”), (iii) an Additional Interests Grant Agreement between the Company and SORC, (iv) a Management Services Agreement between the Company and SORC (the “MSA”), (v) a Finder’s Fee Agreement between the Company and SORC (the “Finder’s Fee Agreement”), and a Stockholders Agreement (the “Stockholders Agreement”) among the Company, SORC and Alleghany Capital Corporation, a subsidiary of Alleghany (“Alleghany Capital”), each of which were dated June 14, 2011 (collectively, the “2011 SORC Agreements”).2011.

The 2011 SORC Agreements stipulated that the Company and Mark See willwould provide to SORC, management services and expertise to SORC through exclusive, perpetual license agreements and the MSA with SORC.MSA. As consideration for the licenses to SORC, the Company will receivereceived an interest in SORC’s net profits, as defined in the 2011 SORC Agreements (the “Royalty”). The MSA outlinesprovided that the Company willwould provide the services of various employees, (“Service Employees”), including Mark See, in exchange for monthly and quarterly management service fees. The monthly management service fees provideprovided funding for the salaries, benefit costs, and FICA taxes for the Service EmployeesCompany employees identified in the MSA. SORC remits payment for the monthly management fees in advance and is payable on the first day of each calendar month. The quarterly management fee totals $137,500 and was paid on the first day of each calendar quarter, withtotaled $137,500. The Company received the last such payment being receivedon October 1, 2020. In addition, priorPrior to December 31, 2020, SORC also reimbursed the Company for monthly expenses incurred by Service Employeesthe Company’s employees in connection with their rendition of services to SORC under the MSA. The Company could also submit written requests to SORC for additional funding for payment of the Company’s operating costs and expenses, which SORC, in its sole and absolute discretion, determined whether or not to fund.

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS - continued

As consideration for the licenses made to SORC, the Company was entitled to receive an interest in SORCSORC’s net profits, as defined in the SORC License Agreement (the “SORC License Agreement”).Agreement. Under the SORC License Agreement, the Company agreed that a portion of the Royalty, equal to at least 2.25% of the net profits (“Incentive Royalty”), be used to fund a long-term incentive plan for the benefit of its employees, as determined by the Company’s board of directors. On October 11, 2012, the Company’s board of directors approved and adopted the Laredo Royalty Incentive Plan (the “Plan”) was approved and adopted by the Board, and the Incentive Royalty was assigned to the Plan. As a result of thea Securities Purchase Agreement, dated December 31, 2020 (the “SORC Purchase Agreement”), there are no longer any Incentive Royalties payable pursuant to the Plan and no Royalties will be paid to the Company by SORC in the future.

Pursuant to the SORC Purchase Agreement, by and among the Company, Alleghany, SORC, and SORC Holdings LLC, a wholly-ownedwholly owned subsidiary of the Company (“SORC Holdings”), the Company no longer receives the Incentive Royalty that was payable pursuant to the Plan; and SORC no longer makes any such payments to the Company or the Plan.

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS – continued

Pursuant to the terms of the SORC Purchase Agreement, on December 31, 2020 the Company, through SORC Holdings, purchased all of the issued and outstanding shares of SORC stock (the “SORC Shares”) in a transaction that closed on December 31, 2020 (the “SORC Purchase Transaction”). As consideration for the SORC Shares, SORC Holdings paid Alleghany $72,678 (comprised of a $55,000 purchase price, plus a $17,678 working capital adjustment calculated in accordance with the SORC Purchase Agreement), and the Company agreed to pay Alleghany a revenue royalty of 5.0% of the Company’s future consolidated revenues and net profits relating to oil, gas, gas liquids and all other hydrocarbons, subject to certain adjustments, for a period of seven years after the closing, or December 31, 2027.years. The SORC Purchase Agreement provides for customary adjustments to the purchase price based on the effective date of December 31, 2020. In connection with the SORC Purchase Transaction, the 2011 SORC Agreements were terminated effective as of December 31, 2020.2020 pursuant to the terms of the SORC Purchase Agreement.

Further, pursuantPursuant to the SORC Purchase Agreement, the Company and Alleghany also entered into a Consulting Agreement dated as of December 31, 2020 (the “Alleghany Consulting Agreement”), pursuant to which Alleghany agreed to pay an aggregate ofthe Company approximately $1.245 million during calendar year 2021 in consideration of the Company causing certain individuals, includingproviding consulting services from Mark See the Company’s Chief Executive Officer and Chairman, and Chris Lindsey, then the Company’s General Counsel and Secretary to provide consulting services to Alleghany (for a period of three years for Mr. See and one year for Mr. Lindsey).

The Company believes that its entry into the SORC Purchase TransactionAgreement was advantageous to the Company as it simplified in athe timely manner the unwinding of the 2011 SORC Agreements, and allowed the Company to acquire vehicles and oil field assets that canequipment to be utilized in its future oil recovery projects.

AsSince the Company now owns SORC, and the 2011 SORC Agreements have been terminated, the Company no longer receives any payments from SORC (including any Royalty payable by SORC toof the Company)payments outlined in the 2011 SORC Agreements and, except for the payments to the Company in 2021 under the Alleghany Consulting Agreement,Agreements. As a result, the Company no longer receives management fee revenue from Alleghany, or reimbursement from Alleghany for the monthly expenses of itsthe Company’s employees, which fees and reimbursements were effectively all of the Company’s revenues prior to the closing ofunder the SORC Purchase Transaction.Agreement.

During the period from June 14, 2011 throughPrior to December 31, 2020, while implementing UGD projects for Allegheny, the Company management gained specialized know-how and operational experience in evaluating, acquiring, operating and developing oil and gas properties, while implementing UGD projects, as well as gaining expertise designing, drilling and producing conventional oil wells. Based upon the knowledge gained,that know-how, the Company has identified and acquired 31,30345,246 gross acres, and 28,49737,932 net acres, of mineral property interests in the State of Montana. The Company began drilling an exploratory well in May 2022. That well has received a reserve report from an independent petroleum engineering firm estimatingnot yet been completed or put into production. The Company is continuing its efforts to complete drilling the well and begin commercial production. Simultaneously, the Company is attempting to raise additional funds to continue development of the other mineral property interests of proved undeveloped, probable undeveloped and contingent reserves, and forecasts of economics attributable to 27 wells in the initial target area. Within the area encompassed by the reserve report, 10 drilling locations have been identified with the intention to drill an initial development well early in calendar year 2022 and, if that well yields anticipated results, theit purchased. The Company plans to continue to develop the field thereafter. Eachhave each additional well is planned to have an 80-acre footprint, so that the first 10ten wells would affect onlycover approximately 800 acres, or less than 2two percent of the Company’s leased acreage. The successability of the first development well and the abilityCompany to secure further funding will drivedetermine the extent of future plansproduction for the acreage, and at this point there is nothing concrete that can be planned out.the pace of field development.

In connection with securing thisthe acreage in Montana described above, Lustre Oil Company LLC, a wholly-ownedwholly owned subsidiary of the Company (“Lustre”), entered into an Acquisition and Participation Agreement (“Erehwon(the “Erehwon APA”) with Erehwon Oil & Gas, LLC (“Erehwon”) to. Under the Erehwon APA, the parties will acquire oil and gas interests and drill, complete, re-enter, re-complete, sidetrack, and equip wells in Valley County, Daniels County and Roosevelt County, Montana. The Erehwon APA specifies calculations for the royalty interests and working interests for the first 10ten well completions and first 10ten well recompletions, and for all additional wells and recompletions thereafter. Under the Erehwon APA, Lustre will acquire the initial mineral leases, and paypaying 100% of the acquisition costs, with a cap of $500,000. When the cap is exceeded, Erehwon will have the option to acquire a 10% working interest (“WI”) in aeach lease by paying 10% of any leasethe acquisition cost of the lease, resulting in Lustre paying 90% of the lease acquisition costs, on a lease by leaselease-by-lease basis. Until amounts paid to complete the first 10ten new wells and first 10ten recompletions are repaid, (“Payback”), the WIworking interest split between Erehwon and Lustre iswill be 10%/ to Erehwon and 90%. to Lustre. Thereafter, the split between Erehwon and Lustre iswill be 20%/80%. Additional wells and recompletions will have a WIworking interest split equal to theirthe parties’ respective working interest in the leases. Thisleases, which will be 10% to Erehwon and 90% to Lustre, unless Erehwon exercises its option to increase its WI by 10 percent points to 20%/80%,working interest, as described above. Under the Erehwon APA, Lustre will fund 100% of the construction costs of the first 10ten wells and the first 10ten completions. Additional wells will be funded 80% by Lustre and 20% by Erehwon; provided, however, that Erehwon has the option to pay 10% of the costcosts to increase its WIworking interest from 10% to 20%. Royalty expense will consist of the sum of royalty interest to the land ownerlandowner and an overriding royalty interest, not to exceed 6% not less than 3%, to two individuals (“Prospect Generators”) not to exceed 6% nor be less than 3%. For the first 10ten new wells and first 10ten recompletions, the Prospect Generators will receive an amount equal to 5% of the cost of each completed producing well.

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS - continued

On June 30, 2020, the Company entered into thea Limited Liability Company Agreement (the “LLC“Cat Creek Agreement”) of Cat Creek Holdings LLC (“Cat Creek”), a Montana limited liability company formed as a joint venture with Lipson Investments LLC (“Lipson”) and Viper Oil & Gas, LLC (“Viper”) for the purchasepurpose of purchasing certain oil and gas properties in the Cat Creek Field in Petroleum and Garfield Counties in the State of Montana (the “Cat Creek Properties”). Cat Creek entered into an Asset Purchase and Sale Agreement (the “Cat Creek“Carrell Purchase Agreement”) with Carrell Oil Company (“Carrell Oil”) on July 1, 20202020. The Carrell Purchase Agreement provided for theCat Creek’s purchase of the Cat Creek Properties from Seller.Carrell Oil. Upon the closing under the Cat Creek Purchase Agreement,of that agreement, Carrell Oil received consideration of $400,000, subject to certain adjustments resulting from pre- and post-effective date revenue, expense and tax allocations. In accordance with the LLCCat Creek Agreement, the Company invested $448,900 in Cat Creek Holdings, LLC (“Cat Creek”)in exchange for 50% of the ownership interests in Cat Creek, using cash on hand. Each of Lipson Investments LLC and Viper, Oil & Gas, LLC, the other two members of Cat Creek, have ownership interests in Cat Creek of 25%, in consideration of their respective investments of $224,450.$224,450 in cash. Cat Creek will beis managed by a Board of Directors consisting of four directors, two of which shall bewhom are designated by the Company.

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS – continued

In January 2022, the Company and Lustre executed a Net Profits Interest Agreement (“NPI Agreement”) with Erehwon and Olfert No. 11-4 Holdings, LLC (“Olfert Holdings”) for the purpose of funding the first well, Olfert #11-4 (the “Olfert Well”), under the Erehwon APA. In connection with the NPI Agreement, the Company was credited with a contribution of $59,935, consisting of well development costs, representing a 5.5% interest in Olfert Holdings. As of May 31, 2022, the Company’s total investment in Olfert Holdings was $19,435. The difference between the $59,935 contribution recorded by Olfert Holdings and the investment recorded by the Company is due to the investment by the Company being recorded at the carrying value of the assets it contributed to Olfert Holdings. As the Company also currently serves as the manager of Olfert Holdings, the Company exercises significant influence over its operations. Accordingly, as of February 28, 2023, the amount of the Company’s recorded its investment in Olfert as an equity method investment. See further disclosures in Note 9.

Basic and Diluted Loss per Share

The Company’s basic earningsand diluted earnings/(loss) per share (“EPS”) amounts have beenis computed based onby dividing its net income/(loss) available to common stockholders by the weighted-averageweighted average number of common shares outstanding during the period. Diluted earnings/(loss) per share gives effect to all potentially dilutive outstanding common shares during the period. Dilutive earnings/(loss) per share excludes all potential shares of common stock outstanding for the period.if their effect is anti-dilutive. As the Company realized a net loss for the three and nine month periodsnine-month period ended February 28, 20222023 and the three and nine month periods ended February 28, 2021, no2022, the Company did not include potentially dilutive securities were included in the calculation of diluted loss per share in those periods, as the impact of their impactinclusion would have been anti-dilutive. Diluted net income e. The Company computes diluted earnings/(loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock and dilutive common equivalent sharesstock equivalents outstanding during the period.

NOTE 2 – GOING CONCERN

These consolidated financial statements have been prepared on a going concern basis. The Company has routinely incurred losses since inception, resulting in an accumulated deficit, and historicallydeficit. The Company has also been dependent on one customer for its revenue. Further the Company has negative working capital as of February 28, 2022 and May 31, 2021. The Company entered into the 2011 SORC Agreements to fund operations and to provide the Company with working capital. However, as a resultafter the execution of the SORC Purchase Transaction, except for payments made to Laredo in 2021 under the Alleghany Consulting Agreement, Alleghany no longer fundshad any obligation to fund the Company’s operations or provides working capital to the Company or SORC. ThereThe Company is no assurancenot certain that in the future suchany financing will be available to meet the Company’s needs. This situation raisesCompany to support its proposed operations. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year offollowing the issuance date of the consolidated financial statements.statements included herein.

ManagementThe Company’s management has undertaken steps as part of a plan to improve the Company’s operations, with the goal of sustaining operations for the next twelve months and beyond. These steps include controllingan ongoing effort to (a) control overhead and expenses. In that regard,expenses; (b) raise funds connected with specific well development; and (b) raise funds through the issuance of debt securities to expand and fund potential acquisitions, exploration and development, as well as maintaining ongoing operations. The Company has worked to attract and retain key personnel with significant experience in the industry to enhance the quality and breadth of the services it provides.industry. At the same time, in an effort to control costs, the Company has required a number of its personnel to multi-task and cover a wider range of responsibilities in an effort to restrict the growth ofavoid any increase in the Company’s headcount. There can be noThe Company cannot make any assurance that the Company can successfully accomplish these steps, and it is uncertain that the Company will achieve a profitable level of operations andor obtain additional financing. There can be noThe Company cannot make any assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if at all.

The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classifications of liabilities, that may result from the possible inability of the Company to continue as a going concern.

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation – The accompanying consolidated financial statements include the accounts of Laredo Oilthe Company and its subsidiaries after elimination of intercompany balances and transactions.

Equity Method Investment– Investments classified as equity method consist of investments in companies in which the Company is able to exercise significant influence but not control. Under the equity method of accounting, the investment is initially recorded at cost, then the Company’s proportional share of investee’s underlying net income or loss is recorded as a component of “other income” with a corresponding increase or decrease to the carrying value of the investment. Distributions received from the investee reduce the Company’s carrying value of the investment. These investments are evaluated for impairment if events or circumstances arise that indicate that the carrying amount of such assets may not be recoverable. The Company has elected to record its portion of the equity method income (loss) with a two-month lag. Accordingly, the financial results for the equity method investment are reported through December 31, 2021. No2022. The Company did not recognize any impairments were recognized for the Company’sits equity method investment during the fiscal quarter ended February 28, 2022.2023. See Note 14.12.

Related Party Receivables– Receivables include amounts due from Cat Creek Holdings represent related party balances arising from employee expense reports incurred by Laredo for work performed solely on the Company’s equity investment in Cat Creek Holdings, but not paid at February 28, 2022 period end.

Property and Equipment – The carrying value of the Company’s property and equipment represents the cost it incurred to acquire the property and equipment, net of any impairments. For business combinations, property and equipment cost is based on the fair values at the acquisition date.

Oil and Gas Acquisition Costs – OilThe Company’s oil and gas acquisition and drilling costs include expenditures representing investments in unproved and unevaluated properties and include non-producing leasehold, geological and geophysical costs associated with leasehold or drilling interests. Costsinterest costs, and costs to drill one exploratory well. Exploratory drilling costs are revieweddeferred until the outcome of the particular well is known. If an exploratory well discovers proved reserves, the deferred costs are transferred to the Company’s Wells and Related Equipment and Facilities accounts. Absent proven reserves, the deferred costs of the well, net of salvage, are charged to expense. All costs of wells drilled to develop proved reserves, along with all costs of equipment necessary to produce and handle the hydrocarbons, are capitalized even if a development well proves to be dry. The Company reviews costs to determine if impairment has occurred. The Company has incurredhad oil and gas acquisition and drilling costs totaling $604,599$4,257,564 and $389,480 during the nine months ended$2,702,715 as of February 28, 20222023 and the year ended May 31, 2021,2022, respectively.

NOTE 4 – CASH AND CASH EQUIVALENTS

Laredo has entered a Net Profits Interest Agreement in exchange for funding for well development costs. The contracts require that participants pay Lustre the contract price upon execution of the agreement. The funds received in advance of the drilling of a well from a working interest participant are held for the expressed purpose of drilling, completing and equipping a well. If something changes, the Company may designate these funds for a substitute well. Under certain conditions, a portion of these funds may be required to be returned to a participant. The funds are used to satisfy the well development costs. Laredo classifies these funds prior to commencement of well development as restricted cash based on guidance codified as under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 230-10-50-8. In the event that progress payments are made from these funds, they are recorded as Oil and Gas Acquisition Costs.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows.

Restricted cash is recorded with respect to the advance funding for well development in accordance with the Net Profits Agreement. See Note 11. These funds are restricted for use for the development of the first well in the Lustre field.

NOTE 5 – REVENUE RECOGNITION

Monthly Management Fee

The Company generated monthly management revenues from fees for labor and benefit costs in accordance with the 2011 SORC Agreements. The Company recognizes revenue for these services in the month the labor and benefits are received by the customer. As a result, the Company records deferred revenue for services that have not been provided. Monthly management fee revenues of $1,046,390 and $3,694,931 were recognized for the three months and nine months ended February 28, 2021, respectively. The last monthly management fee payment from SORC was paid in February 2021, thus no monthly management fee revenues were recorded in fiscal year 2022.

NOTE 54 – REVENUE RECOGNITION - continued

Quarterly Management Fee

While the 2011 SORC Agreements were in place with Alleghany during calendar year 2020, the Company generated management fee revenue of $137,500 each quarter, payable in advance. The Company recognized that revenue over the applicable quarter on a straight-line basis. Quarterly management fees recognized for the three and nine months ended February 28, 2021, respectively were $45,833 and $320,833. Pursuant to the SORC Purchase Agreement, the quarterly management fee has been terminated effective December 31, 2020 and no additional quarterly fees have been recognized for the three and nine months ended February 28, 2022. As a result, the Company has not recorded quarterly management fee deferred revenue as of February 28, 2022 and May 31, 2021.

Other Revenue

The Company and Alleghany previously entered into the Alleghany Consulting Agreement (see Note 1), whereunder which Alleghany was obligated to pay the Company a total of $1,144,471 in quarterly payments, beginning January 1, 2021, in consideration for the Company making certain individuals available to Allegheny for their advice, assistance and support in connection with the oil and gas industry and any questions, issues or matters arising from Alleghany’s previous ownership of SORC. Two individuals are committed for a one-year period ending December 31, 2021, and oneOne such individual is committed for a three year period endingto provide services to Allegheny until December 31, 2023. The Company’s management believes that anyall necessary work necessary under this obligation will in fact bethe Alleghany Consulting Agreement was completed byprior to December 31, 2021, and the Company recognized revenue on a monthly basis over the calendar year ended December 31, 2021. Accordingly, $95,372 and $667,608 isthe Company recorded $95,372 as other revenue for the three and nine month periodsquarter ended February 28, 2022. Deferred revenue recorded in calendar year 2021 related to amounts received but not yet earned under this contract. As of February 28, 2022 there are no remaining deferred amounts under this contract. In addition, Alleghany paidand $0 for the Company $100,000 on January 1, 2021, to be paid to an individual, with no further performance obligations. Other Revenue for both the three and nine monthsquarter ended February 28, 2021 was $290,745.2023.

NOTE 65 – RECENT AND ADOPTED ACCOUNTING STANDARDS

In August 2020, the FASB issued ASU 2020-06–Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Reporting companies should adopt the guidance as of the beginning of the fiscal year of adoption, and cannot adopt the guidance in an interim reporting period. This accounting standard update, which the Company adopted effective June 1, 2022, impacts the ongoing accounting of the Convertible Notes.

Reporting companies are allowed to adopt this standard by either a modified retrospective method of transition or a fully retrospective method of transition. Under the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the standard was adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. Due to the adoption of this accounting standard update under the modified retrospective method, prior periods for the Company were not restated. Upon adoption, the Company recorded a $16,200 cumulative-effect adjustment that increased the opening balance of retained earnings on the consolidated balance sheet due to the reduction in non-cash interest expense associated with the historical separation of debt and equity components for the Company’s Convertible Notes described in Note 11. The Company also recorded a $39,718 increase to convertible debt and a decrease to additional paid-in capital of $55,918, due to no longer separating the embedded conversion feature of the Convertible Notes. This adoption did not have a material impact on the Company’s consolidated statement of cash flows.

The Company has reviewed other recently issued accounting standards and plans to adopt those that are applicable to it. It does not expect the adoption of those standards to have a material impact on its financial position, results of operations, or cash flows.

NOTE 6 – ACCOUNTING FOR ASSET RETIREMENT AND ENVIRONMENTAL OBLIGATIONS

The Company accounts for its asset retirement obligations in accordance with Accounting for Asset Retirement and Environmental Obligations. This requires that legal obligations associated with the retirement of long-lived assets be recognized at fair value when incurred and capitalized as part of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized asset is depreciated over the useful life of the long-lived asset.

In the absence of quoted market prices, the Company estimates the fair value of our asset retirement obligations using present value techniques, in which estimates of future cash flows associated with retirement activities are discounted using a credit-adjusted risk-free rate. The Company’s estimated liability could change significantly if actual costs vary from assumptions or if governmental regulations change significantly.

The Company’s asset retirement obligation was established in May 2022, when it commenced drilling the Olfert#11-4 well in the Lustre oil field. At February 28, 2023 and May 31, 2022, the asset retirement obligation totaled $66,394 and $61,762, respectively.

The Company’s cash flow estimate for the asset retirement obligation is based upon the assumption of a 25-year expected life of the well, discounted using a credit-adjusted risk-free interest rate of 10%.

The Company’s accretion expense totaling $4,632 was recorded in the nine months ending February 28, 2023. Since drilling of the Olfert#11-4 well commenced in May 2022, the Company recorded no accretion expense as of May 31, 2022.

NOTE 7 – ACQUISITION OF SORC

Purchase Price Allocation

Effective December 31, 2020, the Company acquired a 100% equity interest in SORC (see Note 1). We have accounted for the acquisition of SORC as a business combination using the acquisition method. The preliminary allocations of the purchase price with less than a year of ownership are subject to revisions as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The purchase price allocation was preliminary and was subject to revision through the end of the measurement period on December 31, 2021. The original purchase price allocation is final and no further adjustments are necessary.

Financial Information

Pursuant to Topic 2, section 2010 of the SEC financial reporting manual, the Company evaluated the business combination. Prior to the acquisition by the Company, SORC sold all operating assets, terminated all employees and no longer maintained any of the business processes that previously existed. As a result, historical consolidated financial statements are not considered relevant to the ongoing operations and are not required.

NOTE 7 – ACQUISITION OF SORC - continued

In accordance with the SORC Purchase Agreement, Laredo agreed to pay to Alleghany a revenue royalty of 5.0% of the Company’s future revenues and net profits relating to oil, gas, gas liquids and all other hydrocarbons, subject to certain adjustments, for a period of seven years after the closing. The Company has not attributed a value to this potential liability in the preliminary purchase price allocation as eligible revenues or net profits do not currently exist and are not estimable.

In connection with the acquisition, the Company received tangible assets which had previously been written off by the Seller. This previous reduction in asset values in combination with the Seller’s desire to close the transaction on an accelerated basis enabled the Company to obtain the assets at a lower price resulting in the recognition of a bargain purchase gain.

For the quarter ended February 28, 2022, SORC recognized no revenues and $17,629 interest expense recorded related to the debt discount amortization, included in the Consolidated Statement of Operations.

NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTSMEASUREMENTS

Fair Value of Financial Instruments

The Company’s financial instruments, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825-10-50, Financial Instruments, include cash and cash equivalents, accounts and other receivables, equity method investments, accounts payable, accrued liabilities and notes payable. The equity method investments approximate fair value as a result of limited activity by the investeeCompany since formation. All other instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value atas of February 28, 2022.2023.

Based on the borrowing rates currently available to the Company for loans with similar terms and maturities, the fair value of long-term notes payable approximates the carrying value.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The estimated fair value of the Company’s oil and gas properties and the asset retirement obligation incurred in the drilling of such oil and gas wells or assumed in the acquisitions of additional oil and gas working interests are based on an estimated discount cash flow model and market assumptions. The significant Level 3 assumptions used by the Company in the calculation of estimated discounted cash flow model include future commodity prices, projections of estimated quantities of oil and gas reserves, expectations for timing and amount of future development, operating and asset retirement costs, projections of future rates of production, expected recovery rates and risk adjusted discount rates. See Note 3 for additional information regarding oil and gas property acquisitions.

NOTE 7 – FAIR VALUE MEASUREMENTS – continued

The Company estimates the fair value of its asset retirement obligations based on the projected discounted future cash outflows required to settle abandonment and restoration liabilities. Such an estimate requires assumptions and judgments regarding the existence of liabilities, the amount and timing of cash outflows required to settle the liability, what constitutes adequate restoration, inflation factors, credit adjusted discount rates, and consideration of changes in legal, regulatory, environmental and political environments. The Company determines the abandonment and restoration cost estimates in conjunction with the Company’s reserve engineers, based on historical information regarding costs incurred to abandon and restore similar well sites, information regarding current market conditions and costs, and knowledge of subject well sites and properties. The Company’s asset retirement obligation fair value measurements in the current period were Level 3 fair value measurements. As further described in Note 6, the Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. Asset retirement obligations are not measured at fair value subsequent to initial recognition.

NOTE 98 – RELATED PARTY TRANSACTIONS

Transactions between related parties are considered to be related party transactions even though they may not be given accounting recognition. FASB ASC 850, Related Party Disclosures (“FASB ASC 850”) requires that transactions with related parties that would make a difference in decision making shallshould be disclosed so that users of the financial statements can evaluate their significance. Related party transactions typically occur within the context of the following relationships:

PriorOn April 4, 2022, Cat Creek, in which the Company has an equity investment, loaned the Company $136,479 at a market rate of interest. In August 2022, the Company repaid the principal amount of the note, and accrued interest, in exchange for property, plant and equipment.

In accordance with the NPI Agreement, between October 2021 and August 2022, Olfert #11-4 Holdings transferred funds totaling $1,859,195 to Lustre, the Company’s wholly owned subsidiary, to provide funds for drilling expenses incurred by Lustre with respect to the SORC Purchase Transaction on December 31, 2020, SORC and Alleghany were considered related parties under FASB ASC 850. See Note 1. All management fee revenue reported bydevelopment of one well.

On June 22, 2022, the Company for the year ended May 31, 2020 and the following seven months through December 31, 2020 is generated from charges to SORC.

Subsequentassigned to the Company’s Chief Financial Officer the right to purchase up to 356,243 of 100%the 500,000 membership interests in in Olfert #11-4 in exchange for the Company’s Chief Financial Officer’s payment of SORC’s stock on December 31, 2020, Alleghany$356,243 of the Company’s capital commitment to Olfert #11-4.

On October 26, 2022, the Company borrowed $150,000 from the Company’s Chief Financial Officer pursuant to a demand note bearing an annual interest rate of 10%. The demand note is secured by all of the Company’s interests in Lustre, pursuant to the terms of a Membership Interest Pledge Agreement.

In February 2023, the Company’s Chief Financial Officer made several advances to the Company, totally $50,000. The advances were not made pursuant to a promissory note, and its subsidiariesthe advances are no longer a related party.not secured.

NOTE 9 – NET PROFITS INTEREST AGREEMENT

The Company and Lustre executed the NPI Agreement with Erehwon and Olfert Holdings in January 2022, to be effective as of October 2021. The NPI Agreement was executed for the purpose of funding the Olfert Well under the Erehwon APA. The NPI Agreement grants Olfert Holdings an “Applicable Percentage” of available funds from the Olfert Well in exchange for Olfert Holdings funding development of the Olfert Well. The “Applicable Percentage” is defined in the NPI Agreement as 90% prior to Payout and 50% after Payout, with “Payout” being defined as the point in time when the aggregate of all Net Profits Interest payments made to Olfert Holdings under the NPI Agreement equals 105% of the well development costs. In January 2022, the Company entered into an Amended and Restated Limited Liability Company Operating Agreement of Olfert Holdings, dated to be effective as of November 2021 (the “Olfert Holdings Operating Agreement”). Pursuant to the Olfert Holdings Operating Agreement, the Company has agreed to make a $500,000 capital contribution, out of a total of $1,500,000 to be raised by Olfert Holdings. During October and November of 2021, the Company received advance payments totaling $1.0 million from four investors, through Lustre, pursuant to the NPI Agreement. The Company was credited with $59,935 of well development costs as part of its capital contribution under the Olfert Holding Operating Agreement. In May 2022, a vendor made an in kind capital contribution of $83,822 to Olfert Holdings in the form of services rendered. In June 2022, the Company’s Chief Financial Officer invested $356,243 in Olfert Holdings pursuant to the NPI Agreement. These contributions fulfilled the Company’s initial capital contribution commitment under the Olfert Holdings Operating Agreement. On August 3, 2022, the Company, as Manager of Olfert Holdings, issued a capital call to the investors in Olfert Holdings for payment of an additional $461,440 to cover expenses that Lustre is obligated to pay pursuant the NPI Agreement. As of February 28, 2023, the investors had paid $358,747 of that capital call. As of February 28, 2023, Lustre had incurred approximately $3,300,000 in expenses related to the development of the Olfert Well. The Olfert Well has exceeded its original budget, and there are certain construction costs that have not been satisfied. To pay the amounts owed, the Company issued an additional capital call to the investors in Olfert Holdings to pay an additional $1.7 million. The investors did not have an obligation to make additional investments, and Olfert Holdings did not raise the requested additional amount from that capital call. Subsequently, several unpaid contractors have attached mechanic liens on the Olfert Well. One creditor has filed a lawsuit for payment against Lustre, the operator of the Olfert Well in Montana. The Company believes that the Olfert Well is still economically viable, and it intends to attempt to raise sufficient additional capital, complete the Olfert Well, and pay all amounts owed to contractors.

In connection with the NPI Agreement, the Company was credited with a contribution totaling $59,935 of well development costs under an agreement with Olfert Holdings, receiving a 5.5% interest in Olfert Holdings as of May 31, 2022. The total investment in Olfert Holdings recorded by the Company was $19,435 as of May 31, 2022. The difference between the $59,935 contribution recorded by Olfert Holdings and the $19,435 investment recorded by the Company is due to the Company’s investment being recorded at the carrying value of the assets contributed by the Company. As the Company also serves as the manager of Olfert Holdings, the Company exercises significant influence over Olfert Holdings. Accordingly, the amount the Company paid to Olfert Holdings is recorded as an equity method investment as of February 28, 2023.

NOTE 10 – STOCKHOLDERS’ DEFICIT

Share Based Compensation

The Black-Scholes option pricing model is used to estimate the fair valueCompany made grants of options granted under ourfor the purchase of 650,000 shares of its common stock, incentive plan.

Share based compensation for stock option grants totaling $9,865 and $23,019, respectively is recorded in general, selling and administrative expenseat a strike price of $0.19 per share, during the three and nine months ended February 28, 2022. No share based compensation costs were recorded during the three and nine months ended February 28, 2021.

Stock Options

No option grants were made during the second or thirdfirst quarter of fiscal year 2022. Option2023. These options vested immediately and expire on June 2, 2032. The Company made grants for the purchase of 1,600,000 shares of its common stock at a strike price of $0.074$0.074 per share, were made during the first quarter of fiscal year 2022. TheThese options vest monthly over three years, beginning on August 1, 2021, and expire on August 1, 2031. The grant dateCompany used the Black-Scholes option pricing model to estimate the fair value of theseoptions granted under its stock incentive plan.

The fair value of the stock option grants, as of the respective grant date, during the nine months ending February 28, 2023 and 2022 amounted to approximately $118,387.$123,487 and $118,387, respectively. The weighted average assumptions used in calculating these values were based on anthe following:

The risk-free interest rate is based upon the U.S. Treasury interest rate in effect at the time of grant for a bond with a similar term. The Company does not anticipate declaring dividends in the foreseeable future. Volatility is estimated based on the historical share prices over the same period as the expected life of the stock options. The Company uses the simplified method for determining the expected term of 6.0 years, volatilityits stock options.

The Company recorded share-based compensation for stock option grants totaling $152,358 and $23,019 in general, selling and administrative expense during the nine months ended February 28, 2023 and 2022, respectively.

NOTE 10 – STOCKHOLDERS’ DEFICIT – continued

Restricted Stock

The Company entered into a financial advisory agreement, dated July 21, 2022 (the “Advisory Agreement”), pursuant to which the Company engaged Dawson James Securities, Inc. (“Dawson”) to render services as a corporate finance consultant. The term of 315% and a 0.95% risk free interest rate atthe Advisory Agreement is twelve months from the date of grant. No option grantsthe Advisory Agreement, unless terminated by either party with 30 days prior written notice to the other party, beginning 60 days following the date of the Advisory Agreement. Under the terms of the Advisory Agreement, Dawson will provide advice to the Company concerning business and financial planning, corporate organization and structure, private and public equity and debt financing, and such other matters as the parties may mutually agree.

As compensation to Dawson for the services provided under the Advisory Agreement, the Company is obligated to pay Dawson $30,000 per calendar quarter, with the first such payment being paid one day after the date of execution, and each subsequent payment being due three months after the previous payment. The Company made the first $30,000 payment in July 2022. The Company also agreed to issue to Dawson 2,600,000 shares of the Company’s common stock, payable in four installments of (i) 1,000,000 shares issued within three business days after the date of the Advisory Agreement, (ii) 550,000 shares for the subsequent quarter, and (iii) 525,000 shares for each of the remaining two quarters of the term of the Advisory Agreement. The first 1,000,000 restricted shares were madeissued in July 2022. During the nine months ending February 28, 2023, the Company recorded advisory service fees totaling $160,000 with respect to the 1,000,000 shares of the Company’s common stock issued pursuant to the Advisory Agreement.

If during the term of the Advisory Agreement, the Company decides to (i) finance or refinance any indebtedness using a manager or an agent, or (ii) raise funds by means of a public offering or private placement of equity or debt securities, Dawson will have the right to act as lead manager, placement agent or agent (or have any affiliate act in such role) for such financing, provided that Dawson has then secured at least $5,000,000 in equity financing for the Company. As of the date of this filing, Dawson has not secured any equity financing for the Company.

In April 2022, the Company entered into a consulting agreement with an individual for corporate structuring and strategic planning and compliance services. Pursuant to this agreement, the Company agreed to compensate the consultant with cash and restricted shares of the Company’s common stock, which shares vest equally over the 12-month term of the consulting agreement. During the nine months ending February 28, 2023, the Company recorded $27,257 in professional fees with respect to the issuance of the first two tranches of 272,474 restricted shares. The consulting agreement was terminated in July 2022.

The Company granted no shares of restricted stock during the first nine months of fiscal year 2021.2023.

Restricted StockWarrants

No restricted stock was grantedThe Company issued no warrants during fiscal year 2022 or the first nine monthsthree quarters of fiscal years 2022 or 2021.

Warrants

No warrants were issued during the first nine months of fiscal years 2022 or 2021. The 5,374,501 warrants previously outstanding expired June 14, 2021 and are no longer exercisable.

NOTE 11 – NET PROFITS INTEREST AGREEMENT

In January 2022, the Company and Lustre executed a Net Profits Interest Agreement effective as of October 2021 (“NPI Agreement”) with Erehwon and Olfert No. 11-4 Holdings, LLC (“Olfert Holdings”) for the purpose of funding the first well, Olfert #11-4, (the “Well”) under the Erehwon Acquisition and Participation Agreement (“APA”). The NPI Agreement grants Olfert Holdings a flow of an Applicable Percentage of available funds from the Well in exchange for Olfert Holdings funding its development. The “Applicable Percentage” under the NPI Agreement is 90% prior to Payout and 50% after Payout, where “Payout” means the point in time when the aggregate of all Net Profits Interest payments made to Olfert Holdings under the NPI Agreement equals 105% of the well development costs. In January 2022, the Company entered into an Amended and Restated Limited Liability Company Operating Agreement of Olfert Holdings dated effective as of November 2021 (the “Olfert Holdings Operating Agreement”). Pursuant to the Olfert Holdings Operating Agreement, the Company has agreed to make a capital contribution to Olfert Holdings in the amount of $500,000 out of the aggregate $1,500,000 of capital raised by Olfert Holdings. During October and November 2021, through the Company’s wholly owned subsidiary, Lustre Holdings, Laredo received advance payments totaling $1.0 million from four investors pursuant to the NPI agreement. Pursuant to the Olfert Holdings Operating Agreement, the Company was credited an amount equal to $59,935 of well development costs as part of its capital contribution. The Company has not yet determined the source of its funds for the balance of its capital contribution, and it is possible that another investor may invest all or a part of such funds instead of the Company. The Company has also been appointed as the Manager of Olfert Holdings. Through February 28, 2022, the Company has incurred approximately $220,000 related to the development of the first well. The expected well development cost for the first well to be developed under the NPI Agreement is $1.5 million.

In connection with the NPI Agreement, the Company was credited a contribution totaling $59,935 of well development costs as determined per agreement with Olfert on behalf of Olfert Holding representing a 5.5% interest in the entity as of February 28, 2022 based on the carrying value of assets contributed to Olfert. The total investment recorded by Laredo was $19,435 as of February 28, 2022. The difference between the $59,935 contribution recorded at the Olfert level and the investment recorded by Laredo is due to the investment at Laredo being recorded at the carrying value of the assets contributed. As Laredo also currently serves as the manager of Olfert, the Company exercises significant influence. Accordingly, the amount paid is recorded as an equity method investment as of February 28, 2022.

year 2023.

NOTE 1211 – NOTES PAYABLE

Convertible Debt

In October, November and December 2021, Laredoof 2022, the Company entered into Securities Purchase Agreements with two accredited investors, pursuant to which the Company issued threetwo convertible promissory notes in the aggregate principal amount of $240,625$140,250 (the “Convertible Notes”), receiving $207,500$120,000 in net cash proceeds (the “Convertible Notes”).proceeds. The Convertible Notes had an original issue discount of $21,875. Further $11,250$12,750. The Company deducted $7,500 in additional debt issue costs were deducted from the gross proceeds.proceeds it received from the Convertible Notes. The Company is amortizing a total of $33,125$20,250 recorded as debt discount are being amortized using the effective interest method through the maturity dates of the Convertible Notes. The Convertible Notes are due in one year from the date of issuance, accrue interest at 8% per annum (22% upon the occurrence of an event of default) and are convertible after 180 days after issuance into shares of the Company’s common stock at a discount of 25% of the average of the three lowest trading prices during the 15 trading days immediately preceding the conversion.

In October 2022, the Company entered into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company issued a convertible promissory note in the principal amount of $55,000, receiving $45,000 in net cash proceeds. The note had an original issue discount of $5,000. An additional $5,000 in debt issue costs were deducted from the gross proceeds from the note. The total of $10,000 recorded as debt discount is being amortized using the effective interest method through the maturity dates of the note. The note is due in one year from the date of issuance, accrues interest at 12% per annum (22% upon the occurrence of an event of default) and is convertible after 180 days into shares of the Company’s common stock at a discount of 30% to the average of the three lowest trading prices during the 15 trading days immediately preceding the conversion.

On September 6, 2022, the Company entered into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company issued a convertible promissory note in the principal amount of $97,625, receiving $85,000 in net cash proceeds. The convertible promissory note had an original issue discount of $8,875, and $3,750 in debt issue costs were deducted from the gross proceeds. The total of $12,625 recorded as debt discount is being amortized using the effective interest method through the maturity dates of the convertible promissory note. The convertible promissory note is due in one year from the date of issuance, accrues interest at 8% per annum (22% upon the occurrence of an event of default) and is convertible after 180 days into shares of the Company’s common stock at a discount of 25% from the average of the three lowest trading prices during the 15 trading days immediately preceding the conversion.

In October, November, December of 2021, and March, April and May of 2022, the Company entered into Securities Purchase Agreements with three accredited investors, pursuant to which the Company issued six convertible promissory notes in the aggregate principal amount of $608,575, receiving $527,500 in net cash proceeds (the “Convertible Notes”). The Convertible Notes had an original issue discount of $58,575. Additional debt issue costs of $22,500 were deducted from the gross proceeds from the Convertible Notes. The Company is amortizing a total of $81,075 recorded as debt discount using the effective interest method through the maturity dates of the Convertible Notes. The Convertible Notes are due in one year from the date of issuance, accrue interest at 8% per annum (22% upon the occurrence of an event of default) and are convertible 180 days after issuance into shares of the Company’s common stock at a discount of 25% of the average of the three lowest trading prices during the 15 trading days immediately preceding the conversion. As of May 31, 2022, the Company determined the value associated with the beneficial conversion feature in connection with the issuance of the Convertible Notes resulted in a further increase in the debt discount of $55,918, which will be amortized using the effective interest method through the dates the notes are initially convertible. The additional debt discount was subsequently reversed during the first quarter of fiscal 2023 pursuant to the adoption of ASU 2020-06 as follows.

In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. This accounting standard update, which was adopted by the Company effective June 1, 2022, impacts the ongoing accounting of the convertible notes.

The Company adopted this standard using the modified retrospective method of transition and applied the guidance to transactions outstanding as of the beginning of the current fiscal year on June 1, 2022. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change is recognized as an adjustment to the opening balance of retained earnings at the date of adoption. Due to the adoption of this accounting standard update under the modified retrospective method, prior periods were not restated. Upon adoption, the Company recorded a $16,200 cumulative-effect adjustment that increased the opening balance of retained earnings on the consolidated balance sheet due to the reduction in non-cash interest expense associated with the historical separation of debt and equity components for the Company’s Convertible Notes. The Company also recorded a $39,718 increase to convertible debt and a decrease to additional paid-in capital of $55,918 due to no longer separating the embedded conversion feature of the Convertible Notes. This adoption did not have a material impact on the Company’s consolidated statement of cash flows.

The Company has the right to prepay the Convertible Notes at any time during the first six months the note isConvertible Notes are outstanding at the rate of (a) 110% of the unpaid principal amount of thesuch note plus interest, during the first 120 days the note is outstanding, and (b) 115% of the unpaid principal amount of thesuch note plus interest between days 121 and 180 after the issuance date of the note. The Convertible Notes may not be prepaid after the 180^th day following the issuance date unless the applicable note holders agree to such repayment and such terms.

NOTE 11 – NOTES PAYABLE – continued

The Company agreed to reserve athe number of shares of its common stock whichthat may be issuable upon conversion of the Convertible Notes at all times.while the Convertible Notes are outstanding.

The Convertible Notes provide for standard and customary events of default, such as failing to timely make payments under the Convertible Notes when due, the failure of the Company to timely comply with the Securities Exchange Act of 1934 as amended, reporting requirements and the failure to maintain a listing on the OTC Markets. The Convertible Notes also containscontain customary positive and negative covenants. The Convertible Notes include penalties and damages payable to the noteholders in the event we dothe Company does not comply with the terms of such note,the Convertible Notes, including in the event we dothe Company does not issue shares of common stock to the noteholders upon conversion of the notesConvertible Notes within the time periods set forth therein. Additionally, upon the occurrence of certain defaults, as described in the Convertible Notes, we arethe Company is required to pay the noteholders liquidated damages in addition to the amount owed under the Convertible Notes (including in some cases up to 300% of the amount of the note)applicable Convertible Note).

At no time may the Convertible Notes be converted into shares of Laredothe Company’s common stock if such conversion would result in the note holdersnoteholders and their affiliates owning an aggregate ofshares representing in excess of 4.99% of the then outstanding shares of Laredothe Company’s common stock.

The proceeds from the Convertible Notes cancould be used by the Company for general corporate purposes.

SeeDuring October and November 2022, the Company exchanged $114,125 of principal and $4,150 of accrued interest of the single Convertible Note 16entered into on April 14, 2022 for 1,468,042 shares of the Company’s common stock, at an average price of $0.0806 per share.

On September 2, 2022 the Company repaid the single Convertible Note entered into on March 1, 2022. The repayment totaled $64,088, comprised of $53,625 principal and $10,463 in related accrued interest and prepayment penalty interest. The Company recorded the related deferred debt discount and debt issue costs, totaling $4,371, as interest expense.

On June 27, 2022, the Company repaid the single Convertible Note entered into in December 2021. The repayment totaled $65,745, comprised of $55,000 in principal and $10,745 in related accrued interest and prepayment penalty interest. The Company recorded the related deferred debt discount and debt issue costs, totaling $4,435, as interest expense.

During April and May 2022, the Company repaid the Convertible Notes entered into in October and November 2021. The repayment for the remaining Convertible Notes totaled $136,479, comprised of $114,125 in principal and $22,354 in related accrued interest and prepayment penalty interest. The Company borrowed the $136,479 from Cat Creek to repay these Convertible Notes.

The Convertible Note issued in November 2021 was repaid in an amount that totaled $85,469, comprised of $71,500 in principal and $13,969 in related accrued interest and prepayment penalty interest.

Upon the repayment of the October 2021 and November 2021 Convertible Notes, the Company recorded the related remaining outstanding debt discount and debt issue costs, totaling $12,388, as interest expense.

12% One Year Promissory Notes

On May 20, 2022, the Company entered into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company issued a promissory note in the principal amount of $200,200, and received $175,000 in net cash proceeds.   On January 5, 2023, the note was satisfied in full with a payment of $67,266. The promissory note had an original issue discount of $21,450 and $3,750 in debt issue costs were deducted from the gross proceeds. The Company was amortizing the total of $25,200 recorded as debt discount using the effective interest method through the maturity dates of the convertible promissory note. The note was due one year following the date of issuance, and accrued interest at 12% per annum (22% upon the occurrence of an event of default). Accrued, unpaid interest and outstanding principal was due in ten equal monthly payments of $22,422.40, starting on July 15, 2022. In the event of default (including a missed payment), the note was convertible at the option of the investor into shares of the Company’s common stock at a discount of 25% from the lowest closing bid price during the ten trading days immediately preceding the conversion date.

On January 5, 2023, the Company entered into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company issued a promissory note in the principal amount of $197,313, receiving $150,000 in net cash proceeds. The convertible promissory note had an original issue discount of $21,450, and an additional $3,750 in debt issue costs were deducted from the gross proceeds. The total of $25,200 recorded as debt discount is being amortized using the effective interest method through the maturity date of the convertible promissory note. The note is due one year following the date of issuance and accrues interest at 12% per annum (22% upon the occurrence of an event of default). Accrued, unpaid interest and outstanding principal is due in ten equal monthly payments of $22,099.10, starting on February 15, 2023. In the event of default (including a missed payment), the note is convertible at the option of the investor into shares of the Company’s common stock at a discount of 25% from the lowest closing bid price during the ten trading days immediately preceding the conversion date.

NOTE 11 – Subsequent Events forNOTES PAYABLE – continued

Secured Convertible Debt activity after

The Company entered into a Note Purchase Agreement dated September 23, 2022 (the “Note Purchase Agreement”), for the issuance of secured convertible promissory notes in the aggregate principal amount of up to $7,500,000. Pursuant to this Note Purchase Agreement, during September, October and November, the Company issued three promissory notes in the aggregate principal amount of $290,000 and accrue interest at 10% per annum. In December 2022 and January 2023, the Company issued additional promissory notes totaling $200,000. Under the Note Purchase Agreement, the Company may issue additional promissory notes, up to the $7,500,000 total principal amount. The promissory notes will accrue interest on the outstanding principal sum at the rate of 12.0% per annum, payable quarterly starting September 30, 2023, and are convertible into the Company’s common stock at a conversion price of $1.00 per share. The notes issued under the Note Purchase Agreement have a maturity date of September 23, 2025.

Revolving Note

On May 25, 2022, the Company entered into a Revolving Credit Note (the “Revolving Note”) with AEI Management, Inc. (“AEI”), with a maximum draw amount of $1,500,000.00. In May 2022 and June 2022, the Company borrowed $62,858 and $48,000, respectively, under the Revolving Note. The Revolving Note has a maturity date of May 1, 2023, or such later date as requested by the Company and agreed in writing by AEI in its sole discretion. Under the Revolving Note, AEI may, at its sole discretion, make advances to the Company upon the Company’s request in amounts not to exceed an aggregate amount of $150,000 in any 30-day period end.and not to exceed the full principal amount of the Revolving Note in the aggregate. The Revolving Note accrues interest on the outstanding principal sum at the rate of 8.75% per annum, which is payable by the Company every 90 days following the date of the first drawdown. All unpaid principal, accrued interest and any other amounts due under the Revolving Note will be due and payable on the May 1, 2023 maturity date.

In accordance with the Revolving Note, AEI is entitled, upon its issuance of a conversion notice to the Company, to convert all or any part of the outstanding and unpaid principal and accrued interest amount under the Revolving Note into fully paid and non-assessable shares of common stock of the Company, at a conversion price equal the following:

- if the Company’s common stock is not listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the Pink Sheets, the lesser of (i) par value of the Company’s common stock or (ii) the cost basis of the most recent, non-affiliate issuance of common stock, or

- if the Company’s common stock is listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the OTC Markets Group, a 20% discount to the closing price of the common stock as reported by the Company’s primary market on the trading day immediately preceding the issuance of the conversion notice by AEI to the Company.

In no event may the Revolving Note be converted into shares of common stock or other securities of the Company to the extent that such conversion would result in AEI and its affiliates beneficially owning more than 4.99% of the outstanding shares of the Company’s common stock.

The Company did not provide any collateral or guarantees for the Revolving Note, nor did the Company pay any facility charge to obtain the loan represented by the Revolving Note. The Revolving Note requires consent by AEI for the Company to take certain actions, including, among others, any redemption, repurchase, acquisition or declaration or payment of any cash dividend or distribution on any capital stock of the Company, increase in the par value of the Company’s common stock, issuance of debt or sale of substantially all assets or stock, as well as customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and termination or impairment of the Company’s business in any material respect. The Company may prepay the Revolving Note at any time without payment of any penalty or premium. The Company plans to satisfy payment of the Revolving Note and accrued interest on May 1, 2023, with either cash raised by the Company from additional borrowings or conversion of the Revolving Note and accrued interest into the Company’s common stock, at the option of AEI.

Promissory Note

The Company entered into a Secured Promissory Note, dated June 28, 2022 (the “Secured Note”), with the initial principal amount of $750,000. The Secured Note is payable to Cali Fields LLC (the “Lender”). The Secured Note accrues interest on the outstanding principal sum at the rate of 15.0% per annum. The Company may prepay the Secured Note in whole or in part, without penalty, with any such payment being applied first to any accrued and unpaid interest, and then to the principal amount. The Secured Note has a maturity date of December 31, 2023.

As partial consideration for the Lender’s advance of the principal amount of the Secured Note, the Company agreed to pay the Lender a quarterly revenue royalty equal to 0.5% of the consolidated revenue of the Company and its consolidated subsidiaries from the production of oil, gas, gas liquids and all other hydrocarbons, recognized by the Company during the most recent calendar quarter during the “Royalty Period,” from June 1, 2022 through May 31, 2027.

NOTE 11 – NOTES PAYABLE – continued

The Secured Note is secured by the Company’s fifty percent (50%) interest in Cat Creek Holdings, LLC.

Alleghany Notes

During the fiscal year ended May 31, 2011, the Company entered into two Loan Agreements with Alleghany Capital for a combined available borrowing limit of $350,000.$350,000. The notes accrued interest on the outstanding principal of $350,000 at the rate of 6% per annum, with a due date of December 31, 2020.annum.

NOTE 12 – NOTES PAYABLE - continued

In connection with the SORC Purchase Transaction, the notes were amended, restated and consolidated into one note, including all accrued interest through December 31, 2020, the date of the transaction, for a total of $631,434 (the “Senior Consolidated Note”), with a maturity date of June 30, 2022. The Senior Consolidated Note requires any stock issuances for cash be utilized to pay down the outstanding loan balance unless written consent is obtained from Alleghany.Alleghany Capital. As part of the SORC Purchase Transaction,Agreement, the Company agreed to secure repayment of the Senior Consolidated Note with certain equipment, and to reduce the note balance with any proceeds received from any sales of such equipment. The Company repaid $13,500 of the Senior Consolidated Note upon the sale of certain equipment during fiscal year 2021. The note bearsbore no interest until January 1, 2022, whereuponat which date the interest rate increasesincreased to 5% per annum through maturity. Accrued interest totaling $4,994 has been recorded asJune 30, 2022. The principal amount of February 28, 2022. Principal withthe Senior Consolidated Note, including all accrued and unpaid interest, iswas due at maturity. In connection with the SORC acquisition purchase price allocation, the Company recorded a debt discount totaling $30,068 in recognition of imputed interest on the Senior Consolidated Note, to be amortized over the first year of the note term. The Senior Consolidated Note totaling $617,934 is recorded as a current noteNote payable – Alleghany, net of debt discount as of February 28,May 31, 2022. The debt discount has been fully amortized as of December 31, 2021. In August 2022, the Company entered an amendment to the Senior Consolidated Note under which the maturity date of the Senior Consolidated Note was extended to December 31, 2022 in exchange for an increase in interest rate to 8% per annum for the period from July 1, 2022 through December 31, 2022. Also, since the loan was not paid prior to December 31, 2022, the revenue royalty, as defined in the SORC Purchase Agreement, was increased from 5% to 6%.

Paycheck Protection Program Loan

On April 28, 2020, the Company entered into a Notepromissory note (the “Note”“PPP Note”) with IBERIA BANKIBERIABANK for $1,233,656 pursuant to the terms of the Paycheck Protection Program (“PPP”) authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“CARES Act”). In June 2020, the Flexibility Act, which amended the CARES Act, was signed into law. Pursuant to the Flexibility Act, the PPP Note continues to accrue interest on the outstanding principal sum at the rate of 1% per annum. In addition, the initial two-year PPP Note term has been extended to five years through mutual agreement with IBERIA BANKIBERIABANK as allowed under Flexibility Act provisions.

In February 2021, the Company drew an additional $1,233,655 under the PPP Second Draw Loans, bringing the total principal amount borrowed to $2,467,311. The additional draw is under the same terms and conditions as the first PPP loan.Note.

The Flexibility Act also provides that if a borrower does not apply for forgiveness of a loan within 10ten months after the last day of the measurement period (“covered period”), the PPP loan is no longer deferred and the borrowermust begin paying principal and interest. In addition, the Flexibility Act extended the length of the covered period from eight weeks to 24 weeks from receipt of proceeds, while allowing borrowers that received PPP loans before June 5, 2020 to determine, at their sole discretion, a covered period of either 8eight weeks or 24 weeks.

NOTE 11 – NOTES PAYABLE – continued

No interest or principal will be due during the deferral period, although interest will continue to accrue over this period. As of February 28, 2022,2023, the Company recorded interest totaling $13,303 is recordedapproximately $2,521 included in accrued interest on the accompanying consolidated balance sheets. After the deferral period and after taking into account any loan forgiveness applicable to the PPP Note, any remaining principal and accrued interest will be payable in substantially equal monthly installments over the remaining term of the Note.PPP Notes.

The Company did not provide any collateral or guarantees for the loan,PPP Notes, nor did the Company pay any facility charge to obtain the loan. The PPP Note provides for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay the Note at any time without payment of any penalty or premium.

NOTE 12 – NOTES PAYABLE - continued

The Company applied for forgiveness of theits first PPP noteNote, and in July 2021 received notice that $1,209,809 of the $1,233,656 note payable balance has been forgiven along with the $15,099 related accrued interest through that date.forgiven. As of May 31, 2021February 28, 2023, both PPP Notes have beenwere recorded as debt. During the nine months ended February 28, 2022, theNotes Payable. The portion of the loan forgiven has been recorded as income from PPPthe extinguishment of its loan forgivenessobligation as of the date when the Company has beenis legally released from being the primary obligor in accordance with ASC 405-20-40-1. Monthly payments commencecommenced on September 1, 2021 with respect to the remaining $23,847 balance on the first PPP Note.

In April 2022, the Company applied for partial forgiveness onof the PPP Second Draw Loan. No assurance can be givenThe Company received notice that the Company will obtain forgiveness$67,487 of the loan, in whole or in part. Similar to the first PPP Note, any forgiveness on the PPP Second Draw Loan will be treatedprincipal and related interest balance has been forgiven, which is recorded as income from the extinguishment of itsthe loan obligation when it is legally released from being the primary obligor in accordance with ASC 405-20-40-1.

NOTE 13 – EMPLOYEE SEPARATIONS

obligation. The Company establishes obligations for expected termination benefits provided under existing agreementscommenced monthly payments of $26,752 on June 3, 2022 with a former or inactive employee after employment but before retirement. These benefits generally include severance payments and medical continuation coverage. During the nine months ending February 28, 2021, the Company continued to reduce expenses in responserespect to the impact ofremaining $1,166,973 balance on the COVID-19 pandemic. The Company incurred severance and related charges totaling $222,023 during the first quarter 2021 and $284,113 during the third quarter 2021.second PPP Note. As of February 28, 2022 and May 31, 2021,2023, the Company has no remaining severance accrual includedhad fallen behind on the monthly payments of the PPP Second Draw Loan.

NOTE 12 – EQUITY METHOD INVESTMENT

Cat Creek Holdings

On June 30, 2020, the Company entered into a Limited Liability Company Agreement (the “LLC Agreement”) of Cat Creek, a Montana limited liability company formed as a joint venture for the purchase of the Cat Creek Properties. In accordance with the LLC Agreement, the Company invested $448,900 for 50% of the ownership interests in accrued payroll liabilities.Cat Creek, using cash on hand. Each of Lipson Investments LLC and Viper Oil & Gas, LLC, the other two members of Cat Creek, have ownership interests in Cat Creek of 25% in consideration of their respective investments of $224,450. Cat Creek is managed by four directors, two of whom are designated by the Company.

On July 1, 2020, Cat Creek entered into the Cat Creek Purchase Agreement for the purchase of the Cat Creek Properties. On September 21, 2020, Carrell Oil received consideration of $400,000, taking into effect certain adjustments resulting from pre- and post-effective date revenue, expense, and allocations.

NOTE 12 – EQUITY METHOD INVESTMENT – continued

Summarized Financial Information

The following tables provide summarized financial information for the Company’s ownership interest in Cat Creek for the periods indicated, accounted for under the equity method. The financial information was compiled from the respective financial statements of the Company, reflects certain historical adjustments, and is reported with a two-month lag. Results of operations are excluded for periods prior to the Company’s acquisition of Cat Creek.