NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

The accompanying consolidated financial statements have been prepared by the management of Laredo Oil, Inc. (“the Company”).  

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 name was changed to “Laredo Oil, Inc.” During May 2023, the Company’s board of directors voted to increase the authorized shares of common stock to 120,000,000 shares at $0.0001 par value, which increase was confirmed by the holders of a majority of the shares then outstanding.

The Company is an oil exploration and production (“E&P”) company primarily engaged in acquisition and exploration efforts for mineral properties. From its inception in March 2008 through October 2009, the Company was primarily engaged in acquisition and exploration efforts for mineral properties. Beginning 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 enhanced recovery methods. From June 14, 2011 through December 31, 2020, the Company was a management services company, managing the acquisition and operation of mature oil fields, focused on the recovery of “stranded” oil from those mature fields using enhanced oil recovery methods for its then sole customer, Stranded Oil Resources Corporation, or SORC, then a wholly owned subsidiary of Alleghany Corporation (“Alleghany”). On December 31, 2020, the Company entered into a Securities Purchase Agreement with Alleghany under which the Company purchased all the issued and outstanding shares of SORC. At that time there were no ongoing operations being conducted by SORC.

Under the Securities Purchase Agreement with Alleghany, the Company also entered into a Consulting Agreement, under which Alleghany paid the Company an aggregate of approximately $1.245 million during calendar year 2021 in exchange for the Company providing Alleghany with one to three years of consulting services from certain of the Company’s employees, including Mark See, its Chief Executive Officer.

As of November 30, 2024, the Company has acquired 45,766 gross acres and 38,153 net acres of mineral property interests in Montana. In connection with securing this acreage in Montana, Lustre Oil Company LLC, a wholly owned subsidiary of the Company (“Lustre”), entered into an Acquisition and Participation Agreement, and subsequent amendments (collectively the “Erehwon APA”), with Erehwon Oil & Gas, LLC and Laris Oil & Gas, LLC (collectively, “Erehwon”) to 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 royalty interests and working interests for the first ten well completions, the first ten well recompletions and for all additional wells and recompletions thereafter. Lustre, as the Operator named in the Erehwon APA, will acquire initial mineral leases and pay 100% of the costs and the split between Erehwon and Lustre will be 20%/80%. Under the Erehwon APA, Lustre will fund 100% of the construction costs of the first ten wells and the first ten completions. Until “payout”, as defined in the Erehwon APA, is attained, the split between Erehwon and Lustre will be 10% to Erehwon and 90% to Lustre. After payout, the split will be 20% to Erehwon and 80% to Lustre. Any additional wells funded under the Erehwon APA will be funded 100% by Lustre, with a 20% undivided working interest held by Erehwon;. Royalty expense will consist of the sum of royalty interest to the landowner and an overriding royalty interest to two individuals (the “Prospect Generators”), not to exceed 6% nor be less than 3%. For the first ten new wells and first ten recompletions, the Prospect Generators will receive a total amount equal to 5% of the cost of each completed and producing well.

Lustre and Erehwon entered into an Exploration and Development Agreement, dated July 18, 2023 (the “Development Agreement”), with Texakoma Exploration & Production Company (“Texakoma”), for the exploration and development of the “Lustre Field Prospect,” as described in the Development Agreement. Lustre and Erehwon are parties to an existing Acquisition and Participation Agreement, under which those parties agreed to acquire certain oil and gas interests, and drill, complete, re-enter, re-complete, sidetrack, and equip wells, in certain counties in Montana.

Under the terms of a Development Agreement, Texakoma agreed to pay Lustre and Erehwon (jointly, “LOC”), the following amounts: (i) $175,000 on or before July 21, 2023; and (ii) another $175,000 upon the “spudding” of the initial test well subject to rig availability. Upon the spudding of that test well, LOC was required to deliver to Texakoma a partial assignment of an 85% working interest in the oil and gas leases covering the first two initial drilling and spacing units. Under the Development Agreement the first payment was paid by Texakoma in August 2023 and the Company received the second payment of $175,000 in September 2023.

The two test wells were successfully drilled and Texakoma paid 100% of the costs associated with the drilling and completion of the wells. Lustre and Erehwon jointly have an undivided 15% working interest, carried through the tanks, in those two wells. In March 2024, Texakoma exercised its option to participate in the development of the remainder of the Lustre Field Prospect. By exercising its option, Texakoma agreed to drill eight additional wells, with Lustre and Erehwon having a 15% working interest carried through the tanks, and to pay Lustre $706,603 over a four month period, for an 85% leasehold interest in the next eight drill sites and a 50% leasehold interest in the balance of the Lustre Field Prospect acreage. As of May 31, 2024, Texakoma paid an additional $328,681 in accordance with the contract. The remaining amounts due were paid by the end of first fiscal quarter 2025. The working and net revenue interest in any wells drilled subsequent to the first ten wells will be shared by Texakoma and Lustre and Erehwon, jointly, on a 50:50 basis. As of November 30, 2024, Texakoma was readying three wells for production pending operational readiness of an acquired saltwater disposal well.

Following the Texakoma transaction, the Company retains a 100% leasehold interest and full control of an additional 30,556 net mineral acres in northeastern Montana at the western edge of the Williston Basin.

In December 2023, the Company entered into a Participation Agreement, through Hell Creek Crude, LLC, the Company’s wholly owned subsidiary, Erehwon, and various accredited investors. The Participation Agreement provided the Company with $2,034,000 to acquire certain leases and to drill a development well in the Midfork Field in Montana. Several of the investors also hold $575,000 of the Company’s convertible debt, plus accrued interest of $73,317, which total indebtedness is included as investments under the Participation Agreement. Until the total debt of $2,682,317, plus any additional capital calls is repaid to the various investors under the terms of the Participation Agreement, the net working interest payments from the Participation Agreement will be split between the various investors, on one hand, and HCC and Erehwon, on the other hand, on a 90%/10% basis. After the payment to the investors on their investments, the split between the investors, on one hand, and HCC and Erehwon, on the other hand, will be on a 50%/50% basis. After the development well is drilled under the Participation Agreement, the investors will have the option to invest in up to two additional wells in the field. 

The Company has also raised $1,875,000 of investments from accredited investors in our wholly-owned subsidiary West Fork Resources, LLC (“West Fork”) which was formed to explore and develop oil reserves in portions of over 30,000 acres of mineral rights located north of the Fort Peck Reservation at the western edge of the Williston Basin. The Company is in the process of raising $7.5 million to drill three exploratory wells by selling units of West Fork to investors.

NOTE 2 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the initial issuance of the Company’s 2023 annual financial statements on September 23, 2023, the Company’s management reconsidered the estimate previously applied in its valuation of the Olfert 11-4 exploratory well, which was drilled in the spring and summer of 2022. The well encountered salt-water in amounts making it uneconomical to operate due to the lack of a proximate salt-water disposal well and was shut-in during September 2022 pending gaining access to a closer disposal well. Two years later, the well remains shut-in as the Company has yet to economically solve the water disposal issue. Until a solution is found, the well is unevaluated and written down, although the Company continues to plan on developing the well if feasible. After experiencing continued losses in its equity method investment in Cat Creek Holdings, LLC, the Company has reconsidered its valuation of the entity and written it down to zero.

NOTE 2 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS - continued

NOTE 3 – 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 historically was dependent on one customer for its revenue. There is no assurance that in the future any financing will be available to meet the Company’s needs. This situation raises substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance date of these consolidated financial statements.

The Company’s management has undertaken steps as part of a plan to improve operations with the goal of sustaining operations for the next twelve months and beyond. These steps include an ongoing effort to (a) controlling overhead and expenses; (b) raising funds connected with specific well development; and (c) raising funds through notes payable and convertible debt to expand and fund property acquisitions exploration and development as well as maintaining operations. The Company has worked to attract and retain key personnel with significant experience in the industry. At the same time, to control costs, the Company has required several of its personnel to multi-task and cover a wider range of responsibilities to manage the Company’s headcount. There can be no assurance that the Company can successfully accomplish these steps and it is uncertain that the Company will achieve a profitable level of operations and obtain additional financing. There can be no 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 4 – SIGNIFICANT ACCOUNTING POLICIES

NOTE 5 – RECENT AND ADOPTED ACCOUNTING STANDARDS

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

NOTE 6 – CASH AND CASH EQUIVALENTS

Included in Cash and Cash Equivalents is $1,875,000 of investments from accredited investors in our wholly-owned subsidiary West Fork Resources, LLC (“West Fork”) which was formed to develop and find oil reserves in portions of our over 30,000 acres of mineral rights located north of the Fort Peck Reservation at the western edge of the Williston Basin. The Company is in the process of raising $7.5 million to drill three exploratory wells by selling units of West Fork. If the Company is unsuccessful in raising the funds, monies will be returned to the investors.

NOTE 7—ACCOUNTING FOR ASSET RETIREMENT AND ENVIRONMENTAL OBLIGATIONS

We account for our 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, we estimate 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. Our estimated liability could change significantly if actual costs vary from assumptions or if governmental regulations change significantly.

The 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%.

As of May 31, 2024 the Company’s asset retirement obligations were recorded in connection with the Olfert 11-4 well as well as the working interest in the Texacoma wells. The Company established an additional asset retirement obligation in July 2024, when it commenced drilling the Reddig well in the Hell Creek Crude oil field. The asset retirement obligation totaled $247,919 and $157,394 as of November 30, 2024 and May 31, 2024, respectively.  

NOTE 8 – PAYROLL LIABILITIES

The Company has accrued payroll liabilities to record amounts owed under employee contracts but not paid when due. The Company has been cash constrained for most of its existence and has asked key officers to defer portions of salary until Company cash flows improve or there is a liquidity event. Cash amounts paid are subtracted from contractual obligations and the remaining amounts due are recorded as payroll liabilities. Both the Company’s CEO and CFO have agreed to defer salaries owed under their contracts and are recorded as payroll liabilities.

NOTE 9 – DEFERRED WELL DEVELOPMENT COSTS AND DEPOSIT FOR WELL DEVELOPMENT

The Company records investor investments in individual oil wells as a liability totaling $4,833,077 and $4,551,577 at November 30, 2024 and May 31, 2024, respectively. Several agreements involving net working interests stipulate that a high percentage of oil revenue is distributed to investors until the original investment is recovered. The related cash generated is distributed to investors, the liability balance declines proportionally until the original investment is recovered. Thereafter, most contracts specify that the distribution ratio reverts to a 50/50 split. The balance recorded shows amounts invested in the Olfert 11-4 well and the Reddig 11-21 well located in Valley County, Montana.

The Company has recorded $1,875,000 advanced by accredited investors to West Fork as a Deposit for Well Development. These amounts will be returned to investors if the project is not funded in its entirety.

NOTE 10 – FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts and other receivables, accounts payable and accrued current liabilities approximate their fair values due to the short-term nature of the instruments.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The estimated fair value of oil and gas properties and the asset retirement obligation incurred in the drilling of 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 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.

Laredo estimates the fair value of 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. Abandonment and restoration cost estimates are determined in conjunction with Laredo’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. Asset retirement obligation fair value measurements in the current period were Level 3 fair value measurements. As further described in Note 5, 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 11 – 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 shall be disclosed so that users of the consolidated financial statements can evaluate their significance. Related party transactions typically occur within the context of the following relationships:

On November 27, 2023, the Company entered into an Amended and Restated Demand Promissory Note, (the “Demand Note”), and an Amended and Restated Membership Interest Pledge Agreement, (the “Lustre Pledge Agreement”) with the Company’s Chief Financial Officer. Under the Demand Note, the Company promises to pay on demand the principal sum of all disbursements made to the Company up to $400,000 plus interest accrued at an annual rate of 10%. As of November 30, 2024, the aggregate amount of advances, excluding accrued interest, was $292,099. The Demand Note is secured by all of the Company’s interests in Lustre, pursuant to the terms of the Lustre Pledge Agreement. The Company’s Chief Financial Officer also invested $356,243 in membership interests in the Olfert #11-4 Holdings LLC which is a participant in the Olfert #11-4 well written off by the Company.

On July 22, 2024, Mr. Robert Adamo, who owns approximately $6.7 million shares of Laredo Oil, Inc. common stock and is an investor in Hell Creek Crude LLC (“HCC”), advanced $50,000 to Lustre. The transaction is undocumented, but the funds were to ensure that Lustre had monies available to secure a SWD well to support drilling activity in the Lustre oil field. The repayment terms are subject to negotiation. Mr. Adamo agreed to using $10,000 of the advance to fund a portion of the Cranston SWD purchase.

In addition, B&B Oil LLC, for which Mr Adamo is a principal owner, reimbursed Hell Creek Crude LLC $71,680.88 for a sonic log which only benefits B&B Oil and their 3D seismic studies. HCC acquired the information while purchasing seismic data for the Midfork field.

Accrued payables contain $137,500 for each of our two outside board members who have not been receiving current board stipends. 

NOTE 12 – STOCKHOLDERS’ DEFICIT

Share Based Compensation

No option grants were made during the six-months ending November 30, 2024. There were 21,100,000 shares underlying option grants as of November 30, 2024 and May 31, 2024 at a weighted average exercise price of $0.08 per share.

Option grants for the purchase of 15,075,000 shares of common stock at a price of $0.06 per share were made during the first quarter of fiscal year 2024. The grants were issued under the Laredo Oil, Inc. 2023 Equity Incentive Plan once the plan became effective with the filing on Form S-8 dated June 14, 2023. Except for an option grant for the purchase of 1,100,000 shares of common stock at a price of $.38 per share, the remaining 4,825,000 granted options to purchase common stock under the Laredo Oil, Inc. 2011 Equity Incentive Plan were cancelled. Option grants for the purchase of 3,925,000 shares of common stock at a price of $0.066 per share were made during the second quarter of fiscal year 2024. An option grant for the remaining 900,000 shares of common stock was mad during the third quarter of fiscal year 2024.

The Black-Scholes option pricing model is used to estimate the fair value of options granted under our stock incentive plan.

The risk-free interest rate is based on the U.S. Treasury yield curve 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 option. The Company uses the simplified method for determining the expected term of its stock options.

Share based compensation for stock option grants totaling $235,142 and $956,252 is recorded in general, selling and administrative expense during the three and six months ended November 30, 2023, respectively. No stock options were granted during the six months ended November 30, 2024. Accordingly, no comparable share based compensation expenses were recorded.

Restricted Stock

During the second fiscal quarter of 2025, the Company sold 1,244,651 shares of common stock to accredited investors at an average price of $0.43 per share for gross proceeds of $535,200. As of November 30, 2024, proceeds totaling $110,200 were recorded as stock payable as the 256,279 related shares of common stock have not been issued. During the first fiscal quarter of 2025, the Company sold 939,535 shares of common stock (together, the “Shares”) to accredited investors at an average price of $0.4524 per share for gross proceeds of $425,000. There were no finder’s fees related to the sales of the shares. The Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements under the Securities Act.

The Company granted no shares of restricted stock as compensation during the first or second quarters of fiscal year 2024. 

Warrants

No warrants were issued during the first half of fiscal year 2025. During the second quarter of fiscal year 2024, 1,000,000 warrants to purchase common stock at $0.06 per share and 260,870 warrants to purchase common stock at $0.23 per share were issued and outstanding as of November 30, 2024 and May 31, 2024.

Convertible Debt Converted to Common Stock as of November 30, 2024

During the quarter and six months ended November 30, 2024 and as further disclosed in Note 13 – Notes Payable, the Company converted debt and related accrued interest totaling $168,991 pursuant to notes issued in March, April and May 2023. To satisfy the obligations, the Company issued to the noteholders 3,904,503 shares of the Company’s common stock upon conversion of the debt.

NOTE 13 – NOTES PAYABLE

Convertible Debt Repaid or Converted to Common Stock as of November 30,2024

On December 29, 2023, the Company entered into a Securities Purchase Agreements with an accredited investor, pursuant to which the Company issued a convertible promissory note in the principal amount of $60,500, receiving $50,000 in net cash proceeds. The convertible promissory notes had an original issue discount of $5,500. An additional $5,000 of debt issue costs were deducted from the gross proceeds to the Company. The total of $10,500 recorded by the Company as debt discount is being amortized using the effective interest method through the maturity dates of the convertible promissory note. The convertible note is due 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% to the average of the three lowest bid prices during the 15 trading days immediately preceding the conversion. On July 1, 2024, the Company repaid the note. The repayment totaled $69,190.12, comprised of $60,500 in principal and $8,690.12 in related accrued interest and prepayment penalty interest. The Company recorded the related deferred debt discount and debt issue costs, totaling $5,316, as interest expense.

On November 27, 2023, 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 $66,000, receiving $55,000 in net cash proceeds. The convertible promissory note had an original issue discount of $6,000. Further, $5,000 debt issue costs were deducted from the gross proceeds. The total of $11,000 recorded as debt discount is being amortized using the effective interest method through the maturity dates of the convertible promissory note. The convertible 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% of the average of the three lowest closing bid prices during the 15 trading days immediately preceding the conversion. On May 28, 2024 and May 30, 2024, the note was converted into 174,675 shares of the Company’s common stock at an average price of $0.393 per share in full satisfaction of the note. No gain or loss was recognized from the transaction.

On September 6, 2023, 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 $71,225, receiving $60,000 in net cash proceeds. The convertible promissory note had an original issue discount of $6,475. Further $4,750 debt issue costs were deducted from the gross proceeds. The total of $11,225 recorded as debt discount is being amortized using the effective interest method through the maturity dates of the convertible promissory note. The convertible 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% of the average of the three lowest closing bid prices during the 15 trading days immediately preceding the conversion. On March 14, 2024 and March 15, 2024, the note was converted into 343,385 shares of the Company’s common stock at an average price of $0.21572 per share in full satisfaction of the note. No gain or loss was recognized from the transaction.

In March, April and May of 2023, the Company entered into Securities Purchase Agreements with an accredited investor, pursuant to which the Company issued three convertible promissory notes in the aggregate principal amount of $212,025 (the “Convertible Notes”), receiving $180,000 in net cash proceeds. The Convertible Notes had an original issue discount of $19,275. The Company deducted $12,750 in additional debt issue costs from the gross proceeds it received from the Convertible Notes. The Company is amortizing a total of $32,025 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% (30% for the April 2023 note) of the average of the three lowest closing bid prices during the 15 trading days immediately preceding the conversion. During September 2023, the Company converted the $70,125 in principal and $2,805 in accrued interest pursuant to a Convertible Note dated March 1, 2023. To satisfy the obligation, the Company issued to the noteholder 1,398,760 shares of the Company’s common stock, at an average price of $0.05214 per share. No gain or loss was recognized from the transaction. In November 2023, the Company converted $59,675 in principal and $2,387 in accrued interest for settlement of the note issued in April and also converted $34,000 as a partial principal settlement of the note issued in May of 2023. As settlement of the notes, the Company issued to the noteholder 2,505,743 shares of the Company’s common stock at an average price of $0.03833 per share. No gain or loss was recognized from the transaction. In December 2023, the Company converted an additional $48,225 in principal and $3,289 in accrued interest to stock satisfying payment of the note issued in May through issuance of 1,350,396 shares of the Company’s common stock to the noteholder at an average price of $0.038147 per share. No gain or loss was recognized from the transaction. All of these notes have been satisfied in full.

The Company has the right to prepay the Convertible Notes at any time during the first six months the Convertible Notes are outstanding at the rate of (a) 110% of the unpaid principal amount of such note plus interest, during the first 120 days the note is outstanding, and (b) 115% of the unpaid principal amount of such 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.

The Company agreed to reserve the number of shares of its common stock that may be issuable upon conversion of the Convertible Notes 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 reporting requirements and the failure to maintain a listing on the OTC Markets. The Convertible Notes also contain customary positive and negative covenants. The Convertible Notes include penalties and damages payable to the noteholders in the event the Company does not comply with the terms of the Convertible Notes, including in the event the Company does not issue shares of common stock to the noteholders upon conversion of the Convertible Notes within the time periods set forth therein. Additionally, upon the occurrence of certain defaults, as described in the Convertible Notes, the 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 applicable Convertible Note).

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

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

12% Secured Promissory Note

On March 23, 2023, an individual accredited investor paid the Company the aggregate amount of $100,000 for a Secured Promissory Note, (the “Note”). The Note will accrue interest on the outstanding principal sum at the rate of 12.0% per annum and has a maturity date of March 23, 2024. Interest will be due and payable monthly in arrears. The Note is secured by certain equipment owned by the Company pursuant to a Security Agreement with the Lender. On May 23, 2023, the Note was increased by $83,000 to an aggregate principal amount of $183,000. During June, July and August, 2023, the investor contributed an additional $102,061 under the Note, bringing the aggregate principal amount to $285,061. On November 24, 2023, the investor added another $25,000 to the Note bringing the total principal outstanding to $310,061. Interest on the Note is paid monthly.

12% Nine Month Promissory Note

On May 22, 2024, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company issued a 12% promissory note in the principal amount of $94,580 receiving $75,000 in net cash proceeds. The promissory note had an original issue discount of $14,580. In addition, $5,000 of debt issue costs were deducted from the gross proceeds to the Company. The promissory note is due February 28, 2025 and is repaid with the first installment of $52,964.50 due November 30, 2024 and three equal monthly installments of $17,655 starting December 30, 2024. 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 39% from the lowest closing bid price during the ten trading days immediately preceding the conversion date. As of November 30, 2024, the principal balance owed on the note was $51,295.

On February 22, 2024, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company issued a 12% promissory note in the principal amount of $66,000 receiving $50,000 in net cash proceeds. The promissory note had an original issue discount of $11,000. In addition, $5,000 of debt issue costs were deducted from the gross proceeds to the Company. The promissory note is due November 30, 2024 and is repaid with the first installment of $36,960 due August 30, 2024 and three equal monthly installments of $12,320 starting September 30, 2024. 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 39% from the lowest closing bid price during the ten trading days immediately preceding the conversion date. As of November 30, 2024, the note and interest had been paid in full.

13% Nine Month Promissory Note

On December 11, 2023, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company issued a 13% promissory note in the principal amount of $74,750 receiving $60,000 in net cash proceeds. The promissory note had an original issue discount of $9,750. In addition, $5,000 of debt issue costs were deducted from the gross proceeds to the Company. The promissory note is due September 15, 2024 and is repaid in nine equal installments of $9,385.23 with the first payment due January 15, 2024. 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 35% from the lowest closing bid price during the ten trading days immediately preceding the conversion date. The principal balance owed on May 31, 2024 was $35,280 and $46,926 principal and interest was repaid during fiscal year 2024. As of November 30, 2024, the remaining principal and interest had been paid in full.

15% Nine Month Promissory Note

On October 26, 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 $97,750 and received $80,000 in net cash proceeds. The promissory note had an original issue discount of $12,750 and $5,000 in debt issue costs were deducted from the gross proceeds. The Company is amortizing the total of $17,750 recorded as debt discount using the effective interest method through the maturity dates of the convertible promissory note. The note is due nine months following the date of issuance and accrues interest at 15% per annum (22% upon the occurrence of an event of default). Accrued, unpaid interest and outstanding principal is due in nine equal monthly payments of $12,490.23, starting on November 30, 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 35% from the lowest closing bid price during the ten trading days immediately preceding the conversion date. The note was fully repaid in August 2024.

12% One Year Promissory Notes 

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) and upon event of default are convertible at 75% of the lowest closing bid price during the 10 trading days immediately preceding the conversion. Accrued, unpaid interest and outstanding principal is due in ten equal monthly payments of $22,099.10, starting on February 15, 2023. The note and accrued interest were repaid in full and the note canceled with the last and final payment made November 2023.

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 of November 30, 2024 and 2023 the $750,000 note is recorded as current and outstanding. Starting on January 1, 2024, the Company is accruing interest at the rate of 18.0% per annum.

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.

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

Secured Convertible Debt

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. The notes are secured by the membership interest in Hell Creek Crude, LLC, a wholly owned subsidiary of the Company. Pursuant to this Note Purchase Agreement, during September, October and November 2022, the Company issued four promissory notes in the aggregate principal amount of $290,000 and accrued interest at 10% per annum, later increased to 12% per annum. In December 2022, January 2023 and February 2023, the Company issued three additional promissory notes totaling $250,000. During June 2023 and August 2023, the Company entered into an additional $85,000 of secured convertible promissory notes increasing the aggregate principal issued to $625,000. Under the Note Purchase Agreement, the Company may issue additional promissory notes, up to the $7,500,000 total principal amount. The promissory notes 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 30, 2025. In January 2024, noteholders contributed $575,000 of their notes plus accrued interest of $73,695 to the Participation Agreement pertaining to the three well drilling program in the Midfork Field in Montana (See Footnote 1). The notes were exchanged for a net working interest in the well and will participate in cash flows produced by the first well drilled. In the event of a dry hole, the notes will be reinstated at $648,204 and accrue interest on that amount thereafter. On July 1, 2024, a promissory note totaling $50,000 was extinguished and exchanged for 100,000 shares of Laredo common stock pursuant to a stock purchase agreement. As of November 30, 2024, no notes were outstanding.

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. The notes accrued interest on the outstanding principal of $350,000 at the rate of 6% per annum, with an amended due date of December 31, 2020.

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, 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. As part of the SORC Purchase 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. During the five months ending May 31, 2021, the Company repaid $13,500 of the Senior Consolidated Note upon the sale of certain equipment. The note bore no interest until January 1, 2022 whereupon the interest rate increased to 5% per annum through maturity. Principal with all accrued and unpaid interest is 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 debt discount has been fully amortized as of December 31, 2021. In August 2022, the Company entered an amendment to the Senior Consolidated Note whereby the maturity date of the loan was extended to December 31, 2023 in exchange for an interest rate to 8% per annum commencing July 1, 2022. Further, the revenue royalty as defined in the Purchase Agreement increased from 5% to 6% as the loan was not paid prior to December 31, 2022. As of November 30, 2024 and May 31, 2024, the Senior Consolidated Note is recorded as current and remains outstanding.

On April 28, 2020, the Company entered into a Note (the “Note”) with IBERIABANK 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 Note continues to accrue interest on the outstanding principal sum at the rate of 1% per annum. In addition, the initial two-year Note term has been extended to five years through mutual agreement with IBERIABANK 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 borrowed to $2,467,311. The additional draw is under the same terms and conditions as the first PPP loan.

The Flexibility Act also provides that if a borrower does not apply for forgiveness of a loan within 10 months after the last day of the measurement period (“covered period”), the PPP loan is no longer deferred and the borrower must 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 8 weeks or 24 weeks.

No interest or principal will be due during the deferral period, although interest will continue to accrue over this period. As of May 31, 2022, interest totaling $15,353 is recorded in accrued interest on the accompanying consolidated balance sheets. After the deferral period and after considering any loan forgiveness applicable to the Note, any remaining principal and accrued interest will be payable in substantially equal monthly installments over the remaining term of the Note.

The Company did not provide any collateral or guarantees for the loan, nor did the Company pay any facility charge to obtain the loan. The 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.

The Company applied for forgiveness of the first PPP note and in July 2021 received notice that $1,209,809 of the $1,233,656 note payable balance has been forgiven. The portion of the loan forgiven has been recorded as income from the extinguishment of its loan obligation as of the date when the Company is legally released from being the primary obligor in accordance with ASC 405-20-40-1. Monthly payments commenced on September 1, 2021 and as of November 30, 2024, the Company owes $1,929 with respect to the remaining balance on the first Note.

In April 2022, the Company applied for partial forgiveness of the PPP Second Draw Loan and received notice that $67,487 of the principal and related interest balance has been forgiven and is recorded as income from the extinguishment of the loan obligation. Monthly payments of $26,752 commenced on June 3, 2022. The Company was in arrears on payments on the second PPP Note and on December 5, 2023 entered into a Payment Plan arrangement for the PPP Second Draw Loan. Under the terms of the Plan, the Company agreed to pay the SBA the principal amount of $979,178 and 180 monthly payments of $5,860 which includes interest. The Company made the first payment under the Plan in December 2023. If the Company does not make the payments described in the Plan pursuant to the terms of the Plan, the entire remaining amount will be subject to collection activities by the Department of Treasury. The Company may also be subject to additional accrued interest and collection fees of 30% or more if it does not make the payments pursuant to the Plan. As of November 30, 2024, the Company is current and compliant with the restructured payment plan and owes $918,367 with respect to the remaining balance on the Second Note.

NOTE 14 – COMMITMENTS AND CONTINGENCIES 

Litigation

On March 20, 2023, Capex Oilfield Services, Inc. (“Capex”) filed a lawsuit against Lustre in the Montana Tenth Judicial District Court, Petroleum County, demanding payment of $377,190 plus interest and collection costs for services provided by Capex to drill the Olfert 11-4 well. On January 29, 2024, the court issued a Stipulated Judgment and Order in favor of Capex for $354,267.29 plus interest in the amount of $79,224.89 plus future accruing costs and interest of 18% per annum. The same day, Lustre entered into a Payment Arrangement Plan to pay $5,000 per month until the judgement is satisfied. As of November 30, 2024, Lustre has paid $25,000 towards the judgement. As of November 30, 2024 and May 31, 2024, respectively, the estimated amounts due to Capex totaling $424,183 and $428,379 have been recorded in accounts payable.

On May 18, 2023, Capstar Drilling, Inc.(“Capstar”) filed a lawsuit against Lustre in the Montana Seventeenth Judicial District Court, Valley County, demanding payment of $298,050 plus interest and collection costs for services provided by Capstar to drill the Olfert 11-4 well. On July 18, 2024, the court issued a Order to Adopt Stipulation to Judgment in favor of Capstar in the sum of $276,815 principal balance, plus interest in the amount of $49,675, plus court costs for a total judgment of $326,490 with post judgment interest of 10% per annum. As of November 30, 2024, and May 31, 2024, respectively, the estimated amounts due to Capstar totaling $350,078 and $333,354 have been recorded in accounts payable.

On August 29, 2023, Warren Well Service, Inc. (“Warren Well”) filed a lawsuit against Lustre in the Montana Seventeenth Judicial District Court, Valley County, demanding payment of $164,235 plus interest and collection costs for services provided by Warren Well to drill the Olfert 11-4 well. Lustre intends to negotiate ongoing payment terms with Warren. As of November 30, 2024 and May 31, 2024, respectively, the estimated amounts due to Warren Well totaling $206,097 and $196,679 have been recorded in accounts payable.

On September 16, 2024, Lustre acquired three saltwater disposal wells in Valley County, Montana and will attempt to dewater and bring the Olfert 11-4 well into production as soon as practical and reimburse all unpaid vendors, including Capex, Capstar and Warren Well, from proceeds from such production.

Except as set forth above, the Company is not currently involved in any other legal proceedings, and it is not aware of any other pending or potential legal actions.

Revenue Royalty - In accordance with the Securities 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 ending December 31, 2027. Further, due to the loan nonpayment prior to December 31, 2022, the revenue royalty as defined in the Purchase Agreement increased from 5% to 6%.

In accordance with the Secured Promissory Note, Laredo agreed to pay a revenue royalty of 0.5% on consolidated revenue of Laredo arising from the direct production of oil and gas. The royalty period extends from June 1, 2022 through May 31, 2027.

NOTE 15 – SUBSEQUENT EVENTS

On December 5, 2024, 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 $138,000, receiving $114,000 in net cash proceeds. The note bears interest at 12% per annum and is repaid in 10 equal monthly payments commencing on January 15, 2025.

On December 17, 2024, the Company entered into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company issued a bridge note in the principal amount of $64,960, receiving $50,000 in net cash proceeds. The note bears interest at 12% per annum with $36,377.50 due on June 15, 2025 and four equal monthly payments of $9,094 commencing on July 15, 2025.

On December 5, 2024, Hell Creek Crude, LLC received a $300,000 capital call payment for the Reddig 11-21 well.

In December 2024, Hell Creek Crude, LLC sold 1% before payout and 4% after payout of its net working interest in the Reddig 11-21 well for consideration of $300,000.