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,AUGUST 31, 2021

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:

54,514,765 shares of common stock issued and outstanding as of April 19,October 20, 2021.

ITEM 1. FINANCIAL STATEMENTS

The following unaudited condensed consolidated financial statements (“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, the Company believes that the disclosures are adequate to make the information presented not misleading. However, 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, 2020.2021. These financial statements and the notes attached hereto should be read in conjunction with the financial statements and notes included in the Company’s Form 10-K, which was filed with the SEC on August 29, 2020.September 14, 2021. 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. as of February 28,August 31, 2021 and the results of its operations for the three and nine-month periods then ended and cash flows for the nine-month periodsthree month period then ended, have been included. The results of operations for the three and nine-month periodsthree-month period ended February 28,August 31, 2021 are not necessarily indicative of the results for the full year ending May 31, 2021.2022.

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.

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 management of Laredo Oil, Inc. (“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 as of and for the periods presented have been made.

The Company Purchasewas incorporated under the laws of Stockthe State of SORCDelaware 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.”

PursuantLaredo Oil, Inc. (“the Company”) is an oil exploration and production (“E&P”) company primarily engaged in acquisition and exploration efforts for mineral properties. From June 14, 2011 to a Securities Purchase Agreement dated December 31, 2020, (the “Purchase Agreement”), by and among the Company Alleghany Corporationwas 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 (“Alleghany”EOR”), methods for its sole customer, Stranded Oil Resources Corporation (“SORC”), a wholly-ownedwholly owned subsidiary of Alleghany Corporation (“SORC”Alleghany”), and SORC Holdings LLC, a wholly-owned subsidiary of.

From its inception through October 2009, the Company (“Buyer” or “SORC Holding”), Buyer purchased all ofwas primarily engaged in acquisition and exploration efforts for mineral properties. After a change in control in October 2009, 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, Buyer paid Alleghany $72,678 comprised of $55,000 purchase price plus a $17,678 working capital adjustment calculated in accordanceCompany shifted its focus to locating mature oil fields with the Purchase Agreement.intention of acquiring those oil fields and recovering stranded oil using EOR methods. The Company agreedwas unable to payraise the capital required to Alleghany a revenue royalty of 5.0% of the Company’s future revenues and net profits relating topurchase any suitable oil gas, gas liquids and all other hydrocarbons, subject to certain adjustments, for a period of seven years after the closing. The Purchase Agreement provides for customary adjustments to the purchase price based on the effective date of December 31, 2020.

Further, pursuant to the SORC Purchase Agreement, Laredo and Alleghany entered into a Consulting Agreement dated as of December 31, 2020 (the “Consulting Agreement”), pursuant to which Seller agreed to pay an aggregate of approximately $1.245 million during calendar year 2021 in consideration of Laredo causing certain individuals, including Mark See, Laredo’s Chief Executive Officer and Chairman, and Chris Lindsey, Laredo’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 entering the SORC Purchase Agreement was advantageous as it simplified in a timely manner the unwinding of the Agreements (defined below) entered into on June 14, 2011 and allowed the Company to acquire vehicles and oil field assets that can be utilized in future oil recovery projects.

As the Company now owns SORC, the Company no longer receives any payments from SORC (including any Royalty payable by SORC to the Company) outlined in the Agreements with SORC enumerated in the “General” section below. As a result, except for the payments to be made in calendar year 2021 to Laredo under the Consulting Agreement, the Company will no longer receive management fee revenue from Alleghany or reimbursement from Alleghany for the monthly expenses of its employees, which fees and reimbursements were effectively all of the Company’s revenues prior to the closing of the SORC Purchase Transaction.

General – Company Business during the Reporting Period

fields. On June 14, 2011, the Company entered into several agreements with SORC to seek recovery of stranded crude oil from mature, declining oil fields by using the enhanced oil recovery (“EOR”)EOR method known as Underground Gravity Drainage (“UGD”). Such agreements includeconsisted of a license agreements, management services agreements,agreement between the Company and other agreements (collectively the “Agreements”). In connection with the SORC Purchase Transaction, SORC’s obligations under the Agreements terminated effective as of December 31, 2020. A description of the Agreements effective during the three- and nine-month periods ended February 28, 2021 follows.

The Agreements stipulate that(the “SORC License Agreement”), a license agreement between the Company and Mark See, the Company’s Chairman and Chief Executive Officer (“CEO”) (the “MS-Company License Agreement”), an Additional Interests Grant Agreement between the Company and SORC, a Management Services Agreement between the Company and SORC (the “MSA”), 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”).

The 2011 SORC Agreements stipulated that the Company and Mark See will provide to SORC, management services and expertise through exclusive, perpetual license agreements and a management services agreement (the “Management Service Agreement”)the MSA with SORC. As consideration for the licenses to SORC, the Company will receive an interest in SORC’s net profits as defined in the Agreements (the “Royalty”). The Management Service Agreement (“MSA”)MSA outlines that the Company will 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 provide funding for the salaries, benefit

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)

costs, and FICA taxes for the Service 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 iswas paid on the first day of each calendar quarter, with the last payment being received October 1, 2020. In addition, prior to December 31, 2020, SORC reimbursed the Company for monthly

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS - continued

expenses incurred by Service Employees in connection with their rendition of services 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.

As consideration for the licenses to SORC, the Company was to receive a 19.49%an interest in SORC net profits as defined in the SORC License Agreement (the “SORC License 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 Laredo Royalty Incentive Plan (the “Plan”) was approved and adopted by the Board and the Incentive Royalty was assigned byto the Company to Laredo Royalty Incentive Plan, LLC, a special purpose Delaware limited liability company and wholly owned subsidiary of the Company formed to carry out the purposes of the Plan (the “Plan Entity”). Through February 28, 2021 the subsidiary has received no distributions from SORC.Plan. As a result of the assignment of the Incentive Royalty to the Plan Entity, the Royalty retained by the Company has been reduced from 19.49% to 17.24% subject to reduction to 15% under certain events stipulated in the SORC License Agreement. Additionally, in the event of a SORC initial public offering or certain other defined corporate events, the Company was to receive 17.24%, subject to reduction to 15% under the SORC LicenseSecurities Purchase Agreement of the SORC common equity or proceeds emanating from the event in exchange for termination of the Royalty. Under certain circumstances regarding termination of exclusivity and license terminations, the Royalty could be reduced to 7.25%. If any Incentive Royalty is funded as a result of those conditions being met, the Company may record compensation expense for the fair value of the Incentive Royalty, once all pertinent factors are known and considered probable. As the Royalty is no longer payable by SORC to the Company as a result of the SORCdated December 31, 2020, (the “SORC Purchase Transaction referenced above,Agreement”), there are also no longer any Incentive Royalties payable pursuant to the Plan.

Prior to the Company receiving any Royalty cash distributions from SORC, all SORC preferred share accrued dividends would have been required to be paid (in excess of $200 million as of December 31, 2020), preferred shares redeemed (in excess of $270 million as of December 31, 2020),Plan and debt retired to comply with any loan agreements. No Royalties have been received by the Company. As referenced above, as a result of the SORC Purchase Transaction, 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-owned subsidiary of the Company (“SORC Holdings”), 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 $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 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 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.

Further, pursuant to the SORC Purchase Agreement, the Company and Alleghany entered into a Consulting Agreement dated as of December 31, 2020 (the “Alleghany Consulting Agreement”), pursuant to which Alleghany agreed to pay an aggregate of approximately $1.245 million during calendar year 2021 in consideration of the Company causing certain individuals, including Mark See, the Company’s Chief Executive Officer and Chairman, and Chris Lindsey, 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 the SORC Purchase Transaction was advantageous as it simplified in a timely manner the unwinding of the 2011 SORC Agreements and allowed the Company to acquire vehicles and oil field assets that can be utilized in future oil recovery projects.

As 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 to the Company) outlined in the 2011 SORC Agreements. As a result, except for the payments to be made in calendar year 2021 to the Company under the Alleghany Consulting Agreement, the Company will no longer receive management fee revenue from Alleghany or reimbursement from Alleghany for the monthly expenses of its employees, which fees and reimbursements were effectively all of the Company’s revenues prior to the closing of the SORC Purchase Transaction.

On June 30, 2020, the Company entered into the Limited Liability Company Agreement (the “LLC 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 purchase of 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 Purchase Agreement”) with Carrell Oil Company (“Carrell Oil”) on July 1, 2020 for the purchase of the Cat Creek Properties from Seller. Upon closing under the Cat Creek Purchase Agreement, Carrell 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 LLC

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS - continued

Agreement, the Company invested $448,900 in Cat Creek Holdings, LLC (“Cat Creek”) 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. Cat Creek will be managed by a Board of Directors consisting of four directors, two of which shall be designated by the Company.

Basic and Diluted Loss per Share

The Company’s basic earnings per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. For the three-month period ended August 31, 2021, all options and warrants potentially convertible into common equivalent shares are considered antidilutive and have been excluded in the calculation of diluted earnings per share. As the Company realized a net loss for the nine-monththree-month period ended February 28, 2021 and the three- and nine-month periods ended February 29,August 31, 2020, no potentially dilutive securities were included in the calculation of diluted loss per share as their impact would have been anti-dilutive. For the three-month period ended February 28, 2021, all options and warrants potentially convertible into common equivalent shares are considered antidilutive due to the exercise prices of the instruments and have been excluded in the calculation of diluted earnings per share. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common and dilutive common equivalent shares 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 historically has been dependent uponon one customer for its revenue. Further the Company has negative working capital as of August 31, 2021 and May 31, 2021. The Company entered into the 2011 SORC Agreements with SORC to fund operations and to provide working capital. However, as a result of the SORC Purchase Transaction, except for payments to be made in calendar year 2021 to Laredo under the Alleghany Consulting Agreement, Alleghany will no longer fund operations or provide working capital to the Company or SORC. There is no assurance that in the future such 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 the consolidated financial statements.

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 (a) providing services and expertise to optimize operations; and (b) controlling overhead and expenses. In that regard, 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. 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 minimizerestrict the growth of 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 3 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation – The accompanying consolidated financial statements include the accounts of Laredo Oil 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 lossincome (loss) with a two-month lag. Accordingly, the financial results for the equity method investment are reported through December 31, 2020.June 30, 2021. No impairments were recognized for the Company’s equity method investment during the quarter ended February 28,August 31, 2021. See Note 12.11.

Property and Equipment – The carrying value of the Company’s property and equipment represents the cost 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 – Oil and gas acquisition 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. Costs are reviewed to determine if impairment has occurred. The Company has incurred oil and gas acquisition costs totaling $115,920 and $389,480 during the quarter ended August 31, 2021 and the year ended May 31, 2021, respectively.

NOTE 4 – ACQUISITION OFREVENUE RECOGNITION

Monthly Management Fee

The Company generated monthly management revenues from fees for labor and benefit costs in accordance with the 2011 SORC

Purchase Price Allocation

We 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 accountednot been provided. Monthly management fee revenues of $1,538,487 were recognized for the Acquisitionthree months ended August 31, 2020. The last monthly management fee payment from SORC was paid in February 2021.

Quarterly Management Fee

While the 2011 SORC Agreements were in place with Alleghany during calendar year 2020, the Company generated management fee revenue of SORC as$137,500 each quarter, payable in advance. The Company recognized that revenue over the applicable quarter on a business combination using the acquisition method. The following table represents the allocation of the total purchase price of SORCstraight-line basis. Quarterly management fees recognized for three months ended August 31, 2021 and 2020, respectively were $0 and $137,500. Pursuant to the identifiable assets acquired andSORC Purchase Agreement, the liabilities assumed based on the fair values as of the acquisition date.

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,quarterly management fee has been terminated all employeeseffective December 31, 2020 and no longer maintained any of the business processes that previously existed. Accordingly,additional quarterly fees have been recognized. As a result, the Company has determinednot recorded quarterly management fee deferred revenue as of August 31, 2021 and May 31, 2021.

Other Revenue

The Company and Alleghany have entered into the transactionAlleghany Consulting Agreement (see Note 1), where Alleghany is considered an asset acquisition only. Asobligated to pay the Company a result, historical financial statements are not considered relevant to the ongoing operationstotal of $1,144,471, in quarterly payments beginning January 1, 2021, in consideration for making certain individuals available for their advice, assistance and are not required.

Insupport in connection with the acquisition, the Company received tangible assets which had previously been written off by the Seller. Thisoil and gas industry and any questions, issues or matters arising from Alleghany’s 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 atownership of SORC. Two individuals are committed for a lower price resulting in the recognition of a bargain purchase gain.

For theone-year period fromending December 31, 2020 to February 28, 2021, there are no revenues and $4,860 interest expenseone individual is committed for a three year period ending December 31, 2023. The Company’s management believes that any work necessary under this obligation will in fact be completed by December 31, 2021 and is recognizing revenue on a monthly basis over the year ended December 31, 2021. Accordingly, $286,118 is recorded as other revenue for the quarter ended August 31, 2021. Unearned revenue related to the debt discount amortization. amounts received but not yet earned under this contract at August 31, 2021 totaled $95,373.

NOTE 5 – REVENUE RECOGNITION

Monthly Management Fee

The Company generates monthly management revenues from fees for labor and benefit costs. The Company recognizes revenue for these services in the month the labor and benefits are received by the customer. 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. Monthly management fee revenues of $2,048,216 and $5,895,121 were recognized for the three months and nine months ended February 29, 2020, respectively.

Quarterly Management Fee

The Company generates management fee revenue each quarter. The Company recognizes revenue over the applicable quarter on a straight-line basis. 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. Prior to December 31, 2020 the management fee is billed quarterly in advance. Quarterly management fees recognized for three and nine months ended February 28, 2021 were $45,833 and $320,833. Quarterly management fees recognized for three and nine months ended February 29, 2020 were $137,500 and $412,500, respectively.

Other Revenue

The Company and Alleghany have entered into a Consulting agreement (see Note 1), where Alleghany is obligated to pay the Company a total of $1,144,471, in quarterly payments beginning January 1, 2021, in consideration for making certain individuals available 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 one individual is committed for a three year period ending December 31, 2023. The Company's management believes that any work necessary under this obligation will in fact be completed by December 31, 2021, and is recognizing revenue on a monthly basis over the year ended December 31, 2021. Unearned revenue related to amounts received but not yet earned under this contract at February 28, 2021 totaled $95,373. In addition, Alleghany paid 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 months ended February 28, 2021 was $290.745.

NOTE 6 – RECENT AND ADOPTED ACCOUNTING STANDARDS

The Company has reviewed 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 – 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 revisions mayhave a significant impact on our consolidated financial statements. The allocations of the purchase price will be finalized once all the information is obtained, but not to exceed one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to prepaid expenses and current liabilities.

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.

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 August 31, 2021, SORC recognized no revenues and $7,579 interest expense recorded related to the debt discount amortization, included in the Consolidated Statement of Operations.

NOTE 7 – 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, 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 investee 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 at February 28,August 31, 2021.

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.

NOTE 8 – 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 financial statements can evaluate their significance. Related party transactions typically occur within the context of the following relationships:

NOTE 8 – RELATED PARTY TRANSACTIONS (continued) 

Prior to the SORC Purchase Transaction on December 31, 2020, SORC and Alleghany arewere considered related parties under FASB ASC 850. See Note 1. All management fee revenue reported by the Company for the three and nine monthsyears ended February 28,May 31, 2021 and February 29, 2020 is generated from charges to SORC. All outstandingThe Company also recorded an approximate $0 and $32,000 receivable from SORC as of May 31, 2021 and 2020, respectively, comprised of employee expense reports covered by SORC pursuant to the management services agreements. Outstanding notes payable totaling $350,000 and related accrued interest at February 28, 2021 and May 31, 2020 arewere held by Alleghany Capital Corporation (“Alleghany Capital”), a wholly owned subsidiary of Alleghany. See Note 9.7.

Subsequent to the Company’s purchase of 100% of SORC’s stock on December 31, 2020, Alleghany and its subsidiaries are no longer a related party.

NOTE 9 – STOCKHOLDERS’ DEFICIT

Share Based Compensation

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

Share based compensation expense is fully recorded with respect tofor stock option awards outstanding. No share based compensationgrants totaling $3,288 and zero is recorded in general, selling and administrative expense was recordedduring the three months ended August 31, 2021 and 2020, respectively.

Stock Options

Option grants for the purchase of 1,600,000 shares of common stock at a price of $0.074 per share were made during the first quarter of fiscal year 2022. The options vest monthly over three years beginning August 1, 2021 and nine month periods ended February 28, 2021 or February 29, 2020.

Stock Options

expire on August 1, 2031. The grant date fair value of these stock option grants amounted to approximately $118,387. The assumptions used in calculating these values were based on an expected term of 6.0 years, volatility of 315% and a 0.95% risk free interest rate at the date of grant. No option grants were made during the first second and third quartersquarter of fiscal years 2021 and 2020.year 2021.

Restricted Stock

No restricted stock was granted during the first second and third quarters of fiscal years 20212022 or 2020.2021.

Warrants

No warrants were issued during the first three quarters of fiscal years 20212022 or 2020. As of February 28, 2021, there were2021. The 5,374,501 warrants remaining to be exercised at a price of $0.70 per share to Sunrise Securities Corporation to satisfy the finders’ fee obligation associated with the Company’s original transaction with Alleghany in June 2011. The warrants will expirepreviously outstanding expired June 14, 2021 and are currentlyno longer exercisable.

NOTE 10 – NOTES PAYABLE

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 accrueaccrued interest on the outstanding principal of $350,000 at the rate of 6% per annum, with a due date of December 31, 2020 as of May 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, 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. As part of the SORC Purchase Transaction, 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 note bears no interest until January 1, 2022 whereupon the interest rate increases 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 Senior Consolidated Note totaling $607,884 is recorded as a long-termcurrent note payable, net of debt discount as of February 28,August 31, 2021.

Paycheck Protection Program Loan

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 yeartwo-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 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 8 weeks or 24 weeks.

NOTE 10 – 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,August 31, 2021, interest totaling $11,256$7,186 is recorded in accrued interest on the accompanying balance sheets. After the deferral period and after taking into account 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 along with the $15,099 related accrued interest through that date. As of May 31, 2021 both PPP Notes have been recorded as debt. During the quarter ended August 31, 2021, the portion of the loan forgiven has been recorded as income from PPP loan forgiveness as the Company has been legally released from being the primary obligor in accordance with ASC 405-20-40-1. Monthly payments commence on September 1, 2021 with respect to the remaining $23,847 balance on the first Note.

At this time, the Company has not yet applied for or received loan forgiveness on the PPP Second Draw Loan. No assurance can be given that the Company will obtain forgiveness of the loan, in whole or in part. At this time,Similar to the Company has not yet applied for or received loanfirst PPP Note, any forgiveness and therefore have treatedon the PPP NoteSecond Draw Loan will be treated as debt. If all or a portion of a loan is ultimately forgiven, the Company plans to record income from the extinguishment of its loan obligation when it is legally released from being the primary obligor in accordance with ASC 405-20-40-1.

NOTE 11 – EMPLOYEE SEPARATIONS

The Company establishes obligations for expected termination benefits provided under existing agreements with a former or inactive employee after employment but before retirement. These benefits generally include severance payments and medical continuation coverage. During the first quarter of 2021,ending August 31, 2020, the Company continued to reduce expenses in response to the impact of the COVID-19 pandemic. During third quarter of 2021 and in connection with the SORC purchase agreement and termination of the Alleghany Agreements, the Company continued to reduce expenses. These activities included further reductions in its workforce. The Company incurred severance and related charges totaling $222,023$222,023 during the first quarter 2021 and $284,113 during the third quarter 2021. As of February 28,August 31, 2021, the Company has no remaining severance accrual included in accrued payroll liabilities. There were no similar accruals as of May 31, 2020.

NOTE 12 – EQUITY METHOD INVESTMENT

On June 30, 2020, Laredo Oil, Inc. (“Laredo”) entered into a Limited Liability Company Agreement (the “LLC Agreement”) of Cat Creek, Holdings LLC (“Cat Creek”), a Montana limited liability company formed as a joint venture for the purchase of certain oil and gas properties in the Cat Creek Field in Petroleum and Garfield Counties in the State of Montana (the “Cat Creek Properties”). In accordance with the LLC Agreement, Laredo invested $448,900$448,900 in Cat Creek 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. Cat Creek will be managed by a Board of Directors consisting of four directors, two of which shall be designated by Laredo.

Cat Creek entered into an Asset Purchase and Sale Agreement (the “Purchase Agreement”) with Carrell Oil Company (“Seller”) on July 1, 2020 for the purchase of the Cat Creek Properties from Seller. On September 21, 2020, upon resolving the purchase contingency under the Purchase Agreement, the Seller 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 table provides summarized financial information for the Company’s ownership interest in Cat Creek accounted for under the equity method for the February 28,August 31, 2021 period presented and has been compiled from respective company financial statements, reflects certain historical adjustments, and is reported on a two-month lag. Results of operations are excluded for periods prior to acquisition.

Summarized Financial Information

NOTE 13 – COMMITMENTS AND CONTINGENCIES

On February 4, 2021, a case captioned Lustre Oil Company LLC and Erewhon Oil & Gas, LLC v. Anadarko Minerals, Inc. and A&S Mineral Development Co., LLC was filed in the Montana Seventeenth Judicial District Court for Valley County by Lustre Oil Company LLC, a subsidiary of the Company (“Lustre”), to initiate a quiet title action confirming Lustre’s rights under certain mineral leases in Valley County, Montana. Lustre is also seeking damages with respect to actions taken by A&S Mineral Development Co., LLC to improperly produce oil on the property subject to such mineral leases.

Except as set forth above, we are not currently involved in any other legal proceedings and we are not aware of any other pending or potential legal actions.

NOTE 14 – SUBSEQUENT EVENTS

On October 1, 2021, Laredo entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Geneva Roth Remark Holdings, Inc., an accredited investor (“Geneva Roth”), pursuant to which the Company sold Geneva Roth a convertible promissory note in the principal amount of $114,125 (the “Geneva Roth Note”). The Geneva Roth Note accrues interest at a rate of 8% per annum (22% upon the occurrence of an event of default) and has a maturity date of October 1, 2022. The Company has received net proceeds of $100,000 in cash from Geneva Roth pursuant to the note.

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

NOTE 14 – SUBSEQUENT EVENTS (continued)

Geneva Roth may in its option, at any time beginning 180 days after the date of the note, convert the outstanding principal and interest on the Geneva Roth Note into shares of Laredo common stock at a conversion price per share equal to 75% of the average of the three lowest closing bid prices on the applicable electronic quotation system or applicable trading market as reported by a reliable reporting service of Laredo common stock during the 15 days trading days prior to the date of conversion. The Company agreed to reserve a number of shares of its common stock which may be issuable upon conversion of the Geneva Roth Note at all times.

The Geneva Roth Note provides for standard and customary events of default such as failing to timely make payments under the Geneva Roth Note 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 Geneva Roth Note also contains customary positive and negative covenants. The Geneva Roth Note includes penalties and damages payable to Geneva Roth in the event we do not comply with the terms of such note, including in the event we do not issue shares of common stock to Geneva Roth upon conversion of the note within the time periods set forth therein. Additionally, upon the occurrence of certain defaults, as described in the Geneva Roth Note, we are required to pay Geneva Roth liquidated damages in addition to the amount owed under the Geneva Roth Note (including in some cases up to 300% of the amount of the note).

At no time may the Geneva Roth Note be converted into shares of Laredo common stock if such conversion would result in Geneva Roth and its affiliates owning an aggregate of in excess of 4.99% of the then outstanding shares of Laredo common stock.

The proceeds from the Geneva Roth Note can be used by the Company for general corporate purposes.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements that involve risk and uncertainties. We use words such as “anticipate”, “believe”, “plan”, “expect”, “future”, “intend”, and similar expressions to identify such forward-looking statements. Investors should be aware that all forward-looking statements contained within this filing are good faith estimates of management as of the date of this filing. Our actual results could differ materially from those anticipated in these forward-looking statements.

Impact of COVID-19 to our Business

The long-term impacts of the global emergence of novel coronavirus 2019 (“COVID-19”) on our business are currently unknown. In an effort to protect the health and safety of our employees, we took proactive, aggressive action from the earliest signs of the outbreak in China to adopt social distancing policies at our locations, including working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and suspending employee travel. In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities.

We anticipate that these actions and the global health crisis caused by COVID-19 will continue to negatively impact business activity across the globe.activity. We have observed declining demand and price reductions in the oil and gas sector as business and consumer activity decelerates across the globe. When COVID-19 is demonstrably contained, we anticipate a rebound in economic activity, depending on the rate, pace, and effectiveness of the containment efforts deployed by various national, state, and local governments.

We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our financial results for the remainder of fiscal 2021.

Company Description and Operations

Laredo Oil, Inc. (“the Company”) is an oil exploration and production (“E&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 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. 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 to seek recovery of stranded crude oil from mature, declining oil fields by using the EOR method known as Underground Gravity Drainage (“UGD”). Such agreements consisted of a license agreement between the Company and SORC (the “SORC License Agreement”), a license agreement between the Company and Mark See, the Company’s Chairman and Chief Executive Officer (“CEO”) (the “MS-Company License Agreement”), an Additional Interests Grant Agreement between the Company and SORC, a Management Services Agreement between the Company and SORC (the “MSA”), 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”).

Company Purchase of Stock of SORCITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Pursuant to a Securities Purchase Agreement dated December 31, 2020 (the “SORC Purchase Agreement”), by and among the Company, Alleghany, Corporation (“Alleghany”), Stranded Oil Resources Corporation, a wholly-owned subsidiary of Alleghany (“SORC”),SORC, and SORC Holdings LLC, a wholly-owned subsidiary of the Company (“Buyer”SORC Holdings”), BuyerSORC 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, BuyerSORC Holdings paid to Alleghany $72,678 comprised(comprised of $55,000 purchase price plus a $17,678 working capital adjustment calculated in accordance with the SORC Purchase Agreement. TheAgreement), and the Company 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 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.

Further, pursuant to the SORC Purchase Agreement, the Company and Alleghany entered into a consulting agreement dated as of December 31, 2020 (the “Alleghany Consulting Agreement”), pursuant to which Alleghany agreed to pay an aggregate of approximately $1.245 million during calendar year 2021 in consideration of the Company causing certain individuals, including Mark See, the Company’s Chief Executive Officer and Chairman, and Chris Lindsey, 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 entering the SORC Purchase AgreementTransaction was advantageous as it simplified in a timely manner the unwinding of the 2011 SORC Agreements entered into on June 14, 2011 and allowed the Company to acquire vehicles and oil field assets that can be utilized in future oil recovery projects.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS –continued

In connection with the SORC Purchase Transaction, the two senior promissory notes of the Company held by Alleghany were consolidated into a single Consolidated, Amended and Restated Senior Promissory Note in the amount of $631,434 (which includes all principal and accrued interest through December 31, 2020) (the “Senior Consolidated Note”), which Consolidated Note has a maturity date of June 30, 2022. The Consolidated Note is now secured by a grant to Alleghany of a security interest in certain oilfield equipment assets of SORC pursuant to a Security Agreement executed at the closing. Any proceeds received from the sale of such equipment will be applied to reduce the note balance.

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

As the Company now owns SORC and the 2011 SORC Agreements withhave been terminated, the Company no longer receives any payments from SORC and Alleghany enumerated in the “General” section below are effectively terminated, including(including any Royalty payable by SORC to the Company.Company) outlined in the 2011 SORC Agreements. As a result, except for the payments to be made in calendar year 2021 to the Company under the Alleghany Consulting Agreement, the Company will no longer receive management service feesfee revenue from Alleghany or reimbursement from Alleghany for the monthly expenses of its employees, which fees and reimbursements were effectively all of the Company’s revenues prior to the closing of the SORC Purchase Transaction. Subsequent to the SORC Purchase Transaction, the Company is an exploration and production company that owns, develops and operates oil fields to increase recovery through the use of proprietary enhanced oil recovery methods. The Company has a team of experienced petroleum engineers who have been actively involved in the development of UGD 3.0, which can provide and be a valuable resource to exploration and production (“E&P”) companies seeking to enhance their oil recovery operations, and to apply to the Company’s own fields and those fields that the Company has targeted for potential acquisition. The Company plans to be opportunistic in pursuing several areas of opportunity which were completely or partially restricted under the Agreements with SORC. First, the Company is currently acquiring mineral rights in Montana (outside of Cat Creek) with the plan of developing and producing oil for its own account from properties using conventional oil recovery methods and/or its proprietary UGD oil recovery technique. Second, the Company seeks to contract to, farm-in or otherwise license its technology worldwide to other E&P companies seeking to enhance recovery from certain oil fields. Third, the Company plans to acquire and manage fields for third parties in a fashion similar to that described in the Agreements with SORC.

General – Company Business during the Reporting Period

During the reporting period 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 methods. On June 14, 2011, the Company entered into agreements with Stranded Oil Resources Corporation (“SORC”) to seek recovery of stranded crude oil from mature, declining oil fields by using the enhanced oil recovery (“EOR”) method known as Underground Gravity Drainage (“UGD”). Such agreements include license agreements, management services agreements, and other agreements (collectively the “Agreements”). See “Item 1. Business” in the Form 10-K for the period ended May 31, 2020 for a discussion of our business and our transactions with SORC. In connection with the SORC Purchase Transaction referenced above, these Agreements terminated effective as of December 31, 2020.

From SORC’s formation in 2011 through December 31, 2020, Alleghany’s net investment into SORCCompany 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, the Company has identified and has acquired 23,739 acres of mineral properties in Montana. An initial target of 10 drilling locations has been more than $275 million. This investment has been channeled primarily into three major projects locatedidentified with the intention to drill a development well there in Kansas, Louisianacalendar year 2021 and, Wyoming, all of which were sold by SORC priorif that well yields anticipated results, the Company plans to develop the Company’s acquisition of SORC from Alleghany on December 31, 2020.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS– continuedfield thereafter.

On June 30, 2020, the Company entered into athe Limited Liability Company Agreement (the “LLC 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 purchase of 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 Purchase Agreement”) with Carrell Oil Company (“Carrell Oil”) on July 1, 2020 for the purchase of the Cat Creek Properties from Seller. Upon closing under the Cat Creek Purchase Agreement, Carrell 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 LLC Agreement, the Company invested $448,900 in Cat Creek 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. Cat Creek will be managed by a Board of Directors consisting of four directors, two of which shall be designated by the Company.

Cat Creek entered into an Asset Purchase and Sale Agreement (the “Purchase Agreement”) with Carrell Oil Company (“Seller”) on July 1, 2020 for the purchase of the Cat Creek Properties from Seller. On September 21, 2020, upon resolving the purchase contingency under the Purchase Agreement, the Seller received consideration of $400,000, taking into effect certain adjustments resulting from pre- and post-effective date revenue, expense, and allocations.

The Company accounts for its investment in Cat Creek as an equity method investment.

Liquidity and Capital Resources

Through December 31, 2020, in accordance with the SORC license and management services agreements, the Company received from SORC sufficient working capital necessary to meet its obligations under the Agreements. The Company provided the know-how, expertise, and management required to identify, evaluate, acquire, test and develop targeted properties, and SORC provided all required funding and owned any acquired assets. SORC was funded primarily by Alleghany in exchange for issuance by SORC to Alleghany of 12% Cumulative Preferred Stock. As of December 31, 2020, SORC had received more than $275 million in net funding from Alleghany. Prior to the Company receiving any Royalty cash distributions from SORC, all SORC preferred share accrued dividends (in excess of $200 million as of December 31, 2020) would have been required to be paid, preferred shares redeemed (in excess of $270 million as of December 31, 2020), and debt retired to comply with any loan agreements. With such uncertainty, Royalty cash distributions were not foreseen in the near future, and the main source of income for the Company was the management fee revenue under the Management Services Agreement.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - – continued

The original UGD method used conventional mining processes to establish a drilling chamber underneath an existing oil field from where closely spaced wellbores were intended to be drilled up into the reservoir, using residual radial pressure and gravity to then drain the targeted reservoir through the wellbores. As experience has been gained through practical application of the processes involved in oil recovery, variants of the UGD concept are continually developed and evaluated. The UGD method is applicable to mature oil fields that have very specific geological characteristics. The Company has done extensive research and has identified oil fields within the United States that it believes are qualified for UGD recovery methods. We believe the costs of implementing the UGD method are significantly lower than those presently experienced by other commonly used EOR methods. We also estimate that we can materially increase the field oil production rate from prior periods and, in some cases, recover amounts of oil equal to or greater than amounts previously recovered from the mature fields selected.

Our shares are currently listed for trading on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol LRDC. As of the date of this report, there has been light to medium trading for our common stock and we cannot provide assurance that an active trading market for our securities will ever develop.

Liquidity and Capital Resources

As a result of the SORC Purchase Transaction, the Company is no longer entitled to receive management fee revenue or operations reimbursements from Alleghany or SORC. Further, the Company is no longer entitled to any Royalty cash distributions from Alleghany or SORC. The Company plans to use its cash and cash equivalents on hand, and the proceeds from the Alleghany Consulting Agreement, to maintain the mineral rights acquisition program in Montana and to pay its operating costs.

On April 28, 2020, the Company entered into a note in the amount of $1,233,656 (the “First PPP Note”) pursuant to the terms of the Paycheck Protection Program (“PPP”) authorized by the Coronavirus Aid, Relief and Economic Security (CARES) Act (the “Program”). The Program provides loans to qualifying businesses for amount up to 2.5 times the average monthly payroll expenses of the qualifying business. On July 19, 2021, the Company was notified that the SBA forgave $1,209,809 of the note, leaving $23,847 payable over the remaining life of the five-year loan. The loan will be repaid through monthly payments of principal and accrued interest in the amount of $559 beginning September 1, 2021 and ending April 28, 2025 with the final payment including all outstanding principal as well as accrued interest through that date. 

Effective as of February 3, 2021, the Company entered into a note in the amount of $1,233,655 (the “Second PPP Note” and, together with the First PPP Note, the “PPP Notes”) for a second draw under the Program.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Under the terms of the Program,Second PPP Note, PPP loan participants can apply for and be granted forgiveness for all or a portion of the loan (including interest) granted pursuant to the PPP. Such forgiveness will be determined, subject to limitations, based on the use of the loan proceeds for eligible purposes. No assurance can be given that the Company will obtain forgiveness of the Second PPP Notes,Note, in whole or part.

Our cash and cash equivalents at February 28,August 31, 2021 was $1,865,618.$824,421. Total debt outstanding as of the filing date of this reportAugust 31, 2021 is $3,073,537$1,859,218 comprised of $606,226,$607,884, recorded net of $25,208$10,050 deferred debt discount and owed to Alleghany Capital, which is classified as a short-term notes payable and $2,467,311$1,251,334 pursuant to the PPP Notes and related accrued interest.Notes. Based on the terms of the PPP Notes, $2,193,715$1,183,668 is classified as a long-term note, net of the current portion totaling $273,596$73,034 which is classified as a current note payable.

Results of Operations

Pursuant to the MSAManagement Services Agreement with SORC, which terminated effective December 31, 2020 in connection with the SORC Purchase Transaction, the Company received and recorded management fee revenue and direct costs totaling $1,092,223 and $1,230,765 for the quarter ended February 28, 2021 and $2,185,716 and $2,111,583 for the same quarter ended February 29, 2020. Similarly, the Company received and recorded management fee and other revenue and direct costs totaling $4,015,764$1,675,987 and $4,212,466$1,718,864 for the ninequarter ended August 31, 2020. Due to the termination of the MSA, there are no similar management fee revenues and expenses during the first quarter of fiscal 2022. During the three months ended February 28,August 31, 2021, and $6,307,621 and $6,132,048 for the nine months ended February 29, 2020. The Company received and recorded other revenuesrevenue totaling $290,745 for both$286,118 comprised of revenue from consulting services provided pursuant to the three and nine months ended February 28, 2021. No similar other revenues were recorded in the three and nine months ended February 29, 2020.Alleghany Consulting Agreement.. The overall decrease in revenues and direct costs is primarily attributable to the termination of the MSA with SORC resulting in a reduction in force contributing to the decrease in employee related costs in the three and nine months ended February 28,August 31, 2021 as compared to the same periodsperiod in the prior fiscal year.

During the quarters ended February 28,August 31, 2021 and February 29,August 31, 2020, respectively, we incurred operating expenses of $102,137 and $81,894. Thethe Company incurred operating expenses of $376,314$164,955 and $220,699 during the nine months ended February 28, 2021 and February 29, 2020, respectively.$139,755. These expenses consisted of general operating expenses incurred in connection with the day to day operation of our business and the preparation and filing of our required reports. The increase in expenses for the quarter ended February 28,August 31, 2021 as compared to the same period in 20192020 is primarily attributable to consultingincreases in depreciation and legalan increase in general operating costs related to the acquired SORC assets, stock based compensation and travel during the quarter ended August 31, 2021.

During the quarter ended August 31, 2021, the Company recognized $1,224,908 gain on PPP loan forgiveness of both principle and accrued interest, recognized $10,847 equity method income related to their July 2020 equity investment, in Cat Creek and recognized $131,153 other income for the Securities Purchase Agreement.sale of a license. The Company had no other income during the quarter ended August 31, 2020.

Due to the nature of the 2011 SORC Agreements, the Company has been relatively unaffected by the impact of inflation. Usually, when general price inflation occurs, the price of crude oil increases as well, which may have a positive effect on sales. However, as the price of oil increases, it also most likely will result in making targeted oil fields more expensive. 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS– continued

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The process of preparing financial statements requires that we make estimates and assumptions that affect the reported amounts of liabilities and stockholders’ equity/(deficit) at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates and assumptions based on currently available information, historical experience and various other factors we believe to be reasonable under the circumstances. Significant estimates in these financial statements include estimates related to the valuation of stock-based compensation and related to purchase price allocation. Changes in the status of certain facts or circumstances could result in a material change to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS– continued

OFF-BALANCE SHEET ARRANGEMENTS

We do not currently have any off-balance sheet arrangements or other such unrecorded obligations, and we have not guaranteed the debt of any other party.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is confined to our cash equivalents. We invest in high-quality financial instruments and we believe we are subject to limited credit risk. Due to the short-term nature of our cash, we do not believe that we have any material exposure to interest rate risk arising from our investments.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives, and management necessarily is required to use its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, the CEO and CFO have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are not effective in insuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, it is difficult to effectively segregate accounting duties which comprises a material weakness in internal controls. This lack of segregation of duties leads management to conclude that the Company’s disclosure controls and procedures are not effective to give reasonable assurance that the information required to be disclosed in reports that the Company files under the Exchange Act is recorded, processed, summarized and reported as and when required.

ITEM 4. CONTROLS AND PROCEDURES – continued

(b) Changes in Internal Control Over Financial Reporting

None.

PART II - OTHER INFORMATION

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits required to be filed herewith by Item 601 of Regulation S-K, as described in the following index of exhibits, are attached hereto unless otherwise indicated as being incorporated herein by reference, as follows: 

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LAREDO OIL, INC.

(Registrant)