Prior to December 31, 2020, we managed several projects for Stranded Oil Resources Corporation, or SORC, a subsidiary of Alleghany Corporation, or Alleghany. Also prior to December 31, 2020, SORC sold the assets of the projects and transferred the funds it received from those sales to Alleghany. On December 31, 2020, we purchased 100% of the outstanding stock of SORC from Alleghany. At that time, SORC owned vehicles and oil field assets that were not included in the previous sales.

During the period from June 14, 2011 through December 31, 2020, we gained specialized know-how and operational experience implementing underground gravity drainage, or UGD, projects, as well as experience developing conventional oil wells. Based upon this knowledge we gained, as of August 15, 2022, we had identified and acquired approximately 45,246 gross acres and 37,932 net acres of mineral properties in northeastern Montana.. We are currently drilling an exploratory well, Olfert #11-4, there and, if that well is successful, we plan to develop the remainder of the field thereafter. As of the filing date of this report, the well has not yet been completed and put into production. We are continuing our ongoing efforts to complete the well and begin commercial production.

Liquidity and Capital Resources

As a result of the transactions described above, we are no longer entitled to receive management fee revenue or operations reimbursements, or royalty distributions, from Alleghany or SORC. We plan to use our cash and cash equivalents on hand, to maintain our mineral rights acquisition program in Montana and to cover our operating expenses.

On April 28, 2020, we borrowed $1,233,656 under the terms of the Paycheck Protection Program, or the PPP, authorized by the Coronavirus Aid, Relief and Economic Security (CARES) Act. The PPP provides loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the business. On July 19, 2021, we were notified that $1,209,809 of the principal amount of our PPP loan had been forgiven, leaving $23,847 in principal payable over the remaining five year life of the loan. We will repay the PPP loan through monthly payments of principal and accrued interest in the amount of $559 per payment, through April 28, 2025.

Effective as of February 3, 2021, we received a second PPP loan in the amount of $1,233,655. On April 25, 2022, $66,682 of the principal amount of the loan was forgiven, leaving $1,166,973 payable over the remaining life of the five-year loan. We will repay the loan through monthly payments of $26,752, beginning June 3, 2022 and ending February 2026.


                                       9

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Our cash and cash equivalents at May 31, 2022 was $109,183. Our total debt outstanding as of May 31, 2022 was $2,377,980, including (i) $617,934 owed to Alleghany, which is classified as a short-term note payable, (ii) $1,185,952 pursuant to the PPP notes. Pursuant to the terms of those notes, we have classified $857,339 of that debt as a long-term note, net of the current portion, totaling $328,613, which is classified as a current note payable, (iii) $374,757 short term convertible notes, net of deferred debt discount, (iv) $62,858 revolving note classified as short-term and (v) $136,479 note payable due Cat Creek as current.





Results of Operations

Pursuant to the Management Services Agreement, or MSA, with SORC, which terminated effective December 31, 2020, we received and recorded management fee revenue of $4,015,763 and direct costs of $4,775,976, respectively, for the fiscal year ending May 31, 2021. The decrease in revenues and direct costs from fiscal year 2021 to 2022 is primarily attributable to the termination of the MSA with SORC. The termination of the MSA also resulted in in a reduction in force, contributing to the decrease in our employee related costs, as well as the cessation of the related monthly and quarterly management fee revenue in the fiscal year ending May 31, 2022, as compared to the fiscal year ending May 31, 2021. Partially offsetting our decrease of management fee revenue in fiscal 2021 was an increase in other revenue and direct costs, respectively totaling $667,608 and $1,286,244 for continued consulting services we provided to Alleghany after the termination of the MSA.

During the fiscal years ended May 31, 2022 and 2021, we incurred operating expenses of $1,580,069 and $499,332, respectively. These expenses consisted of general operating expenses incurred in connection with the day to day operation of our business, the preparation and filing of our required public reports and stock option compensation expense. In addition, commencing January 1, 2022 payroll related expenses are also included in the general operating expenses as the Company is no longer providing any direct management services. The increase in expenses for the year ended May 31, 2022, as compared to the same period in 2021, is primarily attributable to these payroll costs, increased accounting and other professional fees including public relations and stock based compensation. We also experienced increases in other general and administrative expenses, including insurance, IT and internet services and transfer agent fees, as well as depreciation expense in connection with previously acquired property, plant and equipment.

During the year ended May 31, 2022, we recognized other income and expenses comprised of the $1,292,396 gain on PPP loan forgiveness of both principle and accrued interest, $15,421 equity method income related to our July 2020 equity investment, and $131,153 other income for the sale of a license. During the year ended May 31, 2021, we recognized a $119,617 equity method loss and a gain on bargain purchase totaling $486,294 in connection to the acquisition of 100% equity interest in Stranded Oil Resources Corporation.

Recently Issued Accounting Pronouncements

Refer to Note 3 of the Notes to Consolidated financial statements for a discussion of recently issued accounting pronouncements.

Critical Accounting Policies and Estimates

The process of preparing consolidated 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these consolidated financial statements include estimates 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 consolidated financial statements and actual results could differ from the estimates and assumptions.



                                       10



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 on one customer for its revenue. The Company entered into the 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 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 an ongoing effort to raise straight and convertible debt to fund well development and maintain operations. The Company has worked to attract and retain key personnel with significant experience in the industry. At the same time, in an effort to control costs, the Company has required a number of its personnel to multi-task and cover a wider range of responsibilities in an effort to restrict the growth 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.

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.

© Edgar Online, source Glimpses