10-Q: Laredo Oil Reports Wider Losses, Internal Control Weakness

Laredo Oil, Inc. reported a significantly wider net loss for the quarter and six months ended November 30, 2025, alongside a material weakness in its internal controls over financial reporting, raising substantial doubt about its ability to continue as a going concern.

Summary

• Net loss for the three months ended November 30, 2025, widened to $3,311,114 from $815,720 in the prior year period.
• Net loss for the six months ended November 30, 2025, widened to $4,263,188 from $1,284,972 in the prior year period.
• Revenue for the six months ended November 30, 2025, decreased to $3,141 from $7,688 in the prior year period.
• Operating expenses for the six months ended November 30, 2025, significantly increased to $3,645,630 from $1,369,119, primarily due to a $2.0 million stock option grant expense.
• Cash and cash equivalents increased to $568,831 as of November 30, 2025, from $249,409 as of May 31, 2025.
• Total debt outstanding increased to $4,935,766 as of November 30, 2025, from $3,966,351 as of May 31, 2025.
• The company sold its 100% membership interest in Hell Creek Crude, LLC (HCC) on November 15, 2025, for consideration of 50% of future distributions to the buyer, B&B Oil, LLC.
• Management identified a material weakness in internal control over financial reporting due to a lack of full-time employees with requisite finance and accounting expertise and insufficient segregation of duties.

Sentiment

Score: 2

Explanation: The company reported significantly wider losses, declining revenue, and a substantial increase in operating expenses. The 'going concern' warning and material weakness in internal controls are severe negative indicators. While there's some positive cash flow from financing and interest in UGD, the overall financial health and operational execution are highly concerning.

Positives

• Cash and cash equivalents increased to $568,831 as of November 30, 2025, from $249,409 as of May 31, 2025.
• Net cash used in investing activities was $0 for the six months ended November 30, 2025, compared to $6,762 used in the prior year period.
• The company successfully raised $1,059,800 from common stock sales and $1,275,000 from debt securities during the six months ended November 30, 2025.
• Increased interest from multiple investors/funds and oil field ownership interests in the company's Underground Gravity Drainage (UGD) methods, both nationally and internationally.
• The company is current and compliant with the restructured payment plan for its Paycheck Protection Program (PPP) Second Draw Loan.

Negatives

• Net loss significantly widened to $3,311,114 for the three months ended November 30, 2025, compared to $815,720 for the same period in 2024.
• Net loss significantly widened to $4,263,188 for the six months ended November 30, 2025, compared to $1,284,972 for the same period in 2024.
• Revenue decreased to $3,141 for the six months ended November 30, 2025, from $7,688 in the prior year period.
• Total operating expenses for the six months ended November 30, 2025, increased by over 166% to $3,645,630, largely due to a $2.0 million stock option grant expense.
• Interest expense more than doubled to $584,322 for the six months ended November 30, 2025, from $239,151 in the prior year period.
• Total liabilities increased to $14,968,097 as of November 30, 2025, from $14,020,333 as of May 31, 2025.
• Total stockholders' deficit worsened to $(13,263,490) as of November 30, 2025, from $(12,572,315) as of May 31, 2025.
• Five conventional wells drilled in Lustre and Midfork fields have not been economically successful due to excess water.
• The Midfork Well was shut in prior to May 31, 2025, due to uneconomical production, leading to a $653,874 impairment.
• The Olfert 11-4 well, drilled in the first half of calendar 2023, encountered excessive salt water and has been shut-in, with its asset carrying value reduced to zero.
• Three wells drilled under the Texakoma Development Agreement were shut in due to insufficient oil levels.
• $1,400,000 of the $2,250,000 raised for the West Fork project was returned to investors because the project had not been fully funded.

Risks

• Substantial doubt about the company's ability to continue as a going concern within one year due to routinely incurred losses and accumulated deficit.
• No assurance that future financing will be available to meet the company's needs.
• Inability to successfully accomplish steps to improve operations and achieve profitability.
• Material weakness in internal control over financial reporting due to a lack of full-time employees with requisite expertise in finance and accounting and insufficient segregation of duties.
• The material weakness resulted in the restatement of the company's financial statements for the fiscal year ended May 31, 2024.
• Uncertainty surrounding successful well completion and the availability of future funding to develop acquired mineral rights.
• The company's estimated liability for Asset Retirement Obligations (AROs) could change significantly if actual costs vary from assumptions or if governmental regulations change.
• The 12% Ten Month Bridge Notes and 12% Ten Month Promissory Notes are convertible into common stock at a 35% discount from the lowest closing bid price in the event of default, which could lead to significant dilution.
• Failure to make payments on the PPP Second Draw Loan payment plan could result in the entire remaining amount being subject to collection activities by the Department of Treasury, additional accrued interest, and collection fees of 30% or more.
• The company is involved in several legal proceedings with service providers (Capex Oilfield Services, Capstar Drilling, Warren Well Service, Nine Downhole Technologies) demanding significant payments, which could further strain liquidity.
• The company's small size and limited resources prevent it from employing sufficient resources for adequate supervision and segregation of duties, and it has limited specific oil and gas accounting personnel.

Future Outlook

The company is actively pursuing international Underground Gravity Drainage (UGD) opportunities in Mexico, the Middle East and Northern Africa region (MENA), Romania, Albania, and Azerbaijan, engaging in discussions with government officials. Domestically, it is raising funds to develop compatible oil fields in Texas. Management believes the increased interest in UGD methods, driven by a changing climate for U.S. energy projects, will make it easier to raise equity-related funds in the foreseeable future. However, additional funds will need to be raised from investors or operations to maintain current operations for the next twelve months.

Management Comments

• The disclosures are adequate to make the information presented not misleading.
• All adjustments, including normal recurring adjustments necessary to present fairly the financial position of the Company as of November 30, 2025, and the results of its operations for the three-month and six-month periods and cash flows for the six-month periods then ended, have been included.
• The results of the Company's operations for the three-month and six-month periods ended November 30, 2025 are not necessarily indicative of the results to be expected for the full year ending May 31, 2026.
• The Company believes that the costs of implementing the UGD method are radically lower than those presently experienced by commonly used Enhanced Oil Recovery (EOR) methods.
• The Company also estimates that it can materially increase the field oil production rate from prior periods and recover amounts of oil equal to or greater than amounts previously recovered from the mature fields selected.
• 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 equity funds for general corporate purposes; and (c) raising funds through notes payable and convertible debt to expand and fund property acquisitions exploration and development as well as maintaining operations.
• 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.
• Management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
• The remediation plan to correct the material weakness is to hire qualified people to provide adequate supervision and segregation of duties over financial reporting.

Industry Context

The company operates in the oil exploration and production sector, specifically targeting mature oil fields with its proprietary Underground Gravity Drainage (UGD) method. The filing notes an "increased environment and interest for UGD" driven by the continued production decline of older depressurized oil fields, suggesting a potential niche for its technology. The company's pursuit of international opportunities in Mexico, MENA, Romania, Albania, and Azerbaijan, alongside domestic efforts in Texas, indicates an attempt to capitalize on global demand for enhanced oil recovery solutions. The belief that a "change in the climate for U.S. based energy projects" is making it easier to raise equity funds suggests a broader positive sentiment towards domestic energy investments, despite the company's individual financial challenges.

Comparison to Industry Standards

• The company's UGD method is presented as having "radically lower" implementation costs compared to commonly used Enhanced Oil Recovery (EOR) methods, and is estimated to "materially increase the field oil production rate" and recover "amounts of oil equal to or greater than amounts previously recovered" from mature fields. This positions the company as potentially disruptive in the EOR space, though no specific comparable companies or projects are named to benchmark these claims.
• The company aims to seek oil fields with a minimum of 25 million barrels of estimated recoverable oil, which is a specific target for its UGD projects, but no industry benchmark for this target is provided.
• The company's repeated losses and "going concern" warning are significantly below industry standards for financially stable, publicly traded oil and gas companies, which typically demonstrate profitability or a clear path to it.
• The material weakness in internal controls over financial reporting, specifically the lack of qualified full-time finance and accounting staff and proper segregation of duties, is a serious deficiency compared to the robust internal control frameworks expected of public companies in the industry.

Corporate Governance

Legal Proceedings

• Capex Oilfield Services, Inc. vs. Lustre: Judgment for $354,267.29 plus $79,225 interest and 18% per annum future interest. Payment plan of $5,000 per month. Total estimated due: $423,152 as of November 30, 2025.
• Capstar Drilling, Inc. vs. Lustre: Judgment for $276,815 principal, $49,675 interest, plus court costs, totaling $326,650 with 10% per annum post-judgment interest. Total estimated due: $355,026 as of November 30, 2025.
• Warren Well Service, Inc. vs. Lustre: Settled for $164,235 plus 10% per year accrued interest. Payment plan of $750 per month. Total estimated due: $219,582 as of November 30, 2025.
• Nine Downhole Technologies, LLC vs. Lustre: Summary judgment granted for $41,842 plus costs and post-judgment interest. Total estimated due: $43,182 as of November 30, 2025.

Related Party Transactions

• Chief Financial Officer (CFO): Has an outstanding Demand Promissory Note of $292,099 (excluding accrued interest) as of November 30, 2025, secured by the company's interests in Lustre. The CFO has also agreed to defer portions of salary, which are recorded as accrued payroll liabilities.
• Robert Adamo (Accredited Investor and Principal Owner of B&B Oil LLC): Holds greater than 10% of the company's outstanding shares (approximately 8.2 million shares as of November 30, 2025). He purchased 1,500,000 restricted shares for $645,000 in October 2025 and 6,062,886 restricted shares for $267,320 in May 2023. He also invested $100,000 in Secured Convertible Debt in November 2022 and a total of $510,800 into the Reddig 11-21 well. Mr. Adamo advanced $50,000 to Lustre in July 2024, which is undocumented but expected to be repaid.
• B&B Oil LLC (owned by Mr. Robert Adamo): Acquired 100% of Hell Creek Crude, LLC (HCC) from Laredo on November 15, 2025, for consideration of 50% of future distributions to B&B Oil. B&B Oil reimbursed HCC $71,681 for a sonic log and requested HCC to establish an office and purchase a transformer on its behalf, leading to reimbursements.
• Outside Board Members: Accounts payable include $137,500 for each of the two outside board members for quarterly board stipends.

Stakeholder Impact

• Shareholders: Face significant dilution risk from convertible debt and warrants, especially if notes default. The substantial net losses and 'going concern' warning indicate a high risk to investment value. The material weakness in internal controls could erode investor confidence.
• Employees: Key officers (CEO, CFO) have deferred salaries, indicating financial strain. The company is trying to attract and retain key personnel while controlling headcount, which could impact employee morale and workload.
• Creditors: The company has significant outstanding debt, including related-party notes and legal judgments. The 'going concern' warning suggests a heightened risk of default or delayed payments. The PPP loan payment plan is current, but other debts are substantial.
• Customers: The company's inability to bring wells into economic production (due to water encroachment, insufficient oil) means inconsistent or minimal revenue generation, potentially impacting its ability to serve future customers or partners effectively.
• Suppliers/Service Providers: Several lawsuits from service providers (Capex, Capstar, Warren Well, Nine Downhole) indicate past payment issues, which could make it harder to secure future services or lead to less favorable terms.

Next Steps

• Continue efforts to control overhead and expenses.
• Continue efforts to raise equity funds for general corporate purposes.
• Continue efforts to raise funds through notes payable and convertible debt to expand and fund property acquisitions, exploration, and development, and maintain operations.
• Hire qualified people to provide adequate supervision and segregation of duties over financial reporting to remediate the material weakness in internal controls.
• Continue exploratory drilling in the West Fork area.
• Continue evaluating the Olfert 11-4 well with a plan to bring it into production if economical.
• Evaluate oil prices and additional field information to resume development of the additional eight Texakoma wells.
• Evaluate alternatives and seek other funding sources for the West Fork project.
• Continue discussions with government officials for UGD international opportunities in Mexico, MENA, Romania, Albania, and Azerbaijan.
• Negotiate repayment terms for the undocumented $50,000 advance from Mr. Adamo to Lustre.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by significantly widening net losses, declining revenue, and a substantial accumulated deficit. The 'going concern' warning is a critical red flag, indicating a high risk of business failure. Furthermore, the identified material weakness in internal controls over financial reporting, which led to a prior restatement, highlights fundamental governance and operational deficiencies. While the company is attempting to raise capital and pursue new opportunities, its track record of uneconomical wells and ongoing legal disputes with service providers suggest significant operational challenges and a high probability of continued financial underperformance. The substantial debt load and potential for further dilution from convertible instruments add to the risk profile. Given these pervasive issues, the stock represents a high-risk investment with a strong likelihood of further value erosion.

Keywords

Oil Exploration, Oil Production, Underground Gravity Drainage, UGD, SEC Filing, 10-Q, Financial Reporting, Going Concern, Montana Oil Fields, West Fork, Lustre, Midfork, Texakoma, Capital Raise, Debt Financing, Stock Options, Internal Controls, Related Party Transactions, Legal Proceedings, Energy Sector, Oil & Gas