• Filing Date: 2017-10-16
  • Form Type: 10-Q
  • Description: Quarterly report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Aug. 31, 2017
Oct. 16, 2017
Document And Entity Information    
Entity Registrant Name Laredo Oil, Inc.  
Entity Central Index Key 0001442492  
Document Type 10-Q  
Document Period End Date Aug. 31, 2017  
Amendment Flag false  
Current Fiscal Year End Date --05-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   54,514,765
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2018  
v3.8.0.1
Balance Sheets (Unaudited) - USD ($)
Aug. 31, 2017
May 31, 2017
Current Assets    
Cash and cash equivalents $ 361,052 $ 330,684
Prepaid expenses and other current assets 26,865 47,195
Total Current Assets 387,917 377,879
TOTAL ASSETS 387,917 377,879
Current Liabilities    
Accounts payable 31,237 38,219
Accrued payroll liabilities 1,517,814 1,671,651
Accrued liabilities – related party 0 20,128
Accrued interest 167,009 159,339
Deferred management fee revenue 45,833 45,833
Notes payable 350,000 350,000
Total Current Liabilities 2,111,893 2,285,170
TOTAL LIABILITIES 2,111,893 2,285,170
Commitments and Contingencies
Stockholders' Deficit    
Preferred stock: $0.0001 par value; 10,000,000 shares authorized; none issued and outstanding 0 0
Common stock: $0.0001 par value; 90,000,000 shares authorized; 54,514,765 issued and outstanding 5,451 5,451
Additional paid in capital 8,664,185 8,591,327
Accumulated deficit (10,393,612) (10,504,069)
Total Stockholders' Deficit (1,723,976) (1,907,291)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 387,917 $ 377,879
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Balance Sheets (Unaudited) (Parenthetical) - $ / shares
Aug. 31, 2017
May 31, 2017
Stockholders' equity:    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, authorized shares 10,000,000 10,000,000
Preferred stock, issued shares 0 0
Preferred stock, outstanding shares 0 0
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized shares 90,000,000 90,000,000
Common stock, issued shares 54,514,765 54,514,765
Common stock, outstanding shares 54,514,765 54,514,765
v3.8.0.1
Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Aug. 31, 2017
Aug. 31, 2016
Income Statement [Abstract]    
Management fee revenue $ 2,465,281 $ 2,623,211
Direct costs 2,222,566 2,514,410
Gross profit 242,715 108,801
General, selling and administrative expenses 87,824 108,932
Consulting and professional services 36,500 111,917
Operating expenses 124,324 220,849
Operating income (loss) 118,391 (112,048)
Other income (expense)    
Interest expense (7,935) (8,187)
Net loss $ 110,456 $ (120,235)
Net income (loss) per share, basic and diluted $ 0.00 $ (0.00)
Weighted average number of basic and common shares outstanding 54,514,765 54,514,765
v3.8.0.1
Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Aug. 31, 2017
Aug. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income (loss) $ 110,456 $ (120,235)
Adjustments to Reconcile Net Income (Loss) to Net Cash provided by (used in) Operating Activities    
Share based compensation 72,858 135,104
Decrease (increase) in prepaid expenses and other current assets 20,330 (134,467)
Decrease in accounts payable and accrued liabilities (173,276) (157,963)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 30,368 (277,561)
CASH FLOWS FROM INVESTING ACTIVITIES 0 0
CASH FLOWS FROM FINANCING ACTIVITIES 0 0
Net increase (decrease) in cash and cash equivalents 30,368 (277,561)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 330,684 393,937
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 361,052 $ 116,376
v3.8.0.1
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
3 Months Ended
Aug. 31, 2017
Organization And Description Of Business  
1. ORGANIZATION AND DESCRIPTION OF BUSINESS

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”). SORC is a subsidiary of Alleghany Capital Corporation (“Alleghany Capital”) which is a subsidiary of Alleghany Corporation (“Alleghany”).

 

The Agreements stipulate that the Company and Mark See, the Company’s Chairman and Chief Executive Officer (“CEO”), will provide to SORC, management services and expertise through exclusive, perpetual license agreements and a management services agreement (the “Management Service Agreement”) 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”) 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 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 is $137,500 and is paid on the first day of each calendar quarter, and, as such, $45,833 has been recorded as deferred management fee revenue at August 31, 2017. In addition, SORC will reimburse the Company for monthly expenses incurred by the Service Employees in connection with their rendition of services under the MSA. The Company may 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, will determine whether or not to fund. As of the filing date, no such additional funding requests have been made.

 

As consideration for the licenses to SORC, the Company will receive a 19.49% 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 by the Company to Laredo Royalty Incentive Plan, LLC, a special purpose Delaware limited liability company and wholly owned subsidiary of Laredo Oil, Inc. formed to carry out the purposes of the Plan (the “Plan Entity”). Through August 31, 2017 the subsidiary has received no distributions from SORC. 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 will receive 17.24%, subject to reduction to 15% under the SORC License 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.

 

Prior to the Company receiving any Royalty cash distributions from SORC, all SORC preferred share accrued dividends must be paid (in excess of $100 million as of June 30, 2017), preferred shares redeemed ($274.6 million as of June 30, 2017), and debt retired to comply with any loan agreements. Additionally, when SORC acquires additional oil fields, any Alleghany Capital funds invested in SORC to finance their acquisition and development must be repaid prior to the distribution of any Royalty cash distributions to Laredo.

 

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, 2017, 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 three month period ended August 31, 2016, no potentially dilutive securities were included in the calculation of diluted loss per share as their impact would have been anti-dilutive. 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.

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2. GOING CONCERN
3 Months Ended
Aug. 31, 2017
Going Concern  
2. GOING CONCERN

These financial statements have been prepared on a going concern basis. The Company has routinely incurred losses since inception, and is dependent upon one customer for its revenue. The Company entered into the Agreements with SORC to fund operations and to provide working capital. However, there is no assurance that in the future such financing will be available to meet the Company’s needs.

 

Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) providing services and expertise under the Agreements to expand 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 restrict the growth of the Company’s headcount at a time of expanding demand for its services under the MSA. Further, the Company works closely with SORC to obtain its approval in advance of committing to material costs and expenditures in order to keep the Company’s expenses in line with the management fee revenue. 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 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.

 

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3. RECENT AND ADOPTED ACCOUNTING STANDARDS
3 Months Ended
Aug. 31, 2017
Accounting Changes and Error Corrections [Abstract]  
3. 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.

 

 

v3.8.0.1
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
3 Months Ended
Aug. 31, 2017
Fair Value Disclosures [Abstract]  
4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825-10-50, Financial Instruments, include cash and cash equivalents, accounts payable, accrued liabilities and notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at August 31, 2017.

 

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.

 

v3.8.0.1
5. RELATED PARTY TRANSACTIONS
3 Months Ended
Aug. 31, 2017
Related Party Transactions [Abstract]  
5. 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:

 

· Affiliates of the entity;

 

· Entities for which investments in their equity securities is typically accounted for under the equity method by the investing entity;

 

· Trusts for the benefit of employees;

 

· Principal owners of the entity and members of their immediate families;

 

· Management of the entity and members of their immediate families.

 

Other parties that can significantly influence the management or operating policies of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

SORC and Alleghany Capital are considered related parties under FASB ASC 850. All management fee revenue reported by the Company for the three months ended August 31, 2017 and 2016 is generated from charges to SORC. All outstanding notes payable at August 31, 2017 and 2016 are held by Alleghany Capital. See Note 7.

 

v3.8.0.1
6. STOCKHOLDERS' DEFICIT
3 Months Ended
Aug. 31, 2017
Equity [Abstract]  
6. 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.

 

The following table summarizes expense recognized as a result of share-based compensation:

 

   Three Months Ended
   August 31, 2017  August 31, 2016
Share-based compensation:          
General, selling and administrative expenses  $72,858   $92,557 
Consulting and professional services   —      42,547 
    72,858    135,104 
Share-based compensation by type of award:          
Stock options   72,858    133,715 
Restricted stock   —      1,389 
   $72,858   $135,104 

 

Stock Options

 

No option grants were made during the first quarter of fiscal years 2018 and 2017.

 

Restricted Stock

 

No restricted stock was granted during the first quarter of fiscal year 2018 or during fiscal year 2017.

 

Warrants

 

No warrants were issued during the first quarter of fiscal year 2018 or 2017. As of August 31, 2017, there were 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 Alleghany transaction. The warrants will expire June 14, 2021 and are currently exercisable.

 

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7. NOTES PAYABLE
3 Months Ended
Aug. 31, 2017
Debt Disclosure [Abstract]  
7. NOTES PAYABLE

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 accrue interest on the outstanding principal of $350,000 at the rate of 6% per annum. As of August 31, 2017, accrued interest totaling $167,009 is recorded in accrued interest. The interest is payable in either cash or in kind. The notes have been amended and restated and now have a maturity date of December 31, 2017 and are classified as current notes payable. The loan agreements require any stock issuances for cash be utilized to pay down the outstanding loan balance unless written consent is obtained from Alleghany Capital.

 

v3.8.0.1
6. STOCKHOLDERS' DEFICIT (Tables)
3 Months Ended
Aug. 31, 2017
Stockholders Deficit Tables  
Share-based compensation
   Three Months Ended
   August 31, 2017  August 31, 2016
Share-based compensation:          
General, selling and administrative expenses  $72,858   $92,557 
Consulting and professional services   —      42,547 
    72,858    135,104 
Share-based compensation by type of award:          
Stock options   72,858    133,715 
Restricted stock   —      1,389 
   $72,858   $135,104 
v3.8.0.1
1. ORGANIZATION AND DESCRIPTION OF BUSINESS (Details Narrative) - USD ($)
3 Months Ended
Aug. 31, 2017
Aug. 31, 2016
May 31, 2017
Organization And Description Of Business Details Narrative      
Deferred management fee revenue $ 45,833   $ 45,833
Antidilutive Securities Excluded from Computation of Earnings Per Share 0 0  
v3.8.0.1
6. STOCKHOLDERS' DEFICIT (Details) - USD ($)
3 Months Ended
Aug. 31, 2017
Aug. 31, 2016
Share-based compensation $ 72,858 $ 135,104
General, selling and administrative expenses    
Share-based compensation 72,858 92,557
Consulting and professional services    
Share-based compensation 0 42,547
Stock options    
Share-based compensation 72,858 133,715
Restricted stock    
Share-based compensation $ 0 $ 1,389
v3.8.0.1
7. NOTES PAYABLE (Details Narrative) - USD ($)
Aug. 31, 2017
May 31, 2017
Notes Payable Details Narrative    
Accrued interest $ 167,009 $ 159,339