Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Feb. 28, 2017 | Apr. 14, 2017 | |
Document And Entity Information | ||
Entity Registrant Name | Laredo Oil, Inc. | |
Entity Central Index Key | 1,442,492 | |
Document Type | 10-Q | |
Document Period End Date | Feb. 28, 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 | Q3 | |
Document Fiscal Year Focus | 2,017 |
Balance Sheets (Unaudited)
Balance Sheets (Unaudited) - USD ($) | Feb. 28, 2017 | May 31, 2016 |
Current Assets | ||
Cash and cash equivalents | $ 451,170 | $ 393,937 |
Prepaid expenses and other current assets | 81,569 | 46,293 |
Total Current Assets | 532,739 | 440,230 |
TOTAL ASSETS | 532,739 | 440,230 |
Current Liabilities | ||
Accounts payable | 28,107 | 33,363 |
Accrued payroll liabilities | 1,241,823 | 1,057,280 |
Accrued liabilities – related party | 214,642 | 170,079 |
Accrued interest | 151,868 | 129,632 |
Deferred management fee revenue | 45,833 | 45,833 |
Notes payable | 350,000 | 350,000 |
Total Current Liabilities | 2,032,273 | 1,786,187 |
Total Liabilities | 2,032,273 | 1,786,187 |
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 | 8,514,773 | 8,188,199 |
Accumulated deficit | (10,019,758) | (9,539,607) |
Total Stockholders' Deficit | (1,499,534) | (1,345,957) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ 532,739 | $ 440,230 |
Balance Sheets (Unaudited) (Par
Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Feb. 28, 2017 | May 31, 2016 |
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 |
Statements of Operations (Unaud
Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2017 | Feb. 29, 2016 | Feb. 28, 2017 | Feb. 29, 2016 | |
Income Statement [Abstract] | ||||
Management fee revenue | $ 2,491,566 | $ 3,009,574 | $ 7,523,009 | $ 8,658,182 |
Direct costs | 2,436,925 | 2,828,422 | 7,461,883 | 8,251,931 |
Gross profit | 54,641 | 181,152 | 61,126 | 406,251 |
General, selling and administrative expenses | 87,076 | 126,140 | 282,895 | 374,269 |
Consulting and professional services | 48,212 | 88,721 | 235,735 | 300,641 |
Total Operating Expense | 135,288 | 214,861 | 518,630 | 674,910 |
Operating loss | (80,647) | (33,709) | (457,504) | (268,659) |
Other income/(expense) | ||||
Loss on revaluation of warrant liability | 0 | 0 | 0 | (24,424) |
Interest expense | (7,302) | (7,040) | (22,647) | (20,691) |
Net loss | $ (87,949) | $ (40,749) | $ (480,151) | $ (313,774) |
Net loss per share, basic and diluted | $ 0 | $ 0 | $ (0.01) | $ (0.01) |
Weighted average number of common shares outstanding | 54,514,765 | 54,514,765 | 54,514,765 | 54,434,359 |
Statements of Cash Flows (Unaud
Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Feb. 28, 2017 | Feb. 29, 2016 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net loss | $ (480,151) | $ (313,774) |
Adjustments to Reconcile Net Loss to Net Cash provided by Operating Activities: | ||
Share based compensation | 326,574 | 442,798 |
Loss on revaluation of warrant liability | 0 | 24,424 |
Decrease/(increase) in prepaid expenses and other current assets | (35,276) | 25,753 |
Increase in accounts payable and accrued liabilities | 246,086 | 44,302 |
NET CASH PROVIDED BY OPERATING ACTIVITIES | 57,233 | 223,503 |
CASH FLOWS FROM INVESTING ACTIVITIES | 0 | 0 |
CASH FLOW PROVIDED BY FINANCING ACTIVITIES | 0 | 0 |
Net increase in cash and cash equivalents | 57,233 | 223,503 |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 393,937 | 85,835 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 451,170 | 309,338 |
NON-CASH FINANCING ACTIVITY | ||
Reclassification of warrant liability to equity | $ 0 | $ 276,415 |
1. ORGANIZATION AND DESCRIPTION
1. ORGANIZATION AND DESCRIPTION OF BUSINESS | 9 Months Ended |
Feb. 28, 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 key employees (“Key Persons”), 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 Key Persons 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 per quarter 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 February 28, 2017. In addition, SORC will reimburse the Company for monthly expenses incurred by the Key Persons 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 February 28, 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, preferred shares redeemed, and debt retired to comply with any loan agreements. Additionally, when SORC acquires additional oil fields, any Alleghany Capital funds invested into 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. As the Company realized a net loss for the three and nine month periods ended February 28, 2017 and February 29, 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 loss per share is computed by dividing the loss by the weighted average number of common and dilutive common equivalent shares outstanding during the period. |
2. GOING CONCERN
2. GOING CONCERN | 9 Months Ended |
Feb. 28, 2017 | |
Going Concern | |
2. GOING CONCERN | These financial statements have been prepared on a going concern basis. The Company has no significant operating history as of February 28, 2017, and has a net loss of $87,949 and $480,151 for the three and nine months ended February 28, 2017. 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. |
3. RECENT AND ADOPTED ACCOUNTIN
3. RECENT AND ADOPTED ACCOUNTING STANDARDS | 9 Months Ended |
Feb. 28, 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. |
4. FAIR VALUE OF FINANCIAL INST
4. FAIR VALUE OF FINANCIAL INSTRUMENTS | 9 Months Ended |
Feb. 28, 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, warrant 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 February 28, 2017. FASB ASC 820, Fair Value Measurements (“FASB ASC 820”), defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. FASB ASC 820 provides a framework for measuring fair value, establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and requires consideration of the counterparty’s creditworthiness when valuing certain assets. The three level fair value hierarchies for disclosure of fair value measurements defined by FASB ASC 820 are as follows: Level 1 – Unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. An active market is defined as a market where transactions for the financial instrument occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Inputs, other than quoted prices in active markets, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Valuation under level 3 generally involves a significant degree of judgment from management. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company had warrant liabilities which were measured at fair value on a recurring basis until the underlying warrants were exercised in July 2015. The Company recorded a loss on revaluation of warrant liability of $24,424 for the three months ended August 31, 2015. The Company measured the fair value of the warrant liabilities using the Black Scholes method. Inputs used to determine fair value under this method included the Company’s stock price volatility and expected remaining life as disclosed in Note 6. During July 2015, the warrant liabilities were measured at fair value prior to exercise of the underlying warrants. Upon exercise of the warrants in July 2015 the resulting liability was reclassified to additional paid in capital. Accordingly, the warrant liability no longer requires fair value measurement as of August 31, 2015. |
5. RELATED PARTY TRANSACTIONS
5. RELATED PARTY TRANSACTIONS | 9 Months Ended |
Feb. 28, 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 · 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 and nine month periods ended February 28, 2017 and February 29, 2016 is generated from charges to SORC. The Company has also recorded approximately $215,000 payable to SORC for payroll liabilities covered by SORC pursuant to the management services agreements. All outstanding notes payable at February 28, 2017 and February 29, 2016 are held by Alleghany Capital. See Note 7. Mr. Donald Beckham, a director of the Company, provided consulting services to SORC related to the Teapot Dome Oilfield acquired by SORC in January 2015. During the quarter ended August 31, 2015, Mr. Beckham was paid approximately $62,000 as consideration for such services. This consulting arrangement terminated on July 24, 2015. |
6. STOCKHOLDERS' DEFICIT
6. STOCKHOLDERS' DEFICIT | 9 Months Ended |
Feb. 28, 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 share-based compensation: Nine Months Ended February 28, 2017 February 29, 2016 Share-based compensation: General, selling and administrative expenses $ 239,663 $ 309,463 Consulting and professional services 86,911 133,335 326,574 442,798 Share-based compensation by type of award: Stock options 325,185 432,937 Restricted stock 1,389 9,861 $ 326,574 $ 442,798 Stock Options No option grants were made during the first nine months of fiscal year 2017. Option grants for the purchase of 925,000 shares of common stock at a price of $0.405 per share were made during the first quarter of fiscal year 2016. The options vest monthly over three years beginning September 1, 2015 and expire on August 8, 2025. The grant date fair value of this employee stock option grant amounted to approximately $365,000. The assumptions used in calculating these values were based on an expected term of 7.0 years, volatility of 174% and a 1.92% risk free interest rate at the date of grant. Restricted Stock No restricted stock was granted during the first nine months of fiscal year 2017 or during fiscal year 2016. Warrants No warrants were issued during the first nine months of fiscal year 2017 or during fiscal year 2016. During July 2015, warrants to purchase 975,000 shares of common stock were exercised on a cashless basis, resulting in the issuance of 516,196 shares of common stock. As of February 28, 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. All outstanding warrants are currently exercisable. During fiscal year 2011, the Company issued warrants to purchase 975,000 shares of common stock in connection with a stock purchase agreement. These warrants are exercisable for five years from the date of the Company’s Private Placement. The exercise price of each warrant is equal to the lesser of the stock price in a future financing arrangement or $0.25. Accordingly, these warrants contained anti-dilution provisions that adjust the exercise price of the warrants in the event additional shares of common stock or securities convertible into common stock are issued by the Company at a price less than the then applicable exercise price of the warrants. Pursuant to FASB ASC 815-40, Derivatives and Hedging, |
7. NOTES PAYABLE
7. NOTES PAYABLE | 9 Months Ended |
Feb. 28, 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 which is compounded annually based on the original outstanding principal of $350,000 at the rate of 6% per annum. As of February 28, 2017, accrued interest totaling $151,868 is recorded in accrued liabilities. The interest is payable in either cash or in kind. The notes have been amended and restated and have a maturity date of December 31, 2017 and are classified as short term 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. |
6. STOCKHOLDERS' DEFICIT (Table
6. STOCKHOLDERS' DEFICIT (Tables) | 9 Months Ended |
Feb. 28, 2017 | |
Stockholders Deficit Tables | |
Share-based compensation | Nine Months Ended February 28, 2017 February 29, 2016 Share-based compensation: General, selling and administrative expenses $ 239,663 $ 309,463 Consulting and professional services 86,911 133,335 326,574 442,798 Share-based compensation by type of award: Stock options 325,185 432,937 Restricted stock 1,389 9,861 $ 326,574 $ 442,798 |
1. ORGANIZATION AND DESCRIPTI14
1. ORGANIZATION AND DESCRIPTION OF BUSINESS (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Feb. 28, 2017 | Feb. 29, 2016 | Feb. 28, 2017 | Feb. 29, 2016 | May 31, 2016 | |
Organization And Description Of Business Details Narrative | |||||
Deferred management fee revenue | $ 45,833 | $ 45,833 | $ 45,833 | $ 45,833 | $ 45,833 |
Antidilutive Securities Excluded from Computation of Earnings Per Share | 0 | 0 | 0 | 0 |
2. GOING CONCERN (Details Narra
2. GOING CONCERN (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2017 | Feb. 29, 2016 | Feb. 28, 2017 | Feb. 29, 2016 | |
Going Concern Details Narrative | ||||
Net loss | $ (87,949) | $ (40,749) | $ (480,151) | $ (313,774) |
6. STOCKHOLDERS' DEFICIT (Detai
6. STOCKHOLDERS' DEFICIT (Details) - USD ($) | 9 Months Ended | |
Feb. 28, 2017 | Feb. 29, 2016 | |
Share-based compensation | $ 326,574 | $ 442,798 |
General, selling and administrative expenses | ||
Share-based compensation | 239,663 | 309,463 |
Consulting and professional services | ||
Share-based compensation | 86,911 | 133,335 |
Stock options | ||
Share-based compensation | 325,185 | 432,937 |
Restricted stock | ||
Share-based compensation | $ 1,389 | $ 9,861 |
7. NOTES PAYABLE (Details Narra
7. NOTES PAYABLE (Details Narrative) - USD ($) | Feb. 28, 2017 | May 31, 2016 |
Notes Payable Details Narrative | ||
Accrued interest | $ 151,868 | $ 129,632 |