Laredo Oil (LRDC) 10-Q 14 Jan 19 2019 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Nov. 30, 2018	Jan. 14, 2019
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	Nov. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--05-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding		54,514,765
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2,019

Balance Sheets (Unaudited)

Balance Sheets (Unaudited) - USD ($)	Nov. 30, 2018	May 31, 2018
Current Assets
Cash and cash equivalents	$ 435,418	$ 106,311
Receivable - related party	19,778	120,124
Prepaid expenses and other current assets	13,551	39,981
Total Current Assets	468,747	266,416
TOTAL ASSETS	468,747	266,416
Current Liabilities
Accounts payable	33,356	9,360
Accrued payroll liabilities	1,301,283	1,207,417
Accrued liabilities - related party	58,766	32,914
Accrued interest	206,479	190,272
Deferred management fee revenue	45,833	45,833
Notes payable	0	350,000
Total Current Liabilities	1,645,717	1,835,796
Long-term notes payable	350,000	0
TOTAL LIABILITIES	1,995,717	1,835,796
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	8,844,592	8,830,531
Accumulated deficit	(10,377,013)	(10,405,362)
Total Stockholders' Deficit	(1,526,970)	(1,569,380)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 468,747	$ 266,416

Balance Sheets (Unaudited) (Par

Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Nov. 30, 2018	May 31, 2018
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		6 Months Ended
	Nov. 30, 2018	Nov. 30, 2017	Nov. 30, 2018	Nov. 30, 2017
Income Statement [Abstract]
Management fee revenue - related party	$ 2,076,928	$ 2,165,923	$ 4,138,225	$ 4,631,204
Direct costs	1,956,444	2,159,429	3,919,114	4,381,995
Gross profit	120,484	6,494	219,111	249,209
General, selling and administrative expenses	13,845	87,402	42,805	175,226
Consulting and professional services	43,460	70,184	130,964	106,684
Total Operating Expense	57,305	157,586	173,769	281,910
Operating income/(loss)	63,179	(151,092)	45,342	(32,701)
Other income/(expense)
Interest expense	(8,072)	(7,743)	(16,993)	(15,678)
Net income/(loss)	$ 55,107	$ (158,835)	$ 28,349	$ (48,379)
Net income/(loss) per share, basic and diluted	$ 0	$ 0	$ 0	$ 0
Weighted average number of basic and common shares outstanding	54,514,765	54,514,765	54,514,765	54,514,765

Statements of Cash Flows (Unaud

Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Nov. 30, 2018	Nov. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)	$ 28,349	$ (48,379)
Adjustments to Reconcile Net Income/(Loss) to Net Cash provided by /(used in) Operating Activities
Share based compensation	14,061	145,715
Decrease/(increase) in receivable—related party	100,346	0
Decrease/(increase) in prepaid expenses and other current assets	26,430	(6,793)
(Decrease)/increase in accounts payable and accrued liabilities	159,921	(391,402)
NET CASH PROVIDED BY OPERATING ACTIVITIES	329,107	(300,859)
CASH FLOWS FROM INVESTING ACTIVITIES	0	0
CASH FLOWS FROM FINANCING ACTIVITIES	0	0
Net change in cash and cash equivalents	329,107	(300,859)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	106,311	330,684
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 435,418	$ 29,825

1. ORGANIZATION AND DESCRIPTION

1. ORGANIZATION AND DESCRIPTION OF BUSINESS	6 Months Ended
	Nov. 30, 2018
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 November 30, 2018. 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 November 30, 2018 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 $160 million as of September 30, 2018), preferred shares redeemed ($293.8 million as of September 30, 2018), 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 and six-month periods ended November 30, 2018, 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. As the Company realized a net loss for the three and six-month periods ended November 30, 2017, 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.

2. GOING CONCERN

2. GOING CONCERN	6 Months Ended
	Nov. 30, 2018
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, 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	6 Months Ended
	Nov. 30, 2018
Accounting Changes and Error Corrections [Abstract]
3. RECENT AND ADOPTED ACCOUNTING STANDARDS	In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company has adopted ASU 2014-09 beginning June 1, 2018 using the full retrospective implementation. The adoption of this guidance has no material effect on the Company’s financial position, results of operations or cash flows. As a result of this adoption, the following revenue recognition policies have been adopted for each revenue stream. Monthly Management Fee We generate monthly management revenues from fees for labor and benefit costs. We recognize revenue for these services in the month the labor and benefits are received by the customer. Quarterly Management Fee We generate management fee revenue each quarter. We recognize revenue over the applicable quarter on a straight-line basis. The management fee is billed quarterly in advance. As a result, we record deferred revenue for services that have not been provided. In addition to the above, 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	6 Months Ended
	Nov. 30, 2018
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, 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.

5. RELATED PARTY TRANSACTIONS

5. RELATED PARTY TRANSACTIONS	6 Months Ended
	Nov. 30, 2018
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 six months ended November 30, 2018 and 2017 is generated from charges to SORC. All outstanding notes payable at November 30, 2018 and 2017 are held by Alleghany Capital. See Note 7.

6. STOCKHOLDERS' DEFICIT

6. STOCKHOLDERS' DEFICIT	6 Months Ended
	Nov. 30, 2018
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 Company recognized shared based compensation expense related to stock option awards totaling $14,061 and $145,715 and recorded in general, selling and administrative expenses for the six months ended November 30, 2018 and 2017, respectively. Stock Options No option grants were made during the first two quarters of fiscal years 2019 and 2018. Restricted Stock No restricted stock was granted during the first two quarters of fiscal years 2019 and 2018. Warrants No warrants were issued during the first half of fiscal year 2019 or 2018. As of November 30, 2018, 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.

7. NOTES PAYABLE

7. NOTES PAYABLE	6 Months Ended
	Nov. 30, 2018
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 November 30, 2018, accrued interest totaling $206,479 is recorded. 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, 2019 and are classified as long-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.

1. ORGANIZATION AND DESCRIPTI_2

1. ORGANIZATION AND DESCRIPTION OF BUSINESS (Details Narrative) - USD ($)	Nov. 30, 2018	May 31, 2018
Organization And Description Of Business Details Narrative Abstract
Deferred management fee revenue	$ 45,833	$ 45,833

6. STOCKHOLDERS' DEFICIT (Detai

6. STOCKHOLDERS' DEFICIT (Details Narrative) - USD ($)	6 Months Ended
	Nov. 30, 2018	Nov. 30, 2017
General, selling and administrative expenses
Share-based compensation	$ 14,061	$ 145,715

7. NOTES PAYABLE (Details Narra

7. NOTES PAYABLE (Details Narrative) - USD ($)	Nov. 30, 2018	May 31, 2018
Notes Payable
Accrued interest	$ 206,479	$ 190,272