SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

May 31, 2022

Accounting Policies [Abstract]

USE OF ESTIMATES

USE OF ESTIMATES

Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of Laredo Oil and its subsidiaries after elimination of intercompany balances and transactions.

EQUITY METHOD INVESTMENT

EQUITY METHOD INVESTMENT

Investments classified as equity method consist of investments in companies in which the Company is able to exercise significant influence but not control. Under the equity method of accounting, the investment is initially recorded at cost, then the Company’s proportional share of investee’s underlying net income or loss is recorded as a component of “other income” with a corresponding increase or decrease to the carrying value of the investment. Distributions received from the investee reduce the Company’s carrying value of the investment. These investments are evaluated for impairment if events or circumstances arise that indicate that the carrying amount of such assets may not be recoverable. The Company has elected to record its portion of the equity method income with a two-month lag. Accordingly, the financial results for the equity investment are reported through March 31, 2022. No impairments were recognized for the Company’s equity method investment during the year ended May 31, 2022. See Note 16.

REVENUE RECOGNITION

REVENUE RECOGNITION

Monthly Management Fee

The Company generated monthly management revenues from fees for labor and benefit costs in accordance with the Agreements. The Company recognizes revenue for these services in the month the labor and benefits are received by the customer. As a result, the Company records deferred revenue for service that have not been provided. Monthly management fee revenues of $0 and $3,694,930, respectively, were recognized for the years ended May 31, 2022 and 2021. The last monthly management fee payment from SORC was paid in February 2021.

Quarterly Management Fee

While the Agreements were in place with Alleghany during calendar year 2021, the Company generated management fee revenue of $137,500 each quarter, payable in advance. The Company recognized that revenue over the applicable quarter on a straight-line basis. Quarterly management fees recognized for the years ended May 31, 2022 and 2021 were $0 and $320,833, respectively. The last quarterly management fee payment from SORC was paid October 1, 2020 in fiscal year 2021.

Other Revenue

The Company and Alleghany have entered into a Consulting agreement (see Note 1), where Alleghany is obligated to pay the Company a total of $1,144,471, in quarterly payments beginning January 1, 2021, in consideration for making certain individuals available for their advice, assistance and support in connection with the oil and gas industry and any questions, issues or matters arising from Alleghany’s previous ownership of SORC. Two individuals are committed for a one-year period ending December 31, 2021, and one individual is committed for a three-year period ending December 31, 2023. The Company’s management believes that any work necessary under this obligation will in fact be completed by December 31, 2021, and is recognizing revenue on a monthly basis over the year ended December 31, 2021. Unearned revenue related to amounts received but not yet earned under this contract at May 31, 2022 and 2021 totaled $0 and $95,373, respectively. Other revenue fees of $667,608 and $576,863, respectively, were recognized for the years ended May 31, 2022 and 2021.

CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of May 31, 2022 and 2021. At times, the Company maintains cash balances deposited at its financial institution that exceed FDIC insured limits.

RECEIVABLES

RECEIVABLES

Receivables as of May 31, 2022 represent balances arising from employee expense reports.

As of May 31, 2021, receivables include amounts due from Alleghany pursuant to the SORC Purchase Transactions. Receivables represent related party balances arising from employee expense reports and estimated monthly license fees incurred in accordance with the Company’s revenue recognition policy, but not paid at May 31, 2021 period end.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets are primarily comprised of prepaid public relations fees which are recorded on a quarterly basis and amortized to expense over the 3-month contract life and prepaid directors’ and officers’ insurance which is recorded and amortized to expense over the 12-month contract life. During fiscal year 2021, the Company also had prepaids acquired in the acquisition of SORC and prepaid wages. Certain employees are paid wages on a quarterly basis. As a result, the Company recorded one month of prepaid wages as of May 31, 2021.

OIL AND GAS ACQUISITION AND DRILLING COSTS

OIL AND GAS ACQUISITION AND DRILLING COSTS

Oil and gas acquisition and drilling costs include expenditures representing investments in unproved and unevaluated properties and include non-producing leasehold, leasehold or drilling interest costs, and costs to drill one exploratory well. Exploratory drilling costs are deferred until the outcome of the well is known. If an exploratory well finds proved reserves, the deferred costs are transferred to the company’s Wells and Related Equipment and Facilities accounts. Absent proved reserves, the deferred costs of the well, net of salvage, are charged to expense. All costs of wells drilled to develop proved reserves, along with all costs of equipment necessary to produce and handle the hydrocarbons, are capitalized even if a development well proves dry. Costs are reviewed to determine if impairment has occurred. The Company has incurred oil and gas acquisition and drilling costs totaling $2,702,715 and 389,480 during the years ended May 31, 2022 and 2021, respectively.

	May 31,		May 31,
	2022		2021
Intangible and tangible drilling costs	$	1,857,967	$	-
Acquisition costs		844,748		389,480
Oil and gas acquisition and drilling costs	$	2,702,715	$	389,480

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

The carrying value of the Company’s property and equipment represents the cost incurred to acquire the property and equipment, net of any impairments. For business combinations, property and equipment cost is based on the fair values at the acquisition date. Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives of five to seven years are used for vehicles and machinery. Realization of the carrying value of property and equipment is reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets are determined to be impaired if a forecast of undiscounted estimated future net operating cash flows directly related to the asset, including disposal value, if any, is less than the carrying amount of the asset. If any asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. Repairs and maintenance costs are expensed in the period incurred.

	May 31,		May 31,
	2022		2021
Vehicles and equipment	$	479,900	$	433,676
Less: Accumulated depreciation		69,764		13,953
Property and equipment, net	$	410,136	$	419,723

CONVERTIBLE NOTES

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance ASC Topic 470, “Accounting for Convertible Securities with Beneficial Conversion Features”, as those professional standards pertain to “Certain Convertible Instruments”. Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC Topic 815 provides that generally, if an event that is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability. 

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified and disclosed in one of the following categories:

● Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities in active markets and have the highest priority.

● Level 2 – Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly.

● Level 3 – Unobservable inputs for the financial asset or liability and have the lowest priority.

SHARE BASED COMPENSATION

SHARE BASED COMPENSATION

FASB ASC 718, Compensation - Stock Compensation prescribes accounting and reporting standards for all stock-based payment awards to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. Stock-based payment awards may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity’s past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50, Equity - Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.

INCOME TAXES

INCOME TAXES

The Company accounts for income taxes by the asset and liability method in accordance with FASB ASC 740, Income Taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Deferred income tax assets and liabilities are recognized in the current year for temporary differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

In addition, the Company utilizes the two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.