NOTES PAYABLE

12 Months Ended

May 31, 2022

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 11 – NOTES PAYABLE

Convertible Debt

In October, November, December 2021, March, April and May 2022, Laredo entered into Securities Purchase Agreements with three accredited investors, pursuant to which the Company issued six convertible promissory notes in the principal amount of $608,575, receiving $527,500 in net cash proceeds (the “Convertible Notes”). The Convertible Notes had an original issue discount of $58,575. Further $22,500 debt issue costs were deducted from the gross proceeds. The total of $81,075 recorded as debt discount are being amortized using the effective interest method through the maturity dates of the Convertible Notes. The Convertible Notes are due in one year from the date of issuance, accrue interest at 8% per annum (22% upon the occurrence of an event of default) and are convertible after 180 days into shares of the Company’s common stock at a discount of 25% of the average of the three lowest trading prices during the 15 trading days immediately preceding the conversion. The Company has determined the value associated with the beneficial conversion feature in connection with the notes resulting in a further increase in the debt discount totaling $55,918. The additional debt discount is amortized using the effective interest method through the date the notes are initially convertible. 

The Company has the right to prepay the Convertible Notes at any time during the first six months the note is outstanding at the rate of (a) 110% of the unpaid principal amount of the note plus interest, during the first 120 days the note is outstanding, and (b) 115% of the unpaid principal amount of the note plus interest between days 121 and 180 after the issuance date of the note. The Convertible Notes may not be prepaid after the 180^th day following the issuance date, unless the note holders agree to such repayment and such terms.

The Company agreed to reserve a number of shares of its common stock which may be issuable upon conversion of the Convertible Notes at all times.

The Convertible Notes provide for standard and customary events of default such as failing to timely make payments under the Convertible Notes when due, the failure of the Company to timely comply with the Securities Exchange Act of 1934, as amended, reporting requirements and the failure to maintain a listing on the OTC Markets. The Convertible Notes also contains customary positive and negative covenants. The Convertible Notes include penalties and damages payable to the noteholders in the event we do not comply with the terms of such note, including in the event we do not issue shares of common stock to the noteholders upon conversion of the notes within the time periods set forth therein. Additionally, upon the occurrence of certain defaults, as described in the Convertible Notes, we are required to pay the noteholders liquidated damages in addition to the amount owed under the Convertible Notes (including in some cases up to 300% of the amount of the note).

At no time may the Convertible Notes be converted into shares of Laredo common stock if such conversion would result in the note holders and their affiliates owning an aggregate of in excess of 4.99% of the then outstanding shares of Laredo common stock.

The proceeds from the Convertible Notes can be used by the Company for general corporate purposes.

During April and May 2022, the Company repaid the Convertible Notes entered in October and November 2021. The October 2021 repayment totaled $136,479 comprised of $114,125 principal and $22,354 related accrued interest and prepayment penalty interest. The Company borrowed $136,479 from Cat Creek to repay the Convertible Note.

The November 2021 note repayment totaled $85,469 comprised of $71,500 principal and $13,969 related accrued interest and prepayment penalty interest.

Upon repayment of the October and November 2021 notes, the related remaining outstanding debt discount and debt issue costs totaling $12,388 were amortized and recorded as interest expense.

See Note 17 – Subsequent Events for convertible debt activity after period end.

Revolving Note

The Company entered into a Revolving Credit Note (the “Revolving Note”) with AEI Management, Inc. (“AEI”) with a maximum draw amount of $1,500,000.00. In May 2022, the Company borrowed $62,858 under the Revolving Note. The Note is dated May 25, 2022, to be effective May 12, 2022. The Note has a maturity date of May 1, 2023 or such later date as requested by the Company and agreed in writing by the Lender in its sole discretion. Under the Note, the Lender may, at its sole discretion, make advances to the Company upon the Company’s request in amounts not to exceed an aggregate amount of $150,000 in any 30-day period and not to exceed the full principal amount of the Note in the aggregate. The Note will accrue interest on the outstanding principal sum at the rate of 8.75% per annum, and is payable by the Company every 90 days following the date of the first drawdown. All unpaid principal, accrued interest and any other amounts will be due and payable on the maturity date.

In accordance with the Note, the Lender is entitled, at its option and upon its issuance of a conversion notice to the Company, to convert all or any part of the outstanding and unpaid principal and accrued interest amount under the Note into fully paid and non-assessable shares of common stock of the Company, at a conversion price that shall equal:

if the Company’s common stock is not listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the Pink Sheets, the lesser of (i) par value of the Company’s common stock or (ii) the cost basis of the most recent, non-affiliate issuance of common stock, or

if the Company’s common stock is listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the OTC Markets Group, a 20% discount to the closing price of the common stock as reported by the Company’s primary market on the trading day immediately preceding the issuance of the conversion notice by the Lender to the Company.

Notwithstanding anything to the contrary, in no event shall the Note be converted into shares of common stock or other securities of the Company to the extent that such conversion would result in the Lender and its affiliates together beneficially owning more than 4.99% of the outstanding shares of the Company’s common stock.

The Company did not provide any collateral or guarantees for the loan, nor did the Company pay any facility charge to obtain the loan. The Note provides for certain consent rights of the Lender for the Company to take certain actions, including, among others, any redemption, repurchase, acquisition or declaration or payment of any cash dividend or distribution on any capital stock of the Company, increase of the par value of the Company’s common stock, issuance of debt or sale of substantially all assets or stock, as well as customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and termination or impairment of the Company’s business in any material respect. The Company may prepay the Note at any time without payment of any penalty or premium.

Alleghany Notes

	May 31,		May 31,
	2022		2021
Total note payable – Alleghany	$	617,934	$	617,934
Less debt discount		-		17,629
Less amounts classified as current		617,934		-
Note payable – Alleghany, net of current portion	$	-	$	600,305

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 accrued interest on the outstanding principal of $350,000 at the rate of 6% per annum, with an amended due date of December 31, 2020.

In connection with the SORC Purchase Transaction, the notes were amended, restated and consolidated into one note including all accrued interest through December 31, 2020, for a total of $631,434 (the “Senior Consolidated Note”) with a maturity date of June 30, 2022. The Senior Consolidated Note requires any stock issuances for cash be utilized to pay down the outstanding loan balance unless written consent is obtained from Alleghany. As part of the SORC Purchase Agreement, the Company agreed to secure repayment of the Senior Consolidated Note with certain equipment and to reduce the note balance with any proceeds received from any sales of such equipment. During the five months ending May 31, 2021, the Company repaid $13,500 of the Senior Consolidated Note upon the sale of certain equipment. The note bears no interest until January 1, 2022 whereupon the interest rate increases to 5% per annum through maturity. Principal with all accrued and unpaid interest is due at maturity. In connection with the SORC acquisition purchase price allocation, the Company recorded a debt discount totaling $30,068 in recognition of imputed interest on the Senior Consolidated Note, to be amortized over the first year of the note term. The Senior Consolidated Note is recorded as a Note payable – Alleghany, net of debt discount as of May 31, 2022. The debt discount has been fully amortized as of December 31, 2021. In August 2022, the Company entered an amendment to the Senior Consolidated Note whereby the maturity date of the loan was extended to December 31, 2023 in exchange for an interest rate to 8% per annum commencing July 1, 2022. Further, if the loan is not paid prior to December 31, 2022, the revenue royalty as defined in the Purchase Agreement will be increased from 5% to 6%.

Paycheck Protection Program Loan

	May 31,		May 31,
	2022		2021
Total PPP Loan	$	1,185,952	$	2,467,311
Less amounts classified as current		328,613		1,220,825
PPP loan, excluding current portion	$	857,339	$	1,246,486

On April 28, 2020, the Company entered into a Note (the “Note”) with IBERIABANK for $1,233,656 pursuant to the terms of the Paycheck Protection Program (“PPP”) authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“CARES Act”) In June 2020, the Flexibility Act which amended the CARES Act was signed into law. Pursuant to the Flexibility Act, the Note continues to accrue interest on the outstanding principal sum at the rate of 1% per annum. In addition, the initial two-year Note term has been extended to five years through mutual agreement with IBERIABANK as allowed under Flexibility Act provisions.

In February 2021, the Company drew an additional $1,233,655 under the PPP Second Draw Loans, bringing the total principal borrowed to $2,467,311. The additional draw is under the same terms and conditions as the first PPP loan.

The Flexibility Act also provides that if a borrower does not apply for forgiveness of a loan within 10 months after the last day of the measurement period (“covered period”), the PPP loan is no longer deferred and the borrower must begin paying principal and interest. In addition, the Flexibility Act extended the length of the covered period from eight weeks to 24 weeks from receipt of proceeds, while allowing borrowers that received PPP loans before June 5, 2020 to determine, at their sole discretion, a covered period of either 8 weeks or 24 weeks.

No interest or principal will be due during the deferral period, although interest will continue to accrue over this period. As of May 31, 2022, interest totaling $15,353 is recorded in accrued interest on the accompanying consolidated balance sheets. After the deferral period and after taking into account any loan forgiveness applicable to the Note, any remaining principal and accrued interest will be payable in substantially equal monthly installments over the remaining term of the Note.

The Company did not provide any collateral or guarantees for the loan, nor did the Company pay any facility charge to obtain the loan. The Note provides for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay the Note at any time without payment of any penalty or premium.

The Company applied for forgiveness of the first PPP note and in July 2021 received notice that $1,209,809 of the $1,233,656 note payable balance has been forgiven. As of May 31, 2022 both PPP Notes have been recorded as Note payable. The portion of the loan forgiven, has been recorded as income from the extinguishment of its loan obligation as of the date when the Company is legally released from being the primary obligor in accordance with ASC 405-20-40-1. Monthly payments commence on September 1, 2021 with respect to the remaining $23,847 balance on the first Note.

In April 2022, the Company applied for partial forgiveness of the PPP Second Draw Loan and received notice that $67,487 of the principal and related interest balance has been forgiven and is recorded as income from the extinguishment of the loan obligation. Monthly payments of $26,752 commence on June 3, 2022 with respect to the remaining $1,166,973 balance on the second PPP Note.