Karbon-X Corp. 10-K

Item 8. Financial Statements and Supplementary Data. Contents Part 1 FINANCIAL INFORMATION Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets as of May 31, 2024 and May 31, 2023 F-2 Consolidated Statement of Operations for the Years Ended May 31, 2024 and 2023 F-3 Consolidated Statements of Stockholders’ Equity (deficiency) for the Years Ended May 31, 2024 and 2023 F-4 Consolidated Statements of Cash Flows for the Years Ended May 31, 2024 and 2023 F-5 Notes to Consolidated Financial Statements F-6 20 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Karbon-X Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Karbon-X Corp. (“the Company”) as of May 31, 2024 and 2023, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flow for each of the years in the two-year period ended May 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2024 and 2023 and the results of its operations and its cash flows for each of the years in the two-year period ended May 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has generated minimal revenues from its business operations and has incurred operating losses since inception. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. Fruci & Associates II, PLLC – PCAOB ID #0 5525 We have served as the Company’s auditor since 2022. Spokane, Washington September 13, 2024 F-1 Table of Contents KARBON-X CORP. Consolidated Balance Sheets May 31, 2024 May 31, 2023 ASSETS Current assets Cash and cash equivalents $ 2,675,400 $ 206,820 Accounts Receivable 113,074 - Sales tax receivable 7,210 45,586 Prepaid expenses and other current assets 1,000 59,767 Total current assets 2,796,684 312,173 Property and equipment 6,918 9,116 Internally developed software 521,372 522,771 Right of use asset 316,519 68,307 Inventory 316,738 80,750 Investment in Silviculture - 1,514,483 Security deposit 12,351 7,515 Total assets $ 3,970,582 $ 2,515,115 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 127,219 $ 69,732 Current portion of lease liability 21,945 14,688 Short term loan 36,500 100,000 Stock Payable 630,000 - Payroll liabilities 24,103 10,061 Total current liabilities 839,769 194,481 Noncurrent portion of lease liability 302,557 55,415 Total liabilities 1,142,325 249,896 Commitments and contingencies - - Shareholders’ equity (deficit) Common stock $ 0.001 par value, 200,000,000 shares authorized, 82,174,750 and 73,540,000 shares issued and outstanding as of May 31, 2024 and May 31, 2023, respectively. 82,176 72,579 Shares to be issued - 1,750,000 Additional Paid-in capital 7,675,826 2,638,532 Accumulated deficit ( 4,937,342 ) ( 2,192,106 ) Accumulated other comprehensive gain (loss) 7,597 ( 3,786 ) Total shareholders’ equity 2,828,257 2,265,219 Total liabilities and shareholders’ equity $ 3,970,582 $ 2,515,115 The accompanying notes are an integral part of these consolidated financial statements F-2 Table of Contents KARBON-X CORP. Consolidated Statements of Operations For the Year Ended For the Year Ended May 31, 2024 May 31, 2023 Operations Total revenue $ 412,057 $ 9,833 Cost of revenue 356,103 1,025 Gross profit 55,954 8,808 Marketing expenses 176,476 1,250,959 Salaries and wages 754,286 211,588 Interest expense 35,856 - Professional fees 252,064 255,764 Other operating expenses 384,215 271,519 Total operating expenses 1,602,897 1,989,830 Loss from Operations ( 1,546,943 ) ( 1,981,022 ) Gain(loss) on investment ( 1,191,890 ) - Other income (expenses) ( 5,750 ) ( 6,855 ) Net loss before income taxes ( 2,744,583 ) ( 1,987,877 ) Federal income tax expense - - Net loss ( 2,744,583 ) ( 1,987,877 ) Other comprehensive loss Foreign currency translation gain (loss) 11,383 ( 9,258 ) Total comprehensive loss ( 2,733,200 ) ( 1,997,135 ) Earnings Per Share Weighted average basic and diluted shares outstanding 77,165,230 69,742,784 Basic and fully diluted loss per share $ ( 0.04 ) $ ( 0.03 ) The accompanying notes are an integral part of these consolidated financial statements F-3 Table of Contents KARBON-X CORP. Consolidated Statement of Changes in Shareholders’ Equity For the Years Ended May 31, 2024 and 2023 Common Stock Stock to Additional Paid Accumulated Accumulated other Comprehensive Description Shares Amount be issued in Capital Deficit gain (loss) Total Balance May 31, 2022 68,320,000 $ 68,320 $ - $ 786,822 $ ( 204,229 ) $ ( 13,044 ) $ 637,870 Shares to be issued for investment - - 1,125,000 - - - 1,125,000 Shares to be issued for stock compensation 625,000 625,000 Issuance of shares and warrants for cash 4,259,000 4,259 - 1,851,710 - - 1,855,969 Translation gain (loss) 9,258 9,258 Net loss - - - - ( 1,987,877 ) - ( 1,987,877 ) Balance May 31, 2023 72,579,000 $ 72,579 $ 1,750,000 $ 2,638,532 $ ( 2,192,106 ) $ ( 3,786 ) $ 2,265,219 Shares to be issued for investment. - 375,000 - - - 375,000 Shares to issued as stock Compensation 2,500,000 2,500 ( 625,000 ) 622,500 - - - Issuance of shares for cash And warrants, net 6,895,750 6,897 - 4,318,827 - - 4,325,724 Conversion of loan to shares 200,000 200 - 99,800 - - 100,000 Offering expenses - - - ( 3,833 ) ( 3,833 ) Write off of Investment in silviculture - - ( 1,500,000 ) - - - ( 1,500,000 ) Translation loss - - - - ( 653 ) 11,383 10,730 Net loss for the period - - - - ( 2,744,583 ) ( 2,744,583 ) Balance May 31, 2024 82,174,750 $ 82,176 $ - $ 7,675,826 $ ( 4,937,342 ) $ 7,597 $ 2,828,257 The accompanying notes are an integral part of these consolidated financial statements F-4 Table of Contents KARBON-X CORP. Consolidated Statements of Cash Flow For the Year Ended For the Year Ended May 31, 2024 May 31, 2023 Cash flows from operating activities Net (loss) income $ ( 2,744,583 ) ( 1,987,877 ) Adjustments to reconcile net loss to net cash: Depreciation expense 2,194 1,219 Loss on investment 1,191,890 8,039 Amortization of Right of Use Asset ( 246,996 ) 3,177 Stock based compensation - 625,000 Changes in operating assets and liabilities: Sales tax receivable 38,376 ( 34,777 ) Accounts receivable ( 113,074 ) - Accounts payable 32,448 38,979 Stock payable 630,000 - Payroll liabilities 39,082 7,084 Inventory ( 235,988 ) ( 80,750 ) Prepaid expenses 58,767 ( 59,465 ) Payments made on operating lease 254,587 1,205 Security deposit ( 4,837 ) ( 6,903 ) Cash used in operating activities ( 1,098,134 ) ( 1,485,069 ) Cash flows from investing activities Acquisition of property and equipment - ( 7,058 ) Cash paid for equity method investment ( 802,407 ) ( 397,523 Cash paid for software development - ( 345,994 ) Cash used in investing activities ( 802,407 ) ( 750,575 ) Cash flows from financing activities Proceeds from short term loan 36,500 100,000 Proceeds from issuance of shares and warrants 4,321,891 1,855,969 Cash provided by financing activities 4,358,391 1,955,969 Effect of translation changes on cash 10,730 ( 9,155 ) Change in cash and cash equivalents 2,468,580 ( 270,520 ) Cash, beginning of period 206,820 477,339 Cash, end of period $ 2,675,400 206,820 Non cash operating activities Capitalization of right of use asset $ - $ ( 71,425 ) Capitalization of lease liability $ - $ ( 68,920 ) Depreciation expense $ - $ 1,219 Loss on investment $ - $ 8,039 Amortization of Right of Use Asset $ - $ 3,177 Stock based compensation $ - $ 625,000 Non cash investing and financing activities Shares to be issued for the Silviculture investment $ - $ 1,125,000 Write off of Investment in Silviculture investment ( 1,500,000 ) Shares to be issued as stock based compensation $ - $ 625,000 Supplemental disclosures Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - The accompanying notes are an integral part of these consolidated financial statements F-5 Table of Contents KARBON-X CORP. Notes to Consolidated Financial Statements May 31, 2024 Note 1 - Basis of Presentation and Significant Accounting Policies Karbon-X Corp. was incorporated in the State of Nevada under the name Cocoluv, Inc. on September 13, 2017 and established a fiscal year end of May 31. On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of 20,000-for-1 , into an aggregate of 20,000,000 shares of the Company's common stock, resulting in Karbon-X becoming a wholly owned subsidiary of the Company and all debt owed to the related party of Cocoluv, Inc. was forgiven. Karbon-X Project Inc. was incorporated in British Columbia on February 11, 2022 and established a fiscal year end of May 31. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition. As part of the Reverse Acquisition, on April 14, 2022 the Company changed its name to Karbon-X Corp. Under generally accepted accounting principles in the United States ("US GAAP"), because the combined entity will be dependent on Karbon-X's senior management, the Reverse Acquisition was accounted for as a recapitalization effected by a share exchange, wherein Karbon-X is considered the acquirer for accounting and financial reporting purposes. On the date of the reorganization, the assets and liabilities of Karbon-X have been brought forward at their book value and consolidated with Cocoluv, Inc.’s assets, which comprised of cash and cash equivalents of $ 134 and liabilities which comprises due to related party of $ 99,902 (see Note 1 Basis of Presentation below). No goodwill has been recognized. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of Karbon-X and are recorded at the historical cost basis of Karbon-X. Going concern To date the Company has generated minimal revenues from its business operations and has incurred operating losses since inception of $ 4,937,342 . The Company will require additional funding to meet its ongoing obligations and to fund anticipated operating losses. The ability of the Company to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company intends to continue to fund its business by way of private placements and advances from related parties as may be required. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty. Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements present the consolidated balance sheet, statements of operations, stockholders’ equity and cash flows of the Company. These consolidated financial statements are presented in the United States dollar and have been prepared in accordance with accounting principles generally accepted in the United States. Use of Estimates and Assumptions Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. F-6 Table of Contents Accounts Receivable Accounts receivable represent amounts due from customers for goods or services provided by the Company. Accounts receivable are recorded at the invoiced amount. The Company evaluates the collectability of accounts receivable based on historical collection experience, the age of outstanding receivables, and specific facts and circumstances related to individual customers. In accordance with Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326), also known as the Current Expected Credit Loss (CECL) model, the Company now utilizes a forward-looking approach to estimate expected credit losses over the lifetime of the receivables. This model considers historical loss experience, current conditions, and reasonable and supportable forecasts to assess credit risk. Sales Tax Receivable Sales tax receivable consists of the accumulated reclaimable GST paid by the Company on purchases made in Canada. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets which are between three to seven years. Costs of major additions and improvements are capitalized while expenditures for maintenance and repairs, which do not extend the life of the asset, are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to income. Long-lived assets held and used by us are reviewed based on market factors and operational considerations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Inventory As of March 1, 2024 it was management's decision to revalue inventory at the lower of cost or market. Net realizable value is estimated based on current selling prices, with provisions established for slow-moving and obsolete inventory. This change from the previous weighted average method to lower of cost or market had no significant impact on the current or prior consolidated financial statements. Investments The Company accounts for investments with a 20 % to 50 % ownership and a significant, but not controlling influence as equity method investments. Investments with a greater than 50% ownership and a controlling influence are accounted for using the consolidation method. The Company assesses the potential impairment of equity method investments when indicators such as a history of operating losses, negative earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value. The Company has accounted for its investment in Silviculture Systems using the equity method and its investment in its subsidiary Karbon-X Project, Inc using the consolidation method. During November 2023, the Company has abandoned the silviculture investment deal and decided to write off the carrying value of the Equity Investment in Silviculture. Accordingly, amidst ongoing disputes which we are currently discussing, the Company has written off the carrying value of Investment of $ 2,564,203 , accumulated value of shares to be issued $ 1,500,000 and recognized loss on write off $ 1,064,203 in its statement of operations for the year ended May 31, 2024. Fair Value of Financial Instruments The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows: F-7 Table of Contents ● Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; ● Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and ● Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. The carrying amount of the Company’s financial assets and liabilities approximate their fair values due to their short-term maturities. Revenue Recognition In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under ASC 606, the Company recognizes revenue from the commercial sales of carbon credits and consulting services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. Rates for consulting services are typically per day, per hour, or a similar basis. Consulting revenue is recognized over the period in which the service is provided. Revenue for sales of carbon credits is recognized at a point in time when control of the credit transfers to the buyer. The Company acts as a principal in all revenue transactions. Additionally, the Company has a subscription-based model that is materially consistent with how revenue is recognized for the sales of carbon credits. Foreign Currency Translation The functional currency of the Company is the Canadian Dollar (“CAD”). For financial statement purposes, the reporting currency is the United States Dollar (“USD”). For financial reporting purposes, the consolidated financial statements are translated into the Company’s reporting currency, USD. Asset and liabilities are translated using the closing exchange rate in effect at the balance sheet date with the resulting translation adjustments included as a separate component of shareholder’s equity through other comprehensive income (loss) in the consolidated statement of operations. Income and expenses are translated at the average yearly rates of exchange. The Company includes realized gains and losses from foreign currency transactions in other income (expense), net in the consolidated statement of operations. Warrants There is estimation uncertainty with respect to selecting inputs to the Black-Sholes model used to determine the fair value of the warrants (Note 6). These inputs include the stock price of $ 0.25 , exercise price of $ 0.75 , time to maturity of two years, annual risk-free interest rate ranging from 4.33 % - 4.74 %, and annualized volatility ranging from 1294.9 % - 1279.3 %. The above estimates and assumptions are reviewed regularly. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Significant Estimates Significant estimates applied in the preparation of these financial statements include the estimated useful lives of property and equipment, share volatility and estimated life of options and warrants in determining their fair value as well as the expected potential for the realization of deferred tax assets in determining the amount of the valuation allowance thereto. F-8 Table of Contents Earnings per Common Share The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the year. The diluted loss per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. As of May 31, 2024, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share. Reclassifications Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings, financial position, or cash flows. Note 2 – Prepaid Expenses As of May 31, 2024 and May 31, 2023, prepaid expenses consisted of the following: Description May 31, 2024 May 31, 2023 Prepaid inventory - 59,767 Other Prepaids 1,000 - Total $ 1,000 $ 59,767 Note 3 – Inventory Inventory as of May 31, 2024 and May 31, 2023, consisted of the following: Description May 31, 2024 May 31, 2023 Carbon Credit Inventory $ 316,738 $ 80,750 Total $ 316,738 $ 80,750 Carbon credit inventory represents carbon credits currently held for sale and are stated at the lower of cost or market. Note 4 - Property and Equipment The amount of property and equipment as of May 31, 2024 and May 31, 2023, consisted of the following: Description May 31, 2024 May 31, 2023 Furniture and fixtures $ 6,589 $ 6,607 Computer and equipment 3,695 3,705 Total property cost $ 10,284 $ 10,312 Accumulated depreciation ( 3,366 ) ( 1,196 ) Property and equipment, net $ 6,918 $ 9,116 The Company did not purchase significant property, plant and equipment for the year ended May 31, 2024. Depreciation expense for the year ended May 31, 2024 and 2023 were $ 2,194 and $ 1,219 , respectively. Note 5 – Shareholders’ Equity During the year ended May 31, 2024, Karbon-X Corp completed following private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. During July – September 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold 3,274,858 shares of common stock at $ 0.50 per share for gross proceeds of $ 1,637,429 , net of expenses related to issuances of $ 83,993 . F-9 Table of Contents On June 6, 2023 the Company converted a loan for $ 100,000 into 200,000 shares at price of $ 0.50 per share. During November 2023, the Company sold 50,000 common stock and warrants at $.90 per unit for total proceeds of $ 100,000 . During January 2024, the Company revalued the common stock from $ 2.00 per unit to $ 0.90 per unit for certain previous private placement investors and issued an additional 61,111 shares. During the year ended May 31, 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold 720,000 units at $ 0.25 per unit for total proceeds of $ 180,000 . Each unit consisted of share of common stock and warrant to purchase a share of common stock for $0.75 per share for a period of two years . During the year ended May 31, 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold 3,539,000 shares of common stock at $ 0.50 per share for gross proceeds of $ 1,769,500 , net of costs directly related to the share issuance of $ 93,531 . During the year ended May 31, 2023, the Company executed an agreement to issue 2,500,000 shares as stock compensation at a price of $ 0.25 per share, representing a value of $ 625,000 based on the value of services received. However, as a result of the silviculture impairment and the subsequent abandonment of the investment deal in November 2023, the shares were written off. Note 6 – Warrants During the year ended May 31, 2024, the Company issued 10,400 warrants in connection with one private placement. Each warrant entitles the holder to acquire one common share of the Corporation at an exercise price of $ 0.50 with a two-year term. The 10,400 units of warrants and shares were issued as a commission fee valued at $ 2,236 . Additionally, the Company had 830,000 expired warrants and 2,990,000 exercised warrants at an average price of $ 0.75 during the same period. During the year ended May 31, 2023, the Company issued 720,000 warrants in connection with one private placement. Each warrant entitles the holder to acquire one common share of the Corporation at an exercise price of $ 0.75 with a two year term. The 720,000 units of warrants and shares were issued in exchange for $ 180,000 . F-10 Table of Contents A detail of warrant activity for the year ended May 31, 2024 is as follows: Description Number Weighted average exercise price Weighted average remaining contractual life (in years) Outstanding May 31, 2023 4,140,000 $ 0.75 0.83 Exercised ( 2,990,000 ) 0.75 - Granted 10,400 0.75 1.13 Expired ( 830,000 ) 0.75 Cancelled - - - Outstanding May 31, 2024 330,400 0.63 0.63 Note 7 – Investments On May 31, 2023, the Company executed an amended share exchange agreement to buy up to 80 % of Silviculture Systems in exchange for cash and shares of Karbon-X Corp valued at $ 7,250,000 . $3,250,000 paid for in shares and the remaining $3,500,000 paid for in cash over the next three years . The issuance of shares was to occur in tranches upon the completion of milestones. As of May 31, 2023, the Company has paid $ 397,523 in cash, has a 24 % ownership in Silviculture Systems and has a significant, but not controlling interest in Silviculture Systems. The shares related to the 24% ownership are shown as shares to be issued and have been valued at the most recent stock purchase price of $ 0.25 per share. This investment has been accounted for as an equity method investment and its respective gain/loss for the period has been recorded in the statement of operations. For the year ended May 31, 2023, the Company recorded a loss on equity method investment of $ 8,039 . During November 2023, the Company has abandoned the silviculture investment deal and decided to write off the carrying value of the Equity Investment in Silviculture. Accordingly, amidst ongoing disputes which we are currently discussing, the Company has written off the carrying value of Investment of $ 2,564,203 , accumulated value of shares to be issued $ 1,500,000 and recognized loss on write off $ 1,064,203 in its statement of operations for the year ended May 31, 2024. Note 8 – Internally Developed Software In accordance with ASC 350-40, the Company has capitalized internally developed software for its development of a mobile application. The software is currently in its application development stage and all related costs are being capitalized as incurred. Once the software is ready for implementation, the Company will begin amortizing the software over its estimated useful life. As of May 31, 2024 and May 31, 2023, the Company has capitalized internally developed software of $ 521,372 and $ 522,771 , respectively. Note 9 – Short Term Note On January 13, 2023, the Company obtained a short term loan of $ 100,000 from a third party. This loan had an interest rate of 8 % per annum and was due in full on July 10, 2023, which were fully converted as of year end. Note 10 – Commitments and Contingencies Operating Leases The Company leases office space from a third party under an operating lease agreement over 60 months which expires in November 2029. The lease also includes the payment of executory costs. Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our estimated incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, if applicable. When lease terms include an option to extend the lease, we have not assumed the options will be exercised. F-11 Table of Contents Lease expense for operating leases generally consist of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include agreed-upon changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognized total lease expense of approximately $ 34,511 and $ 15,992 for the years ended May 31, 2024 and 2023, primarily related to operating lease costs paid to lessors from operating cash flows. We entered into our new operating lease in April 2024 with a term of five years. Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at May 31, 2024 were as follows: SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER OPERATING LEASES Total Year Ended May 31, 2024 $ 29,573 2025 109,477 2026 109,477 2027 114,685 2028 119,893 Thereafter 135,529 Total lease payment 618,633 Less: Imputed interest ( 160,065 ) Operating lease liabilities 458,568 Operating lease liability - current 37,522 Operating lease liability - non-current $ 418,895 SCHEDULE OF OTHER SUPPLEMENTAL INFORMATION UNDER OPERATING LEASE Weighted average discount rate 1 10.25 % Weighted average remaining lease term (years) 3.17 1 weighted average discount rate is determined using the incremental borrowing rates for each individual lease Note 11 – Subsequent Events Effective June 21, 2024 private placement investors exercised 2,023,334 options to purchase shares at $ 0.25 per share, resulting in proceeds to the Company of $ 508,834 . Subsequent events have been evaluated through September 13, 2024, the date these financial statements were available to be released and note no other events requiring disclosure. F-12 Table of Contents