Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded in United States markets by OTC Markets Group, Inc., a privately owned company headquartered in New York City, under the symbol “KARX.” The common stock currently trades on the OTC Markets “expert” market. We are working to return trading to the OTC Pink Market and subsequently to the OTCQB Market. There is no assurance that the common stock will continue to be traded on the OTC Markets or that any liquidity exists for our shareholders.
Market Price
As the reorganization closed on March 21, 2022 and does not reflect the current operations of the Company, historical market price information before that date is not material to the operations of the Company. Historical market price information is currently not available to the Company as it is traded on the OTC “expert” market while we work to return to the OTC Pink and subsequently OTCQB Markets.
As of May 31, 2022, the Company had 200,000,000 shares of common stock authorized with 68,320,000 shares issued and outstanding.
Penny Stock Regulations
Our common stock trades on the “expert” market in United States markets by OTC Markets Group, Inc., a privately owned company headquartered in New York City, under the symbol “CCLV.” The sale price of our common stock has been less than $5.00 per share. As such, the Company's common stock is subject to provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), commonly referred to as the “penny stock rule.”
Section 15(g) sets forth certain requirements for transactions in penny stocks, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines “penny stock” to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. As long as the Company's common stock is deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors.
Dividends
The Company has not issued any dividends on the common stock to date, and does not intend to issue any dividends on the common stock in the near future. We currently intend to use all profits to further the growth and development of the Company.
Holders
As of May 31, 2022, there were approximately 57 record holders of our common stock. This does not include the holders of our common stock who held their shares in street name as of that date.
Transfer Agent
Our registrar and transfer agent is VStock Transfer, LLC.
Recent Sales of Unregistered Securities
Subsequent to March 31, 2022 and through June 1, 2022, 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 3,820,000 units at $0.25 per unit for total gross proceeds of $955,000. Each unit consisted of one share of common stock and one warrant to purchase a share of common stock for $0.75 per share for a period of two years.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion relates to the historical operations and financial statements of Karbon-X Corp. for the fiscal year ending May 31, 2022. The historical operations and financial statements of Karbon-X Corp. for the fiscal year ending May 31, 2021 are not included since they reflect only the operations of the predecessor Cocoluv, Inc. which had no significant operations.
Forward-Looking Statements
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” in our various filings with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.
As a result of the Reorganization Agreement and the change in business and operations of the Company, a discussion of the past financial results of the Company, formally known as Cocoluv, Inc., is not pertinent, and, under generally accepted accounting principles in the United States the historical financial results of Karbon-X Project, Inc., the acquirer for accounting purposes, prior to the Reorganization Agreement are considered the historical financial results of the Company.
The following discussion highlights the Company’s results of operations and the principal factors that have affected its consolidated financial condition as well as its liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the Company’s consolidated financial condition and results of operations presented herein. The following discussion and analysis are based Karbon-X Corp’s audited and unaudited financial statements contained in this Current Report, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Overview
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 April 7, 2022 the Company changed its name to Karbon-X Corp.
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. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition.
Karbon-X provides customized transactional options, tailored insights, and scalable access to the Verified Emissions Reduction markets.
Karbon-X changes the marketing framework of traditional carbon marketing by engaging the public vs industry with multiple forms of technology based greenhouse gas reduction builds. Karbon-X will allow the public to purchase carbon offsets from an APP that is subscription based, with multiple levels of investment for every budget. Each subscription will support clean energy projects such as solar or wind power, methane capture, or reforestation and will reduce greenhouse gas emissions with provable, verifiable carbon credits.
Effects of COVID-19
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and the related adverse public health developments have adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. Management has determined that there has been no significant impact to the Company’s operations, however management continues to monitor the situation.
Critical Accounting Policies
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 consolidated 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 consolidated statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
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 all five 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.
Fair Value of Financial Instruments
The carrying amount of the Company’s financial assets and liabilities approximates their fair values due to their short-term maturities.
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, liability and equity accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using the average exchange rate prevailing during the reporting period.
Adjustments resulting from the translation, if any, are included in accumulated other comprehensive loss in stockholder’s equity (deficit).
Warrants
There is estimation uncertainty with respect to selecting inputs to the Black-Sholes model used to determine the fair value of the warrants.
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.
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, 2022, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.
Reverse Acquisition
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. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition.
Financial Condition and Results of Operations
Inception to May 31, 2022
To date the Company has generated no revenues from its business operations and has incurred operating losses since inception of $238,745. As of May 31, 2022, the Company has working capital of $634,003. 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 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.
Sales and Revenue
For the period of inception to May 31, 2022 and February 28, 2021 we had no revenue. We are just at the beginning of our operations which we expect to improve during the current fiscal year.
Operating Expenses
Operating expenses for the period of inception to May 31, 2022 totaled $238,745. Operating expenses included office and general expenses, professional fees, development expenses for our app and expenses relating to a project to plant Dipteryx Alata (Baru Nut Trees) through one of our partners.
Net Loss
Net loss from operations after income taxes and foreign currency translation loss was $238,745 during the period from inception to May 31, 2022. Again this was as a result of office and general expenses, app development expense and tree planting expenses.
Liquidity and Capital Resources
The following table sets forth the major components of our statements and consolidated statements of cash flows for the periods presented.
| | Inception To May 31, 2022 | |
Cash used in operating activities | | $ | 361,363 | |
Cash from financing activities | | $ | 855,000 | |
Cash from (used in) investing activities | | $ | (3,254 | ) |
Change in cash during the period | | $ | 477,339 | |
Effect of exchange rate change | | $ | (13,044 | ) |
Cash, beginning of period | | $ | 0 | |
Cash, end of period | | $ | 477,399 | |
As of May 31, 2022, the Company had $667,733 in current assets.
To date, the Company has financed its operations through equity sales.
On March 7, 2022 the Company commenced a private placement pursuant to Rule 506(c) promulgated under Regulation D of the Securities Exchange Act of 1934, as amended. The private placement is ongoing. The private placement sought to raise $1,000,000 through the sale of Units at $0.25 per Unit, each consisting of one share of common stock and one warrant to purchase one share of common stock for two years at an exercise price of $0.50 per share. As of September 1, 2022 we have obtained $955,000 in gross proceeds from this offering.
Future Financing
In connection with its proposed business plan and possible acquisitions, in addition to the possible proceeds from this offering the Company will be required to complete substantial and significant additional capital formation. Such formation could be through additional equity offerings, debt, bank financings or a combination of any source of financing. There can be no assurance that the Company will be successful in completion of such financings.
Plan of Operations
As noted above, the continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of common shares, we believe that we will have sufficient cash resources to fund our plan of operations through 2022. If we are unable to do so, we may have to curtail and possibly cease some operations. We intend to use the net proceeds from the offering for research and development, operations, regulatory compliance, intellectual property, working capital and general corporate purposes.
We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
Capital Expenditures
As of February 28, 2022 we had capital expenditures of $3,254.
Commitments and Contractual Obligations
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Going Concern
To date the Company has generated no revenues from its business operations and has incurred operating losses since inception of $238,745. As of May 31, 2022, the Company has working capital of $634,003. 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 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.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Item 8. Financial Statements and Supplementary Data.
Contents
MICHAEL GILLESPIE & ASSOCIATES, PLLC
CERTIFIED PUBLIC ACCOUNTANTS
VANCOUVER, WA 98666
206.353.5736
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders & Board of Directors
Karbon-X Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Karbon-X Corp. Inc. as of May 31, 2022 and the related statements of operations, changes in stockholders’ deficit, cash flows, and the related notes (collectively referred to as “financial statements”) for the year then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2022 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Critical Audit Matters
The critical audit matters communicated below 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. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Going Concern
As described further in Note 1 to the financial statements, the Company has incurred losses from inception through May 31, 2022, and expects to incur additional losses in the future.
We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s future cash flows and the risk of bias in management’s judgments and assumptions in estimating these cash flows.
Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others:
We reviewed the Company’s working capital and liquidity ratios and forecasted revenue, operating expenses, and uses and sources of cash used in management’s assessment of whether the Company has sufficient liquidity to fund operations for at least one year from the financial statement issuance date. This testing included inquiries with management, comparison of prior period forecasts to actual results, consideration of positive and negative evidence impacting management’s forecasts, the Company’s financing arrangements in place as of the report date, market and industry factors and consideration of the Company’s relationships with its financing partners.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, although the Company has limited operations it has yet to attain profitability. This raises substantial doubt about its ability to continue as a going concern. Management’s plan in regard to these matters is 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 audit. 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 audit, 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 audit 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 audit provides a reasonable basis for our opinion.
/S/ MICHAEL GILLESPIE & ASSOCIATES, PLLC | | |
We have served as the Company’s auditor since 2022. PCAOB ID: 6108 Vancouver, Washington August 29, 2022 | | |
KARBON-X CORP.
(Formerly known as Cocoluv, Inc.)
Consolidated Balance Sheet
As of May 31, 2022
| | May 31, 2022 | |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | | $ | 477,339 | |
Sales tax receivable | | | 10,809 | |
Prepaid expenses | | | 179,585 | |
Total current assets | | | 667,733 | |
| | | | |
Property and equipment | | | 3,254 | |
Security deposit | | | 613 | |
Total assets | | $ | 671,600 | |
| | | | |
LIABILITES AND SHAREHOLDERS’ EQUITY (DEFICIT) | | | | |
Current liabilities | | | | |
Accounts payable and accrued expenses | | $ | 30,754 | |
Payroll liabilities | | | 2,976 | |
Total liabilities | | | 33,730 | |
| | | | |
Shareholders’ equity (deficit) | | | | |
Common stock $0.001 par value, 200,000,000 shares authorized, 68,320,000 shares issued and outstanding as of May 31, 2022. | | | 68,320 | |
Additional paid-in capital | | | 786,822 | |
Accumulated deficit | | | (204,228 | ) |
Accumulated other comprehensive gain (loss) | | | (13,044 | ) |
Total shareholders’ equity (deficit) | | | 637,870 | |
Total liabilities and shareholders’ equity (deficit) | | $ | 671,600 | |
The accompanying notes are an integral part of these financial statements
KARBON-X CORP.
(Formerly known as Cocoluv, Inc.)
Consolidated Statement of Operations
For the Year Ended May 31, 2022
| | May 31, 2022 | |
Operations | | $ | | |
Total revenue | | | - | |
Cost of revenue | | | - | |
Gross profit | | | - | |
| | | | |
Operating expenses | | | 238,745 | |
| | | | |
Loss from Operations | | | (238,745 | ) |
| | | | |
Other income (expenses) | | | - | |
Federal income tax expense | | | - | |
Net loss | | | (238,745 | ) |
| | | | |
Other comprehensive loss | | | | |
Foreign currency translation gain (loss) | | | (13,004 | ) |
Total comprehensive loss | | | (251,749 | ) |
| | | | |
Earnings Per Share | | | | |
Weighted average shares outstanding | | | 64,961,973 | |
Basic and fully diluted loss per share | | $ | (0.00 | ) |
The accompanying notes are an integral part of these financial statements
KARBON-X CORP.
(Formerly known as Cocoluv, Inc.)
Consolidated Statement of Changes in Shareholders’ Equity
For the Year Ended May 31, 2022
| | Common Stock | | | Additional Paid | | | Accumulated | | | Accumulated other Comprehensive | | | | |
Description | | Shares | | | Amount | | | in Capital | | | Deficit | | | gain (loss) | | | Total | |
Balance May 31, 2021 | | | - | | | $ | - | | | | - | | | | - | | | | - | | | | - | |
Recap of Cocoluv, Inc. | | | 64,900,000 | | | | 64,900 | | | | (64,758 | ) | | | 34,517 | | | | - | | | | 34,659 | |
Issuance of shares for cash | | | 3,420,000 | | | | 3,420 | | | | 425,790 | | | | | | | | | | | | 429,210 | |
Warrants issued | | | | | | | | | | | 425,790 | | | | | | | | | | | | 425,790 | |
Translation gain (loss) | | | - | | | | - | | | | - | | | | - | | | | (13,004 | ) | | | (13,004 | ) |
Net loss | | | - | | | | - | | | | - | | | | (238,745 | ) | | | - | | | | (238,745 | ) |
Balance May 31, 2022 | | | 68,320,000 | | | | 68,320 | | | | 786,822 | | | | (204,228 | ) | | | (13,004 | ) | | | 637,870 | |
The accompanying notes are an integral part of these financial statements
KARBON-X CORP.
(Formerly known as Cocoluv, Inc.)
Consolidated Statement of Cash Flows
For the Year Ended May 31, 2022
| | May 31, 2022 | |
Cash flows from operating activities | | | |
Net loss | | $ | (238,745 | ) |
Recap of Cocoluv, Inc. | | | 34,659 | |
Changes in operating assets and liabilities: | | | | |
Prepaid expenses | | | (179,585 | ) |
Sales tax receivable | | | (10,809 | ) |
Security deposit | | | (613 | ) |
Accounts payable | | | 30,754 | |
Payroll liabilities | | | 2,976 | |
Cash used in operating activities | | | (361,363 | ) |
| | | | |
Acquisition of property and equipment | | | (3,254 | ) |
Cash used in investing activities | | | (3,254 | ) |
| | | | |
Cash flows from financing activities | | | | |
Proceeds from the issuance of shares and warrants | | | 855,000 | |
Cash used in financing activities | | | 855,000 | |
| | | | |
Effect of translation changes on cash | | | (13,044 | ) |
| | | | |
Change in cash and cash equivalents | | | 477,339 | |
Cash, beginning of period | | | - | |
Cash, end of period | | $ | 477,339 | |
| | | | |
Supplemental disclosures | | | | |
Cash paid for interest | | $ | - | |
Cash paid for income taxes | | | - | |
The accompanying notes are an integral part of these financial statements
KARBON-X CORP.
Notes to the Consolidated Financial Statements
For the Year Ended May 31, 2022
Note 1 - Basis of Presentation and Significant Accounting Policies
CocoLuv Inc. was incorporated in the State of Nevada 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. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition.
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 no revenues from its business operations and has incurred operating losses since inception of $238,745. As of May 31, 2022, the Company has a working capital of $634,003. 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 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 consolidated 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 consolidated statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
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 all five 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.
Fair Value of Financial Instruments
The carrying amount of the Company’s financial assets and liabilities approximates their fair values due to their short-term maturities.
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, liability and equity accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using the average exchange rate prevailing during the reporting period.
Adjustments resulting from the translation, if any, are included in accumulated other comprehensive loss in stockholder’s equity (deficit).
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 4).
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.
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, 2022, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.
Note 2 – Prepaid Expenses
As of May 31, 2022, prepaid expenses consisted of the following:
Description | | May 31, 2022 | |
Prepayments to third-party app developer | | $ | 176,777 | |
Prepaid accounting services | | | 2,544 | |
Prepaid furniture | | | 264 | |
Total | | $ | 179,585 | |
Note 3 - Property and Equipment
The amount of property and equipment as May 31, 2022, consisted of the following:
Description | | May 31, 2022 | |
Furniture and fixtures | | $ | 3,254 | |
Total property cost | | $ | 3,254 | |
Accumulated depreciation | | | - | |
Property and equipment, net | | $ | 3,254 | |
The Company purchased three standing desks on May 25, 2022 for $3,254. These desks were put into service in June 2022, as such no depreciation expense has been recorded for the year ended May 31, 2022.
Note 4 – Shareholders’ Equity
During the year ended May 31, 2022, 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 3,420,000 units at $0.25 per unit for total proceeds of $855,000. 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. In connection with the private placement the Company paid $10,000 as a finder’s fee.
Note 5 – Warrants
During the year ended May 31, 2022, the Company issued 3,420,000 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 warrants were valued at $425,790.
A detail of warrant activity for the year ended May 31, 2022 is as follows:
Description | | Number | | | Weighted average exercise price | | | Weighted average remaining contractual life (in years) | |
Outstanding May 31, 2021 | | | - | | | $ | - | | | | - | |
Exercised | | | - | | | | - | | | | - | |
Granted | | | 3,420,000 | | | | 0.75 | | | | 1.83 | |
Expired | | | - | | | | - | | | | - | |
Cancelled | | | - | | | | - | | | | - | |
Outstanding May 31, 2022 | | | 3,420,000 | | | $ | 0.75 | | | | 1.83 | |
Note 6 – Subsequent Events
Subsequent to May 31, 2022 and the date that these financial statements were available to be issued the Company 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 gross 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.
Subsequent to May 31, 2022 and through the date that these financial statements were available to be issued, the Company made three payments amounting to approximately $145,196 to a third-party app development company.
Subsequent to May 31, 2022 and through the date that these financial statements were available to be issued, the Company made two payments amounting to approximately $32,608 to a marketing company.
The Company signed a lease agreement to rent office space for a one-year term beginning June 1, 2022 at a base rent of $1,627.50 per month.
Subsequent events have been evaluated through September 12, 2022, the date these financial statements were available to be released and noted no other events requiring disclosure.
Item 9. Change in and Disagreement with Accountants on Accounting and Financial Disclosure
At inception of Cocoluv, Inc. (subsequently changed to Karbon-X Corp) the Company engaged PLS CPA, a professional corporation (“PLS”), to audit its financial statements for the period of inception to the fiscal years ended May 31, 2018, 2019, 2020 and 2021.
For the fiscal year ended May 31, 2022, we engaged Michael Gillespie & Associates, PLLC (“Gillespie”) who audited our consolidated financial statements from inception through May 31, 2022. Neither PLS’ nor Gillespie’s report on our consolidated balance sheets and the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit) and cash flows for the years then ended, contained an adverse opinion, and was not modified as to uncertainty, audit scope or accounting principles.
During those fiscal years and further through August 26, 2022, there have been no disagreements with either PLS or Gillespie on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of PLS or Gillespie, as the case may be, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
During our recent fiscal year ended May 31, 2022, Gillespie did not advise us on any matter set forth in Item 304(a)(1)(v)(A) through (D) of Regulation S-K.
During our recent fiscal year ended May 31, 2022 we did not consult with Gillespie regarding (i) the application of accounting principles to a specific transaction, either completed or contemplated, or the type of audit opinion that might be rendered on our financial statements, and no written report or oral advice was provided to us that was an important factor to be considered by us in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
The report of Gillespie regarding the Company's consolidated financial statements for the fiscal year ended May 31, 2022 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.