KARX 10-Q
Karbon-X Corp. (KARX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
Commission File Number
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class |
| Trading Symbol(s) |
| Name of each Exchange on which registered |
N/A |
| N/A |
| N/A |
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of October 10, 2023, there were
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION | ||||
| ||||
Item 1. | Financial Statements. | 4 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 14 | |||
18 | ||||
18 | ||||
| ||||
| ||||
19 | ||||
19 | ||||
19 | ||||
19 | ||||
19 | ||||
19 | ||||
20 | ||||
| 2 |
| Table of Contents |
Contents
| 3 |
| Table of Contents |
KARBON-X CORP.
Consolidated Balance Sheets
|
| August 31, 2023 |
|
| May 31, 2023 |
| ||
|
| (Unaudited) |
|
|
| |||
ASSETS |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ |
|
| $ |
| ||
Sales tax receivable |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
|
|
|
| ||
Internally developed software |
|
|
|
|
|
| ||
Right of use asset |
|
|
|
|
|
| ||
Inventory |
|
|
|
|
|
| ||
Investment in Silviculture |
|
|
|
|
|
| ||
Security deposit |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ |
|
| $ |
| ||
Current portion of lease liability |
|
|
|
|
|
| ||
Short term loan |
|
|
|
|
|
| ||
Deferred revenue |
|
|
|
|
|
| ||
Payroll liabilities |
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Noncurrent portion of lease liability |
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Shareholders’ equity (deficit) |
|
|
|
|
|
|
|
|
Common stock $ |
|
|
|
|
|
| ||
Shares to be issued |
|
|
|
|
|
| ||
Additional Paid-in capital |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Accumulated other comprehensive gain (loss) |
|
| ( | ) |
|
| ( | ) |
Total shareholders’ equity |
|
|
|
|
|
| ||
Total liabilities and shareholders’ equity |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements
| 4 |
| Table of Contents |
KARBON-X CORP.
Consolidated Statements of Operations
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||
|
| August 31, 2023 |
|
| August 31, 2022 |
| ||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
Operations |
|
|
|
|
|
| ||
Total revenue |
| $ |
|
| $ |
| ||
Cost of revenue |
|
|
|
|
|
| ||
Gross profit |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
| ||
Salaries and wages |
|
|
|
|
|
| ||
Professional fees |
|
|
|
|
|
| ||
Other operating expenses |
|
|
|
|
|
| ||
Total operating expenses |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
| ( | ) |
|
|
| |
Net loss before income taxes |
|
| ( | ) |
|
| ( | ) |
Federal income tax expense |
|
|
|
|
|
| ||
Net loss |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
| ( | ) |
|
| ( | ) |
Total comprehensive loss |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Earnings Per Share |
|
|
|
|
|
|
|
|
Weighted average basic and diluted shares outstanding |
|
|
|
|
|
| ||
Basic and fully diluted loss per share |
| $ | ( | ) |
| $ | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements
| 5 |
| Table of Contents |
KARBON-X CORP.
Consolidated Statement of Changes in Shareholders’ Equity
For the Three Months Ended August 31, 2023 and 2022
(Unaudited)
|
| Common Stock |
|
| Shares to |
|
| Additional Paid |
|
| Accumulated |
|
| Accumulated other Comprehensive |
|
|
|
| ||||||||||
Description |
| Shares |
|
| Amount |
|
| be issued |
|
| in Capital |
|
| Deficit |
|
| gain (loss) |
|
| Total |
| |||||||
Balance May 31, 2022 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||
Issuance of shares and warrants for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Translation gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Net loss |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balance August 31, 2022 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||
|
| Common Stock |
|
| Shares to |
|
| Additional Paid |
|
| Accumulated |
|
| Accumulated other Comprehensive |
|
|
|
| ||||||||||
Description |
| Shares |
|
| Amount |
|
| be issued |
|
| in Capital |
|
| Deficit |
|
| gain (loss) |
|
| Total |
| |||||||
Balance May 31, 2023 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||
Shares to be issued for investment |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Shares to issued as stock compensation |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of shares for cash and warrants, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Conversion of loan to shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Translation gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Net loss |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balance August 31, 2023 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||
The accompanying notes are an integral part of these consolidated financial statements
| 6 |
| Table of Contents |
KARBON-X CORP.
Consolidated Statements of Cash Flow
(Unaudited)
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||
|
| August 31, 2023 |
|
| August 31, 2022 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net (loss) income |
| $ | ( | ) |
|
| ( | ) |
Adjustments to reconcile net loss to net cash: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
|
|
|
| ||
Loss on investment |
|
|
|
|
|
| ||
Amortization of Right of Use Asset |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Sales tax receivable |
|
|
|
|
| ( | ) | |
Accounts payable |
|
| ( | ) |
|
| ( | ) |
Payroll liabilities |
|
|
|
|
|
| ||
Deferred revenue |
|
|
|
|
|
| ||
Inventory |
|
| ( | ) |
|
| ( | ) |
Prepaid expenses |
|
| ( | ) |
|
| ( | ) |
Payments made on operating lease |
|
|
|
|
|
| ||
Security deposit |
|
|
|
|
| ( | ) | |
Cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
|
|
| ( | ) | |
Cash paid for equity method investment |
|
| ( | ) |
|
|
| |
Cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of shares and warrants |
|
|
|
|
|
| ||
Cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Effect of translation changes on cash |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
|
|
| ( | ) | |
Cash, beginning of period |
|
|
|
|
|
| ||
Cash, end of period |
| $ |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Non cash operating activities |
|
|
|
|
|
|
|
|
Depreciation expense |
| $ |
|
| $ |
| ||
Loss on investment |
| $ |
|
| $ |
| ||
Amortization of Right of Use Asset |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non cash investing and financing activities |
|
|
|
|
|
|
|
|
Shares to be issued for the Silviculture investment |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosures |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for income taxes |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements
| 7 |
| Table of Contents |
KARBON-X CORP.
Notes to Consolidated Financial Statements
August 31, 2023
(Unaudited)
Note 1 - Basis of Presentation and Significant Accounting Policies
Karbon-X Corp. (“Karbon-X” or the “Company”) 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 Project"), and Karbon-X Project became the wholly owned subsidiary of the Company in a reverse acquisition (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
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 Project is considered the acquirer for accounting and financial reporting purposes. On the date of the reorganization, the assets and liabilities of Karbon-X Project have been brought forward at their book value and consolidated with Cocoluv, Inc.’s (the Company’s) assets, which comprised of cash and cash equivalents of $
Going concern
To date the Company has generated minimal revenues from its business operations and has incurred operating losses since inception of $
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 sheets, 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.
Sales Tax Receivable
Sales tax receivable consists of the accumulated reclaimable GST paid by the Company on purchases made in Canada.
| 8 |
| Table of Contents |
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
Inventories are valued at the lower of cost or net realizable value. The Company’s inventories are valued under the first in, first out (FIFO) method. Net realizable value is estimated based on current selling prices. Estimated provisions are established for slow-moving and obsolete inventory. As of June 1, 2023, the Company changed its inventory policy from weighted average to FIFO, this had no significant impact on the current or prior consolidated financial statements.
Investments
The Company accounts for investments with a
Fair Value of Financial Instruments
he 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:
| ● | 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.
| 9 |
| Table of Contents |
For transactions in which the Company has received compensation for services or carbon credits and the performance obligations have not yet been met, the Company records the compensation as deferred revenue.
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 ranging from $
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.
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 August 31, 2023, 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 August 31, 2023 and May 31, 2023, prepaid expenses consisted of the following:
Description |
| August 31, 2023 |
|
| May 31, 2023 |
| ||
Prepaid transfer agent fees |
| $ |
|
| $ |
| ||
Prepaid inventory |
|
|
|
|
| |||
Total |
| $ |
|
| $ |
| ||
| 10 |
| Table of Contents |
Note 3 – Inventory
Inventory as of August 31, 2023 and May 31, 2023, consisted of the following:
Description |
| August 31, 2023 |
|
| May 31, 2023 |
| ||
Carbon Credit Inventory |
| $ |
|
| $ |
| ||
Total |
| $ |
|
| $ |
| ||
Carbon credit inventory represents carbon credits currently valued at the lower of cost or net realizable value. The Company’s inventories are valued under the first in, first out (FIFO) method.
Note 4 - Property and Equipment
The amount of property and equipment as of August 31, 2023 and May 31, 2023, consisted of the following:
Description |
| August 31, 2023 |
|
| May 31, 2023 |
| ||
Furniture and fixtures |
| $ |
|
| $ |
| ||
Computer and equipment |
|
|
|
|
|
| ||
Total property cost |
| $ |
|
| $ |
| ||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property and equipment, net |
| $ |
|
| $ |
| ||
The Company made no purchases during the three months ended August 31, 2023 and purchased office chairs and desks during the year ended May 31, 2023 for $
Note 5 – Shareholders’ Equity
During the three months ended August 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
During the year ended May 31, 2023,
During the three months ended August 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
During the three months ended August 31, 2023, the Company converted a loan for $
Note 6 – Warrants
During the three months ended August 31, 2023, the Company issued
| 11 |
| Table of Contents |
A detail of warrant activity for the three months ended August 31, 2023 is as follows:
Description |
| Number |
|
| Weighted average exercise price |
|
| Weighted average remaining contractual life (in years) |
| |||
Outstanding May 31, 2023 |
|
|
|
| $ |
|
|
|
| |||
Exercised |
|
| - |
|
|
|
|
|
| - |
| |
Granted |
|
|
|
|
|
|
|
|
| |||
Expired |
|
| - |
|
|
|
|
|
| - |
| |
Cancelled |
|
| - |
|
|
|
|
|
| - |
| |
Outstanding August 31, 2023 |
|
|
|
| $ |
|
|
|
| |||
Note 7 – Investments
On May 31, 2023, the Company executed an amended share exchange agreement to buy up to
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 August 31, 2023 and May 31, 2023, the Company has capitalized internally developed software of $
Note 9 – Short Term Note
On January 13, 2023, the Company obtained a short term loan of $
Note 10 – Commitments and Contingencies
Operating Leases
The Company leases office space from a third party under an operating lease agreement over 40 months which expires in July 2026. The lease also includes the payment of executory costs.
| 12 |
| Table of Contents |
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.
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 $
Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at August 31, 2023 were as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER OPERATING LEASES |
| Total |
| |
Year Ended May 31, |
|
|
| |
2024 |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
|
| |
Thereafter |
|
|
| |
Total lease payment |
|
|
| |
Less: Imputed interest |
|
| ( | ) |
Operating lease liabilities |
|
|
| |
|
|
|
|
|
Operating lease liability - current |
|
|
| |
Operating lease liability - non-current |
| $ |
| |
SCHEDULE OF OTHER SUPPLEMENTAL INFORMATION UNDER OPERATING LEASE |
|
|
| |
Weighted average discount rate |
|
| % | |
Weighted average remaining lease term (years) |
|
|
| |
Note 11 – Subsequent Events
Subsequent events have been evaluated through October 23, 2023, the date these financial statements were available to be released and noted no other events requiring disclosure.
| 13 |
| Table of Contents |
Item 2. 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.(“Karbon-X” or the “Company”) for the three months ending August 31, 2023 and 2022.
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 Quarterly 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.
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 upon Karbon-X Corp’s unaudited financial statements contained in this Current Report on Form 10-Q, 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
The Company 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 Project"), and Karbon-X Project became the wholly owned subsidiary of the Company in a reverse acquisition (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 Project becoming a wholly owned subsidiary of the Company and all debt owed to the related party of Cocoluv, Inc. (the Company) was forgiven. 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.
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.
Karbon-X is in development of NFTs to digitize and allow for the trading of tokenized carbon credits in order to bring transparency and liquidity to the global carbon offset market. The aim of the decentralized platform is to enable offset trading on existing tokenized exchanges and their own exchange accepting of all forms of payment, crypto, fiat or card.
NFT minting platform for carbon credits truly allows carbon credit owners to mint their credits into NFTs for a secure and efficient method of trading in a market that appears set to grow rapidly in the coming years. A trading platform will allow the owners of the NFT to monitor their assets while tracking their value and trading history. This is done on the blockchain to mitigate many risks such as double trading and long-term record keeping issues. By using a “side chain” of ethereum costs are kept to a minimum for users
References in this periodic report on Form 10-Q to “Karbon-X” or the “Company” may include references to the operations of our subsidiary Karbon-X Project. This entity is a 100% wholly owned subsidiary of Karbon-X and consequentially reports quarterly financials up to a consolidated quarterly submission.
| 14 |
| Table of Contents |
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
The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
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 accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for financial information and with the instructions to Form 10-Q. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the financial statements for the fiscal year ended May 31, 2023, included in the Company’s year-end financial statements on Form 10-K filed with the Securities and Exchange Commission on September 13, 2023 . Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year’s presentation. The unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended August 31, 2023 are not necessarily indicative of the results that may be expected for the year ending May 31, 2024 .
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.
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.
Inventory
Inventories are valued at the lower of cost or net realizable value. The Company’s inventories are valued under the first in, first out (FIFO) method. Net realizable value is estimated based on current selling prices. Estimated provisions are established for slow-moving and obsolete inventory. As of June 1, 2023, the Company changed its inventory policy from weighted average to FIFO, this had no impact on the current or prior consolidated financial statements.
| 15 |
| Table of Contents |
Fair Value of Financial Instruments
The carrying amount of the Company’s financial assets and liabilities approximate 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 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).
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 August 31, 2023, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.
Financial Condition and Results of Operations
To date the Company has just recently commenced to generate revenues from its business operations and has incurred operating losses since inception of $2,542,138. 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.
Results of Operations
Unaudited Results for the Three Months Ended August 31, 2023 and 2022
Sales and Revenue
For the three-month period ended August 31, 2023 we had revenue of $3,758 compared to $0 for the three month period ended August 31, 2022. We are just at the beginning of our operations which we expect to improve during the current fiscal year. We anticipate increased revenues upon completion of our App as well as through our acquisition of Silviculture Systems and other potential partners.
Operating Expenses
Operating expenses for the three-month period ended August 31, 2023 totaled $325,474, compared to $195,868 for the three month period ended August 31, 2022. The increase was related to 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 was $350,032 during the three months ended August 31, 2023 compared to $195,868 for the three month period ended August 31, 2022. Again this was as a result of office and general expenses, app development expense and tree planting expense.
| 16 |
| Table of Contents |
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.
|
| Three Months Ended |
| |
|
| August 31, 2023 |
| |
Cash used in operating activities |
| $ | (180,276 | ) |
Cash provided by financing activities |
| $ | 1,555,671 |
|
Cash from (used in) investing activities |
| $ | (602,407 | ) |
Change in cash during the period |
| $ | 767,536 |
|
Effect of exchange rate change |
| $ | (5,452 | ) |
Cash, beginning of period |
| $ | 206,820 |
|
Cash, end of period |
| $ | 974,356 |
|
As of August 31, 2023, the Company had $1,056,361 in current assets and working capital of $784,193.
To date, the Company has financed its operations through equity sales and one note transaction.
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.
From November 2022 through August 10, 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 4,632,297 shares of common stock for total gross proceeds of $2,316,486.
During the three months ended August 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 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, the Company executed an agreement to issue shares of Karbon-X Corp for the purchase of up to 80% of Silviculture Systems to be issued in tranches based on completion of milestones. During the three months ended August 31, 2023, the Company issued 1,500,000 shares of Karbon-X Corp for the purchase of an additional 8% of Silviculture Systems shown as shares to be issued at a value of $375,000. As of August 31, 2023, the Company has purchased 32% of Silviculture Systems for 6,000,000 shares of Karbon-X Corp shown as shares to be issued for a value of $1,500,000.
During the three months ended August 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 3,274,858 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.
During the three months ended August 31, 2023, the Company converted a loan for $100,000 into 200,000 shares at price of $0.50 per share.
Future Financing
In connection with its proposed business plan and currently ongoing and proposed 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 convertible notes or common shares, we believe that we will have sufficient cash resources to fund our plan of operations through 2024 . 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 operations, regulatory compliance, intellectual property, working capital and general corporate purposes.
| 17 |
| Table of Contents |
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 August 31, 2023 we had no capital expenditures.
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 only recently begun generating revenues from its business operations and has incurred operating losses since inception of $2,542,138. 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 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management evaluated the effectiveness of the Company’s internal control over financial reporting as of August 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on this evaluation, our management concluded that, as of August 31, 2023, our internal control over financial reporting was not effective.
The Company has hired a Chief Financial Officer who can act as a second control person relative to the Company’s financial operations.
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permits us to provide only management’s report in this quarterly report.
| 18 |
| Table of Contents |
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties other than the following:
As of the date of this report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. We are not aware of any other legal proceedings pending or that have been threatened against us or our properties.
From time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims, other than those disclosed above, are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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.
From November 2022 through August 10, 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 4,632,297 shares of common stock for total gross proceeds of $2,316,486.
During the three months ended August 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 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, the Company executed an agreement to issue shares of Karbon-X Corp for the purchase of up to 80% of Silviculture Systems to be issued in tranches based on completion of milestones. During the three months ended August 31, 2023, the Company issued 1,500,000 shares of Karbon-X Corp for the purchase of an additional 8% of Silviculture Systems shown as shares to be issued at a value of $375,000. As of August 31, 2023, the Company has purchased 32% of Silviculture Systems for 6,000,000 shares of Karbon-X Corp shown as shares to be issued for a value of $1,500,000.
During the three months ended August 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 3,274,858 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.
During the three months ended August 31, 2023, the Company converted a loan for $100,000 into 200,000 shares at price of $0.50 per share.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information.
Not applicable
| 19 |
| Table of Contents |
Item 6. Exhibits.
Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer | ||
Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer | ||
101 | Interactive data files pursuant to Rule 405 of Regulation S-T. |
| 20 |
| Table of Contents |
SIGNATURES*
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Karbon-X Corp. (Registrant) |
| |
|
|
| |
| Date: October 23, 2023 | By: | /s/ Chad Clovis | |
|
| Chad Clovis | |
| Chief Executive Officer and Director {Principal and Executive Officer} | |||
| Date: October 23, 2023 | By: | /s/ Christopher Mulgrew | |
|
| Christopher Mulgrew | |
| Chief Financial Officer (Principal Financial Officer Principal Accounting Officer) |
| 21 |