KARX 10-Q
Karbon-X Corp. (KARX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Commission File Number
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
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(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 |
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N/A |
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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 | ||
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| 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 13, 2025, there were
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | 4 |
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Item 1. Financial Statements | 4 |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 21 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk | 25 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 26 |
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| 2 |
| Table of Contents |
Contents
PART 1 FINANCIAL INFORMATION | |
Condensed Consolidated Balance Sheets at August 31, 2025 (Unaudited) and May 31, 2025 | 4 |
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| Table of Contents |
KARBON-X CORP.
Condensed Consolidated Balance Sheets
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other current assets |
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Deposits |
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Investments in equity securities |
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Securities receivables |
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Total current assets |
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Property and equipment, net |
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Right of use asset, net |
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Other assets |
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Internally developed software, net |
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Total assets |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
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Deferred Revenue |
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Related party loan |
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Other current liabilities |
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Payroll liabilities |
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Convertible notes payable, net of discounts |
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Convertible notes – interest payable |
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Embedded Derivative |
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Receivables financing obligation |
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Current portion of lease liabilities |
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Total current liabilities |
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Non-current portion of lease liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ equity (deficit) |
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Common stock $ |
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Additional Paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive gain (loss) |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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See notes to condensed consolidated financial statements.
| 4 |
| Table of Contents |
KARBON-X CORP.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
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Operations |
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Total revenue |
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Cost of revenue |
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Gross profit |
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Marketing expenses |
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Salaries and wages |
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Professional fees |
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Other operating expenses |
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Total operating expenses |
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Loss from Operations |
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Interest income (expense) |
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Gain (loss) on change in fair value of derivative liabilities |
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Other income (expenses) |
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Net loss before income taxes |
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Federal income tax expense |
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Net loss |
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Other comprehensive loss |
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Foreign currency translation gain (loss) |
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Total comprehensive loss |
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Earnings Per Share |
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Weighted average basic and diluted shares outstanding |
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Basic and fully diluted loss per share |
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See notes to condensed consolidated financial statements.
| 5 |
| Table of Contents |
KARBON-X CORP.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
For the Three Months Ended August 31, 2025 and 2024
(Unaudited)
Three Months Ended August 31, 2024
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Balance at May 31, 2024 |
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Issuance of shares for cash |
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Net income (loss) |
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Foreign currency translation |
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Balance at August 31, 2024 |
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Three Months Ended August 31, 2025
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Balance at May 31, 2025 |
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Issuance of shares as compensation |
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Issuance of shares upon conversion of loan |
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Option compensation expense |
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Net income (loss) |
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Foreign currency translation |
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Balance at August 31, 2025 |
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See notes to condensed consolidated financial statements.
| 6 |
| Table of Contents |
KARBON-X CORP.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
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Cash flows from operating activities |
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Net (loss) income |
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Adjustments to reconcile net loss to net cash: |
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Gain on change in fair value of derivative |
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Amortization of Right of Use Asset |
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Amortization of debt discount |
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Stock based compensation |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Marketable securities |
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Due to related parties |
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Securities receivable |
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Accounts payable |
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Deferred revenue |
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Other current liabilities |
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Inventory |
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Prepaid expenses |
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Payments made on operating lease |
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Cash used in operating activities |
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Cash flows from investing activities |
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Acquisition of carbon projects |
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Cash used in investing activities |
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Cash flows from financing activities |
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Repayments from short term loan |
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Proceeds from short term loan |
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Proceeds from related party loan |
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Proceeds from convertible notes |
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Proceeds from receivables financing obligation |
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Payments on receivables financing obligation |
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Proceeds from issuance of shares |
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Cash provided by financing activities |
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Effect of translation changes on cash |
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Cash, end of period |
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Non cash investing and financing activities |
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Derivative recorded for debt discount at inception |
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Supplemental disclosures |
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Cash paid for interest |
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Cash paid for income taxes |
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| 7 |
| Table of Contents |
NOTE 1 – BACKGROUND, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Operations
Karbon-X Corp. was incorporated in the State of Nevada under the name Cocoluv, Inc. on September 13, 2017 and established a fiscal year end of May 31.
On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of
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 $
On June 27, 2025, the Company completed an asset acquisition consisting of a portfolio of carbon-offset projects (the “Projects”). The transaction did not meet the definition of a business combination under ASC 805-10 because the acquired group of assets did not include an integrated set of activities capable of producing outputs. Accordingly, the acquisition has been accounted for as an asset acquisition in accordance with ASC 805-50. See Note 8 for further discussion.
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 subsidiaries. This includes newly formed subsidiaries, Karbon-X Trading LTD, Allcot Limited, Allcot Soluciones España S.L and Allcot X Colombia S.A.S, which are consolidated with the Company and existing subsidiaries, Karbon-X Project, Inc and Karbon-X USA Corp.
All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements present the condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of stockholders’ equity and condensed consolidated statement of 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.
| 8 |
| Table of Contents |
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an original maturity of three months or less at the date of purchase.
Accounts Receivable
Accounts receivable represent amounts due from customers for goods or services provided by the Company. Accounts receivable are recorded at the invoiced amount, net of allowance of $
In accordance with Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326), also known as the Current Expected Credit Loss (CECL) model, the Company now utilizes a forward-looking approach to estimate expected credit losses over the lifetime of the receivables. This model considers historical loss experience, current conditions, and reasonable and supportable forecasts to assess credit risk.
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 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; |
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| · | 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 |
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| · | Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
Other than the derivative liabilities presented below, the carrying amount of the Company’s financial assets and liabilities approximate their fair values.
| 9 |
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The Company measures certain financial instruments at fair value on a recurring basis in accordance with ASC 820, Fair Value Measurement. As of May 31, 2025, the Company evaluated the conversion features embedded in certain convertible promissory notes and determined that they represent derivative liabilities requiring bifurcation under ASC 815-15.
The Company uses the binomial model to estimate the fair value of the derivative liabilities associated with its convertible notes. The model incorporates significant unobservable inputs, including:
| · | Expected stock price volatility |
| · | Risk-free interest rates |
| · | Estimated time to maturity |
| · | Probability of uplisting |
| · | Expected trading volumes |
Because these inputs are unobservable and require significant management judgment, the Company has classified the derivative liabilities as Level 3 in the fair value hierarchy.
The following table summarizes the fair value hierarchy of the Company’s financial liabilities measured at fair value on a recurring basis as of August 31, 2025:
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Derivative liabilities – convertible notes |
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Other financial instruments |
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Total Embedded Derivatives |
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The following table summarizes the changes in Level 3 derivative liabilities measured at fair value on a recurring basis.
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Balance at beginning of period May 31, 2025 |
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Settlements (net) |
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Change in unrealized (gains) losses included in earnings for instruments still held at period end |
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Balance at end of period August 31, 2025 |
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Receivables Financing
The Company has entered into receivables financing arrangements whereby it receives cash advances in exchange for rights to future trade receivables. These transactions do not qualify for sale accounting under ASC 860 and are accounted for as secured borrowings. As such, the receivables remain on the consolidated balance sheet and the related obligations are recorded within “Receivables financing obligation.” The obligations are repaid as the receivables are collected. Related fees are recorded in interest expense.
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.
| 10 |
| Table of Contents |
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.
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).
Significant Estimates
Significant estimates applied in the preparation of these financial statements include the estimated useful lives of property and equipment, the inputs used in the valuation of embedded derivatives on convertible notes, 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 stockholders by the weighted average number of common shares during the period. The diluted loss per share is calculated by dividing the Company’s net loss available to common stockholders by the diluted weighted average number of shares outstanding during the period. 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, 2025, potential dilutive securities of approximately
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Our Chief Operating Decision Maker, Chad Clovis, Chief Executive Officer, President, and Director, reviews financial information and allocates resources on a consolidated basis. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
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Reclassifications
Certain amounts in the comparative periods presented have been reclassified to conform to the current period's presentation. These reclassifications had no effect on the previously reported net income, comprehensive income, total assets, or stockholders' equity.
Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) has issued several updates relevant to the Company:
| · | Update 2025-01: Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date Effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. |
|
|
|
| · | Update 2025-05: Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets.Effective for fiscal years beginning after December 15, 2025. Early adoption is permitted. |
|
|
|
| · | Update 2024-04: Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. Effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted. |
|
|
|
| · | Update 2024-03: Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. Effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. |
The Company is evaluating the impact of the above provisions on its consolidated financial statements
| · | Update 2024-02: Codification Improvements—Amendments to Remove References to the Concepts Statements. Effective and adopted for public business entities for fiscal years beginning after December 15, 2024. For all other entities, effective for fiscal years beginning after December 15, 2025. Early application is permitted. |
|
|
|
| · | Update 2024-01: Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. Effective and adopted for public business entities for annual periods beginning after December 15, 2024, and interim periods within those annual periods. For all other entities, effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted. |
The Company has adopted the above provisions, which had no material impact on its consolidated financial statements
Note 2 – Prepaid Expenses
As of August 31, 2025 and May 31, 2025, prepaid expenses consisted of the following:
Description |
| August 31, 2025 |
|
| May 31, 2025 |
| ||
Advertising & Promotional Agreement |
| $ |
|
| $ |
| ||
Prepaid inventory |
|
|
|
|
|
| ||
Other Prepaids |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
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Note 3 – Inventory
Inventory as of August 31, 2025 and May 31, 2025, consisted of the following:
Description |
| August 31, 2025 |
|
| May 31, 2025 |
| ||
Carbon Credit Inventory |
| $ |
|
| $ |
| ||
Project - Work in progress |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
Carbon credit inventory represents carbon credits currently held for sale and are stated at the lower of cost or market.
Work-in-progress represents the costs incurred on projects that are in the process of development and are expected to generate carbon credits in the future. Such costs may include project design, permitting, verification, and other directly attributable expenditures necessary to bring the projects to a stage where credits can be issued. Work-in-progress is carried at cost, and upon certification and issuance of the underlying carbon credits, the related costs are reclassified from work-in-progress to carbon credit inventory.
Note 4 - Property and Equipment
The amount of property and equipment as of August 31, 2025 and May 31, 2025, consisted of the following:
Description |
| August 31, 2025 |
|
| May 31, 2025 |
| ||
Furniture and fixtures |
| $ |
|
| $ |
| ||
Computer and equipment |
|
|
|
|
|
| ||
Total property cost |
| $ |
|
| $ |
| ||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property and equipment, net |
| $ |
|
| $ |
| ||
The Company did not purchase significant property, plant and equipment for the three months ended August 31, 2025 and 2024. Depreciation expense for the three months ended August 31, 2025 was $
Note 5 – Convertible Notes
As of August 31, 2025, Karbon-X Corp. issued convertible promissory notes totaling USD $
During the three months ended, August 31, 2025, five notes of principal $
The Company recorded discounts of $
The notes include a conversion feature, allowing the holders to convert the principal and accrued interest into the Company's common stock. Conversion is permitted at the option of the lender at any time after the earlier of:
| 1. | Twenty-four months from the date of issuance, or | |
|
| ||
| 2. | The Company’s listing on OTCQX, Nasdaq, or NYSE. | |
The conversion price is the lesser of:
| 1. | |
|
|
|
| 2. | The notes range from $ |
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Conversion is further restricted to ensure that no lender converts an amount of the note that would result in owning more than
The Borrower may prepay the principal amount and any unpaid interest or any portion thereof at any time without notice, further interest, bonus, or penalty, provided that a minimum of six months’ interest shall be payable regardless of the prepayment date.
The issuance of these convertible promissory notes provided the Company with necessary capital to support its operations and strategic initiatives while offering investors the potential for equity participation in the Company's future growth.
Prepayment Option
The Company may prepay the notes at any time without penalty, provided that a minimum of six months’ interest is payable. This provision ensures lenders are compensated regardless of the prepayment date.
As of August 31, 2025, the Company owed principal of $
Note 6 – Investments
On October 24, 2024, Karbon-X Corp. entered into a Carbon Credit Purchase Agreement with DevvStream Holdings Inc. As part of this agreement, Karbon-X Corp. received
On October 28, 2024, Karbon-X Corp. entered into a Carbon Credit Forward Purchase Agreement with DevvStream Holdings Inc., under which Karbon-X Corp. will sell verified greenhouse gas offset or carbon credits, specifically C-Sink Credits, to DevvStream Holdings Inc. The purchase price for these credits is USD $
Initial Recognition and Measurement
At initial recognition, the common shares of New Pubco received under the agreements are classified as equity securities and measured at fair value upon initial recognition in accordance with ASC 321, "Investments—Equity Securities". The Company recorded an initial fair value of the securities based on observable market prices at the time of execution, consistent with a Level 1 fair value measurement, as the shares were actively traded on the Nasdaq Stock Exchange.
| · | For the Carbon Credit Purchase Agreement, the fair value of the |
|
|
|
| · | For the Carbon Credit Forward Purchase Agreement, the |
Upon entering into the forward purchase agreement, Karbon-X Corp. also recognized a deferred revenue liability of $
| 14 |
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Subsequent Measurement and True-Up Provision
Subsequent to initial recognition, the equity securities are measured at fair value in accordance with ASC 321, "Investments—Equity Securities". Additionally, as the securities are denominated in a foreign currency, a currency translation adjustment (CTA) is recorded to reflect the impact of exchange rate fluctuations. The CTA is included in other comprehensive income (OCI) in accordance with ASC 830, "Foreign Currency Matters".
As of August 31, 2025, the fair market value (FMV) of New Pubco shares was USD $
| · | The fair value of investments was at the current market price of $ |
|
|
|
| · | To address the difference between the contractual price and the current market price, Karbon-X recorded a securities receivable for the true-up portion guaranteed under the agreements. The true-up provision ensures that the Company will be made whole if the market value of the shares remains below the contracted value during the adjustment period. As of August 31, 2025, no additional shares have been issued under these provisions. |
As of August 31, 2025, the balances were as follows:
Description |
| Balance (USD) |
| |
Investments in Equity Securities |
| $ |
| |
Securities Receivable |
| $ |
| |
Total Value |
| $ |
| |
Fair Value Hierarchy
The equity securities of New Pubco are measured using Level 1 inputs, as the shares are actively traded on the Nasdaq Stock Exchange.
The Company's exposure to impairment is mitigated by the true-up provision, which ensures no loss is ultimately recognized. While the securities are remeasured to fair market value quarterly, the receivable reflects the guaranteed recovery under the agreement.
Note 7 – 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 completed its application development stage and all related costs as of March 1, 2025 and any additional costs since then are being expensed as incurred. The software has been completed and placed into service; the Company began amortizing the software over its estimated useful life of three years on March 1, 2025.
As of August 31, 2025 and May 31, 2025, the Company has capitalized internally developed software of $
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Note 8 — Asset Acquisition and Project Work in Progress
On June 27, 2025, the Company completed an asset acquisition consisting of a portfolio of carbon-offset projects (the “Projects”). The transaction did not meet the definition of a business combination under ASC 805-10 because the acquired group of assets did not include an integrated set of activities capable of producing outputs. Accordingly, the acquisition has been accounted for as an asset acquisition in accordance with ASC 805-50.
Total Cost of Acquisition
The Company paid cash consideration of $314,441 to the sellers and incurred $
Nature of Assets Acquired
Management evaluated the nature of the assets acquired and determined that no separately identifiable intangible rights, contractual concessions, or tangible property were transferred other than the underlying in-process project activities. Substantially all economic value acquired relates to carbon-credit production already in progress at the acquisition date, which is expected to result in verified credits upon completion of the remaining verification and issuance procedures. Because the acquired value represents in-process production intended for sale, the total purchase price and capitalized transaction costs have been allocated entirely to Inventory – Project Work in Progress.
Measurement Basis
The Projects are recorded at cost, representing the total consideration transferred and directly attributable acquisition expenditures, consistent with ASC 805-50-30-3. Work-in-progress inventory is subsequently measured at the lower of cost or net realizable value in accordance with ASC 330. No goodwill or other identifiable intangible assets were recognized. Costs incurred after the acquisition that relate directly to continued project development are capitalized as additions to WIP until verified carbon credits are issued, at which time such balances will be reclassified to Inventory – Carbon Credits.
Fair-Value Considerations
Although recorded at cost, management believes the estimated fair value of the acquired Projects exceeds $
Subsequent Developments and Valuation Sensitivity
Management continually monitors market conditions, verification milestones, and registry guidance that could affect the estimated realizable value of the Projects. As each Project progresses toward independent verification and credit issuance, management intends to reassess key assumptions including verified-credit volumes, expected market prices, and discount factors to evaluate whether any indicators of impairment or changes in net realizable value exist. Should verification proceed as anticipated and market pricing remain consistent with current levels, the Company expects the aggregate realizable value of the Projects to approximate or exceed management’s current fair-value estimate. However, adverse developments in regulatory frameworks, verification timing, or market demand for voluntary carbon credits could materially reduce future realized values.
Note 9 – Stockholders’ Equity
During the three months ended August 31, 2025, the Company converted loans of $
During the three months ended August 31, 2025, the Company issued
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Note 10 - Stock Option Plan
Description of the Plan
The Company has adopted the 2024 Employees', Directors', Officers', and Consultants' Stock Option Plan (the "Plan") on May 16, 2024, which authorizes
Types of Options
The Plan provides for the issuance of both Incentive Stock Options (ISOs) and Nonstatutory Stock Options (NSOs). ISOs are intended to qualify under Section 422 of the Internal Revenue Code, while NSOs do not qualify under Section 422.
Eligibility
Options may be granted to employees, directors, officers, and consultants of the Company. Special provisions apply to individuals owning more than 10% of the Company's stock.
Administration
The Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to determine the terms and conditions of each option grant.
Shares Available
The maximum number of shares that may be issued under the Plan is
Option Terms:
| · | Exercise Price: The exercise price of options granted under the Plan must be at least |
| · | Term: Options granted under the Plan have a maximum term of ten years from the date of grant. |
| · | Vesting: The vesting schedule for options is determined by the Compensation Committee at the time of grant. |
Payment for Shares
Upon exercise of an option, the optionee may pay the exercise price in cash or cashless exercise, with the consent of the Compensation Committee, by tendering shares of common stock.
Adjustments
In the event of a stock split, merger, or other corporate event, the number of shares subject to the Plan and the exercise price of outstanding options will be adjusted as determined by the Compensation Committee.
Transferability
Options granted under the Plan are generally non-transferable, except under specific conditions as outlined in the Plan.
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Termination of Employment
The Plan provides specific rules for the exercise of options upon termination of employment, including termination for cause, disability, or death.
Legal Compliance
The issuance of shares under the Plan is subject to compliance with federal and state securities laws.
Plan Duration
The Plan became effective upon adoption by the Board of Directors and options may not be granted after December 31, 2026.
Activity Under the Plan
As of August 31, 2025, the following activity has occurred under the Plan, which started in the second quarter of 2024 :
Description |
| Number of Shares |
|
| Weighted Average Exercise Price |
|
| Weighted average remaining life (in years) |
| |||
Options Authorized |
|
|
|
|
|
|
|
|
| |||
Options Granted |
|
|
|
| $ |
|
|
|
| |||
Options Exercised |
|
|
|
| $ |
|
|
|
|
| ||
Options Forfeited |
|
| ( | ) |
| $ |
|
|
|
|
| |
Options Outstanding |
|
|
|
| $ |
|
|
|
| |||
Options Vested |
|
|
|
| $ |
|
|
|
| |||
Options Unvested |
|
|
|
| $ |
|
|
|
| |||
As of August 31, 2025, the intrinsic value of the
Fair Value of Options
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
| · | Expected Volatility: |
| ○ | The Company determined expected volatility based on an analysis of comparable publicly traded companies in the same or similar industry. As a startup in a new industry, Karbon-X lacks sufficient historical trading data. The analysis considered market trends and the high-growth, high-risk nature of the carbon management and sustainability sector. The selected volatility reflects industry patterns of startups in comparable markets, ensuring reasonability and alignment with peer data. |
| · | Expected Life: |
| ○ | Based on the vesting schedule and anticipated exercise behavior of option holders. |
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| · | Risk-Free Interest Rate: |
| ○ | The rate reflects the yield on U.S. Treasury securities with a term consistent with the expected life of the options. Given the current interest rate environment, a 5% rate is appropriate for options granted during Q3 FY2025. This aligns with the Federal Reserve’s policy rates and prevailing market conditions. |
| · | Expected Dividends: |
| ○ | The Company does not currently pay dividends, consistent with its growth-oriented business strategy. |
Stock-Based Compensation Expense
For the three months ended August 31, 2025, the Company recognized stock-based compensation expense related to options of USD $
Note 11 – Commitments and Contingencies
Legal Proceedings
In February 2024, Karbon-X were notified of a former employee filing a lawsuit against the company for wrongful termination. The Company is currently counter-suing and is expecting to prevail.
Operating Leases
The Company has entered into a operating lease for office space commencing on July 1, 2025, with an early occupancy period beginning on February 1, 2025. The
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 $
| 19 |
| Table of Contents |
Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at August 31, 2025 were as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER OPERATING LEASES |
| Total |
| |
Calendar Year Ended |
|
|
| |
2025 |
| $ |
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
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 12 – Subsequent Events
The Company entered into a receivables financing arrangement on September 5, 2025 for receivables of $
On October 1, 2025, the Company issued
The Company evaluated subsequent events through October 15, 2025 and identified no other events requiring recognition or additional disclosure.
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| Table of Contents |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion pertains to the historical operations and financial statements of Karbon-X Corp. ("Karbon-X" or the "Company") for the three months ended August 31, 2025 and 2024. This discussion should be read in conjunction with the Company’s most recent Annual Report on Form 10-K/A for the year ended May 31, 2025, filed on September 17, 2025, which provides additional context and details on the Company's financial condition and results of 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 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 Quarterly 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 "Risk 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 Quarterly 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 versus 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.
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| Table of Contents |
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 all forms of payment, including crypto, fiat, or card. The NFT minting platform for carbon credits 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 NFTs 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 consequently reports quarterly financials up to a consolidated quarterly submission.
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. Note 1 discusses the company’s accounting policies.
Results of Operations
Unaudited Results for the Three Months Ended August 31, 2025, and 2024
Sales and Revenue
For the three-month period ended August 31, 2025, the Company reported revenue of USD $35,658,933, an increase of 27,883% compared to $127,429 in the same period in 2024. The significant increase in sales was primarily due to selling of carbon credits through its new trading subsidiary.
Operating Expenses
Operating expenses for the three-month period ended August 31, 2025, were $2,658,934, compared to $825,684 in the same period in 2024, representing a 222% increase. The key factors driving this increase were:
| · | Marketing Expenses: Investment in customer acquisition and brand-building efforts, including strategic partnerships like the Oilers initiative, resulted in marketing expenses of $628,540, up from $12,351 in the same period in 2024. |
|
|
|
| · | Salaries and Wages: Increased headcount, subcontractor costs, and wage adjustments contributed to payroll expenses of $1,598,649, a significant rise from $533,594 in the same period in 2024. |
|
|
|
| · | Professional Fees: Costs related to legal, advisory, and compliance efforts amounted to $107,447, compared to $145,273 in the same period in 2024. |
|
|
|
| · | Other Operating Expenses: These totaled $324,298, up from $134,466, reflecting the Company’s operational scale-up. |
Net Loss from Operations
The operating loss for the three-month period ended August 31, 2025, was $2,596,234, compared to $804,766 in the same period in 2024. While revenue was stable, increased operating expenses offset these gains, as the Company continues to invest heavily in marketing, payroll, and compliance to drive long-term growth.
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| 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, 2025 |
|
| Three months ended August 31, 2024 |
| ||
Cash used in operating activities |
|
| (2,679,849 | ) |
|
| (1,460,119 | ) |
Cash used in investing activities |
|
| (605,093 | ) |
|
| - |
|
Cash from financing activities |
|
| 3,791,543 |
|
|
| 1,056,000 |
|
Change in cash during the period |
|
| (506,601 | ) |
|
| (348,990 | ) |
Effect of exchange rate change |
|
| (147,715 | ) |
|
| 27,565 |
|
Cash, beginning of period |
|
| 704,346 |
|
|
| 2,675,400 |
|
Cash, end of period |
|
| 1,358,662 |
|
|
| 2,298,845 |
|
As of August 31, 2025, the Company had USD $6,512,590 in current assets
To date, the Company has financed its operations through equity sales and note issuances.
During June – August 2025, Karbon-X Corp. converted loans for $2,193,195 into 4,870,291 shares at price of $0.90 - $0.45 per share.
Recent Developments
During the three months ended August 31, 2025, the Company strengthened its executive leadership team with the appointment of key hires. Adriana Ebell, a seasoned financial executive with over 23 years of experience, joined the Company as Acting Chief Financial Officer (CFO). In this role, she will oversee the Company’s financial strategy, reporting, and compliance functions, contributing to enhanced financial management and planning as the Company continues its growth trajectory.
This appointment reflect our commitment to building a strong leadership team as we continue to execute on our strategic priorities and drive value for stockholders.
Revenue Growth
| · | Q1 2026 revenue surged to $35.7 million, a 27,883% increase compared to $127,429 in Q1 2025. |
|
|
|
| · | This growth was driven by the successful launch and scaling of Karbon-X’s carbon credit trading subsidiary. |
Strategic Capital Formation
| · | $3.88 million raised |
|
|
|
| · | $2.28 million in debt converted to equity, reflecting investor confidence and reducing future interest obligations. |
Strengthened Liquidity Position
| · | Cash and cash equivalents increased by 93%, from $704,346 at the beginning of the quarter to $1.36 million at quarter-end. |
|
|
|
| · | Total current assets rose to $6.5 million, up from $5.8 million in the prior quarter. |
Asset Acquisition with High Upside
| · | Completed a strategic carbon-offset project portfolio acquisition for $605,093. |
|
|
|
| · | Management estimates the fair market value of acquired projects exceeds $22 million, representing a significant potential return on investment. |
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Operational Expansion
| · | Inventory increased by 750%, from $99,644 to $847,017, reflecting ramp-up in carbon credit production and project development. |
Global Impact & Innovation
| · | Continued development of NFT-based carbon credit trading platform, enhancing transparency and liquidity in the voluntary carbon market. |
Improved Financial Efficiency
| · | Company maintained a gross profit of $293,869, up from $33,331 in Q1 2025. |
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 completing 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 2025. 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.
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, 2025, 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.
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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 in accordance with 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, 2025. 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, 2025, 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 permit us to provide only management's report in this quarterly report.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
As of the date here of the Company is not party to any other material legal proceedings and is not aware any legal proceedings contemplated by any governmental authority or any other party involving us or our properties other than the following:
In February 2024, Karbon-X were notified of a former employee filing a lawsuit against the company for wrongful termination. The Company is currently counter-suing and is expecting to prevail.
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
During June – August 2025, Karbon-X Corp. converted loans for $2,193,195 into 4,870,291 shares at price of $0.90 - $0.45 per share.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
Not applicable
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. |
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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) |
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Date: October 15, 2025 | By: | /s/ Chad Clovis |
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| Chad Clovis Chief Executive Officer and Director (Principal Executive Officer) |
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Date: October 15, 2025 | By: | /s/ Adriana Ebell |
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| Adriana Ebell Acting Chief Financial Officer, (Principal Financial Officer) |
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