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 January 12, 2023, there were
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION | ||||
| ||||
Item 1. | Financial Statements. | 3 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 12 | |||
16 | ||||
16 | ||||
| ||||
| ||||
17 | ||||
17 | ||||
17 | ||||
17 | ||||
17 | ||||
17 | ||||
18 | ||||
| 2 |
| Table of Contents |
KARBON-X CORP.
Index to Consolidated Financial Statements
November 30, 2022
Contents |
| Page(s) |
|
|
|
|
|
Consolidated Balance Sheets at November 30, 2022 (Unaudited) and May 31, 2022 |
| 4 |
|
|
|
|
|
| 5 |
| |
|
|
|
|
| 6 |
| |
|
|
|
|
Consolidated Statement of Cash Flows for the Six Months Ended November 30, 2022 (Unaudited) |
| 7 |
|
|
|
|
|
| 8 |
|
| 3 |
| Table of Contents |
KARBON-X CORP.
Consolidated Balance Sheet
|
| November 30, 2022 |
|
| May 31, 2022 |
| ||
|
| (Unaudited) |
|
| (Audited) |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ |
|
| $ |
| ||
Accounts receivable |
|
|
|
|
|
| ||
Sales tax receivable |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
|
|
|
| ||
Internally developed software |
|
|
|
|
|
| ||
Inventory |
|
|
|
|
|
| ||
Investment in Silviculture |
|
|
|
|
|
| ||
Security deposit |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ |
|
| $ |
| ||
Payroll liabilities |
|
|
|
|
|
| ||
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 (deficit) |
|
|
|
|
|
| ||
Total liabilities and shareholders’ equity (deficit) |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements
| 4 |
| Table of Contents |
KARBON-X CORP.
Consolidated Statement of Operations
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
| ||
|
| November 30, 2022 |
|
| November 30, 2022 |
| ||
Operations |
| $ |
|
| $ |
| ||
Total revenue |
|
|
|
|
|
| ||
Cost of revenue |
|
|
|
|
|
| ||
Gross profit |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
| ||
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 and Six Months Ended November 30, 2022
(Unaudited)
Three Months Ended November 30, 2022
|
| Common Stock |
|
| Shares to |
|
| Additional Paid |
|
| Accumulated |
|
| Accumulated other Comprehensive |
|
|
|
| ||||||||||
Description |
| Shares |
|
| Amount |
|
| be issued |
|
| in Capital |
|
| Deficit |
|
| gain (loss) |
|
| Total |
| |||||||
Balance August 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
Shares to be issued for investment |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Translation gain (loss) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||
Net loss |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balance November 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
Six Months Ended November 30, 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, 2022 |
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
Shares to be issued for investment |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of shares and warrants for cash |
|
|
|
|
|
|
|
| - |
|
|
|
|
| - |
|
|
| - |
|
|
|
| |||||
Translation gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Net loss |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balance November 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||||
The accompanying notes are an integral part of these consolidated financial statements
| 6 |
| Table of Contents |
KARBON-X CORP.
Consolidated Statement of Cash Flow
(Unaudited)
|
| Six Months Ended |
| |
|
| November 30, 2022 |
| |
Cash flows from operating activities |
|
|
| |
Net (loss) income |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash: |
|
|
|
|
Depreciation expense |
|
|
| |
Loss on investment |
|
|
| |
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
|
| ( | ) |
Sales tax receivable |
|
| ( | ) |
Accounts payable |
|
|
| |
Payroll liabilities |
|
|
| |
Inventory |
|
| ( | ) |
Prepaid expenses |
|
|
| |
Security deposit |
|
| ( | ) |
Cash used in operating activities |
|
| ( | ) |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Acquisition of property and equipment |
|
| ( | ) |
Cash paid for software development |
|
| ( | ) |
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 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
November 30, 2022
(Unaudited)
Note 1 - Basis of Presentation and Significant Accounting Policies
CocoLuv Inc. was incorporated in the State of Nevada on September 13, 2017 and established a fiscal year end of May 31.
On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of
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 $
Going concern
To date the Company has generated no 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 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 consolidated financial statements for the fiscal year ended May 31, 2022, included in the Company’s year-end financial statements on Form 10-K filed with the Securities and Exchange Commission on September 13, 2022. Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year’s presentation. These reclassifications had no impact on net earnings, financial position, or cash flows. The unaudited consolidated financial statements should be read in conjunction with those consolidated 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 and six-months ended November 30, 2022 are not necessarily indicative of the results that may be expected for the year ending May 31, 2023.
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.
| 8 |
| Table of Contents |
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 stated at the lower of cost, using weighted average of the cost of the goods on hand at the year end or net realizable value.
Investments
The Company accounts for investments with a 20% to 50% ownership and a significant, but not controlling influence as equity method investments. Investments with a greater than 50% ownership and a controlling influence are accounted for using the consolidation method. The Company assesses the potential impairment of equity method investments when indicators such as a history of operating losses, negative earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value.
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 November 30, 2022, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.
| 9 |
| Table of Contents |
Note 2 – Prepaid Expenses
As of November 30, 2022 and May 31, 2022, prepaid expenses consisted of the following:
Description |
| November 30, 2022 |
|
| May 31, 2022 |
| ||
Prepaid accounting services |
|
|
|
|
|
| ||
Prepaid furniture |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
Note 3 – Inventory
Inventory as of November 30, 2022 and May 31, 2022, consisted of the following:
Description |
| November 30, 2022 |
|
| May 31, 2022 |
| ||
Carbon Credit Inventory |
| $ |
|
| $ |
| ||
Total |
| $ |
|
| $ |
| ||
Carbon credit inventory represents carbon credits currently held for sale and are stated at the lower of cost, using the weighted average of the cost of the goods on hand at year end, or net realizable value.
Note 4 - Property and Equipment
The amount of property and equipment as of November 30, 2022 and May 31, 2022, consisted of the following:
Description |
| November 30, 2022 |
|
| May 31, 2022 |
| ||
Furniture and fixtures |
| $ |
|
| $ |
| ||
Computer and equipment |
|
|
|
|
|
| ||
Total property cost |
| $ |
|
| $ |
| ||
Accumulated depreciation |
|
| ( | ) |
|
|
| |
Property and equipment, net |
| $ |
|
| $ |
| ||
The Company purchased office chairs and desks on June 9, 2022 for $
Note 5 – Shareholders’ Equity
During the six months ended November 30, 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 three months ended November 30, 2022, the Company executed an agreement to issue shares of Karbon-X Corp for
Note 6 – Warrants
During the six months ended November 30, 2022, the Company issued
| 10 |
| Table of Contents |
A detail of warrant activity for the six months ended November 30, 2022 is as follows:
Description |
| Number |
|
| Weighted average exercise price |
|
| Weighted average remaining contractual life (in years) |
| |||
Outstanding May 31, 2022 |
|
|
|
| $ |
|
|
|
| |||
Exercised |
|
| - |
|
|
|
|
|
| - |
| |
Granted |
|
|
|
|
|
|
|
|
| |||
Expired |
|
| - |
|
|
|
|
|
| - |
| |
Cancelled |
|
| - |
|
|
|
|
|
| - |
| |
Outstanding November 30, 2022 |
|
|
|
| $ |
|
|
|
| |||
Note 7 – Investments
On November 15, 2022, the Company executed a share exchange agreement to buy up to
On November 15, 2022, the Company entered into a joint venture agreement with Silviculture Systems with 80% ownership in the joint venture. Pursuant to the agreement, the
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 November 30, 2022 and May 31, 2022, the Company has capitalized internally developed software of $
Note 9 – Subsequent Events
On January 13, 2023, the Company obtained a short term loan of $
Subsequent events have been evaluated through January 23, 2023, the date these financial statements were available to be released and noted no other events requiring disclosure.
| 11 |
| 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. for the three and six months ending November 30, 2022. The historical operations and financial statements of Karbon-X Corp. for the three and six months ending November 30, 2021 are not included since they reflect only the operations of the predecessor Cocoluv, Inc. which had no significant operations.
Forward-Looking Statements
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this 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
CocoLuv Inc. was incorporated in the State of Nevada on September 13, 2017 and established a fiscal year end of May 31.
On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of 20,000-for-1, into an aggregate of 20,000,000 shares of the Company's common stock, resulting in Karbon-X becoming a wholly owned subsidiary of the Company and all debt owed to the related party of Cocoluv, Inc. was forgiven. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition. 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.
| 12 |
| 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, 2022, included in the Company’s year-end financial statements on Form 10-K filed with the Securities and Exchange Commission on September 13, 2022. 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 and six-months ended November 30, 2022 are not necessarily indicative of the results that may be expected for the year ending May 31, 2023.
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 stated at the lower of cost, using weighted average of the cost of the goods on hand at the year end or net realizable value.
| 13 |
| 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 November 30, 2022, 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 generated no revenues from its business operations and has incurred operating losses since inception of $542,018. 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 November 30, 2022
To date the Company has generated no revenues from its business operations and has incurred operating losses since inception of $542,018. As of November 30, 2022, the Company has working capital of $6,117. The Company will require additional funding to meet its ongoing obligations and to fund anticipated operating losses. The ability of the Company to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company intends to continue to fund its business by way of private placements and advances from related parties as may be required. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
Sales and Revenue
For the three-month period ended November 30, 2022 we had no revenue. We are just at the beginning of our operations which we expect to improve during the current fiscal year.
Operating Expenses
Operating expenses for the three-month period ended November 30, 2022 totaled $142,415. 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.
| 14 |
| Table of Contents |
Net Loss
Net loss from operations after income taxes was $141,922 during the three months ended November 30, 2022. Again this was as a result of office and general expenses, app development expense and tree planting expense.
Unaudited Results for the Six Months Ended November 30, 2022
Sales and Revenue
For the six-month period ended November 30, 2022 we had no revenue. We are just at the beginning of our operations which we expect to improve during the current fiscal year.
Operating Expenses
Operating expenses for the six -month period ended November 30, 2022 totaled $338,283. 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 $337,790 during the six months ended November 30, 2022. Again this was as a result of office and general expenses, app development expense and tree planting expense.
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.
|
| Six Months Ended November 30, 2022 |
| |
Cash used in operating activities |
| $ | (388,729 | ) |
Cash provided by financing activities |
| $ | 180,000 |
|
Cash from (used in) investing activities |
| $ | (179,217 | ) |
Change in cash during the period |
| $ | (419,919 | ) |
Effect of exchange rate change |
| $ | (31,973 | ) |
Cash, beginning of period |
| $ | 477,339 |
|
Cash, end of period |
| $ | 57,420 |
|
As of November 30, 2022, the Company had $83,459 in current assets.
To date, the Company has financed its operations through equity sales.
On March 7, 2022 the Company commenced a private placement pursuant to Rule 506(c) promulgated under Regulation D of the Securities Exchange Act of 1934, as amended. The private placement is ongoing. The private placement sought to raise $1,000,000 through the sale of Units at $0.25 per Unit, each consisting of one share of common stock and one warrant to purchase one share of common stock for two years at an exercise price of $0.50 per share. We obtained $1,040,000 in gross proceeds from this offering.
On November 23, 2022 the Company commenced a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. As of November 30, 2022 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 three months ended November 30, 2022, the Company executed an agreement to issue shares of Karbon-X Corp for the purchase of up to 80% of Silviculture Systems. As of November 30, 2022, the Company has purchased 24% of Silviculture Systems for 4,500,000 shares of Karbon-X Corp shown as shares to be issued for a value of $1,125,000.
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.
| 15 |
| Table of Contents |
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 2022. If we are unable to do so, we may have to curtail and possibly cease some operations. We intend to use the net proceeds from the offering for 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 November 30, 2022 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 generated no revenues from its business operations and has incurred operating losses since inception of $542,018. 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 November 30, 2022. 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. Based on this evaluation, our management concluded that, as of November 30, 2022, our internal control over financial reporting was not effective. Because of limitations in our financial operations we had limited resources. These adjustments indicate material weaknesses in certain cycles, including but not limited to inventory and costing, and financial reporting.
In order to address this material weakness, the Company intends to engage 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.
| 16 |
| 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.
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. We obtained $1,040,000 in gross proceeds from this offering.
On November 23, 2022 the Company commenced a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. As of November 30, 2022 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 three months ended November 30, 2022, the Company executed an agreement to issue shares of Karbon-X Corp for the purchase of up to 80% of Silviculture Systems. As of November 30, 2022, the Company has purchased 24% of Silviculture Systems for 4,500,000 shares of Karbon-X Corp shown as shares to be issued for a value of $1,125,000
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information.
Not applicable
| 17 |
| 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. |
| 18 |
| 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: January 23, 2023 | By: | /s/ Chad Clovis | |
|
| Chad Clovis | |
| Chief Executive Officer and Director (Principal and Executive Officer) | |||
| Date: January 23, 2023 | By: | /s/ Chad Clovis | |
|
| Chad Clovis | |
| Acting Chief Financial Officer | |||
(Principal Financial Officer Principal Accounting Officer) |
| 19 |