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) |
| (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 April 18, 2025, there were
TABLE OF CONTENTS
| 2 |
| Table of Contents |
Contents
PART 1 FINANCIAL INFORMATION | |
Condensed Consolidated Balance Sheets at February 28, 2025 (Unaudited) and May 31, 2024 | 4 |
5 | |
6 | |
7 | |
8 |
| 3 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Karbon-X Corp.
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| February 28, 2025 |
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| May 31, 2024 |
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Assets |
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Current assets: |
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Cash |
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Accounts receivable, net |
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Inventories, net |
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Prepaid expenses |
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Deposits |
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Investments in equity securities |
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Securities receivables |
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Other current assets |
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Total current assets |
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Long-term assets: |
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Property, plant and equipment, net |
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Right-of-use Asset, net |
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Other assets |
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Capitalized App Development Costs, 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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Lease liabilities - Current |
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Short-term loan payable |
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Stock payable |
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Payroll payable |
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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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Other current liabilities |
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Total current liabilities |
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Long-term liabilities: |
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Long-term debt |
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Lease liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders' equity: |
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Common stock 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 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Karbon-X Corp.
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| Three Months Ended |
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| Nine Months Ended |
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| February 28, 2025 |
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| February 29, 2024 |
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Sales |
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Cost of sales |
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Gross profit |
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Operating expenses |
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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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Operating income (loss) |
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Other (expense) income: |
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Interest income (expense) |
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Other, net |
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Income before income taxes |
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Income tax expense |
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Net income (loss) |
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Other comprehensive income (loss) |
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Foreign currency translation gain (loss) |
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Total comprehensive income (loss) |
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Earnings per share |
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Weighted average shares outstanding, basic and diluted. |
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Basic and diluted loss per share. and diluted |
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See notes to condensed consolidated financial statements.
| 5 |
| Table of Contents |
CONDENSED CONSOLIDATED STATEMENTS OF CHAGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
For the Three Months and Nine Months Ended February 28, 2025 and February 29, 2024
Karbon-X Corp.
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| Common stock |
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| Additional paid-in |
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| Accumulated other comprehensive profit |
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Balance at May 31, 2024 |
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Issuance of shares for cash, net of issuance cost |
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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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Issuance of shares for cash, net of issuance cost |
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Issuance of shares as compensation |
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Net income (loss) |
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Foreign currency translation |
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Balance at November 30, 2024 |
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Issuance of shares for cash, net of issuance cost |
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Issuance of shares as compensation |
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Net income (loss) |
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Foreign currency translation |
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Balance at February 28, 2025 |
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Balance at May 31, 2023 |
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Issuance of shares for cash |
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Issuance of shares as compensation |
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Issuance if share upon convertible loan |
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Net income (loss) |
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Foreign currency translation |
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Balance at August 31, 2023 |
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Issuance of shares for cash |
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Investment write-off in silviculture |
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Net income (loss) |
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Foreign currency translation |
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Balance at November 30, 2023 |
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Issuance of shares for cash |
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Issuance of shares as compensation |
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Offering expense |
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Net income (loss) |
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Foreign currency translation |
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Balance at February 29, 2024 |
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See notes to condensed consolidated financial statements.
| 6 |
| Table of Contents |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Karbon-X Corp.
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| Nine Months Ended |
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| February 29, 2024 |
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Operating activities |
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Net income (loss) |
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Adjustments to reconcile net income to net cash provided by operations: |
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Depreciation and amortization |
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Amortization of ROU |
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Loss on investment |
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Equity-based compensation expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses |
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Marketable securities |
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Securities receivable |
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ROU Asset |
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Other current assets |
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Accounts payable |
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Deferred Revenue |
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Lease Liability |
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Convertible Note |
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Other current liabilities |
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Cash used in operating activities |
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Investing activities |
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Purchases of property, plant and equipment |
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Other investing activities |
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Net cash used in investing activities |
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Financing activities |
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Proceeds from convertible notes payable |
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Debt discount on convertible notes payable |
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Proceeds from sales of common stock, net of issuance costs |
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Net cash from financing activities |
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Change in cash and cash equivalents |
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Effect of foreign exchange rate on cash |
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Cash -- beginning of period |
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Cash -- end of period |
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Supplemental disclosures of cash flow information: |
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Cash paid for interest |
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Cash paid for income taxes |
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See notes to condensed consolidated financial statements.
| 7 |
| Table of Contents |
NOTE 1 – BACKGROUND, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Operations
Karbon-X Corp. ("Karbon-X" or the "Company") 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 acquisition (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of
Under generally accepted accounting principles in the United States ("US GAAP") because the combined entity will be dependent on Karbon-X's senior management, the Reverse Acquisition was accounted for as a recapitalization effected by a share exchange, wherein Karbon-X 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 $
The Company provides customized transactional options, tailored insights, and scalable access to the Verified Emissions Reduction markets. Karbon-X engages the public with technology-based greenhouse gas reduction projects, allowing the purchase of carbon offsets through a subscription-based app.
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 financial statements are presented in United States dollars and prepared in accordance with accounting principles generally accepted in the United States (US GAAP).
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.
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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.
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.
Investments
The Company accounts for investments with a
During November 2023, the Company has abandoned the silviculture investment deal and decided to write off the carrying value of the Equity Investment in Silviculture. Accordingly, amidst ongoing disputes which we are currently discussing, the Company has written off the carrying value of Investment of USD $
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.
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Adjustments resulting from the translation, if any, are included in accumulated other comprehensive loss in stockholder’s equity (deficit).
Warrants
There is estimation uncertainty with respect to selecting inputs to the Black-Sholes model used to determine the fair value of a single outstanding warrant issuance (Note 10). These inputs include the stock price of $
The above estimates and assumptions are reviewed regularly. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Significant Estimates
Significant estimates applied in the preparation of these financial statements include the estimated useful lives of property and equipment, share volatility and estimated life of options and warrants in determining their fair value as well as the expected potential for the realization of deferred tax assets in determining the amount of the valuation allowance thereto.
Earnings per Common Share
The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the year. The diluted loss per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. As of February 28, 2025, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.
Reclassifications
Certain amounts in the 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 shareholders' 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. |
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| · | 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. |
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| · | 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. |
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| · | Update 2024-02: Codification Improvements—Amendments to Remove References to the Concepts Statements. Effective 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. |
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| · | Update 2024-01: Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. Effective 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. |
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| · | Update 2023-07:Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. As public entity to disclose information about operating segments, to help our investors and other stakeholders understand the financial performance of different parts of a business |
The Company is currently evaluating the impact of these provisions on its consolidated financial statements
Going Concern
To date, the Company has generated minimal revenues from its business operations and has incurred operating losses since inception of $(
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; |
| · | Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
| · | Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The carrying amount of the Company’s financial assets and liabilities approximate their fair values due to their short-term maturities.
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NOTE 2 - REVENUE RECOGNITION
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, "Revenue from Contracts with Customers." Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company follows a five-step process to recognize revenue:
| 1. | Identify the contract with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations. |
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| 2. | Identify the performance obligations in the contract: Performance obligations are promises in a contract to transfer distinct goods or services to the customer. |
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| 3. | Determine the transaction price: The transaction price is the amount of consideration the Company expects to receive in exchange for transferring goods or services to the customer. |
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| 4. | Allocate the transaction price to the performance obligations in the contract: The transaction price is allocated to each performance obligation based on the relative standalone selling prices of the goods or services being provided. |
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| 5. | Recognize revenue when (or as) the Company satisfies a performance obligation: Revenue is recognized when control of the goods or services is transferred to the customer, which can occur over time or at a point in time. |
Revenue Streams
The Company generates revenue from the following sources:
| 1. | Carbon Credit Sales: Revenue from the sale of carbon credits is recognized at a point in time when control of the carbon credits transfers to the customer, which typically occurs upon delivery. |
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| 2. | Subscription Services: Revenue from subscription services, which provide customers access to the Company's platform and related services, is recognized over time on a straight-line basis over the subscription period. |
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| 3. | Consulting Services: Revenue from consulting services is recognized over time as the services are performed. The Company measures progress toward completion using an input method based on hours incurred. |
Accounts Receivable and Deferred Revenue
| · | 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. As of February 28, 2025, accounts receivable were $ |
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| · | Deferred Revenue: Deferred revenue consists of advance payments received from customers for services to be provided in future periods. As of February 28, 2025, deferred revenue was $ |
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NOTE 3 - INVENTORIES
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written down or written off.
As of February 28, 2025, inventories consisted of the following:
Description |
| February 28, 2025 |
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| May 31, 2024 |
| ||
Carbon Credit Inventory |
| USD $ |
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| USD $ |
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Total |
| USD $ |
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| USD $ |
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Carbon Credit Inventory
Carbon credit inventory represents carbon credits currently held for sale. The Company engages in the purchase and sale of carbon credits as part of its business operations. These credits are acquired from various projects and are sold to customers seeking to offset their carbon emissions.
Inventory Valuation
The Company evaluates its inventory to ensure it is stated at the lower of cost or net realizable value. This evaluation includes an analysis of the current market conditions, the estimated selling prices of the carbon credits, and any potential obsolescence. Adjustments to the carrying value of inventory are made as necessary to reflect any declines in net realizable value below cost.
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NOTE 4 - PREPAID EXPENSES
Prepaid expenses consist of payments made in advance for goods or services to be received in future periods. These expenses are recognized as assets until the related goods or services are consumed or the benefits are realized. As of February 28, 2025, the majority of the Company's prepaid expenses are related to the advertising and promotional agreement with Oilers Entertainment Group Canada Corp. ("OEG").
On December 1, 2024, the Company received invoices from OEG for the advertising and promotional agreement signed on July 1, 2024. The agreement includes various promotional rights and advertising services to be provided over the term of the contract, which ends on June 30, 2027. The total amount invoiced for the period ending February 28, 2025, has been recorded as a prepaid expense.
The table below summarizes the prepaid expenses related to the OEG agreement as of February 28, 2025:
Description |
| Amount (USD $) |
| |
Advertising & Promotional Agreement |
| $ |
| |
Other Prepayments |
| $ |
| |
Total Prepaid Expenses |
| $ |
| |
Advertising & Promotional Agreement
The advertising and promotional agreement with OEG includes various marketing rights, logo usage rights, digital signage, in-bowl signage, digital broadcast signage, and other promotional activities. The agreement specifies that the Company will receive these promotional rights in exchange for a fee.
The second installment of CAD
Amortization of Prepaid Expenses
The prepaid expenses related to the OEG agreement will be amortized on a straight-line basis over the term of the contract. The amortization expense for the period ending February 28, 2025, will be recognized in the Company's statement of operations.
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NOTE 5 – CONVERTIBLE PROMISSORY NOTES
As of February 28, 2025, Karbon-X Corp. issued convertible promissory notes totaling USD $
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 |
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| 2. | The Company’s listing on OTCQX, Nasdaq, or NYSE. |
The conversion price is the lesser of:
| 1. | |
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| 2. | Average of the four notes $ |
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.
As of February 28, 2025, the principal amount of the convertible promissory notes totaled USD $
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.
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NOTE 6 - INVESTMENTS IN EQUITY SECURITIES AND CARBON CREDIT FORWARD PURCHASE AGREEMENT
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 174,953 common shares of New Pubco, a company formed from the merger of DevvStream Holdings Inc. and Focus Impact Acquisition Corp., a special purpose acquisition company (SPAC) listed on the Nasdaq Stock Exchange. The shares were issued at a deemed price of $
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 |
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| · | 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 $
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 February 28, 2025, the fair market value (FMV) of New Pubco shares was USD $
| · | The fair value of investments was at the current market price of $ |
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| · | 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 February 28, 2025, no additional shares have been issued under these provisions. |
As of February 28, 2025, the balances were as follows:
Description |
| Balance (USD) |
| |
Investments in Equity Securities |
| $ |
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Securities Receivable |
| $ |
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Total Value |
| $ |
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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.
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NOTE 7 - DEFERRED REVENUE
Initial Recognition and Deferred Revenue
On October 28, 2024, Karbon-X Corp. entered into a Carbon Credit Forward Purchase Agreement with DevvStream Holdings Inc. Under this agreement, 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 $
Upon entering into the futures contract, Karbon-X Corp. recognized a deferred revenue liability of USD $
Additionally, as of February 28, 2025, the Company has recorded deferred revenue of $
Recognition of Marketable Securities
Upon the execution of the agreement and the issuance of the common shares of New Pubco, Karbon-X Corp. recognized the marketable securities at their fair value of USD $
Revenue Recognition
As Karbon-X Corp. delivers the carbon credits according to the schedule specified in the agreement, it recognizes revenue and reduces the deferred revenue liability. Revenue is recognized when control of the promised goods or services is transferred to the customer, in accordance with ASC 606.
Purchase Price Adjustment for Devvstream Holdings Inc.
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NOTE 8 - CAPITAL WORK IN PROGRESS (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 February 28, 2025, and May 31, 2024, the Company has capitalized internally developed software with a value of USD $
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NOTE 9 - 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
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 100% of the fair market value of the stock on the date of grant. |
| · | 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 February 28, 2025, the following activity has occurred under the Plan started in second quarter of this fiscal year :
Description |
| Number of Shares |
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| Weighted average remaining life (in years) |
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Options Authorized |
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Options Granted |
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| $ |
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Options Exercised |
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| $ |
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Options Forfeited |
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| $ |
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Options Outstanding |
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Options Vested |
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| $ |
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Options Unvested |
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As of February 28, 2028, 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. |
| · | 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 nine months ended February 28, 2025, the Company recognized stock-based compensation expense of USD $
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NOTE 10 – WARRANTS
A detail of warrant activity for the nine months ended February 28, 2025 is as follows:
Description |
| Number |
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| Weighted average exercise price |
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| Weighted average remaining contractual life (in years) |
| |||
Outstanding May 31, 2024 |
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| $ |
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Exercised |
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Granted |
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Expired |
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Cancelled |
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Outstanding February 28, 2025 |
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NOTE 11 – 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 has a term of
Lease Liability and Right-of-Use (ROU) Asset
The Company recognized a lease liability and ROU asset at the lease commencement date, calculated as the present value of future lease payments discounted at the Company’s incremental borrowing rate (IBR) of
Description |
| Amount |
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Lease Liability |
| $ |
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ROU Asset |
| $ |
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Lease Expense
Lease expense is recognized on a straight-line basis over the lease term and is included in operating expenses in the consolidated statements of operations. For the quarter ended February 28, 2025, the Company recognized total lease expense of $
| · | Amortization of ROU Asset: $ |
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| · | Interest on Lease Liability: $ |
Maturity of Lease Liabilities
The following table summarizes the undiscounted cash flows for the lease liability as of February 28, 2025:
Year |
| Lease Payments |
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2025 |
| $ |
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2026 |
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2027 |
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2028 |
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2029 |
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Thereafter |
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Total |
| $ |
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NOTE 12 – DEPOSIT
As of February 28, 2025, the Company has made advance payments for inventory totaling $
NOTE 13 – EMBEDDED DERIVATIVE
On February 7, 2025, the Company issued a $
In accordance with ASC 815, the Company assessed the terms of the Note and identified an embedded conversion feature that qualifies for separate accounting as a derivative liability. The fair value of the embedded derivative at issuance was determined to be $
As of the reporting period ended February 28, 2025, the unamortized discount on the Note was $
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NOTE 14 – SUBSEQUENT EVENTS
On March 25, 2025, the Company entered into a Definitive Agreement with an investor, pursuant to which the investor agreed to provide $
Under the terms of the agreement,
Additionally, the investor is entitled to a royalty
The Company evaluated this agreement and determined that it represents a Type II subsequent event, as it relates to conditions that arose after the end of the reporting period (February 28, 2025). Accordingly, no adjustments have been made to the financial statements included in this Form 10-Q.
On April 7, 2025, the holder of the $
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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 nine months ended February 28, 2025, and February 29 2024. This discussion should be read in conjunction with the Company’s most recent Annual Report on Form 10-K for the year ended May 31, 2024, filed on September 13, 2024, 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.
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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.
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 February 28, 2025, and February 29, 2024
Sales and Revenue
For the three-month period ended February 28, 2025, the Company reported revenue of USD $238,528, a decrease of 4% compared to $247,222 in the same period in 2024. The slight decline in sales was primarily due to fluctuations in pricing.
Operating Expenses
Operating expenses for the three-month period ended February 28, 2025, were $1,821,772, compared to $394,863 in the same period in 2024, representing a 361% 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 $528,150, up from $66,629 in the prior year. |
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| · | Salaries and Wages: Increased headcount, subcontractor costs, and wage adjustments contributed to payroll expenses of $841,890, a significant rise from $149,533 in the prior year. |
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| · | Professional Fees: Costs related to legal, advisory, and compliance efforts amounted to $184,068, compared to $51,188 in the prior year. |
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| · | Other Operating Expenses: These totaled $267,664, up from $127,513, reflecting the Company’s operational scale-up. |
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Net Loss from Operations
The operating loss for the three-month period ended February 28, 2025, was $(1,681,096), compared to $(371,399) 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.
Unaudited Results for the Nine Months Ended February 28, 2025 and February 29, 2024
Sales and Revenue
For the nine-month period ended February 28, 2025, the Company reported revenue of USD $1,530,349, a significant increase of 433% compared to USD $287,062 during the same period in 2024. This remarkable growth was driven by the successful launch of the Devvstream contract, which contributed substantially to the Company's revenue base and is expected to generate ongoing deferred revenue streams in future quarters.
Additionally, app subscription sales showed steady growth, driven by increased customer adoption, while revenue from carbon credit sales gained momentum during the period. Moving forward, the Company anticipates further revenue growth from the expansion of its app and new partnerships under development.
Operating Expenses
Operating expenses for the nine-month period ended February 28, 2025, totaled $4,412,366, compared to $1,023,694 in the same period in 2024, marking a 361% increase. The significant increase in operating expenses reflects the Company’s continued investment in scaling operations and market presence. Key factors include:
| · | Marketing Expenses: Increased by 859% to $915,494, reflecting strategic investments in customer acquisition campaigns, including partnerships such as the Oilers initiative. |
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| · | Salaries and Wages: Rose to $2,176,431, a 369% increase, driven by expanded headcount, higher subcontractor expenses, and wage growth to support operational scale. |
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| · | Professional Fees: Increased by 241% to $688,634, reflecting higher legal, advisory, and compliance costs associated with business growth and contractual obligations. |
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| · | Other Operating Expenses: Grew by 141% to $631,807, reflecting higher costs related to ongoing operations and compliance requirements. |
Net Loss from Operations
For the nine-month period ended February 28, 2025, the Company recorded an operating loss of $(3,652,837) compared to $(2,163,366) for the same period in 2024, representing a 69% increase. Despite the significant growth in revenue, the increase in operating expenses driven by marketing, payroll, and professional services contributed to the expansion of operating losses. However, these investments are viewed as essential for establishing the infrastructure and market positioning necessary for future profitability.
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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.
|
| Nine months ended February 28, 2025 |
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| Nine months ended February 29, 2024 |
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Cash used in operating activities |
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| (4,496,214 | ) |
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| (1,038,148 | ) |
Cash used in investing activities |
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| - |
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| (727,409 | ) |
Cash from financing activities |
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| 2,917,414 |
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| 1,803,482 |
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Change in cash during the period |
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| (1,578,801 | ) |
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| 37,925 |
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Effect of exchange rate change |
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| (165,727 | ) |
|
| (32,605 | ) |
Cash, beginning of period |
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| 2,675,400 |
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| 206,820 |
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Cash, end of period |
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| 930,873 |
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| 212,140 |
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As of February 28, 2025, the Company had USD $6,308,450 in current assets
To date, the Company has financed its operations through equity sales.
During July – September 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold 3,274,858 shares of common stock at $0.50 per share for gross proceeds of $ 1,637,429, net of expenses related to issuances of $83,993.
Further the Company converted a loan for $100,000 into 200,000 shares at price of $0.50 per share.
During November 2023, the Company sold 50,000 common stock at $2 per unit for total proceeds of $100,000.
Recent Developments
During the nine months ended February 28, 2025, the Company strengthened its executive leadership team with the appointment of key hires. Christopher Mulgrew, a seasoned financial executive with over 24 years of experience, joined the Company as Chief Financial Officer (CFO). In this role, he 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 shareholders.
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.
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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 February 28, 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 February 28, 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 February 28, 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:
On May 17, 2022, Karbon-X entered into a partnership with Silviculture Systems Corp and 4Ever Forest Foundation to acquire 80% of Silviculture for USD $7,300,000, with payments divided between common stock and capital contributions. The project involved planting 750,000 trees, developing a charcoal stream, and generating carbon credits. Karbon-X abandoned the deal in November 2023, writing off the investment and recognizing a loss of $1,064,203. We are currently in negotiations to resolve potential disputes arising from this situation.
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 the nine months ended February 28, 2025, 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 $1,886,739 shares of common stock at $0.90 per share for gross proceeds of $ 1,673,842.
From November 2022 through August 10, 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement, the company sold 4,632,297 shares of common stock at $0.50 per share for total gross proceeds of $2,316,486.
On June 6, 2023, the Company converted a loan for $100,000 into 200,000 shares at a price of $0.50 per share.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
Not applicable
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: April 18, 2025 | By: | /s/ Chad Clovis |
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| Chad Clovis Chief Executive Officer and Director (Principal Executive Officer) |
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Date: April 18, 2025 | By: | /s/ Christopher Mulgrew |
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| Christopher Mulgrew Chief Financial Officer, (Principal Financial Officer) |
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