Karbon-X Corp 10-K for FY2023
Karbon-X Corp. (KARX)
About this 10-K
Karbon-X Corp filed this 10-K on September 13, 2023, covering the fiscal year ended May 31, 2023 (FY2023).
Headline figures
Fiscal year ended May 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $9833
- compared with $0 a year earlier
- Net loss
- $2M
- compared with a net loss of $234.75K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the fiscal year 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) |
| (IRS Employer Identification No.) |
(Address and telephone number of principal executive offices)
1410 Columbia Ave., Castlegar, BC Canada N1N 3K3
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or amendment to Form 10-K. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company | ||
(Do not check if a smaller reporting company) | Emerging growth company | ||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of May 31, 2023 was unknown.
(At May 31, 2023, the registrant had
TABLE OF CONTENTS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION
This Annual Report on Form 10-K, the other reports, statements, and information that we have previously filed or that we may subsequently file with the Securities and Exchange Commission, or SEC, and public announcements that we have previously made or may subsequently make include, may include, incorporate by reference or may incorporate by reference certain statements that may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to enjoy the benefits of that act. Unless the context is otherwise, the forward-looking statements included or incorporated by reference in this Form 10-K and those reports, statements, information and announcements address activities, events or developments that Karbon-X Corp. (hereinafter referred to as “we,” “us,” “our,” “our Company” or “Karbon-X”) expects or anticipates, will or may occur in the future. Any statements in this document about expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties, which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document. All forward-looking statements concerning economic conditions, rates of growth, rates of income or values as may be included in this document are based on information available to us on the dates noted, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results may differ materially from those in such forward-looking statements due to fluctuations in interest rates, inflation, government regulations, economic conditions and competitive product and pricing pressures in the geographic and business areas in which we conduct operations, including our plans, objectives, expectations and intentions and other factors discussed elsewhere in this Report.
Certain risk factors could materially and adversely affect our business, financial conditions and results of operations and cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, and you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. The risks and uncertainties we currently face are not the only ones we face. New factors emerge from time to time, and it is not possible for us to predict which will arise. There may be additional risks not presently known to us or that we currently believe are immaterial to our business. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, you may lose all or part of your investment.
The industry and market data contained in this report are based either on our management's own estimates or, where indicated, independent industry publications, reports by governmental agencies or market research firms or other published independent sources and, in each case, are believed by our management to be reasonable estimates. However, industry and market data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares. We have not independently verified market and industry data from third-party sources. In addition, consumption patterns and customer preferences can and do change. As a result, you should be aware that market share, ranking and other similar data set forth herein, and estimates and beliefs based on such data, may not be verifiable or reliable.
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Item 1. Description of Business
Karbon-X Corp (or "Karbon-X" or "the Company") is a public Nevada corporation that offers investors exposure to certified carbon credits which are a key instrument used by both individuals and corporations to achieve their carbon neutral and net-zero carbon goals. The company is environmental and social governance (ESG) principled and focuses on partnering with high-quality projects and/or companies that generate or are actively involved in the voluntary carbon credit market.
The Company has entered into several letters of intent and intends to invest capital into projects that have proven C02 reduction potential and that may not have been otherwise developed. The majority of these projects have significant social and economic benefits in addition to their carbon reduction or removal potential.
Karbon-X Corp is focused on customized transactional options for corporations to offset their carbon footprint and provides scalable access to the Verified Emissions Reduction markets. Karbon-X is changing the marketing framework of traditional carbon marketing by engaging with the public in order to fund multiple forms of technology based greenhouse gas reduction builds.
Carbon Credit Generation
Karbon-X Corp has begun purchasing verified carbon credits from numerous vendors and then intends to resell these credits to both industry and the general public. The Company has already begun funding projects in order to generate Karbon-X Corp carbon credits of its own. Once verified these projects will generate carbon credits that will be sold on its proprietary APP platform.
Developments
Subsequent to March 31, 2022 and through June 1, 2022, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold 3,820,000 units at $0.25 per unit for total gross proceeds of $955,000. Each unit consisted of one share of common stock and one warrant to purchase a share of common stock for $0.75 per share for a period of two years.
In June 2022 the Company made two payments amounting to approximately $232,654 to a third-party app development company.
On April 26, 2022 the company signed a letter of intent with Silversmith Power and Light Company to explore the Silversmith Power and Light hydroelectric systems potential for generating carbon credits. This remains pending.
On May 6, 2022 the Company signed a lease agreement to rent office space for a one-year term beginning June 1, 2022 at a base rent of $1,627.50 per month. This lease was terminated and a new leasehold arrangement was entered into. See “Properties.”
On May 17, 2022 the company signed a letter of intent with Silviculture Systems Corp and 4Ever Forest Foundation of 512-55 Harbour Square Toronto ON to enter into a partnership. The Company entered into a final Acquisition Agreement with Silviculture Systems Corp. and 4Ever Forest Foundation on May 31, 2023. Pursuant to the Acquisition Agreement, Karbon-X will purchase 80% of the fully-diluted and outstanding shares of Silviculture for a purchase price of $7,300,000, of which $3,750,000 is was payable in common stock of Karbon-X valued at $0.25 per share upon achievement of certain milestones. The balance of $3,550,000 will be paid out for capital contributions, development and operations of the project over the next 36 months. The project intends to include (i) planting 750,000 Dipteryx Alata (Baru Nut Trees) or other plant varietals so long as they do not diminish the value of the project as per schedule A, (ii) developing the charcoal stream as per schedule A and (iii) creating a system for generating carbon credits,
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On May 19, 2022 the Company paid $70,000 to Silviculture Systems Corp to plant 20,000 trees in 2022. By May 31, 2022, the Company had invested $500,000 in the project.
From November 2022 through August 10, 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold 4,632,297 shares of common stock for total gross proceeds of $2,316,486.
On June 22, 2023 the company signed a letter of intent with Heimdal Inc from Kailua-Kona, Hawaii to obtain 20% equity interest in all pending and/or future ocean-assisted carbon capture plants of Heimdal. Pursuant to the letter of intent, Karbon-X will acquire that 50% interest for $15,500,000.
Historical Company Information
Karbon-X was incorporated in the State of Nevada on September 31, 2017 under the name Cocoluv, Inc. The articles provided for 200,000,000 authorized shares. At that time Reymund Guillermo was appointed as sole officer and director. On June 9, 2020, the Corporation filed a Certificate of Amendment with the State of Nevada effectuating a 50 for 1 forward stock split. On March 1, 2022, a change of control occurred when Mr. Guillermo resigned as director and all executive officer positions with the Company. Concurrent with Mr. Guillermo’s resignation, Mr. Chad Clovis was appointed as CEO, Director and President, and Ms. Marita Dautel was appointed as Vice President and Director.
On February 21, 2022 Karbon-X Corp, formerly known as Cocoluv, Inc., a Nevada Corporation (“Karbon-X”) entered into a Reorganization and Stock Purchase Agreement (the “Reorganization Agreement”) to acquire 100% of the issued and outstanding equity of Karbon-X Project, Inc., a British Columbia company (“Karbon-X Project”). Effective March 21, 2022, the parties closed the Reorganization Agreement. As part of the transaction, the majority shareholder of Karbon-X delivered 64,897,000 shares of common stock to shareholders of Karbon-X Project and certain other designees.
The Company’s principal office is located at 910 7th Ave SW, Calgary, AB, Canada T2P 3N8. Our telephone number is 844-462-3637. The Company email is info@karbon-x.com.
Competition
Many of our competitors have greater resources that may enable them to compete more effectively than us in the carbon credit industry.
The industry in which we operate is subject to intense and increasing competition. Some of our competitors have a longer operating history and greater capital resources and facilities, which may enable them to compete more effectively in this market. We expect to face additional competition from existing licensees and new market entrants, who are not yet active in the industry. If a significant number of competitors develop, we may experience increased competition for market share and may experience downward pricing pressure on our products as new entrants increase production. Such competition may cause us to encounter difficulties in generating revenues and market share, and in positioning our products in the market. If we are unable to successfully compete with existing companies and new entrants to the market, our lack of competitive advantage will have a negative effect on our business and financial condition.
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We have identified many of our key competitors including the following:
Indigo Carbon
As the name most recognized name in the farming community, Indigo Carbon has an impressive list of well known corporate buyers like The North Face, Blue Bottle Coffee, and JP Morgan Chase. While Indigo is touted as a leader in the emerging industry, it may not be the best option for all. Indigo carbon has a proprietary software platform that allows farmers to easily input data from enrolled fields. After enrolling, farmers have access to Indigo’s agronomists and support teams to help implement changes and answer questions. Farmers only get paid for adopting new practices (ie. cover cropping, no-till, reduced N fertilizer, etc.), so if a farmer has been cover cropping for years, they are unlikely to be eligible. Right now they only service specific states (Arkansas, Colorado, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, and Texas).
Nori
Nori is a blockchain-enabled company whose sole mission is to be a leading carbon marketplace. Unique to the carbon-removal industry, they are powered by cryptocurrency. Through this pioneering approach, they hope to create efficient and transparent carbon removal transactions. Companies can purchase NORI tokens (whose price depends on the market price of a carbon removal credit at time of purchase). Once it has a NORI token, the company can exchange it for an NRT (or Nori Removal Token). Farmers create NRTs when they sequester 1 ton of CO2. That NRT translates into a NORI token which is priced at market value and can be sold.
TruCarbon by TruTerra
TruTerra is a subsidiary of Land O’Lakes – the world’s largest farmer owned cooperative. The current state of the program is only available to farmers with data from 2016-2020. They have a tool called Truterra Insights Engine that allows farmers to aggregate data from the past five years in a format best suited to enroll in a carbon program. Enrollment is contingent upon committing to a 20 year reporting period using the Truterra Insights Engine (carbon reporting contracts are similar to conservation easements, meaning that they can be transferred in the case of transfer of property).
Bayer Carbon Initiative
Bayer’s recently announced Carbon Initiative is still in its beginning phases with very little public detail. That said, they (like many of the other carbon credit companies on this list), will only pay farmers for adopting new cover crop or no-till/strip till practices. Bayer is a hugely influential food and agriculture company in its own right, so they have the resources and expertise to roll out a strong program after this pilot season.
Nutrien Ag
Nutrien’s core businesses are creating seeds, fertilizers, herbicides, and software to optimize farm performance. In November 2020 they announced their involvement in the carbon marketplace. Nutrien has a deep bench of agronomists on staff to provide guidance for newly enrolled farmers, so entering the market may have additional benefits for farmers looking for guidance on how best to sequester carbon. As a global retailer they have plenty of connections to influential companies who might be interested in purchasing carbon credits once the program is officially launched.
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Carbon Streaming Corp
Under stream agreements, Carbon Streaming Corp. makes upfront and ongoing delivery payments to project developers for future carbon credits. This financing structure creates carbon credit projects that reduce emissions in a sustainable manner. Our streams and investments then provide us with a diversified portfolio of carbon credits with exposure to potential rising carbon prices.
Base Carbon
Base Carbon partners with corporations, sovereign entities, academic institutions and carbon reduction project developers to produce and commercialize verified carbon credits. Base Carbon differentiates itself through sourcing and underwriting and financing the maturation of nature and technology based carbon reduction credit projects. Base Carbon seeks to simplify the carbon credit economy and become a financier within the voluntary carbon markets.
Climeworks
Climeworks develops, builds and operates direct air capture machines. Climeworks captures carbon dioxide directly from the air; removing CO₂ emissions. The air-captured carbon dioxide can either be recycled and used as a raw material, or completely removed from the air by safely storing it. Climework’s machines consist of modular CO₂ collectors that can be stacked to build machines of any size.
Sales
The Company’s two main revenue streams include industrial sales and subscription-based sales through a mobile APP.
Industrial Sales
Karbon-X Corp primarily operates in the voluntary carbon offset market. The Company sells carbon offsets to mining, forestry, civic earthworks, transportation and oil and gas servicing companies based on their total fossil fuel consumption for individual projects. This simple platform offers companies a way to reach their carbon neutrality goals while supporting C02 reducing projects for years to come.
When companies purchase carbon offsets from Karbon-X Corp directly to offset their fossil fuel consumption the credits are retired in the name of the customer which provides transparency.
Subscription Based Sales
The general public is be able purchase carbon offsets from a mobile APP that is subscription based, with multiple levels of investment for every budget. Each subscription will support C02 reducing projects such as direct air capture, green hydroelectric energy production, or reforestation and will reduce greenhouse gas emissions with provable, verifiable carbon credits. The APP was soft-launched in early 2023 and is undergoing user experience testing in select markets prior to global launch.
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Karbon-X Corp allows the general public to offset their greenhouse gas emissions from daily life with a subscriber-based APP which is shareable on social media.
Totally Covered |
| Exceptional Reduction |
| Doing Your Part |
Permanently offset 400 kg of CO2 /month, 4800 kg of CO2/,year |
| Permanently offset 300kg of CO2 /month, 3600KG of CO2/ year. |
| Permanently offset 200kg of CO2 /month, 2400kg of CO2 /year |
200 kg per year is 60 days of central heating in a home! |
| 600kg per year is 1,460 miles/2,350km driving in a car! |
| 360 kg per year is 13 month energy used for one light bulb! |
$24.99/month |
| $19.99/month |
| $14.99/month |
$249.99/year |
| $199.99/year |
| $149.99/Year |
Marketing
The Company is working with a combination of outsource marketing and influencer firms, as well as, developing internal marketing resources to launch its APP globally.
APP Development
The Karbon-X APP was soft-launched in early 2023 and is undergoing user experience testing prior to global launch.
Employees
As of the date of this filing on Form 8-K, the Company has seven employees and is actively recruiting new team members at all levels of the organization. (See “Executive Compensation”). The Company believes that its relations with its employees are good.
Legal Proceedings
As of the date hereof the Company is not party to any material legal proceedings and is not aware of any material threatened litigation.
Item 1A. Risk Factors.
An investment in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the risks described below. Our business, financial condition, results of operations and cash flows could be materially adversely affected by any of these risks, and the market or trading price of our securities could decline due to any of these risks. In addition, please read "Disclosure Regarding Forward-Looking Statements" in this Annual Report, where we describe additional uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this Annual Report. Please note that additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations. In this Section, the terms the “Company,” “we”, “our” and “us” refer to Karbon-X Corp. as well as our subsidiary Karbon-X Project, Inc.
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Risks Related to Our Operations
We will incur losses and there is no guarantee that we will ever become profitable.
We are a relatively newly formed company. There is no guarantee that we will ever become profitable. The costs for research, product development, along with marketing and selling expenses, and the general and administrative expenses, will be principal causes of our costs and/or potential losses. We may never become profitable and if we do not become profitable your investment could be harmed or lost completely.
We may need additional capital in the future in order to continue our operations.
We obtained approximately $3,271,486 in our recent private placements which we are using for development and operations. However, if in the future we do not turn profitable or generate cash from operations and additional capital is needed to support operations, economic and market conditions may make it difficult or impossible to raise additional funds through debt or equity financings. If funds are not sufficient to support operations, we may need to pursue a financing or reduce expenditures to meet our cash requirements. If we do obtain such financing, we cannot assure that the amount or the terms of such financing will be as attractive as we may desire, and your equity interest in the company may be diluted considerably. If we are unable to obtain such financing when needed, or if the amount of such financing is not sufficient, it may be necessary for us to take significant cost saving measures or generate funding in ways that may negatively affect our business in the future. To reduce expenses, we may be forced to make personnel reductions or curtail or discontinue development programs. To generate funds, it may be necessary to monetize future royalty streams, sell intellectual property, divest of technology platforms or liquidate assets. However, there is no assurance that, if required, we will be able to generate sufficient funds or reduce spending to provide the required liquidity. Long-term capital requirements will depend on numerous factors, including, but not limited to, the status of collaborative arrangements, the progress of research and development programs and the receipt of revenues from sales of products. Our ability to achieve and/or sustain profitable operations depends on a number of factors, many of which are beyond our control.
We have entered into Agreements which will require substantial additional capital.
We have entered into an agreement with Silviculture Systems which will require an additional $2,850,000 to fund operations over the next 36 months. We are working with potential financing sources to fund this acquisition, however there can be no assurance that we will be able to obtain the required funding.
We launched our products in 2023 and as a company, we have limited sales and marketing experience.
We launched our APP in early 2023, and although we have hired highly qualified personnel with specialized expertise, as a company, we have limited experience commercializing products on our own. In order to commercialize the app and our carbon credits business, we have to build our sales, marketing, distribution, managerial and other non-technical capabilities and make arrangements with third parties to perform these services when needed. We may have to hire sales representatives and district managers to fill sales territories. To the extent we are relying on third parties to commercialize our business, we may receive less revenues or incur more expenses than if we had commercialized the products ourselves. In addition, we may have limited control over the sales efforts of any third parties involved in our commercialization efforts. If we are unable to successfully implement our commercial plans and drive adoption by patients and physicians of our products through our sales, marketing and commercialization efforts, or if our partners fail to successfully commercialize our products, then we may not be able to generate sustainable revenues from product sales which will have a material adverse effect on our business and future product opportunities. Similarly, we may not be successful in establishing the necessary commercial infrastructure, including sales representatives, wholesale distributors, legal and regulatory affairs teams. The establishment and development of commercialization capabilities to market our products has been and will continue to be expensive and time-consuming. As we continue to develop these capabilities, we will have to compete with other companies to recruit, hire, train and retain sales and marketing personnel. If we have underestimated the necessary sales and marketing capabilities or have not established the necessary infrastructure to support successful commercialization, or if our efforts to do so take more time and expense than anticipated, our ability to market and sell our products may be adversely affected.
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Commercialization of our products will require significant resources, and if we do not achieve the sales expected, we may lose the substantial investment made in our products.
We are continuing to make substantial expenditures commercializing our products. We are devoting substantial resources to building our research and development. We have and expect to continue to devote substantial resources to establish and maintain a marketing capability for our products. If we are unsuccessful in our commercialization efforts and do not achieve the sales levels of our products that we expect, we may be unable to recover the large investment we have made in research, development, and marketing efforts, and our business and financial condition could be materially adversely affected.
We will rely on third parties to perform many necessary services for our products, including services related to the distribution and invoicing.
We intend to and have begun to retain and partner with third-party service providers to perform a variety of functions related to the sale and distribution of our products, key aspects of which are out of our direct control. If these third-party service providers fail to comply with applicable laws and regulations, fail to meet expected deadlines, or otherwise do not carry out their contractual duties to us, or encounter physical damage or natural disaster at their facilities, our ability to deliver product to meet commercial demand would be significantly impaired. In addition, we may utilize third parties to perform various other services for us relating to sample accountability and regulatory monitoring, including adverse event reporting, safety database management and other product maintenance services. If the quality or accuracy of the data maintained by these service providers is insufficient, our ability to continue to market our products could be jeopardized or we could be subject to regulatory sanctions. We do not currently have the internal capacity to perform these important commercial functions, and we may not be able to maintain commercial arrangements for these services on reasonable terms.
The failure of any of our third-party distributors to market, distribute and sell our products as planned may result in us not meeting revenue and profit targets.
If one or more of these distributors fail to pursue the development or marketing of the products as planned, our revenues and profits may not reach expectations or may decline. The success of the marketing organizations of our partners, as well as the level of priority assigned to the marketing of the products by these entities, which may differ from our priorities, may determine the success of the product sales. Competition in this market could also force us to reduce the prices of our products below currently planned levels, which could adversely affect our revenues and future profitability.
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If we cannot develop and market our products as rapidly or cost-effectively as our competitors, we may never be able to achieve profitable operations.
Our success depends, in part, upon maintaining a competitive position in the development of products. If we cannot maintain competitive products and technologies, our current and potential distribution partners may choose to adopt the products of our competitors. Our competitors may develop products that are more effective or are less costly than our products.
Some of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, and marketing and distribution than we do.
Others may bring infringement claims against us, which could be time-consuming and expensive to defend.
Third parties may claim that the use or sale of our technologies infringe their patent rights. As with any litigation where claims may be asserted, we may have to seek licenses, defend infringement actions or challenge the validity of those patents in the patent office or the courts. If these are not resolved favorably, we may not be able to continue to develop and commercialize our product candidates. Even if we were able to obtain rights to a third party’s intellectual property, these rights may be non-exclusive, thereby giving our competitors potential access to the same intellectual property. If we are found liable for infringement or are not able to have these patents declared invalid or unenforceable, we may be liable for significant monetary damages, encounter significant delays in bringing products to market or be precluded from participating in the development, use or sale of products covered by patents of others. Any litigation could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. We may not have identified, or be able to identify in the future, U.S. or foreign patents that pose a risk of potential infringement claims. Ultimately, we may be unable to commercialize some of our product candidates as a result of patent infringement claims, which could potentially harm our business.
Our business could be harmed if we fail to comply with regulatory requirements and, as a result, are subject to sanctions.
If we, or companies with whom we are developing technologies or products on our behalf, fail to comply with applicable regulatory requirements, the companies, and we, may be subject to sanctions, including the following:
| • | warning letters; |
| • | fines; |
| • | injunctions; |
| • | total or partial suspension of production; |
| • | criminal prosecutions. |
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Risks Related to our Common Stock
Our common stock is currently trading on the “Expert” market.
Because of delays in filing a Quarterly Report on Form 10-Q during 2022, our stock has been moved to the “expert” market by OTC Markets. As such, it can only be traded between brokers and no quote is published. In order to resolve this situation, we are working to file a new Information Statement on Form 15c2-11 through either OTC Markets or a broker dealer with FINRA which, upon clearing, would move the stock back to the OTC Pink, and ultimately OTCQB markets on OTC Markets. There can be no assurance that we will be successful in returning to those markets.
Future conversions or exercises by holders of options could dilute our common stock.
Purchasers of our common stock will experience dilution of their investment upon exercise of the employee stock option and other stock options or issued common shares.
Sales of our common stock by our officers and directors may lower the market price of our common stock.
Our officers and directors beneficially own a significant aggregate of shares of our outstanding common stock. If our officers and directors, or other significant stockholders, sell a substantial amount of our common stock, it could cause the market price of our common stock to decrease.
We do not expect to pay dividends in the foreseeable future.
We intend to retain any earnings in the foreseeable future for our continued growth and, thus, do not expect to declare or pay any cash dividends in the foreseeable future.
Anti-takeover effects of certain certificate of incorporation and bylaw provisions could discourage, delay or prevent a change in control.
Our certificate of incorporation and bylaws could discourage, delay or prevent persons from acquiring or attempting to acquire us. Our certificate of incorporation authorizes our board of directors, without action of our stockholders, to designate and issue preferred stock in one or more series, with such rights, preferences and privileges as the board of directors shall determine. In addition, our bylaws grant our board of directors the authority to adopt, amend or repeal all or any of our bylaws, subject to the power of the stockholders to change or repeal the bylaws. In addition, our bylaws limit who may call meetings of our stockholders.
Dependence upon Management and Key Personnel
The Company is, and will be, heavily dependent on the skill, acumen and services of the management of the Company. The loss of the services of this individuals or any other key individuals, including specifically Chad Clovis, and certain others, for any substantial length of time would materially and adversely affect the Company’s results of operation and financial position. (See “Management”).
Item 1B. Unresolved Staff Comments
Not Applicable.
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Item 2. Properties.
On May 6, 2023 the Company entered into a 40-month Commercial Lease Agreement with 459061 Ltd. to lease office space at 910 7th Ave SW, Calgary, AB, Canada, T2P 3N8.
The Company leases office space from a third party under an operating lease agreement over 40 months which expires in July 2026. The lease also includes the payment of executory costs.
Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our estimated incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, if applicable. When lease terms include an option to extend the lease, we have not assumed the options will be exercised.
Lease expense for operating leases generally consist of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include agreed-upon changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognized total lease expense of approximately $15,992 and $305 for the years ended May 31, 2023 and 2022, primarily related to operating lease costs paid to lessors from operating cash flows. We entered into our operating lease in April 2023 with a term of three years.
Item 3. Legal Proceedings.
We are not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties.
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.
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PART II
Item 4. Submission of Matters to a Vote of Security Holders
Upon a vote of a majority of the Shareholders of Karbon-X, on February 21, 2022 Karbon-X Corp, formerly known as Cocoluv, Inc., a Nevada Corporation (“Karbon-X”) entered into a Reorganization and Stock Purchase Agreement (the “Reorganization Agreement”) to acquire 100% of the issued and outstanding equity of Karbon-X Project, Inc., a British Columbia company (“Karbon-X Project”). Effective March 21, 2022, the parties closed the Reorganization Agreement. As part of the transaction, the majority shareholder of Karbon-X delivered 64,897,000 shares of common stock to shareholders of Karbon-X Project and certain other designees. As part of that Reorganization, the Company filed an amendment to its Certificate of Incorporation changing its name from Cocoluv, Inc. to Karbon-X Corp.
On May 16, 2023, shareholders holding an aggregate of 37,671,750 shares executed a written consent approving the election of Chad Clovis and Marita Dautel to our board of directors.
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded in United States markets by OTC Markets Group, Inc., a privately owned company headquartered in New York City, under the symbol “KARX.” The common stock currently trades on the OTC Markets “expert” market. We are working to return trading to the OTC Pink Market and subsequently to the OTCQB Market. There is no assurance that the common stock will continue to be traded on the OTC Markets or that any liquidity exists for our shareholders.
Market Price
As the reorganization closed on March 21, 2022 and does not reflect the current operations of the Company, historical market price information before that date is not material to the operations of the Company. Historical market price information is currently not available to the Company as it is traded on the OTC “expert” market while we work to return to the OTC Pink and subsequently OTCQB Markets.
As of May 31, 2023, the Company had 200,000,000 shares of common stock authorized with 72,579,000 shares issued and outstanding.
Penny Stock Regulations
Our common stock trades on the “expert” market in United States markets by OTC Markets Group, Inc., a privately owned company headquartered in New York City, under the symbol “CCLV.” The sale price of our common stock has been less than $5.00 per share. As such, the Company's common stock is subject to provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), commonly referred to as the “penny stock rule.”
Section 15(g) sets forth certain requirements for transactions in penny stocks, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines “penny stock” to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. As long as the Company's common stock is deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors.
Dividends
The Company has not issued any dividends on the common stock to date, and does not intend to issue any dividends on the common stock in the near future. We currently intend to use all profits to further the growth and development of the Company.
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Holders
As of May 31, 2023, there were approximately 66 record holders of our common stock. This does not include the holders of our common stock who held their shares in street name as of that date.
Transfer Agent
Our registrar and transfer agent is VStock Transfer, LLC.
Recent Sales of Unregistered Securities
Subsequent to March 31, 2022 and through June 1, 2022, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold 3,820,000 units at $0.25 per unit for total gross proceeds of $955,000. Each unit consisted of one share of common stock and one warrant to purchase a share of common stock for $0.75 per share for a period of two years.
From November 2022 through August 10, 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold 4,632,297 shares of common stock for total gross proceeds of $2,316,486.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion relates to the historical operations and financial statements of Karbon-X Corp. for the fiscal years ending May 31, 2023 and May 31, 2022. The historical operations and financial statements of Karbon-X Corp. for the fiscal year ending May 31, 2021 for purposes of comparison are not included since they reflect only the operations of the predecessor Cocoluv, Inc. which had no significant operations.
Forward-Looking Statements
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” in our various filings with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.
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As a result of the Reorganization Agreement and the change in business and operations of the Company, a discussion of the financial results of the Company, formally known as Cocoluv, Inc., prior to February 21, 2022 is not pertinent, and, under generally accepted accounting principles in the United States the historical financial results of Karbon-X Project, Inc., the acquirer for accounting purposes, prior to the Reorganization Agreement are considered the historical financial results of the Company.
The following discussion highlights the Company’s results of operations and the principal factors that have affected its consolidated financial condition as well as its liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the Company’s consolidated financial condition and results of operations presented herein. The following discussion and analysis are based Karbon-X Corp’s audited and unaudited financial statements contained in this Current Report, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Overview
Karbon-X Corp. was incorporated in the State of Nevada under the name Cocoluv, Inc. on September 13, 2017 and established a fiscal year end of May 31. On April 7, 2022 the Company changed its name to Karbon-X Corp.
On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of 20,000-for-1, into an aggregate of 20,000,000 shares of the Company's common stock, resulting in Karbon-X becoming a wholly owned subsidiary of the Company and all debt owed to the related party of Cocoluv, Inc. was forgiven. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition.
Karbon-X provides customized transactional options, tailored insights, and scalable access to the Verified Emissions Reduction markets.
Karbon-X changes the marketing framework of traditional carbon marketing by engaging the public vs industry with multiple forms of technology based greenhouse gas reduction builds. Karbon-X will allow the public to purchase carbon offsets from an APP that is subscription based, with multiple levels of investment for every budget. Each subscription will support clean energy projects such as solar or wind power, methane capture, or reforestation and will reduce greenhouse gas emissions with provable, verifiable carbon credits.
Effects of COVID-19
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and the related adverse public health developments have adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. Management has determined that there has been no significant impact to the Company’s operations, however management continues to monitor the situation.
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Critical Accounting Policies
Basis of Presentation
Karbon-X Corp. was incorporated in the State of Nevada under the name CocoLuv, Inc. on September 13, 2017 and established a fiscal year end of May 31.
On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of 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. Karbon-X Project Inc. was incorporated in British Columbia on February 11, 2022 and established a fiscal year end of May 31. 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.
Under generally accepted accounting principles in the United States ("US GAAP"), because the combined entity will be dependent on Karbon-X's senior management, the Reverse Acquisition was accounted for as a recapitalization effected by a share exchange, wherein Karbon-X is considered the acquirer for accounting and financial reporting purposes. On the date of the reorganization, the assets and liabilities of Karbon-X have been brought forward at their book value and consolidated with Cocoluv, Inc.’s assets, which comprised of cash and cash equivalents of $134 and liabilities which comprises due to related party of $99,902 No goodwill has been recognized. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of Karbon-X and are recorded at the historical cost basis of Karbon-X.
Going concern
To date the Company has generated minimal revenues from its business operations and has incurred operating losses since inception of $2,192,106. 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 consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements present the consolidated balance sheet, statements of operations, stockholders’ equity and cash flows of the Company. These consolidated financial statements are presented in the United States dollar and have been prepared in accordance with accounting principles generally accepted in the United States.
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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 between three to seven years.
Costs of major additions and improvements are capitalized while expenditures for maintenance and repairs, which do not extend the life of the asset, are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to income. Long-lived assets held and used by us are reviewed based on market factors and operational considerations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Inventory
Inventories are 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.
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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.
The above estimates and assumptions are reviewed regularly. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Earnings per Common Share
The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the year. The diluted loss per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. As of May 31, 2023, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.
The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements present the consolidated balance sheet, statements of operations, stockholders’ equity and cash flows of the Company. These consolidated financial statements are presented in the United States dollar and have been prepared in accordance with accounting principles generally accepted in the United States.
Reverse Acquisition
On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of 20,000-for-1, into an aggregate of 20,000,000 shares of the Company's common stock, resulting in Karbon-X becoming a wholly owned subsidiary of the Company and all debt owed to the related party of Cocoluv, Inc. was forgiven. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition.
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Financial Condition and Results of Operations
Inception to May 31, 2022
From inception to May 31, 2022 the Company has generated no revenues from its business operations and has incurred operating losses since inception of $238,745. As of May 31, 2022, the Company had working capital of $457,226.
Sales and Revenue
For the period of inception on February 21, 2022 to May 31, 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 period of inception on February 21, 2022 to May 31, 2022 totaled $238,745. Operating expenses included office and general expenses, professional fees, development expenses for our app and expenses relating to a project to plant Dipteryx Alata (Baru Nut Trees) through one of our partners.
Net Loss
Net loss from operations after income taxes and foreign currency translation loss was $238,745 during the period from inception on February 21, 2022 to May 31, 2022. Again this was as a result of office and general expenses, app development expense and tree planting expenses.
Fiscal year ended May 31, 2023
For the Fiscal Year ended May 31, 2023 the Company generated $9,833 in revenue from its business operations and incurred a net loss of $2,021,439. As of May 31, 2023, the Company had working capital of $117,692.
Sales and Revenue
For the Fiscal Year ended May 31, 2023 the Company generated $9,833 in revenue. We are just at the beginning of our commercialization efforts which we expect to improve during the current fiscal year.
Operating Expenses
Operating expenses for the Fiscal Year ended May 31, 2023 totaled $1,989,830. Operating expenses included marketing expenses of $1,250,959, office and general expenses, professional fees, development expenses for our app and expenses relating to a project feasibility studies. The majority of marketing expenses a one-time expense paid in Company equity.
Net Loss
Net loss from operations after income taxes and foreign currency translation loss was $2,021,439 during the Fiscal Year ended May 31, 2023. Again, this was as a result principally of marketing expenses but also for office and general expenses, app development expense and project feasibility costs.
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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.
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| Fiscal Year Ended May 31, 2023 |
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Cash used in operating activities |
| $ | 1,485,067 |
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Cash from financing activities |
| $ | 779,604 |
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Cash from (used in) investing activities |
| $ | (750,575 | ) |
Change in cash during the period |
| $ | (270,520 | ) |
Effect of exchange rate change |
| $ | 9,153 |
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Cash, beginning of period |
| $ | 477,339 |
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Cash, end of period |
| $ | 208,820 |
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As of May 31, 2023, the Company had $312,173 in current assets.
To date, the Company has financed its operations through equity sales.
On March 7, 2022 the Company commenced a private placement pursuant to Rule 506(c) promulgated under Regulation D of the Securities Exchange Act of 1934, as amended. The private placement is ongoing. The private placement sought to raise $1,000,000 through the sale of Units at $0.25 per Unit, each consisting of one share of common stock and one warrant to purchase one share of common stock for two years at an exercise price of $0.50 per share. As of September 1, 2022 we have obtained $955,000 in gross proceeds from this offering.
From November 2022 through August 10, 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold 4,632,297 shares of common stock for total gross proceeds of $2,316,486.
Future Financing
In connection with its proposed business plan and possible acquisitions, in addition to the possible proceeds from this offering the Company will be required to complete substantial and significant additional capital formation. Such formation could be through additional equity offerings, debt, bank financings or a combination of any source of financing. There can be no assurance that the Company will be successful in completion of such financings.
Plan of Operations
As noted above, the continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of common shares, we believe that we will have sufficient cash resources to fund our plan of operations through 2023. If we are unable to do so, we may have to curtail and possibly cease some operations. We intend to use the net proceeds from the offering for research and development, operations, regulatory compliance, intellectual property, working capital and general corporate purposes.
We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
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Capital Expenditures
As of May 31, 2023 we had capital expenditures of $750,575.
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 $9,833 in revenues from its business operations and has incurred operating losses since inception of $2,192,106. As of May 31, 2023, the Company has working capital of $117,692. 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.
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Item 8. Financial Statements and Supplementary Data.
Contents
Part 1 | FINANCIAL INFORMATION |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Karbon-X Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Karbon-X Corp. (“the Company”) as of May 31, 2023, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has generated minimal revenues from its business operations and has incurred operating losses since inception. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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Valuation of Investments — Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
The Company holds an investment that is accounted for as an equity investment without a readily determinable fair value and is adjusted each reporting period to record their share of the earnings or losses of the investee. The valuation of the investment is based on significant judgment regarding appropriate valuation and is highly subjective; therefore, we assessed this as a critical audit matter.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to evaluating the Company’s accounting for investments and related accounts included the following, among others:
| · | Discussions with the investee, including confirmation of the percentage of the investment held in investee as of yearend. |
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| · | Obtaining an understanding of management’s process for their analysis of underlying information to determine the appropriate valuation. Independently evaluated management’s methodology and analysis of equity method investments in order to determine the relevance and reliability of data used in management’s calculations. |
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| · | Testing of all transactions related to this matter. |
We have served as the Company’s auditor since 2022.
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KARBON-X CORP.
Consolidated Balance Sheets
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| ||
|
|
|
|
|
|
|
|
|
Noncurrent portion of lease liability |
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Shareholders’ equity (deficit) |
|
|
|
|
|
|
|
|
Common stock $ |
|
|
|
|
|
| ||
Shares to be issued |
|
|
|
|
|
| ||
Additional Paid-in capital |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Accumulated other comprehensive gain (loss) |
|
| ( | ) |
|
| ( | ) |
Total shareholders’ equity |
|
|
|
|
|
| ||
Total liabilities and shareholders’ equity |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements
| F-3 |
| Table of Contents |
KARBON-X CORP.
Consolidated Statement of Operations
|
| For the Year Ended |
|
| For the Year Ended |
| ||
|
| May 31, 2023 |
|
| May 31, 2022 |
| ||
Operations |
|
|
|
| ||||
Total revenue |
| $ |
|
| $ |
| ||
Cost of revenue |
|
|
|
|
|
| ||
Gross profit |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
| ||
Salaries and wages |
|
|
|
|
|
| ||
Professional fees |
|
|
|
|
|
| ||
Other operating expenses |
|
|
|
|
|
| ||
Total operating expenses |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
| ( | ) |
|
|
| |
Net loss before income taxes |
|
| ( | ) |
|
| ( | ) |
Federal income tax expense |
|
|
|
|
|
| ||
Net loss |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
|
|
| ( | ) | |
Total comprehensive loss |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Earnings Per Share |
|
|
|
|
|
|
|
|
Weighted average basic and diluted shares outstanding |
|
|
|
|
|
| ||
Basic and fully diluted loss per share |
| $ | ( | ) |
| $ | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements
| F-4 |
| Table of Contents |
KARBON-X CORP.
Consolidated Statement of Changes in Shareholders’ Equity
For the Years Ended May 31, 2023 and 2022
|
| Common Stock |
|
| Shares to |
|
| Additional Paid |
|
| Accumulated |
|
| Accumulated other |
|
|
| |||||||||||
Description |
| Shares |
|
| Amount |
|
| be issued |
|
| in Capital |
|
| Deficit |
|
| Comprehensive gain (loss) |
|
| Total |
| |||||||
Balance May 31, 2021 |
|
| - |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Recap of Cocoluv, Inc. |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Issuance of shares and warrants for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Translation gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Net loss |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balance May 31, 2022 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||
Shares to be issued for investment |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Shares to be issued for stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Issuance of shares and warrants for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Translation gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balance May 31, 2023 |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||
The accompanying notes are an integral part of these consolidated financial statements
| F-5 |
| Table of Contents |
KARBON-X CORP.
Consolidated Statement of Cash Flow
|
| For the Year Ended |
|
| For the Year Ended |
| ||
|
| May 31, 2023 |
|
| May 31, 2022 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net (loss) income |
| $ | ( | ) |
|
| ( | ) |
Adjustments to reconcile net loss to net cash: |
|
|
|
|
|
|
|
|
Recap of Cocoluv, Inc. |
|
|
|
|
|
| ||
Depreciation expense |
|
|
|
|
|
| ||
Loss on investment |
|
|
|
|
|
| ||
Amortization of Right of Use Asset |
|
|
|
|
|
| ||
Stock based compensation |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Sales tax receivable |
|
| ( | ) |
|
| ( | ) |
Accounts payable |
|
|
|
|
|
| ||
Payroll liabilities |
|
|
|
|
|
| ||
Inventory |
|
| ( | ) |
|
|
| |
Prepaid expenses |
|
| ( | ) |
|
| ( | ) |
Payments made on operating lease |
|
|
|
|
|
| ||
Security deposit |
|
| ( | ) |
|
| ( | ) |
Cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
| ( | ) |
|
| ( | ) |
Cash paid for equity method investment |
|
| ( | ) |
|
|
| |
Cash paid for software development |
|
| ( | ) |
|
| ( | ) |
Cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from short term loan |
|
|
|
|
|
| ||
Proceeds from issuance of shares and warrants |
|
|
|
|
|
| ||
Cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Effect of translation changes on cash |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
| ( | ) |
|
|
| |
Cash, beginning of period |
|
|
|
|
|
| ||
Cash, end of period |
| $ |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Non cash operating activities |
|
|
|
|
|
|
|
|
Capitalization of right of use asset |
| $ | ( | ) |
| $ |
| |
Capitalization of lease liability |
| $ | ( | ) |
| $ |
| |
Recap of Cocoluv, Inc. |
| $ |
|
| $ |
| ||
Depreciation expense |
| $ |
|
| $ |
| ||
Loss on investment |
| $ |
|
| $ |
| ||
Amortization of Right of Use Asset |
| $ |
|
| $ |
| ||
Stock based compensation |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non cash investing and financing activities |
|
|
|
|
|
|
|
|
Shares to be issued for the Silviculture investment |
| $ |
|
| $ |
| ||
Shares to be issued as stock based compensation |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosures |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for income taxes |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements
| F-6 |
| Table of Contents |
KARBON-X CORP.
Notes to Consolidated Financial Statements
May 31, 2023
Note 1 - Basis of Presentation and Significant Accounting Policies
Karbon-X Corp. was incorporated in the State of Nevada under the name CocoLuv, Inc. on September 13, 2017 and established a fiscal year end of May 31.
On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of
Under generally accepted accounting principles in the United States ("US GAAP"), because the combined entity will be dependent on Karbon-X's senior management, the Reverse Acquisition was accounted for as a recapitalization effected by a share exchange, wherein Karbon-X is considered the acquirer for accounting and financial reporting purposes. On the date of the reorganization, the assets and liabilities of Karbon-X have been brought forward at their book value and consolidated with Cocoluv, Inc.’s assets, which comprised of cash and cash equivalents of $
Going concern
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements present the consolidated balance sheet, statements of operations, stockholders’ equity and cash flows of the Company. These consolidated financial statements are presented in the United States dollar and have been prepared in accordance with accounting principles generally accepted in the United States.
Use of Estimates and Assumptions
Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the 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 between three to seven years.
| F-7 |
| Table of Contents |
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. The Company has accounted for its investment in Silviculture Systems using the equity method and its investment in its subsidiary Karbon-X Project, Inc using the consolidation method.
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.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under ASC 606, the Company recognizes revenue from the commercial sales of carbon credits and consulting services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Rates for consulting services are typically per day, per hour, or a similar basis. Consulting revenue is recognized over the period in which the service is provided.
Revenue for sales of carbon credits is recognized at a point in time when control of the credit transfers to the buyer. The Company act as a principal in all revenue transactions.
Foreign Currency Translation
The functional currency of the Company is the Canadian Dollar (“CAD”). For financial statement purposes, the reporting currency is the United States Dollar (“USD”).
For financial reporting purposes, the consolidated financial statements are translated into the Company’s reporting currency, USD. Asset and liabilities are translated using the closing exchange rate in effect at the balance sheet date with the resulting translation adjustments included as a separate component of shareholder’s equity through other comprehensive income (loss) in the consolidated statement of operations.
Income and expenses are translated at the average yearly rates of exchange. The Company includes realized gains and losses from foreign currency transactions in other income (expense), net in the consolidated statement of operations.
Warrants
There is estimation uncertainty with respect to selecting inputs to the Black-Sholes model used to determine the fair value of the warrants (Note 6). These inputs include the stock price of $0.25, exercise price of $0.75, time to maturity of two years, annual risk-free interest rate ranging from 2.66% - 3.15%, and annualized volatility ranging from 636.15% - 637.12%.
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 May 31, 2023, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.
Reclassifications
Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings, financial position, or cash flows.
Note 2 – Prepaid Expenses
As of May 31, 2023 and May 31, 2022, prepaid expenses consisted of the following:
Description |
| May 31, 2023 |
|
| May 31, 2022 |
| ||
Prepaid accounting services |
| $ |
|
| $ |
| ||
Prepaid inventory |
|
|
|
|
|
| ||
Prepaid furniture |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
| F-8 |
| Table of Contents |
Note 3 – Inventory
Inventory as of May 31, 2023 and May 31, 2022, consisted of the following:
Description |
| May 31, 2023 |
|
| 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 May 31, 2023 and May 31, 2022, consisted of the following:
Description |
| May 31, 2023 |
|
| 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 during the year ended May 31, 2023 for $
Note 5 – Shareholders’ Equity
During the year ended May 31, 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold
During the year ended May 31, 2023, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold
Dur the year ended May 31, 2023, the Company executed an agreement to issue
During the year ended May 31, 2022, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold
Note 6 – Warrants
During the year ended May 31, 2023, the Company issued
| F-9 |
| Table of Contents |
A detail of warrant activity for the year ended May 31, 2023 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 May 31, 2023 |
|
|
|
| $ |
|
|
|
| |||
Note 7 – Investments
On May 31, 2023, the Company executed an amended share exchange agreement to buy up to
Note 8 – Internally Developed Software
In accordance with ASC 350-40, the Company has capitalized internally developed software for its development of a mobile application. The software is currently in its application development stage and all related costs are being capitalized as incurred. Once the software is ready for implementation, the Company will begin amortizing the software over its estimated useful life. As of May 31, 2023 and May 31, 2022, the Company has capitalized internally developed software of $
Note 9 – Short Term Note
On January 13, 2023, the Company obtained a short term loan of $
Note 10 – Commitments and Contingencies
Operating Leases
The Company leases office space from a third party under an operating lease agreement over 40 months which expires in July 2026. The lease also includes the payment of executory costs.
| F-10 |
| Table of Contents |
Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our estimated incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, if applicable. When lease terms include an option to extend the lease, we have not assumed the options will be exercised.
Lease expense for operating leases generally consist of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include agreed-upon changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognized total lease expense of approximately $
Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at May 31, 2023 were as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER OPERATING LEASES |
| Total |
| |
Year Ended May 31, |
|
|
| |
2024 |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
|
| |
Thereafter |
|
|
| |
Total lease payment |
|
|
| |
Less: Imputed interest |
|
| ( | ) |
Operating lease liabilities |
|
|
| |
|
|
|
|
|
Operating lease liability - current |
|
|
| |
Operating lease liability - non-current |
| $ |
| |
SCHEDULE OF OTHER SUPPLEMENTAL INFORMATION UNDER OPERATING LEASE |
|
|
| |
Weighted average discount rate |
|
| % | |
Weighted average remaining lease term (years) |
|
|
| |
Note 11 – Subsequent Events
On June 6, 2023, the Company’s short-term loan for $
Subsequent to May 31, 2023 and the date that these financial statements were available to be issued the Company completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement the company sold
Subsequent events have been evaluated through September 13, 2023, the date these financial statements were available to be released and noted no other events requiring disclosure.
| F-11 |
| Table of Contents |
Item 9. Change in and Disagreement with Accountants on Accounting and Financial Disclosure
For the fiscal year ended May 31, 2022, we engaged Michael Gillespie & Associates, PLLC (“Gillespie”) who audited our consolidated financial statements from inception through May 31, 2022. Neither PLS’ nor Gillespie’s report on our consolidated balance sheets and the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit) and cash flows for the years then ended, contained an adverse opinion, and was not modified as to uncertainty, audit scope or accounting principles.
During those fiscal years and further through August 26, 2022, there have been no disagreement with Gillespie on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of PLS or Gillespie, as the case may be, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
On November 29, 2022 we notified Michael Gillespie & Associates, PLLC (“Gillespie”) that it was terminated as the Company’s independent registered public accounting firm. The decision to terminate Gillespie as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors on November 28, 2022.
During the years ended May 31, 2021 and May 31, 2022 and through November 29, 2022, the Company has not had any disagreements with Gillespie on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Gillespie’s satisfaction, would have caused them to make reference thereto in their reports on the Company’s financial statements for such periods. During our recent fiscal year ended May 31, 2022, Gillespie did not advise us on any matter set forth in Item 304(a)(1)(v)(A) through (D) of Regulation S-K.
During our recent fiscal year ended May 31, 2022 we did not consult with Gillespie regarding (i) the application of accounting principles to a specific transaction, either completed or contemplated, or the type of audit opinion that might be rendered on our financial statements, and no written report or oral advice was provided to us that was an important factor to be considered by us in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
The report of Gillespie regarding the Company's consolidated financial statements for the fiscal year ended May 31, 2022 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
Effective November 29, 2022 the Company engaged Fruci & Associates II, PLLC (“Fruci”) as its independent registered public accounting firm for the Company’s fiscal year ended May 31, 2023. The decision to engage Fruci as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors.
During the two most recent fiscal years and through the Engagement Date, the Company has not consulted with Fruci regarding either: (i) the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that Fruci concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions thereto) or a reportable event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
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Item 9A. Controls and Procedures
Management’s Annual Report on Internal Control over Financial Reporting. 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 May 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 Internal Control — Integrated Framework. Based on this evaluation, our management concluded that, as of May 31, 2023, our internal control over financial reporting was not effective.
This annual 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 annual report.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the fiscal year ended May 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
The table below reflects the Company's executive officers and directors. There is no agreement or understanding between the Company and each current or proposed director or executive officer pursuant to which he was selected as an officer or director. The address for each such officer and director is 1410 Columbia Ave., Castlegar, BC Canada N1N 3K3.
Name |
| Intended Positions and Offices |
|
|
|
Chad Clovis |
| Chief Executive Officer, President and Director |
Marita Dautel |
| Vice President and Director |
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| Table of Contents |
The Directors and Officers named above will serve until the next annual meeting of the stockholders or until their respective resignation or removal from office. Thereafter, Directors are anticipated to be elected for one-year terms at the annual stockholders’ meeting. Officers will hold their positions at the pleasure of the Board of Directors.
Chad Clovis, Chief Executive Officer, President and Director
Chad Clovis is the Chief Executive Officer of Karbon-X Corp. which he founded in 2022. Mr. Clovis has been the CEO of Chenn Holdings since 2013 performing business development and business expansion services for multiple businesses in the dirt works and oilfield transportation space. In 2014 he was the founder and Operations Manager of CCV Ltd a full-service oilfield trucking company which was successfully sold to Petrogas Logistics in 2016 where Mr.Clovis became the Manager of Northern Operations. After founding Karbon-X in early 2022 Mr.Clovis completed a reverse take over of Cocoluv, Inc., an OTC listed company, and raised substantial funds to operate the business through its growth period. Chad Clovis is 44 years old.
Chad Clovis is a professional operator with more then 80,000 hours operating various pieces of oilfield equipment including high pressure chemical pumpers, sour sealed tank units, high pressure water blast units and hydro vac units of various configurations. Mr. Clovis attended BCIT in 2011 to obtain the National Safety Officer designation, Leadership in Business Excellence designation and Janus Mentor Training designation which he graduated with honors.
Marita Dautel, Vice President and Director
Ms. Marita Dautel has worked in the financial and transportation industries as well as the provincial and municipal government since her graduation from business school in 2012. Ms. Dautel is a graduate of Krannert School of Management from Purdue University (MBA, 2012); and the European School of Business, Reutlingen University (B.Sc. International Business, Germany, 2011). While at Reutlingen, Ms. Dautel was a Model United Nations delegate in New York City, USA (2011) representing Cameroon. After completion of business school, Ms. Dautel joined Scotiabank as a Financial Advisor obtaining her Mutual Fund Dealers Association (MFDA) license to sell mutual funds in late 2013. She started working as an independent representative with Primerica Financial Services Ltd in fall of 2014 and obtained her license to sell Life Insurance in Canada which she was active in until May of 2021. She worked for a transportation company in Fort St. John for 2.5 years as the manager of finance until moving to Southern BC in early 2017 to work at Selkirk College in the finance department. In late 2017 she started working at City of Castlegar where she held various positions in both the finance as well as civic works departments. She is currently the Vice President of Karbon-X Project Inc, a position which she has been in since April 1st of 2022. Ms. Marita Dautel is 36 years old.
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| Table of Contents |
Involvement in Certain Legal Proceedings
No director, executive officer, promoter or control person of Karbon-X has, during the last ten years: (i) been convicted in or is currently subject to a pending a criminal proceeding (excluding traffic violations and other minor offenses); (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any federal or state securities or banking or commodities laws including, without limitation, in any way limiting involvement in any business activity, or finding any violation with respect to such law, nor (iii) any bankruptcy petition been filed by or against the business of which such person was an executive officer or a general partner, whether at the time of the bankruptcy or for the two years prior thereto.
Committees of the Board
Decisions of the Board of Directors are generally taken by written unanimous resolutions. The current Board comprises two members and is intending to hold regularly scheduled meetings. The entire board provides the functions of Audit, Compensation and Governance committees until such time as charters for these committees can be adopted and they can be populated by independent directors.
Family Relationships
Ms. Dautel is the Sister-in Law of Mr. Clovis.
Compliance with Section 16(A) of The Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “reporting persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon a review of copies of Section 16(a) reports and representations received by us from reporting persons, and without conducting any independent investigation of our own during the fiscal year ended May 31, 2023, all forms required, if any, were filed with the SEC by such reporting persons.
Changes in Nominating Procedures
None
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| Table of Contents |
Item 11. Executive Compensation
Summary Compensation Table
Compensation Discussion and Analysis
Executive Officer and Director Compensation of the Company
Summary Compensation Table
The following table sets forth the total compensation paid to, or accrued by, the Named Executive Officers and any other employees earning over $100,000 per year from February 1, 2022 (date of inception) through May 31, 2023. No restricted stock awards, long-term incentive plan payout or other types of compensation were paid to these executive officers during that period.
Name |
| Year |
| Fees Earned or paid in cash ($) |
|
| Stock awards ($) |
|
| Option Awards ($) |
|
| Non-equity incentive plan compensation ($) |
|
| Change in pension value and nonqualified deferred compensation earnings |
|
| All other compensation ($) |
|
| Total ($) |
| |||||||
Chad Clovis |
| 2022 |
| $ | 5,919 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 5,919 |
|
|
| 2023 |
| $ | 87,054 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 87,054 |
|
Marita Dautel |
| 2022 |
| $ | 5,919 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 5,919 |
|
|
| 2023 |
| $ | 82,473 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 82,473 |
|
Employment Agreements
On February 17, 2022 the Company entered into an employment contract with Chad Clovis as President of Karbon-X Project. Pursuant to the contract Mr. Clovis is paid an annual salary of $150,000.
On April 1, 2022, 2022 the Company entered into an employment contract with Marita Dautel as Vice President of Karbon-X Project. Pursuant to the contract Ms. Dautel is paid an annual salary of $120,000.
Equity Compensation Plans
The Board may grant incentive bonuses to our executive officers and/or future executive officers in its sole discretion. Bonuses will be granted if the Board believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability of such executives. Other than our bonus plan we have no current equity compensation plans.
All compensation and stock option plans for executives and employees will be governed by the Compensation and Governance Committee.
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| Table of Contents |
Expense Reimbursement
We will reimburse our officers and directors for reasonable expenses incurred during the course of their performance.
Retirement Plans and Benefits.
None.
Director Compensation
We do not have a standard compensation arrangement for directors. The Company intends to form a Compensation and Governance Committee to make such determinations, with approval by both the Board of Directors and the Audit Committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth the number of shares of common stock beneficially owned by (i) those persons or groups known to beneficially own more than 5% of the Company's common stock, (ii) each current director and executive officer of the Company, and (iii) all the current executive officers and directors as a group. The information is set forth as of the time immediately after closing the reorganization.
Pursuant to Rule 13d-3 under the Exchange Act, a beneficial owner of securities is a person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has, or shares, voting power and/or investment power with respect to the securities, and any person who has the right to acquire beneficial ownership of the security within 60 days through any means, including the exercise of any option, warrant or right or the conversion of a security. Any shares that are not outstanding that a person has the right to acquire are deemed to be outstanding for the purpose of calculating the percentage of beneficial ownership of such person, but are not deemed to be outstanding for the purpose of calculating the percentage of beneficial ownership of any other person.
After the acquisition of Karbon-X Project, the following table represents a list of the principal stockholders:
Title of Class |
| Name of Beneficial Owner |
| Amount of Beneficial Ownership |
|
| Percentage of Stock |
| ||
|
|
|
|
|
|
|
|
| ||
Common Stock |
| Chad Clovis, Chief Executive Officer, President and Director (1) |
|
| 17,000,000 |
|
|
| 24.4 | % |
Common Stock |
| Marita Dautel, Vice President and Director |
|
| 2,000,000 |
|
|
| 2.9 | % |
Common Stock |
| Neil Aberle |
|
| 4,225,000 |
|
|
| 6.1 | % |
Common Stock |
| Jason McCarroll |
|
| 4,225,000 |
|
|
| 6.1 | % |
Common Stock |
| Tracy Eugene Knowles |
|
| 4,225,000 |
|
|
| 6.1 | % |
Common Stock |
| Jan Pociatek |
|
| 3,962,225 |
|
|
| 5.7 | % |
Common Stock |
| All officers and directors (2 persons) |
|
| 19,000,000 |
|
|
| 27.3 | % |
(1) | Consists of 17,000,000 shares held directly by Mr. Clovis and 2,000,000 shares held by Jennifer Clovis, who is the spouse of Mr. Clovis.. |
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| Table of Contents |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Director Independence
The Company is not currently listed on any national exchange, or quoted on any inter-dealer quotation service, that imposes independence requirements on any committee of the Company’s directors, such as an audit, nominating or compensation committee. The Company currently does not currently have any independent directors on its Board.
Item 14. Principal Accounting Fees and Services
Audit Fees
The aggregate fees billed for the fiscal year ended May 31, 2023, for professional services rendered by the principal accountants for the audit of the registrant's annual financial statements and review of financial statements included in the registrant's Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were: $23,000.
Audit Related Fees
Consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC and other accounting consulting. These fees amounted to $0.
All Other Fees
Other than the services reported above, no other fees billed for professional services provided by the principal accountant.
Audit Committee Pre-Approval Policies
Our Board of Directors performing as the Audit Committee by their Chair has approved the principal accountant's performance of services for the audit of the registrant's annual financial statements and review of financial statements included in our Report on Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ending May 31, 2023. Audit-related fees and all other fees, if any, were approved by the Board of Directors.
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Item 15. Exhibits, Financial Statement Schedules
The following exhibits are filed as part of this Annual Report.
The following Exhibits are included herein:
Exhibit No. |
| Description |
| ||
| ||
| ||
| ||
| ||
| ||
| 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.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this transition report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Karbon-X Corp. |
| |
|
|
|
|
September 13, 2023 | By: | /s/ Chad Clovis |
|
|
| Chad Clovis |
|
|
| Chief Executive Officer |
|
|
| (principal executive officer and principal financial officer) |
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: September 13, 2023 | /s/ Chad Clovis |
|
| Chad Clovis, Director |
|
| and Chief Executive Officer |
|
|
|
|
Date: September 13, 2023 | /s/ Marita Dautel |
|
| Maria Dautel, Director and Vice President |
|
| 32 |
EXHIBIT 10.5
ACQUISITION AGREEMENT
Karbon-X Joint Venture
A BRITISH COLUMBIA JOINT VENTURE
THIS ACQUISITION AGREEMENT (herein after referred to as the "Agreement”) is entered into as of this 31st day of May 2023, by and among Karbon-X Project, Inc., a British Columbia corporation (“Karbon-X”), Silviculture Systems Corp., a Canadian corporation (“Silviculture”), and 4everforest Foundation, a Canadian not-for-profit corporation (“4everforest”), and the Shareholders of Silviculture set forth on the signature page hereof, for the purpose of development, marketing and sales of carbon and development of clean earth projects. This Agreement is intended to terminate and replace that certain Joint Venture Agreement between the parties entered into the 15th day of November, 2022.
NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, the Parties hereto hereby agree to constitute themselves as participants in a certain joint venture, and do covenant, agree and certify as follows:
ARTICLE I.
DEFINITIONS:
1.1 "Affiliate" shall refer to (i) any person directly or indirectly controlling, controlled by or under common control with another person, (ii) any person owning or controlling 10% or more of the outstanding voting securities of such other person, (iii) any officer, director or other partner of such person and (iv) if such other person is an officer, director, joint venturer or partner, any business or entity for which such person acts in any such capacity.
1.2 "Parties" shall refer to Karbon-X, Silviculture and 4everforest, and any successor(s) as may be designated and admitted to the Venture.
ARTICLE II
TERMINATION OF JOINT VENTURE
2.1 The parties hereto mutually agree that this Agreement terminates and replaces that certain Joint Venture Agreement dated November 15, 2022.
2.2 Each Party (the “Indemnifying Party”) agrees to indemnify the other Parties (the “Indemnified Parties”) and to hold the Indemnified Parties harmless from, any and all actions, causes of action, suits, claims, losses, damages, liabilities, demands, costs and expenses which may be brought against, incurred or suffered by the Indemnified Parties arising from any act or omission of the Indemnifying Party in connection with the Venture. The provisions of this Section 2.2 shall not apply in respect of any inaccuracy or breach of a representation or warranty or covenant involving fraud or fraudulent misrepresentation. No Party shall in any event be liable for any indirect, incidental, special, consequential, exemplary or punitive damages (including, without limitation, lost profits or savings, loss of use, cost of capital, or down time costs), including if arising from any breach of this Agreement (including fundamental breach) or from the negligence of that party, even if advised of the possibility of such damages.
ARTICLE III
ACQUISITION.
3.1 Silviculture shall cause its shareholders to sell and Karbon-X shall purchase 80% of the fully- diluted issued and outstanding shares of Silviculture (the “Silviculture Purchase”).
3.2 The purchase price for the Silviculture Purchase shall be $7,300,000USD, of which $3,750,000 is payable in shares of common stock of Karbon-X Corp. (“Karbon-X Corp.”), a Nevada publicly traded corporation and the parent company of Karbon-X Project, Inc. priced at $0.25 per share (the “Karbon-X Shares”). The Karbon-X Shares shall all be issued as restricted shares according to the timeline on Schedule A regarding achievement of project milestones, which shall include (i) planting 750,000 Dipteryx Alata (Baru Nut Trees) or other plant varietals so long as they do not diminish the value of the project as per schedule A, (ii) developing the charcoal stream as per schedule A and (iii) creating a system for generating carbon credits as per schedule A. All Affiliate Silviculture shareholders who become holders of the Karbon-X Shares shall execute and deliver a Lockup Agreement in the form of Exhibit B hereto, which shall provide for no sales for 12 months from issuance and then the greater of 10,000 shares per week or 2% of the prior week’s trading volume. The remaining purchase price of $3,550,000USD shall be contributed as capital for operations and development of the Project during the period ending 36 months from execution of this Agreement (the “Karbon-X Contribution”). Silviculture acknowledges that Karbon X has contributed $397,549.64 of this amount through the date of this Agreement. Karbon-X will fund an additional $102,450.36 upon execution of this Agreement. The Karbon-X Contribution shall be paid as scheduled on Schedule C hereto based on the development of the proposed biomass charcoal business, assistance with carbon management data collection to verify planting and biomass projects to generate a carbon credit stream. The capital will be deployed in accordance with the directives of senior management of Karbon-X and Silviculture, which the Parties agree shall be comprised initially of Chad Clovis, Marita Dautel, Christopher Kerlow and Jeff Zelinski.
3,4 All officers and directors, whether individual or corporate, holding Karbon-X Shares shall execute and deliver to the company a form of lockup agreement in the form of Exhibit C hereto providing for scheduled potential sales of the Karbon-X shares into the market based on both time and the achievement of milestones.
3.5 Karbon-X will have the right to appoint two directors onto the Board of Directors of Silviculture and 4everforest and Silviculture will the right to appoint one director onto the Board of Directors of Karbon-X Corp.
3.6 Karbon-X Corp. agrees to solely cover all legal, accounting, governmental, fiduciary costs of creating, maintaining and reporting requirements of a publicly traded entity. These costs will be borne by Karbon-X Corp., without prejudice (in addition to) the agreed capital contribution schedule, enumerated herein.
3.7 Except as otherwise required by law or this Agreement, the Parties shall not be required to make any further capital contributions.
3.8 Except as set forth above and otherwise in this Agreement, no Party shall have the right to withdraw its capital contributions or demand or receive the return of his capital contributions or any part thereof.
| 2 |
3.9 The Parties shall not be personally liable for the return of capital contributions or any part thereof, except as otherwise provided in this Agreement.
3.10 Silviculture acknowledges that Karbon-X is a United States publicly traded company and agrees to continue to undertake accounting procedures sufficient for its financial statements to be consolidated by Karbon-X included in a Securities and Exchange Commission approved PCAOB audited financial statements.
3.11 Silviculture will expend funds in excess of $10,000 provided in this Agreement only upon written approval by Karbon-X,
ARTICLE IV
RESOLUTION OF DISPUTES
4.1 All disputes arising out of this Agreement between the Parties, that is/are not resolvable by good faith negotiations by the same, shall be resolved by arbitration in Vancouver, British Columbia, Canada before one arbitrator agreed to by the Parties. In so agreeing the Parties expressly waive their right, if any, to a trial by jury of these claims and further agree that the award of the arbitrator shall be final and binding upon them as though rendered by a court of law and enforceable in any court having jurisdiction over the same.
ARTICLE V
NON-DISCLOSURE NON-CIRCUMVENTION
5.1 The Parties agree to keep completely confidential (except to duly authorized directors, officers, auditors, employees, consultants, advisors and representatives of such Party (“Representatives”)) and shall not use, except for the purposes of performing its obligations under this Agreement, all confidential or proprietary information disclosed by one Party to another Party, including without limitation the names and persons at any clients, insurance companies, banks, lending institutions, venture capitalists, money angels, corporations, individuals, trusts, borrowers, buyers and sellers of the disclosing Party, and Internet websites introduced by any of the Parties or their Representatives. Notwithstanding the foregoing, nothing contained herein shall prevent any Party at any time from furnishing information to any governmental agency or regulatory authority or to the public if required by applicable law.
5.2 During the term of this Agreement, each Party, hereto, agrees not to knowingly circumvent, avoid, bypass, or obviate the other Party, directly or indirectly, to avoid equity participation, payment of fees and commissions, and/or any other form of compensation in any transaction in which a client, investor, bank, lending institution, venture capitalist, money angel, insurance company, corporation, individual, trust lender, borrower, buyer or seller, has been introduced by either Party to the other Party in connection with any loan, finance proposal, current project, trading transaction, collateral request, or other financial transaction requested by the client or customer to a Party.
5.3 Each party agrees that during the Restrictive Period (as defined below), such party will not, without the express written consent of Karbon-X, which shall not be unreasonably withheld if Silviculture can demonstrate that such project will either be beneficial to or not directly competitive with Karbon-X, be associated with or engage in, directly or indirectly, as employee, consultant, proprietor, stockholder, partner, agent, representative, officer, or otherwise, the operation of any business that competes directly with Karbon-X Corp. in business activities that are the same or substantially similar to the business activities engaged in by Karbon-X Corp. in any geographic area in which Karbon-X Corp. does business during the Restrictive Period (the "Restricted Territory"). The term "Restrictive Period" shall mean a period of twelve (12) months after the termination of this Agreement for any reason. Passive investment in less than 5% of the outstanding equity securities of an entity which is listed on a national or regional securities exchange shall not, in itself, constitute a violation of this Section.
ARTICLE VI
OTHER PROVISIONS
6.1 This Agreement and all other agreements, exhibits, and schedules referred to in this Agreement constitute(s) the final, complete, and exclusive statement of the terms of the agreement between the parties pertaining to the subject matter of this Agreement and supersede all prior and contemporaneous understandings or agreements of the parties. This Agreement may not be contradicted by evidence of any prior or contemporaneous statements or agreements. No party has been induced to enter into this Agreement by, nor is any party relying on, any representation, understanding, agreement, commitment or warranty outside those expressly set forth in this Agreement.
6.2 This Agreement is binding upon the heirs, court appointed representatives, assigns, and successors of the parties.
6.3 This Agreement shall be governed by the laws of the Province of British Columbia.
6.4 Any notices required or permitted to be given hereunder shall be given in writing and shall be delivered (a) in person, (b) by certified mail, postage prepaid, return receipt requested, (c) by facsimile or e-mail, or (d) by a commercial overnight courier that guarantees next day delivery and provides a receipt, and such notices shall be addressed as follows:
|
| If to
Karbon-X or Karbon-X Corp.: | 1410 Columbia Ave. Castlegar, British Columbia, Canada N1N 3K3 Attention: Chad Clovis
E-mail:
Copy to:
Cutler Law Group, P.C. 6575 West Loop South, Suite 500 Bellaire, TX 77401 Attn: M. Richard Cutler Email: rcutler@cutlerlaw.com |
|
|
If to
Silviculture
|
512-55 Harbour Square Toronto, Ontario, Canada M5J 2S2 Attention: Christopher Kerlow
Email: chrisk@4everforest.org |
|
|
If to
4EverForest
|
512-55 Harbour Square Toronto, Ontario, Canada M5J 2S2 Attention: Jeff Zelinski
Email: jeffz@4everforest.org |
| 3 |
or to such other address as either party may from time to time specify in writing to the other party. Any notice shall be effective only upon delivery, which for any notice given by facsimile shall mean notice which has been received by the party to whom it is sent as evidenced by confirmation slip.
6.5 If any term or provision of this Agreement is determined to be illegal, unenforceable, or invalid in whole or in part for any reason, such illegal, unenforceable, or invalid provisions or part thereof shall be stricken from this Agreement, and such provision shall not affect the legality, enforceability, or validity of the remainder of this Agreement. If any provision or part thereof of this Agreement is stricken in accordance with the provisions of this section, then this stricken provision shall be replaced, to the extent possible, with a legal, enforceable, and valid provision that is as similar in tenor to the stricken provision as is legally possible.
6.6 Time is of the essence in respect to all provisions of this Agreement that specify a time for performance; provided, however, that the foregoing shall not be construed to limit or deprive a Party of the benefits of any grace or use period allowed in this Agreement.
6.7 The Parties shall at their own cost and expense execute and deliver such further documents and instruments and shall take such other actions as may be reasonably required or appropriate to evidence or carry out the intent and purposes of this Agreement.
6.8 No Party shall be liable for any failure to perform its obligations in connection with any action described in this Agreement, if such failure results from any act of God, riot, war, civil unrest, flood, earthquake, or other cause beyond such party’s reasonable control (including any mechanical, electronic, or communications failure, but excluding failure caused by a party’s financial condition or negligence).
6.9 Multiple Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.
6.10 Attorney Fees. In the event that any dispute between the Parties should result in litigation or arbitration, the prevailing party in such dispute shall be entitled to recover from the other Party all reasonable fees, costs and expenses of enforcing any right of the prevailing Party, including without limitation, reasonable attorneys' fees and expenses.
6.11 This Agreement shall not be amended or varied in its terms by oral agreement or by representations or otherwise except by instrument in writing executed by the duly authorized representatives of the Parties or their respective successors or assigns.
6.12 This Agreement shall not be assigned by any Party hereto, without the prior written consent of the other Parties. This Agreement shall ensure to the benefit of and be binding upon the respective successors and assigns of the Parties.
6.13 Silviculture Systems and Karbon-X shall have the right to terminate this Agreement by means of a written notice to that effect to the other. If such defaulting party has not remedied any breach contemplated schedule B or C within thirty (30) days of the notification thereof, as set forth in schedule B or C. If the Karbon-X terminates this Agreement for failing to make cash payments, share issues, or Concession Expenses under schedule B or C of this Agreement, Silviculture Systems will not be obligated to make those cash payments, share issues, or incur in those Concession Expenses.
| 4 |
So agreed and executed as of this , day of June, 2023.
Karbon-X Corp. and Karbon-X Projects, Inc.
| /s/ Chad Clovis |
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| By: Chad Clovis, Chief Executive Officer |
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| Silviculture Systems Corp. |
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| /s/ Christopher Kerlow |
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| By: Christopher Kerlow |
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| 4everforest Foundation |
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| /s/ Jeff Zelinski |
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| By: Jeff Zelinski |
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Shareholders of Silviculture Systems Corp.
| Jeff Zelinski |
| Chris Kerlow |
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| /s/ Jeff Zelinski |
| /s/ Chris Kerlow |
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| Mike Moss |
| Phil Cormier |
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| /s/ Mike Moss |
| /s/ Phil Cormier |
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| Yang Shi |
| Ryan Benjamin |
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| /s/ Yang Shi |
| /s/ Ryan Benjamin |
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| Rory Thomson |
| Jonathen Yu |
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| /s/ Rory Thomson |
| /s/ Jonathen Yu |
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| Baruvida Inc. (Yang Shi signatory) |
| Theodore Verona |
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| /s/ Yang Shi |
| /s/ Theodore Verona |
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| Rodrigo Jiminez |
| Alexander Tjiang |
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| /s/ Rodrigo Jiminez |
| /s/ Alexander Tjiang |
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| Sarah Lachance |
| Francisco Pages |
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| /s/ Sarah Lachance |
| /s/ Francisco Pages |
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| Jason Benjamin |
| Yanick Lafreniere |
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| /s/ Jason Benjamin |
| /s/ Yanick Lafreniere |
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| 5 |
Schedule A
SCS agrees to plant a minimum of 35000, 2022/2023 250,000 trees in the 2023/2024 planting season and 475,000 trees in the 2024/2025 planting season.
SCS agrees to submit a Carbon Credits Project to Verra (other applicable voluntary registries)
| · | Phase 1 is the land due diligence and selection, describing the project description, feasibility study and pathway report in year 1 |
Phase 2 submit the Carbon Credit project to Verra (or other applicable registries) for initial review of the project. Engage with a VVB to beginning verify the project and
Phase 3 finalize the recommendations and feedback presented by the VVB to finalize the Carbon Credit project review to submit the Carbon Credit review generating carbon credits, year 3
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| SCS agrees to produce infrastructure needed for a charcoal carbon credit streaming facility in year 1 and apply for Carbon Credits to Verra; produce 1,000 of charcoal in year 2; produce 5,000 charcoal in year 3. SCS will develop a charcoal streaming system. |
| · | Year 1 develops a pre-feasibility |
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| Year 2 facility design and research and development |
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| Year 3 Verify the project with a VVB |
The below timeline for milestones and share issuance align with the timeline of Schedule A and the agreed upon terms of this Agreement.
Karbon-X has agreed to purchase 80% of Siliviculture Systems in exchange for Karbon-X Shares valued at $0.25 per share, for a value $3,750,000USD of Karbon-X shares. These shares will be issued and sit in escrow for the length of this contract vesting at each milestone. The first tranche will be released upon signing . Dates and amounts are listed below. During each vesting period Karbon-X will be issued the prorata share of Silviculture shares.
Upon Signing 30%
End of phase 1 - July 31, 2023 : 10%
285,000 trees planted and the Bio Char facility plan submitted: 20%
Offset generation and issuance approved by a verifying body: 20%
760,000 trees planted and BioChar facility moving to development: 20%
Schedule B
[Form of Lockup Agreement]
| 6 |
Schedule C
Payment Schedule
| Previously paid |
| $ | 397,549.64 |
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| Upon signing |
| $ | 102,450.31 |
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| July 31, 2023 (end of Phase 1) |
| $ | 500,000 |
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| October 1, 2023 |
| $ | 750,000 |
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| End of Phase 2 April 1, 2024 |
| $ | 750,000 |
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| October 1, 2024 $ |
| $ | 1,050,000 |
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| 7 |
EXHIBIT 21
Subsidiaries of Karbon-X Corp.:
Karbon-X Project, Inc.
EXHIBIT 31.1
CERTIFICATION
I, Chad Clovis, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Karbon-X Corp. (the "Registrant"); |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this transition report; |
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| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
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| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial; and |
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| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
September 13, 2023
/s/ Chad Clovis
Calum Hughes, Chief Executive
Officer (Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION
I, Chad Clovis, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Karbon-X Corp. (the "Registrant"); |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this transition report; |
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| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
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| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
September 13, 2023
/s/ Chad Clovis
Chad Clovis (Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Karbon-X Corp. (the "Company") on Form 10-K for the fiscal year ended May 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Chad Clovis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company |
September 13, 2023
/s/ Chad Clovis
Chad Clovis
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Karbon-X Corp. (the "Company") on Form 10-K for the fiscal year ended May 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Chad Clovis, as acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
September 13, 2023
/s/ Chad Clovis
Chad Clovis
Acting Chief Financial Officer
(Principal Financial Officer)