UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended August 31,November 30, 2023

Commission File Number 000-56288

910 7th7^th Ave SW Calgary AB,,AB, Canada T2P 3N8

(Address of principal executive offices) (Zip Code)

778-256-5730

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes       ☐ No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes       ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes      ☒ No

As of October 10, 2023,January 22, 2024, there were 78,553,85878,603,858 shares of common stock issued and outstanding.

TABLE OF CONTENTS

Contents

KARBON-X CORP.

Consolidated Balance SheetsSheet

The accompanying notes are an integral part of these consolidated financial statements

KARBON-X CORP.

Consolidated Statement of Operations

KARBON-X CORP.

Consolidated Statements of Operations(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

KARBON-X CORP.

Consolidated Statement of Changes in Shareholders’ Equity

For the Three Months Ended August 31, 2023 and 2022Operations

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

KARBON-X CORP.

Consolidated StatementsStatement of Cash FlowChanges in Shareholders’ Equity

For the Three Months and Six Months Ended November 30, 2023

(Unaudited)

Three Months Ended November 30, 2023.

Six Months Ended November 30, 2023.

The accompanying notes are an integral part of these consolidated financial statements

KARBON-X CORP.

Consolidated Statement of Changes in Shareholders’ Equity

For the Three and Six Months Ended November 30, 2022

(Unaudited)

Three Months Ended November 30, 2022. 

Six Months Ended November 30, 2022. 

The accompanying notes are an integral part of these financial statements

KARBON-X CORP.

Consolidated Statement of Cash Flow

(Unaudited)

The accompanying notes are an integral part of these financial statements

KARBON-X CORP.

Notes to Consolidated Financial Statements

August 31,November 30, 2023

(Unaudited)

Note 1 - Basis of Presentation and Significant Accounting Policies

Karbon-X Corp. (“Karbon-X” or the “Company”Company”) was incorporated in the State of Nevada under the name CocoLuv, Inc.Inc on September 13, 2017 and established a fiscal year end of May 31.

On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X Project"(“Karbon-X”), and Karbon-X Project became the wholly owned subsidiary of the Company in a reverse acquisitionmerger (the "Reverse Acquisition"“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'sCompany’s common stock, resulting in Karbon-X Project becoming a wholly owned subsidiary of the Company and all debt owed to the related party of Cocoluv, Inc. 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'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"GAAP”), because the combined entity will be dependent on Karbon-X'sKarbon-X’s senior management, the Reverse Acquisition was accounted for as a recapitalization effected by a share exchange, wherein Karbon-X Project is considered the acquirer for accounting and financial reporting purposes. On the date of the reorganization, the assets and liabilities of Karbon-X Project have been brought forward at their book value and consolidated with Cocoluv, Inc.’s (the Company’s) assets, which comprised of cash and cash equivalents of $134 and liabilities which comprises due to related party of $99,902 (see Note 1 Basis of Presentation below). 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 Project.Karbon-X.

Going concern

To date the Company has generated minimal revenues from its business operations and has incurred operating losses since inception of $2,542,138.$3,896,931. 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 sheets, statements of operations, stockholders’ equity and cash flows of the Company. These consolidated financial statements are presented in the United States dollar and have been prepared in accordance with accounting principles generally accepted in the United States.

Use of Estimates and Assumptions

Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.

Sales Tax Receivable

Sales tax receivable consists of the accumulated reclaimable GST paid by the Company on purchases made in Canada.

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 sevenall five years.

Costs of major additions and improvements are capitalized while expenditures for maintenance and repairs, which do not extend the life of the asset, are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to income. Long-lived assets held and used by us are reviewed based on market factors and operational considerations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Inventory

Inventories are valued at the lower of cost or net realizable value. The Company’s inventories are valued under the first in, first out (FIFO) method. Net realizable value is estimated based on current selling prices. Estimated provisions are established for slow-moving and obsolete inventory. As of June 1, 2023, the Company changed its inventory policy from weighted average to FIFO, this had no significant impact on the current or prior consolidated financial statements.

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

heThe 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:

The carrying amount of the Company’s financial assets and liabilities approximate their fair values due to their short-term maturities.

Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under ASC 606, the Company recognizes revenue from the commercial sales of carbon credits and consulting services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

Rates for consulting services are typically per day, per hour, or a similar basis. Consulting revenue is recognized over the period in which the service is provided.

Revenue for sales of carbon credits is recognized at a point in time when control of the credit transfers to the buyer. The Company acts as a principal in all revenue transactions.

For transactions in which the Company has received compensation for services or carbon credits andis recognized at a point in time when control of the performance obligations have not yet been met,credit transfers to the buyer. The Company records the compensationacts as deferred revenue. a principal in all revenue transactions.

Foreign Currency Translation

The functional currency of the Company is the Canadian Dollar (“CAD”). For financial statement purposes, the reporting currency is the United States Dollar (“USD”).

For financial reporting purposes, the consolidated financial statements are translated into the Company’s reporting currency, USD. Asset, liability and liabilitiesequity accounts are translated using the closing exchange rate in effect at the balance sheet date withand income and expense accounts are translated using the average exchange rate prevailing during the reporting period.

Adjustments resulting from the translation, adjustmentsif any, are included as a separate component of shareholder’s equity throughin accumulated other comprehensive income (loss)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.stockholder’s equity (deficit).

Warrants

There is estimation uncertainty with respect to selecting inputs to the Black-Sholes model used to determine the fair value of the warrants (Note 6). These inputs include the stock price ranging from $0.50 - $0.25, exercise price ranging from $0.75 - $0.50, time to maturity of two years, annual risk-free interest rate ranging from 2.66% - 4.92%, and annualized volatility ranging from 637.12 % - 25.93-25.93 %.

The above estimates and assumptions are reviewed regularly. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Significant Estimates

Significant estimates applied in the preparation of these financial statements include the estimated useful lives of property and equipment, share volatility and estimated life of options and warrants in determining their fair value as well as the expected potential for the realization of deferred tax assets in determining the amount of the valuation allowance thereto.

Earnings per Common Share

The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the year. The diluted loss per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. As of August 31,November 30, 2023, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.

Reclassifications

Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings, financial position, or cash flows.

Note 2 – Prepaid Expenses

As of August 31,November 30, 2023 and May 31, 2023, prepaid expenses consisted of the following:

Note 3 – Inventory

Inventory as of August 31,November 30, 2023 and May 31, 2023, consisted of the following:

Carbon credit inventory represents carbon credits currently valued at the lower of cost or net realizable value. The Company’s inventories are valued under the first in, first out (FIFO) method.held for sale. 

Note 4 - Property and Equipment

The amount of property and equipment as of August 31,November 30, 2023 and May 31, 2023, consisted of the following:

The Company made no purchases during the threesix months ended August 31, 2023November 30,2023 and purchased office chairs and desks during the year ended May 31, 202331,2023 for $6,607$ 6,607. The Companycompany also purchased computers during the year ended May 31, 2023 for $3,705. Depreciation expense for the three months and six months ended August 31,November 30, 2023 was $ 546 and $ 1,099 respectively. Depreciation expense for the six months ended November 30, 2022 was $556 and $229, respectively.$528.

Note 5 – Shareholders’ Equity

During the threesix  months ended August 31, 2022,November 30, 2023, Karbon-X Corp.Corp completed afollowing private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended. In that private placement

During July – September 2023, the companyCompany sold 720,000 units at $0.25 per unit for total proceeds of $180,000.  Each unit consisted of share of common stock and warrant to purchase a share of common stock for $0.75 per share for a period of two years.

During November 2023, the Company sold 50,000 common stock at $2 per unit for total proceeds of $100,000.

During the year ended May 31, 2023, the Company executed an agreement to issue shares of Karbon-X Corp for the purchase of up to 80% of Silviculture Systems to be issued in tranches based on completion of milestones. During the three months ended August 31, 2023, the Company issued 1,500,000 shares of Karbon-X Corp for the purchase of an additional 8% of Silviculture Systems shown as shares to be issued at a value of $375,000. As of August 31, 2023, the Company has purchased 32% of Silviculture Systems for 6,000,000 shares of Karbon-X Corp shown as shares to be issued for a value of $1,500,000. During November 2023, the Company has abandoned the silviculture investment deal and decided to write off the carrying value of the Equity Investment in Silviculture. Accordingly the Company has written of carrying value of Investment of  $ 2,564,203, accumulated value of shares to be issued $ 1,500,000 and recognized loss on write off $ 1,064,203 in its statement of operations for the three months ended November 30, 2023.

During the threesix months ended August 31, 2023,November 30, 2022, Karbon-X Corp. completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended.  In that private placement the company sold 3,274,858 shares720,000 units at $0.25 per unit for total proceeds of $180,000.  Each unit consisted of share of common stock at $0.50and warrant to purchase a share of common stock for $0.75 per share for gross proceedsa period of $ 1,637,429, net of expenses related to issuances of $83,993.two years.

Note 6 – Warrants

During the threesix months ended August 31,November 30, 2023, the Company issued 10,400 warrants in connection with one private placement. Each warrant entitles the holder to acquire one common share of the Corporation at an exercise price of $0.50 with a two year term. The 10,400 units of warrants and shares were issued as a commission fee valued at $2,236.

A detail of warrant activity for the threesix months ended August 31,November 30, 2023 is as follows: