Karbon-X Corp. 10-Q

Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (UNAUDITED) Karbon-X Corp. November 30, 2024 May 31, 2024 Assets Current assets: Cash $ 1,459,680 $ 2,675,400 Accounts receivable, net - 120,284 Inventories, net 73,673 316,738 Prepaid expenses 180,974 1,000 Investments in equity securities 581,639 - Securities receivables 3,434,113 - Other current assets 76,109 - Total current assets 5,806,188 3,113,422 Long-term assets: Property, plant and equipment, net 5,676 6,918 Right-of-use Asset, net - 316,519 Other assets 21,170 12,351 Capitalized App Development Costs, Net 507,480 521,372 Total assets 6,340,514 3,970,582 Liabilities and stockholders' equity Current liabilities: Accounts payable 105,116 127,219 Deferred Revenue 2,882,096 - Lease liabilities - 21,945 Short-term loan payable - 36,500 Stock payable - 630,000 Payroll payable 22,735 24,103 Convertible notes payable, net of discounts 1,009,803 - Convertible notes - interest payable 13,118 - Total current liabilities 4,032,868 839,768 Long-term liabilities: Lease liabilities - 302,557 Other liabilities 16,436 - Total liabilities 4,049,304 1,142,325 Commitments and contingencies - - Stockholders' equity: Common stock Common stock $ 0.001 par value, 200,000,000 shares authorized, 83,569,408 and 82,174,750 shares issued and outstanding as of November 30, 2024 and May 31, 2024, respectively. 83,571 82,176 Additional paid-in capital 9,195,663 7,675,826 Accumulated deficit ( 6,903,663 ) ( 4,937,342 ) Accumulated other comprehensive gain (loss) ( 84,361 ) 7,597 Total stockholders' equity 2,291,210 2,828,257 Total liabilities and stockholders' equity $ 6,340,514 $ 3,970,582 See notes to consolidated financial statements. 4 Table of Contents CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Karbon-X Corp. Three Months Ended Six Months Ended November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023 Sales $ 1,175,060 $ 36,082 $ 1,302,489 $ 39,840 Cost of sales 644,237 13,652 738,335 14,201 Gross profit 530,823 22,430 564,154 25,639 Operating expenses Marketing expenses 370,488 7,444 382,839 28,839 Salaries and wages 922,139 141,854 1,455,733 314,741 Professional fees 265,570 72,171 410,843 150,462 Other operating expenses 177,684 81,888 312,150 134,788 Total operating expenses 1,735,881 303,357 2,561,565 628,830 Operating income (loss) ( 1,205,058 ) ( 280,927 ) ( 1,997,411 ) ( 603,191 ) Other (expense) income: Interest income (expense) 928 3,067 928 ( 24,700 ) Other, net 42,575 ( 1,064,203 ) 30,162 ( 1,064,203 ) Income before income taxes ( 1,161,555 ) ( 1,342,063 ) ( 1,966,321 ) ( 1,692,094 ) Income tax expense - - - - Net income (loss) ( 1,161,555 ) ( 1,342,063 ) ( 1,966,321 ) ( 1,692,094 ) Other comprehensive income (loss) Foreign currency translation gain (loss) ( 125,339 ) ( 7,157 ) ( 91,958 ) ( 10,379 ) Total comprehensive income (loss) $ ( 1,286,894 ) $ ( 1,349,220 ) $ ( 2,058,279 ) $ ( 1,702,473 ) Earnings per share Weighted average shares outstanding 81,737,822 77,566,636 81,619,321 76,726,602 Basic loss per share $ ( 0.02 ) $ ( 0.02 ) $ ( 0.03 ) $ ( 0.02 ) See notes to consolidated financial statements. 5 Table of Contents CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) For the Three Months and Six Months Ended November 30, 2024 and November 30, 2023 Karbon-X Corp. Common stock Additional paid-in Shares to Retained earnings Accumulated other comprehensive profit Total Stockholders' Shares Amount capital be issued (deficit) (loss) Equity Balance at May 31, 2024 82,174,750 $ 82,176 $ 7,675,826 - $ ( 4,937,342 ) $ 7,597 $ 2,828,257 Issuance of shares for cash, net of issuance cost 1,238,887 1,239 1,091,261 - - - 1,092,500 Issuance of shares as compensation - - - - - - - Fees related to shares issuance - - - - - - - Net income (loss) - - - - ( 804,766 ) ( 804,766 ) Foreign currency translation - - - - - 33,381 33,381 Balance at August 31, 2024 83,413,637 83,415 8,767,087 ( 5,742,108 ) 40,978 3,149,372 Issuance of shares for cash, net of issuance cost 155,771 156 138,313 - - - 138,469 Issuance of options as compensation - - 290,263 - - - 290,263 Net income (loss) - - - - ( 1,161,555 ) - ( 1,161,555 ) Foreign currency translation - - - - - ( 125,339 ) ( 125,339 ) Balance at November 30, 2024 83,569,408 $ 83,571 $ 9,195,663 - $ ( 6,903,663 ) $ ( 84,361 ) $ 2,291,210 Common stock Additional paid-in Shares to Retained earnings Accumulated other comprehensive profit Total Stockholders' Shares Amount capital be issued (deficit) (loss) Equity Balance at May 31, 2023 72,579,000 $ 72,579 $ 2,638,532 $ 1,750,000 $ ( 2,192,106 ) $ ( 3,786 ) $ 2,265,219 Issuance of shares for cash 3,274,858 3,275 1,552,396 375,000 - - 1,930,671 Issuance of shares as compensation 2,500,000 2,500 622,500 ( 625,000 ) - - - Issuance if share upon convertible loan 200,000 200 99,800 - - - 100,000 Net income (loss) - - - - ( 350,032 ) - ( 350,032 ) Foreign currency translation - - - - - ( 3,223 ) ( 3,223 ) Balance at August 31, 2023 78,553,858 78,554 4,913,228 1,500,000 ( 2,542,138 ) ( 7,009 ) 3,942,635 Issuance of shares for cash 50,000 50 99,950 - - - 100,000 Issuance of shares as compensation - - - - - - - Investment write-off in silviculture - - - ( 1,500,000 ) - - ( 1,500,000 ) Net income (loss) - - - - ( 1,342,063 ) - ( 1,342,063 ) Foreign currency translation - - - - - ( 7,157 ) ( 7,157 ) Balance at November 30, 2023 78,603,858 $ 78,604 $ 5,013,178 - $ ( 3,884,201 ) $ ( 14,166 ) $ 1,193,415 See notes to consolidated financial statements. 6 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Karbon-X Corp. Six Months Ended November 30, 2024 November 30, 2023 Operating activities Net income (loss) $ ( 1,966,321 ) $ ( 1,692,094 ) Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 1,242 1,099 Amortization of ROU - 5,838 Loss on investment - 1,091,890 Equity-based compensation expense 290,263 - Changes in operating assets and liabilities: Accounts receivable 120,284 7,636 Inventories 243,065 ( 102,774 ) Prepaid expenses ( 179,974 ) ( 68,089 ) Marketable securities ( 581,639 ) - Securities receivable ( 3,434,113 ) - Other current assets 245,484 - Accounts payable ( 652,103 ) ( 40,483 ) Other current liabilities 2,549,279 223,624 Cash used in operating activities ( 3,364,533 ) ( 573,353 ) Investing activities Purchases of property, plant and equipment - ( 702,407 ) Net cash used in investing activities - ( 702,407 ) Financing activities Proceeds from convertible notes payable 1,009,803 - Proceeds from sales of common stock, net of issuance costs 1,230,969 1,655,669 Net cash from financing activities 2,240,772 1,655,669 Change in cash and cash equivalents ( 1,123,761 ) 379,909 Effect of foreign exchange rate on cash ( 91,958 ) ( 18,502 ) Cash -- beginning of period 2,675,400 206,820 Cash -- end of period $ 1,459,681 $ 568,227 See notes to consolidated financial statements. 7 Table of Contents NOTE 1 – BACKGROUND, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Business Operations Karbon-X Corp. ("Karbon-X" or the "Company") was incorporated in the State of Nevada on September 13, 2017, and established a fiscal year end of May 31. On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse acquisition (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of 20,000-for-1 , into an aggregate of 20,000,000 shares of the Company's common stock, resulting in Karbon-X becoming a wholly owned subsidiary of the Company and all debt owed to the related party of Cocoluv, Inc. was forgiven. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition. As part of the Reverse Acquisition, on April 14, 2022 the Company changed its name to Karbon-X Corp. 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. The Company provides customized transactional options, tailored insights, and scalable access to the Verified Emissions Reduction markets. Karbon-X engages the public with technology-based greenhouse gas reduction projects, allowing the purchase of carbon offsets through a subscription-based app. Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements are presented in United States dollars and prepared in accordance with accounting principles generally accepted in the United States (US GAAP). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with an original maturity of three months or less at the date of purchase. 8 Table of Contents Accounts Receivable Accounts receivable represent amounts due from customers for goods or services provided by the Company. Accounts receivable are recorded at the invoiced amount. In accordance with Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326), also known as the Current Expected Credit Loss (CECL) model, the Company now utilizes a forward-looking approach to estimate expected credit losses over the lifetime of the receivables. This model considers historical loss experience, current conditions, and reasonable and supportable forecasts to assess credit risk. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets which are all five years. Costs of major additions and improvements are capitalized while expenditures for maintenance and repairs, which do not extend the life of the asset, are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to income. Long-lived assets held and used by us are reviewed based on market factors and operational considerations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Investments The Company accounts for investments with a 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 previously 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. During November 2023, the Company has abandoned the silviculture investment deal and decided to write off the carrying value of the Equity Investment in Silviculture. Accordingly, amidst ongoing disputes which we are currently discussing, the Company has written off the carrying value of Investment of USD $ 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 year ended May 31, 2024. Foreign Currency Translation The functional currency of the Company is the Canadian Dollar (“CAD”). For financial statement purposes, the reporting currency is the United States Dollar (“USD”). For financial reporting purposes, the consolidated financial statements are translated into the Company’s reporting currency, USD. Asset, liability and equity accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using the average exchange rate prevailing during the reporting period. Adjustments resulting from the translation, if any, are included in accumulated other comprehensive loss in stockholder’s equity (deficit). 9 Table of Contents Warrants There is estimation uncertainty with respect to selecting inputs to the Black-Sholes model used to determine the fair value of a single outstanding warrant issuance (Note 10). These inputs include the stock price of $ 0.25 , exercise price of $ 0.75 , time to maturity of two years , annual risk-free interest rate ranging from 4.33 % - 4.74 %, and annualized volatility ranging from 1294.9 % - 1279.3 %. 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 November 30, 2024, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share. Reclassifications Certain amounts in the comparative periods presented have been reclassified to conform to the current period's presentation. These reclassifications had no effect on the previously reported net income, comprehensive income, total assets, or shareholders' equity. Recently Issued Accounting Standards The Financial Accounting Standards Board (FASB) has issued several updates relevant to the Company: · Update 2024-04 : Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. Effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted. · Update 2024-03 : Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. Effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. · Update 2024-02 : Codification Improvements—Amendments to Remove References to the Concepts Statements. Effective for public business entities for fiscal years beginning after December 15, 2024. For all other entities, effective for fiscal years beginning after December 15, 2025. Early application is permitted. 10 Table of Contents · Update 2024-01 : Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. Effective for public business entities for annual periods beginning after December 15, 2024, and interim periods within those annual periods. For all other entities, effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of these provisions on its consolidated financial statements Going Concern To date, the Company has generated minimal revenues from its business operations and has incurred operating losses since inception of $( 6,903,663 ). 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. 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. 11 Table of Contents NOTE 2 - REVENUE RECOGNITION The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, "Revenue from Contracts with Customers." Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company follows a five-step process to recognize revenue: 1. Identify the contract with a customer : A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations. 2. Identify the performance obligations in the contract : Performance obligations are promises in a contract to transfer distinct goods or services to the customer. 3. Determine the transaction price : The transaction price is the amount of consideration the Company expects to receive in exchange for transferring goods or services to the customer. 4. Allocate the transaction price to the performance obligations in the contract : The transaction price is allocated to each performance obligation based on the relative standalone selling prices of the goods or services being provided. 5. Recognize revenue when (or as) the Company satisfies a performance obligation : Revenue is recognized when control of the goods or services is transferred to the customer, which can occur over time or at a point in time. Revenue Streams The Company generates revenue from the following sources: 1. Carbon Credit Sales : Revenue from the sale of carbon credits is recognized at a point in time when control of the carbon credits transfers to the customer, which typically occurs upon delivery. 2. Subscription Services : Revenue from subscription services, which provide customers access to the Company's platform and related services, is recognized over time on a straight-line basis over the subscription period. 3. Consulting Services : Revenue from consulting services is recognized over time as the services are performed. The Company measures progress toward completion using an input method based on hours incurred. 4. NFT Sales : Revenue from the sale of NFTs (non-fungible tokens) representing tokenized carbon credits is recognized at a point in time when control of the NFTs transfers to the customer, which typically occurs upon delivery. Accounts Receivable and Deferred Revenue · Accounts Receivable: Accounts receivable represent amounts due from customers for goods or services provided by the Company. Accounts receivable are recorded at the invoiced amount. As of November 30, 2024, accounts receivable were $ 0 . · Deferred Revenue: Deferred revenue consists of advance payments received from customers for services to be provided in future periods. As of November 30, 2024, deferred revenue was $ 2,882,096 . The deferred revenue related to the delivery of carbon credits is expected to be recognized in revenue over the contract period as the credits are delivered according to the schedule. Specifically, recognition will occur quarterly from Q2 2025 through Q1 2029, based on the quantities delivered in each period at the rate of $120 per credit. 12 Table of Contents NOTE 3 - INVENTORIES Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written down or written off. As of November 30, 2024, inventories consisted of the following: Description November 30, 2024 May 31, 2024 Carbon Credit Inventory USD $ 73,673 USD $ 316,738 Total USD $ 73,673 USD $ 316,738 Carbon Credit Inventory Carbon credit inventory represents carbon credits currently held for sale. The Company engages in the purchase and sale of carbon credits as part of its business operations. These credits are acquired from various projects and are sold to customers seeking to offset their carbon emissions. Inventory Valuation The Company evaluates its inventory to ensure it is stated at the lower of cost or net realizable value. This evaluation includes an analysis of the current market conditions, the estimated selling prices of the carbon credits, and any potential obsolescence. Adjustments to the carrying value of inventory are made as necessary to reflect any declines in net realizable value below cost. 13 Table of Contents NOTE 4 - PREPAID EXPENSES Prepaid expenses consist of payments made in advance for goods or services to be received in future periods. These expenses are recognized as assets until the related goods or services are consumed or the benefits are realized. As of November 30, 2024, the majority of the Company's prepaid expenses are related to the advertising and promotional agreement with Oilers Entertainment Group Canada Corp. ("OEG"). On September 1, 2024, the Company received invoices from OEG for the advertising and promotional agreement signed on July 1, 2024. The agreement includes various promotional rights and advertising services to be provided over the term of the contract, which ends on June 30, 2027. The total amount invoiced for the period ending November 30, 2024, has been recorded as a prepaid expense. The table below summarizes the prepaid expenses related to the OEG agreement as of November 30, 2024: Description Amount (USD $) Advertising & Promotional Agreement 180,974 Total Prepaid Expenses 180,974 Advertising & Promotional Agreement The advertising and promotional agreement with OEG includes various marketing rights, logo usage rights, digital signage, in-bowl signage, digital broadcast signage, and other promotional activities. The agreement specifies that the Company will receive these promotional rights in exchange for a fee. The first installment of CAD 750,000 was invoiced on September 1, 2024, and has been recorded as a prepaid expense. This amount will be amortized over the period in which the related promotional rights and advertising services are received. Amortization of Prepaid Expenses The prepaid expenses related to the OEG agreement will be amortized on a straight-line basis over the term of the contract. The amortization expense for the period ending November 30, 2024, will be recognized in the Company's statement of operations. 14 Table of Contents NOTE 5 – CONVERTIBLE PROMISSORY NOTES On October 15, 2024, Karbon-X Corp. issued convertible promissory notes totaling USD $ 1,009,803 to three investors as part of its capital-raising efforts. The notes bear simple interest at a rate of 10 % per annum, and mature on October 15, 2026 , for two investors, and October 16, 2026 , for one investor. One investors note was issued for CAD $500,000, which was equivalent to USD $ 359,803 on the date of issuance. The principal amount of the investor’s note is fixed in Canadian dollars and requires repayment in U.S. dollars, exposing the Company to foreign currency risk. The notes include a conversion feature, allowing the holders to convert the principal and accrued interest into the Company's common stock. Conversion is permitted at the option of the lender at any time after the earlier of: 1. Twenty-four months from the date of issuance, or 2. The Company’s listing on OTCQX, Nasdaq, or NYSE. The conversion price is the lesser of: 1. 80% of the twenty-day weighted average closing price of the Company’s common stock preceding the conversion (but not less than $ 0.50 per share), or 2. $ 0.50 per share. Conversion is further restricted to ensure that no lender converts an amount of the note that would result in owning more than 9.9 % of the outstanding common stock at any time. The Borrower may prepay the principal amount and any unpaid interest or any portion thereof at any time without notice, further interest, bonus, or penalty, provided that a minimum of six months’ interest shall be payable regardless of the prepayment date. The issuance of these convertible promissory notes provided the Company with necessary capital to support its operations and strategic initiatives while offering investors the potential for equity participation in the Company's future growth. As of November 30, 2024, the principal amount of the convertible promissory notes totaled USD $ 1,009,803 , For the quarter ended November 30, 2024, the Company recognized interest expense of USD $ 13,118 , calculated based on the stated 10 % simple interest rate. Prepayment Option The Company may prepay the notes at any time without penalty, provided that a minimum of six months’ interest is payable. This provision ensures lenders are compensated regardless of the prepayment date. 15 Table of Contents NOTE 6 - INVESTMENTS IN EQUITY SECURITIES AND CARBON CREDIT FORWARD PURCHASE AGREEMENT On October 24, 2024, Karbon-X Corp. entered into a Carbon Credit Purchase Agreement with DevvStream Holdings Inc. As part of this agreement, Karbon-X Corp. received 174,953 common shares of New Pubco, a company formed from the merger of DevvStream Holdings Inc. and Focus Impact Acquisition Corp., a special purpose acquisition company (SPAC) listed on the Nasdaq Stock Exchange. The shares were issued at a deemed price of $ 6.50 per share, resulting in an initial valuation of USD $ 1,137,197 . On October 28, 2024, Karbon-X Corp. entered into a Carbon Credit Forward Purchase Agreement with DevvStream Holdings Inc., under which Karbon-X Corp. will sell verified greenhouse gas offset or carbon credits, specifically C-Sink Credits, to DevvStream Holdings Inc. The purchase price for these credits is USD $ 2,892,000 , payable in 444,923 common shares of New Pubco at a deemed price of $ 6.50 per share. This agreement is classified as a futures contract under relevant U.S. GAAP guidance. The futures contract is considered under ASC 606 because it represents a performance obligation to deliver carbon credits, a distinct good, to the buyer in exchange for consideration. The contract specifies the quantity, timing, and price of the credits to be delivered, aligning with ASC 606's criteria for a contract with a customer. Additionally, the primary intent of the agreement is the physical delivery of carbon credits, which are expected to be used for the buyer's operational needs rather than for speculative trading. As such, the transaction falls within the scope of ASC 606, as it involves the recognition of revenue upon the fulfillment of the delivery obligations. Initial Recognition and Measurement At initial recognition, the common shares of New Pubco received under the agreements are classified as equity securities and measured at fair value upon initial recognition in accordance with ASC 321, "Investments—Equity Securities". The Company recorded an initial fair value of the securities based on observable market prices at the time of execution, consistent with a Level 1 fair value measurement, as the shares were actively traded on the Nasdaq Stock Exchange. · For the Carbon Credit Purchase Agreement, the fair value of the 174,953 shares was recognized as $ 167,955 . · For the Carbon Credit Forward Purchase Agreement, the 444,923 shares were valued at $ 427,126 , representing the purchase price of the C-Sink Credits to be delivered in the future. Upon entering into the forward purchase agreement, Karbon-X Corp. also recognized a deferred revenue liability of $ 2,892,000 , as the performance obligation to deliver the carbon credits had not yet been satisfied. This deferred revenue will be recognized as income upon delivery of the carbon credits. Refer to Note 7 for further details on deferred revenue. Subsequent Measurement and True-Up Provision Subsequent to initial recognition, the equity securities are measured at fair value in accordance with ASC 321, "Investments—Equity Securities". Additionally, as the securities are denominated in a foreign currency, a currency translation adjustment (CTA) is recorded to reflect the impact of exchange rate fluctuations. The CTA is included in other comprehensive income (OCI) in accordance with ASC 830, "Foreign Currency Matters". As of November 30, 2024, the fair market value (FMV) of New Pubco shares was USD $0.96 per share. In compliance with ASC 321, the Company marked the investment to fair value, resulting in the following adjustments: · The fair value of investments was at the current market price of $ 0.96 per share. · To address the difference between the contractual price and the current market price, Karbon-X recorded a securities receivable for the true-up portion guaranteed under the agreements. The true-up provision ensures that the Company will be made whole if the market value of the shares remains below the contracted value during the adjustment period. As of November 30, 2024, no additional shares have been issued under these provisions. As of November 30, 2024, the balances were as follows: Description Balance (USD) Investments in Equity Securities $ 581,639 Securities Receivable $ 3,434,113 Total Value $ 4,015,752 Fair Value Hierarchy The equity securities of New Pubco are measured using Level 1 inputs, as the shares are actively traded on the Nasdaq Stock Exchange. The Company's exposure to impairment is mitigated by the true-up provision, which ensures no loss is ultimately recognized. While the securities are remeasured to fair market value quarterly, the receivable reflects the guaranteed recovery under the agreement. 16 Table of Contents NOTE 7 - DEFERRED REVENUE Initial Recognition and Deferred Revenue On October 28, 2024, Karbon-X Corp. entered into a Carbon Credit Forward Purchase Agreement with DevvStream Holdings Inc. Under this agreement, Karbon-X Corp. will sell verified greenhouse gas offset or carbon credits, specifically C-Sink Credits, to DevvStream Holdings Inc. The purchase price for these credits is USD $ 2,892,000 , payable in 444,923 common shares of New Pubco at a deemed price of $ 6.50 per share. This transaction is classified as a futures contract, and the accounting treatment follows the relevant FASB Codification and Accounting Standards Updates (ASUs). Upon entering into the futures contract, Karbon-X Corp. recognized a deferred revenue liability of USD $ 2,892,000 , as the performance obligation (delivery of carbon credits) had not yet been satisfied. This deferred revenue represents the obligation to deliver the carbon credits in the future. Recognition of Marketable Securities Upon the execution of the agreement and the issuance of the common shares of New Pubco, Karbon-X Corp. recognized the marketable securities at their fair value of USD $ 2,892,000 . These securities are classified as equity securities with readily determinable fair values and are measured at fair value, with changes in fair value recognized in net income. Revenue Recognition As Karbon-X Corp. delivers the carbon credits according to the schedule specified in the agreement, it recognizes revenue and reduces the deferred revenue liability. Revenue is recognized when control of the promised goods or services is transferred to the customer, in accordance with ASC 606. Purchase Price Adjustment The agreement includes a provision for a purchase price adjustment 18 months after the closing date . If the gross proceeds from the sale of the initial shares are less than USD $ 2,882,096 , additional shares will be issued to Karbon-X Corp. to cover the shortfall. As of November 30, 2024, no additional shares have been issued under this provision. Further, the company will incur a liability if it is unable to deliver the agreed-upon carbon credits under the futures contract to its customer. 17 Table of Contents NOTE 8 - CAPITAL WORK IN PROGRESS (INTERNALLY DEVELOPED SOFTWARE) In accordance with ASC 350-40, the Company has capitalized internally developed software for its development of a mobile application. The software is currently in its application development stage, and all related costs are being capitalized as incurred. Once the software is ready for implementation, the Company will begin amortizing the software over its estimated useful life. As of November 30, 2024, and May 31, 2024, the Company has capitalized internally developed software with a value of USD $ 507,478 and USD $ 521,372 , respectively. The decrease in value is primarily attributed to the impact of cumulative translation adjustments (CTA) resulting from the remeasurement of foreign currency values to USD. NOTE 9 - STOCK OPTION PLAN Description of the Plan The Company has adopted the 2024 Employees', Directors', Officers', and Consultants' Stock Option Plan (the "Plan") on May 16, 2024, which authorizes the issuance of options to purchase up to 5,000,000 shares of common stock. The Plan is designed to attract, retain, and motivate employees, directors, officers, and consultants by providing them with an opportunity to acquire a proprietary interest in the Company. Types of Options The Plan provides for the issuance of both Incentive Stock Options (ISOs) and Nonstatutory Stock Options (NSOs). ISOs are intended to qualify under Section 422 of the Internal Revenue Code, while NSOs do not qualify under Section 422. Eligibility Options may be granted to employees, directors, officers, and consultants of the Company. Special provisions apply to individuals owning more than 10 % of the Company's stock. Administration The Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to determine the terms and conditions of each option grant. Shares Available The maximum number of shares that may be issued under the Plan is 5,000,000 shares of common stock. Option Terms: · Exercise Price : The exercise price of options granted under the Plan must be at least 100% of the fair market value of the stock on the date of grant. · Term : Options granted under the Plan have a maximum term of ten years from the date of grant. · Vesting : The vesting schedule for options is determined by the Compensation Committee at the time of grant. Payment for Shares Upon exercise of an option, the optionee may pay the exercise price in cash or, with the consent of the Compensation Committee, by tendering shares of common stock. Adjustments In the event of a stock split, merger, or other corporate event, the number of shares subject to the Plan and the exercise price of outstanding options will be adjusted as determined by the Compensation Committee. Transferability Options granted under the Plan are generally non-transferable, except under specific conditions as outlined in the Plan. 18 Table of Contents Termination of Employment The Plan provides specific rules for the exercise of options upon termination of employment, including termination for cause, disability, or death. Legal Compliance The issuance of shares under the Plan is subject to compliance with federal and state securities laws. Plan Duration The Plan became effective upon adoption by the Board of Directors and options may not be granted after December 31, 2026. Activity Under the Plan As of November 30, 2024, the following activity has occurred under the Plan: Description Number of Shares Weighted Average Exercise Price Weighted average remaining life (in years) Options Authorized 5,000,000 Options Granted 3,005,000 $ 0.75 4.50 Options Exercised 0 $ 0.75 4.50 Options Forfeited ( 25,125 ) $ 0.75 4.50 Options Outstanding 2,979,875 $ 0.75 4.50 Options Vested 999,259 $ 0.75 4.50 Options Unvested 1,980,616 $ 0.75 4.50 On November 30, 2024, the intrinsic value of the 2,979,875 outstanding options was $0. Fair Value of Options The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: · Expected Volatility : 35 % ○ The Company determined expected volatility based on an analysis of comparable publicly traded companies in the same or similar industry. As a startup in a new industry, Karbon-X lacks sufficient historical trading data. The analysis considered market trends and the high-growth, high-risk nature of the carbon management and sustainability sector. The selected volatility reflects industry patterns of startups in comparable markets, ensuring reasonability and alignment with peer data. · Expected Life : 5 Years ○ Based on the vesting schedule and anticipated exercise behavior of option holders. 19 Table of Contents · Risk-Free Interest Rate : 5% ○ The rate reflects the yield on U.S. Treasury securities with a term consistent with the expected life of the options. Given the current interest rate environment, a 5 % rate is appropriate for options granted during Q2 FY2024. This aligns with the Federal Reserve’s policy rates and prevailing market conditions. · Expected Dividends : 0% ○ The Company does not currently pay dividends, consistent with its growth-oriented business strategy. Stock-Based Compensation Expense For the quarter ended November 30, 2024, the Company recognized stock-based compensation expense of USD $ 290,263 , reflecting the expense allocation based on the vesting schedule outlined below: Date Vesting % Vested Shares Period Compensation Expense 1-Sep-24 26.5 0 % 776,450 229,611 1-Oct-24 3.50 % 102,550 30,326 1-Nov-24 3.50 % 102,550 30,326 Total 981,550 290,263 20 Table of Contents NOTE 10 – WARRANTS A detail of warrant activity for the six months ended November 30, 2024 is as follows: Description Number Weighted average exercise price Weighted average remaining contractual life (in years) Outstanding May 31, 2024 330,400 $ 0.63 0.63 Exercised - - - Granted - - - Expired ( 320,000 ) 0.75 - Cancelled - - - Outstanding November 30, 2024 10,400 $ 0.50 0.88 21 Table of Contents NOTE 11 – SUBSEQUENT EVENTS Lease Agreement On October 18, 2024, Karbon-X Corp. entered into a lease agreement with First Real Properties Limited for new office space located at Suite 1720, 540 – 4th Avenue SW, Calgary, Alberta. The leased premises consist of approximately 6,655 square feet. The lease term is five years, commencing on July 1, 2025, and ending on June 30, 2030 . The agreement includes an early occupancy period starting February 1, 2025, during which Karbon-X will not be responsible for paying Basic Rent or Additional Rent. Employee stock options In the third quarter of fiscal year 2025, the Company has initiated plans to award stock options to employees as part of its equity compensation program. The terms and conditions of these stock options, including the number of options to be granted, the exercise price, and the vesting schedule, are currently under review and have not yet been finalized or executed as of the issuance date of these financial statements. Management anticipates that these awards will be granted to incentivize and retain employees, aligning their interests with those of the Company’s shareholders. The financial impact of these stock option awards will be recognized in accordance with applicable accounting standards once the terms are finalized, and the awards are executed. The Company will provide additional disclosures regarding these stock options in future filings as more information becomes available. 22 Table of Contents