What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-09-15 compared with 2024-09-13 · 287 added, 116 removed, 282 unchanged (59% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets as of May 31, 2025 and May 31, 2024

Consolidated Statement of Operations for the Years Ended May 31, 2024 and 2023

Consolidated Statements of Stockholders’ Equity (deficiency) for the Years Ended May 31, 2024 and 2023

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended May 31, 2025 and 2024

Consolidated Statements of Changes in Shareholders’ Equity (deficit) for the Years Ended May 31, 2025 and 2024

Consolidated Statements of Cash Flows for the Years Ended May 31, 2025 and 2024

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of Karbon-X Corp.

(“the Company”) as of May 31, 2024 and 2023, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flow for each of the years in the two-year period ended May 31, 2024, and the related notes (collectively referred to as the financial statements).

(“the Company”) as of May 31, 2025 and 2024, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended May 31, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended May 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

30 unchanged sentences

Cash and cash equivalents

Accounts Receivable

Sales tax receivable

Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Investments in equity securities

Securities receivables

Total current assets

Property and equipment

Internally developed software

Right of use asset

Investment in Silviculture

Security deposit

Property and equipment, net

Right of use asset, net

Internally developed software, net

LIABILITIES AND SHAREHOLDERS’ EQUITY

1 unchanged sentence

Accounts payable

Current portion of lease liability

Deferred Revenue

Short term loan

1 unchanged sentence

Payroll liabilities

Convertible notes payable, net of discounts

Convertible notes – interest payable

Embedded Derivative

Current portion of lease liabilities

Total current liabilities

Noncurrent portion of lease liability

Non-current portion of lease liabilities

Total liabilities

2 unchanged sentences

Common stock $0.001 par value, 200,000,000 shares authorized, 81,992,857 and 82,174,750 shares issued and outstanding as of May 31, 2025 and May 31, 2024, respectively.

Shares to be issued

Additional Paid-in capital

1 unchanged sentence

(11,990,833 )

( 2,192,106 )

Accumulated other comprehensive gain (loss)

3 unchanged sentences

KARBON-X CORP.

Consolidated Statements of Operations

For the Year Ended

Consolidated Statements of Operations and Comprehensive Income (Loss)

Total revenue

2 unchanged sentences

Salaries and wages

Interest expense

Professional fees

2 unchanged sentences

Loss from Operations

( 1,546,943 )

( 1,981,022 )

Interest income (expense)

Gain(loss) on investment

( 1,191,890 )

Gain (loss) on change in fair value of derivative liabilities

Other income (expenses)

Net loss before income taxes

( 2,744,583 )

( 1,987,877 )

Federal income tax expense

( 2,744,583 )

( 1,987,877 )

Other comprehensive loss

1 unchanged sentence

Total comprehensive loss

( 2,733,200 )

( 1,997,135 )

Earnings Per Share

5 unchanged sentences

For the Years Ended May 31, 2025 and 2024

Additional Paid

Accumulated other

comprehensive

Balance May 31, 2022

$ ( 204,229 )

Shares to be issued for investment

Shares to be issued for stock compensation

Issuance of shares and warrants for cash

Translation gain (loss)

( 1,987,877 )

Balance May 31, 2023

Total Stockholders'

profit (loss)

Balance at May 31, 2023

$ (2,192,106 )

Shares to be issued for investment

Shares to issued as stock Compensation

Issuance of shares for cash and warrants, net

Conversion of loan to shares

Issuance of shares as compensation

Issuance of share upon convertible loan

Offering expenses

Write off of Investment in silviculture

( 1,500,000 )

Write off investment in Silviculture

Net income (loss)

Foreign currency translation

Balance at May 31 , 2024

Issuance of shares for cash, net

Issuance of shares for warrants

Issuance of shares as compensation

Issuance of share upon convertible loan

Option compensation expense

Cancelled shares

Net income (loss)

$ (7,053,492 )

Translation loss

Net loss for the period

$ (7,053,492 )

Foreign currency translation

Balance at May 31,2025

$ (11,990,834 )

Balance May 31, 2024

$ (1,369,075 )

2 unchanged sentences

Consolidated Statements of Cash Flow

For the Year Ended

Cash flows from operating activities

5 unchanged sentences

Loss on investment

Gain on change in fair value of derivative

Amortization of Right of Use Asset

3 unchanged sentences

Accounts receivable

Accounts payable

Marketable securities

Stock payable

Payroll liabilities

Securities receivable

Accounts payable

Deferred revenue

Other current liabilities

Prepaid expenses

Payments made on operating lease

Security deposit

Other current assets

Cash used in operating activities

( 1,098,134 )

( 1,485,069 )

Cash flows from investing activities

5 unchanged sentences

Proceeds from short term loan

Proceeds from convertible notes

Debt discount on convertible notes

Proceeds from issuance of shares and warrants

4 unchanged sentences

Cash, end of period

Non cash operating activities

Capitalization of right of use asset

Capitalization of lease liability

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

Write off of Investment in Silviculture investment

$ (1,500,000 )

Shares to be issued as stock based compensation

Issuance of shares upon convertible loan

Supplemental disclosures

21 unchanged sentences

Going concern

To date the Company has generated minimal revenues from its business operations and has incurred operating losses since inception of $ 4,937,342 .

To The Company has recently began significant revenue generation from its business operations and has incurred operating losses since inception of $11,990,833.

The Company will require additional funding to meet its ongoing obligations and to fund anticipated operating losses.

4 unchanged sentences

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiary.

The consolidated financial statements include the accounts of the Company and its subsidiaries.

All significant intercompany accounts and transactions have been eliminated in consolidation.

8 unchanged sentences

Accounts receivable represent amounts due from customers for goods or services provided by the Company.

Accounts receivable are recorded at the invoiced amount.

The Company evaluates the collectability of accounts receivable based on historical collection experience, the age of outstanding receivables, and specific facts and circumstances related to individual customers.

Accounts receivable are recorded at the invoiced amount, net of allowance of $0 and $0 as of May 31, 2025 and 2024, respectively.

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.

8 unchanged sentences

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.

As of March 1, 2024 it was management's decision to revalue inventory at the lower of cost or market.

Net realizable value is estimated based on current selling prices, with provisions established for slow-moving and obsolete inventory.

This change from the previous weighted average method to lower of cost or market had no significant impact on the current or prior consolidated financial statements.

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.

The Company accounts for investments with a 20% to 50% ownership and a significant but not controlling influence as equity method investments.

2 unchanged sentences

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.

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.

During November 2023, the Company 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 $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.

6 unchanged sentences

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.

Other than the derivative liabilities presented below, the carrying amount of the Company’s financial assets and liabilities approximate their fair values.

The Company measures certain financial instruments at fair value on a recurring basis in accordance with ASC 820, Fair Value Measurement.

As of May 31, 2025, the Company evaluated the conversion features embedded in certain convertible promissory notes and determined that they represent derivative liabilities requiring bifurcation under ASC 815-15.

The Company uses valuation methods to estimate the fair value of the derivative liabilities associated with its convertible notes.

The model incorporates significant unobservable inputs, including:

Expected stock price volatility

Risk-free interest rates

Estimated time to maturity

Probability of uplisting

Expected trading volumes

Because these inputs are unobservable and require significant management judgment, the Company has classified the derivative liabilities as Level 3 in the fair value hierarchy.

The following table summarizes the fair value hierarchy of the Company’s financial liabilities measured at fair value on a recurring basis as of May 31, 2025:

Derivative liabilities – convertible notes

Other financial instruments

Total Embedded Derivatives

The following table summarizes the changes in Level 3 derivative liabilities measured at fair value on a recurring basis.

Balance at beginning of period

Purchases / issuances

Total (gains) losses recognized in earnings

Settlements (net)

Change in unrealized (gains) losses included in earnings for instruments still held at period end

Balance at end of period

Revenue Recognition

13 unchanged sentences

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.

Additionally, the Company has a subscription-based model that is materially consistent with how revenue is recognized for the sales of carbon credits.

The Company act as a principal in all revenue transactions.

Foreign Currency Translation

5 unchanged sentences

The Company includes realized gains and losses from foreign currency transactions in other income (expense), net in the consolidated statement of operations.

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 4.33 % - 4.74 %, and annualized volatility ranging from 1294.9 % - 1279.3 %.

Warrants and Options

There is estimation uncertainty with respect to selecting inputs to the Black-Sholes model used to determine the fair value of warrants (Note 7) and options (Note 10).

These inputs include the stock price of $0.9 - $0.75, exercise price of $0.75, time to maturity of two - five years, annual risk-free interest rate ranging from 4.33% - 4.74%, and annualized volatility ranging from 1,294.9% - 1,279.3%.

The above estimates and assumptions are reviewed regularly.

1 unchanged sentence

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.

Significant estimates applied in the preparation of these financial statements include the estimated useful lives of property and equipment, the inputs used in the valuation of embedded derivatives on convertible notes.

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

2 unchanged sentences

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, 2024, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.

As of May 31, 2025, potential dilutive securities of approximately 6,663,148 shares had an anti-dilutive effect and were not included in the calculation of diluted net loss per share.

Segment Reporting

ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting.

The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.

Our Chief Operating Decision Maker, Chad Clovis, Chief Executive Officer, President, and Director, reviews financial information and allocates resources on a consolidated basis.

The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

Reclassifications

1 unchanged sentence

These reclassifications had no impact on net earnings, financial position, or cash flows.

Recently Issued Accounting Standards

The Financial Accounting Standards Board (FASB) has issued several updates relevant to the Company:

Update 2025-01:

Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date Effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

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.

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 in the process of evaluating the impact these recently issued accounting standards will have on the Company’s financial statements.

Note 2 – Prepaid Expenses

As of May 31, 2025 and May 31, 2024, prepaid expenses consisted of the following:

Advertising & Promotional Agreement

Prepaid inventory

12 unchanged sentences

The Company did not purchase significant property, plant and equipment for the year ended May 31, 2025.

Depreciation expense for the year ended May 31, 2024 and 2023 were $ 2,194 and $ 1,219 , respectively.

Depreciation expense for the year ended May 31, 2025 was $3,225.

Note 5 – Convertible Notes

As of May 31, 2025, Karbon-X Corp.

issued convertible promissory notes totaling USD $2,443,195 to multiple investors as part of its capital-raising efforts.

The notes bear simple interest at a rate of 10% per annum - quarter, and have maturity terms of 1 year or less.

During the year ended, May 31, 2025, two notes of principal $350,000 and interest of 16,724 were converted into 404,471 shares at $0.90/share.

The Company recorded discounts of $141,529, interest expense and discount amortization related to convertible notes of $372,071 and loss on change in fair value of derivatives of $72,927 for the year ended May 31, 2025.

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:

Twenty-four months from the date of issuance, or

The Company’s listing on OTCQX, Nasdaq, or NYSE.

The conversion price is the lesser of:

80% of the twenty-day weighted average closing price of the Company’s common stock preceding the conversion (but not less than the average of the four notes $0.56 per share), and of the trading day immediately preceding such conversion (but not less than $0.75 per share) or (ii) $0.90 per share.

The notes range from $0.50 - $0.90 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.

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.

As of May 31, 2025, the Company owed principal of $2,443,195, net of discounts of $333,334, accrued interest of $118,853, and embedded liabilities of $59,325.

Note 6 – Shareholders’ Equity

During the year ended May 31, 2025, Karbon-X Corp completed following private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended.

During July – September 2023, Karbon-X Corp.

completed a private placement pursuant to Rule 506(c) of the Securities Exchange Act of 1934, as amended.

In that private placement the company sold 3,274,858 shares of common stock at $ 0.50 per share for gross proceeds of $ 1,637,429 , net of expenses related to issuances of $ 83,993 .

On June 6, 2023 the Company converted a loan for $ 100,000 into 200,000 shares at price of $ 0.50 per share.

During November 2023, the Company sold 50,000 common stock and warrants at $.90 per unit for total proceeds of $ 100,000 .

During January 2024, the Company revalued the common stock from $ 2.00 per unit to $ 0.90 per unit for certain previous private placement investors and issued an additional 61,111 shares.

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 720,000 units at $ 0.25 per unit for total proceeds of $ 180,000 .

Each unit consisted of share of common stock and warrant to purchase a share of common stock for $0.75 per share for a period of two years .

During the 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 3,539,000 shares of common stock at $ 0.50 per share for gross proceeds of $ 1,769,500 , net of costs directly related to the share issuance of $ 93,531 .

During the year ended May 31, 2023, the Company executed an agreement to issue 2,500,000 shares as stock compensation at a price of $ 0.25 per share, representing a value of $ 625,000 based on the value of services received.

However, as a result of the silviculture impairment and the subsequent abandonment of the investment deal in November 2023, the shares were written off.

During the year ended May 31, 2025, the Company sold 1,926,742 shares at $0.90 per share for total proceeds of $1,712,099.

On March 31, 2025, the Company converted a loan for $350,000 principal and $16,724 interest into 407,471 shares at a price of $0.90 per share.

On March 31, 2025, the Company issued 57,875 shares at $2.04 per share for compensation of $118,007.

On May 22, 2025, the Company converted 360,000 options related to its stock option plan into 205,715 shares via a cashless exercise.

On May 15, 2025, 10,400 warrants were exercised in a cashless exercise for 7,429 shares.

Note 7 – Warrants

3 unchanged sentences

Additionally, the Company had 830,000 expired warrants and 2,990,000 exercised warrants at an average price of $0.75 during the same period.

During the year ended May 31, 2023, the Company issued 720,000 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 $ 0.75 with a two year term.

The 720,000 units of warrants and shares were issued in exchange for $ 180,000 .

During the year ended May 31, 2025, these warrants were exercised in a cashless exercise for 7,429 shares.

A detail of warrant activity for the year ended May 31, 2025 is as follows:

5 unchanged sentences

Outstanding May 31, 2023

( 2,990,000 )

Outstanding May 31, 2024

Outstanding May 31, 2025

Note 8 – Investments

On May 31, 2023, the Company executed an amended share exchange agreement to buy up to 80 % of Silviculture Systems in exchange for cash and shares of Karbon-X Corp valued at $ 7,250,000 .

$3,250,000 paid for in shares and the remaining $3,500,000 paid for in cash over the next three years .

The issuance of shares was to occur in tranches upon the completion of milestones.

As of May 31, 2023, the Company has paid $ 397,523 in cash, has a 24 % ownership in Silviculture Systems and has a significant, but not controlling interest in Silviculture Systems.

The shares related to the 24% ownership are shown as shares to be issued and have been valued at the most recent stock purchase price of $ 0.25 per share.

This investment has been accounted for as an equity method investment and its respective gain/loss for the period has been recorded in the statement of operations.

For the year ended May 31, 2023, the Company recorded a loss on equity method investment of $ 8,039 .

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 $ 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.

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.

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 $68,232.

For the Carbon Credit Forward Purchase Agreement, the 444,923 shares were valued at $173,520, 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 May 31, 2025, the fair market value (FMV) of New Pubco shares was USD $0.49 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 $0.49 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 May 31, 2025, no additional shares have been issued under these provisions.

As of May 31, 2025, the balances were as follows:

Balance (USD)

Investments in Equity Securities

Securities Receivable

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.

Note 9 – 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.

The software completed its application development stage and all related costs as of March 1, 2025 and any additional costs since then are being expensed as incurred.

The software has been completed and placed into service;

the Company began amortizing the software over its estimated useful life of three years on March 1, 2025.

As of May 31, 2025 and May 31, 2024, the Company has capitalized internally developed software of $473,895 and $521,372, respectively.

Note 9 – Short Term Note

On January 13, 2023, the Company obtained a short term loan of $ 100,000 from a third party.

This loan had an interest rate of 8 % per annum and was due in full on July 10, 2023, which were fully converted as of year end.

The Company recorded amortization expense of $43,081 and $0 for the years ended May 31, 2025 and 2024, respectively.

The decrease in value is primarily attributed to amortization over the asset’s useful life, other changes in value are the result of the impact of cumulative translation adjustments (CTA) resulting from the remeasurement of foreign currency values to USD.

Note 10 - 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 was amended to authorize the issuance of options to purchase up to 15,000,000 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.

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.

Options granted under the Plan have a maximum term of ten years from the date of grant.

The vesting schedule for options is determined by the Compensation Committee at the time of grant.

Payment for Shares

Upon exercise of an option, the optionee may pay the exercise price in cash or cashless exercise, with the consent of the Compensation Committee, by tendering shares of common stock.

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.

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 May 31, 2025, the following activity has occurred under the Plan, which started in second quarter of this fiscal year :

Number of Shares

Weighted Average Exercise Price

Weighted average remaining life (in years)

Options Authorized

Options Granted

Options Exercised

Options Forfeited

Options Outstanding

Options Vested

Options Unvested

As of May 31, 2025, the intrinsic value of the 4,226,875 outstanding options was $1,183,525.

Fair Value of Options

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Expected Volatility :

The Company determined expected volatility based on an analysis of comparable publicly traded companies in the same or similar industry.

As a startup in a new industry, Karbon-X lacks sufficient historical trading data.

The analysis considered market trends and the high-growth, high-risk nature of the carbon management and sustainability sector.

The selected volatility reflects industry patterns of startups in comparable markets, ensuring reasonability and alignment with peer data.

Expected Life :

Based on the vesting schedule and anticipated exercise behavior of option holders.

Risk-Free Interest Rate :

The rate reflects the yield on U.S.

Treasury securities with a term consistent with the expected life of the options.

Given the current interest rate environment, a 5% rate is appropriate for options granted during Q3 FY2025.

This aligns with the Federal Reserve’s policy rates and prevailing market conditions.

Expected Dividends :

The Company does not currently pay dividends, consistent with its growth-oriented business strategy.

Stock-Based Compensation Expense

For the year ended May 31, 2025, the Company recognized stock-based compensation expense of USD $472,219.

Note 11 – Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” Deferred income taxes are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards.

A valuation allowance is established when, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Given the Company’s history of operating losses and negative evidence outweighing positive evidence, the Company has recorded a full valuation allowance against its net deferred tax assets.

Accordingly, no income tax expense (benefit) has been recognized for the years presented.

Components of loss before income taxes were as follows:

The provision for income taxes consisted of:

Total income tax expense (benefit)

Deferred tax assets:

Net operating loss carryforwards

Valuation allowance

Net deferred tax assets

Deferred tax liabilities

Net deferred tax asset (liability) recognized

As of May 31, 2025, the Company had U.S.

federal and state net operating loss (“NOL”) carryforwards of approximately $11,087,300 and $4,937,342, respectively.

Federal NOLs generated in tax years beginning after December 31, 2017 do not expire and are available to offset up to 80% of taxable income in future years.

The Company had no unrecognized tax benefits as of May 31, 2025 or May 31, 2024 and does not expect a significant change in unrecognized tax benefits within the next 12 months.

Note 12 – Commitments and Contingencies

Legal Proceedings

In February 2024, Karbon-X were notified of a former employee filing a lawsuit against the company for wrongful termination.

The Company is currently counter-suing and is expecting to prevail.

Operating Leases

The Company leases office space from a third party under an operating lease agreement over 60 months which expires in November 2029.

The lease also includes the payment of executory costs.

The Company has entered into a operating lease for office space commencing on July 1, 2025, with an early occupancy period beginning on February 1, 2025.

The lease has a term of 5 years, expiring on June 30, 2030.

During the early occupancy period (February 1, 2025 – June 30, 2025), no rent payments are required.

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.

9 unchanged sentences

We recognized total lease expense of approximately $167,086 and $28,430 for the years ended May 31, 2025 and 2024, primarily related to operating lease costs paid to lessors from operating cash flows.

We entered into our new operating lease in April 2024 with a term of five years.

We entered into our operating lease in April 2024 with a term of five years.

Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at May 31, 2025 were as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER OPERATING LEASES

Year Ended May 31,

Calendar Year Ended

Total lease payment

6 unchanged sentences

Weighted average remaining lease term (years)

1 weighted average discount rate is determined using the incremental borrowing rates for each individual lease

Note 13 – Subsequent Events

Effective June 21, 2024 private placement investors exercised 2,023,334 options to purchase shares at $ 0.25 per share, resulting in proceeds to the Company of $ 508,834 .

Subsequent events have been evaluated through September 13, 2024, the date these financial statements were available to be released and note no other events requiring disclosure.

On June 1, 2025, the Company entered into an Asset Purchase Agreement with Allcot AG to acquire specified assets (including certain subsidiary shares, intellectual property, database, project pipeline, and contract rights) for cash consideration of $350,000.

The Company expects to account for the transaction as an asset acquisition under ASC 805;

valuation is ongoing and the financial effects are not yet reasonably estimable.

The Company converted four convertible notes in August 2025 of principal $2,193,195 and accrued interest of $117,329 into 4,749,156 shares at conversion prices ranging from $0.45 - $0.90.

On August 5, 2025, the Company issued a $3.5 million unsecured convertible note to Hedera Foundation SECZ bearing simple interest of 10% per quarter.

The note is convertible at the greater of 90% of the 20-day VWAP or $0.90 per share with a maturity of one year or less.

In July 2025, the Company issued a $125,000 note and the note was repaid in August 2025.

In August 2025, due to a supplier issue, $1,276,800 in deferred revenue was refunded to a customer, we are in negotiations with this customer to recommence this contract at a similar price.

Effective July 29, 2025, Christopher Mulgrew is no longer Chief Financial Officer of the Company and Adriana Ebell was appointed Acting Chief Financial Officer.

The Company evaluated subsequent events through September 15, 2025 and identified no other events requiring recognition or additional disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data