Karbon-X Corp. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion relates to the historical operations and financial statements of Karbon-X Corp. for the fiscal years ending May 31, 2025 and May 31, 2024. Forward-Looking Statements The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” in our various filings with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report. As a result of the Reorganization Agreement and the change in business and operations of the Company, a discussion of the financial results of the Company, formally known as Cocoluv, Inc., prior to February 21, 2022 is not pertinent, and, under generally accepted accounting principles in the United States the historical financial results of Karbon-X Project, Inc., the acquirer for accounting purposes, prior to the Reorganization Agreement are considered the historical financial results of the Company. The following discussion highlights the Company’s results of operations and the principal factors that have affected its consolidated financial condition as well as its liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the Company’s consolidated financial condition and results of operations presented herein. The following discussion and analysis are based Karbon-X Corp’s audited and unaudited financial statements contained in this Current Report, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto. Overview Karbon-X Corp. was incorporated in the State of Nevada under the name Cocoluv, Inc. on September 13, 2017 and established a fiscal year end of May 31. On April 7, 2022 the Company changed its name to Karbon-X Corp. 13 Table of Contents On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of 20,000-for-1, into an aggregate of 20,000,000 shares of the Company's common stock, resulting in Karbon-X becoming a wholly owned subsidiary of the Company and all debt owed to the related party of Cocoluv, Inc. was forgiven. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition. Karbon-X provides customized transactional options, tailored insights, and scalable access to the Verified Emissions Reduction markets. Karbon-X changes the marketing framework of traditional carbon marketing by engaging the public vs industry with multiple forms of technology based greenhouse gas reduction builds. Karbon-X will allow the public to purchase carbon offsets from an APP that is subscription based, with multiple levels of investment for every budget. Each subscription will support clean energy projects such as solar or wind power, methane capture, or reforestation and will reduce greenhouse gas emissions with provable, verifiable carbon credits. Effects of COVID-19 In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and the related adverse public health developments have adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. Management has determined that there has been no significant impact to the Company’s operations, however management continues to monitor the situation. Critical Accounting Policies The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Critical accounting policies and estimates are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The following policies involve significant judgments and estimates. Our significant accounting policies are described further in Note 1 to the consolidated financial statements. 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. 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. 14 Table of Contents 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: Level 1 Level 2 Level 3 Total Derivative liabilities – convertible notes - - $ 168,358 $ 168,358 Other financial instruments - - - - Total Embedded Derivatives - - $ 168,358 $ 168,358 The following table summarizes the changes in Level 3 derivative liabilities measured at fair value on a recurring basis. May 31, 2025 Balance at beginning of period - Purchases / issuances 275,419 Total (gains) losses recognized in earnings 54,831 Settlements (net) (179,666 ) Change in unrealized (gains) losses included in earnings for instruments still held at period end 18,116 Balance at end of period 168,358 15 Table of Contents Revenue Recognition In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under ASC 606, the Company recognizes revenue from the commercial sales of carbon credits and consulting services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. Rates for consulting services are typically per day, per hour, or a similar basis. Consulting revenue is recognized over the period in which the service is provided. Revenue for sales of carbon credits is recognized at a point in time when control of the credit transfers to the buyer. The Company act as a principal in all revenue transactions. Financial Condition and Results of Operations Fiscal year ended May 31, 2024 For the Fiscal Year ended May 31, 2024 the Company generated $412,057 in revenue from its business operations and incurred a net loss of $2,744,583. As of May 31, 2024, the Company had working capital of $2,273,655. Sales and Revenue For the Fiscal Year ended May 31, 2024 the Company generated $412,057 in revenue. We are just at the beginning of our commercialization efforts which we expect to improve during the current fiscal year. Operating Expenses Operating expenses for the Fiscal Year ended May 31, 2025 totaled $1,602,897. Operating expenses included marketing expenses of $176,476, office and general expenses, professional fees, development expenses for our app and expenses relating to a project feasibility studies. The majority of marketing expenses a one-time expense paid in Company equity. Net Loss Net loss from operations after income taxes and foreign currency translation loss was $2,733,200 during the Fiscal Year ended May 31, 2024. Again, this was as a result principally of marketing expenses but also for office and general expenses, app development expense and project feasibility costs. 16 Table of Contents Fiscal year ended May 31, 2025 For the Fiscal Year ended May 31, 2025 the Company generated $3,163,772 in revenue from its business operations and incurred a net loss of $7,084,463. As of May 31, 2025, the Company had working capital of $(1,902,607). Sales and Revenue For the Fiscal Year ended May 31, 2025 the Company generated $3,163,772 in revenue. We are just at the beginning of our commercialization efforts which we expect to improve during the current fiscal year. Operating Expenses Operating expenses for the Fiscal Year ended May 31, 2025 totaled $7,449,147. Operating expenses included salary expenses of $3,774,033, professional fees of $859,088 marketing expenses of $2,044,903, and office and general expenses, development expenses for our app and expenses relating to a project feasibility studies. Net Loss Net loss from operations after income taxes and foreign currency translation loss was $7,084,463 during the Fiscal Year ended May 31, 2025. Again, this was as a result principally of the loss of investment related to Silviculture. Liquidity and Capital Resources The following table sets forth the major components of our statements and consolidated statements of cash flows for the periods presented. Fiscal Year Ended May 31, 2025 Cash used in operating activities $ (6,498,943 ) Cash from financing activities $ 4,561,300 Cash from (used in) investing activities $ (2,543 ) Change in cash during the period $ (1,940,186 ) Effect of exchange rate change $ 30,868 Cash, beginning of period $ 2,675,400 Cash, end of period $ 704,346 17 Table of Contents As of May 31, 2025, the Company had $7,325,111 in current assets. To date, the Company has financed its operations through equity sales. During the year ended May 31, 2025, the Company sold 1,926,742 shares at $.90 per share for total proceeds of $1,712,099. Future Financing In connection with its proposed business plan and possible acquisitions, in addition to the possible proceeds from this offering the Company will be required to complete substantial and significant additional capital formation. Such formation could be through additional equity offerings, debt, bank financings or a combination of any source of financing. There can be no assurance that the Company will be successful in completion of such financings. Plan of Operations As noted above, the continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of common shares, we believe that we will have sufficient cash resources to fund our plan of operations through 2025. If we are unable to do so, we may have to curtail and possibly cease some operations. We intend to use the net proceeds from the offering for research and development, operations, regulatory compliance, intellectual property, working capital and general corporate purposes. We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations. Capital Expenditures As of May 31, 2025 we had capital expenditures of $2,543. Commitments and Contractual Obligations As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. Off-balance Sheet Arrangements The Company has no off-balance sheet arrangements. Going Concern To date the Company has generated $3,575,829 in revenues from its business operations and has incurred operating losses since inception of $11,990,833. As of May 31, 2025, the Company has working capital of ($(1,902,607). The Company will require additional funding to meet its ongoing obligations and to fund anticipated operating losses. The ability of the Company to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company intends to continue to fund its business by way of private placements and advances from related parties as may be required. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. 18 Table of Contents