Karbon-X Corp. 10-K

Item 8. Financial Statements and Supplementary Data. Contents Part 1 FINANCIAL INFORMATION Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets as of May 31, 2025 and May 31, 2024 F-2 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended May 31, 2025 and 2024 F-3 Consolidated Statements of Changes in Shareholders’ Equity (deficit) for the Years Ended May 31, 2025 and 2024 F-4 Consolidated Statements of Cash Flows for the Years Ended May 31, 2025 and 2024 F-5 Notes to Consolidated Financial Statements F-6 19 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Karbon-X Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Karbon-X Corp. (“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. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has generated minimal revenues from its business operations and has incurred operating losses since inception. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. Fruci & Associates II, PLLC – PCAOB ID #05525 We have served as the Company’s auditor since 2022. Spokane, Washington September 15, 2025 F-1 Table of Contents KARBON-X CORP. Consolidated Balance Sheets May 31, 2025 May 31, 2024 ASSETS Current assets Cash and cash equivalents $ 704,346 $ 2,675,400 Accounts receivable, net 1,782 120,284 Inventories, net 99,644 316,738 Prepaid expenses and other current assets 865,674 1,000 Deposits 23,815 - Investments in equity securities 301,260 - Securities receivables 3,789,651 - Total current assets 5,786,172 3,113,422 Property and equipment, net 6,132 6,918 Right of use asset, net 503,091 316,519 Other assets 10,683 12,351 Internally developed software, net 473,895 521,372 Total assets $ 6,779,972 $ 3,970,582 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 1,091,701 $ 127,219 Deferred Revenue 3,864,080 - Short term loan - 36,500 Stock payable - 630,000 Payroll liabilities 21,146 24,104 Convertible notes payable, net of discounts 2,301,666 - Convertible notes – interest payable 181,353 - Embedded Derivative 168,358 - Current portion of lease liabilities 60,475 21,945 Total current liabilities 7,688,779 839,767 Non-current portion of lease liabilities 460,266 302,557 Total liabilities $ 8,149,045 $ 1,142,325 Commitments and contingencies - - Shareholders’ equity (deficit) 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. 81,994 82,176 Additional Paid-in capital 10,563,140 7,675,826 Accumulated deficit (11,990,833 ) (4,937,342 ) Accumulated other comprehensive gain (loss) (23,374 ) 7,597 Total shareholders’ equity (1,369,973 ) 2,828,257 Total liabilities and shareholders’ equity $ 6,779,972 $ 3,970,582 The accompanying notes are an integral part of these consolidated financial statements F-2 Table of Contents KARBON-X CORP. Consolidated Statements of Operations and Comprehensive Income (Loss) For the Year Ended For the Year Ended May 31, 2025 May 31, 2024 Operations Total revenue $ 3,163,772 $ 412,057 Cost of revenue 2,362,305 356,103 Gross profit 801,467 55,954 Marketing expenses 2,044,903 176,476 Salaries and wages 3,774,034 754,286 Professional fees 859,088 252,064 Other operating expenses 771,123 384,215 Total operating expenses 7,449,148 1,567,041 Loss from Operations (6,647,681 ) (1,511,087 ) Interest income (expense) (339,204 ) (41,606 ) Gain(loss) on investment - (1,191,890 ) Gain (loss) on change in fair value of derivative liabilities (72,927 ) - Other income (expenses) 6,320 - Net loss before income taxes (7,053,492 ) (2,744,583 ) Federal income tax expense - - Net loss (7,053,492 ) (2,744,583 ) Other comprehensive loss Foreign currency translation gain (loss) (30,971 ) 11,383 Total comprehensive loss (7,084,463 ) (2,733,200 ) Earnings Per Share Weighted average basic and diluted shares outstanding 83,559,068 77,165,230 Basic and fully diluted loss per share $ (0.08 ) $ (0.04 ) The accompanying notes are an integral part of these consolidated financial statements F-3 Table of Contents KARBON-X CORP. Consolidated Statement of Changes in Shareholders’ Equity For the Years Ended May 31, 2025 and 2024 Common stock Additional paid-in Shares to Retained earnings Accumulated other comprehensive Total Stockholders' Shares Amount capital be issued (deficit) profit (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 Shares to be issued for investment 375,000 375,000 Issuance of shares for cash and warrants, net 6,895,750 6,897 4,318,827 - - - 4,325,724 Issuance of shares as compensation 2,500,000 2,500 622,500 (625,000 ) - - - Issuance of share upon convertible loan 200,000 200 99,800 - - - 100,000 Offering expenses (3,833 ) (3,833 ) Write off investment in Silviculture (1,500,000 ) (1,500,000 ) Net income (loss) - - - - (2,744,583 ) (2,744,583 ) Foreign currency translation - - - - (653 ) 11,383 10,730 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 1,926,742 1,927 1,707,510 1,709,437 Issuance of shares for warrants 7,429 7 (7 ) - Issuance of shares as compensation 288,590 289 155,276 155,565 Issuance of share upon convertible loan 407,471 407 549,504 549,911 Option compensation expense 472,219 472,219 Cancelled shares (2,812,125 ) (2,812 ) 2,812 - Net income (loss) $ (7,053,492 ) $ - $ (7,053,492 ) Foreign currency translation - (30,971 ) $ (30,971 ) Balance at May 31,2025 81,992,857 $ 81,994 $ 10,563,140 - $ (11,990,834 ) $ (23,374 ) $ (1,369,075 ) The accompanying notes are an integral part of these consolidated financial statements F-4 Table of Contents KARBON-X CORP. Consolidated Statements of Cash Flow For the Year Ended For the Year Ended May 31, 2025 May 31, 2024 Cash flows from operating activities Net (loss) income $ (7,053,492 ) $ (2,744,583 ) Adjustments to reconcile net loss to net cash: Depreciation expense 3,225 2,194 Loss on investment - 1,191,890 Gain on change in fair value of derivative 168,358 - Amortization of Right of Use Asset 29,215 (246,996 ) Stock based compensation 627,495 - Changes in operating assets and liabilities: Sales tax receivable - 38,376 Accounts receivable 118,502 (113,074 ) Marketable securities (301,260 ) - Stock payable - 630,000 Securities receivable (3,789,651 ) - Accounts payable 334,486 32,448 Deferred revenue 3,864,080 - Other current liabilities (141,896 ) 39,082 Inventory 217,094 (235,988 ) Prepaid expenses (888,489 ) 58,767 Payments made on operating lease 196,239 254,587 Other current assets (166,641 ) (4,837 ) ) Cash used in operating activities (6,498,943 ) (1,098,134 ) Cash flows from investing activities Acquisition of property and equipment (2,543 ) - Cash paid for equity method investment - (802,407 ) Cash paid for software development - - Cash used in investing activities (7,847 ) (802,407 ) Cash flows from financing activities Proceeds from short term loan - 36,500 Proceeds from convertible notes 2,993,392 - Debt discount on convertible notes (141,529 ) - Proceeds from issuance of shares and warrants 1,709,437 4,321,891 Cash provided by financing activities 4,561,300 4,358,391 Effect of translation changes on cash (30,868 ) 10,730 Change in cash and cash equivalents (1,971,054 ) 2,468,580 Cash, beginning of period 2,675,400 206,820 Cash, end of period $ 704,346 $ 2,675,400 Non cash investing and financing activities Write off of Investment in Silviculture investment $ - $ (1,500,000 ) Issuance of shares upon convertible loan 549,911 - Supplemental disclosures Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - The accompanying notes are an integral part of these consolidated financial statements F-5 Table of Contents KARBON-X CORP. Notes to Consolidated Financial Statements May 31, 2025 Note 1 - Basis of Presentation and Significant Accounting Policies Karbon-X Corp. was incorporated in the State of Nevada under the name Cocoluv, Inc. on September 13, 2017 and established a fiscal year end of May 31. On February 21, 2022, pursuant to the terms of a Share Exchange Agreement, the Company acquired all of the issued and outstanding shares of common stock of Karbon-X Project Inc. ("Karbon-X"), and Karbon-X became the wholly owned subsidiary of the Company in a reverse merger (the "Reverse Acquisition"). Pursuant to the Reverse Acquisition, all of the issued and outstanding shares of Karbon-X common stock were converted, at an exchange ratio of 20,000-for-1, into an aggregate of 20,000,000 shares of the Company's common stock, resulting in Karbon-X becoming a wholly owned subsidiary of the Company and all debt owed to the related party of Cocoluv, Inc. was forgiven. Karbon-X Project Inc. was incorporated in British Columbia on February 11, 2022 and established a fiscal year end of May 31. The accompanying financial statements' share information has been retroactively adjusted to reflect the exchange ratio in the Reverse Acquisition. As part of the Reverse Acquisition, on April 14, 2022 the Company changed its name to Karbon-X Corp. Under generally accepted accounting principles in the United States ("US GAAP"), because the combined entity will be dependent on Karbon-X's senior management, the Reverse Acquisition was accounted for as a recapitalization effected by a share exchange, wherein Karbon-X is considered the acquirer for accounting and financial reporting purposes. On the date of the reorganization, the assets and liabilities of Karbon-X have been brought forward at their book value and consolidated with Cocoluv, Inc.’s assets, which comprised of cash and cash equivalents of $134 and liabilities which comprises due to related party of $99,902 (see Note 1 Basis of Presentation below). No goodwill has been recognized. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of Karbon-X and are recorded at the historical cost basis of Karbon-X. Going concern 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. The ability of the Company to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company intends to continue to fund its business by way of private placements and advances from related parties as may be required. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty. Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements present the consolidated balance sheet, statements of operations, stockholders’ equity and cash flows of the Company. These consolidated financial statements are presented in the United States dollar and have been prepared in accordance with accounting principles generally accepted in the United States. Use of Estimates and Assumptions Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. F-6 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, 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. This model considers historical loss experience, current conditions, and reasonable and supportable forecasts to assess credit risk. Sales Tax Receivable Sales tax receivable consists of the accumulated reclaimable GST paid by the Company on purchases made in Canada. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets which are between three to seven years. Costs of major additions and improvements are capitalized while expenditures for maintenance and repairs, which do not extend the life of the asset, are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to income. Long-lived assets held and used by us are reviewed based on market factors and operational considerations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Inventory Inventories are stated at the lower of cost 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. Investments The Company accounts for investments with a 20% to 50% ownership and a significant but not controlling influence as equity method investments. Investments with a greater than 50% ownership and a controlling influence are accounted for using the consolidation method. The Company assesses the potential impairment of equity method investments when indicators such as a history of operating losses, negative earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value. The Company has accounted for its investment in Silviculture Systems using the equity method and its investment in its subsidiary Karbon-X Project, Inc using the consolidation method. 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. F-7 Table of Contents 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. 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 F-8 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. Foreign Currency Translation The functional currency of the Company is the Canadian Dollar (“CAD”). For financial statement purposes, the reporting currency is the United States Dollar (“USD”). For financial reporting purposes, the consolidated financial statements are translated into the Company’s reporting currency, USD. Asset and liabilities are translated using the closing exchange rate in effect at the balance sheet date with the resulting translation adjustments included as a separate component of shareholder’s equity through other comprehensive income (loss) in the consolidated statement of operations. Income and expenses are translated at the average yearly rates of exchange. The Company includes realized gains and losses from foreign currency transactions in other income (expense), net in the consolidated statement of operations. Warrants 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. 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, 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 The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the year. The diluted loss per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. As of May 31, 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. F-9 Table of Contents 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 Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings, financial position, or cash flows. 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. F-10 Table of Contents Note 2 – Prepaid Expenses As of May 31, 2025 and May 31, 2024, prepaid expenses consisted of the following: Description May 31, 2025 May 31, 2024 Advertising & Promotional Agreement $ 179,532 $ - Prepaid inventory 636,563 - Other Prepaids 49,580 1,000 Total $ 865,674 $ 1,000 Note 3 – Inventory Inventory as of May 31, 2025 and May 31, 2024, consisted of the following: Description May 31, 2025 May 31, 2024 Carbon Credit Inventory $ 99,644 $ 316,738 Total $ 99,644 $ 316,738 Carbon credit inventory represents carbon credits currently held for sale and are stated at the lower of cost or market. Note 4 - Property and Equipment The amount of property and equipment as of May 31, 2025 and May 31, 2024, consisted of the following: Description May 31, 2025 May 31, 2024 Furniture and fixtures $ 9,076 $ 6,589 Computer and equipment 3,664 3,695 Total property cost $ 12,741 $ 10,284 Accumulated depreciation (6,608 ) (3,366 ) Property and equipment, net $ 6,132 $ 6,918 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, 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: 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 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. 2. The notes range from $0.50 - $0.90 per share. F-11 Table of Contents 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 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 During the year ended May 31, 2024, the Company issued 10,400 warrants in connection with one private placement. Each warrant entitles the holder to acquire one common share of the Corporation at an exercise price of $0.50 with a two year term. The 10,400 units of warrants and shares were issued as a commission fee valued at $2,236. 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, 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: Description Number Weighted average exercise price Weighted average remaining contractual life (in years) Outstanding May 31, 2023 4,140,000 $ 0.75 0.83 Exercised (2,990,000 ) 0.75 - Granted 10,400 0.75 1.13 Expired (830,000 ) 0.75 - Cancelled Outstanding May 31, 2024 330,400 $ 0.63 0.63 Exercised (10,400 ) 0.50 - Granted Expired (320,000 ) Cancelled Outstanding May 31, 2025 - - - F-12 Table of Contents Note 8 – Investments 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. F-13 Table of Contents As of May 31, 2025, the balances were as follows: Description Balance (USD) Investments in Equity Securities $ 301,260 Securities Receivable $ 3,789,651 Total Value $ 4,090,911 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 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. 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. 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. F-14 Table of Contents 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 cashless exercise, 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. 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 : Description Number of Shares Weighted Average Exercise Price Weighted average remaining life (in years) Options Authorized 15,000,000 Options Granted 4,612,000 $ 0.79 5.00 Options Exercised 360,000 $ 0.79 Options Forfeited (25,125 ) $ 0.75 Options Outstanding 4,226,875 $ 0.79 4.25 Options Vested 1,596,850 $ 0.79 4.00 Options Unvested 2,630,025 $ 0.79 4.30 As of May 31, 2025, the intrinsic value of the 4,226,875 outstanding options was $1,183,525. F-15 Table of Contents 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. · 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 Q3 FY2025. 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 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. F-16 Table of Contents Components of loss before income taxes were as follows: May 31, 2025 May 31, 2024 Domestic (2,108,311 ) (1,589,940 ) Foreign (4,041,647 ) (1,154,643 ) Total (6,149,958 ) (2,744,583 ) The provision for income taxes consisted of: May 31, 2025 May 31, 2024 Federal - - State - - Foreign - - Total income tax expense (benefit) - - May 31, 2025 May 31, 2024 Deferred tax assets: Net operating loss carryforwards (2,328,333 ) (1,036,842 ) Valuation allowance (2,328,333 ) (1,036,842 ) 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 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. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our estimated incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, if applicable. When lease terms include an option to extend the lease, we have not assumed the options will be exercised. Lease expense for operating leases generally consist of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include agreed-upon changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognized total lease expense of approximately $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 operating lease in April 2024 with a term of five years. F-17 Table of Contents 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 Total Calendar Year Ended 2025 $ 46,356 2026 116,092 2027 123,348 2028 125,767 2029 128,185 Thereafter 54,418 Total lease payment 594,168 Less: Imputed interest (73,427 ) Operating lease liabilities 520,741 Operating lease liability - current 60,475 Operating lease liability - non-current $ 460,266 SCHEDULE OF OTHER SUPPLEMENTAL INFORMATION UNDER OPERATING LEASE Weighted average discount rate 5.00 % Weighted average remaining lease term (years) 5.08 Note 13 – Subsequent Events 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. F-18 Table of Contents