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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 4/11/24 EvoAir Holdings Inc. 10-Q 2/29/24 67:4.1M M2 Compliance LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 769K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 23K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 23K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 20K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
11: R1 Cover HTML 71K
12: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 145K
13: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 29K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 132K
and Comprehensive Loss (Unaudited)
15: R5 Condensed Consolidated Statement of Changes in HTML 79K
Equity (Deficit) (Unaudited)
16: R6 Condensed Consolidated Statements of Cash Flows HTML 94K
(Unaudited)
17: R7 Organization and Business Operations HTML 91K
18: R8 Change of Control HTML 25K
19: R9 Going Concern HTML 27K
20: R10 Summary of Significant Accounting Policies HTML 77K
21: R11 Inventories HTML 26K
22: R12 Deposit, Prepayments and Other Receivables HTML 26K
23: R13 Property, Plant and Equipment, Net HTML 31K
24: R14 Intangible Assets HTML 28K
25: R15 Accounts Payable, Accruals, and Other Payables HTML 26K
26: R16 Related Party Transactions HTML 26K
27: R17 Stockholders? Equity HTML 39K
28: R18 Income Taxes HTML 44K
29: R19 Rou Asset and Leases HTML 37K
30: R20 Commitments and Contingencies HTML 27K
31: R21 Subsequent Events HTML 22K
32: R22 Summary of Significant Accounting Policies HTML 126K
(Policies)
33: R23 Organization and Business Operations (Tables) HTML 31K
34: R24 Summary of Significant Accounting Policies HTML 27K
(Tables)
35: R25 Inventories (Tables) HTML 26K
36: R26 Deposit, Prepayments and Other Receivables HTML 25K
(Tables)
37: R27 Property, Plant and Equipment, Net (Tables) HTML 28K
38: R28 Intangible Assets (Tables) HTML 27K
39: R29 Accounts Payable, Accruals, and Other Payables HTML 25K
(Tables)
40: R30 Income Taxes (Tables) HTML 32K
41: R31 Rou Asset and Leases (Tables) HTML 34K
42: R32 Summary of Consolidated Subsidiaries (Details) HTML 37K
43: R33 Organization and Business Operations (Details HTML 174K
Narrative)
44: R34 Change of Control (Details Narrative) HTML 32K
45: R35 Going Concern (Details Narrative) HTML 39K
46: R36 Summary of Estimated Useful Lives of Assets HTML 30K
(Details)
47: R37 Summary of Significant Accounting Policies HTML 44K
(Details Narrative)
48: R38 Schedule of Inventories (Details) HTML 28K
49: R39 Schedule of Deposit Prepayments and Other HTML 25K
Receivables (Details)
50: R40 Schedule of Property, Plant and Equipment HTML 38K
(Details)
51: R41 Property, Plant and Equipment, Net (Details HTML 21K
Narrative)
52: R42 Summary of Intangible Assets (Details) HTML 31K
53: R43 Intangible Assets (Details Narrative) HTML 21K
54: R44 Schedule of Accounts Payables Accruals and Other HTML 28K
Payable (Details)
55: R45 Related Party Transactions (Details Narrative) HTML 23K
56: R46 Stockholders? Equity (Details Narrative) HTML 67K
57: R47 Schedule of Reconciliation Between the Statutory HTML 26K
Tax Rate and the Actual Provision (Details)
58: R48 Schedule of Components of Net Deferred Tax Assets HTML 25K
(Details)
59: R49 Income Taxes (Details Narrative) HTML 34K
60: R50 Summary of Rou Asset and Operating Lease HTML 28K
Liabilities (Details)
61: R51 Schedule of Maturities of Lease Liabilities HTML 31K
(Details)
62: R52 Rou Asset and Leases (Details Narrative) HTML 26K
64: XML IDEA XML File -- Filing Summary XML 115K
67: XML XBRL Instance -- form10-q_htm XML 921K
63: EXCEL IDEA Workbook of Financial Report Info XLSX 111K
7: EX-101.CAL XBRL Calculations -- evoh-20240229_cal XML 167K
8: EX-101.DEF XBRL Definitions -- evoh-20240229_def XML 302K
9: EX-101.LAB XBRL Labels -- evoh-20240229_lab XML 718K
10: EX-101.PRE XBRL Presentations -- evoh-20240229_pre XML 557K
6: EX-101.SCH XBRL Schema -- evoh-20240229 XSD 121K
65: JSON XBRL Instance as JSON Data -- MetaLinks 317± 449K
66: ZIP XBRL Zipped Folder -- 0001493152-24-014320-xbrl Zip 178K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i February 29, i 2024 /
i ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NO. i 333-228161
(Exact name of registrant as specified in its charter)
| i Nevada | i 98-1353613 | 8713 | ||
| (State or Other Jurisdiction of | IRS Employer | Primary Standard Industrial | ||
| Incorporation or Organization) | Identification Number | Classification Code Number |
EvoAir Holdings Inc.
i 6 ½ Miles, i Off Jalan i Kepong
i 52000 Kuala Lumpur, i Malaysia
(Address and telephone number of registrant’s executive office)
Copies to:
Lawrence
Venick, Esq.
Loeb & Loeb LLP
2206-19 Jardine House
1 Connaught Place, Central
Hong Kong SAR
Tel: +852.3923.1111
Fax: +852.3923.1100
Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer ☐
Accelerated filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i ☒
Applicable Only to Issuer Involved in Bankruptcy Proceedings During the Preceding Five Years:
Indicate by checkmark whether the issuer has filed all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
Applicable Only to Corporate ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:
| Class | Outstanding as of March 31, 2024 | |
| Common Stock, $0.001 |
EvoAir Holdings Inc.
| Part I | FINANCIAL INFORMATION | |
| Item 1 | FINANCIAL STATEMENTS (UNAUDITED) | 3 |
| Item 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20 |
| Item 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 26 |
| Item 4 | CONTROLS AND PROCEDURES | 26 |
| PART II | OTHER INFORMATION | |
| Item 1 | LEGAL PROCEEDINGS | 27 |
| Item 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 27 |
| Item 3 | DEFAULTS UPON SENIOR SECURITIES | 27 |
| Item 4 | MINE SAFETY DISCLOSURES | 27 |
| Item 5 | OTHER INFORMATION | 27 |
| Item 6 | EXHIBITS | 28 |
| SIGNATURES | 29 |
| 2 | Page |
EVOAIR HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars, except share data or otherwise stated)
AS OF FEBRUARY 29, 2024 AND AUGUST 31, 2023
| February 29, 2024 | August 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | i 137,029 | $ | i 779,049 | ||||
| Accounts receivable | i 42,686 | i 44,130 | ||||||
| Inventories | i 725,316 | i 630,478 | ||||||
| Deposit, prepayments and other receivables | i 489,408 | i 617,507 | ||||||
| Total current assets | i 1,394,439 | i 2,071,164 | ||||||
| Non-current assets | ||||||||
| Property, plant and equipment, net | i 422,467 | i 463,387 | ||||||
| Operating lease right-of-use assets | i 229,972 | i 271,021 | ||||||
| Technology-related intangible assets, net | i 74,140,092 | i 76,218,786 | ||||||
| Total non-current assets | i 74,792,531 | i 76,953,194 | ||||||
| TOTAL ASSETS | $ | i 76,186,970 | $ | i 79,024,358 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accruals | $ | i 252,741 | $ | i 170,888 | ||||
| Other payables | i 27,439 | i 27,487 | ||||||
| Deferred revenue | i 399,773 | i 440,069 | ||||||
| Hire purchase creditor | i 7,412 | i 9,224 | ||||||
| Amounts due to shareholders | i 439,630 | i 232,095 | ||||||
| Operating lease liability - current | i 88,952 | i 84,879 | ||||||
| Total current liabilities | i 1,215,947 | i 964,642 | ||||||
| Non-current liabilities | ||||||||
| Non-current hire purchase creditor | i 8,199 | i 10,531 | ||||||
| Non-current operating lease liabilities | i 150,962 | i 198,163 | ||||||
| Total non-current liabilities | i 159,161 | i 208,694 | ||||||
| TOTAL LIABILITIES | i 1,375,108 | i 1,173,336 | ||||||
| Commitments and contingencies (Note 14) | - | - | ||||||
| Shareholders’ equity | ||||||||
| Common stock, authorized; $ par value, and shares issued and outstanding as at February 29, 2024 and August 31, 2023 | i 102,742 | i 102,311 | ||||||
| Additional paid in capital | i 91,436,762 | i 90,371,141 | ||||||
| Shares to be issued | - | i 1,066,052 | ||||||
| Accumulated other comprehensive loss | ( i 95,951 | ) | ( i 17,036 | ) | ||||
| Accumulated deficit | ( i 16,334,493 | ) | ( i 13,523,266 | ) | ||||
| Non-controlling interest | ( i 297,198 | ) | ( i 148,180 | ) | ||||
| Total shareholders’ equity | i 74,811,862 | i 77,851,022 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | i 76,186,970 | $ | i 79,024,358 | ||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 3 | Page |
EVOAIR HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023
| February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | |||||||||||||
| Three months ended | Six months ended | |||||||||||||||
| February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | |||||||||||||
| Revenue | $ | i 41,174 | i 70,912 | $ | i 132,492 | $ | i 213,597 | |||||||||
| Cost of revenue | i 87,075 | i 88,940 | i 187,401 | i 251,798 | ||||||||||||
| Gross loss | ( i 45,901 | ) | ( i 18,028 | ) | ( i 54,909 | ) | ( i 38,201 | ) | ||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing expenses | i 5,200 | i 8,770 | i 38,203 | i 12,335 | ||||||||||||
| General and administrative expenses | i 1,468,559 | i 1,418,011 | i 2,952,548 | i 2,841,393 | ||||||||||||
| Total operating expenses | i 1,473,759 | i 1,426,781 | i 2,990,751 | i 2,853,728 | ||||||||||||
| Loss from operation | ( i 1,519,660 | ) | ( i 1,444,809 | ) | ( i 3,045,660 | ) | ( i 2,891,929 | ) | ||||||||
| Other income | ||||||||||||||||
| Interest income | i 36 | i 12 | i 76 | i 6 | ||||||||||||
| Other income | i 88,866 | i 7,500 | i 90,505 | i 14,483 | ||||||||||||
| Total other income | i 88,902 | i 7,512 | i 90,581 | i 14,489 | ||||||||||||
| Loss from operation before income taxes | ( i 1,430,758 | ) | ( i 1,437,297 | ) | ( i 2,955,079 | ) | ( i 2,877,440 | ) | ||||||||
| Income tax expenses | - | ( i 219 | ) | - | - | |||||||||||
| Net loss | $ | ( i 1,430,758 | ) | $ | ( i 1,437,078 | ) | $ | ( i 2,955,079 | ) | $ | ( i 2,877,440 | ) | ||||
| Less: Net loss attributable to non-controlling interests | ( i 63,854 | ) | ( i 60,916 | ) | ( i 143,852 | ) | ( i 127,951 | ) | ||||||||
| Net loss attributable to equity holders of the Company | ( i 1,366,904 | ) | ( i 1,376,162 | ) | ( i 2,811,227 | ) | ( i 2,749,489 | ) | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustment | i 3,920 | i 7,212 | ( i 84,081 | ) | ( i 10,695 | ) | ||||||||||
| Total comprehensive loss | ( i 1,362,984 | ) | ( i 1,368,950 | ) | ( i 2,895,308 | ) | ( i 2,760,184 | ) | ||||||||
| Less: net comprehensive income attributable to non-controlling interests | ( i 2,373 | ) | i 3,495 | ( i 5,166 | ) | ( i 689 | ) | |||||||||
| Net comprehensive loss attributable to equity holders of the Company | ( i 1,360,611 | ) | ( i 1,372,445 | ) | ( i 2,890,142 | ) | ( i 2,759,495 | ) | ||||||||
| Net loss attributable to equity holders of the Company per common share: | ||||||||||||||||
| Basic and diluted | ) | ) | ) | ) | ||||||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 4 | Page |
EVOAIR HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023
| shares | amount | capital | deficit | income | issued | interests | Total | |||||||||||||||||||||||||
| Common Stock | Additional paid in | Accumulated | Accumulated other comprehensive | Shares to be | Non-controlling | |||||||||||||||||||||||||||
| shares | amount | capital | deficit | income | issued | interests | Total | |||||||||||||||||||||||||
| Balance as of August 31, 2022 | i 101,853,397 | $ | i 101,854 | $ | i 89,125,872 | $ | ( i 7,465,373 | ) | $ | i 65,880 | $ | i 75,000 | $ | ( i 58,754 | ) | $ | i 81,844,479 | |||||||||||||||
| Capital contribution | - | - | i 100 | - | - | - | - | i 100 | ||||||||||||||||||||||||
| Issuance of common stock for Cash | i 149,621 | i 150 | i 373,905 | - | - | ( i 75,000 | ) | - | i 299,055 | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( i 13,723 | ) | - | ( i 4,184 | ) | ( i 17,907 | ) | |||||||||||||||||||||
| Net loss | - | - | - | ( i 1,373,327 | ) | - | - | ( i 67,035 | ) | ( i 1,440,362 | ) | |||||||||||||||||||||
| Balance as of November 30, 2022 | i 102,003,018 | $ | i 102,004 | $ | i 89,499,877 | $ | ( i 8,838,700 | ) | $ | i 52,157 | $ | - | $ | ( i 129,973 | ) | $ | i 80,685,365 | |||||||||||||||
| Issuance of common stock pursuant to share subscription agreement | - | - | - | - | - | i 144,443 | - | i 144,443 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | i 3,717 | - | i 3,495 | i 7,212 | ||||||||||||||||||||||||
| Net loss | - | - | - | ( i 1,376,162 | ) | - | - | ( i 60,916 | ) | ( i 1,437,078 | ) | |||||||||||||||||||||
| Balance as of February 28, 2023 | i 102,003,018 | $ | i 102,004 | $ | i 89,499,877 | $ | ( i 10,214,862 | ) | $ | i 55,874 | $ | i 144,443 | $ | ( i 187,394 | ) | $ | i 79,399,942 | |||||||||||||||
| Common Stock | Additional paid in | Accumulated | Accumulated other comprehensive | Shares to be | Non-controlling | |||||||||||||||||||||||||||
| shares | amount | capital | deficit | income | issued | interests | Total | |||||||||||||||||||||||||
| Balance as of August 31, 2023 | i 102,310,933 | $ | i 102,311 | $ | i 90,371,141 | $ | ( i 13,523,266 | ) | $ | ( i 17,036 | ) | $ | i 1,066,052 | $ | ( i 148,180 | ) | $ | i 77,851,022 | ||||||||||||||
| Issuance of common stock for Cash | i 431,429 | i 431 | i 1,065,621 | - | - | ( i 1,066,052 | ) | - | - | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( i 85,208 | ) | - | ( i 2,793 | ) | ( i 88,001 | ) | |||||||||||||||||||||
| Net loss | - | - | - | ( i 1,444,323 | ) | - | - | ( i 79,998 | ) | ( i 1,524,321 | ) | |||||||||||||||||||||
| Balance as of November 30, 2023 | i 102,742,362 | $ | i 102,742 | $ | i 91,436,762 | $ | ( i 14,967,589 | ) | $ | ( i 102,244 | ) | $ | - | $ | ( i 230,971 | ) | $ | i 76,238,700 | ||||||||||||||
| Balance | i 102,742,362 | $ | i 102,742 | $ | i 91,436,762 | $ | ( i 14,967,589 | ) | $ | ( i 102,244 | ) | $ | - | $ | ( i 230,971 | ) | $ | i 76,238,700 | ||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | i 6,293 | - | ( i 2,373 | ) | i 3,920 | |||||||||||||||||||||||
| Net loss | - | - | - | ( i 1,366,904 | ) | - | - | ( i 63,854 | ) | ( i 1,430,758 | ) | |||||||||||||||||||||
| Balance as of February 29, 2024 | i 102,742,362 | $ | i 102,742 | $ | i 91,436,762 | $ | ( i 16,334,493 | ) | $ | ( i 95,951 | ) | $ | - | $ | ( i 297,198 | ) | $ | i 74,811,862 | ||||||||||||||
| Balance | i 102,742,362 | $ | i 102,742 | $ | i 91,436,762 | $ | ( i 16,334,493 | ) | $ | ( i 95,951 | ) | $ | - | $ | ( i 297,198 | ) | $ | i 74,811,862 | ||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 5 | Page |
EVOAIR HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023
| February 29, 2024 | February 28, 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( i 2,955,079 | ) | ( i 2,877,440 | ) | |||
| Adjustments for non-cash income and expenses: | ||||||||
| Depreciation | i 137,106 | i 74,828 | ||||||
| Amortization | i 2,078,694 | i 2,078,694 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts receivables | i 1,444 | i 45,406 | ||||||
| (Increase)/decrease in inventories | ( i 94,838 | ) | i 46,121 | |||||
| Decrease in deposit, prepayments and advances to suppliers | i 128,099 | i 182,607 | ||||||
| Decrease in operating lease right-of-use assets | i 41,049 | i 118,116 | ||||||
| Increase/(decrease) in accounts payable and accruals | i 81,853 | ( i 105,027 | ) | |||||
| Decrease in deferred revenue | ( i 40,296 | ) | ( i 56,970 | ) | ||||
| Decrease in operating lease liabilities | ( i 43,128 | ) | ( i 133,636 | ) | ||||
| Decrease in other payables | ( i 48 | ) | ( i 10,896 | ) | ||||
| Increase in amounts due to shareholders | i 207,535 | i 311,864 | ||||||
| Net cash used in operations | $ | ( i 457,609 | ) | $ | ( i 326,333 | ) | ||
| Cash flows from investing activity | ||||||||
| Purchase of property, plant and equipment | ( i 96,186 | ) | ( i 11,754 | ) | ||||
| Cash used in investing activity | $ | ( i 96,186 | ) | $ | ( i 11,754 | ) | ||
| Cash flows from financing activities | ||||||||
| Payments of hire purchase | ( i 4,144 | ) | ( i 4,365 | ) | ||||
| Proceeds from issuance of common stock | - | i 299,055 | ||||||
| Proceeds from shares to be issued | - | i 144,443 | ||||||
| Proceeds from capital contribution | - | i 100 | ||||||
| Net cash (used in)/generated from financing activities | $ | ( i 4,144 | ) | $ | i 439,233 | |||
| Net (decrease)/increase in cash and cash equivalents | ( i 557,939 | ) | i 101,146 | |||||
| Effect of exchange rate changes | ( i 84,081 | ) | ( i 10,695 | ) | ||||
| Cash and cash equivalents at start of period | i 779,049 | i 152,304 | ||||||
| Cash and cash equivalents at end of period | i 137,029 | i 242,755 | ||||||
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
| 6 | Page |
EVOAIR HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023
i
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
EvoAir Holdings Inc. (formerly Unex Holdings Inc.) (the “Company”, “EVOH”, “we”, “us”, or “our”) is a corporation established under the corporation laws in the State of Nevada, United States of America (“U.S”) on February 17, 2017. The Company has adopted an August 31 fiscal year end.
On December 20, 2021, the Company and Low Wai Koon (“Dr. Low”) entered into a share transfer agreement, (the “EvoAir International Share Transfer Agreement”), pursuant to which Dr. Low agreed to sell all of his ordinary shares of EvoAir International Limited (“EvoAir International”) to the Company for a consideration of US$ (“EvoAir Transaction”). EvoAir International, through its subsidiaries upon completion of the Transactions (defined hereunder), is engaged in the research and development (“R&D”), manufacturing, trading, sale of heating, ventilation and air conditioning (“HVAC”) products and related services in Asia.
Pursuant to the terms of a share transfer agreement dated December 20, 2021, Dr. Low, the then sole executive officer and director of the Company and the owner of restricted shares of common stock, with par vaue of $ per share (“Common Stock”) of the Company (“EvoAir Shares”) representing approximately i 67.34% of the Company’s then issued and outstanding shares, sold his entire shareholding of the Company to WKL Global Limited (“WKL Global”) for an aggregate consideration of $ (“Change of Control Transaction”). Upon completion of the Change of Control Transaction, WKL Global owned shares, or approximately i 67.34% of the then issued and outstanding ordinary shares of the Company, which resulted in a change of control of the Company.
On December 20, 2021, several transactions took place (together, the “Allotment Transactions”) whereby the Company issued and allotted in aggregate ordinary shares of common stock to certain parties. On completion of the Allotment Transactions, the total number of issued and outstanding shares of common stock of the Company were (“Then Enlarged Share Capital”):
| (A) | On December 20, 2021, Dr. Low and Chan Kok Wei entered into a share exchange agreement with WKL Eco Earth Holdings Pte Ltd (“WKL Eco Earth Holdings”), pursuant to which Dr. Low and Chan Kok Wei agreed to sell all their ordinary shares of WKL Green Energy Sdn Bhd (“WKL Green Energy”) to WKL Eco Earth Holdings in consideration for the allotment and issuance to WKL Global and Allegro Investment (BVI) Limited (“Allegro Investment”), a company incorporated in the British Virgin Islands (“BVI”) with % shareholdings held by Chan Kok Wei and Ong Bee Chen, respectively, of shares and EvoAir Shares, respectively, or approximately % and % of the Then Enlarged Share Capital, respectively. |
| (B) | On December 20, 2021, Dr. Low, Chan Kok Wei, Ong Bee Chen and certain sellers (“WKLEE Sellers”) entered into a share exchange agreement with WKL Eco Earth Holdings, pursuant to which Dr. Low, Chan Kok Wei, Ong Bee Chen and WKLEE Sellers agreed to sell all their ordinary shares of WKL Eco Earth Sdn Bhd (“WKL Eco Earth”) to WKL Eco Earth Holdings in consideration for the allotment and issuance to WKL Global, Allegro Investment and WKLEE Sellers of EvoAir Shares, EvoAir Shares and in aggregate shares, respectively, or approximately %, % and in aggregate %, respectively, of the Then Enlarged Share Capital. |
| (C) | On December 20, 2021, Tan Soon Hock, Ivan Oh Joon Wern and certain relevant interest holders (“Relevant Interest Holders”) entered into an investment exchange agreement with WKL Eco Earth Holdings, pursuant to which Tan Soon Hock, Ivan Oh Joon Wern and the Relevant Interest Holders agreed to sell all relevant interests in the EVOH and its subsidiaries (“EvoAir Group” or the “Group”) to WKL Eco Earth Holdings in consideration for the allotment and issuance of EvoAir Shares, EvoAir Shares and in aggregate EvoAir shares, respectively, or approximately i 6.91%, i 2.48% and in aggregate i 5.90%, respectively, of the Then Enlarged Share Capital. The board of directors and majority shareholders of the Company have approved the transaction. |
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| (D) | On December 20, 2021, Dr. Low entered into two deeds of assignment of intellectual properties with WKL Eco Earth Holdings, in respect of Dr. Low’s patents and patent applications relating to eco-friendly air-conditioner condenser (external unit), EvoAirTM and the trademarks and trademark applications described in the deeds of assignment thereunder, and in respect of Dr. Low’s patents and patents applications relating to the portable air-conditioner, e-Cond EVOTM and the trademarks and trademark applications as described in the deeds of assignment thereunder (together, the “IP Assignments”). Pursuant to the IP Assignments, WKL Global, Allegro Investment and certain nominees shall be allotted and issued EvoAir Shares, EvoAir Shares and in aggregate EvoAir Shares, respectively or approximately i 62.25%, i 14.05% and in aggregate i 5.39%, respectively of the Then Enlarged Share Capital in consideration for the IP Assignments. |
EvoAir Transaction, Change of Control Transaction and Allotment Transactions are collectively referred to as the “Transactions”. The closing of the Transactions (“Closing”) occurred on December 20, 2021 (the “Closing Date”).
From and after the Closing Date, at which time EvoAir International transferred its HVAC business to the Company, the Company’s primary operations will consist of the prior operations of EvoAir International and its subsidiaries.
EvoAir International is a company incorporated in BVI on November 17, 2021. Effective from the December 20, 2021, it wholly owns WKL Eco Earth Holdings, a company incorporated in Singapore on July 12, 2018, which in turn wholly owns (a) WKL Eco Earth, a Malaysian company incorporated on May 17, 2017, and (b) WKL Green Energy, a Malaysian company incorporated on October 24, 2017. WKL Eco Earth Holdings acquired (c) EvoAir Manufacturing (M) Sdn Bhd (“EvoAir Manufacturing”) on April 19, 2021, a Malaysian company incorporated on March 22, 2019, as well as acquiring (d) WKL EcoEarth Indochina Co Ltd (“WKL EcoEarth Indochina”), a Cambodia company incorporated on February 4, 2021, (e) WKL Guanzhe Green Technology Guangzhou Co Ltd (“WKL Guanzhe”), a Chinese company incorporated on April 6, 2021. EvoAir Manufacturing wholly owns (f) Evo Air Marketing (M) Sdn Bhd (“Evo Air Marketing”), a Malaysian company incorporated on February 2, 2021.
On June 15, 2022, the Company filed a Certificate of Amendment (the “Amendment”) to the Articles of Incorporation with Nevada’s Secretary of State to change the name of the Company from Unex Holdings Inc. to EvoAir Holdings Inc. (the “Name Change”), and the Name Change became market effective on November 4, 2022. Effective on November 11, 2022, the Company’s shares began trading under the new ticker symbol “EVOH”.
Round 2 Stockholders
The Company entered into a series of offerings for an aggregate of up to shares of Common Stock at a per share purchase price of $, as follows:
| ● | On February 15, 2022, the Company entered into certain share subscription agreement with Ms. Ang Lee Kim Jane, who is a “non-U.S. Persons” as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to which the Company agreed to issue and sell shares of Common Stock, at a per share purchase price of $, as part of a series of offerings by the Company for an aggregate of up to shares of Common Stock at a per share purchase price of $. The gross proceeds were $ i 185,185. |
| ● | On June 3, 2022, the Company entered into certain share subscription agreement with Mr. Wong Hon Wai who is a “non-U.S. Persons” as defined in Regulation S of the Securities Act pursuant to which the Company agreed to issue and sell shares of Common Stock, at a per share purchase price of $, as part of a series of offerings by the Company for an aggregate of up to shares of Common Stock at a per share purchase price of $. The gross proceeds were $ i 12,500. |
| ● | On October 25, 2022, the Company entered into Regulation S share subscription agreements with eight investors, each of whom represented that it was a “non-U.S. Persons” as defined in Securities Act. On the same date, the Company entered into Regulation D share subscription agreements with two investors, each of whom represented that it was an “Accredited Investors” as defined in Regulation D of the Securities Act. Pursuant to the share subscription agreements, the Company agreed to issue and sell in aggregate, (i) shares of Common Stock to the Regulation S investors, and (ii) shares of Common Stock to the Regulation D investors, respectively, at a per share purchase price of $, as part of a series of offerings by the Company for an aggregate of up to shares of Common Stock at a per share purchase price of $. The gross proceeds in aggregate were $ i 361,553. |
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| ● | On February 20, 2023, the Company entered into Regulation S share subscription agreements with eleven investors, each of whom represented that it was a “non-U.S. Persons” as defined in Regulation S of the Securities Act. Pursuant to the share subscription agreements, the Company agreed to issue and sell in aggregate, (i) shares of Common Stock to the Regulation S investors, at a per share purchase price of $ as part of a series of the offerings by the Company for an aggregate of up to shares of Common Stock at a per share purchase price of $. The gross proceeds in aggregate were $ i 144,443. |
| ● | On July 13, 2023, the Company entered into Regulation S share subscription agreements with 31 investors, each of whom represented that it was a “non-U.S. Persons” as defined in Regulation S of the Securities Act. Pursuant to the share subscription agreements, the Company agreed to issue and sell in aggregate, (i) shares of Common Stock to the Regulation S Investors, at a per share purchase price of $ as part of a series of the offerings by the Company for an aggregate of up to shares of Common Stock at a per share purchase price of $. The gross proceeds in aggregate were approximately $ i 625,330. |
| ● | On September 7, 2023, the Company entered into Regulation S share subscription agreements with 71 investors, each of whom represented that it was a “non-U.S. Persons” as defined in Regulation S of the Securities Act. Pursuant to the share subscription agreements, the Company agreed to issue and sell in aggregate, shares of Common Stock to the Regulation S investors, at a per share purchase price of $ as part of a series of the offerings by the Company for an aggregate of up to shares of Common Stock at a per share purchase price of $. The gross proceeds in aggregate were approximately $ i 912,889. |
| ● | On November 21, 2023, the Company entered into a Regulation S share subscription agreement with Wong Chun Shoong who represented that he was a “non-U.S. Persons” as defined in Regulation S of the Securities Act. Pursuant to the share subscription agreement, the Company agreed to issue and sell in aggregate, shares of Common Stock to the Regulation S investors, at a per share purchase price of $ as part of a series of the offerings by the Company for an aggregate of up to shares of Common Stock at a per share purchase price of $. The gross proceeds in aggregate were approximately $ i 21,645. |
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Details of the Company’s subsidiaries:
SUMMARY OF CONSOLIDATED SUBSIDIARIES
| Subsidiaries of EVOH | Attributable interest | |||
| EvoAir International Limited (British Virgin Islands) | i 100 | % | ||
| Subsidiary of EvoAir International Limited | ||||
| WKL Eco Earth Holdings Pte Ltd (Singapore) | i 100 | % | ||
| Subsidiaries of WKL Eco Earth Holdings Pte Ltd | ||||
| WKL Eco Earth Sdn Bhd (Malaysia) | i 100 | % | ||
| WKL Green Energy Sdn Bhd (Malaysia) | i 100 | % | ||
| EvoAir Manufacturing (M) Sdn Bhd (Malaysia) | i 67.5 | % | ||
| WKL EcoEarth Indochina Co Ltd (Cambodia) | i 55 | % | ||
| WKL Guanzhe Green Technology Guangzhou Co Ltd (China) | i 55 | % | ||
| Subsidiary of EvoAir Manufacturing (M) Sdn Bhd | ||||
| Evo Air Marketing (M) Sdn Bhd (Malaysia) | i 100 | % | ||
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Pursuant to the terms of a share transfer agreement dated December 20, 2021, Dr. Low, the then sole executive officer and director of the Company and the owner of restricted shares of the Company’s ordinary shares representing approximately i 67.34% of the Company’s then issued and outstanding shares, sold his entire shareholding of the Company to WKL Global for an aggregate consideration of $. Upon completion of the Change of Control Transaction, WKL Global then owned shares, or approximately i 67.34% of the Company’s then issued and outstanding shares, which resulted in a change of control of the Company.
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The Company’s financial statements as of February 29, 2024, is prepared using generally accepted accounting principles in the United States of America (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established a sustainable ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern.
As of February 29, 2024, and August 31, 2023, the Company had an accumulated deficit of $ i 16,334,493 and $ i 13,523,266 respectively. The Company incurred net loss of $ i 2,955,079 and $ $ i 2,877,440 for the six months ended February 29, 2024, and February 28, 2023, respectively. The cash used in operating activities was $ i 457,609 and $ i 326,333 for the six months ended February 29, 2024, and February 28, 2023, respectively. It was brought to the attention of the Management to assess going concern considering all facts and circumstances about the foreseeable future of the Company as well as its assets and liabilities on the basis that it will be able to realize and discharge them in the normal course of business.
With the development of HVAC business (“HVAC Business”) pursuant to the Transactions (defined in Note 1), the Management believes that the actions to be taken by the Management to further implement the business plans for the HVAC Business including expansion in product offerings, geographical expansion, generate revenue through expansion of revenue streams and customer base (retail, commercial, industrial, projects as well as private label and licensing clientele), improvement of profitability by achieving economies of scale provide the opportunity for the Company to continue as a going concern. In addition, the Company is also working on raising additional funding in conjunction with the Company’s plan to uplist on Nasdaq Capital Market/ NYSE American LLC to finance the operations as well as business expansion.
The unaudited condensed consolidated financials have been prepared assuming that the Company will continue as a going concern and accordingly financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Basis of presentation and principles of consolidation:
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with U.S. GAAP for financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”).
The consolidated financial statements include the accounts of EvoAir International, WKL Eco Earth Holdings, WKL Eco Earth, WKL Green Energy, and its i 67.5% owned EvoAir Manufacturing which included a i 100% owned subsidiary, Evo Air Marketing, i 55% owned WKL EcoEarth Indochina, and its i 55% owned WKL Guanzhe.
All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of the Management, the accompanying financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly all financial statements in accordance with U.S. GAAP.
The non-controlling interests are presented in the consolidated balance sheets, separately from equity attributable to the stockholders of the Company. Non-controlling interests in the results of the Company are presented on the face of the consolidated statements of operations and comprehensive loss as an allocation of the total loss for the year between non-controlling interest holders and the stockholders of the Company.
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The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Key estimates in the accompanying consolidated financial statements include, among others, revenue recognition, allowances for doubtful accounts and product returns, provisions for obsolete inventory, valuation of long-lived assets and Rights of Use (“ROU”) assets (including lease liabilities), and deferred income tax asset valuation allowances. Actual results could differ materially from these estimates.
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The Company operates on a fiscal year basis with the fiscal year ending on August 31.
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The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The Company places its cash with a high credit quality financial institution.
WKL Guanzhe business is primarily conducted in China and substantially all of revenue are denominated in RMB. The government of People’s Republic of China (“PRC”) imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade.
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ASC 220 “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of February 29, 2024, and August 31, 2023, the Company established that there are items that represented components of comprehensive income and, therefore, has included a statement of comprehensive income in the financial statements.
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The functional currency of Chinese operations is Chinese Renminbi, (“RMB”). The functional currency of the Company’s Singapore operations is Singapore dollars (“SGD”). The functional currency of the Company’s Malaysia operations is Ringgit Malaysia (“RM”). Management has adopted ASC 830 “Foreign Currency Matters” for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
Assets and liabilities of the Company’s operations are translated into the reporting currency, United States Dollars, at the exchange rate in effect at the balance sheet dates. Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders’ equity in the statement of stockholders’ equity.
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Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the net value of face amount less any allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in our existing accounts receivable. An allowance for doubtful accounts is recorded in the period when loss is probable based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging and other factors. The Company reviews the allowance for doubtful accounts on a regular basis, and all past due balances are reviewed individually for collectability. An account receivable is written off after all collection effort has ceased. Recoveries of receivables previously written off are recorded when received. Interest is not charged on past due accounts.
As of February 29, 2024, and August 31, 2023, our accounts receivable amounted to $ i 42,686 and $ i 44,130, respectively, with no allowance for doubtful accounts for both periods.
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Inventories consist primarily of finished goods, raw materials, and work-in-process (“WIP”) from WKL Eco Earth, WKL EcoEarth Indochina, WKL Guanzhe, and EvoAir Manufacturing.
We value inventories at the lower of cost or net realizable value. We determine the costs of inventory using the standard cost method, which approximates actual cost based on a first-in, first-out method. All other costs, including administrative costs, are expensed as incurred.
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Deposit, prepayments, and other receivables
Deposit, prepayments and other receivables are comprised of prepayments paid to vendors to initiate orders and prepaid services fees and are classified as current assets if such amounts are to be recognized within one year from the balance sheet date.
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Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related capitalized assets. Property and equipment are depreciated over 5 to 10 years.
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SUMMARY OF ESTIMATED USEFUL LIVES OF ASSETS
| Useful lives | |||
| Plant and machineries | i 5 years | ||
| Office equipment | i 5 years | ||
| Vehicles | i 5 years | ||
| Furniture and equipment | i 10 years | ||
| Renovation | i 10 years |
Repair and maintenance costs are charged to expense as incurred. At the time of retirement or other disposition of property, plant and equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
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Intangible Assets and Other Long-Lived Assets
The Company’s intangible assets consist of patents and trademarks related to assignments of intellectual properties by Dr. Low into WKL Eco Earth Holdings under the IP Assignments as contemplated in Note 1. The intangible assets are recorded at fair market value and are amortized using the straight-line method over an estimated life of i i 20 / years for both patents and trademarks.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair market value.
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Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company does not disaggregate its revenue streams as the economic factors underlying the contracts are similar and provide no significant distinction. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
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The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
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The Company collects deposits from customers in advance for some business contracts. The customer payments received in advance are recorded as deferred revenue on the balance sheet. The deferred revenue of $ i 440,069 was recorded as of August 31, 2023, with $ i 101,496 recognized as revenue for six months ended February 29, 2024. The Company recorded $ i 399,773 deferred revenue as of February 29, 2024.
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We have entered into operating agreements primarily for office and factory. We determine if an arrangement is a lease at inception. For all classes of underlying assets, we elect not to recognize right of use assets or lease liabilities when a lease has a lease term of 12 months or less at the commencement date and does not include an option to purchase the underlying asset that we are reasonably certain to exercise. Operating lease assets and liabilities are included on our consolidated balance sheet as of February 29, 2024.
Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in most of our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in the economic environments where the leased asset is located. Operating lease assets also include any prepaid lease payments and lease incentives. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We generally use the base, non-cancellable, lease term when determining the lease assets and liabilities. Operating lease expense is recognized on a straight-line basis over the lease term.
Our lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. We combine fixed payments for non-lease components with our lease payments and account for them together as a single lease component, which increases the amount of our lease assets and liabilities.
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The Company utilizes ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of operations.
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The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
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The Company computes basic and diluted earnings (loss) per share amounts in accordance with ASC Topic 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of February 29, 2024, the Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.
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Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance. This standard becomes effective for the Company beginning on October 1, 2024. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted this guidance effective September 1, 2023, and the adoption of this standard did not have a material impact on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Improvement to Reportable Segment Disclosures. This ASU aims to improve segment disclosures through enhanced disclosures about significant segment expenses. The standard requires disclosure of significant expense categories and amounts for such expenses, including those segment expenses that are regularly provided to the chief operating decision maker, easily computable from information that is regularly provided, or significant expenses that are expressed in a form other than actual amounts. This standard will be effective for the Company in Fiscal Year 2025 and is required to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of the additional disclosure requirements on the Company’s condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, a final standard on improvements to income tax disclosures which applies to all entities subject to income taxes. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. This standard will be effective for the Company in Fiscal Year 2026 and should be applied prospectively. The Company is currently evaluating the impact of the additional disclosure requirements on the Company’s condensed consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
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Inventories consist of the following:
| February 29, 2024 | August 31, 2023 | |||||||
| Finished goods | $ | i 277,109 | $ | i 329,420 | ||||
| Raw materials and supplies | i 148,562 | i 138,869 | ||||||
| Work in progress | i 299,645 | i 162,189 | ||||||
| Total inventory on hand | $ | i 725,316 | $ | i 630,478 | ||||
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NOTE 6 DEPOSIT, PREPAYMENTS AND OTHER RECEIVABLES
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Deposit, prepayments, and other receivables consists of the following:
SCHEDULE OF DEPOSIT PREPAYMENTS AND OTHER RECEIVABLES
| February 29, 2024 | August 31, 2023 | |||||||
| Deposits and Prepayments | $ | i 47,132 | $ | i 20,777 | ||||
| Other receivables (Advances to suppliers) | i 442,276 | i 596,730 | ||||||
| Total | $ | i 489,408 | $ | i 617,507 | ||||
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NOTE 7 PROPERTY, PLANT AND EQUIPMENT, NET
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Property, plant, and equipment consist of the following:
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT
| February 29, 2024 | August 31, 2023 | |||||||
| Plant and machineries | $ | i 577,079 | $ | i 476,219 | ||||
| Office equipment | i 55,907 | i 55,848 | ||||||
| Vehicles | i 75,776 | i 77,497 | ||||||
| Furniture and equipment | i 21,790 | i 22,285 | ||||||
| Renovation | i 110,788 | i 113,305 | ||||||
| Property, plant and equipment gross | i 841,340 | i 745,154 | ||||||
| Less: Accumulated depreciation | ( i 418,873 | ) | ( i 281,767 | ) | ||||
| Property, plant and equipment, net | $ | i 422,467 | $ | i 463,387 | ||||
Depreciation expense for the six months ended February 29, 2024, was $ i 137,106. Depreciation expense for the six months ended February 28, 2023, was $ i 74,828.
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The below table summarizes the identifiable intangible assets as of February 29, 2024, and August 31, 2023:
| February 29, 2024 | August 31, 2023 | |||||||
| Technology 1-Portable Air Cooler | $ | i 27,438,763 | $ | i 27,438,763 | ||||
| Technology 2-Condensing Unit | i 55,709,004 | i 55,709,004 | ||||||
| Finite- lived intangible assets, gross | i 83,147,767 | i 83,147,767 | ||||||
| Less: Accumulated amortization | ( i 9,007,675 | ) | ( i 6,928,981 | ) | ||||
| Intangible assets, net | $ | i 74,140,092 | $ | i 76,218,786 | ||||
Amortization expenses for intangible assets for the six months ended February 29, 2024, and February 28, 2023, were both $ i i 2,078,694 / .
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NOTE 9 ACCOUNTS PAYABLE, ACCRUALS, AND OTHER PAYABLES
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Accounts payable and accruals, and other payables consist of the following:
SCHEDULE OF ACCOUNTS PAYABLES ACCRUALS AND OTHER PAYABLE
| February 29, 2024 | August 31, 2023 | |||||||
| Accounts payable | $ | i 214,341 | $ | i 40,939 | ||||
| Accruals | i 38,400 | i 129,949 | ||||||
| Other payables | i 27,439 | i 27,487 | ||||||
| Total | $ | i 280,180 | $ | i 198,375 | ||||
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NOTE 10 RELATED PARTY TRANSACTIONS
Amounts due to shareholders
i Amounts due to shareholders are unsecured, with interest of 3% per annum and tenure of 3 to 6 months, or mutually between the parties. The Company reported amounts due to shareholders of $ i 439,630 and $ i 232,095 as of February 29, 2024, and August 31, 2023, respectively.
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On December 16, 2021, the Company increased the authorized common stock from shares with a par value of $ per share to shares with a par value of $ per share.
During the six months period ended February 28, 2023, the Company issued shares of common stock, par value $ per share at a per share purchase price of $ for gross proceeds of $ i 374,055, as part of a series of offerings by the Company for an aggregate of up to shares of Common Stock at a per share purchase price of $.
During the six months period ended February 28, 2023, the Company also received cash proceeds of $ from shares to be issued, and those shares have been subsequently issued on May 26, 2023.
During the six months period ended February 28, 2023, the Company received cash proceeds of $ i 100 from capital contribution.
During the six months period ended February 29, 2024, the Company issued shares of Common Stock at a per share purchase price of $ as the Offering for gross proceeds of $ i 934,534 received in the fiscal year ended August 31,2023.
During the six months period ended February 29, 2024, the Company issued in aggregate shares of Common Stock to 15 referral agents in consideration for their referral to the Company of certain investors.
On November 21, 2023, the Company issued, in aggregate, shares of Common Stock to two individuals in consideration for marketing services provided to the Company by Artisan Creative Studio, a marketing entity based in Malaysia.
As such, the Company had $ shares to be issued on February 29, 2024.
As of February 29, 2024, and August 31, 2023, the Company had and shares of its common stock issued and outstanding, respectively.
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The Company’s operating subsidiaries are governed by the Income Tax Law (defined hereunder), which concerns Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws (“Income Tax Laws”). We routinely undergo examinations in the jurisdictions in which we operate.
The Company has operations in Singapore, Malaysia, Cambodia, BVI, and China that are subject to taxes in the jurisdictions in which they operate, as follows:
Singapore
WKL Eco Earth Holdings is incorporated in Singapore, and under the current tax laws of Singapore, its standard corporate income tax rate is i 17%.
Malaysia
WKL Eco Earth, WKL Green Energy and EvoAir Manufacturing (including its i 100% subsidiary Evo Air Marketing) are incorporated in Malaysia and are subject to common corporate income tax rate at i 24%.
Cambodia
WKL EcoEarth Indochina is incorporated in Cambodia, and under the current tax laws of Cambodia, its standard corporate tax rate is i 20%.
BVI
EvoAir International is incorporated in BVI, and a BVI Business Company is exempt from the BVI income tax.
China
WKL Guanzhe is incorporated in China. Under the current tax law in the PRC, WKL Guanzhe is subject to the enterprise income tax rate of i 25%.
Due to the Company’s net loss position, there was no provision for income taxes recorded. As a result of the Company’s losses to date, there exists doubt as to the ultimate realization of the deferred tax assets. Accordingly, a valuation allowance equal to the total deferred tax assets has been recorded.
i
Reconciliation between the statutory tax rate to income before income taxes and the actual provision for income taxes is as follows:
SCHEDULE OF RECONCILIATION BETWEEN THE STATUTORY TAX RATE AND THE ACTUAL PROVISION
| 2023 | 2022 | |||||||
| Six Months Ended, | ||||||||
| February 28, 2023 | ||||||||
| US Statutory rate | i 21 | % | i 21 | % | ||||
| Effect of reconciling items for tax purposes | ( i 21 | )% | ( i 21 | )% | ||||
| Effective income tax rate | - | % | - | % | ||||
i
The components of net deferred tax assets are as follows:
SCHEDULE OF COMPONENTS OF NET DEFERRED TAX ASSETS
| February 29, 2024 | August 31, 2023 | |||||||
| Net operating loss carry-forward | $ | i 16,330,000 | $ | i 13,520,000 | ||||
| Less: valuation allowance | ( i 16,330,000 | ) | ( i 13,520,000 | ) | ||||
| Net deferred tax asset | - | - | ||||||
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The Company had net operating loss carry forwards for tax purposes of approximately $ i 16,330,000 at February 29, 2024, and approximately $ i 13,520,000 at August 31, 2023, which may be available to offset future taxable income. Utilization of the net operating loss carry forwards may be subject to substantial annual limitations due to the ownership change limitations provided by Section 381 of the Internal Revenue Code of 1986, as amended. The annual limitation may result in the expiration of net operating loss carry forwards before utilization.
/ i
A lease is defined as a contract that conveys the right to control the use of identifiable tangible property for a period of time in exchange for consideration. On February 28, 2022, the Company adopted ASC Topic 842 which primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee including the Company’s leases of office and factory. The Company elected to not recognize ROU assets and lease liabilities arising from short-term leases with initial lease terms of twelve months or less (deemed immaterial) on the accompanying consolidated balance sheets.
ROU assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on the effective interest, the effective amortization on the lease liability. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
When measuring lease liabilities for leases that were classified as operating leases as of February 29, 2024, the Company discounted lease payments using its estimated incremental borrowing rate of i 10%.
On March 28, 2023, the Company entered into a lease termination agreement to its Cambodia office lease at #65, 1st, 2nd and 3rd Floor, Street 123, Sangkat Toul Tumpong I, Khan Chamkarman, Phnom Penh, Cambodia (the “Lease Termination”). The Lease Termination terminated the Company’s rights and obligations with respect to the leased premises on April 15, 2023. As such, the ROU assets and operating lease liabilities were remeasured, and the Company recorded a gain of $ i 14,890 as a component of operating expenses for the year ended August 31, 2023. No impairment of the ROU assets was deemed to have occurred.
i
The following is a summary of ROU asset and operating lease liabilities:
SUMMARY OF ROU ASSET AND OPERATING LEASE LIABILITIES
| February 29, 2024 | August 31, 2023 | |||||||
| Assets: | ||||||||
| ROU asset | $ | i 229,972 | $ | i 271,021 | ||||
| Liabilities: | ||||||||
| Current: | ||||||||
| Operating lease liabilities current | $ | i 88,952 | $ | i 84,879 | ||||
| Non-current | ||||||||
| Operating lease liabilities noncurrent | i 150,962 | i 198,163 | ||||||
| Total lease liabilities | $ | i 239,914 | $ | i 283,042 | ||||
i
As of February 29, 2024, remaining maturities of lease liabilities were as follows:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
| Operating lease | ||||
| 2024 | $ i 88,952 | |||
| 2025 | i 96,363 | |||
| 2026 | i 50,616 | |||
| 2027 | i 3,983 | |||
| 2028 and thereafter | - | |||
| Total | $ i 239,914 | |||
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NOTE 14 COMMITMENTS AND CONTINGENCIES
Litigation and Claims
On October 8, 2021, a filing (the “Filing”) was made with the Kuala Lumpur High Court by a reseller (the “Reseller”) of the Company’s INCU ionic nano copper solution (the “Solution”) and the Reseller’s related party (together with the Reseller, the “Plaintiffs”).
The Reseller was authorized by WKL Eco Earth’s sole distributor of the Solution (the “WKL Distributor”) to resell the Solution together with a diffuser with a capacity of not more than 1000ml through a tripartite agreement (the “Tripartite Agreement”) entered into between (a) the Reseller, (b) the WKL Distributor and (c) a solution packaging company (the “Packaging Company”). WKL Eco Earth was not a party to the Tripartite Agreement and did not directly authorize or engage the Reseller in the resale of the Solution.
In the Filing, the Plaintiffs claimed against (i) WKL Eco Earth; (ii) Dr. Low; (iii) Chan Kok Wei, (iv) the Packaging Company and (v) two directors of the Packaging Company for loss and damages arising from an alleged breach of contract, defamation and tort of inducement. The Plaintiffs also alleged that pursuant to the Tripartite Agreement, WKL Eco Earth was prohibited from selling the Solution to any party other than the WKL Distributor and allow for the resale of the Solution by the Plaintiffs without limitation, and that the Plaintiffs were not confined in their resale of the Solution to a diffuser with a capacity of not more than 1000ml.
The Company believes the claims are without merit and will defend itself against the claims.
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. The outcome of the above case very much depends on the evidence produced and the weight of the Court places on the evidence. As it stands, WKL has a probability of success in its Counterclaim against the parties. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
i
In accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to February 29, 2024, to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
This Quarterly Report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results, later events or circumstances or to reflect the occurrence of unanticipated events.
In this report unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” or “common stock” refer to the common shares of our capital stock.
The management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP.
General Overview
EvoAir Holdings Inc (formerly Unex Holdings Inc.) (the “Company”, “EVOH”, “we”, “us”, or “our”) is a corporation established under the corporation laws in the State of Nevada, U.S. on February 17, 2017. The Company has adopted an August 31 fiscal year end.
On December 20, 2021, the Company and Dr. Low entered into the “EvoAir International Share Transfer Agreement, pursuant to which Dr. Low agreed to sell all of his ordinary shares of EvoAir International to the Company for the consideration of US$100 (“EvoAir Transaction”). EvoAir International, through its subsidiaries upon completion of the Transactions contemplated under Note 1, is engaged in the R&D, manufacturing, trading, sale of HVAC products and related services in Asia.
Pursuant to the terms of a share transfer agreement dated December 20, 2021, Dr. Low, the then sole executive officer and director of the Company and the owner of 2,000,000 restricted shares of the Company’s ordinary shares representing approximately 67.34% of the Company’s then issued and outstanding shares, sold his entire shareholding of the Company to WKL Global for an aggregate consideration of $100. Upon completion of the Change of Control Transaction, WKL Global owned 2,000,000 shares, or approximately 67.34% of the then issued and outstanding ordinary shares of the Company, which resulted in a change of control of the Company.
EvoAir International is a company incorporated in the British Virgin Islands on November 17, 2021. Effective from the December 20, 2021, it wholly owns WKL Eco Earth Holdings, a company incorporated in Singapore on July 12, 2018, which in turn wholly owns (a) WKL Eco Earth, a Malaysian company incorporated on May 17, 2017, and (b) WKL Green Energy a Malaysian company incorporated on October 24, 2017. WKL Eco Earth Holdings acquired (c) EvoAir Manufacturing on April 19, 2021, a Malaysian company incorporated on March 22, 2019, as well as acquiring (d) WKL EcoEarth Indochina, a Cambodia company incorporated on February 4, 2021, (e) WKL Guanzhe Green Technology Guangzhou, a Chinese company incorporated on April 6, 2021. EvoAir Manufacturing wholly owns (f) Evo Air Marketing, a Malaysian company incorporated on February 2, 2021.
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On June 15, 2022, the Company filed a Certificate of Amendment (the “Amendment”) to the Articles of Incorporation with Nevada’s Secretary of State to change the name of the Company from Unex Holdings Inc. to EvoAir Holdings Inc. (the “Name Change”), and the Name Change became market effective on November 4, 2022. Effective on November 11, 2022, the Company’s shares began trading under the new ticker symbol “EVOH”.
Results of Operations
The following summary of our operations should be read in conjunction with our unaudited condensed consolidated financial statements for the three and six months ended February 29, 2024, as compared to the three and six months ended February 28, 2023.
Three Months Ended February 29, 2024, versus Three Months Ended February 28, 2023
| Three Months Ended | ||||||||||||||||
| February 29, 2024 | February 28, 2023 | Changes | % | |||||||||||||
| Revenue | $ | 41,174 | $ | 70,912 | $ | (29,738 | ) | (42 | )% | |||||||
| Cost of revenue | 87,075 | 88,940 | (1,865 | ) | (2 | )% | ||||||||||
| Gross loss | (45,901 | ) | (18,028 | ) | (27,873 | ) | (155 | )% | ||||||||
| Operating expenses | 1,473,759 | 1,426,781 | 46,978 | 3 | % | |||||||||||
| Loss from operation | (1,519,660 | ) | (1,444,809 | ) | (74,851 | ) | 5 | % | ||||||||
| Other income | 88,902 | 7,512 | 81,390 | 1,083 | % | |||||||||||
| Loss from operation before income taxes | $ | (1,430,758 | ) | $ | (1,437,297 | ) | 6,530 | 0.5 | % | |||||||
The Company generated revenues of $41,174 in the three months ended February 29, 2024, as compared to $70,912 in the three months ended February 28, 2023, a decrease in revenue of $29,738.
Being first mover in launching EvoAirTM, first-of-its-kind eco-friendly air-conditioner with granted patent or utility model/ patent or utility model pending HECS system proprietary system, the Group faced both opportunities and challenges. In the course of applying for some of the certifications, safety and performance testing, the relevant authorities/ organizations faced the challenges in assigning our products in the appropriate category under conventional air-conditioner regime. There are instances whereby some of these authorities/ organizations do not possess the relevant equipment to conduct testings. It took a lot of education, discussions, deliberations and working with the authorities/ organizations to work out solutions to resolve compliance and testing matters. On the positive note, one of the authorities advised us to apply under a new category, ‘Hybrid Air Conditioner. The duration of the application processes were longer than that of typical certifications and testing for conventional air-conditioners.
Being a first mover, notwithstanding many of our corporate clients who were impressed and showed keen interest in our products, EvoAirTM, many of them took a few months to conduct study on their own accord on performance and the energy savings of our products. The Company is building up its traction for the EvoAirTM hybrid air-conditioners for both residentials and commercial/ industrial units through distribution channels, projects, building and businesses as well as private labelling and licensing model.
During the financial period, EvoAir Manufacturing entered into an OEM supply agreement (the “OEM Agreement”) with Tadmonsori Holdings Sdn Bhd (“THSB”) pursuant to which the parties have agreed for THSB to purchase certain products (the “Products”) from EvoAir Manufacturing to resell directly under THSB’s branding, trademark, graphics, packaging designs and artwork, with the insertion of the words “Powered by EvoAir” inserted at the back of each Product, to THSB end user customers. The OEM Agreement will be renewable on a three-year basis, and upon the execution of the Agreement, THSB shall have made a minimum order of 3,000 units of the Products upon signing of the OEM Agreement, and to target a total sales turnover of 105,000,000 Malaysia Ringgit (approximately US$22,522,522, as calculated at the Foreign Exchange Rate of US$1 = 4.6620 Malaysia Ringgit on December 8, 2023, as published in H.10 statistical release of the United States Federal Reserve Board) over 3 years from January 1, 2024 to December 31, 2026.
Cost of revenue was $87,075 or 211% of revenue for the three months ended February 29, 2024, as compared to $88,940 or 125% of revenue in the same financial period in 2023. The slight decline in cost of revenue is due to the lack of economy of scale for the production. Cost of revenues includes production costs and purchases of goods.
Gross loss was $45,901 or negative gross profit margin of 111% for the three months ended February 29, 2024, as compared to gross loss of $18,028 in the same financial period in 2023 or 25% of revenue. The increase in gross loss is mainly due to the Company commercializing EvoAirTM products with higher cost of revenue from manufacturing and related costs as well as lack of economy of scale during commercialization stage. The Company anticipates improvement of income and gross profit margin with the improvement of revenue streams from distributor and dealership model, projects as well as private labeling and licensing model.
Operating expenses were $1,473,759 for the three months ended February 29, 2024, compared to $1,426,781 in the corresponding period in 2023, an increase of $46,978. The increase in operating expenses was not significant as it’s within 5%.
Other income was $88,902 for the three months ended February 29, 2024, compared to $7,512 in the corresponding period in 2023, an increase of $81,390. The change was mainly due to $82,389 realized foreign exchange gain from amounts due to shareholders.
The loss from operation before income taxes for the three months ended February 29, 2024, was $1,430,758 as compared to $1,437,297 for the corresponding period in 2023. The continuous net loss is attributable to the Group’s focused effort in creating the infrastructure and resource to meet the business expansion needs of the Group’s as well as lack of economies of scale.
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Six Months Ended February 29, 2024, versus Six Months Ended February 28, 2023
| Six Months Ended | ||||||||||||||||
| February 29, 2024 | February 28, 2023 | Changes | % | |||||||||||||
| Revenue | $ | 132,492 | $ | 213,597 | $ | (81,105 | ) | (38 | )% | |||||||
| Cost of revenue | 187,401 | 251,798 | (64,397 | ) | (26 | )% | ||||||||||
| Gross loss | (54,909 | ) | (38,201 | ) | (16,708 | ) | (44 | )% | ||||||||
| Operating expenses | 2,990,751 | 2,853,728 | 137,023 | 5 | % | |||||||||||
| Loss from operation | (3,045,660 | ) | (2,891,929 | ) | (153,731 | ) | (5 | )% | ||||||||
| Other income | 90,581 | 14,489 | 76,092 | 525 | % | |||||||||||
| Loss from operation before income taxes | $ | (2,955,079 | ) | $ | (2,877,440 | ) | (77,639 | ) | (3 | )% | ||||||
The Company generated revenues of $132,492 in the six months ended February 29, 2024, as compared to $213,597 in the six months ended February 28, 2023, a decrease in revenue of $81,105.
Being first mover in launching EvoAirTM, first-of-its-kind eco-friendly air-conditioner with granted patent or utility model/ patent or utility model pending HECS system proprietary system, the Group faced both opportunities and challenges. In the course of applying for some of the certifications, safety and performance testing, the relevant authorities/ organizations faced the challenges in assigning our products in the appropriate category under conventional air-conditioner regime. There are instances whereby some of these authorities/ organizations do not possess the relevant equipment to conduct testings. It took a lot of education, discussions, deliberations and working with the authorities/ organizations to work out solutions to resolve compliance and testing matters. On the positive note, one of the authorities advised us to apply under a new category, ‘Hybrid Air Conditioner. The duration of the application processes were longer than that of typical certifications and testing for conventional air-conditioners.
Being a first mover, notwithstanding many of our corporate clients who were impressed and showed keen interest in our products, EvoAirTM, many of them took a few months to conduct study on their own accord on performance and the energy savings of our products. The Company is building up its traction for the EvoAirTM hybrid air-conditioners for both residentials and commercial/ industrial units through distribution channels, projects, building and businesses as well as private labelling and licensing model.
During the financial period, EvoAir Manufacturing entered into an OEM supply agreement (the “OEM Agreement”) with Tadmonsori Holdings Sdn Bhd (“THSB”) pursuant to which the parties have agreed for THSB to purchase certain products (the “Products”) from EvoAir Manufacturing to resell directly under THSB’s branding, trademark, graphics, packaging designs and artwork, with the insertion of the words “Powered by EvoAir” inserted at the back of each Product, to THSB end user customers. The OEM Agreement will be renewable on a three-year basis, and upon the execution of the Agreement, THSB shall have made a minimum order of 3,000 units of the Products upon signing of the OEM Agreement, and to target a total sales turnover of 105,000,000 Malaysia Ringgit (approximately US$22,522,522, as calculated at the Foreign Exchange Rate of US$1 = 4.6620 Malaysia Ringgit on December 8, 2023, as published in H.10 statistical release of the United States Federal Reserve Board) over 3 years from January 1, 2024 to December 31, 2026.
Cost of revenue was $187,401 or 141% of revenue for the six months ended February 29, 2024, as compared to $251,798 or 118% of revenue in the same financial period in 2023. The decline in cost of revenue for the comparative figures is in line with the drop in sales. Cost of revenues includes production costs and purchases of goods.
Gross loss was $54,909 or negative gross profit margin of 41% for the six months ended February 29, 2024, as compared to gross loss of $38,201 in the same financial period in 2023 or 18% of revenue. The increase of gross loss is mainly due to the Company commercialized EvoAirTM products with higher cost of revenue from manufacturing and related costs as well as lack of economy of scale during commercialization stage. The Company anticipates improvement of income and gross profit margin with the improvement of revenue streams from distributor and dealership model, projects as well as private labeling and licensing model.
Operating expenses were $2,990,751 for the six months ended February 29, 2024, compared to $2,853,728 in the corresponding period in 2023, an increase of $137,023. The increase in operating expenses was not significant as it’s within 5%.
Other income was $90,581 for the six months ended February 29, 2024, compared to $14,489 in the corresponding period in 2023, an increase of $76,092. The change was mainly due to $82,389 realized foreign exchange gain from amounts due to shareholders.
The loss from operation before income taxes for the six months ended February 29, 2024, was $2,955,079 as compared to $2,877,440 for the corresponding period in 2023. The continuous net loss is attributable to the Group’s focused effort in creating the infrastructure and resource to meet the business expansion needs of the Group’s as well as lack of economies of scale.
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Liquidity and Capital Resources
Working Capital
| As of | As of | |||||||||||||||
February 29, 2024 | 2023 | Changes | % | |||||||||||||
| Current assets | $ | 1,394,439 | $ | 2,071,164 | $ | (676,725 | ) | (33 | )% | |||||||
| Current liabilities | 1,215,947 | 964,642 | 251,305 | 26 | % | |||||||||||
| Working capital | 178,492 | 1,106,522 | (928,030 | ) | (84 | )% | ||||||||||
As at February 29, 2024, our company’s current liabilities stood at $1,394,439, which included accounts payable and accruals of $252,741, other payables of $27,439, current portion hire purchase creditor $7,412, amounts due to shareholders $439,630, current portion operating lease liabilities of $88,952 and the deferred revenue of $399,773.
As at February 29, 2024 our company had a positive working capital of $178,492 compared with the positive working capital of $1,106,522 as at August 31, 2023. The drop in working capital for the comparative figures was mainly attributable to the decrease in cash proceeds from issuance of common stock or capital contribution, decrease in deposits, prepayments and other receivables, increase in accounts payable and accruals, and the increase in amounts due to shareholders.
Cash Flows
Six Months Ended February 29, 2024, versus Six Months Ended February 28, 2023
| February 29, | February 28, | |||||||||||||||
| 2024 | 2023 | Changes | % | |||||||||||||
| Cash flows used in operating activities | $ | (457,609 | ) | $ | (326,333 | ) | (131,276 | ) | (40 | )% | ||||||
| Cash flows used in investing activity | (96,186 | ) | (11,754 | ) | (84,432 | ) | (718 | )% | ||||||||
| Cash flows (used in) generated from financing activities | (4,144 | ) | 439,233 | (443,377 | ) | (101 | )% | |||||||||
| Net changes in cash | (557,939 | ) | 101,146 | (659,085 | ) | (652 | )% | |||||||||
The Company’s cash and cash equivalents stood at $137,029 as of February 29, 2024. Cash used in operating activities for the six months ended February 29, 2024, was $457,609. This resulted primarily from a net loss of $2,955,079 which was offset by depreciation of $137,106, amortization of $2,078,694, decrease in operating lease right-of-use assets of $41,049, decrease in operating leases liabilities of $43,128, increase in inventories of $94,838, decrease in deferred revenue of $40,296, decrease in deposit, prepayment and other receivables of $128,099, decrease in accounts receivable of $1,444, increase in accounts payable and accruals of $81,853, increase in amounts due to shareholders of $207,535, and decrease in other payables of $48.
Cash used in investing activity resulted from purchase of property plant and equipment amounting to $96,186 for the six months ended February 29, 2024.
Cash used in financing activities resulted from the payments of hire purchase amounting to $4,144 during the six months ended February 29, 2024.
Seasonality
The Company’s business is not subject to seasonality.
Off-Balance Sheet Arrangements
As of the date of this Quarterly Report on Form 10-Q, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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Critical Accounting Policies
Revenue recognition
Our revenue recognition policy is in compliance with ASC 606, Revenue from Contracts with Customers that revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that we expect to receive in exchange for those goods. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods. We apply the following five-step model in order to determine this amount:
| (i) | identification of the promised goods and services in the contract; |
| (ii) | determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract; |
| (iii) | measurement of the transaction price, including the constraint on variable consideration; |
| (iv) | allocation of the transaction price to the performance obligations; and |
| (v) | recognition of revenue when (or as) the Company satisfies each performance obligation. |
We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, our performance obligations are transferred to customers at a point in time, typically upon delivery for local sales and upon shipment of the products for export sale.
For all reporting periods, we have not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.
Estimates and Assumptions
In preparing our unaudited condensed consolidated financial statements, we use estimates and assumptions that affect the reported amounts and disclosures. Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but that are inherently uncertain and unpredictable. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts. Significant estimates in 2024 and 2023 include the assumptions used to value tax liabilities, derivative financial instruments, the estimates of the allowance for deferred tax assets, the accounts receivable allowance, impairment of intangible assets and long-lived assets and inventory write-offs.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets which could impact our estimates and assumptions. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
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Going Concern
As of February 29, 2024, and August 31, 2023, the Company had an accumulated deficit of $16,334,493 and $13,523,266 respectively. The Company incurred net loss of $2,955,079 and $ $2,877,440 for the six months ended February 29, 2024, and February 28, 2023, respectively. The cash used in operating activities was $457,609 and $326,333 for the six months ended February 29, 2024, and February 28, 2023, respectively. It was brought to the attention of the Management to assess going concern considering all facts and circumstances about the foreseeable future of the Company as well as its assets and liabilities on the basis that it will be able to realize and discharge them in the normal course of business.
With the development of HVAC business (“HVAC Business”) pursuant to the Transactions (defined in Note 1), the Management believes that the actions to be taken by the Management to further implement the business plans for the HVAC Business including expansion in product offerings, geographical expansion, generate revenue through expansion of revenue streams and customer base (retail, commercial, industrial, projects as well as private label and licensing clientele), improvement of profitability by achieving economies of scale provide the opportunity for the Company to continue as a going concern. In addition, the Company is also working on raising additional funding in conjunction with the Company’s plan to uplist on Nasdaq Capital Market/ NYSE American LLC to finance the operations as well as business expansion.
The unaudited condensed consolidated financials have been prepared assuming that the Company will continue as a going concern and accordingly financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Material Commitments
We have no material commitments as of February 29, 2024.
Recent Accounting Pronouncements
Except for rules and interpretive releases of the SEC under the authority of federal securities laws and a limited number of grandfathered standards, the ASC is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company’s present or future financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance. This standard becomes effective for the Company beginning on October 1, 2024. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted this guidance effective September 1, 2023, and the adoption of this standard did not have a material impact on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Improvement to Reportable Segment Disclosures. This ASU aims to improve segment disclosures through enhanced disclosures about significant segment expenses. The standard requires disclosure of significant expense categories and amounts for such expenses, including those segment expenses that are regularly provided to the chief operating decision maker, easily computable from information that is regularly provided, or significant expenses that are expressed in a form other than actual amounts. This standard will be effective for the Company in Fiscal Year 2025 and is required to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of the additional disclosure requirements on the Company’s condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, a final standard on improvements to income tax disclosures which applies to all entities subject to income taxes. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. This standard will be effective for the Company in Fiscal Year 2026 and should be applied prospectively. The Company is currently evaluating the impact of the additional disclosure requirements on the Company’s condensed consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our Management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-14(a)(e) and 15d-14(a) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s Management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was conducted under the supervision and with the participation of our Management of the effectiveness of the design and operation of our disclosure controls and procedures as of February 29, 2024. Based on our Management’s evaluation under the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, our Management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the assessment described above, Management identified the following control deficiencies that represent material weaknesses at February 29, 2024:
● Due to our limited resources, we do not have enough accounting personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with U.S. GAAP which could lead to untimely identification and resolution of accounting matters inherent in our financial transactions in accordance with U.S. GAAP.
● The Company has insufficient written policies and procedures for accounting and financial reporting, which led to inadequate financial statement closing process.
● The Company has a lack of segregation of duties, a lack of audit committee or independent governance/oversight.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the three months period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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On October 8, 2021, a filing (the “Filing”) was made with the Kuala Lumpur High Court by a reseller (the “Reseller”) of the Company’s INCU ionic nano copper solution (the “Solution”) and the Reseller’s related party (together with the Reseller, the “Plaintiffs”).
The Reseller was authorized by WKL Eco Earth’s sole distributor of the Solution (the “WKL Distributor”) to resell the Solution together with a diffuser with a capacity of not more than 1000ml through a tripartite agreement (the “Tripartite Agreement”) entered into between (a) the Reseller, (b) the WKL Distributor and (c) a solution packaging company (the “Packaging Company”). WKL Eco Earth was not a party to the Tripartite Agreement and did not directly authorize or engage the Reseller in the resale of the Solution.
In the Filing, the Plaintiffs claimed against (i) WKL Eco Earth; (ii) Dr. Low; (iii) Chan Kok Wei, (iv) the Packaging Company and (v) two directors of the Packaging Company for loss and damages arising from an alleged breach of contract, defamation and tort of inducement. The Plaintiffs also alleged that pursuant to the Tripartite Agreement, WKL Eco Earth was prohibited from selling the Solution to any party other than the WKL Distributor and allow for the resale of the Solution by the Plaintiffs without limitation, and that the Plaintiffs were not confined in their resale of the Solution to a diffuser with a capacity of not more than 1000ml.
The Company believes the claims are without merit and will defend itself against the claims.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Management is not aware of any unregistered sales of equity securities and use of proceeds.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No senior securities were issued and outstanding during the three-month period ended February 29, 2024
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our Company.
None.
| 27 | Page |
Exhibits:
*Previously filed
| 28 | Page |
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| EvoAir Holdings Inc. | ||
| Dated: April 11, 2024 | By: | /s/ Low Wai Koon |
Low Wai Koon President and Chief Executive Officer | ||
| Dated: April 11, 2024 | By: | /s/ Ong Bee Chen |
Ong Bee Chen Chief Financial Officer | ||
| 29 | Page |
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/26 | ||||
| 10/1/24 | ||||
| Filed on: | 4/11/24 | |||
| 3/31/24 | ||||
| For Period end: | 2/29/24 | |||
| 2/28/24 | ||||
| 1/1/24 | ||||
| 12/8/23 | ||||
| 11/30/23 | 10-Q | |||
| 11/21/23 | ||||
| 9/7/23 | ||||
| 9/1/23 | ||||
| 8/31/23 | 10-K, NT 10-K | |||
| 7/13/23 | 8-K | |||
| 5/26/23 | ||||
| 4/15/23 | ||||
| 3/28/23 | ||||
| 2/28/23 | 10-Q | |||
| 2/20/23 | 8-K | |||
| 11/30/22 | 10-Q | |||
| 11/11/22 | ||||
| 11/4/22 | ||||
| 10/25/22 | 8-K | |||
| 8/31/22 | 10-K, NT 10-K | |||
| 6/15/22 | ||||
| 6/3/22 | 8-K | |||
| 2/28/22 | 10-Q, NT 10-Q | |||
| 2/15/22 | 8-K | |||
| 12/20/21 | ||||
| 12/16/21 | ||||
| 11/17/21 | ||||
| 10/8/21 | ||||
| 4/19/21 | 10-Q | |||
| 4/6/21 | ||||
| 2/4/21 | ||||
| 2/2/21 | ||||
| 3/22/19 | ||||
| 7/12/18 | ||||
| 10/24/17 | ||||
| 5/17/17 | ||||
| 2/17/17 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 12/13/23 EvoAir Holdings Inc. 8-K:1,9 12/13/23 11:5.8M M2 Compliance LLC/FA 11/22/23 EvoAir Holdings Inc. 8-K:1,3,5,911/22/23 11:539K M2 Compliance LLC/FA 9/08/23 EvoAir Holdings Inc. 8-K:1,9 9/08/23 11:429K M2 Compliance LLC/FA 7/13/23 EvoAir Holdings Inc. 8-K:1,9 7/13/23 11:532K M2 Compliance LLC/FA 11/01/22 EvoAir Holdings Inc. 8-K:3,9 11/01/22 14:1.2M M2 Compliance LLC/FA 10/25/22 EvoAir Holdings Inc. 8-K:1,9 10/25/22 13:870K M2 Compliance LLC/FA 6/07/22 EvoAir Holdings Inc. 8-K:1,9 6/03/22 11:541K M2 Compliance LLC/FA 4/19/22 EvoAir Holdings Inc. 8-K:1,9 2/15/22 11:538K M2 Compliance LLC/FA 12/21/21 EvoAir Holdings Inc. 8-K:1,2,3,512/21/21 13:58M M2 Compliance LLC/FA 4/19/21 EvoAir Holdings Inc. 10-Q 2/28/21 34:1.1M M2 Compliance LLC/FA |