Item 2. Management’s Discussion and Analysis
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” 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
Unex
was incorporated in the State of Nevada on February 17, 2017 and was formed to provide geodesy services. On December 20, 2021, EvoAir
International transferred its HVAC business to Unex, the Company through its subsidiaries upon completion of the Transactions (defined
hereunder), is engaged in the sale of (“HVAC”) products in Asia.
EvoAir
International is a company incorporated in the BVI on November 17, 2021 and the parent company of WKL Eco Earth Holdings, WKL Eco Earth,
WKL Green Energy, EvoAir Manufacturing, WKL EcoEarth Indochina, WKL Guanzhe and Evo Air Marketing (M) Sdn. Bhd. (“Evo Air Marketing”)
(together with Unex, EvoAir International, to be referred to as the “WKL Group” or “the Group”). The WKL Group
is principally engaged in the research and development, manufacturing sale and marketing of HVAC products for residential, commercial
and industrial uses.
The
WKL Group operates manufacturing plants and assembly lines in China and Malaysia in order to develop and manufacture its HVAC products,
totaling approximately 60,000 square feet of manufacturing space. With the rise of the Covid-19 pandemic, the Group has been engaged
as an authorized exclusive distributor of the INCU branded Ionic Nano Copper Solution Technology (“INCU Technology”). The
Group partners with various original equipment manufacturers (“OEMs”) in producing air purifier products that incorporate
the INCU Technology under the brand e-Cond Life , as well as distributes the INCU Technology to other brands for incorporation
into their products.
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 28, 2022, as compared to the three and six months ended February 28, 2021.
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Three
months Quarter Ended February 28, 2022, versus Three months Quarter Ended February 28, 2021
Three
Months Ended
February
28,
2022
2021
Changes
%
Revenue
$
302,884
$
27,568
$
275,316
999
%
Cost of revenue
(194,585
)
(67,730
)
126,855
187
%
Gross
profit / (loss)
108,299
(40,162
)
148,461
(370)
%
Operating
expenses
(1,303,079
)
(558,986
)
744,093
133
%
Loss
from operation
(1,194,780
)
(599,148
)
595,632
99
%
Other
income/ (expense) income
(993,618)
622
994,240
(159864)
%
Net
Loss
$
(2,188,398
)
$
(598,526
)
1,589,872
266
%
The
Company generated revenues of $302,884 in the three months ended February 28,2022 as compared to $27,568 in the same financial period
for 2021, a change in revenue of $275,316. The sales increases in the 2022 are attributable to the expansion of customer base, increase
sales to existing customers as well as expansion of product offering.
Cost
of revenue was $194,585 or 64% of revenue in the three months ended February 28 as compared to $67,730 or 246% of revenue in the same
financial period for 2021. Cost of revenues includes production cost and purchases of goods.
Gross
profit was $108,299 or 36% of revenue for the three months ended February 28 ,2022 as compared to gross loss of $40,162 in the same financial
period in 2021 or 146% of revenues. The improvement in gross profit in the corresponding period in 2022 is attributable to the economies
of scale resulting in higher level of sales
Operating expenses were $1,303,079 for the three months ended February 28, 2022 compared to $558,986 in the corresponding period in 2021,
an increase of $744,093. The increase of operating expenses were in line with the growth in business operations and business development,
professionals fee and compliance cost in relation to our financial reporting, patent and trademark filings.
The
net loss from operations for the three months ended February 28,2022 was $2,188,398 as compared to $598,526 for the corresponding period
in 2021. The continuous operating 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.
Six
Months Ended February 28, 2022, versus Six
months Ended February 28, 2021
Six Months Ended
February 28,
2022
2021
Changes
%
Revenue
$ 1,111,763
$ 221,231
$ 890,532
403 %
Cost of revenue
(901,999 )
(117,226 )
784,773
669 %
Gross income
209,764
104,005
105,759
102 %
Operating expenses
(1,813,136 )
(739,376 )
1,073,760
145 %
Loss from operation
(1,603,372 )
(635,371 )
(968,001 )
152 %
Other income /(expense)
(968,358 )
1,453
(969,811 )
(66745 )%
Net Loss
$ (2,571,730 )
$ (633,918 )
(1,937,812 )
306 %
The
Company generated revenue of $1,111,763 for the six months ended February 28, 2022 as compared to $221,231 in the corresponding financial
period in 2021, an increase in revenues of $890,532 which is attributable to the expansion of customers base, increase of sales from
existing customers and expansion of product offerings as well as increased sales to existing customers.
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Cost
of revenues was $901,999 or 81% of revenues in the six months ended February 28, 2022 as compared to $117,226 or 53% of revenue in the
corresponding period in 2021. Cost of revenues includes production cost and purchases of goods.
Gross
profit was $209,764 or 19% of revenue for the six months ended February 28, 2022 as compared to $104,005 in the corresponding period
in 2021 or 47% of revenues. The improvement of gross income in the corresponding period in 2022 is attributable to the increase in sales
of higher margin products and economy of scale resulting from higher level of sales.
Operating
expenses were $1,813,136 for the six months ended February 28, 2022 compared to $739,376 in the corresponding period in 2021, an increase
of $1,073,760. An increased operating expense was in line with the growth in business operations and business development, professionals
fee and compliance cost in relation to our financial reporting, patent and trademark filings.
The
net loss from operations for the six month first half of fiscal 2022 was $1,603,372 as compared to $635,371for the comparable period
of the prior year. The continuous operating loss is attributable to the infrastructure and resource to meet the business expansion needs
of the Group’s as well as lack of economies of scale.
Liquidity
and Capital Resources
Working
Capital
As of
As of
February 28,
August 31,
2022
2021
Changes
%
Current Assets
$ 2,666,244
$ 3,224,772
$ (558,528 )
(17 )%
Current Liabilities
779,286
1,665,879
(886,593 )
(53 )%
Working Capital
1,886,958
1,558,893
328,065
21 %
As
at February 28, 2022, our company’s liabilities stood at $1,279,058, which included account payable and accruals of $17,694, other
payable of $655,946, hire purchase creditor $34,372, amount due to related party $22,204 and current portion operating lease liabilities
of $49,070, and the non-current portion operating lease liabilities of $499,772.
As
at February 28, 2022 our company had a positive working capital of $1,886,958 compared with the positive working capital of $1,558,893
as at August 31, 2021. The increase in working capital was primarily due to a decrease in convertible bonds balance at current period
end.
Cash
Flows
February 28,
February 28,
2022
2021
Changes
%
Cash flows (used in)/ generated from operating activities
$ (881,506 )
$ 1,303,630
(2,185,136 )
(168 )%
Cash flows used in investing activities
(524,148 )
-
(524,148 )
100 %
Cash flows provided by financing activities
-
-
-
- %
Net changes in cash
(1,405,654 )
1,303,630
(2,709,284 )
(208 )%
The
Company’s cash and cash equivalents stood at $508,490 as of February 28, 2022. Cash used in operating activities for the six months
ended February 28, 2022, was $881,506. This resulted from primarily from a net loss of $2,571,730 which was offset by depreciation of
$18,375, operating lease $23,460, increase in inventories of $335,183, decrease in account receivable of $96,277 and $116,416 decrease
in other receivables, decrease in account payable and accruals of $520,255, increase in other payable of $622,868 and decrease in amount
due to related party of $30,277.
Cash
used in investing activities resulted from purchase of fixed assets amounting to $524,148 for the six months ended February
28, 2022.
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Seasonality
The
Company’s business is not subject to seasonality.
Off-Balance
Sheet Arrangements.
The
Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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 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,
we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct.
We recognize as revenues 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 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 2022 and 2021 include the assumptions used to value tax liabilities, derivative
financial instruments, the estimates of the allowance for deferred tax assets, and the accounts receivable allowance, and impairment
of 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 28, 2022 and August 31, 2021, the accumulated deficit stood at $4,613,553 and $2,233,496 respectively, which included a net
loss of $2,571,730 and $633,918 for six months ended February 28, 2022 and February 28, 2021, respectively. The cash used in operating
activities for the six months ended February 28, 2022, was $881,506. 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.
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 injection of a viable business into the Company (“New Business”) contemplated under 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 New Business
including expansion in product offerings, geographical expansion, generate revenue through expansion of revenue streams and customer
base (retail, commercial and industrial 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 to finance the operations as well as business expansion.
The
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
On
March 22, 2021, the Group entered into a tenancy agreement to lease the premise at No 31-2A, Jalan 5/32A, 6 ½ Miles, Off Jalan
Kepong, 52000 Kuala Lumpur, Malaysia for 2 years from 1 May 2021 to 30 April 2023. The lease may be terminated by either party with 3
month notice. Monthly rental is RM 23,000. This tenancy agreement has a renewal option of 2 years plus2 years with the agreed month rental
of RM25,000 for the first term of two (2) years, and RM27,000 for the second term of two (2) years.
On
February 5, 2021, the Group entered into a lease agreement to lease a factory at 3rd Floor, No. 1, Depin Road, Xingtan Town, Shunde District,
Foshan City for a 5 year period from April 1, 2021 to April 30, 2026 for a monthly rental of RMB54,578.
On
December 22, 2020, the Group entered into a lease agreement to lease the premise at No 65 Floor 1, 2 & 3, Street 123, Phum 4, Sangkat
Toul Tumpong I, Khan Chamkarman, Phnom Penh at a monthly of $4,500 from December 1, 2020 to November 30, 2022. the monthly rental will
be increased to $6,000 per month from December 1, 2022 to November 30, 2024.
Off-Balance
Sheet Arrangements
As
of the date of this Quarterly Report, 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, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to investors.
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 FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative US 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
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax
accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination,
ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective for public
companies with fiscal years beginning after December 15, 2020; early adoption is permitted. There is no material impact on the Company’s
financial statements.
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ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As
a “smaller reporting company”, we are not required to provide the information required by this Item.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.