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” 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.
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”.
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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, 2023, as compared to the three and six months ended February 28, 2022.
Three
Months Ended February 28, 2023, versus Three Months Ended February 28, 2022
Three Months Ended
February 28,
2023
2022
Changes
%
Revenue
$
70,912
$
302,884
$
(231,972
)
(77
)%
Cost of revenue
88,940
194,585
(105,645
)
(54
)%
Gross (loss)/profit
(18,028
)
108,299
(126,327
)
(117
)%
Operating expenses
1,426,781
1,303,079
123,702
9
%
Loss from operation
(1,444,809
)
(1,194,780
)
250,029
21
%
Other income/(expenses)
7,512
(993,618
)
(1,001,130
)
(101
)%
Loss from operation before income taxes
$
(1,437,297
)
$
(2,188,398
)
(751,101
)
(34
)%
The
Company generated revenues of $70,912 in the three months ended February 28, 2023, as compared to $302,884 in the three months ended
February 28 2022, a decrease in revenue of $231,972. The decline in revenue for the comparative figures is mainly due to the decrease
in sales in air purifier products as a result of rollback of preventative measures taken by businesses and public from spreading infection
as the World and society progresses towards living with Covid-19. The Company is building up its traction for the evoair TM
hybrid air-conditioners for both residentials and industrial units.
Cost
of revenue was $88,940 or 125% of revenue for the three months ended February 28, 2023, as compared to $194,585 or 64% of revenue in
the same financial period in 2022. The decline in cost of revenue for the comparative figures is in line with
the drop in sales for the air purifier products. Cost of revenues includes production costs and purchases of goods.
Gross
loss was $18,028 or negative gross profit margin of 25% for the three months ended February 28, 2023, as compared to gross profit of
$108,299 in the same financial period in 2022 or 36% of revenue. The decline in gross profit margin for the comparative figures was
attributable to the drop in sales for the air purifier products, which contributed higher gross profit margin. The decrease of gross
profit is mainly due to the Company commercialized evoair TM 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 $1,426,781 for the three months ended February 28, 2023, compared to $1,303,079 in the corresponding period in 2022, an
increase of $123,702. The increase in operating expenses were mainly due to the commencement of amortization of intangible assets starting
from January 2022.
The
loss from operation before income taxes for the three months ended February 28, 2023 was $1,437,297 as compared to $2,188,398 for
the corresponding period in 2022. 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.
Six
Months Ended February 28, 2023, versus Six Months Ended February 28, 2022
Six Months Ended
February 28,
2023
2022
Changes
%
Revenue
$
213,597
$
1,111,763
$
(898,166
)
(81
)%
Cost of revenue
251,798
901,999
(650,201
)
(72
)%
Gross (loss)/profit
(38,201
)
209,764
(247,965
)
(118
)%
Operating expenses
2,853,728
1,813,136
1,040,592
57
%
Loss from operation
(2,891,929
)
(1,603,372
)
1,288,557
80
%
Other income/(expense)
14,489
(968,358
)
(982,847
)
(101
)%
Loss from operation before income taxes
$
(2,877,440
)
$
(2,571,730
)
305,710
12
%
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The
Company generated revenues of $213,597 in the six months ended February 28, 2023, as compared to $1,111,763 in the six months ended February
28 2022, a decrease in revenue of $898,166. The decline in revenue for the comparative figures is mainly due to the decrease in sales
in air purifier products as a result of rollback of preventative measures taken by businesses and public from spreading infection
as the World and society progresses towards living with Covid-19. The Company is building up its traction for the evoair TM
hybrid air-conditioners for both residentials and industrial units.
Cost
of revenue was $251,798 or 118% of revenue for the six months ended February 28, 2023 as compared to $901,999 or 81% of revenue in
the same financial period in 2022. The decline in cost of revenue for the comparative figures is in line with the drop in sales for
the air purifier products. Cost of revenues includes production costs and purchases of goods.
Gross
loss was $38,201 or negative gross profit margin of 18% for the six months ended February 28, 2023 as compared to gross profit of
$209,764 in the same financial period in 2022 or 19% of revenue. The decline in gross profit margin for the comparative figures was
attributable to the drop in sales for the air purifier products, which contributed to a higher gross profit margin. The decrease of
gross profit is mainly due to the Company commercialized evoair TM 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 $2,853,728 for the six months ended February 28, 2023 compared to $1,813,136 in the corresponding period in 2022, an increase
of $1,040,592. The increase in operating expenses were mainly due to the commencement of amortization of intangible assets starting
from January 2022.
The
loss from operation before income taxes for the six months ended February 28, 2023 was $2,877,440 as compared to $2,571,730 for the
corresponding period in 2022. 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.
Liquidity
and Capital Resources
Working
Capital
As of February 28,
As of August 31,
2023
2022
Changes
%
Current assets
$ 1,505,243
$ 1,688,926
$ (183,683 )
(11 )%
Current liabilities
995,056
892,004
103,052
12 %
Working capital
510,187
796,922
(286,735 )
(36 )%
As
at February 28, 2023, our company’s current liabilities stood at $995,056, which included accounts payable and accruals of $111,578,
other payables of $21,084, current portion hire purchase creditor $3,919, amount due to shareholders $314,165, current portion operating
lease liabilities of $87,983 and the deferred revenue of $456,102.
As
at February 28, 2023 our company had a positive working capital of $510,187 compared with the positive working capital of $796,922 as
at August 31, 2022. The decline in working capital for the comparative figures was mainly attributable
to the decrease in deposits, prepayments and other receivables and an increase in amount owing to shareholders.
20 | Page
Cash
Flows
Six Months Ended February 28, 2023, versus Six
Months Ended February 28, 2022
February 28,
February 28,
2023
2022
Changes
%
Cash flows used in operating activities
$ (326,333 )
$ (881,506 )
555,173
63 %
Cash flows used in investing activity
(11,754 )
(524,148 )
512,394
98 %
Cash flows generated from financing activities
439,233
-
439,233
100 %
Net changes in cash
101,146
(1,405,654 )
1,506,800
107 %
The
Company’s cash and cash equivalents stood at $242,755 as of February 28, 2023. Cash used in operating activities for the six
months ended February 28, 2023, was $326,333. This resulted primarily from a net loss of $2,877,440 which was offset by depreciation
of $74,828, amortization of $2,078,694, decrease in operating lease right-of-use assets of $118,116, decrease in operating leases liabilities of $133,636,
decrease in inventories of $46,121, decrease in deferred revenue of $56,970, decrease in deposit, prepayment and other receivables
of $182,607, decrease in accounts receivable of $45,406, decrease in accounts payable and accruals of $105,027, increase in amounts
due to shareholders of $311,864, and decrease in other payables of $10,896.
Cash
used in investing activity resulted from purchase of property plant and equipment amounting to $11,754 for the six months ended February
28, 2023.
Cash
generated from financing activities resulted from the proceeds from capital raising amounting to $299,055, proceeds from share to be
issued amounting to $144,443, proceeds from capital contribution amounting to $100 and payments of hire purchase amounting to $4,365
during the six months ended February 28, 2023.
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.
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.
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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 2023 and 2022 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.
Going
Concern
As
of February 28, 2023 and August 31, 2022, the Company had an accumulated deficit of $10,214,862 and $7,465,373 respectively. The
Company incurred net loss of $2,877,440 and $2,571,730 for six months ended February 28, 2023 and February 28, 2022, respectively.
The cash used in operating activities were $326,333 and $881,506 for the six months ended February 28, 2023 and February 28, 2022,
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 injection of a HVAC Business contemplated under the Transactions, 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 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 28, 2023.
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
June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 adds the CECL
impairment model to U.S. GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required
with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-13 is effective
for fiscal years beginning after December 15, 2022, including interim periods within the year of adoption. Early adoption is permitted
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company does not expect
the application of the CECL impairment model to have a significant impact on its allowance for uncollectible amounts for accounts receivable.
22 | Page
In
October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized
and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. This ASU should
be applied prospectively to acquisitions occurring on or after the effective date of December 15, 2022, and early adoption is permitted.
The
Company has implemented all new applicable accounting pronouncements that are in effect. These pronouncements did not have any material
impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
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.
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.