Item 7. Management’s Discussion and Analysis
ITEM
7.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in
this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual
results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such
differences include but are not limited to those discussed below and elsewhere in this Annual Report. Our audited consolidated financial
statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles
(“U.S. GAAP”).
Plan
of Operation and Funding
We
expect that working capital requirements will continue to be funded through internally generated funds and proceeds from issuances of
securities. Our working capital requirements are expected to increase in line with the growth of our business.
Existing
working capital, proceeds from issuance of securities, further advances, and anticipated cash flow are expected to be adequate to
fund our operations over the next twelve months. We have no lines of credit or other bank financing arrangements. Generally, we have
financed operations to date through internally generated funds, advances and proceeds from issuance of securities. In connection
with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i)
research and development; (ii) expansion of product offerings; (iii) geographical expansion; and (iv) marketing expenses. We intend
to finance these expenses with further issuances of securities and advances. Thereafter, we expect we will need to raise additional capital and
generate revenue to meet long-term operating requirements. Additional issuances of equity will result in dilution to our current
shareholders. Further, such securities might have rights, preferences, or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on
acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could
significantly and materially restrict our business operations.
Results
of Operations
The
following table sets forth certain selected statement of operations data for the financial year indicated in U.S. Dollars. In addition,
we note that the year-to-year comparison may not be indicative of future performance.
The
following summary of our operations should be read in conjunction with our audited financial statements for the financial years ended
August 31 (“FYE”), 2024, and 2023, which are included herein.
Year Ended August 31,
2024
2023
Changes
%
Revenue
$ 314,719
$ 388,038
$ (73,319 )
(19 )%
Cost of revenue
323,038
424,189
(101,151 )
(24 )%
Gross loss
(8,319 )
(36,151 )
27,832
77 %
Operating expenses
26,311,487
6,097,019
20,214,468
332 %
Loss from operations
(26,319,806 )
(6,133,170 )
(20,186,636 )
(329 )%
Other income/(expense)
4,410
(184,203 )
188,613
102 %
Net Loss
(26,315,396 )
(6,317,373 )
(19,998,023 )
(317 )%
Revenue
The Group recorded a revenue of $314,719 for FYE 2024,
representing a decrease of approximately $73,319, or 19%, compared to FYE 2023 revenue of $388,038. This decline was primarily driven
by a reduction in sales of our eco-friendly air-conditioning units, particularly our flagship product, EvoAir™, which is a pioneering
hybrid air-conditioner designed with a proprietary HECS system.
As the first mover in the eco-friendly air-conditioning
market, the Group encountered both significant opportunities and challenges during the year. The EvoAir™ air-conditioner, which
is either granted a patent or utility model pending, presented unique challenges related to its certifications and testings. Specifically,
while working with relevant authorities and organizations to apply for the necessary safety and performance certifications and approvals,
the Group encountered difficulties in having our product appropriately categorized within the existing frameworks for conventional air
conditioners. In certain cases, the authorities lacked the equipment or resources to conduct the required tests.
Despite these challenges, the Group actively engaged
in educating and collaborating with these organizations to resolve compliance and testing issues. A positive outcome of this effort was
the recommendation from one of the authorities to apply under a newly established category: ‘Hybrid Air Conditioners.’ However,
this process, due to its novelty, was more time-consuming than the typical certification processes for traditional air-conditioning systems.
In addition to certification challenges, the adoption
of EvoAir™ by corporate clients also experienced delays. While the Group received significant interest from several corporate clients
who were impressed with the product’s potential for energy savings and performance, many of them undertook additional studies to evaluate
the long-term benefits of EvoAir™. This independent research and assessment by potential customers resulted in extended decision-making
timelines.
Despite these hurdles, the Group remains optimistic
about the long-term potential of EvoAir™. We are steadily building momentum and expanding the product’s reach across various
markets, including residential, commercial, and industrial sectors. This is being achieved through the development of strategic distribution
channels, project collaborations, and private labelling and licensing models. The Group remains committed to strengthening the traction
of EvoAir™ and driving its adoption across diverse market segments, positioning ourselves for future growth in the emerging eco-friendly
air-conditioning space.
We remain
confident in the long-term prospects of EvoAir™ and are focused on continuing to innovate and address challenges, with a view to
establishing the product as a leading solution in the sustainable cooling market.
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Cost of revenue
The Company recorded a cost of revenue of $323,038
for FYE 2024, which represents 103% of total revenue, compared to $424,189, or 109% of revenue, in FYE 2023. The decrease in cost of revenue
is consistent with the decline in sales of our eco-friendly air conditioning products and reflects improvements in our overall cost structure.
The cost of revenue encompasses production costs and
the purchase of goods. The reduction in cost of revenue as a percentage of sales reflects both the lower volume of sales and the Company’s
ongoing efforts to optimize production efficiencies and manage costs. These efforts include streamlining procurement processes and enhancing
cost management, which have contributed to the improvement in our overall cost of revenue despite the sales decline.
Looking ahead, the Company remains focused on further
optimizing its cost structure and maintaining efficiencies as it continues to scale its operations and expand its product offerings.
Gross (loss)
The Company reported a gross loss of $8,319 for FYE
2024, representing 3% of revenue. This reflects a significant improvement compared to the gross loss of $36,151 in the FYE 2023, which
constituted 9% of revenue.
The improvement in gross loss margin from FYE 2023
to FYE 2024 was primarily driven by a strategic reduction in the overall cost of revenue. These efforts included more efficient cost management,
supplier renegotiations, and optimized production processes. This progress underscores the Company’s commitment to enhancing operational
efficiency and moving toward sustained profitability.
Management will continue to focus on cost control
measures and revenue growth initiatives to build on this positive momentum in the upcoming financial periods.
Operating expenses
Operating expenses for FYE 2024 amounted to $26,311,487,
reflecting a 332% increase compared to $6,097,019 recorded in FYE 2023. This increase of $20,214,468 was primarily attributable to an
increase in technology-related intangible asset impairment and net off with the decrease in general administrative expenses since the
IPO related offering cost has been capitalized.
Key components of operating expenses included salaries
and related expenses, commissions, rental costs, patent and trademark application/renewal fees, professional and compliance fees.
The Company remains focused on prudent cost management
to maintain operational efficiency while supporting strategic initiatives for growth and value creation.
Other income/ (expenses)
Other income for FYE 2024 was not material. By comparison,
in FYE 2023, other income primarily comprised realized foreign exchange losses.
The minimal impact of other income in FYE 2024 reflects
a limited exposure to foreign exchange fluctuations. Management remains committed to monitoring external factors that may affect foreign
exchange losses and will take proactive measures to mitigate any potential risks in the future.
Net loss
The Company reported a loss from operations before
income taxes of $26,315,369 for FYE 2024, compared to $6,317,373 for FYE 2023.
Apart from the technology-related intangible asset
impairment, the continued net loss is primarily attributable to the Company’s strategic investments in building the necessary infrastructure
and resources to support its business expansion objectives. Additionally, the lack of economies of scale during this growth phase has
impacted the bottom line.
Management remains confident that these investments
will position the Company for long-term growth and profitability as it scales operations and capitalizes on emerging opportunities. Strategies
to enhance operational efficiencies and achieve economies of scale are key priorities moving forward.
Liquidity
and Capital Resources
Working
capital
Year Ended
August 31,
2024
2023
Changes
%
Current assets
$ 790,752
$ 2,071,164
$ (1,280,412 )
(62 )%
Current liabilities
1,684,638
964,642
719,996
75 %
Working capital
(893,886 )
1,106,522
(2,000,408 )
(181 )%
As of August 31, 2024, our company’s current liabilities stood at
$1,684,638, which included accounts payable and accruals of $267,900, other payables of $95,831, deferred revenue $10,012, current portion
hire purchase creditor $ 8,758 , amount due to shareholders $1,202,692, and current portion
operating lease liabilities of $ 99.445 . The increase in current liabilities was mainly
attributable to amount due to shareholders.
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As of August 31, 2024, the Company had a deficit working capital of $ 893,886
compared with the positive working capital of $1,106,522 as of 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 amount owing to shareholders.
The decline in working capital underscores the Company’s
strategic use of resources to support ongoing operations and investments during a critical growth phase. Management is actively monitoring
the Company’s liquidity position and evaluating strategies to enhance working capital and ensure sustainable financial stability.
Cash
flows
Year Ended
August 31,
2024
2023
Changes
%
Cash flows generated from / (used in) operating activities
$ 30,822
$ (1,674,395 )
$ 1,705,217
102 %
Cash flows used in investing activities
(146,269 )
(14,189 )
(132,080 )
(931 )%
Cash flows (used in) / generated from financing activities
(456,253 )
2,392,710
(2,848,963 )
(119 )%
Net changes in cash
(571,700 )
704,126
(1,275,826 )
(181 )%
The Company generated net cash from operating activities
of $30,822 for FYE 2024, compared to a net cash outflow of $1,674,395 in FYE 2023.
The improvement in cash flow from operating activities
mainly attributable to a reduction of $170,431 in inventory levels, significant decreases in
deposits, prepayments, and advances to suppliers, contributing $502,701 to cash flow and increased support from shareholders, with amounts
due to shareholders rising by $970,597.
These improvements were partially offset by reductions in deferred revenue
and increased accounts payable and accruals. As of August 31, 2024, the Company’s cash and cash equivalents stood at $152,985. The
improved operating cash flow reflects the Company’s ongoing efforts to optimize cost efficiency positioning it for sustainable growth.
During the FYE 2024, cash used in investing activities amounted to $146,269.
This was primarily attributable to capital expenditures for the purchase of property, plant and equipment, reflecting the company’s
continued investments in operational infrastructure to support its long-term growth stategy.
Cash used in financing activities for FYE 2024 totaled $456,253, consisting
of $6,677 for hire purchase payments and $449,576 related to the payment of offering cots.
Seasonality
The
Company’s business is not subject to seasonality.
Off-Balance
Sheet Arrangements.
As
of the date of this Annual 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, 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 whereby 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 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.
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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 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 FYE 2024 and 2023 include the assumptions used to value tax liabilities, derivative
financial instruments, estimates of the allowance for deferred tax assets, accounts receivable allowance, impairment of long-lived
assets and inventory write-offs.
Going
Concern
The
Company’s financial statements as of August 31, 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 August 31, 2024, and 2023, the Company had an accumulated deficit of $39,401,857 and $13,523,266 respectively. The Company incurred
net loss of $26,315,396 and $6,317,373 for the years ended August 31, 2024, and 2023, respectively. The cash generated from operating
activities was $30,822 for the year ended August 31, 2024, the cash used in operating activities was $1,674,395 for the year ended August
31, 2023. 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.
To address these challenges and ensure the Company’s
long-term viability, Management has developed a strategic plan focused on the continued development and expansion of its HVAC business.
Key initiatives include:
● Expansion of Product Offerings: Broadening the range of HVAC products to meet diverse market needs.
● Geographical Expansion: Penetrating new markets to drive revenue growth.
● Revenue Diversification: Expanding customer segments across retail, commercial, industrial, and project-based
clients, as well as private label and licensing opportunities.
● Improved Profitability: Achieving economies of scale through operational efficiencies and growth.
Additionally, the Company is actively pursuing plans
to raise additional funding to support operations and business expansion. This includes preparations to uplist on the Nasdaq Capital Market,
which is expected to enhance access to capital and further strengthen the Company’s financial position.
The consolidated financial 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 August 31, 2024.
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Recent
Accounting Pronouncements
Recently
Issued Accounting Pronouncements – Adopted
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
June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments (“ASU 2016-13”). ASU 2016-13 provides guidance for recognizing credit losses on financial instruments based on
an estimate of current expected credit losses model. The amendments are effective for fiscal years beginning after December 15, 2019.
Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies for discal years beginning after December 15,
2022. We adopted ASU 2016-13 on September 1, 2023, and it did not have a material impact on out consolidated financial statements and
related disclosures.
Recently
Issued Accounting Pronouncements – Unadopted
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 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 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.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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