EvoAir Holdings Inc. 10-Q

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 U.S., 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 US$ 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 to Financial Statements, 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. On December 20, 2021, several transactions took place (together, the “Allotment Transactions”) whereby the Company issued and allotted in aggregate 98,809,323 EvoAir Shares to certain parties. On completion of the Allotment Transactions, the total number of issued and outstanding EvoAir Shares were 101,779,323 (“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, pursuant to which Dr. Low and Chan Kok Wei agreed to sell all their ordinary shares of 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 with 50% shareholding held by Chan Kok Wei and Ong Bee Chen, respectively, of 24,000 EvoAir Shares and 6,000 EvoAir Shares, respectively, or approximately 0.02% and 0.01% of the Then Enlarged Share Capital, respectively. 21 | Page (B) On December 20, 2021, Dr. Low, Chan Kok Wei, Ong Bee Chen and certain sellers (collectively, the “WKLEE Sellers”) entered into a share exchange agreement with WKL Eco Earth Holdings, pursuant to which the WKLEE Sellers agreed to sell all their ordinary shares, amounting in aggregate, 240,000 shares or 80% shareholding of WKL Eco Earth to WKL Eco Earth Holdings in consideration for the allotment and issuance to WKL Global, Allegro Investment and WKLEE Sellers of 49,320 EvoAir Shares, 8,280 EvoAir Shares and in aggregate 14,400 EvoAir Shares, respectively, or approximately 0.05%, 0.009% and in aggregate 0.014%, 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 the Tan Soon Hock, Ivan Oh Joon Wern and the Relevant Interest Holders agreed to sell all relevant interests in the EvoAir Group to WKL Eco Earth Holdings in consideration for the allotment and issuance of 7,037,762 shares, 2,520,000 shares and in aggregate 6,001,794 shares, respectively, of the common stock of the Company, or approximately 6.91%, 2.48% and in aggregate 5.90%, respectively, of the issued and outstanding ordinary shares of the Company. The board of directors and majority shareholders of the Company have approved the transaction. (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 relating to eco-friendly air-conditioner condenser (external unit), EvoAir TM and the trademarks described in the deed of assignment thereunder, and in respect of Dr. Low’s patents relating to the portable air-conditioner, e-Cond EVO TM and the trademarks as described in the deed of assignments thereunder (together, the “IP Assignments”). Pursuant to the IP Assignments, WKL Global, Allegro Investment and certain nominees shall be allotted and issued 63,362,756 EvoAir Shares, 14,297,259 EvoAir Shares and in aggregate 5,487,752 EvoAir Shares, respectively or approximately 62.25%, 14.05% and in aggregate 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 to be referred to as the “Transactions”. The closing of the Transactions (the “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 consisted of the prior operations of EvoAir International. 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 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”. On November 21, 2023, the Company issued in aggregate, 52,107 shares of Common Stock to 15 referral agents (“Referral Agents”) in consideration for their referral to the Company of certain investors. Each Referral Agent is a “non-U.S. Persons” as defined in Regulation S. On November 21, 2023, the Company issued, in aggregate, 5,500 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. Each of the individuals is a “non-U.S. Persons” as defined in Regulation S. 22 | Page On August 14, 2024, the WKL Eco Earth Holdings has increased its investment in WKL Guanzhe Green Technology Guangzhou Co Ltd (China) by injecting an additional RMB2,000,000 into its registered capital. This investment has resulted in an increase in WKL Eco Earth Holding’s equity interest in WKL Guanzhe Green Technology to 62.5%. On February 6, 2026, the WKL Eco Earth Holdings has increased its investment in WKL Guanzhe Green Technology Guangzhou Co Ltd (China) by injecting an additional RMB1,500,000 into its registered capital. This investment has resulted in an increase in WKL Eco Earth Holding’s equity interest in WKL Guanzhe Green Technology to 66.67%. Round 2 Stockholders The Company entered into a series of offerings for an aggregate of up to 6,000,000 shares of Common Stock at a per share purchase price of $2.50, 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” (the “Investor”) 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 74,074 Shares, par value $0.001 per share, at a per share purchase price of $2.50, as part of a series of offerings by the Company for an aggregate of up to 6,000,000 shares of Common Stock at a per share purchase price of $2.50. The gross proceeds were $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” (the “Investor”) 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 5,000 shares, par value $0.001 per share , at a per share purchase price of $2.50, as part of a series of offerings by the Company for an aggregate of up to 6,000,000 shares of Common Stock at a per share purchase price of $2.50. The gross proceeds were $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) 129,621 shares of Common Stock, par value $0.001 per share to the Regulation S investors, and (ii) 15,000 shares of Common Stock to the Regulation D investors, respectively par value $0.001 per share, at a per share purchase price of $2.50, as part of a series of offerings by the Company for an aggregate of up to 6,000,000 shares of Common Stock at a per share purchase price of $2.50. The gross proceeds in aggregate were $361,553. ● 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 agreements, the Company agreed to issue and sell in aggregate, (i) 57,783 shares of Common Stock, par value $0.001 per share to the Regulation S investors, at a per share purchase price of $2.50 as part of a series of the private placement offerings by the Company for an aggregate of up to 6,000,000 shares of Common Stock at a per share purchase price of $2.50. The gross proceeds in aggregate were $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 agreements, the Company agreed to issue and sell in aggregate, (i) 250,132 shares of Common Stock, par value $0.001 per share to the Regulation S Investors, at a per share purchase price of $2.50 as part of a series of the private placement offerings by the Company for an aggregate of up to 6,000,000 shares of Common Stock at a per share purchase price of $2.50. The gross proceeds in aggregate were approximately $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 agreements, the Company agreed to issue and sell in aggregate, 365,164 shares of Common Stock, par value $0.001 per share to the Regulation S investors, at a per share purchase price of $2.50 as part of a series of the private placement offerings by the Company for an aggregate of up to 6,000,000 shares of Common Stock at a per share purchase price of $2.50. The gross proceeds in aggregate was approximately $912,889. 23 | Page ● 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 agreement, the Company agreed to issue and sell in aggregate, 8,658 shares of Common Stock, par value $0.001 per share to the Regulation S investors, at a per share purchase price of $2.50 as part of a series of the private placement offerings by the Company for an aggregate of up to 6,000,000 shares of Common Stock at a per share purchase price of $2.50. The gross proceeds in aggregate was approximately $21,645. Reverse Stock Split On April 12, 2024, the Company’s board of directors (the “Board”) unanimously resolved to effect a reverse stock split of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a ratio of 1-for-4. Following such resolution, on September 9, 2024, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) with the Secretary of State of the State of Nevada to effect the reverse stock split, with an effective time of 9:00AM. Eastern Time on September 11, 2024 (the “Reverse Stock Split”). Split Adjustment; Treatment of Fractional Shares As a result of the 1:4 Reverse Stock Split, each 4 pre-split shares of Common Stock outstanding will automatically combine into one new share of Common Stock without any action on the part of the holders, and the number of outstanding shares of Common Stock was reduced from 102,742,362 shares to 25,685,591 shares (subject to rounding up of fractional shares to the nearest whole number). No fractional shares were issued in connection with the Reverse Stock Split. Fractional shares were rounded up to the nearest whole number Share Issuance On November 25, 2024, the Company issued, in aggregate, 679,516 shares of Common Stock, representing 2.5% of the issued and outstanding shares of Common Stock to certain project management consultant in consideration for their services in relation to proposed initial public offering. On November 25, 2024, the Company issued, in aggregate, 815,419 shares of Common Stock, representing 3.0% of the issued and outstanding shares of Common Stock to certain corporate and business consultant in consideration for their consulting services. 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. 24 | Page 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 nine months ended May 31, 2026, as compared to the three and nine months ended May 31, 2025. Three Months Ended May 31, 2026, versus Three Months Ended May 31, 2025 Three Months Ended May 31 2026 2025 Changes % Revenue $ 123,574 $ 37,306 $ 86,268 231 % Cost of revenue 116,751 8,505 108,246 1,273 % Gross profit 6,823 28,801 (21,978 (76 )% Operating expenses 1,086,651 1,237,464 (150,813 ) (12 )% Loss from operation (1,079,828 ) (1,208,663 ) 128,835 (11 )% Other income 1,611 21,825 (20,214 ) (93 )% Loss from operation before income taxes $ (1,078,217 ) $ (1,186,838 ) $ 108,621 (9 )% Revenue Revenue increase significantly to $123,574 for the three months ended May 31, 2026 from $37,306 in the same period of 2025, an increase of 231%. The growth was primarily driven by and increase of in EvoAir air-conditioner sales. We continue to build momentum through strategic distribution channels, project collaborations, private labelling and licensing models. The Group remains committed to strengthening traction of EvoAir™ and driving adoption across residential, commercial and industrial sectors. 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. Cost of revenue and Gross profit Cost of revenue increased to $116,751 from $8,505, in line with increased revenue activity. Consequently, gross profit declined to $6,823 from $28,801 in the prior period. This gross margin compression was driven by higher production and product costs associated with elevated sales volumes in the current quarter. The cost of revenue encompasses production costs and purchase of goods. 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. The Company remains focused on optimizing its cost structure and enhancing operational efficiencies. As we continue to scale operations and expand our product offerings, we are positive that these efforts will improve gross margins and position the Company for profitability in the future. Operating expenses Operating expenses decreased by $150,813, or 12%, to $1,086,651 from $1,237,464. The reduction was primarily due to lower general and administrative expenses, including decreased professional fees, compliance costs, and other overheads. Selling and marketing expenses also declined modestly as the Company continued to exercise prudent cost control while supporting strategic initiatives. 25 | Page 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 Other income for the three months ended May 31, 2026, and 2025 were not material. Loss from operations before income taxes Loss from operations improved by 11% to $1,079,828 from $1,208.663. After accounting for other income, the loss before income taxes improved by 21% to $1,078,217. The improvement was mainly due to lower operating expenses, partially offset by lower other income. Management is encouraged by the strong revenue growth and continued operating-expense discipline in the third quarter. We remain focused on distribution expansion, private labelling/licensing and broader adoption of our eco-friendly HVAC solutions. Nine Months Ended May 31, 2026, versus Nine Months Ended May 31, 2025 Nine Months Ended May 31 2026 2025 Changes % Revenue $ 211,613 $ 160,359 $ 51,254 32 % Cost of revenue 201,580 168,681 32,899 20 % Gross profit/(loss) 10,033 (8,322 ) 18,355 221 % Operating expenses 3,133,160 7,116,685 (3,983,525 ) (56 )% Loss from operation (3,123,127 ) (7,125,007 ) 4,001,880 56 % Other income 1,917 24,277 (22,360 ) (92 )% Loss from operation before income taxes $ (3,121,210 ) $ (7,100,730 ) $ 3,979,520 56 % Revenue Revenue increased to $211,613 from $160,359, an improvement of 32%. The increase was primarily driven by growth in EvoAir™ air-conditioner sales, as we continue to expand reach via strategic distribution, project collaborations and private-labelling/licensing models, positioning the Group for future growth in the sustainable cooling market. 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. Cost of revenue and Gross profit Cost of revenue increased 20% to $201,580 from $168,681, in line with higher revenue activity. Gross profit improved to $10,033 from a gross loss of $8,322 in the prior period, reflecting improved product mix and cost efficiency gains achieved through operational enhancements The cost of revenue encompasses production costs and the purchase of goods. 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. 26 | Page The Company remains focused on optimizing its cost structure and enhancing operational efficiencies. As we continue to scale operations and expand our product offerings, we are positive that these efforts will improve gross margins and position the Company for profitability in the future. Operating expenses Operating expenses decreased substantially by $3,983,525, or 56%, to $3,133,160 from $7,116,685. The reduction was driven primarily by lower general and administrative expenses, including reduced stock-based compensation, professional fees, and other overhead costs relative to the prior period. Selling and marketing expenses also declined as the Company maintained disciplined cost control while supporting key growth initiatives. 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 Other income for the nine months ended May 31, 2026, and 2025 was not material. Loss from operations before income taxes Loss from operations improved 56% to $3,123,127 from $7,125,007. Loss before income taxes improved 56% to $3,121,210. The improvement was driven by higher gross profit and significantly lower operating expenses The continued net loss reflects ongoing strategic investments in the HVAC business infrastructure. Management is encouraged by the revenue growth achievement and substantial operating-expense reductions over the nine-month period. Revenue growth of 32% in the nine months ended May 31, 2026 reflects improving market traction for our eco-friendly HVAC products. Management is encouraged by the improvement in gross profitability and the substantial reduction in operating expenses. These positive trends demonstrate the effectiveness of our cost optimization efforts and channel expansion strategy. We remain committed to expanding distribution channels, advancing private labeling and licensing opportunities, and increasing adoption of EvoAir™ solutions across diverse market segments. These strategic initiatives, combined with ongoing operational improvements, are expected to support a return to sustainable revenue growth and improved financial performance in future periods. Liquidity and Capital Resources Working Capital As of May 31, 2026 As of August 31, 2025 Changes % Current assets $ 440,734 $ 527,748 $ (87,014 ) (17 )% Current liabilities 4,413,744 3,212,754 1,200,990 37 % Working capital (3,973,010 ) (2,685,006 ) (1,288,004 ) (48 )% As of May 31, 2026, current assets decreased by $87,014, or 17%, compared to August 31, 2025. The decline was primarily due to lower cash and cash equivalents and accounts receivable 27 | Page Current liabilities increased by $1,200,990, or 37%, mainly due to a rise in amounts due to shareholders from $2,436,407 to $3,544,333. This increase reflects continued shareholder funding to support operations during the current growth phase. As a result, the Company’s working capital deficit widened to $3,973,010 as of May 31, 2026, compared to $2,685,006 as of August 31, 2025. The larger deficit is attributable to ongoing operational investments, only partially mitigated by improved revenue performance and cost control measures. Cash Flows Nine Months Ended May 31, 2026, versus Nine Months Ended May 31, 2025 May 31, 2026 May 31, 2025 Changes % Net cash used in operating activities $ (980,606 ) $ (900,095 ) (80,511 ) (9 )% Cash flows used in investing activity - (5,902 ) 5,902 100 % Cash flows generated from financing activities 1,094,886 923,588 171,298 19 % Net changes in cash 114,280 17,591 96,689 550 % Cash Flows from Operating Activities Net cash used in operating activities increased to $980,606 in the nine months ended May 31, 2026, from $900,095 in the comparable period of 2025. The cash usage primarily reflects the net loss of $3,121,210, partially offset by non-cash adjustments, including amortization of $1,909,276 and depreciation of $93,738. Favorable working-capital movements provided a partial offset, including increases in accounts receivable of $21,833, deferred revenue of $14,924, and other payables of $66,650. Cash Flows from Investing Activities There were no investing activities in the nine months ended May 31, 2026. Net cash used in investing activities was $5,902 in the comparable period of 2025, related to the purchase of property, plant, and equipment. Cash Flows from Financing Activities Net cash generated from financing activities was $1,094,886, primarily from amounts due to shareholders of $1,107,926. This was partially offset by payments on hire purchase obligations of $4,852 and payment of deferred offering costs of $8,188. Overall, cash and cash equivalents decreased from $93,329 as of August 31, 2025 to $35,811 as of May 31, 2026. 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. 28 | Page 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 The preparation of financial statements in conformity with U.S. GAAP requires the 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 unaudited condensed consolidated financial statements include, inter-alia , 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. The actual results could differ materially from these estimates. Going Concern The Company’s financial statements as of May 31, 2026 are 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 May 31, 2026 and August 31, 2025, the Company had an accumulated deficit of $56,959,317 and $54,028,719, respectively. The Company incurred a net loss of $1,078,217 and $1,186,838 for the three months ended May 31, 2026 and 2025, respectively, and $3,121,210 for the nine months ended May 31, 2026 compared to $7,100,730 for the nine months ended May 31, 2025. 29 | Page 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 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 May 31, 2026. Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, by introducing key amendments to enhance disclosures in public entities’ reportable segments. Notable changes include the mandatory disclosure of significant segment expenses regularly provided to the chief operating decision maker (“CODM”), disclosure of other segment items, and requirements for consistency in reporting measures used by the CODM. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Accordingly, the Company adopted the provisions of ASU 2023-07 as of January 31, 2025. The adoption of the new standard had no impact on the Company’s financial position, results of operations or cash flows on the date of transition. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which introduces more detailed requirements for annual disclosures for income taxes. The ASU requires public business entities to present specific categories in the income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose the amounts of income taxes paid, net of refunds received, disaggregated by federal, state, and foreign jurisdiction. The ASU is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects, if any, that the adoption of ASU 2023-09 may have on its financial position, results of operations, cash flows, or disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public business entities to disclose specific information about certain costs and expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the effects, if any, that the adoption of ASU 2024-03 may have on its financial position, results of operations, cash flows, or disclosures. In September 2025, the FASB issued ASU 2025-06-Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (ASU 2025-06), which is intended to simplify the capitalization guidance for internal-use software by removing references to project stages and clarifying when the capitalizing of eligible costs is required. ASU 2025-06 is effective for annual periods beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its disclosures. There are no other recently issued accounting pronouncements that have not yet been adopted that the Company considers material to its consolidated financial statements. 30 | Page 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.