EvoAir (EVOH) 10-K2023 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the financial year ended AUGUST 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

COMMISSION FILE NO. 333-228161

EvoAir Holdings Inc.

(Exact name of registrant as specified in its charter)

EvoAir Holdings Inc.
31-A2, Jalan 5/32A
6 ½ Miles, Off Jalan Kepong
52000 Kuala Lumpur, Malaysia
Tel. +603 6243 3379

(Address and telephone number of registrant’s executive office)

Copies to:
Lawrence Venick, Esq.
Loeb & Loeb LLP
2206-19 Jardine House
1 Connaught Place, Central
Hong Kong SAR
Tel: +852.3923.1111
Fax: +852.3923.1100

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant as required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒

The registrant had 102,742,362 shares of our Common Stock par value, $0.001 issued and outstanding as of December 9, 2023.

The aggregate market value of the Company’s common stock held by non-affiliates of 20,614,491 shares computed by reference to the closing bid price of the Company’s common stock of $5.51, as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $113,585,845.41 on February 28, 2023.

Table of Contents

FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

As used in this Annual Report, the terms “we”, “us”, “our”, “Company” or “EVOH”, mean EvoAir Holdings Inc., unless otherwise indicated.

As used in this Annual Report, the term “Group”, “EvoAir Group” means EvoAir Holdings Inc. and its subsidiaries, unless otherwise indicated.

All dollar amounts refer to US dollars unless otherwise indicated.

PART I

Organization and Business Background

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 on February 17, 2017. The Company has adopted an August 31 fiscal year end.

On December 20, 2021, the Company and Dr. Low Wai Koon (“Dr Low”) entered into a share transfer agreement, (the “EvoAir International Share Transfer Agreement”), pursuant to which Dr. Low agreed to sell all of his ordinary shares of EvoAir International Limited (“EvoAir International”) to the Company for the consideration of US$100 (“EvoAir Transaction”). EvoAir International, through its subsidiaries upon completion of the Transactions (defined hereunder), is engaged in the R&D, manufacturing, marketing and sale of eco-friendly heating, ventilation and air conditioning (“HVAC”) products and related services.

Pursuant to the terms of EvoAir International Share Transfer Agreement, Dr. Low, the then sole executive officer and director of the Company and the owner of 2,000,000 restricted shares of common stock, with par value of $0.001 per share (“Common Stock”) of the Company (“EvoAir Shares”), representing approximately 67.34% of the Company’s then issued and outstanding shares of Common Stock, sold his entire shareholding of the Company to WKL Global Limited, a company incorporated in the British Virgin Islands and wholly owned by Dr. Low (“WKL Global”), for an aggregate consideration of $100 (the “Change of Control Transaction”). Upon completion of the Change of Control Transaction, WKL Global owned 2,000,000 shares of Common Stock, or approximately 67.34% of the then issued and outstanding EvoAir Shares, 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 Pte Ltd (“WKL Eco Earth Holdings”), pursuant to which Dr. Low and Chan Kok Wei agreed to sell all their ordinary shares of WKL Green Energy Sdn Bhd (“WKL Green Energy”) to WKL Eco Earth Holdings in consideration for the allotment and issuance to WKL Global and Allegro Investment (BVI) Limited (“Allegro Investment”), a company incorporated in the British Virgin Islands 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.

(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 Sdn Bhd (“WKL Eco Earth”) to WKL Eco Earth Holdings in consideration for the allotment and issuance to WKL Global, Allegro Investment and WKLEE Sellers of 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, or approximately 6.91%, 2.48% and in aggregate 5.90%, respectively, of the Then Enlarged Share Capital. 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 assignment 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 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; (b) WKL Green Energy; (c) 67.5% of EvoAir Manufacturing (M) Sdn Bhd (“EvoAir Manufacturing”); (d) 55% of WKL EcoEarth Indochina Co Ltd (“WKL EcoEarth Indochina”); and (e) 55% of WKL Guanzhe Green Technology Guangzhou Co Ltd (“WKL Guanzhe”). Evo Air Marketing (M) Sdn Bhd (“Evo Air Marketing”) is a wholly owned subsidiary of EvoAir Manufacturing.

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.

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:

Details of the Company’s subsidiaries:

Our Future Strategies

We intend to pursue the following strategies to further develop and expand our business:

The Group intends to continue development of its hybrid air-conditioning products to further increase its product offerings, as well as to expand its client base, especially with commercial and industrial clients. The Group plans to expand its distribution into other South East Asia markets, China and Asia markets, which has high potential demand for air-conditioning as their population gross domestic product (“GDP”) increases. Taking advantage of the global awareness and push to reduce harmful factors leading to global warming, the Group continues to market its EvoAir^TM brand and e-Cond Evo^TM as eco-friendly products aiming to reduce emission of waste heat from the air-conditioner condensing units and at the same time improving energy efficiency. The Group aims to continue its innovation through investment into research and development, to further improve on its product lines, reduce its carbon emissions as it strives to become a leader in HVAC green inventions.

Product Lines

Hybrid Air Conditioners

e-Cond EVO^TM

With the objective of embracing well-being of mankind through green living and preserving the Earth through green inventions e-Cond EVO^TM is a breakthrough invention building on the research and development (“R&D”) of Dr Low Wai Koon (“Dr. Low”), our Director, Chairman and Chief Executive Officer and his team, it is the Group’s first invented its line of eco-friendly portable air-conditioners under its e-Cond EVO^TM brand in 2017.

The unit is an eco-friendly air-conditioning system with patent pending heat emission control system (“HECS”) technology, which regulates the temperature and volume of heat transferred from the air-conditioning system into the environment. This product employs an innovative hydro-refrigeration system (“HRS”) integrating evaporative cooling process with refrigeration cycle, reducing temperature of the output air by approximately 30% while achieving an optimal cooling performance of approximately 25 to 28 degree Celsius. The patent pending technology in the unit allows it to utilize substantially lower energy than its traditional air-conditioning units. The portable air-conditioning systems also incorporate ionizer technology producing high concentrations of negative ions to purify the surrounding air of mold spores, pollen, pet dander, odors, cigarette smoke, bacteria, viruses, dust and other hazardous airborne particles.

The Company markets two models of the e-Cond EVO^TM units: the Super King and the Outdoor King.

EvoAir^TM

The Group continued to research on incorporating its patent pending HECS Technology as well as various other patent pending technologies into its product line, subsequently launching its EvoAir^TM hybrid air-conditioners in 2021.

The Group’s core product, EvoAir^TM, is a first-of-its-kind eco-friendly air-conditioner with granted patent or utility model/ patent or utility model pending heat emission control system (“HECS”) proprietary technology, which turns waste heat released by conventional air-conditioner condenser (external unit) into cool and moisturised air at approximately 26^oC to 32^oC with a humidity of ±60%, operating under outdoor condition, which is optimal for human and living things. The re-engineering of the air-conditioning system has transformed the air-conditioner condenser (external unit) into a supplementary cooling unit or ‘Coolpressor’, which also functions as an air cooler. It also reduces energy consumption of at least 20% compared to conventional air-conditioning units. The significant decrease in waste heat and reduction in energy consumption play an important role in reducing harmful effects to the environment, in line with the Group’s mission of producing eco-friendly invention in protecting the Earth.

Air-conditioning refrigerant is harmful to the environment. The EvoAir^TM system utilizes the R32 refrigerant in its operation, which is 9% lower in density than the traditionally used R410A refrigerant found in various conventional air-conditioning systems, while maintaining approximately 43-50% higher latent heat vaporization and approximately 41% higher thermal conductivity when combined with the Group’s other patent-pending technologies. EvoAir^TM’s system design also allows for a further reduction in refrigerant use of at least 30% compared to conventional air-conditioning systems with traditional long copper coils by increasing the efficiency of the heat transfer in the R32 refrigerant, in doing so, further increasing refrigerant efficiency.

The EvoAir^TM hybrid air-conditioning system was awarded SGS International Certification in 2021.

Residential Units

We offer a variety options of EvoAir^TM hybrid air conditioner range from 1.0 HP to 2.5 HP, where indoor units of wall mounted and ceiling cassette (selected models) options are available for residential users. Our residential EvoAir^TM units are all supplied by 220-240V, single phase and 50Hz of power supply, using R32 as refrigerant. While the dimension size for outdoor unit (Coolpressor) is 925mm x 355mm x 685mm, which comes with an LCD remote control to operates it individually. Each coolpressor is equipped with an up & down automatic louver.

Commercial Units

Aside from residential units, we also offer EvoAir^TM commercial / industrial units range from 5HP to 25HP, where the placement of air conditioner unit in the ideal settings would be most cooling effective to the certain area. The application of commercial units are normally office buildings, retail stores, warehouses, or manufacturing facilities. Due to efficiency consideration, commercial units are using 3 phase power supply and R410A as refrigerant charge (instead of R32). Dimension size of Coolpressor comparing to residential units are larger and heavier too.

Retrofitting Service

We also provide retrofit service to commercial customers that wishes to keep their existing HVAC systems. Our retrofitting services include replacing the customers’ outdoor condensing unit with the patent-pending HECS technology. Retrofitting service allow for large saving of resources for our enterprise customers, who can avoid fully replacing their air conditioning units, which may be costly depending on the number of existing air conditioning unites already deployed.

Customization Services

We also provide customization services for specific customers, including stainless-steel coverings to prevent corrosion for customers in locations susceptible to erosion, such as near the coastline.

Manufacturing

The Group produces its Coolpressor under its EvoAir^TM brand. Meanwhile, the Group partners with OEMs to produce a air-conditioner indoor unit (blower) to complement its EvoAir^TM Coolpressor as well as its eco-friendly portable air-conditioner systems under its e-Cond EVO^TM brand. The Group has managed to situate its manufacturing plants in both Malaysia and China through its operating subsidiaries, EvoAir Manufacturing and WKL Guanzhe Green Technology Guangzhou, respectively. The Group operates manufacturing plants and assembly lines in China and Malaysia approximately 60,000 square feet of manufacturing space. By distributing its manufacturing capacity geographically, the Group is able to maintain a flexible supply chain concentrating production of products according to demand from different regions.

Licensing, Supply and Maintenance Service

The Group licenses its various proprietary and granted patent or utility model/ patent or utility model pending patent technologies to OEMs and other brands to be incorporated in various HVAC products. The Group has also catered to industrial clients including supplying products to factory settings or real estate developments spread out across different geographical locations including Malaysia, and Cambodia and Singapore as well as Indonesia as well as providing maintenance and installation services of its EvoAir^TM products to various commercial customers.

Air Purifier

E-Cond^Life

To address the spread of the Covid-19 pandemic which arose during the end of 2019, the EvoAir Group launched a new series of air-sanitizing products during the middle of 2020.

Partnering with its supplier, the Group became an exclusive authorized distributor of INCU technology, which involves the use of an ionic nano copper solution. The active ingredients of the solutions, Copper Sulphate Pentha-Hydrate, has a proven track record as well as having been certified and reported to inhibit larvidie, germicide, bactericide, fungicide, algaecide and virucide, while being non-toxic and safe for human and animal use. INCU (Ionic Nano Copper) has been recognized as being vital to health, as well as having proven to be effective against influenzas, bacteria such as E. Coli, bacteria groups such as MRSA as well as inhibiting against Covid-19.

The Group partnered with various OEMs to produce air-purifier products under its e-Cond^Life brand, in accordance to the Group’s specifications in terms of modifications to the micro-chips, magnetic control valves and systems flows to work with INCU technology. By disinfecting water in a water tank reserve through hydro-curtain technology, followed by purifying the output air in the form of water vapour or mist, E-Cond^Life products act as environmental disinfecting solutions for air sanitization.

The e-Cond^Life sanitizer system has been certified under the IECEE CB Scheme, while the INCU ionic nano copper solution used by the system has been certified by NSF International (USA) to be compliant with NSF / ANSI60 standards for all applicable requirements. The EvoAir Group has also obtained safety test reports from TUV SUD in Singapore and ICAS Shanghai for Cytotoxicity Testing.

QCOV^TM

To supplement the e-Cond^Life line of air purifier products, the Group partnered with various OEMs to produce small air purifier systems under its QCOV^TM brand in 2021, which incorporates a diffuser to distribute the INCU ionic nano copper solution in order to sanitize the environment.

Distribution

As an exclusive authorized distributor of the INCU ionic nano copper solution, the Group has partnered with various distributors to distribute the technology to other brands and markets, Singapore, Thailand. We entered into a long term original design manufacturer supply agreement with our largest nano copper solution supplier in September, 2020. Our purchase from our largest nano copper supplier amounted to approximately $Nil and $315,627 for FYE2023 and FYE 2022, respectively, representing approximately Nil% and 37% of our total purchases, respectively. As is customary in the supply or sales arrangements, the agreements with our largest supplier are terminable by either party by giving notice. Through these various partnerships, the Group’s air purifier systems and INCU are produced and distributed by various distribution channels, including through several well established marketing companies with their own respective online platforms. The Group market its brand to target customers that are attracted to the Group’s eco-friendly image, the product’s ability to inhibit bacteria and viruses, as well as to provide a clean and safe environment.

Intellectual Property

The Group’s success and future revenue growth depend, in part, on our ability to protect our intellectual property. The Group relies primarily on patent and trademark laws, as well as confidentiality procedures, to protect our proprietary technologies and processes.

The Group believes that the core of its business is comprised of our proprietary technologies, including its granted patent or utility model/ patent or utility model pending patent HECS technology. As a result, the Group will strive to maintain a robust intellectual property portfolio. The Group’s success and future revenue growth may depend, in part, on its ability to protect its intellectual property as products and services that are material to its operating results incorporate patented technology.

The Group believes its rights to patents and trademark rights serve to distinguish and protect its products from infringement and contribute to our competitive advantages. The Group had patents and trademarks in various stages of the registration application process in Malaysia and trademarks in various stages of the registration application process in China.

We cannot assure you that any patents or copyrights will be issued from any of our pending applications. In addition, any rights granted under any of our existing or future patents, copyrights or trademarks may not provide meaningful protection or any commercial advantage to us. With respect to our other proprietary rights, it may be possible for third parties to copy or otherwise obtain and use proprietary technology without authorization or to develop similar technology independently. We may in the future initiate claims or litigation against third parties to determine the validity and scope of proprietary rights of others. In addition, we may in the future initiate litigation to enforce our intellectual property rights or to protect our trade secrets.

The Air Conditioner Industry

Growing demand for cooling

According to International Energy Agency (“IEA”) (https://www.iea.org/energy-system/buildings/space-cooling#tracking), there are currently about 2 billion air conditioning units operating worldwide, and by 2050, it is predicted that there will be 5.6 billion units. According to the statistics report published by the Japan Refrigeration and Air Conditioning Industry Association (“JRAIA”) (https://www.jraia.or.jp) in July 2022, the world’s total air conditioner demand in 2021 is estimated at 110 million, which represent 102% of the world demand in 2020. Looking at the 2021 world demand in terms of Japan, China and other regions, the largest demand is from China, of which demand is estimated to have reached 41.305 million, representing 98% of 2020’s demand. China’s demand accounts for 38% of the total global demand. Next to China, the Asian region (excluding Japan and China) stands at approximately 17.983 million, followed by North America with 16.515 million, Japan with 10.201 million, Europe with 8.885 million and Latin America with 6.547 million.

Air-conditioners vary in energy efficiency and their usage lead to a global consumption of approximately 2,000 terawatt hours of electricity annually. In addition, almost 20% of all the electricity used in buildings is for cooling, accounting for 14% of average peak residential electricity demand globally.

The emerging economies are expected to use more air-conditioners as income levels rise. Of the 2.8 billion people living in the hottest parts of the world, only 8% currently own air-conditioning units compared to approximately 90% ownership in the United States and Japan. By 2050, India, China and Indonesia may account for 50% of the projected growth in energy use for space cooling.

Global Emissions from the use of Air Conditioners

The efficiency of air conditioners vary widely, in all major markets today, consumers are typically buying air conditioners whose average efficiencies are less than half of what is available. Carbon dioxide emissions from cooling systems have tripled since 1990 to 1,130 million tons in 2016, and local air pollutants caused by cooling systems have also increased. Greenhouse Gases produced include Carbon Dioxide and Climate Change:

Urbanized areas have higher temperatures than less urbanized areas, contributing to heat islands. This is because urban areas usually have less greenery. Roads and buildings absorb and re-emit daytime heat more than forests and water bodies. As a result, urban daytime temperatures can reach approximately 1 to 7 degrees higher in Fahrenheit than the outlying areas and night-time temperatures can reach approximately 2 to 5 degrees higher in Fahrenheit. The use of air conditioners extract hot air to the outside of buildings. On high temperature days, the hot air emitted by air-conditioner units increases the outdoor temperature. This in turn increases the need for more cooling and creates a feedback loop. The use of air conditioners can increase outdoor urban temperatures by more than approximately 1 degree Celsius in some cities

Global Efforts to combat Climate Change and Global Warming

If the current rate of growth of energy use by air conditioners continues, the U.S. Energy Information Administration (“EIA”) predicts that by 2050, global energy usage for space cooling would triple to 6,200 terra watts. This would triple the amount of carbon dioxide emissions and heavy investments in electricity infrastructure to meet peak electricity demand. This could cause severe financial strain on emerging economies.

Over the years, countries around the world have come together to support policies to combat climate change. However, obtaining consensus has been challenging because of political and national circumstances. The Kigali Amendment to the Montreal Protocol, which entered into force on 1 January 2019, help protect the climate by phasing down high global warming potential hydrofluorocarbons (HFCs), which are commonly used as refrigerants. Promoting the energy efficiency of cooling technology can also significantly increase climate benefits.

i. Countries were called out to reach net-zero carbon emissions by 2050 and to cap the increase in global temperatures below 1.5°C from current levels;

ii. To protect and restore ecosystems and habitats and build resilient infrastructures to withstand climate change;

iii. Developed nations to mobilize $100bn in climate finance per year for poorer nations; and

iv. Parties of COP26 to finalize the agreement and rules for action and monitoring.

The Role of Air conditioners Efficiency in combating Climate Change

Intuitively, the more energy efficient air-conditioners are, the less electricity they would consume, and less fossil fuels would be burnt to produce electricity. This would lead to less carbon dioxide emissions which could reduce global warming.

The EIA highlighted one area where policy action could deliver substantial energy savings quickly — by making air conditioners equipment more efficient. Through stricter minimum energy performance standards and other measure such as labelling, the average energy efficiency of the stock of air conditioners globally could more than double in efficiency between now and 2050. This could reduce cooling-related energy demand to 3,400 terawatts in 2050 compared to 6,200 terawatts if efficiency remained at current levels. The 45% reduction in energy usage or 2,800 terawatts could reduce carbon dioxide emissions by 1,582 megatons annually. This scenario was called the Efficient Cooling Scenario by EIA.

In addition, the use of less electricity because of more efficient air conditioners greatly reduces the need to build new generation capacity to meet peak electricity demand. In the Efficient Cooling Scenario, there would not be a need to build additional capacity deliver the 1,300 gigawatts of power with more efficient air conditioners. This is equivalent to all the coal-fired power generation in China and India today. In addition, the cumulative infrastructure, fuel and operating costs savings amounted to $2.9 trillion from 2017 to 2050. This means 45% lower electricity costs for everyone as well, compared to if there were no efficiency improvements in air conditioners

Source: World Air Conditioner Demand by Region (June 2019 & July 2022) - The Japan Refrigeration and Airconditioning Industry Association (JRAIA)

As derived from the JRAIA report, in 2021, approximately 110 million units of air conditioners were sold globally of which approximately 86% were residential units and approximately 14% were commercial units.

Based on statistics available in the JRAIA report, we calculated both CAGR of residential and commercial air conditioners from 2013 to 2021 increased to approximately 0.50% and 1.77% respectively. China was the largest consumer of air conditioners globally and it accounted for approximately 38% of all air conditioners sales. Oceania had the highest CAGR of approximately 4.95% from 2013 to 2021 followed by Africa at approximately 3.97% CAGR.

⁽¹⁾ Source: https://www.globaldata.com/

⁽²⁾ As at 13 Oct2023

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⁽⁴⁾ https://www.midea-group.com/investors/stock-info

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⁽⁸⁾ https://www.jpx.co.jp/

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⁽¹¹⁾ https://www.sec.gov/ix?doc=/Archives/edgar/data/1069202/000162828023025847/lii-20230630.htm

⁽¹²⁾ https://www.sec.gov/ix?doc=/Archives/edgar/data/833444/000083344423000030/jci-20230630.htm

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Intellectual Property

As reflected in the table below, we currently have registered trademarks, several patents or pending patents for our proprietary drone, sensor and software technologies filed in the United States and certain jurisdictions abroad. As of December 9, 2023, our trademark portfolio includes granted patent or utility model/ patent or utility model pending in various countries and stages. We also consider our manufacturing processes to be trade secrets and have non-disclosure agreements with current employees and business partners to protect those and other trade secrets held by the Company. Risks related to the protection and exploitation of IP rights are set forth in “Risk Factors.”

Trademarks
Mark		Country		Application No.		Filing Date		Status
		Malaysia		TM2021004997		24.02.2021		Registered
QCOV		Malaysia		TM2021004999		24.02.2021		Registered
		Malaysia		TM2021025558		14.09.2021		Registered
		Malaysia		TM2021018495		07.07.2021		Registered
		Malaysia		TM2021012892		04.05.2021		Registered
EvoAir		Malaysia		TM2021002685		29.01.2021		Registered
We Cha		Malaysia		TM2020000453		09.01.2020		Registered
回球		Malaysia		TM2020000455		09.01.2020		Registered
回球		China		43752514		13.01.2020		Registered
		Malaysia		2017076420		27.12.2017		Pending Publication

Government Approval And Regulation

Electricity Supply Act 1990 (Act 447)

The Electricity Supply Act 1990 (“the 1990 Act”) as amended by the Electricity Supply (Amendment) Act 2015 (Act A1501) (“the ESAA 2015”) and the Electricity Regulations 1994 (“the 1994 Regulations”) provides for the licensing of any electrical installations. The 1990 Act also governs the control of any electrical installation, plant and equipment in relation to the safety of persons, the efficient use of electricity, as well as other related purposes.

The 1990 Act also mandates that any equipment related to the generation, conversion, transmission, distribution, or use of electrical energy, or communications—including machinery, transformers, devices, measuring instruments, protective gear, wiring materials, and other related electrical products or consumer appliances—must comply with prescribed standards for efficient electricity usage before being manufactured, imported, sold, or leased. The 1990 provides that if someone tampers with, adjusts, manufactures, or imports any electrical installation or equipment in a manner that poses or is likely to pose a danger to human life, limb, or causes damage to any equipment or property, they are committing an offense. The penalty for such an offense, upon conviction, is a fine of up to RM1,000,000, imprisonment for up to 10 years, or both.

As at the date of this report on Form 10-K, Evo Air Manufacturing has obtained a license issued by the Energy Commission of Malaysia (License Approval No. JKKE/KI/21/00179 and JKKE/KK/21/00027) for the import and manufacture of electrical appliances. Evo Air Manufacturing is also in the midst of renewing its other certificates of approval with the Energy Commission.

Employees

As of December 9, 2023, the Group has approximately 23 employees, all of whom were full-time employees located in Malaysia, Singapore, China and Cambodia.

Principal Executive Offices

Our principal executive office is located at 31-A2, Jalan 5/32A, 6 ½ Miles off Jalan Kepong, 52000 Kuala Lumpur, Malaysia.

Risks Related to Our Business and Industry

If we are unable to continue to innovate, meet evolving market trends, adapt to changing customer demands and maintain our culture of innovation, our ability to sustain and grow our business may suffer.

The ongoing success of our business depends on our ability to continue to introduce innovative eco-friendly HVAC products to meet evolving market trends and satisfy changing customer demands. We must continue to adapt by innovating, improving our products and modifying our strategies, which could cause us to incur substantial costs. We may not be able to continue to innovate or adapt to changing market and customer needs in a timely and cost-effective manner, if at all. This could adversely impact our ability to expand our ecosystem and grow our business. Failure to develop new products to meet evolving market demands through innovation could cause us to lose current and potential customers and harm our operating results and financial condition.

In addition, we may not be able to maintain our culture of innovation, which has been critical to our success and has helped us create value for our shareholders, succeed as a leader in eco-friendly HVAC products, attract, retain and motivate employees and other ecosystem participants. Among other challenges, we may not be able to identify and promote people into leadership positions who share our culture and also focus on technology and innovation. Competitive pressure may also cause us to move in directions that may divert us from our mission, vision and values. If we cannot maintain our culture of innovation, our long-term business prospects could be materially and adversely affected.

We are exposed to concentration risk of heavy reliance on our largest nano copper supplier for the supply of nano copper solution for our INCU technology, and any shortage of, or delay in, the supply may significantly impact on our business and results of operation.

We source INCU nano copper solution for incorporation of our INCU technology into our air purifier products for sale to our customers from our largest nano copper supplier. As such, we rely on the ability and efficiency of our largest supplier to supply products. Our purchase from our largest nano copper supplier amounted to approximately Nil and $315,627 for FYE2023 and FYE 2022, respectively, representing approximately 37% and 30% of our total purchases, respectively. Our purchases from our top largest supplier accounted for a significant portion of our total purchases for FYE2022 and FYE2021.

As we do not engage in manufacturing of nano copper solution, our business, financial condition and operating results for our air purifier system depends on the continuous supply of nano copper solution from our largest supplier and our continuous supplier-customer relationship with them. Our heavy reliance on our largest supplier for the supply of nano copper solution will have significant impact on our air purifier business and results of operation in the event of any shortage of, or delay in the supply. Our product supply may also be disrupted by potential labor disputes, strike action or natural disasters or other accidents affecting our largest supplier. If our largest suppliers do not supply products to us in a timely manner or in sufficient quantities, our business, financial condition and operating results may be materially and adversely affected. Any shortage of, disruption, or delay in the supply, or our inability to obtain supplies from alternative sources will have a significant impact on our business and results of operation.

We entered into distribution agreement with our nano copper solution supplier in September, 2020 and December 2021. As is customary in the supply or sales arrangements, the agreements with our largest supplier are terminable by either party by giving notice. We cannot guarantee that our largest suppliers will not terminate the agreements before the expiry of the agreements. In the event that our largest suppliers terminate the agreements, we will have to source products from other suppliers and we may not be able to secure a similar supply of products with the quantity and quality required to support our business or at all. Such termination may therefore have a material adverse impact on our business, financial condition and operating results if we fail to engage any other suppliers with similar standards before the termination.

There is no assurance that our major nano copper supplier and supplier of raw materials for our other products will continue to supply their products in the quantities and timeframes required by us to meet the demand of our customers or comply with their supply agreements with us. If our major supplier does not supply products to us in a timely manner or in sufficient quantities, our business, financial condition and operating results may be materially and adversely affected. Furthermore, in the event of any delay in delivery of the products to us, our cash flow or working capital may be materially and adversely affected as a result of the corresponding delay in delivery of our products to our customers, and hence the delay in our receipt of payment from our customers.

Furthermore, our largest nano copper supplier may change their existing sales or marketing strategy in respect of the products supplied to us by changing its export strategy, reducing its sales or production volume or changing its selling prices. As a result, there is no assurance that our largest supplier will not appoint other agents, dealers or distributors which may compete with us in the market where we operate. Furthermore, any significant increase in the selling prices of the products which we source from our largest suppliers will increase our costs and may materially and adversely affect our profit margin if we are not able to pass the increased costs on to our customers.

There is no assurance that there will be no deterioration in our relationship with our largest supplier which could affect our ability to secure sufficient supply of products for our business. In the event that our largest supplier change their sales or marketing strategy or otherwise appoints other dealers or distributors who may compete with us, our business, financial condition and operating results may be materially and adversely affected.

We operate in a competitive industry, and if we fail to compete effectively, our business could suffer.

The air-conditioning and air purifying industry in Asia is highly competitive. Competition in our HVAC products includes several multinational, regional and local companies, the largest players of which include Daikin Industries, Gree Electric, Trane Technologies, Johnson Controls, Lennox International, Midea Group and Mitsubishi Electric. Sales depend on price, product availability, delivery schedule, product performance, product line breadth, brand reputation, design, technical expertise and service. In addition to established players, we face competition from new market entrants. Increased competition may lead to a loss of market share, increased difficulty in launching new service offerings, reduction in revenue or increase in loss, any one of which could harm our business, financial condition and results of operations.

In certain of our businesses, our contracts are typically awarded on a competitive basis. Our bids are based upon, among other factors, the cost to timely provide the products and services. To generate an acceptable return, we must accurately estimate our costs and schedule. If we fail to do so, the profitability of contracts may be materially and adversely affected – including because some of our contracts provide for liquidated damages if we do not perform on time – which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

If we are unable to create brand influence, we may not be able to maintain current or attract new users and customers for our products.

Our operational and financial performance is highly dependent on the strength of our brand. We believe brand familiarity and preference will continue to have a significant role in winning over customers. In order to further expand our customer base, we may need to substantially increase our marketing expenditures to enhance brand awareness through various online and offline means. Moreover, negative coverage in the media of our company could threaten the perception of our brand, and we cannot assure you that we will be able to defuse negative press coverage about our company to the satisfaction of our investors, customers and suppliers. If we are unable to defuse negative press coverage about our company, our brand may suffer in the marketplace, our operational and financial performance may be negatively impacted.

Currently, we sell our products, under our various product line brands, to domestic customers in Malaysia and to overseas customers. However, while the management does not consider the likelihood to be high, if our competitors initiate a lawsuit against us for infringing their trademarks, we may be forced to adopt a new brand name for our products. As a result, we may incur additional marketing cost to raise awareness of such new brand name. We may also be ordered to pay a significant amount of damages, and our business, results of operations and financial condition could be materially and adversely affected. We operate in a competitive environment and our profitability and competitive position depend on our ability to accurately estimate the costs and timing of providing our products and services.

Climate change and regulations associated with climate change could adversely affect our business.

The effects of climate change, including extreme weather conditions, create financial risks to our business. The effects of climate change could disrupt our operations by impacting the availability and cost of materials and by increasing insurance and other operating costs. The effects of climate change also may impact our decisions to construct new facilities or maintain existing facilities in the areas most prone to physical risks, which could similarly increase our operating and material costs. We could also face indirect financial risks passed through the supply chain that could result in higher prices for our products and the resources needed to produce them.

There is a general consensus that greenhouse gas emissions are linked to climate change, and that these emissions must be reduced dramatically to avert its worst effects. As a result, increased public awareness and concern about climate change will likely continue to (1) generate more international, regional and/or national concerns and result in the implementation of further requirements and restrictions at international, regional and/or national level to curtail the use of high global warming potential refrigerants (which are essential to many of our products); (2) encourage increase in building energy efficiency; and (3) cause a shift away from the use of fossil fuels as an energy source. While our products are focused on being eco-friendly, these requirements may render some of the existing technology, particularly some of our products that require refrigerant use, non-compliant or obsolete. While we continue to be committed to developing eco-friendly sustainable solutions for our products, there can be no assurance that our development efforts will be successful, that our products will be accepted by the market, that proposed regulations or deregulation will not have an adverse effect on our competitive position, or that economic returns will reflect our investments in new product development.

The inconsistent international, regional and/or national requirements associated with climate change regulations also create economic and regulatory uncertainty. There is also regulatory and budgetary uncertainty associated with government incentives, which, if discontinued, could adversely impact the demand for energy-efficient buildings and could increase costs of compliance.

Our business and financial performance depend on continued and substantial investments in our information technology infrastructure, which may not yield anticipated benefits and which may be vulnerable to cyber-attacks.

The efficient operation of our business requires continued and substantial investments in information technology (“IT”) infrastructure systems. The failure to design, develop and implement new IT technology infrastructure systems in an effective and timely manner or to maintain existing systems could divert management’s attention and resources. Our information systems may also become obsolete because of inadequate investments, requiring an unplanned transition to a new platform that could be time consuming, costly, and damaging to our competitive position and could require additional management attention. Repeated or prolonged interruptions of service because of poor execution, inadequate investments or obsolescence could have a significant adverse impact on our reputation and our ability to sell products and services.

In addition, our business may be impacted by disruptions to our or third-party IT infrastructure, which could result from (among other causes) cyber-attacks, infrastructure failures or compromises to our physical security. Cyber-based risks are evolving and include attacks: (i) on our IT infrastructure (ii) targeting the security, integrity and/or availability of hardware and software; (iii) on information installed, stored or transmitted in our products (including after the purchase of those products and when they are installed into third-party products); and (iv) on facilities or similar infrastructure. Such attacks could disrupt our systems (or those of third parties) and business operations, impact the ability of our products to work as intended or result in the unauthorized access, use, disclosure, modification, or destruction of information in violation of applicable law and/or contractual obligations. We have experienced cyber-based attacks and, due to the evolving threat landscape, may continue to experience them going forward, potentially with more frequency or severity. We continue to make investments and adopt measures to enhance our protection, detection, response and recovery capabilities, and to mitigate potential risks to our technology, products, services, operations and confidential data. However, depending on the nature, sophistication and scope of cyber-attacks, it is possible that potential vulnerabilities could go undetected for an extended period. As a result, we could potentially experience: (i) production downtimes; (ii) operational delays or other detrimental impacts on our operations; (iii) destruction or corruption of data; (iv) security breaches; (v) manipulation or improper use of our or third-party systems, networks or products; and (vi) financial losses from remedial actions, loss of business, liability, penalties, fines and/or damage to our reputation—any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. Due to the evolving nature of such risks, the impact of any potential incident cannot be predicted. In addition, because of the global nature of our business, our internal systems and products must comply with applicable laws, regulations and standards in a number of jurisdictions, and government enforcement actions and violations of data privacy and cybersecurity laws could be costly or interrupt our business operations. Any disruption to our business arising from such issues, or an increase in our costs to cover these issues that is greater than what we have anticipated, could have an adverse effect on our competitive position, reputation, results of operations, cash flows or financial condition.

We depend on our intellectual property and have access to certain intellectual property and information of our customers and suppliers. Infringement of or the failure to protect that intellectual property could adversely affect our future growth and success.

The Company’s intellectual property rights are important to our business and include numerous patents, trademarks, proprietary technology, technical data, business processes and other confidential information. Although we consider our intellectual property rights in the aggregate to be valuable, we do not believe that our business is materially dependent on a single intellectual property right or any group of them. We nonetheless rely on a combination of patents, trademarks, nondisclosure agreements, customer and supplier agreements, license agreements, information technology security systems, internal controls and compliance systems and other measures to protect our intellectual property. We also rely on nondisclosure agreements, information technology security systems and other measures to protect certain customer and supplier information and intellectual property that we have in our possession or to which we have access. Our efforts to protect such intellectual property and proprietary information may not be sufficient, however.

We cannot be sure that our pending patent applications will result in the issuance of patents, that patents issued to or licensed by us in the past or in the future will not be challenged or circumvented by competitors, or that these patents will found to be valid or sufficiently broad to preclude our competitors from introducing technologies similar to those covered by our patents and patent applications.

In addition, we may be the target of competitor or other third-party patent enforcement actions seeking substantial monetary damages or seeking to prevent the sale and marketing of certain of our products. Our competitive position also may be adversely impacted by limitations on our ability to obtain possession, ownership or necessary licenses concerning data important to the development or sale of our products or service offerings, or by limitations on our ability to restrict the use by others of data related to our products or services. Any of these events or factors could subject us to judgments, penalties and significant litigation costs or temporarily or permanently disrupt our sales and marketing of the affected products or services and could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

We use a variety of raw materials and supplier-provided parts in our business. Significant shortages, supplier capacity constraints or production disruptions, price increases, or tariffs could increase our operating costs and adversely impact the competitive positions of our products.

Our reliance on suppliers and commodity markets to secure components and raw materials (such as copper and steel as well as INCU ionic copper solution), and on service providers to deliver our products, exposes us to volatility in the prices and availability of these materials and services. That potential volatility is particularly acute in certain instances where we depend upon a single source. Issues with suppliers (such as delivery or production disruptions, capacity constraints, quality issues, consolidations, closings or bankruptcies), price increases, raw material shortages, or the decreased availability of trucks and other delivery services could have a material adverse effect on our ability to meet our commitments to customers or increase our operating costs.

We use various strategies to lock in prices of expected purchases of certain raw materials; however, these efforts could cause us to pay higher prices for a commodity when compared with the market price at the time the commodity is actually purchased or delivered. Tariffs can also increase our costs, the impact of which is difficult to predict. However, we believe that our supply management and production practices appropriately balance the foreseeable risks and the costs of alternative practices. Nonetheless, these risks may have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

We design, manufacture and service products that incorporate advanced technologies. The introduction of new products and technologies involves risks, and we may not realize the degree or timing of benefits initially anticipated.

Our future success depends on designing, developing, producing, selling and supporting innovative products that incorporate advanced technologies. The regulations applicable to our products, as well as our customers’ product and service needs, change from time to time. Moreover, regulatory changes may render our products and technologies non-compliant. Our ability to realize the anticipated benefits of our technological advancements or product improvements – including those associated with regulatory changes – depends on a variety of factors, including: meeting development, production, and regulatory approval schedules; meeting performance plans and expectations; the availability of raw materials and parts; our suppliers’ performance; the hiring, training and deployment of qualified personnel; achieving efficiencies; identifying emerging regulatory and technological trends; validating innovative technologies; the level of customer interest in new technologies and products; and the costs and customer acceptance of our new or improved products.

Failure to achieve and maintain a high level of product and service quality could damage our reputation with customers and negatively impact our results.

Product and service quality issues could harm customer confidence in our company and our brands. If certain of our product offerings do not meet applicable safety standards or our customers’ expectations regarding safety or quality, we can experience lost sales and increased costs and we can and have been exposed to legal, financial and reputational risks. Actual, potential or perceived product safety concerns could expose us to litigation as well as government enforcement actions, which has also occurred in certain instances. In addition, when our products fail to perform as expected, we are exposed to warranty, product liability claims, personal injury and other claims.

We maintain strict quality controls and procedures. However, we cannot be certain that these controls and procedures will reveal defects in our products or their raw materials, which may not become apparent until after the products have been placed in use in the market. Accordingly, there is a risk that products will have defects, which could require a product recall. Product recalls can be expensive to implement, and may damage our reputation, customer relationships and market share.

In many jurisdictions, product liability claims are not limited to any specified amount of recovery. If any such claims or contribution requests or requirements exceed our available insurance or if there is a product recall, there could be an adverse impact on our results of operations. In addition, a recall or claim could require us to review our entire product portfolio to assess whether similar issues are present in other products, which could result in a significant disruption to our business and which could have a further adverse impact on our business, financial condition, results of operations and cash flows. There can be no assurance that we will not experience any material warranty or product liability claim losses in the future, that we will not incur significant costs to defend such claims or that we will have adequate reserves to cover any recalls, repair and replacement costs.

We are subject to litigation, environmental, and other legal and compliance risks.

We are subject to a variety of litigation, legal and compliance risks. These risks relate to, among other things, personal injuries, intellectual property rights, contract-related claims, taxes, environmental matters, employee health and safety, competition laws and laws governing improper business practices. If found responsible in connection with such matters, we could be subject to significant fines, penalties, repayments and other damages (in certain cases, treble damages), and experience reputational harm.

On October 8, 2021, a filing (the “Filing”) was made with the Kuala Lumpur High Court by a reseller (the “Reseller”) of the Company’s INCU ionic nano copper solution (the “Solution”) and the Reseller’s related party (together with the Reseller, the “Plaintiffs”). The Reseller was authorized by WKL Eco Earth as its sole distributor of the Solution (the “WKL Distributor”) to resell the Solution together with a diffuser with a capacity of not more than 1000ml through a tripartite agreement (the “Tripartite Agreement”) entered into between (a) the Reseller, (b) the WKL Distributor and (c) a solution packaging company (the “Packaging Company”). WKL Eco Earth was not a party to the Tripartite Agreement and did not directly authorize or engage the Reseller in the resale of the Solution. In the Filing, the Plaintiffs claimed against (i) WKL Eco Earth; (ii) Dr. Low; (iii) Chan Kok Wei, (iv) the Packaging Company and (v) two directors of the Packaging Company for loss and damages arising from an alleged breach of contract, defamation and tort of inducement. The Plaintiffs also alleged that pursuant to the Tripartite Agreement, WKL Eco Earth was prohibited from selling the Solution to any party other than the WKL Distributor, and that the Tripartite Agreement allowed for the resale of the Solution by the Plaintiffs without limitation, the Plaintiffs were not confined in their resale of the Solution to a product consisting of a diffuser with a capacity of not more than 1000ml. The Company believes the claims are without merit and will defend itself against the claims.

As a global business, we are subject to complex laws and regulations in Malaysia. and other countries in which we operate. Those laws and regulations may be interpreted in different ways. They may also change from time to time, as may related interpretations and other guidance. Changes in laws or regulations could result in higher expenses. Uncertainty relating to laws or regulations may also affect how we operate, structure our investments and enforce our rights.

Changes in environmental and climate change related-laws could require additional investments in product designs, which may be more expensive or difficult to manufacture, qualify and sell and/or may involve additional product safety risks and could increase environmental compliance expenditures.

At times we are involved in disputes with private parties over environmental issues, including litigation over the allocation of cleanup costs, alleged personal injuries and property damage. Existing and future asbestos-related claims could adversely affect our financial condition, results of operations and cash flows. Personal injury lawsuits may involve individual and purported class actions alleging that contaminants originating from our current or former products or operating facilities caused or contributed to medical conditions. Property damage lawsuits may involve claims relating to environmental damage or diminution of real estate values. Even in litigation where we believe our liability is remote, there is a risk that a negative finding or decision could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition, in particular with respect to environmental claims in regions where we have, or previously had, significant operations or where certain of our products have been manufactured and used.

Our failure to comply with anti-corruption laws and regulations, or effectively manage our employees, customers and business partners, could severely damage our reputation, and materially and adversely affect our business, financial condition, results of operations and prospects.

We are subject to risks in relation to actions taken by us, our employees, third-party customers or third-party suppliers that constitute violations of the anti-corruption laws and regulations. While we adopt strict internal procedures and work closely with relevant government agencies to ensure compliance of our business operations with relevant laws and regulations, our efforts may not be sufficient to ensure that we comply with relevant laws and regulations at all times. If we, our employees, third-party customers or third-party suppliers violate these laws, rules or regulations, we could be subject to fines and/or other penalties. Actions by Malaysia regulatory authorities or the courts to provide an alternative interpretation of the laws and regulations or to adopt additional anti-bribery or anti-corruption related regulations could also require us to make changes to our operations. Our reputation, corporate image, and business operations may be materially and adversely affected if we fail to comply with these measures or become the target of any negative publicity as a result of actions taken by us, our employees, third-party customers or third-party suppliers.

Our business depends on the continued contributions made by Low Wai Koon (“Dr. Low”), as our founder, chief executive officer, chief operating officer and chairman of the board, the loss of who may result in a severe impediment to our business, results of operation and financial condition.

Our success is dependent upon the continued contributions made by founder, chief executive officer, chief operating officer and chairman of the board, Dr. Low. We rely on his expertise in business operations when we are developing our business. We have no “Key Man” insurance to cover the resulting losses in the event that Dr. Low should die or resign. In order to mitigate this risk, the Group has continued to invest in its personnel training as well as investment into its research and development department.

However, if Dr. Low cannot serve the Company or is no longer willing to do so, the Company may not be able to find alternatives in a timely manner or at all. This would likely result in severe damage to our business operations and would have an adverse material impact on our financial position and operating results. To sustain our operations, the Company may have to recruit and train replacement personnel at a higher cost. In addition, if Dr. Low joins our competitors or develops similar businesses that are in competition with our Company, our business, results of operation and financial conditions may also be negatively impacted.

Risks Related to Doing Business in Malaysia

Developments in the social, political, regulatory and economic environment in Malaysia may have a material adverse impact on us.

Our business, prospects, financial condition and results of operations may be adversely affected by social, political, regulatory and economic developments in Malaysia. Such political and economic uncertainties include, but are not limited to, the risks of war, terrorism, nationalism, nullification of contract, changes in interest rates, imposition of capital controls and methods of taxation.

According to Economy Outlook 2024 from Ministry of Finance Malaysia, global growth is projected to moderate in 2023 and 2024 following slow growth in advanced economies; volatile financial market due to tightening monetary policy; prolonged geopolitical tensions; and increasing climatic changes. Nevertheless, inflation continues to soften as markets head towards supply chain stabilisation. In addition, world trade is projected to moderate in 2023 in line with weaker global demand. However, global trade is expected to increase in 2024 in tandem with improved trade activity in advanced economies, and emerging market and developing economies (“EMDEs”). In the case of Malaysia, the economy continued to expand amid these persistent challenges in the external environment. During the first half of 2023, GDP posted a growth of 4.2% supported by resilient domestic demand, in particular private expenditure.

Despite escalating uncertainties in the global landscape, Malaysia’s economy remains resilient. The GDP is forecast to expand by approximately 4% in 2023 and between 4% and 5% in 2024. The Government acknowledged the World Bank’s forecast that Malaysia’s growth will be 4.3% in 2024, which is slightly higher than its initial estimate. This is in line with Malaysia’s 2024 growth projection, which will be achieved through robust domestic demand, effectively offsetting the challenges posed by the moderate global growth, supported by the implementation of measures in the new National Energy Transition Roadmap (NETR), New Industrial Master Plan 2030 (NIMP 2030), and the Mid-Term Review of the Twelfth Malaysia Plan (MTR of the Twelfth Plan).

On March 11, 2020, the World Health Organization or WHO declared the corona virus or COVID-19 a pandemic. To help counter the transmission of COVID-19, from March 18, 2020 to April 26, 2022, the government of Malaysia initiated Movement Control Orders (“MCO”). The MCO had resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in Malaysia. Conditional Movement Control Orders were introduced where most business sectors were allowed to operate under strict rules and Standard Operating Procedures mandated by the government of Malaysia, followed by Recovery Movement Control Orders. At the height of the pandemic, on January 12, 2021, the Malaysian government even declared a state of emergency nationwide to combat COVID-19. On April 1, 2022, the Malaysian government announced the country had begun transitioning into the endemic phase with further easing of restrictions. We are witnessing the adverse impact on the purchasing power of consumers in Malaysia, where our products are mainly sold as a direct result of the prolonged pandemic. As such, the extent to which the coronavirus may continue to adversely impact the Malaysian economy is uncertain. In the event that the Malaysia economy suffers, demand for our products may diminish, which would in turn result in our profitability. This could in turn result in a substantial need for restructuring of our business objectives and could result in a partial or entire loss of an investment in our Company.

We are subject to foreign exchange control policies in Malaysia.

The ability of our subsidiaries to pay dividends or make other payments to us may be restricted by the foreign exchange control policies in the countries where we operate. For example, there are foreign exchange policies in Malaysia which support the monitoring of capital flows into and out of the country in order to preserve its financial and economic stability. The foreign exchange policies are administered by the Foreign Exchange Administration, an arm of Bank Negara Malaysia (“BNM”), the central bank of Malaysia. The foreign exchange policies monitor and regulate both residents and non-residents. Under the current Foreign Exchange Administration rules issued by BNM, non-residents are free to repatriate any amount of funds from Malaysia in foreign currency other than the currency of Israel at any time (subject to limited exceptions), including capital, divestment proceeds, profits, dividends, rental, fees and interest arising from investment in Malaysia, subject to any withholding tax. In the event BNM or any other country where we operate introduces any restrictions in the future, we may be affected in our ability to repatriate dividends or other payments from our subsidiaries in Malaysia or in such other countries. Since we are a holding company and rely principally on dividends and other payments from our subsidiaries for our cash requirements, any restrictions on such dividends or other payments could materially and adversely affect our liquidity, financial condition and results of operation.

Many of the economies in Asia, including Singapore, are experiencing substantial inflationary pressures which may prompt the governments to take action to control the growth of the economy and inflation that could lead to a significant decrease in our profitability in the future.

While many of the economies in Asia have experienced rapid growth over the last two decades, they currently are experiencing inflationary pressures. As governments take steps to address the current inflationary pressures, there may be significant changes in the availability of bank credit, interest rate increases, limitations on loans, or restrictions on currency conversions and foreign investment. There also may be imposition of price controls. If prices for the products we source or if wages rise at a rate that is insufficient to compensate for the rise in these costs, it may have an adverse effect on our profitability. If these or other similar restrictions are imposed by a government to influence the economy, it may lead to a slowing of economic growth. Singapore’s core inflation rose to 5.3% on a year-on-year (y-o-y) basis in September 2022, compared to 5.1% in August 2022. The pickup in core inflation was on account of larger increases in the prices of food, services and retail & other goods. CPI (consumer price index)—All Items inflation was 7.5% year-over-year in September 2022, unchanged from that in August.

(source: https://www.mas.gov.sg/-/media/MAS/EPG/CPD/2022/Inflation202209.pdf)

While this inflationary trend will result in higher operational costs, we believe that this also strengthens our value proposition by emphasizing potential savings to customers through improved productivity and workflow efficiency derived from our technology solutions. To mitigate inflationary pressures, we will regularly review our pricing structure to ensure sustainable profitability.

Risks Related to Intellectual Property

If we are not able to adequately protect our proprietary intellectual property and information, and protect against third party claims that we are infringing on their intellectual property rights, our results of operations could be adversely affected.

The value of our business depends in part on our ability to protect our intellectual property including our patents applications and trademarks, as well as our customer, employee, and customer data. Third parties may try to challenge our ownership of our intellectual property in Asia and around the world. In addition, intellectual property rights and protections in Malaysia may be insufficient to protect material intellectual property rights. Further, our business is subject to the risk of third parties counterfeiting our products or infringing on our intellectual property rights. The steps we have taken may not prevent unauthorized use of our intellectual property. We may need to resort to litigation to protect our intellectual property rights, which could result in substantial costs and diversion of resources. If we fail to protect our proprietary intellectual property and information, including with respect to any successful challenge to our ownership of intellectual property or material infringements of our intellectual property, this failure could have a significant adverse effect on our business, financial condition, and results of operations.

If we are unable to adequately protect our intellectual property rights, or if we are accused of infringing on the intellectual property rights of others, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.

Our commercial success will depend in part on our success in obtaining and maintaining patents, copyrights, trademarks, trade secrets and other intellectual property rights in Malaysia and elsewhere and protecting our proprietary technology. If we do not adequately protect our intellectual property and proprietary technology, competitors may be able to use our technologies or the goodwill we have acquired in the marketplace and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability.

We cannot provide any assurances that any of our pending patent applications that mature into issued patents will include a scope sufficient to protect our products, any additional features we develop for our products or any new products. Other parties may have developed technologies that may be related or competitive to our system, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position. Our patent position may involve complex legal and factual questions, and, therefore, the scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated or circumvented. Proceedings challenging our patents could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents that we may own may not provide any protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to commercialize our products.

Though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our patents, or develop and obtain patent protection for more effective technologies, designs or methods.

We may be unable to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, suppliers, vendors, former employees and current employees.

Our ability to enforce our patent rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.

In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents covering our products are invalidated or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our products, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.

The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

● any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our products;

● any of our pending patent applications will be issued as patents;

● we were the first to file patent applications for these inventions;

● others will not develop similar or alternative technologies that do not infringe our patents; any of our patents will be found to ultimately be valid and enforceable;

● any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;

● we will develop additional proprietary technologies or products that are separately patentable; or

● our commercial activities or products will not infringe upon the patents of others.

We rely, in part, upon unpatented know-how and continuing technological innovation to develop and maintain our competitive position. Further, our trade secrets could otherwise become known or be independently discovered by our competitors.

Risks Relating to Our Securities

There may not be sufficient liquidity in the market for our securities in order for investors to sell their securities.

There is currently only a limited public market for our ordinary share, which is listed on the Over-the-Counter Pink Sheets, and there can be no assurance that a trading market will develop further or be maintained in the future.

Volatility in our shares price may subject us to securities litigation.

The market for our shares may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

Our ordinary share may be considered a “penny stock” and may be difficult to sell.

The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our ordinary share is less than $5.00 per share and, therefore, it may be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our ordinary share and may affect the ability of investors to sell their shares.

The market for penny stocks has experienced numerous frauds and abuses, which could adversely impact investors in our stock.

OTC Pink Sheet securities are frequent targets of fraud or market manipulation, both because of their generally low prices and because OTC Pink Sheet reporting requirements are less stringent than those of the stock exchanges or NASDAQ.

Patterns of fraud and abuse include:

● Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

● Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

● “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

● Excessive and undisclosed bid-ask differentials and mark-ups by selling broker-dealers; and

● Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

● Our management is aware of the abuses that have occurred historically in the penny stock market.

We have not paid dividends in the past and do not expect to pay dividends in the foreseeable future and any return on investment may be limited to the value of our stock.

We have never paid any cash dividends on our ordinary share and do not anticipate paying any cash dividends on our ordinary share in the foreseeable future and any return on investment may be limited to the value of our stock. We plan to retain any future earnings to finance growth.

We are a “smaller reporting company,” and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.

We are currently a “smaller reporting company”, meaning that we are not an investment company, an asset- backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and annual revenues of less than $50.0 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company,” at such time as we cease being an “emerging growth company,” we will be required to provide additional disclosure in our SEC filings. However, similar to an “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.

General Risks

Natural disasters, epidemics or other unexpected events may disrupt our operations, adversely affect our results of operations, financial condition and may not be fully covered by insurance.

The occurrence of one or more natural disasters, power outages or other unexpected events, including hurricanes, fires, earthquakes, volcanic eruptions, tsunamis, floods and other forms of severe weather, health epidemics, pandemics (including COVID-19) or other contagious outbreaks, conflicts, wars or terrorist acts, in the U.S. or in other countries in which we or our suppliers or customers operate could adversely affect our operations and financial performance. Natural disasters, power outages or other unexpected events could damage or close one or more of our facilities or disrupt our operations temporarily or long-term, such as by causing business interruptions or by affecting the availability and/or cost of materials needed for manufacturing. We have only one factory and another assembly line that can manufacture a specific product or product line. As a result, damage to or the closure of that factory may disrupt or prevent us from manufacturing certain products. Existing insurance arrangements may not cover all of the costs or lost cash flows that may arise from such events. The occurrence of any of these events could also increase our insurance and other operating costs or harm our sales.

We may be affected by global economic, capital market and political conditions, and conditions in the construction, transportation and infrastructure industries in particular.

Our business, financial condition, operating results and cash flows may be adversely affected by changes in global economic conditions and geopolitical risks and conditions, including credit market conditions, levels of consumer and business confidence, fluctuations in residential, commercial and industrial construction activity, pandemic health issues (including COVID-19 and its effects), natural disasters, commodity prices, energy costs, interest rates, foreign exchange rates, levels of government spending and deficits, trade policies (including tariffs, boycotts and sanctions), regulatory changes, actual or anticipated default on sovereign debt and other challenges that could affect the global economy.

These economic and political conditions affect our business in a number of ways. Additionally, the tightening of credit in the capital markets could adversely affect the ability of our customers, including individual end-customers and businesses, to obtain financing for significant purchases and operations, which could result in a decrease in or cancellation of orders for our products and services. Similarly, tightening credit may adversely affect our supply base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. Additionally, because we have a number of factories and suppliers in foreign countries, the imposition of tariffs or sanctions or unusually restrictive border crossing rules could adversely affect our supply chain, operations and overall business.

Our business and financial performance is also adversely affected by decreases in the general level of economic activity, such as decreases in business and consumer spending and construction (both residential and commercial as well as remodelling).

Our business success depends on attracting and retaining qualified personnel.

Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce. Failure to ensure that we have leadership with the necessary skill sets and experience could impede our ability to deliver our growth objectives, execute our strategic plan and effectively transition our leadership.

None.

The Company’s principal executive office is located at 31-A2, Jalan 5/32A, 6 ½ Miles off Jalan Kepong, 52000 Kuala Lumpur, Malaysia. We also have an office located in Cambodia located at R01 of House No 62Z Street 274, Village 04, Sangkat Tonle Basak, Khan Chamkamorn, Phnom Pehnh, Cambodia and an office located in China at Shunde Western Ecological Industry Startup Zone D-08-01 (Foshan City, Shunde District, Xingtan Town, Depin Road no.1, Level 3).

On October 8, 2021, a filing (the “Filing”) was made with the Kuala Lumpur High Court by a reseller (the “Reseller”) of the Company’s INCU ionic nano copper solution (the “Solution”) and the Reseller’s related party (together with the Reseller, the “Plaintiffs”). The Reseller was authorized by WKL Eco Earth’s sole distributor of the Solution (the “WKL Distributor”) to resell the Solution together with a diffuser with a capacity of not more than 1000ml through a tripartite agreement (the “Tripartite Agreement”) entered into between (a) the Reseller, (b) the WKL Distributor and (c) a solution packaging company (the “Packaging Company”). WKL Eco Earth was not a party to the Tripartite Agreement and did not directly authorize or engage the Reseller in the resale of the Solution. In the Filing, the Plaintiffs claimed against (i) WKL Eco Earth; (ii) Dr. Low; (iii) Chan Kok Wei, (iv) the Packaging Company and (v) two directors of the Packaging Company for loss and damages arising from an alleged breach of contract, defamation and tort of inducement. The Plaintiffs also alleged that pursuant to the Tripartite Agreement, WKL Eco Earth was prohibited from selling the Solution to any party other than the WKL Distributor, and that the Tripartite Agreement allowed for the resale of the Solution by the Plaintiffs without limitation, the Plaintiffs were not confined in their resale of the Solution to a product consisting of a diffuser with a capacity of not more than 1000ml. The Company believes the claims are without merit and will defend itself against the claims.

Besides the above, we are not a party to any legal proceedings that in the opinion of our management would have a material adverse effect on our business. However, from time to time we may become involved in legal proceedings or may be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we believe that the final outcome of ordinary course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows.

The Company believes the claims are without merit and will defend itself against the claims.

No report required.

PART II

MARKET INFORMATION

The registrant had 102,742,362 shares of our Common Stock par value, $0.001 issued and outstanding as of December 9, 2023. There were 268 record holders of our common stock.

DIVIDENDS

We have never paid or declared any dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

We currently do not have any equity compensation plans.

Not Applicable.

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. Thereafter, we expect we will need to raise additional capital and generate revenues 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”), 2023, and 2022, which are included herein.

Revenue

Revenue for FYE 2023 was $388,038 compared to revenue in FYE 2022 of $1,190,616, a decrease of $802,578 or approximately 67%. The drop in revenue 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.

Being first mover in launching EvoAir^TM, first-of-its-kind eco-friendly air-conditioner with granted patent or utility model/ patent or utility model pending HECS system proprietary system, the Group faced both opportunities and challenges. In the course of applying for some of the certifications, safety and performance testing, the relevant authorities/ organizations faced the challenges in assigning our products in the appropriate category under conventional air-conditioner regime. There are instances whereby some of these authorities/ organizations do not possess the relevant equipment to conduct testings. It took a lot of education, discussions, deliberations and working with the authorities/ organizations to work out solutions to resolve compliance and testing matters. On the positive note, one of the authorities advised us to apply under a new category, ‘Hybrid Air Conditioner. The duration of the application processes were longer than that of typical certifications and testing for conventional air-conditioners.

Being a first mover, notwithstanding many of our corporate clients who were impressed and showed keen interest in our products, EvoAir^TM, many of them took a few months to conduct study on their own accord on performance and the energy savings by our products. The Company is building up its traction for the evoair^TM hybrid air-conditioners for both residentials and commercial/ industrial units through distribution channels, projects, building and businesses as well as private labelling and licensing model. During the financial year, we have entered into agreements with distributors, partners, customers to build up sales pipeline.

Cost of revenue

Cost of revenues was $424,189 or 109% of revenues in the FYE 2023, as compared to $952,228 or 80% of revenues in the FYE 2022. The decline in cost of revenue is in line with the drop in sales. Cost of revenues includes production costs and purchases of goods.

Gross (loss)/ profit

Gross loss was $36,151 for FYE 2023 or 9% of revenues compared gross profit $238,388 for FYE 2022 or 20% of revenues. The decline in gross profit margin was attributable to the drop in sales of air purifier products, of which the product range contributed higher gross profit margin. Besides, the decrease of gross profit is mainly due to the Company’s 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

Operating expenses totaled $6,097,019 for FYE 2023, compared to $4,856,039 in operating expenses for FYE 2022, or an increase of $1,240,980 or 26%. The operating expenses include salary and related expenses, commissions, rental, patents and trademarks application/renewal and related fee and professional and compliance fees. The increase in operating expenses were mainly due to full year amortization of intangible assets in FYE2023 as compared to 8-month amortization of intangibles in FYE 2022 as well as payment of commission for capital raising.

Other expense

Other expense decreased significantly mainly due to a one-time amortization of beneficial conversion feature of convertible bonds $1,005,645 in FYE 2022. Other expense in FYE2023 primarily included $205,949 realized foreign exchange loss net with $13,276 other income received from Inland Revenue Authority of Singapore for Job Growth Incentive Payout.

Net loss

Premised on the factors discussed above, the Company incurred a net loss of $6,317,373 for FYE 2023, compared to a net loss of $5,556,627 for FYE 2022. The continuous net loss is attributable to the Group’s focused effort in building up the traction and sales pipeline, applying necessary certifications, testings, patents and trademark and creating resources 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 August 31, 2023, our company’s current liabilities stood at $964,642, which included accounts payable and accruals of $170,888, other payables of $27,487, deferred revenue $440,069, current portion hire purchase creditor $9,224, amount due to shareholders $232,095, and current portion operating lease liabilities of $84,879. The increased in current liabilities was mainly attributable to amount due to shareholders.

As of August 31, 2023, the Company recorded a positive working capital of $1,106,522 compared with the positive working capital of $796,922 as of August 31, 2022. The increase in working capital was mainly attributable to the increase in cash from issuance of common stock pursuant to capital raising activities.

Cash Flows

The Company’s cash and cash equivalents stood at $779,049 as of August 31, 2023. Cash used in operating activities for FYE 2023, was $1,674,395. The change was primarily due to an increase in net loss offset with an increase in amortization of intangible assets.

Cash used in investing activities arose from purchase of property, plant and equipment amounting to $14,189 for FYE 2023.

During the FYE 2023, cash generated from financing activities resulted from proceeds from issuance of common stock amounting to $1,068,728, payments of hire purchase amounting to $8,587, proceeds from shares to be issued amounting to $1,066,052, and proceeds from capital contribution amounting to $266,517.

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:

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 2023 and 2022 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, 2023, is prepared using 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, 2023, and August 31, 2022, the Company had an accumulated deficit of $13,523,266 and $7,465,373 respectively. The Company incurred net loss of $6,057,893 and $5,231,877 for the years ended August 31, 2023, and August 31, 2022, respectively. The cash used in operating activities were $1,674,395 and $1,540,167 for FYE 2023 and 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 into the Company (“HVAC Business”) pursuant to the Transactions (defined in Part I, Item I of this Form 10K), 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 consolidated financial statements 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, 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™ (“ASC”) is the sole source of authoritative U.S. 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.

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.

Not Applicable.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of EvoAir Holdings Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of EvoAir Holdings Inc. (the “Company”) as of August 31, 2023 and 2022, the related statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for each of the two years ended August 31, 2023 and 2022, and the related notes to the financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2023, and the results of its operations and its cash flows for the year ended August 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Going concern uncertainty

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in Note 3 to the financial statements, the Company had an accumulated deficit of $13,523,266. The Company incurred net loss of $6,057,893 for year ended August 31, 2023. The cash used in operating activities were $1,674,395 for the year ended August 31, 2023. The Company has accumulated loss since inception which raise doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Audit Alliance LLP

We have served as the Company’s auditor since 2021.

Singapore

December 14, 2023

(PCAOB ID No. 3487)

EVOAIR HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(In U.S. Dollars, except share data or otherwise stated)

AS OF AUGUST 31, 2023 AND AUGUST 31, 2022

The accompanying footnotes are an integral part of these consolidated financial statements.