NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTH ENDED NOVEMBER 30, 2022, AND 2021
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
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 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 sale of heating, ventilation and
air conditioning (“HVAC”) products in Asia.
Pursuant
to the terms of a share transfer agreement dated December 20, 2021, Dr. Low, the then sole executive officer and director of the
Company and the owner of 2,000,000
restricted shares of the Company’s ordinary shares representing approximately 67.34%
of the Company’s then issued and outstanding shares, sold his entire shareholding of the Company to WKL Global Limited
(“WKL Global”) for an aggregate consideration of $100 (“Change of Control Transaction”).
Upon completion of the Change of Control Transaction, WKL Global owned 2,000,000
shares, or approximately 67.34%
of the then issued and outstanding ordinary shares of the Company, which resulted in a change of control of the Company.
On
December 20, 2021, several transactions took place (together, the “Allotment Transactions”) whereby the Company issued and
allotted in aggregate 98,809,323 ordinary shares of common stock to certain parties. On completion of the Allotment Transactions, the
total number of issued and outstanding shares of common stock of the Company were 101,779,323 (“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 Limited and Allegro Investment (BVI) Limited of 24,000
shares and 6,000
shares of common stock, respectively, or approximately 0.02%
and 0.01%
of the Enlarged Share Capital, respectively. |
| |
|
| (B) |
On
December 20, 2021, Dr. Low, Chan Kok Wei, Ong Bee Chen and certain sellers (“WKLEE Sellers”) entered into a share
exchange agreement with WKL Eco Earth Holdings, pursuant to which Dr. Low, Chan Kok Wei, Ong Bee Chen and WKLEE Sellers agreed to
sell all their ordinary shares of WKL Eco Earth Sdn Bhd (“WKL Eco Earth”) to WKL Eco Earth Holdings in consideration for
the allotment and issuance to WKL Global Limited, Allegro Investment (BVI) Limited and WKLEE Sellers of 49,320
shares, 8,280
shares and in aggregate 14,400
shares, respectively, of the common stock of the Company, or approximately 0.05%, 0.009%
and in aggregate 0.014%,
respectively, of the 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 Tan Soon Hock, Ivan Oh Joon Wern
and the Relevant Interest Holders agreed to sell all relevant interests in the EVOH and its subsidiaries (“EvoAir Group” or the (“Group”)) to WKL Eco Earth Holdings in consideration
for the allotment and issuance of 7,037,762 shares, 2,520,000 shares and in aggregate 6,001,794 shares, respectively, of the common
stock of the Company, or approximately 6.91%, 2.48% and in aggregate 5.90%, respectively, of the 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), evoairTM 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 EVOTM and the trademarks as described in the deed of assignments thereunder (together, the “IP Assignments”).
Pursuant to the IP Assignments, WKL Global Limited, Allegro Investment (BVI) Limited and certain nominees shall be allotted and issued
63,362,756 shares, 14,297,259 shares and in aggregate 5,487,752 shares, respectively of the Company’s common stock or approximately
62.25%, 14.05% and in aggregate 5.39%, respectively of the 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 Transaction (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 will consist of the prior operations of EvoAir International.
EvoAir
International is a company incorporated in the British Virgin Islands (“BVI”) on November 17, 2021.
Effective from the December 20, 2021, it wholly owns WKL Eco Earth Holdings, a company incorporated in Singapore on July 12, 2018,
which in turn wholly owns (a) WKL Eco Earth, a Malaysian company incorporated on May 17, 2017, and (b) WKL Green Energy, a Malaysian
company incorporated on October 24, 2017. WKL Eco Earth Holdings acquired (c) EvoAir Manufacturing (M) Sdn Bhd (“EvoAir
Manufacturing”) on April 19, 2021, a Malaysian company incorporated on March 22, 2019, as well as acquiring (d) WKL EcoEarth
Indochina Co Ltd (“WKL EcoEarth Indochina”), a Cambodia company incorporated on February 4, 2021 (e) WKL Guanzhe Green
Technology Guangzhou Co Ltd (“WKL Guanzhe”), a Chinese company incorporated on April 6, 2021. EvoAir Manufacturing
wholly owns (f) Evo Air Marketing (M) Sdn Bhd (“Evo Air Marketing”), a Malaysian company incorporated on February 2,
2021.
On
June 15, 2022, the Company filed a Certificate of Amendment (the “Amendment”) to the Articles of Incorporation with Nevada’s
Secretary of State to change the name of the Company from Unex Holdings Inc. to EvoAir Holdings Inc. (the “Name Change”),
and the Name Change became market effective on November 4, 2022. Effective on November 11, 2022, the Company’s shares began trading
under the new ticker symbol “EVOH”.
Details of the Company’s subsidiaries:
SUMMARY
OF CONSOLIDATED SUBSIDIARIES
| Subsidiaries of EVOH | |
Attributable interest | |
| EvoAir International Limited (British Virgin Islands) | |
| 100 | % |
| Subsidiary of EvoAir International Limited | |
| | |
| WKL Eco Earth Holdings Pte Ltd (Singapore) | |
| 100 | % |
| Subsidiaries of WKL Eco Earth Holdings Pte Ltd | |
| | |
| WKL Eco Earth Sdn Bhd (Malaysia) | |
| 100 | % |
| WKL Green Energy Sdn Bhd (Malaysia) | |
| 100 | % |
| EvoAir Manufacturing (M) Sdn Bhd (Malaysia) | |
| 67.5 | % |
| WKL EcoEarth Indochina Co Ltd (Cambodia) | |
| 55 | % |
| WKL Guanzhe Green Technology Guangzhou Co Ltd (China) | |
| 55 | % |
| Subsidiary of EvoAir Manufacturing (M) Sdn Bhd | |
| | |
| Evo Air Marketing (M) Sdn Bhd (Malaysia) | |
| 100 | % |
NOTE
2 – CHANGE OF CONTROL
Pursuant
to the terms of a share transfer agreement dated December 20, 2021, Dr. Low, the then sole executive officer and director of the Company
and the owner of 2,000,000 restricted shares of the Company’s ordinary shares representing 67.34% of the Enlarged Share Capital,
sold his entire shareholding of the Company to WKL Global for an aggregate consideration of $100. Upon completion of the Change of Control
Transaction, WKL Global Limited then owned 2,000,000 shares, or approximately 67.34% of Enlarged Share Capital, which resulted in a change
of control of the Company.
NOTE
3 – GOING CONCERN
The
Company’s financial statements as of November 30, 2022, is prepared using generally accepted accounting principles in the
United States of America (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The Company has not established a sustainable ongoing source of
revenues sufficient to cover its operating costs and allow it to continue as a going concern.
As
of November 30, 2022, and August 31, 2022, the Company had an accumulated deficit of $8,838,700 and
$7,465,373 respectively.
The Company incurred net loss of $1,440,362 and
$383,332 for
three months ended November 30, 2022, and November 30, 2021, respectively. The cash used in operating activities were $264,216 and
$159,933 for
the three months ended November 30, 2022, and November 30, 2021, 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 viable business into the Company (“New Business”) contemplated under the Transaction (defined in Note
1), the Management believes that the actions to be taken by the Management to further implement the business plans for the New Business
including expansion in product offerings, geographical expansion, generate revenue through expansion of revenue streams and customer
base (retail, commercial and industrial as well as private label and licensing clientele), improvement of profitability by achieving
economies of scale provide the opportunity for the Company to continue as a going concern. In addition, the Company is also working on
raising additional funding to finance the operations as well as business expansion.
The
unaudited condensed 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.
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited condensed consolidated financial statements have
been prepared by the Group in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for financial
information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”).
The
unaudited condensed consolidated financial statements include the accounts of EvoAir
International, WKL Eco Earth Holdings and its subsidiaries namely (i) 100% owned WKL Eco Earth, (ii) 100% owned WKL Green Energy, (iii) 67.5% owned EvoAir Manufacturing (which includes its wholly owned subsidiary Evo Air Marketing), (iv) 55% owned WKL EcoEarth Indochina,
and (v) 55% owned WKL Guanzhe.
As
WKL Eco Earth and WKL Green Energy were under common control at the time of the Transaction, it is required under U.S. GAAP to
account for this common control acquisition in a manner similar to the pooling of interest method of accounting. Under this method
of accounting, EVOH’s condensed consolidated balance sheets as of November 30, 2022, and August 31, 2022, reflect WKL Eco
Earth and WKL Green Energy on a historical carryover basis in the assets and liabilities instead of reflecting the fair market value
of the assets and liabilities.
All
intercompany accounts and transactions have been eliminated on consolidation. In the opinion of the Management, the accompanying financial
statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly all financial statements
in accordance with U.S. GAAP.
The
non-controlling interests are presented in the unaudited condensed consolidated balance sheets, separately from equity attributable
to the stockholders of the Company. Non-controlling interests in the results of the Company are presented on the face of the
condensed consolidated statements of operations and comprehensive loss as an allocation of the total loss for the year between
non-controlling interest holders and the stockholders of the Company.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires the Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of sales and expenses during the reporting periods. Key estimates in the accompanying
unaudited condensed consolidated financial statements include, inter-alia, revenue recognition, allowances for doubtful
accounts and product returns, provisions for obsolete inventory, valuation of long-lived assets and Rights of Use
(“ROU”) assets (including lease liabilities), and deferred income tax asset valuation allowances. Actual results could
differ materially from these estimates.
Fiscal
Year End
The
Company operates on a fiscal year basis with the fiscal year ending on August 31.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The Company places its
cash with a high credit quality financial institution.
WKL
Guanzhe’s business is primarily conducted in China and substantially
all of its revenue is denominated in Chinese Renminbi (“RMB”). The government of People’s Republic of China (“PRC”)
imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and
through restrictions on foreign trade.
Comprehensive
Gain or Loss
ASC
220 “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components
in the financial statements. As of November 30, 2022, and August 31, 2022, the Company established that there are items that represented
components of comprehensive income and, therefore, has included a statement of comprehensive income/loss in the financial statements.
Foreign
Currency Translation
The
functional currency of Chinese operations is RMB. The functional currency
of the Company’s Singapore operations is Singapore dollars (“SGD”). The functional currency of the Company’s Malaysia
operations is Ringgit Malaysia (“RM”). The Management has adopted ASC 830 “Foreign Currency Matters” for transactions
that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing
at the balance sheet date. Average monthly rates are used to translate revenue and expenses.
Transactions
denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing
on the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination
of net income for the respective periods.
Assets
and liabilities of the Company’s operations are translated into the reporting currency, United States Dollars (“US$”),
at the exchange rate in effect at the balance sheet dates. Revenue and expenses are translated at average rates in effect during the
reporting periods. Equity transactions are recorded at the historical rate when the transaction occurred. The resulting translation adjustment
is reflected as accumulated other comprehensive income/loss, a separate component of shareholders’ equity in the statement of changes
in equity/deficit.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are recorded at the net value of face amount less any allowance for doubtful accounts. The allowance for doubtful accounts
is the Company’s best estimate of the amount of probable credit losses in our existing accounts receivable. An allowance for doubtful
accounts is recorded in the period when loss is probable based on an assessment of specific evidence indicating troubled collection,
historical experience, accounts aging and other factors. The Company reviews the allowance for doubtful accounts on a regular basis,
and all past due balances are reviewed individually for collectability. An account receivable is written off after all collection effort
has ceased. Recoveries of receivables previously written off are recorded when received. Interest is not charged on past due accounts.
As
of November 30, 2022, and August 31, 2022, our accounts receivable amounted to $67,657
and $85,960,
respectively, with no allowance for doubtful accounts for both periods.
Inventories
Inventories
consist primarily of finished goods, raw materials, and work-in-process (“WIP”) from WKL Eco Earth, WKL EcoEarth Indochina,
WKL Guanzhe, and EvoAir Manufacturing.
We
value inventory at the lower of cost or net realizable value. We determine the cost of inventory using the standard cost method, which
approximates actual cost based on a first-in, first-out method. All other costs, including administrative costs, are expensed as incurred.
Deposit, Prepayments and Other Receivables
Deposit,
prepayments and other receivables are comprised of prepayments paid to vendors to initiate orders and prepaid services fees and are classified
as current assets if such amounts are to be recognized within one year from the balance sheet date.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of
the related capitalized assets. Property,
plant and equipment are depreciated over 5 to 10 years.
SUMMARY OF ESTIMATED USEFUL LIVES OF ASSETS
| | |
Useful lives |
| Plant and machineries | |
5 years |
| Office equipment | |
5 years |
| Vehicles | |
5 years |
| Furniture and equipment | |
10 years |
| Renovation | |
10 years |
Repair
and maintenance costs are charged to expense as incurred. At the time of retirement or other disposition of property, plant and equipment,
the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in
operations.
Intangible
Assets and Other Long-Lived Assets
The
Company’s intangible assets consist of patents and trademarks related to assignments of intellectual properties by Dr. Low into
WKL Eco Earth Holdings under the IP Assignments as contemplated in Note 1. The intangible assets are recorded at fair market value and
are amortized using the straight-line method over an estimated life of 20 years for both patents and trademarks.
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected
to generate. If identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the
carrying value of the assets exceeds its fair market value.
Revenue
Recognition
Revenue
is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration
that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company does not disaggregate its
revenue streams as the economic factors underlying the contracts are similar and provide no significant distinction. The amount of revenue
that is recorded reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company
applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the
contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct
in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv)
allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies
each performance obligation.
The
Company only applies the five-step model to contracts when it is probable that the entity 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, the Company reviews the contract to determine which performance obligations the Company must deliver and which
of these performance obligations are distinct. The Company recognizes as revenue the amount of the transaction price that is allocated
to the respective performance obligation when (or as) the performance obligation is satisfied.
Deferred
Revenue
The
Company collects deposits from customers in advance for some business contracts. The customer payments received in advance are recorded
as deferred revenue on the balance sheet. The Company recognized $433,542, and $513,072 deferred revenue as of November 30, 2022, and August 31, 2022,
respectively.
Leases
We
have entered into operating agreements primarily for office and factory. We determine if an arrangement is a lease at inception. For
all classes of underlying assets, we elect not to recognize right of use assets or lease liabilities when a lease has a lease term
of 12 months or less at the commencement date and does not include an option to purchase the underlying asset that we are reasonably
certain to exercise. Operating lease assets and liabilities are included on our unaudited condensed consolidated balance sheet as of
November 30, 2022 and August 31, 2022.
Operating
lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest
rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit
in most of our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a
collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Operating lease
assets also include any prepaid lease payments and lease incentives. Our lease terms include periods under options to extend or terminate
the lease when it is reasonably certain that we will exercise that option. We generally use the base, non-cancellable, lease term when
determining the lease assets and liabilities. Operating lease expense is recognized on a straight-line basis over the lease term.
Our
lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and
utilities. We combine fixed payments for non-lease components with our lease payments and account for them together as a single lease
component, which increases the amount of our lease assets and liabilities.
Income
Taxes
The
Company utilizes ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial
statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences
between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation
allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
The
Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in
the consolidated statements of operations.
Measurement
of Fair Value
The
fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities
are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the
quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on
the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following three
categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities.
Level
2: Observable market-based inputs or inputs that are corroborated by market data.
Level
3: Unobservable inputs that are not corroborated by market data.
Earnings
(Loss) per Share
The
Company computes basic and diluted earnings (loss) per share amounts in accordance with ASC Topic 260, “Earnings per Share.”
Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number
of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur
if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common
stock that could share in the earnings of the Company. As of November 30, 2022, the Company has no potentially dilutive securities, such
as options or warrants, currently issued and outstanding.
Recently
Issued Accounting Pronouncements
Except
for rules and interpretive releases of the SEC under the authority of federal
securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”)
is the sole source of authoritative 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 a current
expected credit loss (“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.
NOTE
5 INVENTORIES
Inventories
consist of the following:
SUMMARY OF INVENTORIES
| | |
November 30, 2022 | | |
August 31, 2022 | |
| | |
| | |
| |
| Finished goods | |
$ | 315,415 | | |
$ | 385,102 | |
| Raw materials and supplies | |
| 126,671 | | |
| 162,820 | |
| Work in progress | |
| 105,472 | | |
| 71,074 | |
| | |
| | | |
| | |
| Total inventory on hand | |
$ | 547,558 | | |
$ | 618,996 | |
NOTE
6 DEPOSIT, PREPAYMENTS AND OTHER RECEIVABLES
Deposit,
prepayments, and other receivables consists of the following:
SCHEDULE OF DEPOSIT PREPAYMENTS AND OTHER RECEIVABLES
| | |
November 30, 2022 | | |
August 31, 2022 | |
| | |
| | |
| |
| Deposits and Prepayment | |
| 41,241 | | |
| 61,270 | |
| Other receivables (Advances to suppliers) | |
| 607,315 | | |
| 770,396 | |
| Total | |
| 648,556 | | |
| 831,666 | |
NOTE
7 PROPERTY, PLANT AND EQUIPMENT, NET
Property,
plant, and equipment consist of the following:
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT
| | |
November 30, 2022 | | |
August 31, 2022 | |
| Plant and machineries | |
$ | 465,385 | | |
$ | 464,019 | |
| Office equipment | |
| 55,330 | | |
| 55,587 | |
| Vehicles | |
| 71,837 | | |
| 71,860 | |
| Furniture and equipment | |
| 26,570 | | |
| 26,577 | |
| Renovation | |
| 134,272 | | |
| 134,309 | |
| Property
plant and equipment gross | |
| 753,396 | | |
| 752,352 | |
| Less: Accumulated depreciation | |
| (184,723 | ) | |
| (149,597 | ) |
| Property, plant and equipment, net | |
$ | 568,673 | | |
$ | 602,755 | |
Depreciation
expense for the three months ended November 30, 2022, was $35,126.
NOTE
8 –
The
below table summarizes the identifiable intangible assets as of November 30, 2022, and August 31, 2022:
SUMMARIZES OF INTANGIBLE ASSETS
| | |
November 30, 2022 | | |
August 31, 2022 | |
| | |
| | |
| |
| Technology 1-Portable Air Cooler | |
$ | 27,438,763 | | |
$ | 27,438,763 | |
| Technology 2-Condensing Unit | |
| 55,709,004 | | |
| 55,709,004 | |
| Finite- lived intangible assets, gross | |
| 83,147,767 | | |
| 83,147,767 | |
| Less: Accumulated amortization | |
| (3,810,939 | ) | |
| (2,771,592 | ) |
| Intangible assets, net | |
$ | 79,336,828 | | |
$ | 80,376,175 | |
Amortization
expense for intangible assets for the three months ended November 30, 2022, was $1,039,347.
NOTE
9 ACCOUNTS PAYABLE, ACCRUALS, AND OTHER PAYABLES
Account
payables and accruals, and other payables consist of the following:
SCHEDULE
OF ACCOUNTS PAYABLES ACCRUALS AND OTHER PAYABLE
| | |
November 30, 2022 | | |
August 31, 2022 | |
| | |
| | |
| |
| Accounts payable | |
$ | 46,949 | | |
$ | 110,782 | |
| Accruals | |
| 87,835 | | |
| 106,048 | |
| Other payables | |
| 21,311 | | |
| 31,980 | |
| Total | |
$ | 156,095 | | |
$ | 248,810 | |
NOTE
10 RELATED PARTY TRANSACTIONS
Amounts
due to shareholders
Amounts
due to shareholders are non-interest bearing, unsecured, have no fixed repayment term, and are not evidenced by any written agreement.
The Company reported amount due to shareholders of $2,301 as of both November 30, 2022, and August 31, 2022.
ECo
Awareness Sdn Bhd
ECo
Awareness Sdn Bhd is related to a common shareholder. ECo Awareness Sdn Bhd was our main distributor for E-condLife product.
Eco Awareness Sdn Bhd has been re-designated as distributor in October 2021.
The
sales generated from ECo Awareness Sdn Bhd amounted to $0 and $13,471 during the three month ended November 30, 2022, and November 30,
2021, respectively. The accounts receivable from ECo Awareness Sdn Bhd amounted to $0 as of both November 30, 2022, and August 31, 2022.
The
purchases from ECo Awareness Sdn Bhd amounted to $0
and $15,111
during the three month ended ended November 30, 2022, and November 30, 2021, respectively. The accounts payable due to ECo Awareness
Sdn Bhd amounted to $0
as of both November 30, 2022, and August 31, 2022.
NOTE
11 SHAREHOLDERS’ EQUITY
On
December 16, 2021, the Company has increased the authorized common stock from 75,000,000 shares with a par value of $0.001 per share
to 1,000,000,000 shares with a par value of $0.001 per share.
During
the three months period ended November 30, 2022, the Company issued 119,621 shares of common stock, par value $0.001 per share at a per
share purchase price of $2.50 for gross proceeds of $299,055, as part of a series of offerings by the Company for an aggregate of up
to 6,000,000 shares of Common Stock at a per share purchase price of $2.50.
During
the three months period ended November 30, 2022, the Company also issued 30,000
shares of common stock, for gross proceeds of $75,000
received during the 3 months ended August 31 2022. As such, the Company had $0
shares to be issued on November 30, 2022.
During
the three months period ended November 30, 2022, the Company received cash proceeds of $100
from capital contribution.
As
of November 30, 2022, and November 30, 2021, the Company had 102,003,018 and 2,970,000 shares of its common stock issued and outstanding,
respectively.
NOTE
12 INCOME TAXES
The
Company’s operating subsidiaries are governed by the Income Tax Law, which is concerning Foreign Investment Enterprises and Foreign
Enterprises and various local income tax laws (“the Income Tax Laws”). We are routinely undergoing examinations in the jurisdictions
in which we operate.
The
Company has operations in Singapore, Malaysia, Cambodia, BVI, and China that are subject to taxes in the jurisdictions in which they
operate, as follows:
Singapore
WKL
Eco Earth Holdings is incorporated in Singapore, and under the current tax laws of Singapore, its standard corporate income tax rate
is 17%.
Malaysia
WKL
Eco Earth, WKL Green Energy and Evoair Manufacturing (including its 100% subsidiary Evo Air Marketing) are incorporated in Malaysia and
are subject to common corporate income tax rate at 24%.
Cambodia
WKL
EcoEarth Indochina is incorporated in Cambodia, and under the current tax laws of Cambodia, its standard corporate tax rate is 20%.
BVI
EvoAir
International is incorporated in BVI, and a BVI Business Company is exempt from the BVI income tax.
China
WKL
Guanzhe is incorporated in China. Under the current tax law in the PRC, WKL Guanzhe is subject to the enterprise income tax rate of 25%.
Due
to the Company’s net loss position, there was no provision for income taxes recorded. As a result of the Company’s losses
to date, there exists doubt as to the ultimate realization of the deferred tax assets. Accordingly, a valuation allowance equal to the
total deferred tax assets has been recorded.
The
components of net deferred tax assets are as follows:
SCHEDULE OF COMPONENTS ON NET DEFERRED TAX ASSET
| | |
November 30, 2022 | | |
August 31, 2022 | |
| Net operating loss carry-forward | |
$ | 8,839,000 | | |
$ | 7,470,000 | |
| Less: valuation allowance | |
| (8,839,000 | ) | |
| (7,470,000 | ) |
| Net deferred tax asset | |
| - | | |
| - | |
The
Company had net operating loss carry forwards for tax purposes of approximately $8,839,000 at November 30, 2022, and approximately $7,470,000
at August 31, 2022, which may be available to offset future taxable income. Utilization of the net operating loss carry forwards may
be subject to substantial annual limitations due to the ownership change limitations provided by Section 381 of the Internal Revenue
Code of 1986, as amended. The annual limitation may result in the expiration of net operating loss carry forwards before utilization.
NOTE
13 ROU ASSET AND LEASES
A
lease is defined as a contract that conveys the right to control the use of identifiable tangible property for a period of time in exchange
for consideration. On February 28, 2022, the Company adopted ASC Topic 842 which primarily affected the accounting treatment for operating
lease agreements in which the Company is the lessee including the Company’s leases of office and factory. The Company elected to
not recognize ROU assets and lease liabilities arising from short-term leases with initial lease terms of twelve months or less (deemed
immaterial) on the accompanying consolidated balance sheets.
ROU
assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum
lease payments is recognized on the effective interest, the effective amortization on the lease liability. The lease terms may include
options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
When
measuring lease liabilities for leases that were classified as operating leases as of November 30, 2022, and August 31, 2022, the Company
discounted lease payments using its estimated incremental borrowing rate of 10%.
The
following is a summary of ROU asset and operating lease liabilities:
SUMMARY OF ROU ASSET AND OPERATING LEASE LIABILITIES
| | |
November 30, 2022 | | |
August 31, 2022 | |
| Assets: | |
| | | |
| | |
| ROU asset | |
$ | 410,168 | | |
$ | 442,020 | |
| | |
| | | |
| | |
| Liabilities: | |
| | | |
| | |
| Current: | |
| | | |
| | |
| Operating lease liabilities | |
$ | 127,220 | | |
$ | 117,686 | |
| Operating lease liabilities, current | |
$ | 127,220 | | |
$ | 117,686 | |
| Non-current | |
| | | |
| | |
| Operating lease liabilities | |
| 314,867 | | |
| 355,186 | |
| Operating lease liabilities, non-current | |
| 314,867 | | |
| 355,186 | |
| Total lease liabilities | |
$ | 442,087 | | |
$ | 472,872 | |
As
of November 30, 2022, remaining maturities of lease liabilities were as follows:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
| | |
Operating lease | |
| 2023 | |
$ | 127,220 | |
| 2024 | |
| 133,838 | |
| 2025 | |
| 101,470 | |
| 2026 | |
| 62,878 | |
| 2027 and thereafter | |
| 16,681 | |
| Total | |
$ | 442,087 | |
NOTE
14 COMMITMENTS AND CONTINGENCIES
Litigation
and Claims
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 allow for the resale of the Solution by the Plaintiffs without limitation, and that the Plaintiffs
were not confined in their resale of the Solution to 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.
The
Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. The outcome of
the above case very much depends on the evidence produced and the weight of the Court places on the evidence. As it stands, WKL has a
probability of success in its Counterclaim against the parties. Management does not believe, based upon information available at this
time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations
or cash flows.
NOTE
15 SUBSEQUENT EVENTS
In
accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to November 30, 2022, to the
date these unaudited condensed consolidated financial statements were issued, and has determined that it does not have any material
subsequent events to disclose in these consolidated financial statements.