INNO HOLDINGS INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Page Financial Statements as of and for the Fiscal Years Ended September 30, 2023 and 2022 Report of Independent Registered Public Accounting Firm PCAOB ID# (0 5854 ) F-2 Consolidated Balance Sheets as of September 30, 2023 and 2022 F-3 Consolidated Statements of Operations for the years ended September 30, 2023 and 2022 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2023 and 2022 F-6 Consolidated Statements of Cash Flows for the years ended September 30, 2023 and 2022 F-7 Notes to Consolidated Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the board of directors of INNO HOLDINGS INC. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of INNO HOLDINGS INC. and its subsidiaries (the Company) as of September 30, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended September 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Going Concern Matter The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2 to the consolidated financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits 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 consolidated 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 audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ TAAD LLP We have served as the Company’s auditor since 2022. Diamond Bar, California January 16, 2024 F- 2 INNO HOLDINGS INC. AND SUBSIDIARIES Consolidated Balance Sheets As of September 30, 2023 and 2022 September 30, 2023 September 30, 2022 ASSETS Current assets Cash and cash equivalent $ 4,898 $ 50,628 Accounts receivable, net 70,435 1,807,290 Accounts receivable – related party - 100,000 Accounts receivable, net - 100,000 Inventories 394,293 329,904 Deferred offering costs 538,765 — Prepayments and other current assets 180,467 176,591 Total current assets 1,188,858 2,464,413 Non-current assets ROU assets 437,770 453,883 Property and equipment, net 869,584 694,122 Other non-current assets 49,550 39,699 Total non-current assets 1,356,904 1,187,704 Total assets $ 2,545,762 $ 3,652,117 LIABILITIES AND EQUITY Current liabilities Accounts payable 781,056 471,778 Accounts payable – related party 535,595 485,595 Accounts payable 535,595 485,595 Credit cards payable 5,454 — Unearned revenue 1,137,828 201,730 Other payables and accrued liabilities 86,710 46,043 Other payables – related party 504,372 12,233 Other payables 504,372 12,233 Short-term loan payable 790,000 710,000 Lease liability – current 212,277 110,993 Long-term notes payable – current portion 49,393 47,259 Total current liabilities 4,102,685 2,085,631 Non-current liabilities Notes payable 110,846 160,009 Lease liability – non-current 275,817 349,402 Other non-current liabilities — 2,457 Total non-current liabilities 386,663 511,868 Total liabilities 4,489,348 2,597,499 Commitments and contingency — — F- 3 INNO HOLDINGS INC. AND SUBSIDIARIES Consolidated Balance Sheets — (Continued) As of September 30, 2023 and 2022 September 30, 2023 September 30, 2022 Stockholders’ Equity (Deficit) Common stock, no par value; 100,000,000 shares authorized; 18,251,726 and 17,970,000 shares issued and outstanding at September 30, 2023 and 2022 — — Additional paid in capital 2,830,000 1,805,000 Accumulated deficit ( 4,524,815 ) ( 629,037 ) Non-controlling interest ( 248,771 ) ( 121,345 ) Total stockholders’ equity (deficit) ( 1,943,586 ) 1,054,618 Total liabilities and stockholders’ equity (deficit) $ 2,545,762 $ 3,652,117 * On November 30, 2022, the Company implemented a 2-for-1 forward split of the issued and outstanding shares of Common Stock of the Company. Further on July 24, 2023, the Company effected a reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of the common stock at a split ratio of 1-for-2 such that every holder of common stock of the Company shall receive one share of common stock for every two shares of common stock held and to reduce the number of authorized shares of common stock from 200,000,000 to 100,000,000 . All references to number of shares, and to per share information in the consolidated financial statements have been retroactively adjusted. The accompanying notes are an integral part of these Consolidated financial statements F- 4 INNO HOLDINGS INC. AND SUBSIDIARIES Consolidated Statements of Operations For the Years Ended September 30, 2023 and 2022 For the Years Ended September 30, 2023 2022 REVENUES $ 799,747 $ 4,252,568 REVENUES – related party - 250,000 TOTAL REVENUES 799,747 4,502,568 COSTS AND EXPENSES: Costs of materials and labor 1,255,315 3,031,588 Selling, general and administrative expenses (exclusive of depreciation and bad debt expense shown separately below) 2,191,043 2,247,820 Depreciation 69,437 33,138 Bad debt expense 1,267,960 — Total costs and expenses 4,783,755 5,312,546 LOSS FROM OPERATIONS ( 3,984,008 ) ( 809,978 ) OTHER INCOME (EXPENSE) Interest expenses ( 72,118 ) ( 10,114 ) Stock compensation expense — ( 300,000 ) Other non-operating income (expense) 32,922 — Total other income (expenses), net ( 39,196 ) ( 310,114 ) LOSS BEFORE INCOME TAXES ( 4,023,204 ) ( 1,120,092 ) PROVISION FOR INCOME TAXES - 9,915 NET LOSS ( 4,023,204 ) ( 1,130,007 ) Non-controlling interest ( 127,426 ) ( 121,345 ) NET LOSS ATTRIBUTABLE TO INNO HOLDINGS INC. $ ( 3,895,778 ) $ ( 1,008,662 ) WEIGHTED AVERAGE NUMBER OF COMMON STOCK Basic 18,155,104 17,230,822 Diluted 18,155,104 17,230,822 LOSSES PER SHARE Basic $ ( 0.21 ) $ ( 0.06 ) Diluted $ ( 0.21 ) $ ( 0.06 ) * On November 30, 2022, the Company implemented a 2-for-1 forward split of the issued and outstanding shares of Common Stock of the Company. Further on July 24, 2023, the Company effected a reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of the common stock at a split ratio of 1-for-2 such that every holder of common stock of the Company shall receive one share of common stock for every two shares of common stock held and to reduce the number of authorized shares of common stock from 200,000,000 to 100,000,000 . The computation of basic and diluted Losses Per Share were retroactively adjusted for all periods presented. The accompanying notes are an integral part of these Consolidated financial statements F- 5 INNO HOLDINGS INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity For the Years Ended September 30, 2023 and 2022 Common Stock * Additional Paid in Retained Earnings (Accumulated Non- controlling Shares Amount Capital Deficit) interest Total Balance, September 30, 2021 16,170,000 — 5,000 379,625 — 384,625 Net loss ( 1,008,662 ) ( 121,345 ) ( 1,130,007 ) Shares issued for cash 1,500,000 — 1,500,000 1,500,000 Shares issued for service 300,000 — 300,000 300,000 Balance, September 30, 2022 17,970,000 $ — $ 1,805,000 $ ( 629,037 ) $ ( 121,345 ) $ 1,054,618 Balance 17,970,000 $ — $ 1,805,000 $ ( 629,037 ) $ ( 121,345 ) $ 1,054,618 Net loss ( 3,895,778 ) ( 127,426 ) ( 4,023,204 ) Shares issued for cash 248,832 — 900,000 — — 900,000 Shares issued for service 32,894 — 125,000 — — 125,000 Balance, September 30, 2023 18,251,726 $ — $ 2,830,000 $ ( 4,524,815 ) $ ( 248,771 ) $ ( 1,943,586 ) Balance 18,251,726 $ — $ 2,830,000 $ ( 4,524,815 ) $ ( 248,771 ) $ ( 1,943,586 ) * On January 21, 2022, the sole owner of the Company and Inno Metal Studs Corp. (“IMSC”), Mr. Dekui Liu, entered into an agreement to sell 100 % of his ownership in IMSC for 15,170,000 shares of the Company’s common stock (the “Transaction”). Under ASC 805-40 and ASC 805-50, the Transaction was considered as a reverse acquisition between entities under common control. Accordingly, the outstanding shares of common stock upon completion of the Transaction was presented retroactively as outstanding for all reporting periods. * On November 30, 2022, the Company implemented a 2-for-1 forward split of the issued and outstanding shares of Common Stock of the Company. Further on July 24, 2023, the Company effected a reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of the common stock at a split ratio of 1-for-2 such that every holder of common stock of the Company shall receive one share of common stock for every two shares of common stock held and to reduce the number of authorized shares of common stock from 200,000,000 to 100,000,000 . All references to number of shares, and to per share information in the consolidated financial statements have been retroactively adjusted. The accompanying notes are an integral part of these Consolidated financial statements F- 6 INNO HOLDINGS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Years Ended September 30, 2023 and 2022 For the Years Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 4,023,204 ) $ ( 1,130,007 ) Adjustments to reconcile net income to cash used in operating activities: Depreciation expense 69,437 33,138 Stock-based compensation expense 41,667 300,000 Non-cash operating lease expense 43,812 1,084 Bad debt expense 1,267,960 — Change in operating assets and liabilities Accounts receivable 468,895 ( 1,270,190 ) Accounts receivable – related party 100,000 ( 100,000 ) Inventories ( 64,389 ) ( 44,794 ) Deferred offering costs ( 538,765 ) — Prepayments and other current assets 79,457 ( 156,153 ) Other non-current assets ( 9,851 ) ( 39,699 ) Accounts payable 309,278 444,700 Accounts payable – related party 50,000 485,595 Credit cards payable 5,454 ( 6,263 ) Unearned revenue 936,098 ( 210,886 ) Income tax payable — ( 13,809 ) Other payables and accrued liabilities 40,667 ( 12,992 ) Other non-current liabilities ( 2,457 ) 2,457 Net cash used in operating activities ( 1,225,941 ) ( 1,717,819 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment ( 244,899 ) ( 695,815 ) Proceed from sale of truck — 11,000 Net cash used in investing activities ( 244,899 ) ( 684,815 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from related parties 627,000 146,233 Payments to related parties ( 134,861 ) ( 214,706 ) Proceeds from short-term loans 230,000 710,000 Payments to short-term loans ( 150,000 ) — Proceeds from long-term note — 248,500 Payment to long-term note ( 47,029 ) ( 33,626 ) Shares issued for cash 900,000 1,500,000 Net cash provided by financing activities 1,425,110 2,356,401 CHANGES IN CASH ( 45,730 ) ( 46,233 ) CASH AND CASH EQUIVALENT, beginning of year 50,628 96,861 CASH AND CASH EQUIVALENT, end of year $ 4,898 $ 50,628 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for income tax $ 3,500 $ 23,724 Cash paid for interest $ 43,909 $ 10,114 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS: Right of use assets acquired under new operating leases $ 104,690 $ 355,963 The accompanying notes are an integral part of these Consolidated financial statements F- 7 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 1 — Nature of business and organization INNO HOLDINGS, INC., a Texas corporation (the “Company”), was incorporated on September 8, 2021. The Company is principally engaged in the marketing and sale of construction products along with full-scope construction services in the US. On January 18, 2022, the Company formed a limited liability company, Castor Building Tech LLC (“CBT”), in California. The Company owned 53 % of the equity interest in CBT. On October 16, 2023, the Company and the noncontrolling interest parties reached a new ownership agreement that the Company’s ownership changed to 55 %. According to the new ownership agreement, the ownership percentage change is retroactively effective from January 18, 2022. The impact of historical noncontrolling interest allocation from this ownership percentage change is immaterial. Effective January 21, 2022, the Company acquired 100 % of the ordinary shares of Inno Metal Studs Corp. (“IMSC”), a Texas corporation incorporated on October 31, 2019. Pursuant to the terms of the Share Purchase Agreement with IMSC’s sole owner, Mr. Dekui Liu, who was also the sole owner and CEO of the Company, the Company issued 15,170,000 shares of its common stock to Mr. Dekui Liu in exchange for his 100 % ownership in IMSC. Upon completion of the transaction, IMSC became a 100 % owned subsidiary of the Company. See Note 3 below for details. Inno Research Institute LLC, a Texas limited liability company incorporated on September 8, 2021, is a 65 % owned subsidiary of IMSC. Note 2 — Basis of Presentation and Summary of significant accounting policies Basis of presentation The accompanying financial statements have been prepared in accordance with the generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The Company’s fiscal year end date is September 30. Consolidated Principles of consolidation The Consolidated financial statements include the accounts of the Company and its subsidiaries, Inno Metal Studs Corp., Castor Building Tech LLC, and Inno Research Institute LLC. All inter-company balances and transactions have been eliminated. Reclassification Reclassification could involve changes in accounting policies, adjustments to prior period amounts, or shifts in the classification of specific items. Certain items in the financial statements of comparative year have been reclassified to conform to the financial statements for the current year because of prior year adjustment as disclosed in Note 16. Going concern As of September 30, 2023, the Company had total cash of $ 4,898 and accumulated deficit of $ 4,524,815 . For the year ended September 30, 2023, the Company had incurred a net loss of $ 4,023,204 and used net cash in operations of $ 1,225,941 . These conditions raise substantial doubt about the Company’s ability to continue as a going concern. As described in Note 17, Subsequent events, on December 18, 2023, the Company successfully closed the initial public offering with gross proceeds of $ 10 million. Based on our current operating and investing plan, the management has concluded that substantial doubt is not alleviated regarding the Company’s ability to continue as a going concern for 12 months from the date of issuance of these financial statements. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which it has not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required. F- 8 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.) Management is endeavoring to increase revenue-generating operations. While priority is on generating cash from operations through the sale of the Company’s products, management is also seeking to raise additional working capital through various financing sources, including the sale of the Company’s equity and/or debt securities, which may not be available on commercially reasonable terms to the Company, or which may not be available at all. If such financing is not available on satisfactory terms, the Company may not be able to continue operations or may be required to delay, scale back or eliminate some or all of its ongoing research and development efforts and other operations. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm its business, financial condition and results of operations. In addition, any financing arrangement may have potentially adverse effects on us and/or our stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced, and the new equity securities may have rights, preferences or privileges senior to those of the current holders of our common stock. Given the uncertainties associated with the Company’s ability to access capital and its business growth strategy, management has concluded that substantial doubt exists regarding the Company’s ability to continue as a going concern for the next twelve months from the date the condensed consolidated financial statements are issued. Our Consolidated financial statements have been prepared assuming that we will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These Consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. Use of estimates and assumptions The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates. Reverse acquisition under common control Effective January 21, 2022, the Company acquired 100 % of the ordinary shares of Inno Metal Studs Corp. (“IMSC”), a Texas corporation incorporated on October 31, 2019. Pursuant to the terms of the Share Purchase Agreement with IMSC’s sole owner, Mr. Dekui Liu, who was also the sole owner and CEO of the Company, the Company issued 15,170,000 shares of its common stock to Mr. Dekui Liu in exchange for his 100 % ownership in IMSC. Upon completion of the transaction, IMSC became a 100 % owned subsidiary of the Company. As such, Under ASC 805-40 and ASC 805-50, the Transaction is a reverse acquisition between entities under common control, in which INNO HOLDINGS, INC. is the accounting acquiree and IMSC is the accounting acquirer. The assets, liabilities and operations of the two entities are combined at their historical carrying amounts, with all historical periods adjusted as if the entities had always been combined. The consolidated financial statements represent the continuation of the financial statements of IMSC except for its capital structure. Cash and cash equivalents Cash and cash equivalents consist of amounts held as cash on hand and bank deposits. From time to time, the Company may maintain bank balances in interest bearing accounts in excess of the $ 250,000 , which is currently the maximum amount insured by the Federal Deposit Insurance Corporation for interest bearing accounts (there is currently no insurance limit for deposits in noninterest bearing accounts). The Company has not experienced any losses with respect to cash. Management believes the Company is not exposed to any significant credit risk with respect to its cash. F- 9 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.) Accounts receivable During the ordinary course of business, the Company extends unsecured credit to its customers. Accounts receivable are stated at the amount the Company expects to collect from customers. Management reviews its accounts receivable balances each reporting period to determine if an allowance for credit loss is required. In October 2020, the Company adopted ASU 2016-13, Topics 326 — Credit Loss, Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology, for its accounting standard for its trade accounts receivable. The Company continuously monitors the recoverability of accounts receivable. If there are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular customer. At the same time, the Company may cease further sales or services to such customer. The following are some of the factors that the Company develops allowance for credit losses: ● the customer fails to comply with its payment schedule; ● the customer is in serious financial difficulty; ● a significant dispute with the customer has occurred regarding job progress or other matters; ● the customer breaches any of its contractual obligations; ● the customer appears to be financially distressed due to economic or legal factors; ● the business between the customer and the Company is not active; and ● other objective evidence indicates non-collectability of the accounts receivable. The adoption of the credit loss accounting standard has no material impact on the Company’s consolidated financial statements. Accounts receivable are recognized and carried at carrying amount less an allowance for credit losses, if any. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis. The Company has also included in the calculation of allowance for credit losses the potential impact of the COVID-19 pandemic on our customers’ businesses and their ability to pay their accounts receivable. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company also considers external factors to the specific customer, including current conditions and forecasts of economic conditions, including the potential impact of the COVID-19 pandemic. In the event we recover amounts previously written off, we will reduce the specific allowance for credit losses. Fair values of financial instruments ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current assets and liabilities are approximate fair values due to their short-term nature. F- 10 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.) For other financial instruments to be reported at fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 — Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 — Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. As of September 30, 2023 and 2022, the Company did not have any other financial instruments reported at fair value. Revenue recognition The Company has adopted Accounting Standards Codification (“ASC”) 606 since its inception and recognizes revenue from product and service sales revenues, net of promotional discounts and return allowances, if any, when the following revenue recognition criteria are met: a contract has been identified, separate performance obligations are identified, the transaction price is determined, the transaction price is allocated to separate performance obligations and revenue is recognized upon satisfying each performance obligation. The Company transfers the risk of loss or damage upon delivery, therefore, revenue from product sales is recognized when it is delivered to the customer. For services, all sales are recognized upon completion based on terms stated in the sales agreements. The Company evaluates the criteria of ASC 606 — Revenue Recognition Principal Agent Considerations in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the Company is primarily responsible for fulfilling the promise to provide a specified good or service, the Company is subject to inventory risk before the good or service has been transferred to a customer and the Company has discretion in establishing the price, revenue is recorded at gross. Payments received prior to the delivery of goods to customers are recorded as customer deposits. Sales discounts are recorded in the period in which the related sale is recognized. Sales return allowances are estimated based on historical amounts and are recorded upon recognizing the related sales. Shipping and handling costs are recorded as selling expenses. Costs and expenses Costs and expenses are operating expenses, which consist of costs of material and labor, selling, general and administrative expenses, and depreciation, are expensed as incurred. Inventory Inventory consists of material and finished goods ready for sale and is stated at the lower of cost or net realizable value. The Company values its inventory using the FIFO costing method. The Company’s policy is to include as a part of cost of goods sold any freight incurred to ship the product from its vendors to warehouses. Outbound freight costs related to shipping costs to customers are considered periodic costs and are reflected in selling expenses. The Company regularly reviews inventory and considers forecasts of future demand, market conditions and product obsolescence. F- 11 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.) If the estimated realizable value of the inventory is less than cost, the Company makes provisions in order to reduce its carrying value to its estimated net realizable value. The Company also reviews inventory for slow moving inventory and obsolescence and records allowance for obsolescence. Deferred offering costs The Company capitalizes certain legal, accounting and other third-party fees that are directly related to an equity financing that is probable of successful completion until such financing is consummated. After consummation of an equity financing, these costs are recorded as a reduction of the proceeds received as a result of the financing. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are immediately written off to operating expenses in the consolidated statements of operations in the period of determination. Property and equipment Property and equipment is stated at the historical cost, less accumulated depreciation. Depreciation on property and equipment is provided using the straight-line method over the estimated useful lives of the assets as follows: Schedule of Depreciation on Property and Equipment Machinery and equipment 7 years Office equipment 5 years Motor vehicles 5 years Leasehold improvements the shorter of the lease term or the estimated useful life of the improvements Expenditures for renewals and betterments are capitalized while repairs and maintenance costs are normally charged to the statement of operations in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset. Upon sale or disposal of an asset, the historical cost and related accumulated depreciation or amortization of such asset were removed from their respective accounts and any gain or loss is recorded in the statements of income. The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment expenses for property and equipment were recorded during the years ended September 30, 2023 and 2022. Leases On its inception date, the Company adopted ASC 842 — Leases (“ASC 842”), which requires lessees to record right-of-use (“ROU”) assets and related lease obligations on the balance sheet, as well as disclose key information regarding leasing arrangements. ROU assets represent our right to use an underlying asset for the lease terms and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. F- 12 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.) Stock-based Compensation The Company applies ASC No. 718, “Compensation-Stock Compensation,” which requires that share-based payment transactions with employees and nonemployees upon adoption of ASU 2018-07, be measured based on the grant date fair value of the equity instrument and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period. In addition to the requisite service period, the Company also evaluates the performance condition and market condition under ASC 718-10-20. For an award which contains both a performance and a market condition, and where both conditions must be satisfied for the award to vest, the market condition is incorporated into the fair value of the award, and that fair value is recognized over the employee’s requisite service period or nonemployee’s vesting period if it is probable the performance condition will be met. If the performance condition is ultimately not met, compensation cost related to the award should not be recognized (or should be reversed) because the vesting condition in the award has not been satisfied. The Company will recognize forfeitures of such equity-based compensation as they occur. Income taxes The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their perspective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized. As a result of the implementation of certain provisions of ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax position, as defined, ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company has adopted the provisions of ASC 740 since inception and has analyzed filing positions in each of the federal and state jurisdictions where the Company is required to file income tax returns, as well as open tax years in such jurisdictions. The Company has identified the U.S. federal jurisdiction, and the states of Texas and California, as its “major” tax jurisdictions. However, the Company has certain tax attribute carryforwards which will remain subject to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized. The Company believes that its income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. The Company’s policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes. Commitments and contingencies In the ordinary course of business, the Company is subject to certain contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes its liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical and specific facts and circumstances of each matter. F- 13 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September30, 2023 and 2022 Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.) Earnings (loss) per share Basic earnings (loss) per share are computed by dividing net income (loss) attributable to holders of common stock by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if securities to issue common stock were exercised. Recently issued but not yet adopted accounting pronouncements In June 2022, FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction and require specific disclosures related to such an equity security. This standard is effective for fiscal years beginning after December 15, 2024. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2023, with early application permitted. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. Recently issued and adopted accounting pronouncements In January 2020, the FASB issued ASU 2020-01, “Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This ASU among other things clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments — Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The new ASU clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. The Company adopted ASU 2020-01 on October 1, 2022. The adoption did not have a material impact on the Company’s consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes. The update is intended to simplify the current rules regarding the accounting for income taxes and addresses several technical topics including accounting for franchise taxes, allocating income taxes between a loss in continuing operations and in other categories such as discontinued operations, reporting income taxes for legal entities that are not subject to income taxes, and interim accounting for enacted changes in tax laws. The Company adopted ASU 2019-12 on October 1, 2022. The adoption did not have a material impact on the Company’s consolidated financial statements. The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows. F- 14 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.) Subsequent events The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date that the consolidated financial statements are available to be issued. Material subsequent events that required recognition or additional disclosure in the consolidated financial statements are presented. Note 3 — Reverse Acquisition under Common Control On January 21, 2022, the sole owner of the Company and IMSC, Mr. Dekui Liu, entered into an agreement to sell 100 % of his ownership in IMSC in exchange for 15,170,000 shares of the Company’s common stock (the “Transaction”). Below are the charts illustrating the structure before and after the Transaction: F- 15 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 3 — Reverse Acquisition under Common Control (cont.) Under ASC 805, Business Combination, A common-control transaction is typically a transfer of net assets or an exchange of equity interests between entities under the control of the same parent. While a common-control transaction is similar to a business combination for the entity that receives the net assets or equity interests, such a transaction does not meet the definition of a business combination because there is no change in control over the net assets. Therefore, the accounting and reporting for a transaction between entities under common control is outside the scope of the business combinations guidance in ASC 805-10, ASC 805-20, and ASC 805-30 and is addressed in the “Transactions Between Entities Under Common Control” subsections of ASC 805-50. Note 4 — Accounts Receivable, Net Accounts receivable for the Company consisted of the following as of the dates indicated below: Schedule of Accounts Receivable September 30, 2023 September 30, 2022 Accounts receivable $ 1,338,395 $ 1,807,290 Less: allowance for credit losses ( 1,267,960 ) — Accounts receivable, net $ 70,435 $ 1,807,290 Accounts receivable – related party $ — $ 100,000 Accounts receivable, net $ — $ 100,000 The Company recorded credit losses of $ 1,267,960 and $ 0 for the years ended September 30, 2023 and 2022, respectively. Note 5 — Inventories As of September 30, 2023 and 2022, inventories consisted of the following: Schedule of Inventories September 30, 2023 September 30, 2022 Raw material $ 134,299 $ 296,042 Production inventory 259,994 33,862 Total $ 394,293 $ 329,904 As of September 30, 2023 and 2022, there was no allowance for obsolescence recorded. Note 6 — Deferred offering costs Deferred offering costs consisted of fees and expenses incurred in connection with the sale of the Company’s common stock in the IPO, including the legal, accounting, printing and other offering related costs. Upon completion of the IPO, these deferred offering costs are to be reclassified from current assets to stockholders’ equity and recorded against the net proceeds from the offering. As of September 30, 2023 and 2022, deferred offering costs amounted to $ 538,765 and $ 0 , respectively. Subsequently on December 18, 2023, the whole amount of deferred offering costs was charged to additional paid in capital upon the completion of the initial public offering as disclosed in Note 17, Subsequent events. Note 7 — Prepayments and other current assets As of September 30, 2023 and 2022, prepayments and other current assets consisted of the following: Schedule of Prepayments and Other Current Assets September 30, 2023 September 30, 2022 Advance to suppliers $ 87,217 $ 102,027 Other prepayments and current assets 93,250 74,564 Total $ 180,467 $ 176,591 F- 16 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 8 — Property and equipment, net As of September 30, 2023 and 2022, property and equipment consisted of the following: Schedule of Property and Equipment September 30, 2023 September 30, 2022 Machinery and equipment $ 346,900 $ 270,000 Office equipment 5,488 5,488 Motor vehicles 64,082 64,082 Leasehold improvements 551,049 383,050 Total 967,519 722,620 Property and equipment, gross 967,519 722,620 Less: accumulated depreciation ( 97,935 ) ( 28,498 ) Property and equipment, net $ 869,584 $ 694,122 For the years ended September 30, 2023 and 2022, depreciation expenses amounted to $ 69,437 and $ 33,138 , respectively. Note 9 — Loans payable Short-term loans Revolving line of credit On September 16, 2022, the Company entered into an agreement with Origin Bank for a revolving line of credit (the “Line of Credit”) of up to $ 1,000,000 with interest at the floating Prime Rate plus one percent ( 1.0 %) per annum, which is to be adjusted daily to the rate in effect. Interest shall be due and payable monthly as it accrues. The accrued unpaid interest and the principal is due and payable in twelve (12) months from September 16, 2022. The Line of Credit is secured by a Security Agreement and Financing Statement that covers certain properties of the Company and guaranteed by Mr. Dekui Liu, the majority shareholder and CEO of the Company. On April 14, 2023, a modification agreement was entered to reset the maturity date of the outstanding balance of the Note to July 14, 2023. The agreement required monthly interest payments starting from April 16, 2023. The Note was defaulted on May 14, 2023 due to non-payment of interest. For the years ended September 30, 2023 and 2022, the Company recorded interest expense related to the Line of Credit of $ 60,957 and $ - , respectively. As of September 30, 2023 and 2022, the total outstanding balance of the Note was $ 560,000 and $ 710,000 , respectively. The balance was presented on the consolidated balance sheet as a short-term loan. The Company subsequently paid $ 300,000 on December 29, 2023, and the remaining balance is scheduled to be paid off by the end of February 2024. Short term loan without interest From June 2023 to August 2023, the Company borrowed short-term loans due on demand without interest, amounting to $ 230,000 from three individuals for operating purposes. As of September 30, 2023, the outstanding balance due to these individuals was $ 230,000 . The balance was presented on the consolidated balance sheet as a short-term loan. Long-term loan Promissory note payable On October 28, 2021, the Company issued to BancorpSouth Bank a five-year unsecured 4.75 % promissory note, payable in equal monthly installments of $ 4,661 commencing November 28, 2021 (the “Note”). The principal amount of the Note was $ 248,500 . The Note is secured by a Security Agreement and Financing Statement that covers certain properties of the Company and guaranteed by Mr. Dekui Liu, the majority shareholder and CEO of the Company. For the years ended September 30, 2023 and 2022, the Company recorded interest expense of $ 8,903 and $ 10,114 , respectively. As of September 30, 2023 and 2022, the total outstanding balance of the Note was $ 160,239 and $ 207,268 , respectively, which was presented on the consolidated balance sheet as a current portion of $ 49,393 and $ 47,259 , and a non-current portion of $ 110,846 and $ 160,009 , respectively. Note 10 — Related party transactions The Company borrows short term loans without interest from its majority shareholder and CEO, Mr. Dekui Liu, for operation and cashflow needs from time to time. As of September 30, 2023, the amount due to Mr. Liu was $ 327,372 . As of September 30, 2022, the outstanding balance due to Mr. Liu was $ 12,233 . F- 17 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 10 — Related party transactions (cont.) During the year ended September 30, 2022, the Company engaged Yunited Assets LLC (“Yunited”), a limited liability company owned by Mr. Cheng Yu, the minority owner of the Company’s subsidiary, Inno Research Institute, for consultation services on a project-by-project basis. During the years ended September 30, 2023 and 2022, the Company recorded $ 4,375 and $ 19,950 , respectively, of project-based consulting service fees, included in cost of materials and labor. During the years ended September 30, 2023 and 2022, the Company also recorded $ 110,000 and $ 80,000 consulting fee to Yunited for Mr. Yu’s daily operating services included in the general and administrative expenses. As of September 30, 2023, the outstanding balance of accounts payable – related party due to Yunited was $ 50,000 . As of September 30, 2022, there were no unpaid balances due to Yunited. During the year ended September 30, 2022, the Company purchased prefab home and other material and supplies from Baicheng Trading LLC, in which the father of Mr. Dekui Liu, the Company’s majority shareholder and CEO, is a director. As of September 30, 2023 and 2022, the outstanding balance of accounts payable-related party was both of $ 485,595 . In March 2022, the Company entered into an agreement with Wise Hill Inc. (“Wise Hill”), a Florida corporation wholly owned by a minority shareholder of the Company. Pursuant to the agreement, the Company sold prefab home products of $ 250,000 to Wise Hill. For the year ended September 30, 2022, the Company recorded revenue-related party of $ 250,000 . As of September 30, 2023 and 2022, the outstanding balance of accounts receivable — related party due from Wise Hill was $ 0 and $ 100,000 , respectively. In March 2023, the Company entered into an agreement with Vision Opportunity Fund LP, a Florida limited partnership partially owned by a minority shareholder of the Company. In August 2023, all rights, obligations and interests under the agreement were subsequently assigned by Vision Opportunity Fund LP to its general partner, New Vision 101 LLC (“Vision 101”). Pursuant to the agreement, the Company agreed to provide supplies and act as project developer for an amount equal to $ 15,875,800 plus applicable taxes. During the year ended September 30, 2023, Nil amount of revenue has been recognized. During the year ended September 30, 2023, the Company advanced $ 55,000 without interest from Zfounder Organization Inc., one of the Company’s minority shareholders for operation and cashflow needs. In addition, the Company advanced $ 222,000 without interest from Wise Hill Inc., a company owned by a minority shareholder of the Company who also serves as the CEO and Board member of Zfounder Organization Inc., for operation and cashflow needs. $ 100,000 of the advanced amounts have been considered as the payment of accounts receivable due from Wise Hill Inc. As of September 30, 2023, the outstanding balance due to Zfounder Organization Inc. and Wise Hill Inc. was $ 55,000 and $ 122,000 , respectively. Note 11 — Losses per share The following table sets forth the computation of basic and diluted losses per share for the periods presented: Schedule of Losses per share For the years ended September 30, 2023 2022 Numerator: Net loss attributable to INNO HOLDINGS INC. $ ( 3,895,778 ) $ ( 1,008,662 ) Denominator: Weighted-average shares used in computing basic and diluted losses per share* 18,155,104 17,230,822 Losses per share of ordinary shares: – basic and diluted $ ( 0.21 ) $ ( 0.06 ) * On January 21, 2022, the sole owner of the Company and Inno Metal Studs Corp. (“IMSC”), Mr. Dekui Liu, entered into an agreement to sell 100 % of his ownership in IMSC for 15,170,000 shares of the Company’s common stock (the “Transaction”). Under ASC 805-40 and ASC 805-50, the Transaction was considered as a reverse acquisition between entities under common control. Accordingly, the outstanding shares of common stock upon completion of the Transaction was presented retroactively as outstanding for all reporting periods. * On November 30, 2022, the Company implemented a 2-for-1 forward split of the issued and outstanding shares of Common Stock of the Company. Further on July 24, 2023, the Company effected a reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of the common stock at a split ratio of 1-for-2 such that every holder of common stock of the Company shall receive one share of common stock for every two shares of common stock held and to reduce the number of authorized shares of common stock from 200,000,000 to 100,000,000 . The computation of basic and diluted EPS was retroactively adjusted for all periods presented. F- 18 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 12 — Equity The Company was incorporated in Texas on September 8, 2021. The total authorized shares of capital stock were 200,000,000 shares without par value. On November 30, 2022, the Company effected a forward stock split (the “Stock Split”) of the Company’s issued and outstanding shares of the common stock at a split ratio of 2-for-1. Further on July 24, 2023, the Company effected a reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of the common stock at a split ratio of 1-for-2 such that every holder of common stock of the Company shall receive one share of common stock for every two shares of common stock held and to reduce the number of authorized shares of common stock from 200,000,000 to 100,000,000 . Shortly after the Reverse Stock Split, the Board of Directors of the Company approved issuance of additional shares to preserve the original purchase price per share of the shares sold in the period from February 1 to June 30, 2023. All share numbers of the Company’s Common Stock are stated on a post-split basis. At the inception date, September 8, 2021, the Company issued 1,000,000 shares of common stock to its founder, Mr. Dekui Liu. On February 2, 2022, the Company issued 15,170,000 shares of its common stock to Mr. Dekui Liu in exchange for his 100 % ownership in IMSC. See Note 3 above for details. On January 31, 2022, the Company issued 1,500,000 of its series A convertible preferred stock to three accredited investors for $ 1,500,000 in cash. During 2022, the 1,500,000 shares of series A convertible preferred stock had been converted to 1,500,000 shares of common stock after giving effect to the stock splits. On January 31 and September 30, 2022, the Company issued a total of 300,000 shares of common stock to an investor for services. These shares were valued at $ 1.0 per share, which was the per share price for the most recent sale of the Company’s capital stock to accredited investors. For the year ended September 30, 2022, the Company recorded $ 300,000 as stock compensation expense. In December 2022, The Company issued 142,857 shares of its common stock at a price of $ 3.5 per share to an accredited investor for $ 500,000 in cash. In February 2023, The Company issued 27,028 shares of its common stock at a price of $ 3.7 per share to an accredited investor for $ 100,000 in cash. In March 2023, The Company issued 78,947 shares of its common stock at a price of $ 3.8 per share to an accredited investor for $ 300,000 in cash. In April and May 2023, Mr. Dekui Liu, the Company’s chief executive officer, sold 118,421 shares of the Company’s common stock he owned to three investors at $ 3.80 per share for $ 450,000 in cash. Mr. Liu then lent the $ 450,000 to the Company as a short-term loan, which is due on demand without interest. See Note 10 — Related party transactions . On June 20, 2023, the Company issued 13,158 shares of its common stock for a total value of $ 50,000 for services to be rendered during next twelve months by the immediate relative of the Company’s Chief Financial Officer. On June 20, 2023, the Company issued 19,737 shares of its common stock for a total value of $ 75,000 for services to be rendered during next twelve months by one nonemployee contractor. These shares were valued at $ 3.8 per share, which was the per share price for the most recent sale of the Company’s capital stock to accredited investors. For the year ended September 30, 2023, the Company recorded $ 41,667 as stock compensation expense. As of September 30, 2023, the remaining balance of $ 83,333 was recorded as Prepayments and other current assets. As of September 30, 2023 and 2022, after giving effect to the stock splits of the outstanding shares of Common Stock, there were 18,251,726 and 17,970,000 shares of Common Stock issued and outstanding, respectively. The total authorized number of shares of capital stock was 100,000,000 shares without par value. F- 19 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 13 — Income taxes On December 22, 2017, the President of the United States signed into law H.R.1, formerly known as the Tax Cuts and Jobs Act (the “Tax Legislation”). The Tax Legislation significantly revised the U.S. tax code by (i) lowering the U.S. federal statutory income tax rate from 35 % to 21 %, (ii) implementing a territorial tax system, (iii) imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, (iv) requiring a current inclusion of global intangible low taxed income of certain earnings of controlled foreign corporations in U.S. federal taxable income, (v) creating the base erosion anti-abuse tax regime, (vi) implementing bonus depreciation that will allow for full expensing of qualified property, and (vii) limiting deductibility of interest and executive compensation expense, among other changes. The Company has computed its tax expenses using the new statutory rate effective on January 1, 2018 of 21 %. Other provisions of the new legislation include, but are not limited to, limiting deductibility of interest and executive compensation expense. These additional items have been considered in the income tax provision for the years ended September 30, 2023 and 2022. Texas imposes a franchise tax that applies to most business entities that are formed or qualified to do business, or which are otherwise doing business, in Texas. Under the Texas franchise tax, a 0.75 % tax is imposed for the years ended September 30, 2023 and 2022 on the Company’s taxable margin that is apportioned to Texas. Taxable margin is generally defined as revenues less certain costs. The income tax provision for the years ended September 30, 2023 and 2022 consisted of the following: Schedule of Income Tax Provision 2023 2022 September 30, 2023 2022 Current: Federal $ — $ — State — 9,915 Total current income tax provision — 9,915 Deferred: Federal ( 633,247 ) ( 235,219 ) State — — Increase/(decrease) in valuation allowance 633,247 235,219 Total deferred taxes — — Total provision for income taxes $ — $ 9,915 The deferred tax asset as of September 30, 2023 and 2022 consisted of the following: Schedule of Deferred Tax 2023 2022 September 30, 2023 2022 Stock-based compensation $ 8,750 $ 63,000 Net operating loss 626,793 94,531 Depreciation ( 53,588 ) 65,691 Unearned revenue — 9,462 Investment in Passthrough Entities 18,856 — Allowance for Doubtful Accounts 266,272 — Others 1,383 2,535 Total deferred tax assets 868,466 235,219 Less: valuation allowance ( 868,466 ) ( 235,219 ) Deferred tax assets net $ — $ — The company has net operating loss carry forwards of approximately $ 2.5 million and $ 0.5 million for the years ended September 30, 2023 and 2022, respectively. The losses do not expire. F- 20 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 13 — Income taxes (cont.) Valuation Allowance We periodically assess whether it is more likely than not whether we will generate sufficient taxable income to realize our deferred tax assets and establish a valuation allowance if it’s we deem that will not likely be able to realize the benefit associated with our deferred tax assets. We consider all available positive and negative evidence and make certain assumptions to make this determination. We review our deferred tax liabilities, historical earnings, history of cycles of earnings and losses within our industry, our business environment and the potential to generate current and future earnings. We cannot determine at this time when we will be able to generate sufficient taxable income to realize our deferred tax assets. We therefore have recorded a full valuation allowance against our net deferred tax assets. The Company is subject to U.S. federal income tax as well as state income tax in certain jurisdictions. The tax years 2020 to 2023 remain open to examination by the major taxing jurisdictions to which the Company is subject. The following is a reconciliation of income tax expenses at the effective rate to income tax at the calculated statutory rates: Schedule of Effective Rate Income Tax Rate Income Tax September 30, 2023 September 30, 2022 Statutory tax rate Federal 21.00 % 21.00 % State (net of federal benefit) — % ( 0.89 )% Net effect of state income tax deduction and other permanent differences ( 21.00 )% ( 21.00 )% Effective tax rate — % ( 0.89 )% As of September 30, 2023 and 2022, the outstanding income tax payable was both $ 0 . Note 14 — Concentration of risk Credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. As of September 30, 2023 and 2022, $ 4,898 and $ 50,628 , respectively, were deposited with various major financial institutions in the United States. Accounts at each institution in the United States are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $ 250,000 . The Company did not have deposit in excess of the FDIC insurance limit, as of September 30, 2023 and 2022. Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposing the Company to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances. Customer and vendor concentration risk For the years ended September 30, 2023 and 2022, three customers accounted for 53 % and one customer accounted for 15 % of the Company’s total revenues, respectively. As of September 30, 2023 and 2022, accounts receivable from one customers accounted for 100 % and five customers accounted for 80 % of the Company’s total accounts receivable, respectively. For the years ended September 30, 2023 and 2022, three suppliers accounted for 57 % and three suppliers accounted for 75 % of the Company’s total purchases, respectively. As of September 30, 2023 and 2022, accounts payable to two suppliers accounted for 55 % and three suppliers accounted for 94 % of the Company’s total accounts payable, respectively. F- 21 INNO HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2023 and 2022 and for the years Ended September 30, 2023 and 2022 Note 15 — Commitments and contingencies Lease commitments The Company has adopted ASC 842 since its inception date. The Company has entered into a lease agreement for office and production space in Texas with a lease period from December 1, 2019 until December 31, 2024 at a rate of $ 4,129 to $ 5,089 per month. The Company has also entered into a lease agreement for office and production space in Corona, California with a lease period from May 1, 2022 until April 30, 2027 at a rate of $ 6,617 to $ 7,740 per month. In August 2023, the Company relocated its California office from Corona to Diamond Bar. The Company is obligated to pay the monthly rent for the office in Corona California until the landlord finds a new lessee to occupy the facility. The new lease in Diamond Bar, California has a term of 24 months from August 1, 2023 to July 31, 2025 at a rate of $ 4,730 to $ 4,926 per month. In addition, the Company will be responsible for its pro rata share of certain costs, including utility costs, insurance and common area costs, as further detailed in the lease agreements. Total present value of commitment for the full term of these leases is $ 710,116 . $ 437,770 and $ 453,883 of operating lease right-of-use assets and $ 488,094 and $ 460,395 of operating lease liabilities were reflected on the September 30, 2023 and 2022 consolidated balance sheets, respectively. The years ended September 30, 2023 and 2022: Schedule of Operating Lease Liabilities Lease cost 2023 2022 Operating lease cost (included in G&A in the Company’s statement of operations) $ 153,241 $ 95,230 Other information Cash paid for amounts included in the measurement of lease liabilities $ 109,430 $ 94,146 Remaining term in years 1.25 – 3.58 2.25 – 4.58 Average discount rate – operating leases 8.5 % 8 % The supplemental balance sheet information related to leases is as follows: Schedule of Supplement Balance Sheet Information Related to Lease Operating leases September 30, 2023 September 30, 2022 Right of use asset – non-current $ 437,770 $ 453,883 Lease Liability – current 212,277 110,993 Lease Liability – non-current 275,817 349,402 Total operating lease liabilities $ 488,094 $ 460,395 Maturities of the Company’s lease liabilities are as follows: Schedule of Lease Liabilities Operating Lease For periods subsequent to September 30, 2023: 2024 $ 241,385 2025 154,531 2026 90,800 2027 54,183 Less: Imputed interest/present value discount ( 52,805 ) Present value of lease liabilities $ 488,094 F- 22 Contingencies Except a garnishment order described in Note 17, the Company is not currently a party to any material legal proceedings, investigations or claims. As the Company may, from time to time, be involved in legal matters arising in the ordinary course of its business, there can be no assurance that such matters will not arise in the future or that any such matters in which the Company is involved, or which may arise in the ordinary course of the Company’s business, will not at some point proceed to litigation or that such litigation will not have a material adverse effect on the business, financial condition or results of operations of the Company. Note 16 — Correction of Immaterial Misstatements in Prior Period Financial Statement In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the errors and determined that the impact was not material to any of our previously issued financial statements. The Company’s Consolidated Statements of Operations for the year ended September 30, 2022 contained reclassification of Cost of materials and labor to Selling general and administrative expense. The error had no impact on Net income. Schedule of Prior Period Adjustment Restatement In USD As previously reported Adjustment As revised 30-Sep-22 In USD As previously reported Adjustment As revised Consolidated statements of operations Costs of materials and labor 3,405,506 ( 373,918 ) 3,031,588 Selling, general and administrative expenses (exclusive of depreciation shown separately below) 1,873,902 373,918 2,247,820 Note 17 — Subsequent events The registration statement for the Company’s Initial Public Offering (“the Offering”) was declared effective on November 9, 2023. The Common Stock commenced trading on the Nasdaq Capital Market on December 14, 2023, under the symbol “INHD.” The closing of the Offering took place on December 18, 2023. On December 18, 2023, in connection with the closing of the initial public offering of 2,500,000 shares (“the Shares”) of its common stock, no par value, the Company adopted its Amended and Restated Bylaws, effective the same day. In connection with the Offering of the Shares at an offering price of $ 4.00 per share, the Company also granted the underwriters an option exercisable for 45-days to purchase up to 375,000 shares of Common Stock as the Public Offering Price, less the underwriting discount to cover-over allotment. Additionally, the Company also issued warrants to the underwriters to purchase up to 201,250 shares of Common Stock at an exercise price of $ 4.80 per share, subject to adjustment as set forth in the warrants, exercisable from June 18, 2024 and valid until December 18, 2028 . The total gross proceeds from the Offering were $ 10,000,000 , before deducting underwriting discounts and other offering expenses associated with the Offering payable by the Company. Transaction costs related to the offering amounted to $ 2,140,467 , consisting of $ 700,000 of underwriting fees, $ 345,876 of underwriting related expenses, $ 595,000 of legal fees and $ 499,591 of other costs. The Company intends to use the net proceeds from the Offering to increase our marketing capabilities, increase production capacity, expand research and development, evaluate strategic opportunities and other working capital and general corporate purposes. On December 27, 2023, a garnishment order resulting from a legal action initiated by a creditor against the Company was issued by a court in the state of Ohio. The Creditor is seeking a total amount of $ 67,978 (owed amount plus interest and other expenses). Because of the garnishment order, the Company’s bank account was debited in the amount of $ 17,330 . As disclosed in Note 9, on December 29, 2023, the Company paid $ 300,000 of the line of credit principal amount, and the remaining balance is scheduled to be paid off by the end of February 2024. On January 4, 2024, the Company entered into an agreement to acquire certain real property located at 300 South Park Avenue, Pomona, Los Angeles, California, approximately 120,776 sq. ft. office and commercial building (the building together with the land), with a total purchase price of $ 14,600,000 . The amount of $ 440,000 was deposited with Escrow on January 10, 2024. The Company has forty-five (45) calendar days from the opening of Escrow (“Due Diligence Period”) to diligently perform reviews, inspections, and investigations regarding the real property and the condition of title thereto as the Company deems necessary or appropriate, and to submit a written application to the lender for the assumption of the exiting loan (approximately $ 9.7 million). and has one hundred twenty (120) days from the opening of escrow for a loan assumption contingency period. Following the expiration of the Due Diligence Period without any termination of the agreement by the Company, the deposit shall become fully non-refundable to the Company absent a termination of the agreement as a result of a default by the seller, or due to condemnation or casualty in accordance with the terms and provisions of the agreement. F- 23