# Inno Holdings Inc.: Form 10-Q for the period ended Dec 31, 2023

- Company: [Inno Holdings Inc.](/companies/inhd.md) (CIK 1961847)
- Form: 10-Q
- Filed: 2024-02-16
- Accepted by EDGAR: Feb 16, 2024, 21:01 ET
- Period: 2023-12-31
- Accession: 0001493152-24-007003
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1961847/000149315224007003/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1961847/000149315224007003/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-10-01 to 2023-12-31 | $166.6k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2023-10-01 to 2023-12-31 | $785.5k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-10-01 to 2023-12-31 | −$809.6k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-10-01 to 2023-12-31 | $6.6k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-10-01 to 2023-12-31 | $800 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-01 to 2023-12-31 | −$801.5k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-10-01 to 2023-12-31 | −$0.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-10-01 to 2023-12-31 | −$0.04 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-10-01 to 2023-12-31 | 18,604,987 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-10-01 to 2023-12-31 | −$195.2k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-12-31 | $7.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-12-31 | $8.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-12-31 | $9.6m | us-gaap:Assets |
| Current liabilities | at 2023-12-31 | $4.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-12-31 | $4.5m | us-gaap:Liabilities |
| Current portion of debt | at 2023-12-31 | $54.0k | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2023-12-31 | $502.9k | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-12-31 | $5.1m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 17,715 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth under the heading “Cautionary Note Regarding Forward-Looking Statements” in this Quarter Report on Form 10-Q.*

### Overview

We are a building technology company that primarily manufactures cold-formed-steel members and offers a full range of services required to transform raw materials into precise steel framing products and prefabricated homes. We transform raw material (coils of rolled steel of various gauges and other materials) through our proprietary technologies to cut, punch and bend the steel into members or other components. These work-in-process components are further processed into finished products which are used in a variety of building types, including residential, commercial, industrial, and infrastructure. At each stage of the process, we are adding value to the original rolled steel (and other materials) to its final assembled use by businesses or directly to customers.

Our largest commodity expense is our primary raw material — rolled steel in various gauges and widths. Like any commodity, steel is subject to supply/demand-based price fluctuations which can have an impact on the profitability of our business if prices change between the time we enter into a contract with a customer to deliver finished goods and the time the steel is purchased from the mill. We seek to mitigate our exposure to steel price fluctuations in two ways:

- Entering fixed price forward contracts with steel mills/suppliers for delivery in the future so that our bids for customer contracts have known pricing for the steel. This is particularly useful in larger projects that involve delivery of product over many months.
- Maintaining an approximately three-month inventory of our most actively used rolled steel coils (defined by width and gauge). This inventory requires an active forward-looking assessment of steel needs to meet expected demand. Maintaining inventory is a real financial exposure especially during periods of pricing volatility.

### Key Performance Indicators (“KPIs”)

In addition to the measures presented in our consolidated financial statements, our management regularly monitors certain KPIs for our business. The KPIs used by the Company include:

#### The capital turnover rate of raw-material procurement

Our business is reliant on timely delivery of raw materials. At the same time, our primary raw material (steel) is expensive to warehouse. We strive to achieve roughly 1-3 months of raw materials inventory to balance our cost of inventory against the risk of not having raw materials when needed. We do this by setting up long-term cooperative relationship with multiple local and national suppliers, including the mills, so that we will gain a better payment cycle to secure the raw material, to maximize the usage of the funds. At the same time, to match the raw-material usage of the sales order each quarter, we will make the quarterly purchase plans ahead, so that the efficiency of capital turnover is higher.

#### The collection period of accounts receivable

Timely payments from customers are essential to a successful business. Based on our historical collectability experience, we will seek to gradually eliminate the types of small-size homebuilders and cooperate with large-size and professional companies to strengthen risk control of accounts receivable and shorten the days outstanding for accounts receivable. Eventually, we expect to achieve the goal of receiving 100% of the payment before products leave the shop.

#### Lead time

Construction requires the coordination of many contractors, subcontractors, permitting, etc. that must be done on very exacting schedules where any delays will have a ripple effect down the chain. While there are many things we cannot control, we strive to communicate with the customers at a high frequency and make the best production arrangement to minimize storage period and shorten the lead time, which is one of the most important operating indicators of INNO.

#### The growth of total operating income

We maintain internal long-term targets for both gross profit and operating income, based partly on long-term revenue growth targets and partly on execution and internal controls. Ultimately, we strive to deliver profitable long-term growth.

#### Production capacity improvement

We are committed to investing in the improvement of production capacity and production efficiency in an effort to support larger orders and to meet the goal of increasing total operating income.

### Results of Operation

### For the three months ended December 31, 2023, and 2022

The following table presents certain Consolidated statement-of-operations information and presentation of that data as a percentage of change from year to year.

|  | For the Three Months Ended December 31, 2023 | 2022 | Variance |
| --- | ---: | ---: | ---: |
| Revenues | $166,617 | $309,001 | -46% |
| Costs of materials and labor | 169,617 | 283,812 | -40% |
| Selling, general and administrative expenses (exclusive of depreciation and bad debt expenses shown separately below) | 785,536 | 462,101 | 70% |
| Depreciation | 21,060 | 15,019 | 40% |
| Bad debt expense | - | 400,600 | -100% |
| Operating loss | (809,596) | (852,531) | -5% |
| Other income (expenses) | (6,868) | (18,497) | -63% |
| Loss before income taxes | (816,464) | (871,028) | -6% |
| Income tax expense | 800 | - | 100% |
| Net loss | (817,264) | (871,028) | -6% |
| Non-controlling interest | (15,746) | (30,023) | -48% |
| Net loss attributable to INNO HOLDINGS INC. | $(801,518) | $(841,005) | -5% |
| Operating loss % of revenues | -486% | -276% |  |
| Net loss % of revenues | -491% | -282% |  |

#### Revenues

Revenue for the three months ended December 31, 2023 declined 46% to $166,617 in comparison to $309,001 for the three months ended December 31, 2022. The decline in revenue was primarily due to the various statuses and stages of projects. To mitigate collection issues, the Company has focused on developing relationships with large-sized customers. During the three months ended December 31, 2023, the Company has been working on obtaining permits for large projects and exploring new business opportunities with potential large customers.

Our backlog as of December 31, 2023 was approximately $14,000,000 to $19,000,000. The range of backlog amount is comprised of all remaining payments related to our signed customer contracts and estimation of order adjustments. The timing of revenue recognition from these contracts is subject to variation based on each project’s permit status and construction progress. These signed contracts included an agreement, amount of $15,875,800, with Vision Opportunity Fund LP, assigned to Vision 101 LLC (“Vision 101”), partially owned by one of our minority shareholders. None of the contract amount has been delivered to Vision 101 or recognized as revenue as of December 31, 2023.

Our revenues are significantly impacted by demand for residential and commercial buildings, economic conditions including interest rates and costs of labor, materials and other variables that impact the cost of our finished goods. We cannot ensure that growth will continue, and our business may be adversely affected by negative overall economic conditions currently being experienced.

#### Costs of Materials and Labor

Costs of materials and labor include raw materials (primarily rolled steel) and direct labor in the processing of raw materials through the manufacturing process. Costs of materials and labor for the three months ended December 31, 2023, declined 40% to $169,617 in comparison to $283,812 for the three months ended December 31, 2022. The decrease was primarily due to the year-over-year decline in revenue, as discussed above. The revenue decline exceeded the cost reduction, partly because some fixed costs have not declined along with the revenue.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended December 31, 2023, increased 70% to $785,536 in comparison to $462,101 for the comparable period in 2022. The main reason for the increase was the additional overhead costs, such as rent, payroll, consulting and professional fees, to support our future expansion and meet the regulatory standards of a public company. We also incurred expenses related to the successful completion and celebration of our initial public offering (the “IPO”) in December 2023.

#### Bad debt expense

Bad debt expense decreased by $400,600 for the three months ended December 31, 2023 compared to the same period in 2022. We estimated the credit losses based on each customer’s financial situation, project status and the outstanding days of the accounts receivable balance. Started prior year, we strengthen our risk control of accounts receivable and reduce the days outstanding for accounts receivable by discontinuing business with smaller customers with high credit risk. Most of our current customers adhere to a 30-day payment term. For the current quarter’s transactions, we have maintained a high collection rate.

#### Operating Loss

Operating loss was $809,596 for the three months ended December 31, 2023, in comparison to operating loss of $852,531 for the comparable period in 2022. The slightly decrease in loss was primarily attributed to the decrease in bad debt expense offset by lower revenue and increased expenses, as discussed above.

#### Other Income (Expense)

Other expenses for the three months ended December 31, 2023, were $6,868, in comparison to other expenses of $18,497 for the comparable period in 2022. The decrease in other expense was primarily related to the decrease of interest expense, net in current quarter compared with the comparable period in 2022. The IPO proceeds deposit in December 2023 resulted in $9,200 interest income.

#### Net Loss

Net loss for the three months ended December 31, 2023 was $817,264, in comparison to net loss of $871,028 for the three months ended December 31, 2022. The decrease in net loss was primarily due to changes in revenue, costs and expenses as outlined above.

### Liquidity and Capital Resources

#### Sources of Liquidity

During the three months ended December 31, 2023, and 2022, we primarily funded our operations with cash generated from operations, private and public shares offerings, as well as through borrowing under our revolving line of credit, a long term promissory note, and related parties. We had cash of $7,677,270 as of December 31, 2023 compared to $4,898 of cash as of September 30, 2023. The cash increase was primarily due to the proceeds from the IPO closing in December 2023.

On December 18, 2023, the Company successfully closed the IPO with aggregate net proceeds of approximately $7.9 million ($8.5 million net cash proceeds upon IPO completion offset by $0.6 million deferred offering costs).

As disclosed in Note14 Subsequent events, the Company entered into an agreement in January 2024 to acquire a building for $14.6 million to increase the Company’s marketing capabilities.

We do not believe the cash and cash equivalents on hand as of December 31, 2023 of $7,677,270 will be sufficient to fund our operations and capital expenditure requirements for the next twelve months from the date the consolidated financial statements are issued. We will be required to raise additional capital to continue to fund operations and capital expenditures. The uncertainties surrounding our ability to access capital when needed create substantial doubt about our ability to continue as a going concern.

Based on our need to raise additional funds to implement our business plans for the next twelve months, we have included a discussion concerning the presentation of our financial statements on a going concern basis in the notes to our condensed consolidated financial statements. We will be required in the near future to issue debt or sell our Company’s equity securities in order to raise additional cash, although there are no firm arrangements in place for any such financing at this time. We cannot provide any assurances as to whether we will be able to secure the necessary financing, or the terms of any such financing transaction if one were to occur. The failure to secure such financing could severely curtail our plans for future growth or in more severe scenarios, the continued operations of our Company.

#### Working Capital

As of December 31, 2023 and September 30, 2023, our working capital (deficit) was $4,080,742 and $(2,913,827), respectively. The historical seasonality in our business during the year can cause cash and cash equivalents, inventory, and accounts payable to fluctuate, resulting in changes in our working capital.

#### Cash Flows

#### Operating Activities

Net cash used in operating activities for the three months ended December 31, 2023 was $195,197 compared to $129,688 of net cash provided by operating activities for the three months ended December 31, 2022. The increase of net cash usage in operating activities in current quarter was mainly due to a $396,181 increase of loss with non-cash reconciling items adjustment.

For the three months ended December 31, 2023, net cash used in operating activities was $195,197, primarily driven by the net loss of $817,264, partially offset by non-cash items of $74,437 and working capital provided cash of $547,630, which was primarily driven by a $595,552 increase in accounts payable, unearned revenue and other current liabilities.

For the three months ended December 31, 2022, net cash provided by operating activities was $129,688, primarily driven by the net loss of $871,028, partially offset by non-cash items of $416,854, which mainly included bad debt expense of $400,600. Working capital provided cash of $583,862, which was primarily driven by a $453,007 increase in accounts payable, unearned revenue and other current liabilities, a $410,892 decrease in account receivable, a $97,900 decrease of prepayments and other current assets, and partially offset by a $290,437 increase in inventories and a $87,500 increase in deferred offering costs.

#### Investing Activities

For the three months ended December 31, 2023, and 2022, net cash used in investing activities was the result of additions to property and equipment of $54,452 and $226,900, respectively, which are mainly related to the purchase of machinery, tools, motor vehicles, and leasehold improvements.

#### Financing Activities

Net cash provided by financing activities was $7,920,452 and $491,345, respectively, for the three months ended December 31, 2023, and 2022.

For the three months ended December 31, 2023, net cash provided by financing activities was primarily due to the $8,450,000 net cash from the initial public offering, $91,000 proceeds from related parties and offset by $287,089 payment of short term loans and $325,372 repayment to related parties.

For the three months ended December 31, 2022, net cash provided by financing activities was primarily due to the $500,000 proceeds from short term loans.

### Critical Accounting Policies and Estimate

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Note 2 — Basis of Presentation and Summary of significant accounting policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Form 10-K, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Form 10-K, include the discussion of estimates used for revenue recognition, inventory valuation, going concern assessment, and our provision for income taxes. Such accounting estimates require significant judgments and assumptions to be used in the preparation of the Condensed Consolidated Financial Statements included in this Form 10-Q, and actual results could differ materially from the amounts reported.

New Accounting Standards

From time to time, the FASB or other standards-setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2 — Basis of Presentation and Summary of significant accounting policies, “Recently issued but not yet adopted accounting pronouncements”, in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.

## Controls and procedures

As filed, 3,656 characters.

### Disclosure Controls and Procedures

An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2023, our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms due to material weaknesses in our internal controls described below.

- Lack of sufficient personnel commensurate with our accounting and reporting requirements and insufficient segregation of duties within accounting functions.
- Lack of adequate policies and procedures in internal control function to ensure that proper control and procedures have been designed and implemented over key business cycles.

We plan to hire additional qualified personnel with relevant experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework. However, we cannot assure you that we will remediate our material weaknesses in a timely manner.

### Inherent Limitations Over Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

### Changes in Internal Control over Financial Reporting

There have not been any changes in our internal controls over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### PART II

### OTHER INFORMATION

Filed Feb 16, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-007003. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.