Exhibit 99.2
HUADI INTERNATIONAL GROUP CO., LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 2024 AND 2023
(UNAUDITED)
HUADI INTERNATIONAL GROUP CO., LTD.
TABLE OF CONTENTS
F-1
HUADI INTERNATIONAL GROUP CO., LTD.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2024 AND SEPTEMBER 30, 2023
(UNAUDITED, IN U.S. DOLLARS, EXCEPT SHARE DATA)
| March 31, 2024 | September 30, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Notes receivable, net | ||||||||
| Inventories | ||||||||
| Advances to suppliers, net | ||||||||
| Advances to suppliers, net – related parties | ||||||||
| Other receivables, net | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Land use rights, net | ||||||||
| Long-term investments | ||||||||
| Deferred tax assets | ||||||||
| Other noncurrent assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related parties | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Notes payable | ||||||||
| Advances from customers | ||||||||
| Advances from customers - related parties | ||||||||
| Short-term borrowings | ||||||||
| Long-term borrowings - current portion | ||||||||
| Taxes payable | ||||||||
| Total current liabilities | ||||||||
| Long-term borrowings | ||||||||
| Due to related parties - noncurrent portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTIGENCIES | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total equity attributable to Huadi International Group Co., Ltd. | ||||||||
| Equity attributable to non-controlling interests | ||||||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these interim unaudited consolidated financial statements.
F-2
HUADI INTERNATIONAL GROUP CO., LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 2024 AND
2023
(UNAUDITED, IN U.S. DOLLARS, EXCEPT SHARE DATA)
| 2024 | 2023 | |||||||
| Sales | $ | $ | ||||||
| Production service revenues | ||||||||
| Cost of sales | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Research and development | ||||||||
| Foreign currency transaction gains | ( | ) | ( | ) | ||||
| Total operating expenses | ||||||||
| Operating income | ||||||||
| Other income (expense): | ||||||||
| Interest income (expenses), net | ( | ) | ||||||
| Other income, net | ||||||||
| Total other income (expense), net | ||||||||
| Income before income taxes | ||||||||
| Income tax provision | ( | ) | ( | ) | ||||
| Net income | ||||||||
| Net income attributable to non-controlling interests | ||||||||
| Net income attributable to Huadi International Group Co., Ltd. | $ | $ | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive income: | ||||||||
| Foreign currency translation adjustment | ||||||||
| Total comprehensive income | ||||||||
| Comprehensive income attributable to non-controlling interests | ||||||||
| Comprehensive income attributable to Huadi International Group Co., Ltd. | $ | $ | ||||||
| Basic and diluted earnings per share | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Weighted average numbers of common shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these interim unaudited consolidated financial statements.
F-3
HUADI INTERNATIONAL GROUP CO., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2024 AND 2023
(UNAUDITED, IN U.S. DOLLARS, EXCEPT SHARE DATA)
| Shares | Amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income | Statutory Reserve | Shareholders’ equity to Huadi International Group Co., Ltd. | Non- controlling interests | Total shareholders’ equity | ||||||||||||||||||||||||||||
| Balance at September 30, 2022 | ||||||||||||||||||||||||||||||||||||
| Share issuance | ||||||||||||||||||||||||||||||||||||
| Appropriation for statutory reserve | - | - | - | ( | ) | - | - | - | - | |||||||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional paid-in capital |
Retained earnings | Accumulated other comprehensive income |
Statutory Reserve | Shareholders’ equity to Huadi International Group Co., Ltd. |
Non- controlling interests |
Total shareholders’ equity |
||||||||||||||||||||||||||||
| Balance at September 30, 2023 |
|
( |
||||||||||||||||||||||||||||||||||
| Share issuance | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Appropriation for statutory reserve | - | ( |
) | |||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 |
The accompanying notes are an integral part of these interim unaudited consolidated financial statements.
F-4
HUADI INTERNATIONAL GROUP CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2024 AND 2023
(UNAUDITED, IN U.S. DOLLARS)
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Bad debt expense (recovery) | ( |
) | ||||||
| Deferred tax benefits | ( |
) | ||||||
| Foreign currency transaction (gains) loss | ( |
) | ( |
) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Notes receivable | ( |
) | ( |
) | ||||
| Inventories | ( |
) | ( |
) | ||||
| Advances to suppliers | ( |
) | ||||||
| Advances to suppliers – related parties | ( |
) | ||||||
| Other receivables | ( |
) | ||||||
| Other noncurrent assets | ( |
) | ||||||
| Accounts payable | ( |
) | ||||||
| Accounts payable - related parties | ( |
) | ||||||
| Accrued expenses and other current liabilities | ( |
) | ( |
) | ||||
| Notes payable | ( |
) | ||||||
| Advances from customers | ( |
) | ||||||
| Advances from customers – related parties | ( |
) | ||||||
| Taxes payable | ( |
) | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property, plant and equipment | ( |
) | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from short-term borrowings | ||||||||
| Repayments on short-term borrowings | ( |
) | ( |
) | ||||
| Proceeds from long-term borrowings | ||||||||
| Repayments on long-term borrowings | ( |
) | ( |
) | ||||
| Proceeds from share issuance, net of offering costs | ||||||||
| Repayments to related parties | ( |
) | ( |
) | ||||
| Net cash (used in) provided by financing activities | ( |
) | ||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | ( |
) | ||||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | ( |
) | ||||||
| Cash and cash equivalents and restricted cash at the beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at the end of period | $ | $ | ||||||
| Reconciliation of cash and cash equivalents and restricted cash to the Consolidated Balance Sheet | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | $ | $ | ||||||
| Total cash and cash equivalents and restricted cash at the end of period | $ | $ | ||||||
| Supplemental disclosures of cash flows information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
The accompanying notes are an integral part of these interim unaudited consolidated financial statements.
F-5
HUADI INTERNATIONAL GROUP CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
| Entity Name | Registered Location | Date of Incorporation | Ownership as of the issuance date of the report | |||
| Huadi International Group Co., Ltd. (“Huadi International”) | ||||||
| Yongqiang Tuoxing Limited. (“Yongqiang Tuoxing”) | ||||||
| Hong Kong Beach Limited. (“HK Beach”) | ||||||
| Wenzhou Hongshun Stainless Steel Limited. (“Wenzhou Hongshun”) | China | |||||
| Huadi Steel Group Limited. (“Huadi Steel”) | China | |||||
| Huadi (Songyang) Co., Ltd. (“Huadi Songyang”) | Songyang, China |
Huadi International Group Co., Ltd. (“Huadi International”)
Huadi International was incorporated on
Yongqiang Tuoxing Limited (“Yongqiang Tuoxing”)
Yongqiang Tuoxing was incorporated on October
2, 2018 under the laws of British Virgin Islands. Under its memorandum of association, Yongqiang Tuoxing is authorized to issue
Hong Kong Beach Limited (“HK Beach”)
HK Beach was incorporated on November 7, 2018 under the laws of Hong Kong and is a wholly owned subsidiary of Yongqiang Tuoxing. HK Beach did not have any operations as of March 31, 2024.
Wenzhou Hongshun Stainless Steel Ltd. (“Wenzhou Hongshun”)
Wenzhou Hongshun was incorporated on June 3, 2019 in China and is a wholly owned subsidiary of HK Beach. Wenzhou Hongshun is a wholly-foreign owned enterprise organized under the laws of the People’s Republic of China. The registered principal activities of Wenzhou Hongshun are sales of stainless steel pipes, stainless steel bars, stainless steel elbows, stainless steel products, auto parts and components; import and export of goods, technology import and export. Wenzhou Hongshun did not have any operations as of March 31, 2024.
Huadi Steel Group Limited. (“Huadi Steel”)
Huadi Steel was incorporated on November 12, 1998 under the laws of the People’s Republic of China. Since August 18, 2015, Huadi Steel was owned by nine shareholders in People’s Republic of China (“PRC Shareholders”). Huadi Steel focuses on manufacturing of industrial stainless steel seamless pipes and tubes products with extensive distribution facilities and network in China.
Huadi (Songyang) Co., Ltd. (“Huadi Songyang”)
Huadi Songyang was incorporated on June 15, 2023 in China and is a wholly owned subsidiary of HK Beach. Huadi Songyang is a wholly-foreign owned enterprise organized under the laws of the People’s Republic of China. Huadi Songyang is established for the purpose of expanding product line of industrial steel pipe and tube products manufacture and distribution.
Except where the context otherwise requires and for purposes of these financial statements only, “the Company”, “we”, “us”, “our company”, “our” and “Huadi” refer to the above-mentioned entities.
F-6
Reorganization
In or about August 2019, the Company completed
a corporate reorganization to roll several controlled entities (now referred to as the subsidiaries) into one legal corporation (the Company).
Di Wang, one of the PRC Shareholders transferred
During the years presented in these consolidated financial statements, control of these entities did not change as the Company was always under the control of PRC Shareholders. Accordingly, the combination has been treated as a corporate restructuring (reorganization) of entities under common control and thus the current capital structure has been retroactively presented in prior periods as if such structure existed at that time and in accordance with ASC 805-50-45-5, the entities under common control are presented on a combined basis for all periods to which such entities were under common control. The consolidation of the Company and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles in the United Stated of America (“US GAAP”) and have been consistently applied. The accompanying consolidated financial statements include the financial statements of the Company and its majority-owned and controlled subsidiaries. All significant inter-company transactions and balances have been eliminated upon consolidation.
Non-controlling interests
For the Company’s consolidated subsidiaries, non-controlling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. Non-controlling interests are classified as a separate line item in the equity section of the Company’s consolidated balance sheets and have been separately disclosed in the Company’s consolidated statements of income and comprehensive income to distinguish the interests from that of the Company.
Use of Estimates
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Such estimates include, but are not limited to, allowances for credit losses, inventory valuation, useful lives of property, plant and equipment, intangible assets, impairment in equity investment, and income taxes related to realization of deferred tax assets and uncertain tax position. Actual results could differ from those estimates.
Foreign Currency Translation
The Company’s reporting currency is United States Dollars (“US$”). The financial records of the Company’s subsidiaries in People’s Republic of China (“PRC”) are maintained in their local currencies which are Chinese Yuan (“CNY” or “RMB”).
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance sheet date. Transaction gains and losses are recorded in operating expense in the Consolidated Statements of Income and Comprehensive Income (Loss).
The financial statements of the Company’s subsidiaries in PRC are translated from RMB into US$. Assets and liabilities are translated into US$ using the applicable exchange rates at the balance sheet date. Equity accounts other than net income generated in the current period are translated into US$ using the appropriate historical rates. Revenues, expenses, gains and losses are translated into US$ using the average exchange rates for the relevant period. The resulted foreign currency translation adjustments are recorded as a component of other comprehensive (loss) / income in the Consolidated Statements of Income and Comprehensive Income (Loss), and the accumulated foreign currency translation adjustments are recorded as a component of accumulated other comprehensive (loss) / income in the Consolidated Balance Sheets.
F-7
| March 31, 2024 | September 30, 2023 | March 31, 2023 | ||||||||||
| Period Ended RMB: USD exchange rate | ||||||||||||
| Period Average RMB: USD exchange rate | ||||||||||||
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash and deposits with financial institutions which are unrestricted as to withdrawal and use. Cash equivalents consist of highly liquid investments that are readily convertible to cash generally with original maturities of three months or less when purchased.
Restricted Cash
The Company has bank acceptance notes outstanding with the bank and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. Those notes are generally short term in nature due to their short maturity period of six to nine months; thus, restricted cash is classified as a current asset. Restricted cash is included in the beginning or ending balance of cash and cash equivalents and restricted cash in the consolidated statements of cash flows.
As of March 31, 2024 and September 30, 2023, restricted
cash was $
Accounts Receivable, Net
Accounts receivables are recognized and carried at the originally invoiced amount, less an estimated allowance for credit losses. The Company consider historical collection experience, aging and customers’ industry to pool accounts receivable with similar risk characteristics, for those do not share risk characteristics, the Company evaluate them on an individual basis. The Company adopt loss rate method. Accounts receivable balances are written off after all collection efforts have been exhausted. Please refer to Note 2 - Allowance for credit losses for adoption of expected credit losses model.
Notes Receivable, Net
Notes receivable represent bank acceptance notes and commercial acceptance notes the Company receives from its customers in exchange for goods or services that it has transferred to customers. The notes generally range from three to six months from the date of issuance. Notes receivables are recognized and carried at the face value less an estimated allowance for credit losses. Please refer to Note 2 - Allowance for credit losses for adoption of expected credit losses model.
As part of the regular business and in case of immediate cash needs, the Company sells its notes receivable at a discount with or without recourse. Notes receivables are considered sold and derecognized from balance sheet when they are transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the note receivables, and the Company has surrendered control over the transferred note receivables. If the Company does not surrender control, typically for those arrangements with recourse, the cash received from the purchaser is accounted for as a secured borrowing. In the case of arrangements with recourse, notes receivables are not derecognized.
Inventories, net
Inventories are stated at the lower of cost or net realizable value. Cost is principally determined using the weighted-average method. The Company records adjustments to inventory for excess quantities, obsolescence or impairment when appropriate to reflect inventory at net realizable value. These adjustments are based upon a combination of factors including current sales volume, market conditions, lower of cost or market analysis and expected realizable value of the inventory.
There were write-downs recognized of inventories for the six months ended March 31, 2024 and 2023.
F-8
Advances to Suppliers, net
Advances to suppliers refer to advances for purchase of materials or other service agreements, which are applied against accounts payable when the materials or services are received.
The Company reviews a supplier’s credit history and background information before advancing a payment. If the financial condition of its suppliers were to deteriorate, resulting in an impairment of their ability to deliver goods or provide services, the Company would write off such amount in the period when it is considered as impaired.
The allowance for advance to suppliers recognized
as of March 31, 2024 and September 30, 2023 was $
Property, Plant, and Equipment, net
| Useful lives | ||
| Buildings | ||
| Machinery and equipment | ||
| Transportation vehicles | ||
| Office equipment |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses.
Land Use Rights, net
Under the PRC law, all land in the PRC is owned
by the government and cannot be sold to an individual or company. The government grants individuals and companies the right to use parcels
of land for specified periods of time. These land use rights are sometimes referred to informally as “ownership.” Land use
rights are stated at cost less accumulated amortization.
| Useful lives | ||
| Land use rights |
Long-term Investments
Effective October 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and related ASU 2018-03 concerning recognition and measurement of financial assets and financial liabilities. In adopting this new guidance, the Company has made an accounting policy election to adopt the cost-minus-impairment measurement alternative for investments in equity securities without readily determinable fair values.
For equity investments that are accounted for using the cost-minus-impairment measurement alternative, the Company initially records equity investments at cost but is required to adjust the carrying value of such equity investments through earnings when there is an observable transaction involving the same or a similar investment with the same issuer or upon an impairment.
Advances from Customers
Advances from customers refer to advances received from customers regarding product sales, which are applied against accounts receivable when products are sold.
F-9
Allowance for credit losses
Allowance for credit losses represents management’s best estimate of probable losses inherent in the portfolio. Effective October 1, 2023, the Company adopted ASC 326, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” using the modified retrospective approach. This guidance replaced the “incurred loss” impairment methodology with an approach based on “expected losses” to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance requires financial assets to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset.
Under ASU 2016-13, the Company has exposure to credit losses for financial assets including accounts receivable, notes receivable, other receivable and other noncurrent assets. The Company considered various factors, including nature, historical collection experience, the age of the accounts receivable balances, credit quality and specific risk characteristics of its customers, current economic conditions, forecasts of future economic conditions, reversion period, and qualitative and quantitative adjustments to develop an estimate of credit losses. The Company has adopted loss rate method which is a combination of historical rate method and adjustment rate method, to estimate the credit loss.
Financial assets are presented net of the allowance
for credit losses in the Consolidated Balance Sheets. The measurement of the allowance for credit losses is recognized through current
expected credit loss expense. Current expected credit loss expense is included as a component of selling, general and administrative expenses
in the consolidated statements of income and comprehensive income. Write-offs are recorded in the period in which the asset is deemed
to be uncollectible. As of March 31, 2024, the allowance for credit losses of accounts receivable, notes receivable, other receivable
and other noncurrent assets was $
Impairment of Long-lived Assets
The Company’s management reviews the carrying values of long-lived assets whenever events and circumstances, such as a significant decline in the asset’s market value, obsolescence or physical damage affecting the asset, significant adverse changes in the assets use, deterioration in the expected level of the assets performance, cash flows for maintaining the asset are higher than forecast, indicate that the net book value of an asset may not be recovered through expected future cash flows from its use and eventual disposition. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.
There was impairment charge recognized for long-lived assets for the six months ended March 31, 2024 and 2023.
Fair Value Measurement
Fair Value Measurements and Disclosures requires disclosure of the fair value of financial instruments held by the Company. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
F-10
For the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, notes receivable, other receivables, accounts payable, other current liabilities, notes payable and bank loans, the carrying amounts approximate their fair values due to their short maturities as of March 31, 2024 and September 30, 2023.
The Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured at fair value on a recurring nor non-recurring basis as of March 31, 2024 and September 30, 2023.
Value-added Tax (“VAT”)
Sales revenue represents the invoiced value of
goods, net of VAT. All of the Company’s products are sold in the PRC and are subject to a VAT on the gross sales price. The Company
is subject to a VAT rate of
Revenue Recognition
The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on October 1, 2018 using the modified retrospective approach. There is no adjustment to the opening balance of retained earnings at October 1, 2018, since there was no change to the timing and pattern of revenue recognition upon adoption of ASC 606. Under ASC 606, revenue is recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which an entity expects to be entitled to in exchange for those goods or services and is recorded net of value-added tax (“VAT”). To achieve that core principle, the Company applies the following steps:
Step 1: Identify the contract (s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The Company derives its revenues from two sources: (1) revenue from sales of steel piping products, (2) revenue from production service.
| (1) | Revenue from sales of steel piping products |
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. As part of its consideration of the contract, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations. In the principal versus agent consideration, since no another party is involved in transactions, the Company is a principal.
In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component.
The Company does not routinely permit customers to return products, while in certain conditions product changes are allowed. The customer does not have the option to purchase the warranty separately. Also, the warranty does not provide a service to the customer beyond fixing defects that existed at the time of sale. Thus, the warranty is assurance-type, and historically customer returns have been immaterial.
F-11
Sales revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied at a point in time). The Company sells its products either under free onboard (“FOB”) shipping point term or under FOB destination term. For sales under FOB shipping point term, the Company recognize revenues when products are loaded on the ships. Product delivery is evidenced by warehouse shipping logs as well as assigned shipping bills from the shipping companies. For sales under FOB destination term, the Company recognize revenues when the products are delivered and accepted by customers. Product delivery is evidenced by signed receipt documents and title transfers upon delivery. Prices are determined based on negotiations with the Company’s customers and are not subject to adjustment. As a result, the Company expects returns to be minimal.
| (2) | Revenue from production service |
The Company identifies the product processing agreement as contract. For each contract, the Company considers the promise to provide production service, each of which are distinct, to be the identified performance obligations. In the principal versus agent consideration, since no another party is involved in transactions, the Company is a principal. The transaction price is clearly stated on the contract and not subject to adjustment. Production service revenue is recognized when production order is completed and transferred to customers.
Contract costs
Contract costs include contract acquisition costs and contract fulfillment costs which are all recorded within prepayments, deposits, and other assets in the consolidated balance sheets.
Contract acquisition costs consist of incremental costs incurred by the Company to originate contracts with customers. Contract acquisition costs, which generally include costs that are only incurred as a result of obtaining a contract, are capitalized when the incremental costs are expected to be recovered over the contract period. All other costs incurred regardless of obtaining a contract are expensed as incurred. Contract acquisition costs are amortized over the period the costs are expected to contribute directly or indirectly to future cash flows, which is generally over the contract term, on a basis consistent with the transfer of goods or services to the customer to which the costs relate. Contract fulfillments costs consist of costs incurred by the Company to fulfill a contract with a customer and are capitalized when the costs generate or enhance resources that will be used in satisfying future performance obligations of the contract and the costs are expected to be recovered. Capitalized contract fulfillment costs generally include contracted services, direct labor, materials, and allocable overhead directly related to resources required to fulfill the contract. Contract fulfillment costs are recognized in cost of revenue during the period that the related costs are expected to contribute directly or indirectly to future cash flows, which is generally over the contract term, on a basis consistent with the transfer of goods or services to the customer to which the costs are related. There were no contract fulfillment cost and contract acquisition costs as of March 31, 2024 and 2023.
Contract balance
The
Company does not have amounts of contract assets since revenue is recognized at a point in time. Contract liabilities are presented
as advance from customers on the consolidated balance sheet. Contract liabilities are recognized when the Company receives
prepayment from customers resulting from purchase order or product processing agreement. Contract liabilities will be recognized as
revenue when the products are delivered. As of March 31, 2024 and September 30, 2023 the balance of advance from customers amounted
to $
F-12
Government Grants
Government grants are recognized when received and all the conditions for their receipt have been met.
Government grants for compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related cost are recognized in profit or loss in the period in which they become receivable.
For the six months ended March 31, 2024 and 2023,
the Company received government grants for expenses of $
Research and Development Costs
Research and development activities are directed toward the development of new products as well as improvements in existing processes. These costs, which primarily include salaries, contract services and supplies, are expensed as incurred.
Shipping and Handling Costs
Shipping and handling costs are expensed when
incurred and are included in selling, general and administrative expense. Shipping and handling costs were $
Advertising Costs
Advertising costs are expensed as incurred and
are included in selling, general and administrative expense. Advertising costs were $
Income Taxes
The Company accounts for income taxes using the asset and liability method whereby it calculates deferred tax assets or liabilities for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits by applying enacted tax rates applicable to the years in which those temporary differences are expected to be reversed or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. The components of the deferred tax assets and liabilities are individually classified as non-current amounts.
The Company records uncertain tax positions in
accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that
the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the
more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than
To the extent applicable, the Company records interest and penalties as other expense. All of the tax returns of the Company’s PRC subsidiaries remain subject to examination by PRC tax authorities for five years from the date of filing. The fiscal years for tax purpose in PRC is December 31.
F-13
The Company and its subsidiaries are not subject to U.S. tax laws and local state tax laws. The Company’s income and that of its related entities must be computed in accordance with Chinese and foreign tax laws, as applicable, and all of which may be changed in a manner that could adversely affect the amount of distributions to shareholders. There can be no assurance that Income Tax Laws of PRC will not be changed in a manner that adversely affects shareholders. In particular, any such change could increase the amount of tax payable by the Company, reducing the amount available to pay dividends to the holders of the Company’s ordinary shares.
Earnings Per Share
Earnings (loss) per share is calculated in accordance with ASC 260 Earnings per Share. Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is computed in accordance with the treasury stock method and based on the weighted average number of ordinary shares and dilutive common share equivalents. Dilutive common share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive. There were no dilutive common share equivalents outstanding for the six months ended March 31, 2024 and 2023.
Certain Risks and Concentration
Exchange Rate Risks
The Company operates in PRC, which may give rise to significant foreign currency risks mainly from fluctuations and the degree of volatility of foreign exchange rates between the USD and the RMB.
Currency Convertibility Risks
Substantially all of the Company’s operating activities are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with other information such as suppliers’ invoices, shipping documents and signed contracts.
Concentration of Credit Risks
Financial
instruments that potentially subject the Company to concentration of credit risks consist primarily of cash and cash equivalents, restricted
cash, notes receivable. As of March 31, 2024 and September 30, 2023, none of the Company’s bank accounts are insured by the Federal
Deposit Insurance Corporation (“FDIC”) insurance. To limit the exposure to credit risk relating to deposits, the Company
primarily places deposits with large financial institutions in China which management believes are of high credit quality and the Company
also continually monitors their credit worthiness. Cash balances in bank accounts in PRC are protected under Deposit Protection Scheme
in accordance with the Deposit Protection Scheme Ordinance. The maximum protection is up to RMB
F-14
Interest Rate Risks
The Company is subject to interest rate risk. The Company has bank interest bearing loans charged at variable interest rates. Some bank interest bearing loans are charged at fixed interest rates within the reporting period, the Company is subject to the risk of adverse changes in the interest rates charged by the banks when these loans are refinanced.
Risks and Uncertainties
The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
Liquidity Risks
Our primary sources of liquidity consist of existing cash balances, cash flows from our operating activities and availability under our revolving credit facility. Our ability to generate sufficient cash flows from our operating activities is primarily dependent on our sales of steel pipe, tube and ancillary products to our customers at margins sufficient to cover fixed and variable expenses.
As of March 31, 2024 and September 30, 2023, we
had cash and cash equivalents of $
Recent Accounting Pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of accounting standards until they would apply to private companies.
F-15
New Accounting Pronouncements Recently Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application is permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. As an emerging growth company, the provisions of ASC 326 shall be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted the new standard beginning October 1, 2023 using the modified retrospective transaction method. The impact of adopting the new standard was not material to the consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280)”. The amendment in this ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments also require a public entity to disclose the title and position of the chief operating decision maker (“CODM”) and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. For a public entity with a single reportable segment, the ASU requires the entity to provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company will adopt this ASU on October 1, 2024. The Company does not expect the adoption to have a material impact on the Company’s consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The ASU requires that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). The ASU is effective for public business entities for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. The Company will adopt this ASU on October 1, 2026. The Company does not expect the adoption to have a material impact on the Company’s consolidated financial statements and related disclosures.
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.
F-16
NOTE 3 – ACCOUNTS RECEIVABLE, NET
| March 31, 2024 | September 30, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
The Company’s customers are primarily governmental
entities, state-owned entities and construction companies. Due to the nature of these customers and the practice of the industry, the
Company generally allows credit period of
| March 31, 2024 | September 30, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Addition (reduction) of credit losses allowance | ( | ) | ||||||
| Write-off | ||||||||
| Exchange difference | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
For the six months ended March 31, 2024, the
Company recorded a reversal of credit loss expense of $
NOTE 4 – NOTES RECEIVABLE, NET
| March 31, 2024 | September 30, 2023 | |||||||
| Notes receivable | $ | $ | ||||||
| Less: allowance for credit losses | ( | ) | ||||||
| Notes receivable, net | $ | $ | ||||||
Notes receivable mainly represents bank acceptance notes and commercial acceptance notes received from the Company’s customers. These notes with 3-6 months maturity dates were issued by customers to pay their payable balances to the Company.
F-17
| March 31, 2024 | ||||
| Beginning balance | $ | |||
| Addition (reduction) of credit losses allowance | ||||
| Write-off | ||||
| Exchange difference | ( | ) | ||
| Ending balance | $ | |||
Factored notes receivables with recourse amounted
$
NOTE 5 – INVENTORIES, NET
| March 31, 2024 | September 30, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | |||||||
| Less: inventory valuation allowance | ||||||||
| Inventories, net | $ | $ | ||||||
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET
| March 31, 2024 | September 30, 2023 | |||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Transportation vehicles | ||||||||
| Office equipment | ||||||||
| Total property, plant, and equipment, at cost | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant, and equipment, net | $ | $ | ||||||
Depreciation expense was $
As of March 31, 2024 and September 30, 2023, the Company pledged buildings to secure banking facilities granted to the Company. The carrying values of the pledged buildings to secure bank borrowings by the Company are shown in Note 11.
F-18
NOTE 7 – LAND USE RIGHTS, NET
| March 31, 2024 | September 30, 2023 | |||||||
| Land use rights, cost | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Land use rights, net | $ | $ | ||||||
Amortization expense was $
NOTE 8 – LONG-TERM INVESTMENTS
| March 31, 2024 | September 30, 2023 | |||||||
| Huashang Micro Finance Co. | $ | $ | ||||||
| Longwan Rural Commercial Bank | ||||||||
| Wenzhou Longlian Development Co., Ltd | ||||||||
| Total long-term investments, at cost | $ | $ | ||||||
| Add: upward adjustments | ||||||||
| Less: impairment and downward adjustments | ||||||||
| Long-term investments | $ | $ | ||||||
In 2009, the Company made an investment of RMB
In 2011, the Company made an investment of RMB
In 2012, the Company made an investment of RMB
The ownership percentage of the above long-term investments has not changed during the six months ended March 31, 2024. During the six months ended March 31, 2024 and 2023, no impairment of long-term investment was recognized.
F-19
NOTE 9 – NOTES PAYABLE
Notes payable consisted of bank notes payable
of $
NOTE 10 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| March 31, 2024 | September 30, 2023 | |||||||
| Accrued payroll and other welfare | ||||||||
| Other accrued expenses | ||||||||
| Total | ||||||||
NOTE 11 – SHORT-TERM AND LONG-TERM BORROWINGS
| March 31, 2024 | September 30, 2023 | |||||||
| Short-term borrowings | $ | $ | ||||||
| Long-term borrowings | ||||||||
| Current portion | $ | $ | ||||||
| Non-current portion | ||||||||
| Total long-term borrowings | $ | $ | ||||||
Short-term borrowings
Short-term borrowings outstanding at March 31, 2024 and September 30, 2023 were undue factored notes receivable with recourse as shown in Note 4. These notes receivable will be expired in no more than six months from March 31, 2024.
Long-term borrowings
| Bank Name | Amount - RMB | Amount - USD | Issuance Date | Expiration Date | Interest | |||||||||||
| Agricultural Bank | $ | % | ||||||||||||||
| Agricultural Bank | % | |||||||||||||||
| Total | RMB | $ | ||||||||||||||
| Bank Name | Amount - RMB | Amount - USD | Issuance Date | Expiration Date | Interest | |||||||||||
| Agricultural Bank | $ | % | ||||||||||||||
| Agricultural Bank | % | |||||||||||||||
| Agricultural Bank | % | |||||||||||||||
| Agricultural Bank | % | |||||||||||||||
| Total | RMB | $ | ||||||||||||||
F-20
| RMB | USD | |||||||
| Years ending March 31, | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 and thereafter | ||||||||
| Total | ||||||||
Pledges and Guarantees
| March 31, 2024 | September 30, 2023 | |||||||
| Buildings, net | $ | $ | ||||||
| Land use right, net | ||||||||
| Total | $ | $ | ||||||
Interest expense
For the six months ended March 31, 2024 and 2023,
interest expense on all short-term borrowings, long-term borrowings and discounts on notes receivable amounted to $
NOTE 12 – CUSTOMER AND SUPPLIER CONCENTRATIONS
Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases.
Customer concentration
The Company had no significant customer during
the six months ended March 31, 2024. There was one customer accounted for a significant portion of total accounts receivable for the six
months ended March 31, 2024, which accounted for
The Company sold a substantial portion of products
to one customer (
The loss of our significant customers or the failure to attract new customers could have a material adverse effect on our business, consolidated results of operations and financial condition.
F-21
Supplier concentration
For the six months ended March 31, 2024, three suppliers
accounted for
For the six months ended March 31, 2023, two suppliers
accounted for
The Company believes there are numerous other suppliers that could be substituted should these suppliers become unavailable or non-competitive.
NOTE 13 – RELATED PARTY TRANSACTIONS
1)
| Name | Relationship with the Company | |
| Taizhou Huadi Industrial Ltd. (“Taizhou Huadi”) | ||
| Huashang Micro Finance Co. (“Huashang”) | ||
| Taizhou Huadi Material Technology Co. (Huadi Material) | ||
| Wenzhou Maituo International Trade Ltd. (“Wenzhou Maituo”) | ||
| Jueqin Wang | ||
| Di Wang | ||
| Jueguang Wang | ||
| Meiling Wang | ||
| Bing Zhang |
2) Related party transactions
Six Months Ended March 31, 2024
During the six months ended March 31, 2024, the
Company purchased a total of $
During the six months ended March 31, 2024, the
Company purchased a total of $
During the six months ended March 31, 2024, the
Company leased an office to Huashang with annual rent amounted $
Six Months Ended March 31, 2023
During the six months ended March 31, 2023, the
Company purchased $
3) Related party balances
| Accounts | Name of related parties | March 31, 2024 | September 30, 2023 | |||||||
| Advances to suppliers | Taizhou Huadi Material Technology Co. | $ | $ | |||||||
| Accounts payable | Taizhou Huadi Industrial Ltd. | |||||||||
| Advances from customers | Taizhou Huadi Material Technology Co. | |||||||||
| Advances from customers | Wenzhou Maituo International Trade Ltd. | |||||||||
| Advances from customers | Huashang Micro Finance Co. | |||||||||
| Due to related parties – noncurrent portion | Jueqin Wang | ( | ) | ( | ) | |||||
F-22
NOTE 14 – SHAREHOLDERS’ EQUITY
Ordinary shares
Shares Issuances
On November 7, 2022, the Company entered into
a securities purchase agreement with two institutional investors pursuant to which the Company agreed to sell up to
Non-controlling interests
Non-controlling interests represent the interest
of non-controlling shareholder in Huadi Steel based on his proportionate interests in the equity of that company adjusted for its proportionate
share of income or losses from operations. In August 2019, Wenzhou Hongshun acquired
Restricted net assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiary. Relevant PRC statutory laws and regulations permit payments of dividends by WFOEs and Huadi Steel (collectively, the “Huadi PRC Subsidiaries”) only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Huadi PRC Subsidiaries.
Huadi PRC Subsidiaries are required to set aside
at least
As a result of the foregoing restrictions, Huadi
PRC Subsidiaries are restricted in their ability to transfer their assets to the Company. Foreign exchange and other regulations in the
PRC may further restrict Huadi PRC Subsidiaries from transferring funds to the Company in the form of dividends, loans and advances.
| March 31, 2024 | September 30, 2023 | |||||||
| Statutory reserves | $ | $ | ||||||
| Paid-in-capital | ||||||||
| Total restricted net assets | $ | $ | ||||||
F-23
NOTE 15 – INCOME TAXES
Enterprise Income Taxes (“EIT”)
Cayman Islands
Huadi International is incorporated in Cayman Island as an offshore holding company. Under the current laws of the Cayman Islands, Huadi International is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands
Yongqiang Tuoxing is incorporated in British Virgin Islands as an offshore holding company. Under the current laws of the British Virgin Islands, Yongqiang Tuoxing is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no British Virgin Islands withholding tax will be imposed.
Hong Kong
HK Beach is established in Hong Kong. Under the
current Hong Kong Inland Revenue Ordinance, companies are subject to
PRC
Wenzhou Hongshun is established in PRC and is subject to statutory
income tax rate at
Huadi Steel, the Company’s main operating
subsidiary in PRC, was entitled High and New Technology Enterprise (“HNTE”) and enjoyed preferential tax rate of
Huadi Songyang is established in PRC and is subject
to statutory income tax rate at
| 2024 | 2023 | |||||||
| Current income tax | $ | $ | ||||||
| Deferred income tax | ( | ) | ||||||
| Total income tax expense (benefits) | $ | $ | ||||||
| 2024 | 2023 | |||||||
| Income before taxes | $ | $ | ||||||
| PRC EIT tax rates | % | % | ||||||
| Tax at the PRC EIT tax rates | $ | |||||||
| Rate differences in various jurisdictions | ||||||||
| Tax effect of R&D expenses deduction | ( | ) | ( | ) | ||||
| Tax effect of non-taxable investment income and government grant | ||||||||
| Tax effect of non-deductible expenses | ||||||||
| Income tax expenses (benefits) | $ | $ | ||||||
F-24
Deferred tax assets
| March 31, 2024 | September 30, 2023 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for credit losses | $ | $ | ||||||
| Loss carryforward | ||||||||
| DTA allowance | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Uncertain tax positions
The Company evaluates each uncertain tax position
(including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated
with the tax positions. An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the
tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest
amount of tax benefit that is greater than
| March 31, 2024 | September 30, 2023 | |||||||
| Income tax payable | $ | $ | ||||||
| VAT and tax payable (receivable) | ( | ) | ||||||
| Total tax payable | $ | $ | ||||||
NOTE 16 – COMMITMENT AND CONTINGENCIES
As of March 31, 2024 and September 30, 2023, the Company has no material purchase commitments or significant leases.
From time to time, the Company is involved in various legal proceedings, claims and other disputes arising from commercial operations, employees, and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the Company can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity. As of March 31, 2024 and September 30, 2023, the Company had no pending legal proceedings outstanding.
NOTE 17 – SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes
standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure
as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s
business segments. The Company uses the “management approach” in determining reportable operating segments. The management
approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating
decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief
operating decision maker, reviews operation results by the revenue of different products. Based on management’s assessment, the
Company has determined that it has only
Revenue disaggregation
| For the Six Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | ||||||||
| Sales | $ | $ | ||||||
| Production service revenue | ||||||||
| Total revenue | $ | $ | ||||||
F-25
Geographical areas
| March 31, 2024 | ||||||||
| Sales Amount (In USD) | As % of Sales | |||||||
| Top 5 geographic areas: | ||||||||
| China | $ | % | ||||||
| USA | % | |||||||
| Cayman | % | |||||||
| India | % | |||||||
| The United Arab Emirates | % | |||||||
| Other foreign countries | % | |||||||
| March 31, 2023 | ||||||||
| Sales Amount (In USD) | As % of Sales | |||||||
| Top 5 geographic areas: | ||||||||
| China | $ | % | ||||||
| US | % | |||||||
| India | % | |||||||
| United Arab Emirates | % | |||||||
| Australia | % | |||||||
| Other foreign countries | % | |||||||
Due to the nature of the Company’s products, it is impractical to disclose revenues generated from each product or each group of similar products. Also, as the Company’s long-lived assets are primarily located in the PRC, no geographical segments are presented.
NOTE 18 – OTHER INCOME (EXPENSE), NET
| For the Six Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Government grants | $ | $ | ||||||
| Rental income | ||||||||
| Other net miscellaneous income (expenses) | ( | ) | ||||||
| Total | $ | $ | ||||||
NOTE 19 – SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the unaudited financial statements are issued. The Company has evaluated all events or transactions that occurred after March 31, 2024, up through August 6, 2024, the Company issued the unaudited consolidated financial statements and concluded that no other material subsequent events except for the disclosed below:
Bank borrowings
Borrowings repayment and renewal
From March 31, 2024 to the date the unaudited
consolidated financial statements were available to be issued, the Company repaid part of its long-term borrowings of $
F-26