INNO HOLDINGS(INHD) - 2025 Q1 - Quarterly Report

Company Information This section provides essential details about INNO HOLDINGS INC., including its registration, stock listing, and classification Registrant Details INNO HOLDINGS INC. is a Texas corporation listed on Nasdaq (INHD), classified as a non-accelerated filer, smaller reporting company, and emerging growth company, with 4,410,482 common shares outstanding as of February 14, 2025 - INNO HOLDINGS INC.'s common stock is listed on the Nasdaq Stock Market under the ticker symbol INHD[2] - The company is classified as a non-accelerated filer, a smaller reporting company, and an emerging growth company[3] Common Stock Issued and Outstanding | Metric | Quantity | | :--- | :--- | | Common Stock Issued and Outstanding as of February 14, 2025 | 4,410,482 shares | PART I FINANCIAL INFORMATION This section presents INNO HOLDINGS INC.'s unaudited condensed consolidated financial statements and related notes for the periods ended December 31, 2024, and 2023 ITEM 1: Financial Statements This section contains INNO HOLDINGS INC.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, cash flows, and related notes Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets as of December 31, 2024, and September 30, 2024 Condensed Consolidated Balance Sheet Key Data | Metric | December 31, 2024 (Unaudited) ($) | September 30, 2024 ($) | | :--- | :--- | :--- | | Cash and Cash Equivalents | $4,804,138 | $1,526,661 | | Inventories | $2,226,074 | $333,074 | | Equity Investments | $1,400,000 | $- | | Total Assets | $10,699,743 | $4,169,337 | | Total Liabilities | $1,257,616 | $1,371,801 | | Total Stockholders' Equity | $9,442,127 | $2,797,536 | | Common Stock Issued | 4,209,127 | 2,279,960 | - The company completed a 1-for-10 reverse stock split on October 9, 2024, with all share numbers and per-share information retroactively adjusted[12] Condensed Consolidated Statements of Operations This section presents the company's condensed consolidated statements of operations for the three months ended December 31, 2024, and 2023 Condensed Consolidated Statements of Operations Key Data (Three Months Ended December 31) | Metric | 2024 ($) | 2023 ($) | Change Rate (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $198,000 | $166,617 | 19% | | Cost of Sales | $180,000 | $169,617 | 6% | | Gross Profit/(Loss) | $18,000 | $(3,000) | - | | Selling, General and Administrative Expenses | $578,578 | $785,536 | -26% | | Operating Loss | $(584,301) | $(809,596) | -28% | | Net Loss | $(605,409) | $(817,264) | -26% | | Net Loss Attributable to INNO HOLDINGS INC. | $(603,697) | $(801,518) | -25% | | Basic and Diluted Loss Per Share | $(0.22) | $(0.43) | - | | Weighted Average Common Shares Outstanding | 2,782,406 | 1,860,499 | - | - The company completed a 1-for-10 reverse stock split on October 9, 2024, with per-share loss calculations retroactively adjusted[16] Condensed Consolidated Statements of Changes in Stockholders' Equity This section presents the company's condensed consolidated statements of changes in stockholders' equity for the three months ended December 31, 2024, and 2023 Condensed Consolidated Statements of Changes in Stockholders' Equity Key Data (Three Months Ended December 31) | Metric | December 31, 2024 ($) | December 31, 2023 ($) | | :--- | :--- | :--- | | Share Capital (Shares) | 4,209,127 | 2,075,173 | | Additional Paid-in Capital | $17,998,534 | $10,689,534 | | Accumulated Deficit | $(8,342,341) | $(5,326,333) | | Total Stockholders' Equity | $9,442,127 | $5,098,684 | - As of December 31, 2024, total stockholders' equity significantly increased to $9,442,127, primarily due to additional paid-in capital from new share issuances[19] - The company completed a 1-for-10 reverse stock split on October 9, 2024, with all share numbers retroactively adjusted[19] Condensed Consolidated Statements of Cash Flows This section presents the company's condensed consolidated statements of cash flows for the three months ended December 31, 2024, and 2023 Condensed Consolidated Statements of Cash Flows Key Data (Three Months Ended December 31) | Cash Flow Activity | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $(2,531,650) | $(195,197) | | Net Cash from Investing Activities | $(1,428,154) | $(52,883) | | Net Cash from Financing Activities | $7,237,281 | $7,920,452 | | Change in Cash and Cash Equivalents | $3,277,477 | $7,672,372 | | Cash and Cash Equivalents, End of Period | $4,804,138 | $7,677,270 | - Operating cash outflow significantly increased in 2024, primarily due to increases in inventory and prepayments[23] - Investment cash outflow substantially increased in 2024, mainly due to an equity investment in Core Modu LLC[23] - Financing cash inflow in 2024 primarily stemmed from multiple private placements, while 2023's inflow was mainly from an initial public offering[23] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining accounting policies, estimates, and specific financial items Note 1 — Nature of business and organization This note describes the company's primary business activities, including construction products and services, and recent expansions into electronic product trading and AI technology - The company primarily engages in the marketing and sale of construction products and provides comprehensive construction services in the United States[25] - The company entered a new electronic product trading business through the acquisitions of Lear Group Limited and Baymax High Technology Co., Limited[30][31] - The company established Inno AI Tech Corp. to conduct AI technology research and consulting activities[29] Note 2 — Basis of Presentation and Summary of significant accounting policies This note details the basis of financial statement presentation, adherence to U.S. GAAP, and a summary of significant accounting policies, including revenue recognition and goodwill impairment - Financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) and SEC rules[33] - As of December 31, 2024, the company has an accumulated deficit and operating cash outflows, raising substantial doubt about its ability to continue as a going concern, requiring reliance on additional financing[37][38] - Revenue recognition: product sales are recognized upon delivery, services upon completion, and electronic product trading revenue when customers obtain control of the products[51][54] - The company recorded a goodwill impairment loss of $3,514 stemming from the acquisitions of Baymax and Lear[82] Note 3 — Inventories This note provides a breakdown of inventory components and explains the significant increase in merchandise inventory Inventory Composition | Inventory Category | December 31, 2024 ($) | September 30, 2024 ($) | | :--- | :--- | :--- | | Raw Materials | $73,109 | $73,109 | | Work-in-Process Inventory | $259,965 | $259,965 | | Merchandise Inventory | $1,893,000 | $- | | Total | $2,226,074 | $333,074 | - Merchandise inventory increased from zero on September 30, 2024, to $1,893,000 on December 31, 2024, leading to a significant increase in total inventory[77] Note 4 — Prepayments and other current assets This note details the composition of prepayments and other current assets, highlighting the increase in prepaid consulting service fees Prepayments and Other Current Assets Composition | Category | December 31, 2024 ($) | September 30, 2024 ($) | | :--- | :--- | :--- | | Prepaid Marketing and Promotion Services | $29,500 | $73,750 | | Prepaid Consulting Services | $221,529 | $- | | Other Prepayments and Current Assets | $46,403 | $10,052 | | Total | $548,479 | $428,873 | - Prepaid consulting service fees increased from zero on September 30, 2024, to $221,529 on December 31, 2024, primarily contributing to the increase in total prepayments[78] Note 5 — Equity Investments This note describes the company's $1.4 million equity investment in Core Modu LLC, acquiring a 15% stake without significant influence - On October 14, 2024, the company invested $1.4 million in Core Modu LLC, acquiring a 15% equity stake without significant influence[79] Note 6 — Property and equipment, net This note provides the composition of property and equipment, net, including machinery, equipment, and assets under construction related to factory expansion Property and Equipment, Net Composition | Category | December 31, 2024 ($) | September 30, 2024 ($) | | :--- | :--- | :--- | | Machinery and Equipment | $346,900 | $346,900 | | Assets Under Construction | $1,007,737 | $980,883 | | Property and Equipment, Net | $1,244,193 | $1,300,583 | - Assets under construction are related to the company's operational and manufacturing capacity expansion project at its Texas facility, expected to be completed by the end of February 2025[80] Note 7 — Goodwill, net This note details the changes in goodwill, including the impairment loss recorded from the Baymax and Lear acquisitions Goodwill Changes | Change | Amount ($) | | :--- | :--- | | Balance as of September 30, 2024 | $- | | Acquisitions | $3,514 | | Impairment Loss | $(3,514) | | Balance as of December 31, 2024 | $- | - As of December 31, 2024, the company recorded a goodwill impairment charge of $3,514, originating from the acquisitions of Baymax and Lear[82] Note 8 — Loans payable This note outlines the status of loans payable, including the repayment of the Origin Bank credit line and the balances of short-term and long-term notes - As of December 31, 2024, the company fully repaid and closed its revolving credit facility with Origin Bank[83] Loans Payable Balances | Loan Type | December 31, 2024 ($) | September 30, 2024 ($) | | :--- | :--- | :--- | | Non-interest Bearing Short-term Loan | $50,000 | $50,000 | | Total Long-term Notes | $98,127 | $110,846 | | Long-term Notes (Current Portion) | $52,515 | $51,898 | | Long-term Notes (Non-current Portion) | $45,612 | $58,948 | Note 9 — Lease This note explains the company's adoption of ASC 842 for lease accounting, recognizing right-of-use assets and lease liabilities, and details operating lease costs and maturities - The company has adopted ASC 842 lease accounting standards, recognizing right-of-use assets and lease liabilities on its balance sheet[87] - The company's operating lease costs for the three months ended December 31, 2024, and 2023, were $47,192 and $51,705, respectively[93] Lease Liability Maturities (As of December 31, 2024) | Period | Operating Lease Liability ($) | | :--- | :--- | | Remaining Three Months Ending September 30, 2025 | $4,333 | | 2026 | $- | | Less: Estimated Interest/Discount to Present Value | $(50) | | Present Value of Lease Liabilities | $4,283 | Note 10 — Related party transactions This note discloses amounts owed to former executives and shareholders, and identifies entities no longer considered related parties after share sales or resignations - As of December 31, 2024, the company owed $1,108 to former CEO De Kui Liu and $10,000 to shareholder Qi Wang[94] - Zfounder Organization Inc. and Wise Hill Inc. are no longer considered related parties after selling most of their shares in October 2024[95] - Baicheng Trading LLC is no longer considered a related party after the company's former chairman resigned in October 2024[98] Note 11 — Equity This note details equity changes, including a reverse stock split, private placements for capital raising, and stock awards to the CEO and CFO - The company completed a 1-for-10 reverse stock split on October 9, 2024, to meet Nasdaq's minimum bid price requirement[101] - In October, November, and December 2024, the company issued a total of 2,000,000 common shares through three private placements, raising approximately $7.25 million in gross proceeds[107][108][109] - On January 16, 2025, the company granted 150,000 common shares to CEO Wei Ding and 51,355 common shares to CFO Mengshu Shao under the Omnibus Incentive Plan[110] Note 12 — Concentration of risk This note highlights concentrations of risk related to cash deposits exceeding FDIC limits, reliance on a few key customers for revenue, and dependence on a few suppliers - As of December 31, 2024, the company had $318,049 in deposits at a U.S. financial institution exceeding the Federal Deposit Insurance Corporation (FDIC) insurance limit[112] - For the three months ended December 31, 2024, two customers accounted for 100% of the company's total revenue[114] - For the three months ended December 31, 2024, two suppliers accounted for 100% of the company's total purchases and 77% of total accounts payable[115] Note 13 — Commitments and contingencies This note describes a pending lawsuit concerning alleged misappropriation of construction project funds exceeding $1.3 million, which the company is actively defending - The company is involved in a lawsuit related to alleged fund transfers, where the plaintiff claims a subcontractor misappropriated over $1.3 million in construction project funds[119] - The company is actively defending against the plaintiff's allegations and seeking dismissal of claims against it due to lack of evidence[119] Note 14 — Subsequent events This note discloses a subsequent event where the company entered into a standby equity purchase agreement to issue and sell up to $15 million in common stock - On January 27, 2024, the company entered into a standby equity purchase agreement, effective January 28, 2025, granting it the right to issue and sell up to $15 million of common stock to investors from time to time[121] ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section discusses INNO HOLDINGS INC.'s financial condition and operating results for the three months ended December 31, 2024, covering business overview, recent developments, KPIs, operating results, liquidity, capital resources, and accounting policies Cautionary Note Regarding Forward-Looking Statements This section warns that the document contains forward-looking statements, and actual results may differ materially due to various factors - This document contains forward-looking statements, and actual results may differ materially from expectations due to various factors, including business operations, R&D, expansion, competition, technological changes, and intellectual property protection[124] Overview This section provides an overview of the company's business as a construction technology firm, its raw material management, and its new electronic product trading business - The company is a construction technology firm primarily manufacturing cold-formed steel components and providing full construction services, processing raw materials into precision steel framing products and prefabricated homes[125] - The company's largest cost of goods is raw materials—coiled steel of various gauges and widths, mitigating steel price fluctuation risks through fixed-price forward contracts and maintaining approximately three months of inventory[126] - Since the quarter ended December 31, 2024, the company introduced a new electronic product trading business, sourcing electronic devices from Asian suppliers and selling to wholesale and retail customers in Southeast Asia, Europe, and other regions[127] Recent Developments This section highlights recent corporate developments, including the expansion into electronic product trading, a reverse stock split, and private placements - The company announced its expansion into a new electronic product trading business on December 13, 2024, and initiated digital transformation of marketing, distribution, and sales starting December 2024[128] - The company implemented a 1-for-10 reverse stock split on October 9, 2024, to meet Nasdaq's minimum bid price requirement[129] - The company completed three private placements in October, November, and December 2024, raising approximately $7.25 million in gross proceeds for working capital and general corporate purposes[130][132][134] Key Performance Indicators ("KPIs") This section outlines the company's key performance indicators related to raw material inventory management, accounts receivable risk mitigation, and production capacity expansion - The company aims to achieve 1-3 months of raw material inventory through long-term relationships with multiple suppliers and quarterly procurement plans to improve capital turnover efficiency[136] - The company plans to establish strategic partnerships with large residential builders and professional firms to mitigate accounts receivable risk, aiming for 100% collection before product shipment[137] - The company is committed to investing in improved production capacity and efficiency to support larger order volumes and achieve its goal of total operating revenue growth[140] Results of Operation This section analyzes the company's operating results for the three months ended December 31, 2024, compared to the prior year, focusing on revenue, costs, and net loss Results of Operation Summary (Three Months Ended December 31) | Metric | 2024 ($) | 2023 ($) | Change Rate (%) | | :--- | :--- | :--- | :--- | | Revenue | $198,000 | $166,617 | 19% | | Cost of Sales | $180,000 | $169,617 | 6% | | Gross Profit/(Loss) | $18,000 | $(3,000) | - | | Selling, General and Administrative Expenses | $578,578 | $785,536 | -26% | | Operating Loss | $(584,301) | $(809,596) | -28% | | Other Income (Expense) | $(21,108) | $(6,868) | 207% | | Net Loss | $(605,409) | $(817,264) | -26% | - Revenue increased by 19% in 2024, primarily driven by the newly launched electronic product trading business[143] - Selling, general, and administrative expenses decreased by 26%, mainly due to reduced salaries, bonuses, and rent expenses[146] - Operating loss decreased by 28%, and net loss decreased by 26%, primarily benefiting from reduced selling, general, and administrative expenses[147][149] Liquidity and Capital Resources This section discusses the company's cash position, working capital, and cash flow activities, highlighting the need for additional capital to support ongoing operations - As of December 31, 2024, the company's cash and cash equivalents were $4,804,138, an increase from $1,526,661 on September 30, 2024, primarily due to proceeds from private placements[150] - The company believes existing cash is insufficient to meet operating and capital expenditure needs for the next twelve months, requiring additional capital, which raises substantial doubt about its ability to continue as a going concern[154] Working Capital and Cash Flow Summary | Metric | December 31, 2024 ($) | September 30, 2024 ($) | | :--- | :--- | :--- | | Working Capital (Deficit) | $6,366,687 | $975,755 | | Net Cash from Operating Activities (Three Months Ended December 31) | $(2,531,650) | $(195,197) | | Net Cash from Investing Activities (Three Months Ended December 31) | $(1,428,154) | $(52,883) | | Net Cash from Financing Activities (Three Months Ended December 31) | $7,237,281 | $7,920,452 | Critical Accounting Policies and Estimate This section describes the critical accounting policies and estimates that require significant management judgment and assumptions, such as revenue recognition and inventory valuation - Critical accounting estimates include revenue recognition, inventory valuation, going concern assessment, and income tax provisions, all requiring significant management judgment and assumptions[161] New Accounting Standards This section outlines the company's ongoing evaluation of new accounting standards, including those related to income tax disclosures, segment reporting, and equity securities fair value - The company is evaluating the impact of ASU 2023-09 (Income Tax Disclosures), ASU 2023-07 (Segment Reporting Disclosures), and ASU 2022-03 (Fair Value Measurement of Equity Securities) on its financial statements[72][73][74] ITEM 3: Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, INNO HOLDINGS INC. is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk[163] ITEM 4: Controls and Procedures This section assesses the effectiveness of the company's disclosure controls and procedures as of December 31, 2024, and discusses internal control limitations and changes Disclosure Controls and Procedures This section assesses the effectiveness of the company's disclosure controls and procedures as of December 31, 2024, and outlines plans to strengthen internal controls - As of December 31, 2024, the company's disclosure controls and procedures were deemed ineffective, primarily due to a lack of adequate internal control policies and procedures for key business cycles[164] - The company plans to hire additional personnel or consultants to design and implement internal controls for key business cycles to strengthen its internal control system[165] Inherent Limitations Over Internal Controls This section explains that internal control systems provide reasonable, not absolute, assurance and may not prevent all errors or fraud - Management does not expect disclosure controls and procedures or internal controls to prevent all errors and fraud, as control systems can only provide reasonable, not absolute, assurance[166] Changes in Internal Control over Financial Reporting This section confirms no material changes in internal control over financial reporting occurred during the period ended December 31, 2024 - No changes in internal control over financial reporting occurred during the period ended December 31, 2024, that materially affected or are reasonably likely to materially affect internal control[167] PART II OTHER INFORMATION This section provides disclosures on legal proceedings, risk factors, unregistered equity sales, senior securities defaults, and other relevant information ITEM 1. LEGAL PROCEEDINGS. The company is not currently subject to material litigation but is actively defending a pending lawsuit related to alleged fund misappropriation - The company is not currently subject to threatened litigation that would materially adversely affect its business, results of operations, financial condition, and/or cash flows[169] - The company is involved in a lawsuit related to alleged fund transfers, where the plaintiff claims a subcontractor misappropriated over $1.3 million in construction project funds[119] ITEM 1A. RISK FACTORS. As a smaller reporting company, INNO HOLDINGS INC. is not required to provide risk factor information, and no material changes occurred since the 2024 10-K - As a smaller reporting company, the company is not required to provide risk factor information[170] - No material changes occurred to the risk factors disclosed in the company's 2024 Form 10-K annual report[170] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. This section details the company's three private placements in October, November, and December 2024, including shares issued, purchase prices, total proceeds, and related registration rights agreements - The company completed a private placement on October 31, 2024, issuing 500,000 common shares at $4.00 per share for total proceeds of $2,000,000[171] - The company completed a private placement on November 13, 2024, issuing 729,167 common shares at $4.80 per share for total proceeds of approximately $3.5 million[173] - The company completed a private placement on December 11, 2024, issuing 700,000 common shares at $2.50 per share for total proceeds of approximately $1.75 million[175] - All private placements included registration rights agreements, requiring the company to file a registration statement with the SEC to register the resale of shares[172][174][176] ITEM 3. DEFAULTS UPON SENIOR SECURITIES. The company reported no defaults upon senior securities during the reporting period - The company reported no defaults upon senior securities[179] ITEM 4. MINE SAFETY DISCLOSURES. The company did not provide mine safety disclosures during the reporting period - The company did not provide mine safety disclosures[180] ITEM 5. OTHER INFORMATION. No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended December 31, 2024 - No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended December 31, 2024[181] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q report, including articles of incorporation, securities purchase agreements, registration rights agreements, and certifications - Exhibits include amended articles of incorporation, securities purchase agreements, registration rights agreements, and CEO and CFO certifications[183] SIGNATURES This section contains the official signatures for the report Report Signatures This report was officially signed by INNO HOLDINGS, INC.'s CEO, Wei Ding, and CFO, Mengshu Shao, on February 14, 2025 - The report was signed by CEO Wei Ding and CFO Mengshu Shao on February 14, 2025[186]