INNO HOLDINGS(INHD) - 2025 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the unaudited financial statements and management's analysis of INNO HOLDINGS INC.'s financial condition and operational results ITEM 1: Financial Statements INNO HOLDINGS INC.'s unaudited financial statements show increased cash, a substantial net loss, a going concern issue, and a 1-for-10 reverse stock split in October 2024 - As of June 30, 2025, the Company had an accumulated deficit of $13,509,126 and incurred a net loss of $5,700,965 for the nine months ended June 30, 2025, raising substantial doubt about its ability to continue as a going concern[37] - On October 9, 2024, the Company completed a 1-for-10 reverse stock split, retroactively adjusting all share and per-share information[11][12][16][102] Condensed Consolidated Balance Sheets The balance sheets reflect significant increases in cash, inventories, and total assets, alongside a substantial rise in additional paid-in capital and accumulated deficit Assets (June 30, 2025 vs. September 30, 2024) | Metric | June 30, 2025 | September 30, 2024 | Change | | :-------------------------------- | :-------------- | :----------------- | :----- | | Cash and cash equivalent | $4,385,289 | $1,077,138 | +307.1% | | Inventories | $2,058,800 | $- | N/A | | Prepayments and other current assets | $1,387,476 | $65,797 | +2009.9% | | Current assets from discontinued operations | $- | $1,145,673 | -100% | | Equity investment | $1,000,000 | $- | N/A | | Total assets | $8,831,565 | $4,169,337 | +111.8% | Liabilities & Equity (June 30, 2025 vs. September 30, 2024) | Metric | June 30, 2025 | September 30, 2024 | Change | | :-------------------------------- | :-------------- | :----------------- | :----- | | Other payables and accrued liabilities | $830,702 | $138,700 | +498.9% | | Current liabilities from discontinued operations | $- | $1,124,153 | -100% | | Total liabilities | $880,702 | $1,371,801 | -35.8% | | Additional paid in capital | $21,753,739 | $10,748,534 | +102.4% | | Accumulated deficit | $(13,509,126) | $(7,738,644) | +74.6% | | Total equity | $7,950,863 | $2,797,536 | +184.2% | Condensed Consolidated Statements of Operations The statements of operations show new revenue generation, increased operating losses, and a higher net loss for both three and nine-month periods ending June 30, 2025 Three Months Ended June 30, 2025 vs. 2024 | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------------- | :-------------- | :-------------- | :----- | | Total revenue | $1,086,250 | $- | N/A | | Total cost of sales | $1,102,300 | $- | N/A | | Gross (Loss)/Profit | $(16,050) | $- | N/A | | Selling, general and administrative expenses | $1,544,590 | $188,667 | +718.7% | | Loss from operations | $(1,560,640) | $(188,667) | +727.2% | | Net loss from discontinued operations | $- | $(881,273) | -100% | | Net loss attributable to INNO HOLDINGS INC. | $(1,546,288) | $(1,064,702) | +45.2% | | Basic and Diluted, Total EPS | $(0.30) | $(0.51) | -41.2% | Nine Months Ended June 30, 2025 vs. 2024 | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------------- | :-------------- | :-------------- | :----- | | Total revenue | $1,760,350 | $- | N/A | | Total cost of sales | $1,718,900 | $- | N/A | | Gross Profit | $41,450 | $- | N/A | | Selling, general and administrative expenses | $3,425,985 | $664,665 | +415.5% | | Loss from operations | $(3,388,049) | $(664,665) | +410.0% | | Net loss from discontinued operations | $(195,796) | $(2,526,698) | -92.2% | | Net loss attributable to INNO HOLDINGS INC. | $(5,770,482) | $(2,926,677) | +97.2% | | Basic and Diluted, Total EPS | $(1.41) | $(1.46) | -3.4% | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity significantly increased due to capital raises, despite a growing accumulated deficit from net losses Equity Changes (September 30, 2024 to June 30, 2025) | Metric | September 30, 2024 | June 30, 2025 | Change | | :-------------------------- | :----------------- | :-------------- | :----- | | Total equity | $2,797,536 | $7,950,863 | +184.2% | | Additional paid in capital | $10,748,534 | $21,753,739 | +102.4% | | Accumulated deficit | $(7,738,644) | $(13,509,126) | +74.6% | - Key Activities impacting Equity (Nine Months Ended June 30, 2025): * Net loss: $(5,700,965) * Shares issued for cash: $7,250,000 * Proceeds from sale of common stock: $1,285,250 * Stock-based compensation: $2,176,205[16] Condensed Consolidated Statements of Cash Flows Cash flows reflect significant capital provided by financing activities, offsetting cash used in operating and investing activities, leading to increased cash and cash equivalents Cash Flows (Nine Months Ended June 30, 2025 vs. 2024) | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------------- | :-------------- | :-------------- | :----- | | Net cash used in operating activities | $(3,704,646) | $(4,861,753) | -23.8% | | Net cash used in investing activities | $(1,522,453) | $(412,231) | +269.6% | | Net cash provided by financing activities | $8,535,250 | $7,157,803 | +19.2% | | Cash and cash equivalent, ending of period | $4,385,289 | $1,885,758 | +132.6% | - Key drivers for Operating Cash Flow (Nine Months Ended June 30, 2025): * Net loss from continuing operations: $(5,505,169) * Stock-based compensation expense: $2,185,205 * Loss from investment disposal: $2,152,522 * Increase in inventories: $(2,058,800) * Increase in prepayments and other current assets: $1,026,834[19] Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's business shift to electronic product trading, significant subsidiary disposals, a going concern warning, and capital raising activities - Company's primary business: marketing and sale of construction products and full-scope construction services in the US. A new business initiative in electronic product trading started in October 2024. Significant disposals of subsidiaries related to construction and AI tech occurred in March-April 2025[22][28][30][31][32][87][88][135] - Substantial doubt about the Company's ability to continue as a going concern for the next 12 months due to accumulated deficit and net losses[37] - Merchandise inventory as of June 30, 2025, was $2,058,800, compared to $0 on September 30, 2024[78] - Total prepayments and other current assets increased from $65,797 (Sep 30, 2024) to $1,387,476 (June 30, 2025), including a $500,000 loan receivable and $525,100 receivable from sales of equity investment[79][80] - Goodwill of $3,514 from acquisitions of Baymax and Lear (Oct-Dec 2024) was fully impaired for the nine months ended June 30, 2025[84] - Net loss from discontinued operations was $(195,796) for the nine months ended June 30, 2025, a significant reduction from $(2,526,698) in the prior year[91] - The Company conducted multiple private placements and registered direct offerings in late 2024 and early 2025, raising significant capital[108][109][110][112][113] - Customer concentration: Two customers accounted for 100% of revenue for the three months ended June 30, 2025. Supplier concentration: Two suppliers accounted for 100% of purchases for the three months ended June 30, 2025[117][118] - Settled a litigation claim for $75,000 on July 9, 2025, related to alleged fund transfers by a subcontractor. Ongoing litigation from a former shareholder claiming $2 million potential loss[121][130] - Stock-based compensation expense significantly increased to $1,135,200 for three months and $2,185,205 for nine months ended June 30, 2025, due to grants to employees and executives[128][129] ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a business shift to electronic product trading, revenue growth, increased operating losses from higher SG&A, a going concern warning, and active capital raising through private placements and direct offerings - The company has introduced a new business of electronic products trading since Q4 2024, sourcing from Asia and selling to Southeast Asia, Europe, and other areas, alongside its primary cold-formed-steel manufacturing and construction services[135] - Management does not believe current cash and cash equivalents are sufficient for the next twelve months and will require additional capital, creating substantial doubt about the company's ability to continue as a going concern[163] Overview The company's primary business involves cold-formed-steel manufacturing and construction services, complemented by a new electronic products trading initiative since Q4 2024 - Primary business: manufactures cold-formed-steel members and offers full-scope construction services[134] - New business: electronic products trading, sourcing pre-owned electronic devices from Asia and selling to wholesale/retail clients in Southeast Asia, Europe, and other areas, introduced since Q4 2024[135] Recent Developments Recent developments include the disposition of a subsidiary, a strategic equity investment, and significant capital raises through securities purchase agreements and direct offerings - Disposition of Subsidiary: Sold Inno Disrupts Inc. for $100 on April 8, 2025[137] - Investment: Entered into an equity investment agreement with Aurora Technology Holding Limited on May 28, 2025, securing a 16.67% ownership interest for $1 million[138] - June Securities Purchase Agreement: Closed a registered direct offering on June 6, 2025, issuing 1,058,000 shares for gross proceeds of $529,000[139] - July Standby Equity Purchase Agreement (SEPA): Entered into on July 4, 2025, allowing the company to issue and sell up to $6 million worth of common stock to investors over three years[140][141] Key Performance Indicators (KPIs) The company focuses on optimizing capital turnover, reducing accounts receivable collection periods, minimizing lead times, and achieving long-term operating income growth - Capital turnover rate of raw-material procurement: Aims for 1-3 months of raw materials inventory, long-term supplier relationships, and quarterly purchase plans to maximize fund efficiency[143] - Collection period of accounts receivable: Targets strategic relationships with large-scale homebuilders and professional companies to reduce risk and days outstanding, with an eventual goal of 100% payment before product shipment[144] - Lead time: Strives to communicate frequently with customers and optimize production to minimize storage and shorten lead time[145] - Growth of total operating income: Maintains internal long-term targets for gross profit and operating income, aiming for profitable long-term growth[146] Results of Operation Operational results show significant revenue growth from the new electronic products trading business, alongside substantial increases in selling, general, and administrative expenses, leading to higher operating and net losses Three Months Ended June 30, 2025 vs. 2024 | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------------- | :-------------- | :-------------- | :----- | | Revenues | $1,086,250 | $- | N/A | | Costs of goods sold | $1,102,300 | $- | N/A | | Selling, general and administrative expenses | $1,544,590 | $188,667 | +719% | | Operating loss | $(1,560,640) | $(188,667) | +727% | | Net loss | $(1,546,288) | $(1,050,881) | +47% | Nine Months Ended June 30, 2025 vs. 2024 | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------------- | :-------------- | :-------------- | :----- | | Revenues | $1,760,350 | $- | N/A | | Costs of goods sold | $1,718,900 | $- | N/A | | Selling, general and administrative expenses | $3,425,985 | $664,665 | +415% | | Operating loss | $(3,388,049) | $(664,665) | +410% | | Net loss | $(5,700,965) | $(2,962,072) | +92% | - Revenue increased 100% for both three and nine months ended June 30, 2025, primarily due to the new electronic products trading business[150] - Selling, general and administrative expenses increased 719% (3 months) and 415% (9 months) primarily due to stock compensation given to employees in May 2025[153] - Operating loss increased 727% (3 months) and 410% (9 months) mainly due to higher SG&A expenses[154] Liquidity and Capital Resources The company's cash position improved significantly due to capital raising activities, yet management expresses substantial doubt about its ability to continue as a going concern without additional capital - Cash increased from $1,077,138 (Sep 30, 2024) to $4,385,289 (June 30, 2025), primarily from private-placement offerings, offset by operating and investing cash usage[157] - Capital Raising Activities (Oct 2024 - June 2025): * October 2024 Private Placement: $2,000,000 from 500,000 shares at $4.00/share * November 2024 Private Placement: ~$3.5 million from 729,167 shares at $4.80/share * December 2024 Private Placement: ~$1.75 million from 700,000 shares at $2.50/share * June 2025 Offering: $529,000 from 1,058,000 shares at $0.50/share * January SEPA: Issued 1,400,000 shares at $0.75/share on June 20, 2025, with the right to issue up to $15 million worth of shares[158][159][160][161][162] - Current cash is insufficient for the next twelve months, requiring additional capital and raising substantial doubt about the company's ability to continue as a going concern[163] - Working capital increased from $975,755 (Sep 30, 2024) to $6,950,863 (June 30, 2025)[164] Cash Flows Cash flows show reduced operating cash usage, increased investing cash usage due to an equity investment, and substantial cash provided by financing activities - Net cash used in operating activities was $(3,704,646) for the nine months ended June 30, 2025, compared to $(4,861,753) in 2024[165][166] - Net cash used in investing activities was $(1,522,453) in 2025, primarily due to a $1,000,000 investment in Aurora Technology Holding Limited[167] - Net cash provided by financing activities was $8,535,250 in 2025, primarily from private-placement offerings[168][169] Critical Accounting Policies and Estimate Key accounting estimates, including revenue recognition, inventory valuation, going concern assessment, and income tax provisions, require significant management judgments and assumptions - Key estimates include revenue recognition, inventory valuation, going concern assessment, and provision for income taxes, which require significant judgments and assumptions[170] New Accounting Standards The company anticipates no material impact on its consolidated financial statements from recently issued accounting guidance - The Company does not expect a material impact from recently issued accounting guidance on its consolidated financial statements[171] ITEM 3: Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, INNO HOLDINGS INC. is exempt from detailed market risk disclosures, reporting no material changes to risk factors since its 2024 Annual Report on Form 10-K - Exempt from detailed market risk disclosures as a smaller reporting company[172] ITEM 4: Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, due to a material weakness in internal control policies, with plans to hire personnel or consultants for remediation - Disclosure Controls and Procedures were not effective as of June 30, 2025[173] - Material Weakness: Lack of adequate policies and procedures in internal control function to ensure proper control and procedures over key business cycles[173] - Remediation Plan: Plan to hire additional personnel or consultants with relevant experience and qualifications to design and implement internal control over key business cycles[173] - No material changes in internal control over financial reporting during the period ended June 30, 2025[175] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other disclosures for INNO HOLDINGS INC. ITEM 1: Legal Proceedings The company settled a litigation for $75,000 related to subcontractor fund transfers and faces ongoing litigation from a former shareholder claiming a potential $2 million loss, which it intends to vigorously defend - On July 9, 2025, the Company settled a litigation with a plaintiff for $75,000, related to alleged misappropriation of funds by a subcontractor. The payment was made on July 15, 2025[130][177] - Ongoing litigation from a former shareholder filed in December 2024, alleging $2 million in potential lost gains from an investment. The Company believes the complaint is without merit and intends to defend it vigorously[121] ITEM 1A: Risk Factors As a smaller reporting company, INNO HOLDINGS INC. is exempt from new risk factor disclosures in this quarterly report, with no material changes since its 2024 Annual Report on Form 10-K - No material changes in risk factors since the 2024 Annual Report on Form 10-K[179] - Exempt from providing detailed risk factor information as a "smaller reporting company"[179] ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds The company conducted multiple private placements and a registered direct offering from October 2024 to June 2025, issuing millions of shares and raising substantial capital from both U.S. and non-U.S. investors with registration rights - October 2024 Private Placement: Sold 500,000 shares for $2,000,000 ($4.00/share) to certain investors, exempt under Section 4(a)(2) of the Securities Act[180] - November 2024 Private Placement: Sold 729,167 shares for approximately $3.5 million ($4.80/share) to nine non-U.S. investors, exempt under Rule 903 of Regulation S[182] - December 2024 Private Placement: Sold 700,000 shares for approximately $1.75 million ($2.50/share) to nine non-U.S. investors, exempt under Rule 903 of Regulation S[184] - June 2025 Offering: Sold 1,058,000 shares for $529,000 ($0.50/share) in a registered direct offering[186] - January SEPA: Issued 1,400,000 shares for $0.75/share on June 20, 2025, as part of an agreement to sell up to $15 million worth of shares[187] - Registration rights agreements were entered into for the private placements, and prospectus supplements were filed for resale[181][183][185] ITEM 3: Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities[190] ITEM 4: Mine Safety Disclosures The company reported no mine safety disclosures - No mine safety disclosures[191] ITEM 5: Other Information No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the quarter ended June 30, 2025 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements adopted or terminated by directors or officers during the quarter[192] ITEM 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including the Standby Equity Purchase Agreement, certifications from the Principal Executive and Financial Officers, and Inline XBRL documents - Includes Standby Equity Purchase Agreement (Exhibit 10.1)[194] - Includes Certifications of Principal Executive and Financial Officers (Exhibits 31.1, 31.2, 32.1, 32.2)[194] - Includes Inline XBRL documents (Exhibits 101.INS, SCH, CAL, DEF, LAB, PRE, 104)[194] SIGNATURES The report is duly signed on behalf of INNO HOLDINGS, INC. by Ding Wei, Chief Executive Officer, and Mengshu Shao, Chief Financial Officer, on July 28, 2025 - Signed by Ding Wei, CEO, and Mengshu Shao, CFO, on July 28, 2025[197]