UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this annual report, including in the following sections: “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. When used in this annual report, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements include, but are not limited to, statements contained in this annual report relating to our business strategy, our future operating results, and our liquidity and capital-resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you, therefore, against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:
| ● | our ability to effectively operate our business segments; |
| ● | our ability to manage our research, development, expansion, growth, and operating expenses; |
| ● | our ability to evaluate and measure our business, prospects, and performance metrics; |
| ● | our ability to compete, directly and indirectly, and succeed in a highly competitive and evolving industry; |
| ● | our ability to respond and adapt to changes in technology and customer behavior; |
| ● | our ability to protect our intellectual property and to develop, maintain, and enhance a strong brand; and |
| ● | other factors relating to our industry, our operations, and results of operations. |
Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
USE OF CERTAIN DEFINED TERMS
Unless the context otherwise requires, in this annual report on Form 10-K references to:
| ● | the “Company,” “INNO,” the “registrant,” “we,” “our,” or “us” mean INNO HOLDINGS INC. and its subsidiaries; | |
| ● | “year” or “fiscal year” means the year ending September 30; | |
| ● | all dollar or $ references, when used in this prospectus, refer to United States dollars; | |
| ● | “framing” means the process of connecting building materials together to create a structure; | |
| ● | “stud” means a vertical framing member which forms part of a wall or partition, also known as a wall stud, a fundamental component of frame construction; | |
| ● | “truss” means a web-like roof design that uses tension and compression to create strong, light components that can span a long distance; | |
| ● | “joist” means a horizontal structural member used in framing to span an open space, often between beams that subsequently transfer loads to vertical members; | |
| ● | “cold-formed steel” or “CFS” or “light-gauge steel” or “LGS” means steel products shaped by cold-working processes carried out near room temperature, such as rolling, pressing, stamping, bending, etc.; | |
| ● | “turnkey cost” is the total cost that must be covered before a product or service is ready to be sold and used by consumers; | |
| ● | “prefab” means a building manufactured in sections to enable assembly on site. |
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PART I
ITEM 1. BUSINESS
Overview
INNO HOLDINGS INC. (“INNO,” “we,” “us,” or “Company”) is an innovative building-technology company with a mission to transform the construction industry with our proprietary cold-formed steel-framing technology and other building innovations. INNO recognized the inherent inefficiency and waste in traditional lumber-based construction techniques and sought to develop steel-based construction technologies to solve the problems. INNO takes its name from “innovation” and is committed to the research and development of steel studs/tracks/headers, providing higher performance and greater efficiencies in all aspects of construction, making better structural solutions for both commercial and residential buildings, resulting in substantial labor cost savings, in our view. The Company’s products are created using a combination of intelligent machines and cutting-edge techniques to provide an optimal design solution of framing for engineers, builders, and construction companies. We are currently a manufacturer of cold-formed-steel members and we offer a full range of services required to transform raw materials into precise steel framing products and prefabricated homes. We sell these finished products either to businesses or directly to customers. The finished products and cold-formed-steel members are used in a variety of building types, including residential, commercial, industrial, and infrastructure. We hope to transform the building industry by reducing construction times while providing more affordable, environmentally sustainable, and durable solutions compared to traditional construction materials and methods. We believe we are also well positioned to disrupt the construction industry, which now accounts for $10 trillion of the global economy.
We work with our customers to manufacture products in accordance with the customers’ drawings and specifications. Our work complies with specific national and international codes and standards applicable to the construction industry. We believe that we have earned our reputation through outstanding technical expertise, attention to detail, and a total commitment to excellence in customer service.
Our primary manufacturing operations are located on approximately five acres in Brookshire, Texas. Our facility houses state-of-the-art equipment that gives us the capability to manufacture 15,000 linear feet of product per day. We offer a full range of services such as structural designs, metal stud production, and preassembly of metal studs into steel wall panels, which are required to transform raw materials into finished products that are compliant with local building codes. Our manufacturing capabilities include fabrication operations, such as cutting, punching, forming and assembling, and machine operations, which includes computer numerical controlled (“CNC”) machine operations. We also provide support services for our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, and manufacturing), quality control (inspection and testing), materials procurement, production control (scheduling, project management, and expediting), and final assembly.
All manufacturing at our facility is done in accordance with our written quality assurance program, which meets specific national codes as well as international codes, standards, and specifications. For example, we have ICC-ES evaluation reports (ESR-4641) that show that our cold-formed steel-framing members are compliant with the 2018 and 2015 International Building Code (“IBC”), 2019 California Building Code (“CBC”), and 2020 Florida Building Code. The standards used for each customer project are specific to each customer’s needs, and we have implemented those standards into our manufacturing operations.
In 2024, we successfully launched a new revenue stream through our newly established subsidiary, Inno AI Tech Corp., which specializes in research and consulting services.
Our Products
Cold-Formed Steel Framing
Cold-formed steel is the material of choice to lower building costs and adapt to modular or off-site buildings. It is consistent in quality and form, and it can be shipped preassembled or it can be assembled on-site by workers with little training. Our steel roof trusses, wall panels, and joist systems are a cost-effective noncombustible alternative to traditional building materials. They are now commonly used to build apartments, hotels, temporary housing, nursing homes, commercial buildings, industrial buildings, and single-family detached homes. These types of structures are expected to be the targets of our Company’s sales and marketing team.
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Our proprietary cold-formed roller machines are equipped with proprietary software, which optimizes production efficiency and supports individual part customization to ensure each cold-formed-steel member is produced to the exact specifications of the plans. Our intelligent machines can precisely cut and punch out steel studs, leaving channels for the mechanical, electrical, and plumbing designs. We arrive at an accurate, comprehensive, and information-rich design model with the utilization of light-gauge steel-framing engineering software, which creates a digital model of the project that includes all functional systems, geometric features, and aesthetics, such as electrical wiring, air conditioning, doors, and windows. The light-gauge steel-framing engineering software is a shared multidisciplinary resource that allows collaborators to achieve maximum efficiency and effectiveness by compressing design lead time. We have created a full BIM solution that instructs our advanced cold-formed roller machines to produce each steel-framing piece to certain specifications.
After the design phase, our top-quality raw materials are processed on several production lines, each with made-to-order specific dimensions, screw holes, and cross-cut stitching. These customizations reduce the need for on-site manual calculations and simplify the assembling steps, both of which increase construction efficiency and reduce labor costs. All steel-framing products produced by our Company are International Code Council (ICC) certified. The International Code Council is the leading global source of model codes and standards and building safety solutions that include product evaluation, accreditation, technology, training, and certification. The Code Council’s codes, standards, and solutions are used to ensure safe, affordable, and sustainable communities and buildings worldwide.
Our modular steel building framing systems avoid construction delays caused by partial or unsynchronized delivery of different building components. By breaking away from the methods of traditional stick-built building, our customers report that their construction timelines have been reduced by at least 20%.
Castor Cube
Due to high housing prices, some are having difficulties purchasing a home. Housing market trends have shown a gradual preference for modular homes, which is a prefabricated building that consists of repeated sections called modules, and involves constructing sections away from the building site, then delivering them to the intended site where the installation is completed. We believe demand for prefab homes is on an upward growth trend in the United States. According to the Straits Research Institute, North America’s share of the global modular building market was valued at $28 billion in 2021 and is expected to grow to $53 billion by 2030, representing a CAGR of 7%. According to the summary of an IBISWorld report titled, “Prefabricated Home Manufacturing in the US — Market Size 2002-2029,” the prefabricated home manufacturing market size in the U.S. is expected to be $9.1 billion in 2023. We expect to capitalize on this trend by providing high-quality and affordable modular homes.
Most consumers are drawn to prefab homes because of their cost-effectiveness, efficiency, and permanent property characteristics. Castor Cube is a low-maintenance, single-story, 743-square-foot manufactured home with 4 color options that can resist earthquakes, withstand winds, and prevent pests. It is a cold-formed-steel building system equipped with honeycomb panels, and it is designed to maximize the strength-to-weight value. As a result, it yields high structural stability. Castor Cube can be built on a foundation or used as a mobile home.
The Castor Cube can be built on a foundation steel chassis, which can be single or used as a mobile multi-sectioned. We are expanding and improving our facility in Texas and anticipate that this modular home product will be completely constructed within the next couple years. Once built, it will be transported to permanent locations for installation. The timeline for product delivery is not affected by weather since it will be manufactured in our 100% climate-controlled factory. Furthermore, we expect that streamlined building process will shorten the completion time.
Mobile Factory: Off-site Equipment Rental, Sales, Service, and Support
We believe innovative technology can increase productivity in the building sector. Research and development of more efficient methods in the manufacturing and building space is at the forefront of our business model.
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Our Mobile Factory is an all-in-one, secured production facility that will produce steel-framing members onsite. It can print wall panels, floor truss, and roof truss components. The size is customized for a trailer, which enables it to be transported anywhere, ranging from metropolitan suburbs to remote areas with little to no infrastructure. It is designed to enable immediate stud production on any site.
Our Mobile Factory is complete with metal stud production equipment and a diesel generator. This generator can supply continuous power to our cold-formed roller machine. The production capacity of our Mobile Factory is at least 1,000 linear feet per day. We believe this innovation is the good solution for urgent deployment in disaster areas or remote areas. It is designed to reduce the cost and time of transportation of metal studs, which we believe can drive a lower carbon footprint for larger projects.
The Mobile Factory is operated and managed by Internet of Things (“IoT”) technology, a network of physical objects that are embedded with sensors, software and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet. INNO developed its proprietary IoT production management system independently. The system controls equipment and manages the Mobile Factory via a dashboard, allowing the user to gain a comparative understanding of production parameters, such as operation data, machinery breakdown data, uptime data and production efficiency.
Related Services
We may from time to time participate in land development and contractor services if an opportunity exists to leverage our products. Specifically, we have evaluated the development of apartment complexes, retirement communities, and remodels for projects that would incorporate our metal framing studs. For example, we have agreed to provide project development services for our contract with Vision Opportunity Fund LP (assigned to Vision 101), partially owned by a minority shareholder of the Company, related to the development of an approximately 110,000 square feet retirement community.
In February 2024, we formed Inno AI Tech Corp., which specializes in research and consulting services. Throughout the year, we successfully supported a client in establishing a steel technology company. Our services included incorporation assistance, comprehensive training programs, in-depth market research, and strategic business development guidance. This engagement generated consulting revenue of $205,000.
Our Customers
We can serve commercial, residential, and industrial projects. For the cold-formed steel-framing business, the sales model is business-to-business because the main customers are developers, builders, and contractors. For the Castor Cube prefab home products and the consulting services performed by Inno AI Tech Corp., the sales model is expected to be either business-to-business or business-to-customer.
On a year-to-year basis we are generally dependent on a small number of major customers that change year to year. Our written agreements with major customers normally terminate upon completion, and our major customers change from year to year. For the year ended September 30, 2024, three customers accounted for 90% of the Company’s total revenues, respectively. For the year ended September 30, 2023, three customers accounted for 53%. As of September 30, 2024, $Nil outstanding of accounts receivable. Accounts receivable from one customer accounted for 100% of the Company’s total accounts receivable as of September 30, 2023.
These agreements contain standard construction and supplier agreement terms including payment schedules, performance schedules, the ability to subcontract, insurance obligations and indemnification provisions, and confidentiality provisions. Our written agreements with these customers generally terminate upon completion of the project or early terminate upon mutual agreement of the parties and contain provisions restricting our right to assign the agreement.
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Our Suppliers
Historically we rely on a limited number of suppliers. For the year ended September 30, 2024, two suppliers accounted for 58% of the Company’s total purchases. For the year ended September 30, 2023, three suppliers accounted for 57% of the Company’s total purchases. As of September 30, 2024 and 2023, accounts payable to two suppliers accounted for 51% and 55% of the Company’s total accounts payable, respectively. We currently do not have written agreements with these suppliers or, generally, with any of our suppliers. All of our purchases from these suppliers are made by way of individual orders.
Our Competitive Strengths
Technology Innovations
INNO recognizes that no technology or product is completely immune to being copied, and therefore the company is committed to being a pioneer in the industry by constantly researching and developing new technologies, and being ahead in various aspects of the industry such as regulations, equipment autonomy, design technology, production efficiency, new product birth, orderly management, coordinated transportation, remote production, etc. In this way, INNO aims to have the most advanced and comprehensive technology in the industry and be the true technological barrier for competitors to overcome. INNO focuses on patentable innovative products and commercializing research discoveries in the cold-formed steel industry in the U.S. and committed to bringing innovation in the field of thin-walled structures, cold-formed steel building technology, and design methodology for resilient buildings.
Fully Integrated Manufacturing Process
Compared to other traditional metal stud manufacturers, INNO differentiates itself by integrating services from design to metal stud production to prefabrication, utilizing off-site building technology to reduce the need for on-site framing labor. This approach allows INNO to streamline the production process, increase efficiency, and reduce dependency on labor. By implementing off-site building technologies, INNO is able to prefabricate and assemble many components of the building in a factory setting, which can lead to improved quality control, faster construction times and reduced on-site labor costs. This approach allows INNO to be a leader in the metal studs manufacturing industry in the U.S. and set a new standard for the building industry.
Compared to other prefab home companies, INNO sets itself apart by making an innovation in the overall structure system and developing our own patent pending panel material for faster installation. Unlike other prefab home competitors who still use traditional wood-stick building methods or other unique liquid material (required by 3D printing), which are not as efficient and may not be able to guarantee delivery times, INNO’s patent pending panel material and overall structure system allows for faster installation, improved efficiency and guaranteed delivery times. This allows INNO to offer a more efficient and cost-effective solution for prefab home building and maintain a competitive edge in the market. Additionally, INNO’s patent pending material and system can guarantee the quality and safety of the building, which is a significant advantage over the other prefab home companies.
Rising Cost of Traditional Wood Construction Favors Transition to Steel
Utilizing INNO’s off-site building technology can significantly reduce overall construction costs, even when compared to wood building. The past several years of western wildfires in the United States have had a significant impact on lumber stocks and mills, leading to disruptions in supply and fluctuations in lumber prices. A study by the Steel Framing Industry Association (SFIA) indicates that the cost to build with cold-formed steel is relatively the same as building with wood when the cost comparison includes the construction insurance premiums associated with using the materials. As the price of wood no longer provides a cost advantage, alternative building materials like steel have become increasingly popular in the market. By leveraging its off-site building technology, INNO is able to offer a cost-effective solution that takes advantage of the cost benefits of steel building while also providing faster and more efficient construction.
We are keeping our prices at a competitive level with traditional wood framing solutions. In a recent internal case study, we found that INNO’s products delivered real-world cost-savings of 8-16% compared to wood framing. This study compared our solution against wood for a 2,2663 square feet. home built in 2022, for which we supplied materials. Based on fully quoted materials and estimated labor and insurance costs, we estimate the contractor saved 16% by using INNO products compared to wood framing. For the “low” scenario, we recently requested updated wood bids and used the lowest one; in this case, we estimate that INNO products would have provided the contractor with 8% savings.
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Market Opportunity
Light-Gauge Steel-Framing Market
According to the report released by Grand View Research in 2022, titled “Light Gauge Steel Framing Market Size, Share & Trends Analysis Report By Type (Skeleton Steel Framing, Wall Bearing Steel Framing), By End-use (Commercial, Residential), By Region, And Segment Forecasts, 2023 - 2030”, the global light-gauge steel-framing market was valued at $37.27 billion in 2023 and is expected to reach $52.73 billion by 2030, growing at a CAGR of 5.1% from 2023 to 2030. The substantial rise in construction spending and a shift in trend toward sustainable materials have contributed to higher energy efficiency at a lower cost, in turn driving the market demand for light-gauge steel frames. According to KBV Research’s report released in February 2022, titled “North America Light Gauge Steel Framing Market Size, Share and Industry Trend Analysis Report By Type, By End Use, By Country, Historical Data and Growth Forecast, 2021-2027,” the U. S. market has dominated the North American cold-formed steel-framing market, and it is expected to continue to be a dominant market player until 2027; thereby, achieving a market value of $7.2 billion by 2027.
According to the summary of an IBISWorld report titled, “Wood Framing in the US - Market Size, Industry Analysis, Trends and Forecasts (2024-2029),” the wood framing market size in the U.S. is expected to be $27.5 billion in 2024. Since the wood structures could be replaced by cold-formed-steel structures, INNO’s target market size includes the wood-framing market. If we combined the US light gauge steel (which we estimate to be currently at approximately $6 billion based on the projected market value of $7.2 billion by 2027) and wood framing market ($27.5 billion) opportunities in 2024, we estimate it would amount to a $33.5 billion market opportunity in which INNO competes.
Prefabricated Building Market
According to the summary of an IBISWorld report titled, “Prefabricated Home Manufacturing in the US market size (2024-2029),” the prefabricated home manufacturing market size in the U.S. is expected to be $13.3 billion in 2024. According to the report released by Global Industry Analysts, Inc, titled “Prefabricated Buildings - Global Strategic Business Report”, the global prefabricated building market, estimated at $117.4 billion in the year 2022, is projected to reach a revised size of $202.7 billion by 2030, growing at a CAGR of 7.1% over the analysis period of 2022 through 2030. According to Straits Research Institute, the U.S. modular home market is projected to be valued at $53 billion in 2030.
Prefabricated houses are those that are built with the help of prefabricated building materials. These building materials are prefabricated in an off-site facility and then transported to the desired location for assembly. The building materials used to develop prefabricated houses are divided into concrete-based and metal-based materials. The market is being driven by factors such as shorter construction times and cost savings. The market is also benefiting from increased customer interest in reducing CO2 emissions, green building, and waste reduction.
Regulatory and Governmental Pressures for Change
President Biden’s Executive Order 14057 on the adoption of the federal Sustainable Development Catalyst for America’s Clean Energy Industry and Jobs and the accompanying federal Sustainable Development Plan establish the ambitious goal of achieving zero emissions from building by 2045. The federal government will work on new construction, major renovations, and existing real estate to achieve linked electrification, reduced energy use, lower water consumption and waste reduction. The federal government will develop data-driven targets and annual indicators for energy and water reduction by 2030 based on leading performance benchmarks for building type categories and the composition of institutional building portfolios. As part of this journey, the federal government will use performance contracts to reduce emissions, improve efficiency, and modernize facilities while providing financial savings.
In 2021, the Los Angeles City Council Public Safety Committee approved a proposal to expand Fire District I, an anachronistic planning overlay that would effectively ban wood-frame building in much of the city. The motion currently winding its way through City Council would expand Fire District I to neighborhoods with a population density of 5,000 residents per square mile, among other areas. With nearly all of Los Angeles comfortably above 5,000 residents per square mile, this expansion would effectively ban timber and wood-frame building in much of the city, including many rapidly growing neighborhoods near transit.
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Sustainability and Green Building
Manufacturing of materials for buildings and construction accounted for approximately 11% of global energy-related CO2 emissions in 2017 according to the Global Status Report 2018, Global Alliance for Buildings and Construction & International Energy Agency. Increased global awareness of green building has driven efforts among all levels of government. For example, local governments are beginning to regulate in favor of using alternatives to wood in building projects. To reduce the city’s vulnerability to wildfires, the Los Angeles City Council voted in early 2021 to explore a proposal that could prohibit the use of wood-frame building for larger developments in some of its most densely populated neighborhoods. Similarly, the Los Angeles City Council Public Safety Committee approval of a proposal in 2021 to expand Fire District 1, an anachronistic planning overlay that would effectively ban wood-frame building in much of the city. In most U.S. cities, fire safety is ensured by the International Building Code (IBC), which sets strict rules on allowable building materials and methods.
Cold-formed steel framing (“CFS”) is a highly sustainable, green building solution. Through technological advances and processing changes, steel has drastically reduced its carbon footprint. CFS boasts a high level of recyclability, energy savings and greenhouses gas reduction. Due to its inherent advantages such as fire-resistance, termite resistance, consistent material quality and sustainability, we believe cold-formed steel will be the optimal alternative building material.
Marketing
We are an innovative building-technology company with a mission to transform the construction industry with our proprietary cold-formed steel-framing technology and other innovations. While we have significant customer concentrations, we endeavor to broaden our customer base as well as the industries we serve. Our marketing strategy is a long-term plan to achieve our Company’s mission by understanding the needs of customers and creating a distinct and sustainable competitive advantage. We position ourselves as the leader in intelligent steel-framing building systems. We intend to leverage our marketing and sales efforts to establish new potential customers. We also intend to leverage customer referrals, which in the past have been a source of new business. A significant portion of our business is the result of competitive bidding processes, and a significant portion of our business is from contract negotiation. We believe that the reputation we have developed with our current customers represents an important part of our marketing effort.
Quotation requests from customers are reviewed to determine the specific requirements and our ability to meet such requirements. Quotations are prepared by estimating the material and labor costs and assessing our current production schedule to determine our delivery commitments. Competitive bid quotations are submitted to the customer for review and award of the contract.
We have several strategic partners, including real estate companies, general contractors, builders and developers. Our strategic partners connect our Company with potential customers who are either potential homeowners or developers.
Through the several architecture, builder and contractor associations that we have joined, we share the advantages of cold-formed steel framing with others, and we educate and encourage construction industry practitioners to move out of their wood-framing comfort zone to embrace steel-framing technology.
We have a digital market channel and a social media presence. Also, we are actively conducting market research to determine the viability of our new products and new patents. We have increased our marketing budget and formed a professional sales team to increase our online marketing, which we believe can help us grow our revenue.
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Research and Product Development/Innovations
We are a building technology company that is dedicated to research and product development innovation. Our scientists and engineers are committed to developing sturdier steel studs, tracks, headers, and other components, resulting in superior strength while maintaining the lowest costs possible. Our cold-formed roller machine is acquired from an original equipment manufacturer with certain modifications to the standard version of the machine that are unique and proprietary to INNO. When we refer to our “proprietary” cold-formed roller machines, we are referring to the modified machine with the intellectual property and process techniques we have developed. INNO uses CAD (Computer Aided Design) technology to arrive at the most accurate, comprehensive and information-rich design model within its parameters with the utilization of Vertex to ensure each member is produced to the exact specifications of called for in the design. The digital model of the project includes all functional systems and aesthetics, such as electrical wiring, air conditioning, doors, windows etc., as well as geometric features. It is a shared multi-disciplinary resource allowing all those working on a project to share information and working processes in order to achieve maximum efficiency and effectiveness, thus reducing all phases — design, pre-construction and construction — of the construction timeline. The platform gives us open communication, true collaboration, and aligned understanding. Taken all together, INNO has created a full BIM solution that works together to inform our state of the art light-gauge roll forming machines the instructions to automatically produce each steel framing member to exact specification.
We have continued making improvements to our cold-formed roller machines to optimally increase the printing speed. We are actively working on a list of 100 potential patentable products. Our goal is to commercialize patents and technologies that we own.
For example, the CFS portal frame system invented by us could replace current shear wall systems to provide adequate lateral resistance against strong winds and severe earthquakes. The standard lateral force resisting systems in light frame cold-formed steel building are shear walls either sheathed by structural panels such as OSB, Plywood, and steel sheets or braced by steel straps. These systems require a large amount interior walls to be load bearing walls which limits flexibility for room layout and may not support large openings for windows and doors. The steel portal frame system is a novel long span framing system to replace the traditional hot-rolled structural steel frame. The new technologies in the portal frame system include optimized stiffened holes on cold-formed steel frame members to increase structural stability and span capacity and special moment joint technology using adhesive and rivet connections which enable superior energy dissipation capacity and fast fabrication.
This new CFS moment frame does not require any interior shear walls for the Castor Cube, our modular home product. It will allow the Cube to have various room layouts. The homeowners will also be able to change the room layout in the future. The new CFS moment frame can also be used for long-span residential and mid-rise commercial buildings. The new technology should improve the structural integrity of building structures, increase the lateral resistance, and lower the overall costs.
Another innovation, the cold-formed steel truss system, utilizes a strong axis of cold-formed steel stud members for both chords and webs which allow longer spans and lighter weight than the conventional type trusses. The steel truss system has wide applications in storage and education buildings.
We believe the steel truss system and steel portal framing system will also allow INNO to enter the high-rise commercial and large span industrial building markets (Type I and Type II buildings) and deliver more competitive and cost-effective building structures than the traditional structural steel frame and concrete masonry systems.
Honeycomb aluminum panel is a metal composite panel product series developed in combination with the composite honeycomb panel technology developed by the aviation industry. The panel is a box-type structure with surrounding edges, which has good airtightness and improves the safety and service life of the panel. The product adopts a “honeycomb sandwich” structure, that is, a composite plate made of high-strength alloy aluminum plate coated with a decorative coating with excellent weather resistance as the surface, bottom plate and aluminum honeycomb core through high temperature and high pressure. This product series has the advantages of excellent material selection, advanced technology, and reasonable structure. It not only has excellent performance in large scale and flatness, but also has many choices in terms of shape, surface treatment, color and installation system. This advanced technology enables the Company to manufacture high-strength and light-weight wall panel products. These siding products have very flat surfaces and tightly controlled seam widths, which allow architects to design very straight and beautiful walls with large panels. Except for certain technical restrictions, there is no standard size for honeycomb aluminum panels, and all wall panels are factory-made according to design drawings. Our production method allows the panels to be highly flexible in size and shape, such as curved panels and folded panels. This flexibility creates a complete and multi-functional highly competitive wall panel system that can be installed on almost any joist and are extremely simple to install.
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Revenue Model
Our revenue model currently consists of sales of the following:
| ● | Light-gauged studs and tracks; | |
| ● | Prefabricated wall panels and trusses; | |
| ● | Structure framing work on site; | |
| ● | Services; | |
| ● | Machine sales; and | |
| ● | Replicable Apartment product. |
Light-gauged studs and tracks
We supply metal studs from 12GA to 24GA depending on the structure engineering requirements and city building codes. The model for selling cold-formed steel studs and tracks is wholesale because it is business-to-business. Given the specific nature of our products, we do not sell retail. Unlike traditional metal stud suppliers, whose products are “made to stock” with no consideration for engineer design, our metal studs are typically made-to-order and customized for each project.
Prefabricated wall panels and trusses
Prefabricated wall panels and trusses are another option for customers. With these products, the customer can either choose to assemble the panels themselves or include this prefab service in their contract with us. Most customers typically choose prefab service because of our skilled team given that most wood framers are not familiar with steel framing.
INNO also has standardized modular wall products which could be used for all residential and commercial buildings. We design modular walls in 20 specifications to cover different building requirements. Modular walls are “made to stock” products and participate in both business-to-business and business-to-customer model channels.
Structure framing work on site
Steel structure installation on site is also an optional service. Depending on the project size and scope, we will provide on-site installation service if customers requested. With our full turnkey solution, all elements of the project construction are included, not just the cold-formed steel. This may include cabinetry and other items. In cases where the customer simply wants the framing, we bring our expertise in working with steel to that portion of the project. We are in the process of reducing our on-site work offerings.
Services
Our engineering services provide stamped and sealed structure design services by our in-house engineer team. Because of the specific nature of our services, the rates vary case by case depending on the square footage and project complexity. Our engineer team will collaborate with customer’s architect, civil engineers, and MEP engineers to make sure the final structure design is city approved. To begin the metal stud production, our engineer team also generates the shop drawings which is a digital file and readable by our intelligent CNC machine. We also have another option where the customer may outsource the engineer service and contact INNO for metal stud production, where we do not provide continuous services until the design is city approved.
In February 2024, we formed Inno AI Tech Corp., which specializes in research and consulting services. In 2024, we successfully supported a client in establishing a steel technology company. The services included incorporation assistance, comprehensive training programs, in-depth market research, and strategic business development guidance. This engagement generated consulting revenue of $205,000. The revenue from the consulting service is recognized upon the described services be provided to customers.
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Machine sales
We may sell or lease our machines. We provide technical and design support at relatively low costs, including industry compliance license and permits, as well as shop drawings and structural design. We also offer administration, operation, and management consulting support, including directing and assisting factory set-up, operation procedures, equipment installation, machine maintenance, repairs, and efficiency improvement. The training for such operations and installations are also provided. We will recommend, select, and advise pricings for material suppliers and other vendors.
Replicable Apartment Product
Our flagship product within this series is Village 101, a smart senior living apartment comprising 155 units with a floor area of 110,000 square feet. The architectural plan package for Village 101 is complete and ready for implementation. The project is currently pending for permits. Village 101 serves as a prototype building tech community, showcasing our innovative approach to senior living.
Our pipeline includes various apartment product options with different unit sizes, ranging from 15 to 150 units. These products are under active research and development, with the aim of creating replicable housing complexes across the United States. By leveraging our expertise in building technology and innovative design, we target to provide scalable and high-quality housing solutions that meet the evolving needs of residents including but not limited to senior citizen, college students and Gen Z etc.
Through our revenue model, we anticipate generating sustainable income by catering to the demand for replicable apartment products. By expanding our product line and continually advancing our research and development efforts, we aim to capture a significant market share in the housing industry while delivering superior value to our clients.
Cost of Sales
Cost of Sales primarily consist below components.
| ● | Materials — Rolled steel represents the single largest cost. We manage our relationship with suppliers (primarily US Steel) very adroitly by building in purchase orders and their associated costs to the customer to minimize our exposure to changes in steel prices for any specific project. We manage our purchases and deliveries as close to “just in time” as possible. | |
| ● | Labor — Labor is potentially the most variable component of cost of sales. We have a team of hourly workers who largely work onsite at the factory producing parts from raw steel and assembling them into prefabricated pieces to be delivered to job sites. Contractors are non-employee hourly workers who largely work in our turnkey projects. As-needed hourly labor is largely available in our markets. | |
| ● | Freight and Shipping — Our policy is to include any freight incurred to ship the product from our vendors to warehouses as a part of cost of goods sold. Outbound freight costs related to shipping costs to customers are considered periodic costs and are reflected in selling expenses. |
Other Expenses
Other expenses are typically comprised of payroll of salaried and hourly workers. We pride ourselves on running lean and efficiently. We operate in a business-friendly state with a large and available workforce. Rent, utilities, insurance, consulting service and other normal expenses are all competitive in the commercial area where we are based.
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Our Growth Strategy
We seek to leverage the trend toward off-site and modular building techniques to increase productivity, reduce errors on-site, and decrease costs. With both Castor Cube and Mobile Factory as our featured products in the coming years, we seek to become leaders in the industry. As the market continues to move toward panelized construction, we seek to have an edge in the industry as a large-scale pioneer of the overall cost-reducing process.
INNO’s business growth strategy combines the following three parts: revenue growth strategy, profit growth strategy and technology growth strategy.
Revenue Growth Strategy
Our revenue growth strategy is composed of the following.
Capacity expansion and in-house research and development. We are expanding factory operations and manufacturing capabilities in line with demand. We are also investing in R&D to ensure a pipeline of competitive and innovative building-technology products.
Multiple products and services. We are in the process of developing the Castor Cube, a 743-square-foot modular house product with the goal of mass producing. We are also working on developing Village 101, a smart senior living apartment comprising 155 units with a floor area of 110,000 square feet. The architectural plan package for Village 101 is complete and awaits permits approval for implementation. We’ve expanded our business to include consulting services offered by our new entity-AI Tech Corp.
Marketing investment. We are in the process of optimizing our online sales and marketing efforts by recruiting marketing talent and engaging consultants for marketing and promotional events.
Potential Acquisitions and investments. In accordance with our growth strategy, our company intends to pursue vertical integration by acquiring or investing several companies operating within the construction industry in the United States. The objective of this vertical integration is to strengthen our position as a prominent building-technology developer and expand our capabilities within the market. We will position ourselves to offer a comprehensive range of solutions encompassing the entire building. The expanded scope of our offerings includes prefab structure systems, centralized MEP (mechanical, electrical, plumbing) systems, integrated wall systems, integrated floor systems, roofing systems, and prefab cabinets, sinks, and countertops. This integration allows us to deliver a single-cycle turnkey solution, streamlining the traditional linear process employed by traditional developers. To fortify our supply chain and augment our capabilities, we will consider the strategic acquisition or investment of construction vendors/suppliers. The targeted companies would include the ones that enjoy the popularities in the industry, including but not limited to the companies that can supply the interior finish, exterior wall panels, insulation materials and roof system etc. By incorporating the targeted companies into our operations, we will establish a comprehensive one-stop-shop solution for the multi-family apartments, thereby further solidifying our market position and value proposition. Consistent with our growth strategy, we are firmly committed to implementing a robust product life cycle management approach, encompassing all stages from procurement to delivery. Through our pursuit of vertical integration and strategic acquisitions, we are poised for substantial growth to assume a leadership role within the market. By expanding our product offerings, strengthening our supply chain, and cultivating key partnerships, we are well-positioned to provide comprehensive building solutions that effectively meet the evolving needs of our clients while concurrently driving revenue growth and delivering enhanced shareholder value.
Profit Growth Strategy
Our profit growth strategy is composed of the following.
Improving assembly automation. We plan to source and develop production robots and to expand automation where possible, to further increase our production efficiency.
Reducing transportation costs by utilizing Mobile Factory. Our Mobile Factory is equipped with our proprietary machines and can be transported to any jobsite. Mobile Factory utilizes Inno Statlink Data System which is ideal for remote production management. Mobile Factory saves significant transportation costs and as such, our goal is to increase the use of Mobile Factory.
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Optimizing artificial intelligence design capabilities. We intend to optimize the artificial intelligence design capabilities by utilizing machine learning to get the wisest structure supporting data and running several models for all types of walls. The model we tested could reduce the raw materials used in different projects.
Technology Growth Strategy
Our technology growth strategy is composed of the following.
Develop EQ products to replace existing building materials with thinner and lighter products. We are developing technology in an effort to replace existing building materials with thinner materials. Once this technology matures, it is expected to save approximately 10% in raw materials.
Develop stainless steel as a building material for the high-end building market. We are developing technology to replace the current galvanized steel sheets with stainless steel. The new patent pending material could be used in extreme climate conditions for high-end customers.
Leverage module wall technology to increase the range of applications. We are in the process of developing different types of module wall products to expand our customer reach.
Strategic Partnerships
We have partnerships with at least 10 regional and national developers and builders. INNO’s customers include national real-estate developers and some local builders in both Texas and California. The regional/national developers and builders have a strong pipeline of projects coming each year. Their project types cover residential, commercial, and industrial. They either intend to use steel framing for structure or to develop land with Castor Cube and Village 101 projects, as their strategic partners, INNO will provide customized offer and have higher probability to bid and win projects. The cold-formed steel framing business is categorized as business-to-business model, and the Castor Cube as well as Village 101 projects will be either to business or to customers.
Competitive Outlook
Lumber-Based vs. Cold-Formed Steel
Our primary competitors (or segment with which we are most often compared) are traditional lumber-based building products solutions in certain categories, particularly buildings below six floors and residential. The accessibility and proficiency in assembling lumber-based structures can make practitioners in the construction industry unwilling to move out of the wood framing comfort zone. Further, lumber prices were generally lower than the price of metal studs. The switch to cold-formed Steel is being driven by materials price and several market-based advantages of steel. Steel is strong, safe, durable, versatile, and cost-effective. Steel has the exceptional environmental advantage of being highly recycled and infinitely recyclable. Steel is tough and does not rot, spawl, split, or absorb moisture, and it is resistant to pests, unlike wood building materials.
Inherent Benefits of Steel Framing
| ● | Steel has the highest strength-to-weight ratio of any framing material. | |
| ● | Non-combustible. Steel will not contribute fuel to the spread of fire. | |
| ● | Steel is termite and rodent resistant. | |
| ● | Steel ensures dimensional stability. Will not rot, warp, crack or shrink. | |
| ● | Lower builder’s risk insurance. | |
| ● | Permanently straight walls. No call backs for nail pops. |
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| ● | No toxicity contribution. Free of resins, adhesives, and chemicals normally present in other framing material. | |
| ● | Consistent material quality. No regional variation. | |
| ● | Grounded against electrical storms. | |
| ● | Steel is inorganic. Unlike traditional framing products, steel is not vulnerable to mold. | |
| ● | Steel is the most recycled product in the world. Optimum sustainability. |
The SFIA has conducted studies of construction costs in two different locations using two identical buildings — one designed with wood and the other with cold-formed steel (CFS) framing. The mixed-use, 49,900 square foot building used in the studies is representative of many residential buildings constructed in the mid-rise market today and includes:
| ● | A first floor non-combustible (concrete) podium with parking and retail space | |
| ● | Residential dwellings on levels 2-5 | |
| ● | Roof-top/penthouse space atop level 5 housing building services. |
The first location for the study was a building constructed in Chicago in late 2017. Results include hard construction costs only. In this case, cold-formed steel cost 2.6% more than traditional wood construction.
The second location was in Morristown, New Jersey. It takes a deeper look at costs by including the impact of lower insurance premiums available for CFS construction compared to combustible framing (wood). The insurance costs from major insurers operating in New Jersey were converted to a cost per square foot and evaluated in terms of their impact on the overall building costs. In this case, cold-formed steel cost 0.9% more than traditional wood construction.
The two case studies mentioned above are taken from the official SFIA website. We believe INNO’s product cost is less than that of the preceding case studies, with the overall cost less than that of traditional wood.
Others Participating in Cold-formed Steel
The second category of competitors are divided into two groups: traditional manufacturers of metal studs and suppliers of cold-roller machines. Traditional manufacturers, such as Clark Dietrich and CEMCO, pre-punch their metal studs with punchouts at regular intervals for pipe installation, but the number of punchouts is fixed and not customized for each project. INNO employs proprietary software to calculate the minimum punchouts for MEP pipe installation that are consistent with the architectural plan set to ensure the structure’s load-bearing capability to the greatest extent possible. The load-bearing capability gradually decreases as the number of punchouts increases. Traditional steel framing manufacturers are unable to automatically make punchouts for screw holes, so manual drilling holes at the jobsite for metal stud connections are still required. The screw holes are precisely located and punched by the INNO CNC machines.
Screw hole punchouts are left for panel assembly, and the stud spacing should be building code compliant. The number of screw holes for each panel is calculated systematically, and the screws are included in the product package. We prefabricate the wall panels, joists, and trusses in the factory, eliminating the need for on-site manual labor to measure stud intervals and drill holes for metal stud connection. These two traditional metal studs profile manufacturers have a nationwide retail network that we cannot compete with. We are using the Internet to increase the marginal effect of sales, and our future strategy is to use Internet sales to undermine traditional store-based sales.
In the cold-formed roller machine market, FRAMECAD is a traditional LGS/CFS machine manufacturer. When compared to their LGS equipment, INNO CNC machines manufacturing cost is approximately 50% less, based on our estimates. INNO CNC machines currently have three pending patents, the CUBE 200 (Application number: 63437142), CUBE 300 (Application number: 63427583) and NEW OPTIMIZED DESIGN FOR ROLL FORMER CNC MACHINE (Application number: 63427583). CUBE 200 is able to form C& U type studs and tracks in the thickness of 16 gauge and 6 inches width studs. CUBE 300 is able to form C&U type studs in the thickness of 12 gauge and 12 inches width studs.
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In addition, mobile factories are an important countermeasure to traditional equipment. We have developed a mobile factory for offsite production of steel pieces and structures that compete in the traditional prefab and modular building markets. INNO differentiates itself from other steel framing companies and cold-formed roller machine suppliers by integrating services ranging from metal stud manufacturing to prefabrication. In this context, we distinguish ourselves through the technologies and innovations we bring to our process and methods for producing structural components from rolled steel into useful pieces that assemble without error.
3D “Printing” Technology
Currently, 3D printing technology is widely used for prefab homes; however, cooling time is required for formation because the technical principle is to melt the material and then wait for it to cool before settling. In contrast to other prefab home companies, which use 3D printing technology, INNO uses our own cold-formed steel technology to ensure that there is no waiting time for structure formation. 3D printing necessitates the use of unique liquid raw materials such as LAVACRETE and Light Stone Material (LSM), neither of which are easily accessible. This could lead to supply chain disruptions and affect delivery time. Furthermore, steel is still commonly used to support the structure of prefab homes, regardless of the manufacturing technology used.
Safety is an important factor to consider when choosing a prefab home. Since INNO’s CASTOR CUBE uses steel structure entirely, which has a high strength to weight ratio and good performance to resist disasters such as hurricanes and earthquakes. The foldable prefab home product manufactured by other company may not have the same level of disaster resistance as CASTOR CUBE.
Castor Cube plans to apply a patent for its utility hook-up system, which enables consumers to connect utility within one day. This is a unique feature that can make the process of setting up a prefab home more convenient for consumers. It is also worth noting that according to other prefab companies’ product introduction videos and their social media platforms, they all take around 48 hours to construct a 350 square feet prefab home.
With the usage of INNO’s patent pending honeycomb aluminum panels and Z-shaped pendant designed for replacing manual sheetrock installation, we can significantly reduce the number of manufacturing steps and minimize manual labor. INNO is planning to set up an automatic streamline to produce CASTOR CUBE. This will bring a significant increase in production capacity and it can help INNO to meet the growing demand for prefab homes more efficiently.
Government Regulations
Building Codes
Building codes are laws that set minimum requirements for how structural systems, plumbing, heating, ventilation and air conditioning, natural gas systems and other aspects of residential and commercial buildings should be designed and constructed. In the U.S., building codes mostly fall under the purview of state and local governments. All metal studs used for building structures are required to pass inspections in the jurisdiction they are located. We have ICC-ES evaluation reports (ESR-4641) that show that our cold-formed steel-framing members are compliant with the 2018 and 2015 International Building Code (“IBC”), 2019 California Building Code (“CBC”), and 2020 Florida Building Code (“FBC”). Because of the nature and use of our products, we need to be compliant with quality assurance programs.
Fire safety is one critical area of the building codes. As fire codes become stricter in some geographical areas or specific types of structures, our cold-formed steel materials are inherently non-combustible and therefore are advantaged over combustible alternatives.
Environmental Compliance
We are subject to U.S federal, state, and local environmental laws and regulations that involve the use, disposal and cleanup of substances regulated by those laws and subject to periodic inspections to monitor our compliance. We believe that we are currently in compliance with applicable environmental regulations. Expenditures for environmental compliance purposes during 2024 and 2023 were not material.
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We were given awards by the U.S. Green Building Council (“USGBC”) in 2020. Our manufacturing processes minimizes waste, prevents pollution, and recycles wherever possible. Our manufacturing process manufactures special length products for all types of projects, has self-contained building system solutions that do not rely on third-party suppliers, and designs products to fulfill the BCA Energy Efficiency program. This compliance proves that we are a green company that meets basic environmental milestones and legal requirements.
Occupational Health and Safety Laws
Our business and operations are subject to numerous federal, state, and local laws and regulations intended to protect our employees. Due to the nature of manufacturing, we are subject to substantial regulations related to safety in the workplace. In addition to the requirements of local and state governments in Texas, we must comply with federal health and safety regulations, the most significant of which are enforced by the Occupational Safety and Health Administration.
Further, our operations and facilities are subject to additional federal, state, or local laws or regulations, such as the COVID-19 safety and prevention regulations. Our operations are also subject to federal, state, and local labor laws relating to employee privacy, wage and hour matters, overtime pay, discrimination and harassment, equal opportunity and employee leave and benefits.
It is our policy and practice to comply with all legal and regulatory requirements and our procedures and internal controls are designed to promote such compliance. Expenditures for compliance with occupational health and safety laws and regulations during 2024 and 2023 were not material.
Human Capital Resources
The success of our business depends in large part on our ability to attract, retain, and develop a workforce of skilled employees at all levels of our organization. We provide employees with base wages and salaries that we believe are competitive and consistent with each employee’s position. We also work with local, regional, and state-wide agencies to facilitate workforce hiring and development initiatives. We had four and 11 full-time employees as of September 30, 2024 and 2023, respectively. We also utilize at-will contractors in our business. As of September 30, 2024 and 2023, we had 11 and 18 at-will contractors employed, respectively. For the year ended September 30, 2024, the Company also engaged three consultants conducting marketing activities and promotional events.
Intellectual Property Matters
Presently, we have no registered intellectual property rights and trademarks. The trademarks application status of our name and other marketing materials is pending. There are currently five pending patent applications and descriptions of each pending patent are as follows:
| ● | New optimized design for Roll Former CNC machine that efficiently produces C&U type studs and tracks to be used in building high quality, quick erection structures. (Application number: 63427583) | |
| ● | Cube 200, which is a new optimized design for a Roll Former CNC machine that efficiently produces C&U type studs and tracks to be used in building high quality, quick erection structures. (Application number: 63437142) | |
| ● | Z-shaped pendant for castor exterior wall to replace the Z-shaped pendant for sheetrock with honeycomb aluminum plate. (Application number: 63434155) | |
| ● | Cube 300, which is a new optimized design for a Roll Former CNC machine that efficiently produces C&U type studs and tracks to be used in building high quality, quick erection structures. (Application number: 63437143) | |
| ● | Aluminum honeycomb plate for interior wall construction. (Application number: 63367663) |
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In the course of our business, we develop expertise in the manufacturing process. Although we have non-disclosure policies in place with respect to our personnel and in our contractual relationships, we cannot assure you that we will be able to protect our intellectual property rights with respect to this expertise.
Corporate Structure
Our Company, INNO HOLDINGS INC., was incorporated in Texas on September 8, 2021. It originally had three subsidiaries, Inno Metal Studs Corp (“IMSC”), Castor Building Tech LLC (“CBT”), and Inno Research Institute LLC (“IRI”).
On January 21, 2024, the Company established Inno Disrupts Inc., a wholly owned subsidiary in Texas. The purpose of Inno Disrupts Inc. is to remodel buildings using the Company’s framing steel products, enhance producing and marketing capabilities, manage the designated buildings in US, and other activities.
On January 27, 2024, the Company and the minority shareholder of IRI agreed to dissolve IRI, a subsidiary of IMSC with 65% ownership. The R&D activities previously carried out by IRI will be transferred to the new subsidiary, Inno AI Tech Corp.
On February 11, 2024, the Company formed Inno AI Tech Corp., a wholly owned entity in Texas to conduct AI tech research and consulting activities.
Below is the corporate structure of the Company as of December 6, 2024:
Corporate Information
Our principal executive office is located at 2465 Farm Market 359 South, Brookshire, TX 77423. Our corporate website address is https://www.innoholdings.com. Our telephone number is (800) 909-8800.
ITEM 1A. RISK FACTORS
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information in this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
We acknowledge the increasing importance of cybersecurity in today’s digital and interconnected world. Cybersecurity threats pose significant risks to the integrity of our systems and data, potentially impacting our business operations, financial condition and reputation.
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As a smaller reporting company, we currently do not have formalized cybersecurity measures, a dedicated cybersecurity team or specific protocols in place to manage cybersecurity risks. Our approach to cybersecurity is in the developmental stage, and we have not yet conducted comprehensive risk assessments, established an incident response plan or engaged with external cybersecurity consultants for assessments or services.
Given our current stage of cybersecurity development, we have not experienced any significant cybersecurity incidents to date. However, we recognize that the absence of a formalized cybersecurity framework may leave us vulnerable to cyberattacks, data breaches and other cybersecurity incidents. Such events could potentially lead to unauthorized access to, or disclosure of, sensitive information, disrupt our business operations, result in regulatory fines or litigation costs and negatively impact our reputation among customers and partners.
We are in the process of evaluating our cybersecurity needs and developing appropriate measures to enhance our cybersecurity posture. This includes considering the engagement of external cybersecurity experts to advise on best practices, conducting vulnerability assessments and developing an incident response strategy. Our goal is to establish a cybersecurity framework that is commensurate with our size, complexity and the nature of our operations, thereby reducing our exposure to cybersecurity risks.
In addition, the Board will oversee any cybersecurity risk management framework and a dedicated committee of the Board or an officer appointed by the Board will review and approve any cybersecurity policies, strategies and risk management practices.
Despite our efforts to improve our cybersecurity measures, there can be no assurance that our initiatives will fully mitigate the risks posed by cyber threats. The landscape of cybersecurity risks is constantly evolving, and we will continue to assess and update our cybersecurity measures in response to emerging threats.
For a discussion of potential cybersecurity risks affecting us, please refer to the “Risk Factors” section of our Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 20, 2023 titled “Our systems and information technology infrastructure may be subject to security breaches and other cybersecurity incidents.”
ITEM 2. PROPERTIES
We lease our principal executive offices which are located at 2465 Farm Market 359 South, Brookshire, TX 77423. The lease for this principal Executive Office had a 60-month term beginning on December 1, 2019 and ending on December 31, 2024. On January 1, 2024, this facility lease was terminated without penalty and a new lease agreement was entered with the landlord. The new lease term is from January 1, 2024 to January 1, 2027, with a monthly rent of $18,000. The facility consists of 15,000 square feet of indoor space and 2.5 acres of concrete slab in the yard. On February 1, 2024, a mutual amendment to the lease agreement was executed. Under the terms of the amendment, we opted to prepay the lease payments covering the period up to December 31, 2026, with the due date set for April 1, 2024. This prepayment arrangement secures a rent-free period for the final year of the lease, spanning the entirety of 2027.
We had also entered into a lease agreement for office and production space in Corona, California with a term from May 1, 2022 until April 30, 2027 at a rate of $6,617 to $7,740 per month. In August 2023, we relocated our California office from Corona to Diamond Bar. We were obligated to pay the monthly rent for the office in Corona until February 1, 2024 when the landlord found a new lessee to occupy the facility. The lease in Diamond Bar, California has a term of 24 months from August 18, 2023 to August 17, 2025 at a rate of $4,730 to $4,926 per month. Subsequently on October 28, 2024, the lease in Diamond Bar was ended and assigned to a nonprofit organization.
These lease agreements contain standard commercial lease terms including but not limited to provisions regarding utilities, alterations, maintenance and repair, insurance and indemnification.
We believe that our current leased property is in good condition and suitable for the conduct of our business.
ITEM 3. LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings, investigations or claims. From time to time, we involve in legal matters arising in the ordinary course of our business. There can be no assurance that such matters will not arise in the future or that any such matters in which we are involved, or which may arise in the ordinary course of our business, will not at some point proceed to litigation or that such litigation will not have a material adverse effect on our business, financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
We have our common stock listed on The Nasdaq Capital Market under the symbol “INHD”.
Holders
As of December 6, 2024, there were approximately 25 stockholders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Reverse Stock Split
On November 30, 2022, the Company effected a forward stock split (the “Stock Split”) of the Company’s issued and outstanding shares of the common stock at a split ratio of 2-for-1. Further on July 24, 2023, the Company effected a reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of the common stock at a split ratio of 1-for-2 such that every holder of common stock of the Company shall receive one share of common stock for every two shares of common stock held and to reduce the number of authorized shares of common stock from 200,000,000 to 100,000,000. Shortly after the Reverse Stock Split, the Board of Directors of the Company approved issuance of additional shares to preserve the original purchase price per share of the shares sold in the period from February 1 to June 30, 2023.
On October 9, 2024, the Company completed a 1-for-10 reverse stock split of its issued and outstanding common stock, no par value, (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each share of common stock issued and outstanding immediately prior to October 9, 2024 were automatically converted into one-tenth (1/10) of a share of common stock. The Common Stock began trading on a Reverse Stock Split-adjusted basis on the Nasdaq Capital Market on October 10, 2024. The trading symbols for the Common Stock remains “INHD”. The Reverse Stock Split did not reduce the number of authorized shares of Common Stock and did not change the par value of the Common Stock. The Reverse Stock Split affected all stockholders uniformly. Except to the extent that the Reverse Stock Split resulted in the stockholders’ fractional shares being rounded up, no other effects affect stockholder’s ownership percentage of the Company’s shares of Common Stock. 199,787 fractional shares were issued in connection with the Reverse Stock Split.
All common share and per-share amounts in this Form 10-K have been retroactively restated to reflect the effect of the Reverse Stock Split.
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Dividend Policy
We have not declared any cash dividends since inception, and we do not anticipate paying any dividends in the foreseeable future. Instead, we anticipate that all of our earnings will be used to provide working capital, to support our operations, and to finance the growth and development of our business. The payment of dividends is within the discretion of the Board and will depend on our earnings; capital requirements; financial condition; prospects; applicable Texas law, which provides that dividends are only payable out of surplus or current net profits; and other factors our Board might deem relevant. There are no restrictions that currently limit our ability to pay dividends on our common stock other than those generally imposed by applicable state law.
Transfer Agent
VStock Transfer, LLC., 18 Lafayette Place, Woodmere, New York 11598.
Recent Sales of Unregistered Securities
During the period from October 1, 2022 to September 30, 2024, we have granted or issued the following securities that were not registered under the Securities Act:
| (a) | Issuance of common stock. |
| ● | On December 3, 2022, the Company issued 14,286 shares of its common stock to an accredited investor at $35 per share for $500,000 in cash. |
| ● | On March 13, 2023, the Company issued 2,703 shares of its common stock to an accredited investor at $37 per share for $100,000 in cash. |
| ● | On April 25, 2023, The Company issued 7,895 shares of its common stock to an accredited investor at $38 per share for $300,000 in cash. |
| ● | On June 20, 2023, the Company issued 1,316 shares of its common stock for a total value of $50,000 for services to be rendered during next twelve months by the immediate relative of the Company’s Chief Financial Officer. |
| ● | On June 20, 2023, the Company issued 1,974 shares of its common stock for a total value of $75,000 for services to be rendered during next twelve months by one nonemployee contractor. These shares were valued at $38 per share. |
| ● | On July 24, 2023, the Company issued 1,352 shares of its common stock to an accredited investor for no additional consideration following the Company’s previously disclosed reverse stock split in July 2023. |
| ● | On July 24, 2023, the Company issued 3,947 shares of its common stock to an accredited investor for no additional consideration following the Company’s previously disclosed reverse stock split in July 2023. |
| ● | On July 24, 2023, the Company issued 658 shares of its common stock to an accredited investor for no additional consideration following the Company’s previously disclosed reverse stock split in July 2023. |
| ● | On July 24, 2023, the Company issued 987 shares of its common stock to an accredited investor for no additional consideration following the Company’s previously disclosed reverse stock split in July 2023. |
| ● | On July 24, 2023, the Company issued 7,143 shares of its common stock to an accredited investor for no additional consideration following the Company’s previously disclosed reverse stock split in July 2023. | |
| ● | On January 1, 2024, the Company granted 5,000 shares to one advisory firm for a total value of $72,000 for advisory services to be rendered during next twelve months. The advisory firm helps and supports the Company in the capital market, including developing capital market strategies, sourcing different providers including investment banks and underwriters, etc. These shares were issued by the transfer agent on July 15,2024 and valued at $14 per share. |
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The issuance of the common stock in private placements was deemed exempt from registration under Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder in that the issuance of securities were made to an accredited investor and did not involve a public offering. The recipient of such securities represented its intention to acquire the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof.
| (b) | Warrants. |
| ● | On December 18, 2023, the Company issued warrants to AC Sunshine Securities LLC, the underwriter of its IPO (as defined below), to purchase up to 20,125 shares of common stock at an exercise price of $48 per share. |
Use of Proceeds from our Initial Public Offering of Common Stock
On December 18, 2023, we closed our initial public offering (the “IPO”), in which we sold and issued 250,000 shares of our common stock at a price to the public of $40 per share. We received approximately $7,859,533 in aggregate net proceeds from our IPO after deducting underwriting discounts and commissions and other offering expenses. AC Sunshine Securities LLC was the underwriter of our IPO.
The offer and sale of all of the shares of our common stock in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-273429), which was declared effective by the SEC on November 9, 2023.
As of January 11, 2023, we have used approximately $0.9 million of the net proceeds from our IPO for working capital and general corporate purposes. There has been no material change in our planned use of the net proceeds from our IPO as described in our final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on December 4, 2023.
Purchases of Equity Securities
Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.
Securities Authorized for Issuance Under Equity Compensation Plans.
The information required by this Item regarding equity compensation plans is incorporated by reference to the information set forth in Item 12 of this Annual Report on Form 10-K.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as a result of various factors.
Overview
We are a building technology company that primarily manufactures cold-formed-steel members and offers a full range of services required to transform raw materials into precise steel framing products and prefabricated homes. We transform raw material (coils of rolled steel of various gauges and other materials) through our proprietary technologies to cut, punch and bend the steel into members or other components. These work-in-process components are further processed into finished products which are used in a variety of building types, including residential, commercial, industrial, and infrastructure. At each stage of the process, we are adding value to the original rolled steel (and other materials) to its final assembled use by businesses or directly to customers.
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Our largest commodity expense is our primary raw material — rolled steel in various gauges and widths. Like any commodity, steel is subject to supply/demand-based price fluctuations which can have an impact on the profitability of our business if prices change between the time we enter into a contract with a customer to deliver finished goods and the time the steel is purchased from the mill. We seek to mitigate our exposure to steel price fluctuations in two ways:
| ● | Entering fixed price forward contracts with steel mills/suppliers for delivery in the future so that our bids for customer contracts have known pricing for the steel. This is particularly useful in larger projects that involve delivery of product over many months. | |
| ● | Maintaining an approximately three-month inventory of our most actively used rolled steel coils (defined by width and gauge). This inventory requires an active forward-looking assessment of steel needs to meet expected demand. Maintaining inventory is a real financial exposure especially during periods of pricing volatility. |
Beyond our manufacturing operations, we offer consulting services to support clients in developing their own building technology companies. Our subsidiary- Inno AI Tech Corp., formed in February 2024, specializes in providing research, consulting, incorporation assistance, training, market research, and business development guidance. In 2024, we successfully assisted a client in establishing a new steel technology company.
Key Factors Affecting our Performance
As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.
Inflation
Prices of certain commodity products, including raw materials, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, trade restrictions and tariffs. Increasing prices of the component materials for parts of our goods may impact the availability, quality and price of our products as suppliers search for alternatives to existing materials and increase the prices they charge. Our suppliers may also fail to provide consistent quality of product as they may substitute lower cost materials to maintain pricing levels. Rapid and significant changes in commodity prices may negatively affect our profit margins, and it may be difficult to mitigate worsened margins through customer pricing actions and cost reduction initiatives.
Interest Rates
Rising interest rates have also resulted in a shift in institutional holdings away from micro-cap equities, which has negatively influenced our stock’s trading volume. We continue to forge relationships with institutional investors and analysts in order to maintain a healthy trading volume.
Geopolitical Conditions
In February 2022, Russia initiated significant military action against Ukraine. In response, the U.S. and certain other countries imposed significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations, and the U.S. and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions should the conflict continue or worsen. It is not possible to predict the broader consequences of these conflicts, including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof as well as whether any counter measures or retaliatory actions in response, including, for example, potential cyberattacks or the disruption of energy exports, are likely to cause regional instability and geopolitical shifts, which could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. These situations remain uncertain, and while it is difficult to predict the impact of any of the foregoing, the conflicts and actions taken in response to these conflicts could increase our costs, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations.
| 20 |
In addition, while we do not have any direct operations or significant sales in the Middle East nor Africa, geopolitical tensions and ongoing conflicts in these regions, particularly in Gaza, northern Israel and southern Lebanon, the Red Sea, Sudan, and Ethiopia, may lead to further global economic instability and fluctuating energy prices that could materially affect our business. It is not possible to predict the broader consequences of these conflicts, including related geopolitical tensions, and the measures and actions taken by other countries in respect thereof, which could materially and adversely affect global trade, currency exchange rates, regional economies and the global economy. While it is difficult to predict the impact of any of the foregoing, these conflicts may increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition and results of operations.
Results of Operation
The following table presents certain Consolidated statement-of-operations information and presentation of that data as a percentage of change from year to year.
For the Years Ended September 30, 2024, and 2023
| Years Ended September 30, | ||||||||||||
| 2024 | 2023 | |||||||||||
| Revenue - products | $ | 395,495 | $ | 799,747 | -51 | % | ||||||
| Revenue - consulting services | 205,000 | - | 100 | % | ||||||||
| Revenue – License income | 285,000 | - | 100 | % | ||||||||
| Total Revenue | 885,495 | 799,747 | 11 | % | ||||||||
| Costs of materials and labor | 409,169 | 1,255,315 | -67 | % | ||||||||
| Selling, general and administrative expenses (exclusive of items shown separately below) | 3,678,866 | 2,191,043 | 68 | % | ||||||||
| Impairment loss | 23,911 | - | 100 | % | ||||||||
| Depreciation | 87,116 | 69,437 | 25 | % | ||||||||
| Bad debt expense | 59,935 | 1,267,960 | -95 | % | ||||||||
| Operating loss | (3,373,502 | ) | (3,984,008 | ) | -15 | % | ||||||
| Other income (expenses) | 123,175 | (39,196 | ) | -414 | % | |||||||
| Loss before income taxes | (3,250,327 | ) | (4,023,204 | ) | -19 | % | ||||||
| Income tax expense | 800 | - | 100 | % | ||||||||
| Net loss | (3,251,127 | ) | (4,023,204 | ) | -19 | % | ||||||
| Non-controlling interest | (37,298 | ) | (127,426 | ) | -71 | % | ||||||
| Net loss attributable to INNO HOLDINGS INC. | $ | (3,213,829 | ) | $ | (3,895,778 | ) | -18 | % | ||||
Revenues
Total revenue for the year ended September 30, 2024 increased 11% to $885,495 in comparison to the year ended September 30, 2023.
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In February 2024, we started our second revenue stream by offering consulting service through our newly formed subsidiary, Inno AI Tech Corp. Throughout the year, we successfully supported a client in establishing a steel technology company. Our services included incorporation assistance, comprehensive training programs, in-depth market research, and strategic business development guidance. This engagement generated consulting revenue of $205,000. During the fourth quarter of 2024, we entered into a one-time licensing agreement with an individual and his startup company. This agreement provided them with a license to utilize our logo, technology, trademarks and other intellectual property for the purpose of startup operations and marketing development. The agreement generated $285,000 in licensing income.
Our product revenue decreased 51% to $395,495 in comparison to $799,747 for the year ended September 30, 2023. The decrease was primarily due to the various statuses and stages of projects. To mitigate collection issues, the Company has focused on developing relationships with larger customers. During the year ended September 30, 2024, the Company has been working on obtaining permits for large projects and exploring new business opportunities with larger customers.
Our backlog as of September 30, 2024 was approximately $14,000,000 to $19,000,000. The range of backlog amount is comprised of all remaining payments related to our signed customer contracts and estimation of order adjustments. The timing of revenue recognition from these contracts is subject to variation based on each project’s permit status and construction progress. These signed contracts included an agreement, amount of $15,875,800, with Vision Opportunity Fund LP (assigned to Vision 101) partially owned by one of our shareholders. None of the contract amount has been delivered to Vision 101 or recognized as revenue as of September 30, 2024.
Our revenues are significantly impacted by demand for residential and commercial buildings, economic conditions including interest rates and costs of labor, materials and other variables that impact the cost of our finished goods. We cannot ensure that growth will continue, and our business may be adversely affected by negative overall economic conditions currently being experienced.
Costs of Materials and Labor
Costs of materials and labor include raw materials (primarily rolled steel) and direct labor in the processing of raw materials through the manufacturing process. Costs of materials and labor for the year ended September 30, 2024 was $409,169 compared to $1,255,315 for the year ended September 30, 2023. The decrease in the Cost of Goods Sold (COGS), pertaining to materials and labor, is predominantly due to the decrease in product sales volume.
The primary cost of consulting service revenue in fiscal year 2024 was the payroll expense for office employees, which is included in selling, general, and administrative expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended September 30, 2024, increased 68% to $3,678,866 in comparison to $2,191,043 for the comparable period in 2023. This increase was primarily driven by higher overhead costs, including rent, payroll, insurance, consulting and professional fees, marketing, and promotional expenses. These additional expenses were incurred to support our growth in the consulting business and comply with the regulatory requirements of a public company.
Bad debt expense
Bad debt expense decreased by $1,208,025 for the year ended September 30, 2024 compared to the same period in 2023. We estimated the credit losses based on each customer’s financial situation, project status and the outstanding days of the accounts receivable balance. Starting prior year, we strengthened our risk control of accounts receivable and reduced the days outstanding for accounts receivable by discontinuing business with smaller customers with high credit risk. Most of our current customers adhere to a 30-day payment term. For the current year’s transactions, we have maintained a high collection rate.
Operating Loss
Operating loss was $3,373,502 for the year ended September 30,2024, in comparison to an operating loss of $3,984,008 for the comparable period in 2023. The increase in operating loss was primarily attributed to the lower revenue and increased expenses offset by the decrease in bad debt expense, as discussed above.
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Other Income (Expense)
Other income for the year ended September 30, 2024, was $123,175, in comparison to other expenses of $39,196 for the comparable period in 2023. The increase in other income was primarily due to interest earned on bank deposits of $76,047, supporting services provided to a customer of $104,674, and offset by settlements with former lessor, customers and subcontractor. Other expenses for the year ended September 30, 2023, were primarily attributable to loan interest.
Net Loss
Net loss for the year ended September 30, 2024 was $3,251,127, in comparison to a net loss of $4,023,204 for the year ended September 30, 2023. The decrease in net loss was primarily due to changes in revenue, costs, expenses and other income (expense) as outlined above.
Liquidity and Capital Resources
Sources of Liquidity
During the year ended September 30, 2024 and 2023, we primarily funded our operations with cash generated from operations, private and public shares offering, as well as through borrowing under our revolving line of credit, a long term promissory note, and related parties. We had cash of $1,526,661 as of September 30, 2024 compared to $4,898 of cash as of September 30, 2023. The cash increase was primarily due to the proceeds from the initial public offering closed in December 2023 and offset by the cash usage in operating and investing activities during the periods ended September 30, 2024.
The Company has participated in several private-placement offerings. On December 3, 2022, we closed on a private-placement offering pursuant to which we sold to an accredited investor an aggregate of $500,000 in common stock, at a purchase price of $35 per share. On March 13, 2023, we closed on a private-placement offering pursuant to which we sold to an accredited investor an aggregate of $100,000 in common stock, at a purchase price of $37 per share. On March 29, 2023, we closed on a private-placement offering pursuant to which we sold to an accredited investor an aggregate of $300,000 in common stock, at a purchase price of $38 per share. The offerings were completed pursuant to an exemption from registration under Rule 506(b) of the Securities Act of 1933, as amended.
On December 18, 2023, the Company successfully closed the initial public offering with net proceeds of $8 million.
We do not believe the cash and cash equivalents on hand as of September 30, 2024 of $1,526,661 will be sufficient to fund our operations and capital expenditure requirements for the next twelve months from the date the consolidated financial statements are issued. We will be required to raise additional capital to continue to fund operations and capital expenditure. The uncertainties surrounding our ability to access capital when needed creates substantial doubt about our ability to continue as a going concern. Based on our need to raise additional funds to implement our business plans for the next twelve months, we have included a discussion concerning the presentation of our financial statements on a going concern basis in the notes to our consolidated financial statements. We will be required in the near future to issue debt or sell our Company’s equity securities in order to raise additional cash, although there are no firm arrangements in place for any such financing at this time. We cannot provide any assurances as to whether we will be able to secure the necessary financing, or the terms of any such financing transaction if one were to occur. The failure to secure such financing could severely curtail our plans for future growth or in more severe scenarios, the continued operations of our Company.
On October 31, 2024, the Company entered into a Securities Purchase Agreement with certain investors to issue and sell 500,000 shares of its common stock at a price of $4.00 per share, for an aggregate purchase price of $2,000,000.
On November 13, 2024, the Company entered into a Securities Purchase Agreement with nine non-U.S. investors to issue and sell an aggregate of 729,167 shares of common stock in a private placement offering at a price per share of $4.80, for total proceeds of approximately $3.5 million.
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Working Capital
As of September 30, 2024 and September 30, 2023, our working capital (deficit) was $975,755 and $(2,913,827), respectively. The historical seasonality in our business during the year can cause cash and cash equivalents, inventory, and accounts payable to fluctuate, resulting in changes in our working capital.
Cash Flows
Operating Activities
Net cash used in operating activities for the year ended September 30, 2024 was $5,075,412 compared to $1,225,941 of net cash used in operating activities for the year ended September 30, 2023. The increase of net cash usage in operating activities was mainly due to a $128,733 increase of loss with non-cash reconciling items adjustment and a $3,720,738 increase of working capital outflow.
For the year ended September 30, 2024, net cash used in operating activities was $5,075,412, primarily driven by the net loss of $3,251,127, partially offset by non-cash items of $599,057 and working capital used cash of $2,423,342, which was primarily driven by a $322,739 increase of prepayments and other current assets, including prepaid insurance and prepayments to service suppliers, a $547,568 decrease in unearned revenue, a $729,359 decrease in operating lease liabilities and a $843,694 decrease in accounts payable, accounts payable - related party, and other current liabilities.
For the year ended September 30, 2023, net cash used in operating activities was $1,225,941, primarily driven by the net loss of $4,023,204, partially offset by non-cash items of $1,499,867, which mainly included bad debt expense of $1,267,960. Working capital provided cash of $1,297,396, which was primarily driven by a $936,098 increase in unearned revenue, a $325,951 increase in accounts payable, accounts payable - related party, operating lease liabilities and other current liabilities, a $468,895 decrease in account receivable, a $79,457 decrease of prepayments and other current assets, and partially offset by a $64,389 increase in inventories and a $538,765 increase in deferred offering costs.
Investing Activities
For the year ended September 30, 2024 and 2023, net cash used in investing activities was primarily the result of additions to property and equipment of $559,629 and $244,899, respectively, which are mainly related to the additions of machinery, tools, motor vehicles, and leasehold improvements.
Financing Activities
Net cash provided by financing activities was $7,144,235 and $1,425,110, respectively, for the year ended September 30, 2024 and 2023.
For the year ended September 30, 2024, net cash provided by financing activities was primarily due to the $8,450,000 net cash from the initial public offering, offset by $740,000 payment of short-term loans, $503,372 repayment to related parties, $49,393 payments of notes payable, and an aggregate amount payment of $13,000 for the assumption of the Warrants.
For the year ended September 30, 2023, net cash provided by financing activities was primarily due to the $900,000 proceeds from stock issuance, $627,000 proceeds from related parties, $230,000 proceeds from short-term loans and offset by $150,000 payment of short-term loans, $134,861 repayment to related parties, and $47,029 payments of notes payable.
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Critical Accounting Policies and Estimate
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 2 — Basis of Presentation and Summary of significant accounting policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Form 10-K, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Form 10-K, include the discussion of estimates used for revenue recognition, inventory valuation, going concern assessment, and our provision for income taxes. Such accounting estimates require significant judgments and assumptions to be used in the preparation of the Consolidated Financial Statements included in this Form 10-Q, and actual results could differ materially from the amounts reported.
New Accounting Standards
From time to time, the FASB or other standards-setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2 — Basis of Presentation and Summary of significant accounting policies, “Recently issued but not yet adopted accounting pronouncements”, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Consolidated Financial Statements upon adoption.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required under Regulation S-K for “smaller reporting companies.”
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
| Page | ||
| Financial Statements as of and for the Fiscal Years Ended September 30, 2024 and 2023 | ||
| Report of Independent Registered Public Accounting Firm PCAOB ID# ( |
F-2 | |
| Report of Independent Registered Public Accounting Firm PCAOB ID# (0 |
F-3 | |
| Consolidated Balance Sheets as of September 30, 2024 and 2023 | F-4 | |
| Consolidated Statements of Operations for the years ended September 30, 2024 and 2023 | F-6 | |
| Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2024 and 2023 | F-7 | |
| Consolidated Statements of Cash Flows for the years ended September 30, 2024 and 2023 | F-8 | |
| Notes to Consolidated Financial Statements | F-9 |
| F-1 |
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Inno Holdings Inc.
Brookshire, TX
Opinion on the Consolidated Financial Statements
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
We have served as the Company’s auditor since 2024.
December 9, 2024
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of INNO HOLDINGS INC.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of INNO HOLDINGS INC. and its subsidiaries (the Company) as of September 30, 2023 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ended September 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023, and the results of its operations and its cash flows for the year ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2 to the consolidated financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
We served as the Company’s auditor from 2022 to 2024.
January 16, 2024
| F-3 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of September 30, 2024 and September 30, 2023
| September
30, 2024 | September
30, 2023 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalent | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Deferred offering costs | ||||||||
| Prepayments and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| ROU assets | ||||||||
| Property and equipment, net | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | ||||||||
| Accounts payable – related party | ||||||||
| Unearned revenue | ||||||||
| Other payables and accrued liabilities | ||||||||
| Other payables – related party | ||||||||
| Short-term loan payable | ||||||||
| Lease liability – current | ||||||||
| Long-term notes payable – current portion | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Notes payable | ||||||||
| Lease liability – non-current | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingency | ||||||||
| F-4 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of September 30, 2024, and September 30, 2023
September 30, 2024 | September 30, 2023 | |||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Common stock, | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total equity (deficit) | ( | ) | ||||||
| Total liabilities and equity (deficit) | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-5 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended September 30, 2024 and 2023
For the Years Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenue - products | $ | $ | ||||||
| Revenue - consulting services | ||||||||
| Revenue – licensing income | ||||||||
| Total Revenue | ||||||||
| COSTS AND EXPENSES: | ||||||||
| Costs of materials and labor | ||||||||
| Selling, general and administrative expenses (exclusive of expenses shown separately below) | ||||||||
| Impairment loss | ||||||||
| Depreciation | ||||||||
| Bad debt expense | ||||||||
| Total costs and expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income (expenses), net | ( | ) | ||||||
| Other non-operating income (expense) | ||||||||
| Total other income (expenses), net | ( | ) | ||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| PROVISION FOR INCOME TAXES | ||||||||
| NET LOSS | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO INNO HOLDINGS INC. | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE NUMBER OF COMMON STOCK | ||||||||
| Basic and Diluted | ||||||||
| LOSSES PER SHARE | ||||||||
| Basic and Diluted | $ | ) | $ | ) | ||||
| * | Adjusted retroactively for reverse stock split that occurred on October 9, 2024, see Note 2. The computation of basic and diluted Losses Per Share were retroactively adjusted for all periods presented. |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-6 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended September 30, 2024 and 2023
| Common Stock* | Additional Paid in | Accumulated | Non- controlling | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | interest | Total | |||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||
| Shares issued for service | ||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Shares issued upon IPO completion | ||||||||||||||||||||||||
| Disposal of subsidiary | — | |||||||||||||||||||||||
| Warrants assumption | — | ( | ) | ( | ) | |||||||||||||||||||
| Shares issued for service | ||||||||||||||||||||||||
| Fractional shares round up due to reverse stock split | ||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| * |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-7 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Stock-based compensation expense | ||||||||
| Non-cash operating lease expense | ||||||||
| Bad debt expense | ||||||||
| Loss from settlement | ||||||||
| Fixed assets disposal loss | ||||||||
| Subsidiary disposal loss | ||||||||
| Impairment loss | ||||||||
| Change in operating assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Accounts receivable – related party | ||||||||
| Inventories | ( | ) | ||||||
| Deferred offering costs | ( | ) | ( | ) | ||||
| Prepayments and other current assets | ( | ) | ||||||
| Other non-current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable – related party | ( | ) | ||||||
| Unearned revenue | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other current liabilities | ||||||||
| Other non-current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Fixed assets additions | ( | ) | ( | ) | ||||
| Proceed from fixed assets disposal | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from related parties | ||||||||
| Payments to related parties | ( | ) | ( | ) | ||||
| Proceeds from short-term loans | ||||||||
| Payments to short-term loans | ( | ) | ( | ) | ||||
| Payment to long-term note | ( | ) | ( | ) | ||||
| Warrants assumption | ( | ) | ||||||
| Shares issued for cash | ||||||||
| Net cash provided by financing activities | ||||||||
| CHANGES IN CASH | ( | ) | ||||||
| CASH AND CASH EQUIVALENT, beginning of period | ||||||||
| CASH AND CASH EQUIVALENT, ending of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for income tax | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Noncash deferred offering costs offset to APIC upon IPO completion | $ | $ | ||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Deposit applied to lease liability | $ | $ | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-8 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 — Nature of business and organization
INNO HOLDINGS, INC., a Texas corporation (the “Company”), was incorporated on September 8, 2021. The Company is principally engaged in the marketing and sale of construction products along with full-scope construction services in the US.
On
January 18, 2022, the Company formed a limited liability company, Castor Building Tech LLC (“CBT”), in California. The Company
owned
Effective
as of January 21, 2022, the Company acquired
Inno
Research Institute LLC (“IRI”), a Texas limited liability company incorporated on September 8, 2021, is a
On January 21, 2024, the Company established Inno Disrupts Inc., a wholly owned subsidiary in Texas. The purpose of Inno Disrupts Inc. is to remodel buildings using the Company’s framing steel products, enhance producing and marketing capabilities, manage the designated buildings in US, and other activities.
On February 11, 2024, the Company formed Inno AI Tech Corp., a wholly owned entity to conduct AI tech research and consulting activities.
Note 2 — Basis of Presentation and Summary of significant accounting policies
Basis of presentation
The accompanying financial statements have been prepared in accordance with the generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The Company’s fiscal year end date is September 30.
Consolidated Principles of consolidation
The Consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company balances and transactions have been eliminated.
Reclassifications
Certain amounts on the prior year’s consolidated balance sheets, consolidated statements of operations and cash flows were reclassified to conform to the current year presentation, with no effect on ending stockholders’ equity.
Reverse Stock Split
All common share and per-share amounts in this Form 10-K have been retroactively restated to reflect the effect of the Reverse Stock Split.
| F-9 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.)
Use of estimates and assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents consist of amounts held as cash on hand, bank and money market deposits, and marketable securities with maturities of less than 90 days.
From
time to time, the Company may maintain bank balances in interest bearing accounts in excess of the $
Accounts receivable
During the ordinary course of business, the Company extends unsecured credit to its customers. Accounts receivable are stated at the amount the Company expects to collect from customers. Management reviews its accounts receivable balances using expected credit loss (CECL) methodology each reporting period to determine if an allowance for credit loss is required.
The Company continuously monitors the recoverability of accounts receivable. If there are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular customer. At the same time, the Company may cease further sales or services to such customer. The following are some of the factors that the Company develops allowance for credit losses:
| ● | the customer fails to comply with its payment schedule; |
| ● | the customer is in serious financial difficulty; |
| ● | a significant dispute with the customer has occurred regarding job progress or other matters; |
| ● | the customer breaches any of its contractual obligations; |
| ● | the customer appears to be financially distressed due to economic or legal factors; |
| ● | the business between the customer and the Company is not active; and |
| ● | other objective evidence indicates non-collectability of the accounts receivable. |
Accounts receivable are recognized and carried at carrying amount less an allowance for credit losses, if any. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis. The Company has also included in the calculation of allowance for credit losses based on its customers’ businesses and their ability to pay their accounts receivable. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company also considers external factors to the specific customer, including current conditions and forecasts of economic conditions. In the event we recover amounts previously written off, we will reduce the specific allowance for credit losses.
Fair values of financial instruments
ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current assets and liabilities are approximate fair values due to their short-term nature.
For other financial instruments to be reported at fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset
| F-10 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.)
or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
| Level 1 — | Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; |
| Level 2 — | Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and |
| Level 3 — | Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. |
Revenue recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, accounting for product, service and licensing revenue, net of promotional discounts and return allowances, if any, when the following revenue recognition criteria are met: a contract has been identified, separate performance obligations are identified, the transaction price is determined, the transaction price is allocated to separate performance obligations and revenue is recognized upon satisfying each performance obligation. The Company transfers the risk of loss or damage upon delivery, therefore, revenue from product sales is recognized when it is delivered to the customer. For services, all sales are recognized upon completion based on terms stated in the sales agreements.
The Company evaluates the criteria of ASC 606 — Revenue Recognition Principal Agent Considerations in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the Company is primarily responsible for fulfilling the promise to provide a specified good or service, the Company is subject to inventory risk before the good or service has been transferred to a customer and the Company has discretion in establishing the price, revenue is recorded at gross.
Payments received prior to the delivery of goods or services to customers are recorded as unearned revenue.
Sales discounts are recorded in the period in which the related sale is recognized. Sales return allowances are estimated based on historical amounts and are recorded upon recognizing the related sales. Shipping and handling costs are recorded as selling expenses.
License income originates from licensing our logo, technology and intellectual property where we receive fixed license fees over licensing periods. Our 2024 license revenue was derived from one-time licensing agreement with an individual and his startup company for the purpose of startup operations and marketing development. Revenue from the licensing has minimal associated direct costs, and thus is highly profitable.
Costs and expenses
Costs and expenses are operating expenses, which consist of costs of material and labor, selling, general and administrative expenses, and depreciation, are expensed as incurred.
Inventory
Inventory consists of material and finished goods ready for sale and is stated at the lower of cost or net realizable value. The Company values its inventory using the FIFO costing method. The Company’s policy is to include as a part of cost of goods sold any freight incurred to ship the product from its vendors to warehouses. Outbound freight costs related to shipping costs to customers are considered periodic costs and are reflected in selling expenses. The Company regularly reviews inventory and considers forecasts of future demand, market conditions and product obsolescence.
| F-11 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.)
If the estimated realizable value of the inventory is less than cost, the Company makes provisions in order to reduce its carrying value to its estimated net realizable value. The Company regularly assesses its inventory for obsolescence and records an allowance only when the inventory is no longer suitable for reproduction. The Company’s inventory generally has a long-life cycle and does not become obsolete quickly.
Deferred offering costs
The Company capitalizes certain legal, accounting and other third-party fees that are directly related to an equity financing that is probable of successful completion until such financing is consummated. After consummation of an equity financing, these costs are recorded as a reduction of the proceeds received as a result of the financing. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are immediately written off to operating expenses in the consolidated statements of operations in the period of determination.
Property and equipment
Property and equipment is stated at their historical cost, less accumulated depreciation. Depreciation on property and equipment is provided using the straight-line method over the estimated useful lives of the assets as follows:
| Machinery and equipment | ||
| Office equipment | ||
| Motor vehicles | ||
| Leasehold improvements |
Expenditures for renewals and betterments are capitalized while repairs and maintenance costs are normally charged to the statement of operations in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.
Upon sale or disposal of an asset, the historical cost and related accumulated depreciation or amortization of such asset were removed from their respective accounts and any gain or loss is recorded in the statements of income.
The
Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment
include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand,
competition and other economic factors. Based on this assessment, the Company recorded $
Leases
On its inception date, the Company adopted ASC 842 — Leases (“ASC 842”), which requires lessees to record right-of-use (“ROU”) assets and related lease obligations on the balance sheet, as well as disclose key information regarding leasing arrangements.
ROU assets represent our right to use an underlying asset for the lease terms and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
| F-12 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.)
The Company applies ASC No. 718, “Compensation-Stock Compensation,” which requires that share-based payment transactions with employees and nonemployees upon adoption of ASU 2018-07, be measured based on the grant date fair value of the equity instrument and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period. In addition to the requisite service period, the Company also evaluates the performance condition and market condition under ASC 718-10-20. For an award which contains both a performance and a market condition, and where both conditions must be satisfied for the award to vest, the market condition is incorporated into the fair value of the award, and that fair value is recognized over the employee’s requisite service period or nonemployee’s vesting period if it is probable the performance condition will be met. If the performance condition is ultimately not met, compensation cost related to the award should not be recognized (or should be reversed) because the vesting condition in the award has not been satisfied.
The Company will recognize forfeitures of such equity-based compensation as they occur.
Segment Reporting
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, allocating resources and assessing performance as the source for determining the Company’s reportable segments. During the years ended September 30, 2024 and 2023, the Chief Executive Officer has been identified as the chief operating decision maker. The Company’s chief operating decision maker regularly reviews consolidated assets and consolidated operating results prepared under U.S. GAAP for the enterprise as a whole when making decisions about allocating resources and assessing performance of the Company. Consequently, management has determined that the Company only has one operating segment as defined under ASC 280-10-50.
Income taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their perspective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.
As a result of the implementation of certain provisions of ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax position, as defined, ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company has adopted the provisions of ASC 740 since inception and has analyzed filing positions in each of the federal and state jurisdictions where the Company is required to file income tax returns, as well as open tax years in such jurisdictions. The Company has identified the U.S. federal jurisdiction, and the states of Texas and California, as its “major” tax jurisdictions. However, the Company has certain tax attribute carryforwards which will remain subject to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized.
The Company believes that its income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. The Company’s policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes.
Commitments and contingencies
In the ordinary course of business, the Company is subject to certain contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes its liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical and specific facts and circumstances of each matter.
| F-13 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.)
Basic loss per share are computed by dividing net income attributable to holders of common stock by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if securities to issue common stock were exercised.
Recently issued but not yet adopted accounting pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. The new guidance requires enhanced disclosures about income tax expenses. The Company is required to adopt this guidance in the first quarter of the fiscal year 2026. Early adoption is permitted on a prospective basis. We are currently evaluating the impact of this ASU on our annual income tax disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. The new guidance requires enhanced disclosures about significant segment expenses. The Company is required to adopt this guidance for its annual reporting in fiscal year 2025 and for interim period reporting beginning the first quarter of fiscal year 2026 on a retrospective basis. Early adoption is permitted. We are currently evaluating the impact of this ASU on our segment disclosures.
In June 2022, FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction and require specific disclosures related to such an equity security. This standard is effective for fiscal years beginning after December 15, 2024. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2023, with early application permitted. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.
| F-14 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 — Basis of Presentation and Summary of significant accounting policies (cont.)
Subsequent events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date that the consolidated financial statements are available to be issued. Material subsequent events that required recognition or additional disclosure in the consolidated financial statements are presented.
Note 3 — Accounts Receivable, Net
Accounts receivable for the Company consisted of the following as of the dates indicated below:
September 30, 2024 | September 30, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for credit losses | ( | ) | ||||||
| Accounts receivable, net | $ | $ | ||||||
The Company wrote off the allowance for credit losses subsequent to exhaustive efforts to recover the receivable, which typically occurs within a 12-month period following the initial reservation for the allowance. A summary of the activities in the allowance for expected credit losses for the years ended September 30, 2024 and 2023 is as follows:
September 30, 2024 | September 30, 2023 | |||||||
| Allowance for credit losses, beginning | $ | $ | ||||||
| Add/ (Deduct): | ||||||||
| Provision for credit loss | ||||||||
| Write-offs | ( | ) | ||||||
| Allowance for credit losses, end | $ | $ | ||||||
The
Company recorded credit losses of $
Note 4 — Inventories
As of September 30, 2024 and September 30, 2023, inventories consisted of the following:
September 30, 2024 | September 30, 2023 | |||||||
| Raw material | $ | $ | ||||||
| Production inventory | ||||||||
| Total | $ | $ | ||||||
As
of September 30, 2024 and 2023, there was
Note 5 — Deferred offering costs
Deferred
offering costs consisted of fees and expenses incurred in connection with the sale of the Company’s common stock in the IPO, including
the legal, accounting, printing and other offering related costs. Upon completion of the IPO, these deferred offering costs are to be
reclassified from current assets to stockholders’ equity and recorded against the net proceeds from the offering. As of September
30, 2024 and September 30, 2023, deferred offering costs amounted to $ and $
Note 6 — Prepayments and other current assets
As of September 30, 2024 and 2023, prepayments and other current assets consisted of the following:
September 30, 2024 | September 30, 2023 | |||||||
| Prepaid marketing and promotional services | $ | $ | ||||||
| Advance to other service providers | ||||||||
| Advance to suppliers | ||||||||
| Prepaid insurance | ||||||||
| Prepaid for services by stock grants | ||||||||
| Other prepayments and current assets | ||||||||
| Total | $ | $ | ||||||
| F-15 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7 — Property and equipment, net
As of September 30, 2024 and 2023, property and equipment consisted of the following:
September 30, 2024 | September 30, 2023 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Office equipment | ||||||||
| Motor vehicles | ||||||||
| Construction-in-progress | ||||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
The Construction-in-progress is related to the project to expand the Company’s operation and manufacturing capabilities in a factory in Texas. This project is expected to be completed by the end of February 2025.
In
connection with the termination of the lease in Corona, CA as disclosed in Note 13, the Company recorded $
For
the years ended September 30, 2024 and 2023, depreciation expenses amounted to $
Note 8 — Loans payable
Short-term loans
Revolving line of credit
On
September 16, 2022, the Company entered into an agreement with Origin Bank for a revolving line of credit (the “Line of Credit”)
of up to $
Short term loan without interest
From
June 2023 to August 2023, the Company borrowed short-term loans due on demand without interest, amounting to $
Long-term loan
Promissory note payable
On
October 28, 2021, the Company issued to BancorpSouth Bank a five-year unsecured
As
of September 30, 2024 and 2023, the total outstanding balance of the Note was $
Note 9 — Related party transactions
The
Company borrows short-term loans without interest from its Former CEO, Mr. Dekui Liu, for operation and cashflow needs from time to time.
As of September 30, 2024, the amount due to Mr. Liu was $
| F-16 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 — Related party transactions (cont.)
The
Company engaged Yunited Assets LLC (“Yunited”), a limited liability company owned by Mr. Cheng Yu, the minority owner of
the Company’s subsidiary, Inno Research Institute, for consultation services on a project-by-project basis. During the year ended
September 30, 2023, the Company recorded $
The
Company purchases prefab home, materials and supplies, including design services from Baicheng Trading LLC (“Baicheng”),
a company with a director related to the Chairwoman. During the year ended September 30, 2024, Baicheng provided the renovation design
services with a fee of $
Starting
in December 2022, for operation and cashflow needs, the Company advances funds from Zfounder Organization Inc., (“Zfounder”),
one of the Company’s shareholders, and Wise Hill Inc., (“Wise Hill”), a company owned by a former shareholder of the
Company who also serves as the CEO and Board member of Zfounder. The advanced amounts are non-interest bearing. As of September 30, 2024,
the outstanding balance, due to Zfounder and Wise Hill, has been fully paid off. As of September 30, 2023, the outstanding balance due
to Zfounder and Wise Hill, were $
In
March 2023, the Company entered into an agreement with Vision Opportunity Fund LP, a Florida limited partnership partially owned by a
former shareholder of the Company, who also serves as the CEO and Board member of Zfounder. In August 2023, all rights, obligations and
interests under the agreement were subsequently assigned by Vision Opportunity Fund LP to its general partner, New Vision 101 LLC (“Vision
101”). Pursuant to the agreement, the Company agreed to provide supplies and act as project developer for an amount equal to $
Note 10 — Other payables and accrued liabilities
As of September 30, 2024 and 2023, Other payables and accrued liabilities consisted of the following:
September 30, 2024 | September 30, 2023 | |||||||
| Payable to service providers | ||||||||
| Accrued compensation | ||||||||
| Other payable | ||||||||
| $ | $ | |||||||
| F-17 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 — Equity
The Company was incorporated in Texas on September 8, 2021. The total authorized shares of capital stock were shares without par value.
As of September 30, 2024 and September 30, 2023, after giving effect to the stock splits of the outstanding shares of Common Stock, there were and shares of Common Stock issued and outstanding, respectively. The total authorized number of shares of capital stock was shares without par value.
In
December 2022, The Company issued shares of its common stock at a price of $ per share to an accredited investor for $
In
February 2023, The Company issued shares of its common stock at a price of $ per share to an accredited investor for $
In
March 2023, The Company issued shares of its common stock at a price of $ per share to an accredited investor for $
On
June 20, 2023, the Company issued shares of its common stock for a total value of $
The
registration statement for the Company’s Initial Public Offering (the “Offering”) was declared effective on November
9, 2023. The Common Stock commenced trading on the Nasdaq Capital Market (the “Nasdaq”) on December 14, 2023, under the symbol
“INHD.” The closing of the Offering took place on December 18, 2023. On December 18, 2023, in connection with the closing
of the initial public offering of shares (“the Shares”) of its common stock,
The
total gross proceeds from the Offering were $
| F-18 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 — Concentration of risk
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
As
of September 30, 2024 and 2023, $
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposing the Company to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Customer and vendor concentration risk
For
the year ended September 30, 2024, four customers accounted for
For the year ended September 30, 2024, two suppliers accounted for % of the Company’s total purchases. For the year ended September 30, 2023, three suppliers accounted for % of the Company’s total purchases. As of September 30, 2024 and 2023, accounts payable to two suppliers accounted for % and % of the Company’s total accounts payable, respectively.
Note 13— Commitments and contingencies
Lease commitments
The Company has adopted ASC 842 since its inception date.
The
Company has entered into a lease agreement for office and production space in Texas with a term from December 1, 2019 until December
31, 2024 at a rate of $
The
Company has also entered into a lease agreement for office and production space in Corona, California with a term from May 1, 2022 until
April 30, 2027 at a rate of $
The
lease in Diamond Bar, California has a term of 24 months from August 18, 2023 to August 17, 2025 at a rate of $
In addition, the Company will be responsible for its pro rata share of certain costs, including utility costs, insurance and common area costs, as further detailed in the lease agreements.
| F-19 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13— Commitments and contingencies (cont.)
Total
commitment for the full term of the leases is $
| Lease cost | For the years ended September 30, | |||||||
| 2024 | 2023 | |||||||
| Operating lease cost (included in G&A in the Company’s statement of operations) | $ | $ | ||||||
| Other information: | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
| Remaining term in years | ||||||||
| Average discount rate – operating leases | % | % | ||||||
The supplemental balance sheet information related to leases is as follows:
| Operating leases | September 30, 2024 | September 30, 2023 | ||||||
| Right of use asset – non-current | $ | $ | ||||||
| Lease Liability – current | ||||||||
| Lease Liability – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
Maturities of the Company’s lease liabilities are as follows:
Operating Lease | ||||
| For periods subsequent to September 30, 2024: | ||||
| 2025 | $ | |||
| Less: Imputed interest/present value discount | ( | ) | ||
| Present value of lease liabilities | $ | |||
Contingencies
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.
On
July 23, 2024, the Company reached a settlement with a subcontractor’s customer for $
The
Company is currently involved in a litigation related to alleged fund transfers. A plaintiff claims that one of the Company’s subcontractors
misappropriated over $
Except as set forth above, we are not currently a party to any legal proceeding that we believe would adversely affect our financial position, results of operations, or cash flows and are not aware of any material legal proceedings contemplated by governmental authorities.
| F-20 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13— Commitments and contingencies (cont.)
Nasdaq Listing Rule 5550(a)(2)
On
April 12, 2024, the Company received a letter (the “Notice”) from The Nasdaq notifying the Company that, because the closing
bid price for its common stock has been below $1.00 per share for 30 consecutive business days, it no longer complies with the minimum
bid price requirement for continued listing on The Nasdaq Capital Market (the “Minimum Bid Price Requirement”). Nasdaq Listing
Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $
The Notice has no immediate effect on the listing of the Company’s common stock on The Nasdaq. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company has been provided an initial compliance period of 180 calendar days, or until October 9, 2024 to regain compliance with the Minimum Bid Price Requirement. During the compliance period, the Company’s shares of common stock will continue to be listed and traded on The Nasdaq. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $ per share for a minimum of 10 consecutive business days during the 180-calendar day grace period.
On
October 25, 2024, the Company received written notice (the “Compliance Notice”) from the Nasdaq Office of General Counsel
of The Nasdaq Stock Market LLC informing the Company that it has regained compliance with the bid price requirement in Nasdaq Listing
Rule 5550(a)(2), which requires that companies listed on the Nasdaq Capital Market maintain a minimum bid price of $
Note 14 — Income taxes
On
December 22, 2017, the President of the United States signed into law H.R.1, formerly known as the Tax Cuts and Jobs Act (the “Tax
Legislation”). The Tax Legislation significantly revised the U.S. tax code by (i) lowering the U.S. federal statutory income tax
rate from
Other provisions of the new legislation include, but are not limited to, limiting deductibility of interest and executive compensation expense. These additional items have been considered in the income tax provision for the years ended September 30, 2024 and 2023.
Texas
imposes a franchise tax that applies to most business entities that are formed or qualified to do business, or which are otherwise doing
business, in Texas. Under the Texas franchise tax, a
| F-21 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 — Income taxes (cont.)
The income tax provision for the years ended September 30, 2024 and 2023 consisted of the following:
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Total current income tax provision | ||||||||
| Deferred: | ||||||||
| Federal | ( | ) | ( | ) | ||||
| State | ||||||||
| Increase/(decrease) in valuation allowance | ||||||||
| Total deferred taxes | ||||||||
| Total provision for income taxes | $ | $ | ||||||
The deferred tax asset as of September 30, 2024 and 2023 consisted of the following:
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Stock-based compensation | $ | $ | ||||||
| Net operating loss | ||||||||
| Depreciation | ( | ) | ( | ) | ||||
| Unearned revenue | ||||||||
| Investment in Passthrough Entities | ||||||||
| Allowance for Doubtful Accounts | ||||||||
| Others | ||||||||
| Total deferred tax assets | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The
company has net operating loss carry forwards of approximately $
Valuation Allowance
We periodically assess whether it is more likely than not whether we will generate sufficient taxable income to realize our deferred tax assets and establish a valuation allowance if it’s we deem that will not likely be able to realize the benefit associated with our deferred tax assets. We consider all available positive and negative evidence and make certain assumptions to make this determination. We review our deferred tax liabilities, historical earnings, history of cycles of earnings and losses within our industry, our business environment and the potential to generate current and future earnings. We cannot determine at this time when we will be able to generate sufficient taxable income to realize our deferred tax assets. We therefore have recorded a full valuation allowance against our net deferred tax assets.
| F-22 |
INNO HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 — Income taxes (cont.)
The Company is subject to U.S. federal income tax as well as state income tax in certain jurisdictions. The tax years 2021 to 2024 remain open to examination by the major taxing jurisdictions to which the Company is subject. The following is a reconciliation of income tax expenses at the effective rate to income tax at the calculated statutory rates:
September 30, 2024 | September 30, 2023 | |||||||
| Statutory tax rate | ||||||||
| Federal | % | % | ||||||
| State (net of federal benefit) | ( | )% | % | |||||
| Net effect of state income tax deduction and other permanent differences | ( | )% | ( | )% | ||||
| Effective tax rate | ( | )% | % | |||||
As
of September 30, 2024 and 2023, the outstanding income tax payable was both $
Note 15 — Subsequent events
On
October 14, 2024, the Company entered into an equity investment agreement with an individual, securing a
On
October 31, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain investors
(the “Investors”), providing for the sale and issuance of shares (the “Shares”) of the Company’s
common stock,
On October 31, 2024, in connection with the Purchase Agreement, the Company entered into a Registration Rights Agreement with the Investors (the “Registration Rights Agreement”). The Registration Rights Agreement provided, among other things, that the Company will as soon as reasonably practicable, and in any event no later than December 31, 2024, file with the SEC (at the Company’s sole cost and expense) a registration statement registering the resale of the Shares of Common Stock. The Company agreed to use its commercially reasonable efforts to have such registration statement declared effective as soon as practicable after the filing thereof.
On
November 13, 2024, the Company entered into a Securities Purchase Agreement with nine non-U.S. investors, pursuant to which the Company
agreed to issue and sell in a private placement offering, an aggregate of shares of common stock,
| F-23 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCAIL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
Disclosure Controls and Procedures
An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of September 30, 2024, our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms due to material weaknesses in our internal controls described below.
| ● | Lack of adequate policies and procedures in internal control function to ensure that proper control and procedures have been designed and implemented over key business cycles. |
We plan to hire additional personnel or consultant with relevant experience and qualifications to design and implement internal control over key business cycles to strengthen the internal control system. However, we cannot assure you that we will remediate our material weaknesses in a timely manner.
Inherent Limitations Over Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
We have made no change in our internal control over financial reporting during the last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
| 26 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following are our executive officers and directors and their respective ages and positions as of the date of this annual report.
| Name | Age | Position | ||
| Ding Wei | 44 | Chief Executive Officer, Director and Chairman | ||
| Tianwei (Solomon) Li | 36 | Chief Financial Officer | ||
| Mengshu Shao | 33 | Director | ||
| Yufang Qu | 58 | Independent Director | ||
| Tao Tu | 44 | Independent Director | ||
| Yongbo Mo | 28 | Independent Director |
Ding Wei — Chief Executive Officer, Director and Chairman
Mr. Wei, 44 years old, was appointed as our Chief Executive Officer, Director and Chairman on October 15, 2024. In addition, Mr. Wei is the founder, chairman, and general manager of Yangzhou Ruide Fei Technology Co., Ltd. and Yangzhou Yu Chen Saiwen Information Consulting Co., Ltd. since July 2014, where he was responsible for business operation and corporation management, including strategic planning, operations management, financial management, marketing, and team management. From 2009 to 2013, Mr. Wei served as the head of the administrative department at HYVA MECHANICS (CHINA) CO., LTD., during which he was responsible for human resources support, office operations management, team leadership, and compliance control. From 2006 to 2009, Mr. Wei was the deputy general manager and executive assistant to the chairman at Yangzhou Gaoshi Glasses Co., Ltd., and her was responsible for overseeing daily operations across multiple departments, developing and implementing organizational strategies, monitoring financial performance, and conducting performance evaluations. Mr. Wei holds a bachelor’s degree in computer science and information systems from CARICH Education of New Zealand.
Tianwei (Solomon) Li — Chief Financial Officer
Mr. Li, 36 years old, was appointed as our Chief Financial Officer on July 17,2023. Mr. Li is a highly accomplished finance professional with a diverse background spanning various prestigious institutions. From November 2021 to July 2023, he has served as a licensed banker at both J.P Morgan Securities LLC and JPMorgan Chase Bank, N.A., where he combined his matchless expertise in financial management, venture capital, and financial advisory to create real value for clients. Before joining INNO HOLDINGS INC, Mr. Li worked as an exclusive banker at J.P Morgan Securities LLC. From October 2021 to December 2021, he worked as a registered representative at Sutter Securities Inc, providing investment advice and navigating complex regulatory frameworks. Prior to that, from November 2020 to December 2021, he worked as a registered representative at Boustead Securities, LLC, where he offered investment, management, and consulting services to over 50 portfolio companies. Notably, Mr. Li held leadership positions as Vice President at both Multipoint Resources Management Corp, from April 2019 to December 2019, and CATHY LOGISTICS INC, from February 2019 to August 2019, where he demonstrated exceptional leadership skills and strategic decision-making abilities. With a master’s degree in Business Administration and holding the US Financial Industry Regulatory Agency Series 7 and 63 Securities licenses, Mr. Li exemplifies professionalism and regulatory compliance in his work. Combining his extensive practical experience with his strong academic foundation, Mr. Li is committed to delivering exceptional financial solutions and building long-lasting client relationships.
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Mengshu Shao — Director
Ms. Shao, 33 years old, was appointed as a Director on October 23, 2024. Ms. Shao served as internal auditor manager at Agile Group from October 2021 to September 2024, where she was responsible for managing internal audit projects of corporation, including operational auditing, risk assessment and management, internal control evaluation, compliance monitoring, and fraud detection. From May 2019 to September 2021, Ms. Shao held the position of internal auditor at Cedar Holdings, where she worked on internal audit tasks of corporation, including risk assessment and management, operational audit, and internal control evaluation. From August 2016 to April 2019, Ms. Shao worked as an auditor at PwC Mainland China. Ms. Shao graduated from Jinan University in June 2016 with a master’s degree in accounting.
Yufang Qu — Independent Director
Ms. Qu, 58 years old, was appointed as a Director on October 15, 2024. Ms. Qu served as an accountant of Shuangyashan Shijixing Construction Engineering Co., Ltd. from 2004 to 2022, where she was responsible for organizing financial information, preparing financial statements, and providing financial analysis to help optimize financial structure and improve efficiency. Ms. Qu graduated from Shuangyashan Radio and Television University in 1993 with a bachelor’s degree in financial accounting.
Tao Tu — Independent Director
Mr. Tao TU, age 44, was appointed as a Director on May 31, 2024. Mr.Tu currently serves as the Director of Fuda Capital Ltd. and as the Chief Executive Officer at Jinyide Culture Media Co., Ltd., where he is responsible for strategic leadership, organizational management, external representation, financial Performance, and corporate governance. From 2017 to 2020, he served as the Chief Executive Officer at Jinyide Jewelry Co., Ltd., where he was responsible for corporate governance, marketing and development, customer relationship, and organizational development. Mr. Tu received his bachelor’s degree in Finance from the South-Central University for Nationalities.
Yongbo Mo — Independent Director
Mr. Mo, 28 years old, was appointed as a Director on October 23, 2024. Mr. Mo has been working at Shanghai Haineng Investment Consulting Company as a Product Manager since February 2022, where he is primarily responsible for leading and managing investment projects, including project screening, due diligence, financial analysis, risk assessment, project execution supervision, and post-project tracking and evaluation. From June 2018 to January 2022, Mr. Mo served as a Media Manager at Zhengzhou Houde Technology Co., Ltd., where he was primarily responsible for developing and implementing media strategies, which include maintaining media relationships, content operations, user operations, brand promotion, and commercial cooperation services. Mr. Mo graduated from Zhengzhou Information Technology Vocational School in September 2017 with a bachelor’s degree in Investment and Finance.
Family Relationships
There are no familial relationships between the directors or executive officers of the Company.
Code of Ethics
Our Board has adopted a written code of business conduct and ethics (“Code of Ethics”) that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. We intend to post on our website a current copy of the Code of Ethics and all disclosures that are required by law regarding any amendments to, or waivers from, any provision of the Code of Ethics. Any person may obtain a copy of our Code of Ethics, without charge, by mailing a request to the Company at the address appearing on the front page of this annual Report on Form 10-K or by viewing it on our website found at https://www.innoholdings.com/code-of-business-conduct-and-ethics.
| 28 |
Insider Trading Policy
All officers, directors and employees of, and consultants and contractors to, us or any of our subsidiaries are subject to our Insider Trading Policy. The Insider Trading Policy prohibits the unauthorized disclosure of any nonpublic information acquired in the workplace and the misuse of material nonpublic information in the trading of our securities. To ensure compliance with the Insider Trading Policy and applicable federal and state securities laws, all officers, directors and employees of, and consultants and contractors to, us or any of our subsidiaries must refrain from the sale or purchase of our securities except in specific designated trading windows or pursuant to 10b5-1 trading plans that were preapproved. Even during a trading window period, certain insiders, including our named executive officers and directors, must comply with our designated pre-clearance policy prior to trading in our securities.
Board Leadership Structure and Risk Oversight
Our Board has responsibility for the oversight of our risk management processes and, either as a whole or through its committees, regularly discusses with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving regular reports from board committees and members of senior management to enable our Board to understand our risk identification, risk management, and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, cybersecurity, strategic, and reputational risk. While the Company has not yet experienced a significant impact related to the situation in Ukraine caused by the Russian invasion, the Board will also closely monitor the risks in relation to such developments, including but not limited to risks related to cybersecurity, sanctions, supply chain, suppliers and service providers. Similarly, our board is monitoring US-China relations to monitor risks such as political disruption, supply chain, and foreign exchange.
Board of Directors
Our business and affairs are managed under the direction of our Board. Our Board consists of 5 directors, 3 of whom qualify as “independent” under the listing standards of Nasdaq.
Directors serve until the next annual meeting and until their successors are elected and qualified. Officers are appointed to serve until their successors have been elected and qualified.
Director Independence
Our Board is composed of a majority of “independent directors” as defined under the rules of Nasdaq. Nasdaq Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Under such definition, our Board has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, our Board has determined that Yufang Qu, Tao Tu and Yongbo Mo are all independent directors of the Company.
Committees of the Board of Directors
Committees of the Board were established and took effect upon the closing of our IPO on December 18, 2023. Our committees include an audit committee and a compensation committee. Each such committee has the composition and responsibilities described below:
| 29 |
Audit Committee
Our audit committee consists of Yufang Qu, Tao Tu and Yongbo Mo. Yufang Qu is the chairman of the audit committee. In addition, our Board has determined that Yufang Qu is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933, as amended, or the Securities Act. The audit committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited to:
| (a) | reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the Board whether the audited financial statements should be included in our annual disclosure report; | |
| (b) | discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements; | |
| (c) | discussing with management major risk assessment and risk management policies; | |
| (d) | monitoring the independence of the independent auditor; | |
| (e) | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; | |
| (f) | reviewing and approving all related-party transactions; | |
| (g) | inquiring and discussing with management our compliance with applicable laws and regulations; | |
| (h) | preapproving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed; | |
| (i) | appointing or replacing the independent auditor; | |
| (j) | determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; | |
| (k) | establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and | |
| (l) | approving reimbursement of expenses incurred by our management team in identifying potential target businesses. |
The audit committee is composed exclusively of “independent directors” who are “financially literate” as defined under the Nasdaq listing standards. The Nasdaq listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.
In addition, the Company has certified to Nasdaq that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication.
| 30 |
Compensation Committee
Our compensation committee consists of Yufang Qu, Tao Tu and Yongbo Mo, each of whom is an independent director. Each member of our compensation committee is also a non-employee director, as defined under Rule 16b-3 promulgated under the Exchange Act. Yufang Qu is the chairman of the compensation committee. The compensation committee’s duties, which are specified in our Compensation Committee Charter, include, but are not limited to:
| (a) | reviews, approves and determines, or makes recommendations to our Board regarding, the compensation of our executive officers; | |
| (b) | administers our equity compensation plans; | |
| (c) | reviews and approves, or makes recommendations to our Board, regarding incentive compensation and equity compensation plans; and | |
| (d) | establishes and reviews general policies relating to compensation and benefits of our employees. |
Involvement in Certain Legal Proceedings
To our knowledge, none of our current directors or executive officers has, during the past ten (10) years:
| (a) | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| (b) | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two (2) years prior to that time; | |
| (c) | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his or her involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; | |
| (d) | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| (e) | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| (f) | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in section 3(a)(26) of the Exchange Act), any registered entity (as defined in section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Director Qualifications
In accordance with its charter, our nominating and corporate governance committee develops and recommends to our board of directors appropriate criteria, including desired qualifications, expertise, skills and characteristics, for selection of new directors and periodically reviews the criteria adopted by our board of directors and, if appropriate, recommends changes to such criteria.
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Board Diversity
Our board of directors desires to seek members from diverse professional backgrounds who combine a strong professional reputation and knowledge of our business and industry with a reputation for integrity. Our board of directors does not have a formal policy with respect to diversity and inclusion but is in process of establishing a policy on diversity. Diversity of experience, expertise and viewpoints is one of many factors the nominating and corporate governance committee considers when recommending director nominees to our board of directors. Further, our board of directors seeks highly qualified women and individuals from minority groups to include in the pool from which new candidates are selected. Our board of directors also seeks members that have experience in positions with a high degree of responsibility or are, or have been, leaders in the companies or institutions with which they are, or were, affiliated, but may seek other members with different backgrounds, based upon the contributions they can make to our company. We believe that our current board composition reflects our commitment to diversity in the areas of professional background.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and persons who own more than 10% of our outstanding shares of common stock (“Ten Percent Holders”) to file with the SEC reports of their share ownership and changes in their share ownership of our common stock. Directors, executive officers and Ten Percent Holders are also required to furnish us with copies of all ownership reports they file with the SEC. To our knowledge, based solely on a review of the copies of such reports furnished to us, the following former directors, former executive officers and former Ten Percent Holders did not comply with all Section 16(a) filing requirements during the fiscal year ended September 30, 2024 as follows: Messrs. Liu, Li, Sung, Zhang and Haws, and Mses. Gong and Liu, filed their Form 3s late in 2023. Mr. Liu Dekui filed his Form 4 late in 2024. ZFounder Organization Inc. and West Lake Club Inc. filed their Form 3s late in 2024.
ITEM 11. EXECUTIVE COMPENSATION
Compensation for our Named Executive Officers
As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act. This section discusses the material components of the executive compensation program for our named executive officers (“NEOs”) for the fiscal year ending September 30, 2024 (“Fiscal Year 2024”) and the fiscal year ending September 30, 2023 (“Fiscal Year 2023”).
For Fiscal Year 2024 and 2023, the Company’s NEOs were:
| ● | Dekui Liu, former Chief Executive Officer; | |
| ● | Tianwei (Solomon) Li, Chief Financial Officer and former Chief Executive Officer; and | |
| ● | Dr. Li (Alice) Gong, former Chief Operation Officer and General Manager of Inno Metal Studs Corp (a subsidiary of the Company); and | |
| ● | Weston Twigg, former Chief Financial Officer. |
Compensation Program
The objective of the compensation program of the Company and its subsidiaries (the “Company Group”) is to provide a total compensation package to each NEO that will enable the Company Group to attract, motivate and retain outstanding individuals, align the interests of our executive team with those of our shareholders, encourage individual and collective contributions to the successful execution of our short- and long-term business strategies and reward NEOs for performance.
| ● | Base Salary. Each of the NEOs is paid a base salary commensurate with the executive’s skill set, experience, performance, role and responsibilities. | |
| ● | Short-Term Cash Incentives. During Fiscal Years 2024 and 2023, except for a one-time award of $50,000 to Mr. Tianwei Li upon the consummation of the IPO, the Company Group did not grant any short-term cash bonuses to any of the NEOs. | |
| ● | Long-Term Equity Incentives. During Fiscal Years 2024 and 2023, the Company Group did not grant any incentive equity awards to any of the NEOs. |
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Summary Compensation Table
The following table presents information regarding the total compensation awarded to, earned by and paid to the Company’s NEOs for services rendered to the Company Group in all capacities in its Fiscal Years 2024 and 2023.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Total ($) | ||||||||||
| Ding Wei (1) | 2024 | - | - | - | ||||||||||
| Chief Executive Officer | 2023 | - | - | - | ||||||||||
| Dekui Liu (2) | 2024 | 70,833 | - | 70,833 | ||||||||||
| Former Chief Executive Officer | 2023 | 11,000 | (3) | - | 11,000 | |||||||||
| Tianwei (Solomon) Li(4) | 2024 | 180,000 | 50,000 | 230,000 | ||||||||||
| Chief Financial Officer and Former Chief Executive Officer | 2023 | 45,000 | - | 45,000 | ||||||||||
| Dr. Li (Alice) Gong(5) | 2024 | 152,587 | - | 152,587 | ||||||||||
| Former Chief Operation Officer and General Manager of Inno Metal Studs Corp | 2023 | 100,347 | - | 100,347 | ||||||||||
| Weston Twigg(6) | 2024 | - | - | - | ||||||||||
| Former Chief Financial Officer | 2023 | 104,527 | - | 104,527 | ||||||||||
(1) On October 15, 2024, the Board appointed Ding Wei, to fill the Chief Executive Officer. The Company will compensate Ding Wei for his service as chief executive officer at a salary of $60,000 annually, subject to his continued service.
(2) On May 31, 2024, Mr. Liu resigned from his position as Chief Executive Officer, Chairman, and as a Director of the Board of the Company.
(3) In June 2023, the Board approved a temporary reduction in Mr. Liu’s base salary for Fiscal Year 2023, from $80,000 to $11,000.
(4) On June 3, 2024, the Board appointed Tianwei Li as Chief Executive Officer of the Company and continue to serve as the Company’s Chief Financial Officer following his appointment as Chief Executive Officer. On October 15, 2024, Mr. Li resigned from his position as Chief Executive Officer of the Company and continues to serve as the Company’s Chief Financial Officer.
(5) On October 15, 2024, Ms. Gong resigned from her position as Chief Operations Officer.
(6) Mr. Li was appointed Chief Financial Officer, effective July 17, 2023. Mr. Twigg resigned from the Company, effective July 3, 2023.
Narrative Disclosure to the Summary Compensation Table
Employee Benefits
The executive officers, including the NEOs, are eligible to receive the same employee benefits that are generally available to all full-time employees, subject to the satisfaction of certain eligibility requirements. In structuring these benefit plans, the Company Group seeks to provide an aggregate level of benefits that are comparable to those provided by similar companies.
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Agreements with our NEOs
Other than Mr. Li, our NEOs not currently subject to an employment agreement with the Company Group.
Effective July 17, 2023, Mr. Li was appointed by the Board to serve as the Company Group’s Chief Financial Officer. Pursuant to the terms of his Offer Letter with the Company, dated July 14, 2023 (the “Li Offer Letter”). Mr. Li’s initial employment term will run from July 17, 2023 to July 17, 2024. Starting July 17, 2024, his employment will be at-will. Pursuant to the Offer Letter Mr. Li will receive an annual base salary of $180,000 and be eligible for an annual performance-based bonus of Company options worth $200,000 disbursed proportionally on a monthly basis, subject to the Omnibus Plan. Subject to the consummation of the IPO and pursuant to the Offer Letter, Mr. Li is eligible for a one-time award of $50,000 within one week after consummation of the IPO for pre-IPO consulting services provided. The option awards have not been awarded as of the date of this filing. The IPO bonus of $50,000 was paid on April 19, 2024. Mr. Li is also will be eligible to participate in all benefit plans generally offered to other senior executives of the Company in similar positions and with similar responsibilities.
2023 Omnibus Incentive Plan
Our Board adopted, and our shareholders approved, the Inno Holdings, Inc. 2023 Omnibus Incentive Plan (the “Omnibus Plan”), effective July 18, 2023. No incentive equity awards have been granted under the Omnibus Plan as of the date hereof.
The purpose of the Omnibus Plan is to: (i) encourage the profitability and growth of the Company through short-term and long-term incentives that are consistent with the Company’s objectives; (ii) give participants an incentive for excellence in individual performance; (iii) promote teamwork among its participants; and (iv) give the Company a significant advantage in attracting and retaining key employees, non-employee directors, and consultants. To accomplish these purposes, the Omnibus Plan provides for the grant of awards in the form of incentive stock options within the meaning of Section 422 of the Code, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based awards (including performance shares, performance units and performance bonus awards), and other stock-based or cash-based awards. A total of 2,013,552 shares of common stock was initially reserved and available for issuance under the Omnibus Plan.
Outstanding Equity Awards at 2024 Fiscal Year-End
None of our NEOs had any outstanding equity awards in the Company as of September 30, 2024.
Potential Payments Upon Termination or Change in Control
As of September 30, 2024, none of our NEOs were eligible for any potential payments upon any form of termination or resignation of employment or a change in control of the Company. During Fiscal Years 2024 and 2023, none of our former NEOs received any payments or benefits in connection with their resignation from the Company.
Director Compensation Table
All of the independent directors are entitled to receive $10,000 in cash per quarter, subject to their continued service on the Board.
Shaoren Liu and Ying Liu served as the Company’s non-employee directors during Fiscal Year 2023. Neither of the Company’s non-employee directors received any compensation related to the director’s Board service in Fiscal Year 2023 and 2024 or had any outstanding equity awards as of September 30, 2024. Mr. Shaoren Liu resigned as a member of the Board, effective December 18, 2023. On October 15, 2024, Ms. Ying Liu resigned from her position as Chairwoman and a director of the Board.
Incentive Based Compensation Recoupment Policy
On October 30, 2023, our Board of Directors adopted an executive compensation recoupment policy consistent with the requirements of the Exchange Act Rule 10D-1 and listing standards of The Nasdaq Stock Market LLC thereunder, to help ensure that incentive compensation is paid based on accurate financial and operating data, and the correct calculation of performance against incentive targets. Our policy addresses recoupment of amounts from performance-based awards paid to all corporate officers, including awards under our equity incentive plans, in the event of a financial restatement to the extent that the payout for such awards would have been less, or in the event of fraud, or intentional, willful or gross misconduct that contributed to the need for a financial restatement.
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Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jobs Act. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act; (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; and (iv) the date on which we are deemed to be a large accelerated filer under applicable SEC rules. We expect that we will remain an emerging growth company for the foreseeable future, but we cannot retain our emerging growth company status indefinitely and will no longer qualify as an emerging growth company on or before the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies.
These exemptions include:
| ● | being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosures; | |
| ● | not being required to comply with the requirement of an auditor needing to attest to our internal controls over financial reporting; | |
| ● | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or providing a supplement to the auditor’s report regarding additional information about the audit and the financial statements; | |
| ● | reduced disclosure obligations regarding executive compensation; and | |
| ● | not being required to hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our Common Stock Shares as of the date of this annual report, with respect to the holdings of (1) each person who is the beneficial owner of more than 5% of Company voting stock, (2) each of our directors, (3) each executive officer, and (4) all of our current directors and executive officers as a group.
Beneficial ownership of the voting stock is determined in accordance with the rules of the SEC and includes any shares of company voting stock over which a person exercises sole or shared voting or investment power, or of which a person has a right to acquire ownership at any time within 60 days of December 6, 2024. Except as otherwise indicated, we believe that the persons named in this table have sole voting and investment power with respect to all shares of voting stock held by them. Applicable percentage ownership in the following table is based on 3,057,043 shares of common stock issued and outstanding as of December 6, 2024.
To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our common stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. To our knowledge, there is no arrangement, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
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| Name and Address of Beneficial Owner(1) | Title | Beneficially owned | Percent | |||||||
| Officers and Directors | ||||||||||
| Ding Wei | Chief Executive Officer, Director and Chairman | — | — | |||||||
| Tianwei Li | Chief Financial Officer | — | — | |||||||
| Mengshu Shao | Director | — | — | |||||||
| Yufang Qu | Independent Director | — | — | |||||||
| Tao Tu | Independent Director | — | — | |||||||
| Yongbo Mo | Independent Director | — | — | |||||||
| Officers and Directors as a Group (total of 6 persons) | — | — | ||||||||
| 5%+ Stockholders | ||||||||||
| Changzheng Ye,(2) | Investor | 157,079 | 5.14 | % | ||||||
| West Lake Club Inc. (3) | Investor | 640,000 | 20.94 | % | ||||||
| (1) | Unless otherwise indicated, the business address for each of the individuals is 2465 Farm Market 359 South, Brookshire, TX 77423. |
| (2) | The address for Changzheng Ye is Qianhai Maple Leaf Building, Tower A, 5F07, Shenzhen, Guangdong, China. |
| (3) | The address for West Lake Club Inc. is 14738 SW 23rd Street, Miami, FL 33185. The foregoing information is based solely on Schedule 13D of West Lake Club Inc. filed on September 11, 2024, which we do not know or have reason to believe is not complete or accurate and on which we are relying pursuant to applicable SEC regulations. |
Equity Compensation Plan Information
As of September 30, 2024, no awards were issued by the Company under its equity compensation plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Unless described below, during the last two fiscal years, there are no transactions or series of similar transactions to which we were a party or will be a party, in which:
| ● | the amounts involved exceed or will exceed $120,000; and | |
| ● | any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of any of the foregoing had, or will have, a direct or indirect material interest. |
The Company borrows short term loans without interest from its Former CEO, Mr. Dekui Liu, for operation and cashflow needs from time to time. As of September 30, 2024, the amount due to Mr. Liu was $2,000. As of September 30, 2023, the amount due to Mr. Liu was $327,372.
The Company engaged Yunited Assets LLC (“Yunited”), a limited liability company owned by Mr. Cheng Yu, the minority owner of the Company’s subsidiary, Inno Research Institute, for consultation services on a project-by-project basis. During the year ended September 30, 2023, the Company recorded $4,375 of project-based consulting service fees and $110,000 consulting fee to Yunited for Mr. Yu’s daily operating services included in the general and administrative expenses. No such services have been provided for the year ended September 30, 2024. As of September 30, 2024 and 2023, the outstanding balance of accounts payable – related party due to Yunited was $Nil and $50,000.
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The Company purchases prefab home, materials and supplies, including design services from Baicheng Trading LLC (“Baicheng”), a company with a director related to the Chairwoman. During the year ended September 30, 2024, Baicheng provided the renovation design services with a fee of $52,000. Additionally, the Company prepaid $225,511 to Baicheng for roof materials for the factory improvement project. As of September 30, 2024, the outstanding balance of prepayments to Baicehng was $225,511. As of September 30, 2023, the outstanding accounts payable-related party due to Baicheng was $485,595.
Starting in December 2022, for operation and cashflow needs, the Company advances funds from Zfounder Organization Inc., (“Zfounder”), one of the Company’s shareholders, and Wise Hill Inc., (“Wise Hill”), a company owned by a former shareholder of the Company who also serves as the CEO and Board member of Zfounder. The advanced amounts are non-interest bearing. As of September 30, 2024, the outstanding balance, due to Zfounder and Wise Hill, has been fully paid off. As of September 30, 2023, the outstanding balance due to Zfounder and Wise Hill, were $55,000 and $122,000, respectively.
In March 2023, the Company entered into an agreement with Vision Opportunity Fund LP, a Florida limited partnership partially owned by a former shareholder of the Company, who also serves as the CEO and Board member of Zfounder. In August 2023, all rights, obligations and interests under the agreement were subsequently assigned by Vision Opportunity Fund LP to its general partner, New Vision 101 LLC (“Vision 101”). Pursuant to the agreement, the Company agreed to provide supplies and act as project developer for an amount equal to $15,875,800 plus applicable taxes. As of September 30, 2024, amount of $244,185 has been received and recorded as deferred revenue, and $Nil amount of revenue has been recognized.
Policies and Procedures for Related Person Transactions
We have adopted a written related person transaction policy that set forth the following policies and procedures for the review and approval or ratification of related person transactions. A “related person transaction” is a transaction, arrangement or relationship in which INNO or any of its subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A “related person” means:
| ● | any person who is, or at any time during the applicable period was, one of INNO’s executive officers or directors; | |
| ● | any person who is known by INNO to be the beneficial owner of more than 5% of INNO’s voting securities; | |
| ● | any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5% of INNO’s voting securities, and any person (other than a tenant or employee) sharing the household of such director, executive officer or beneficial owner of more than 5% of INNO’s voting securities; and | |
| ● | any firm, corporation or other entity in which any of the foregoing persons is a partner or principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest. |
We intend to establish policies and procedures designed to minimize potential conflicts of interest arising from any dealings we may have with our affiliates and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from time to time. Specifically, pursuant to its audit committee charter, the audit committee have the responsibility to review related party transactions.
Director Independence
A majority of our Board are independent directors, see the discussion above under the section “Item 10. Directors, Executive Officers and Corporate governance.”
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Auditor
For the years ended September 30, 2024 and 2023, the Company’s independent public accounting firms were Simon & Edward, LLP and TAAD LLP, respectively.
Fees Paid to Principal Independent Registered Public Accounting Firm
The aggregate fees billed by our Independent Registered Public Accounting Firm, for the years ended September 30, 2024 and 2023 are as follows:
| 2024 | 2023 | |||||||
| Audit Fees (1) | $ | 92,500 | $ | 178,383 | ||||
| Audit Related Fees (2) | - | - | ||||||
| Tax Fees (3) | - | - | ||||||
| All other fees (4) | - | - | ||||||
| Total Fees | $ | 92,500 | $ | 178,383 | ||||
| (1) Audit fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review of our quarterly financial statements and those services normally provided in connection with statutory or regulatory filings or engagements including comfort letters, consents and other services related to SEC matters. This information is presented as of the latest practicable date for this annual report. | |
| (2) Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported above under “Audit Fees.” | |
| (3)TAAD did not provide us with tax compliance, tax advice or tax planning services | |
| (4) All other fees include fees billed by our independent auditors for products or services other than as described in the immediately preceding three categories. No such fees were incurred during the fiscal years ended September 30, 2024 and 2023. |
Audit Committee Pre-Approval Policies
The charter of our audit committee provides that the duties and responsibilities of our audit committee include the pre-approval of all audit and non-audit services permitted by law or applicable SEC regulations (including fee and terms of engagement) to be performed by our external auditor.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
(1) Financial Statements
All financial statements of the Company as set forth under Item 8 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules
All schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not required.
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(3) Exhibits.
The following exhibits are filed, furnished or incorporated by reference as part of this Annual Report on Form 10-K.
EXHIBIT INDEX
| * | Filed or furnished herewith. |
| ++ | Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10). The omitted information is not material and would likely cause competitive harm to the Company if publicly disclosed. The Company agrees to furnish an unredacted copy to the SEC upon its request. |
| # | Certain schedules and exhibits have been omitted in compliance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a copy of any omitted schedule or exhibit to the SEC upon its request. |
ITEM 16. FORM 10-K SUMMARY.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INNO HOLDINGS, INC. | ||
| By: | /s/ Ding Wei | |
| Ding Wei | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| Date: December 9, 2024 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Position | Date | ||
| /s/ Ding Wei | Chief Executive Officer, Director and Chairman | December 9, 2024 | ||
| Ding Wei | (Principal Executive Officer) | |||
| /s/ Tianwei Li | Chief Financial Officer | December 9, 2024 | ||
| Tianwei Li | (Principal Financial and Accounting Officer) | |||
| /s/ Yufang Qu | Director | December 9, 2024 | ||
| Yufang Qu | ||||
| /s/ Mengshu Shao | Director | December 9, 2024 | ||
| Mengshu Shao | ||||
| /s/ Tao Tu | Director | December 9, 2024 | ||
| Tao Tu | ||||
| /s/ Yongbo Mo | Director | December 9, 2024 | ||
| Yongbo Mo |
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