INNO HOLDINGS INC. 10-K

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# ( 2485 ) F-2 Report of Independent Registered Public Accounting Firm PCAOB ID# (0 5854 ) 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 We have audited the accompanying consolidated balance sheet of Inno Holdings Inc. and its subsidiaries (the “Company”) as of September 30, 2024, the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended, 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 at September 30, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. 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/ Simon & Edward, LLP (PCAOB ID: 2485) We have served as the Company’s auditor since 2024. Rowland Heights, California 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/ TAAD LLP We served as the Company’s auditor from 2022 to 2024. Diamond Bar, California 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 $ 1,526,661 $ 4,898 Accounts receivable, net - 70,435 Inventories 333,074 394,293 Deferred offering costs - 538,765 Prepayments and other current assets 428,873 180,467 Total current assets 2,288,608 1,188,858 Non-current assets ROU assets 570,295 437,770 Property and equipment, net 1,300,583 869,584 Other non-current assets 9,851 49,550 Total non-current assets 1,880,729 1,356,904 Total assets $ 4,169,337 $ 2,545,762 LIABILITIES AND EQUITY Current liabilities Accounts payable 271,507 781,056 Accounts payable – related party - 535,595 Accounts payable - 535,595 Unearned revenue 590,260 1,137,828 Other payables and accrued liabilities 287,952 92,164 Other payables – related party 1,000 504,372 Other payables 1,000 504,372 Short-term loan payable 50,000 790,000 Lease liability – current 60,236 212,277 Long-term notes payable – current portion 51,898 49,393 Total current liabilities 1,312,853 4,102,685 Non-current liabilities Notes payable 58,948 110,846 Lease liability – non-current - 275,817 Total non-current liabilities 58,948 386,663 Total liabilities 1,371,801 4,489,348 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, no par value; 100,000,000 shares authorized; 2,279,960 and 1,825,173 shares issued and outstanding on September 30, 2024 and September 30, 2023 * — — Additional paid in capital 10,748,534 2,830,000 Accumulated deficit ( 7,738,644 ) ( 4,524,815 ) Non-controlling interest ( 212,354 ) ( 248,771 ) Total equity (deficit) 2,797,536 ( 1,943,586 ) Total liabilities and equity (deficit) $ 4,169,337 $ 2,545,762 * Adjusted retroactively for reverse stock split that occurred on October 9, 2024, see Note 2 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 2024 2023 For the Years Ended September 30, 2024 2023 Revenue - products $ 395,495 $ 799,747 Revenue - consulting services 205,000 - Revenue – licensing income 285,000 - Total Revenue 885,495 799,747 COSTS AND EXPENSES:  Costs of materials and labor 409,169 1,255,315 Selling, general and administrative expenses (exclusive of expenses shown separately below) 3,678,866 2,191,043 Impairment loss 23,911 - Depreciation 87,116 69,437 Bad debt expense 59,935 1,267,960 Total costs and expenses 4,258,997 4,783,755 LOSS FROM OPERATIONS ( 3,373,502 ) ( 3,984,008 ) OTHER INCOME (EXPENSE) Interest income (expenses), net 76,047 ( 72,118 ) Other non-operating income (expense) 47,128 32,922 Total other income (expenses), net 123,175 ( 39,196 ) LOSS BEFORE INCOME TAXES ( 3,250,327 ) ( 4,023,204 ) PROVISION FOR INCOME TAXES 800 - NET LOSS ( 3,251,127 ) ( 4,023,204 ) Non-controlling interest ( 37,298 ) ( 127,426 ) NET LOSS ATTRIBUTABLE TO INNO HOLDINGS INC. $ ( 3,213,829 ) $ ( 3,895,778 ) WEIGHTED AVERAGE NUMBER OF COMMON STOCK Basic and Diluted 2,022,263 1,815,510 LOSSES PER SHARE Basic and Diluted $ ( 1.59 ) $ ( 2.15 ) * 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 Shares Amount Capital Deficit interest Total Common Stock* Additional Paid in Accumulated Non- controlling Shares Amount Capital Deficit interest Total Balance, September 30, 2022 1,797,000 $ — $ 1,805,000 $ ( 629,037 ) $ ( 121,345 ) $ 1,054,618 Net loss — — — ( 3,895,778 ) ( 127,426 ) ( 4,023,204 ) Shares issued for cash 24,883 — 900,000 — — 900,000 Shares issued for service 3,289 — 125,000 — — 125,000 Balance, September 30, 2023 1,825,173 $ — $ 2,830,000 $ ( 4,524,815 ) $ ( 248,771 ) $ ( 1,943,586 ) Balance 1,825,173 $ — $ 2,830,000 $ ( 4,524,815 ) $ ( 248,771 ) $ ( 1,943,586 ) Net loss ( 3,213,829 ) ( 37,298 ) ( 3,251,127 ) Shares issued upon IPO completion 250,000 — 7,859,534 — — 7,859,534 Disposal of subsidiary — — — — 73,715 73,715 Warrants assumption — — ( 13,000 ) — — ( 13,000 ) Shares issued for service 5,000 — 72,000 — — 72,000 Fractional shares round up due to reverse stock split 199,787 — — — — — Balance, September 30, 2024 2,279,960 $ — $ 10,748,534 $ ( 7,738,644 ) $ ( 212,354 ) $ 2,797,536 Balance 2,279,960 $ — $ 10,748,534 $ ( 7,738,644 ) $ ( 212,354 ) $ 2,797,536 * Adjusted retroactively for reverse stock split that occurred on October 9, 2024, see Note 2. All references to number of shares, and to per share information in the consolidated financial statements have been retroactively adjusted. The accompanying notes are an integral part of these Consolidated Financial Statements. F- 7 INNO HOLDINGS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows 2024 2023 For the Years Ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 3,251,127 ) $ ( 4,023,204 ) Adjustments to reconcile net income to cash used in operating activities: Depreciation expense 87,116 69,437 Stock-based compensation expense 146,333 41,667 Non-cash operating lease expense 224,216 120,803 Bad debt expense 59,935 1,267,960 Loss from settlement 28,796 — Fixed assets disposal loss 5,035 — Subsidiary disposal loss 23,715 — Impairment loss 23,911 — Change in operating assets and liabilities Accounts receivable 10,500 468,895 Accounts receivable – related party — 100,000 Inventories 61,219 ( 64,389 ) Deferred offering costs ( 51,701 ) ( 538,765 ) Prepayments and other current assets ( 322,739 ) 79,457 Other non-current assets — ( 9,851 ) Accounts payable ( 480,886 ) 309,278 Accounts payable – related party ( 485,595 ) 50,000 Unearned revenue ( 547,568 ) 936,098 Operating lease liabilities ( 729,359 ) ( 76,991 ) Other current liabilities 122,787 46,121 Other non-current liabilities — ( 2,457 ) Net cash used in operating activities ( 5,075,412 ) ( 1,225,941 ) CASH FLOWS FROM INVESTING ACTIVITIES: Fixed assets additions ( 559,629 ) ( 244,899 ) Proceed from fixed assets disposal 12,569 — Net cash used in investing activities ( 547,060 ) ( 244,899 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from related parties — 627,000 Payments to related parties ( 503,372 ) ( 134,861 ) Proceeds from short-term loans — 230,000 Payments to short-term loans ( 740,000 ) ( 150,000 ) Payment to long-term note ( 49,393 ) ( 47,029 ) Warrants assumption ( 13,000 ) — Shares issued for cash 8,450,000 900,000 Net cash provided by financing activities 7,144,235 1,425,110 CHANGES IN CASH 1,521,763 ( 45,730 ) CASH AND CASH EQUIVALENT, beginning of period 4,898 50,628 CASH AND CASH EQUIVALENT, ending of period $ 1,526,661 $ 4,898 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for income tax $ 800 $ 3,500 Cash paid for interest $ 23,697 $ 43,909 Noncash deferred offering costs offset to APIC upon IPO completion $ 590,466 $ — Right-of-use assets obtained in exchange for operating lease liabilities $ 356,741 $ 104,690 Deposit applied to lease liability $ 39,699 $ — 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 53 % of the equity interest in CBT. On October 16, 2023, the Company and the noncontrolling interest parties reached a new ownership agreement that the Company’s ownership increased to 55 %. According to the new ownership agreement, the ownership percentage change is retroactively effective from January 18, 2022. The impact of historical noncontrolling interest allocation from this ownership percentage change is immaterial. Effective as of January 21, 2022, the Company acquired 100 % of the ordinary shares of Inno Metal Studs Corp. (“IMSC”), a Texas corporation incorporated on October 31, 2019. Pursuant to the terms of the Share Purchase Agreement with IMSC’s former sole owner and CEO of the Company, Mr. Dekui Liu, the Company issued 15,170,000 shares of its common stock to Mr. Dekui Liu in exchange for his 100 % ownership in IMSC. Upon completion of the transaction, IMSC became a 100 % owned subsidiary of the Company. Inno Research Institute LLC (“IRI”), a Texas limited liability company incorporated on September 8, 2021, is a 65 % owned subsidiary of IMSC. On January 27, 2024, IRI was voluntarily terminated and resulted in a disposal loss of $ 23,715 . The R&D activities carried out by IRI will be transferred to Inno AI Tech Corp, a new subsidiary of the Company. 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 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 September 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. 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 $ 250,000 , which is currently the maximum amount insured by the Federal Deposit Insurance Corporation for interest bearing accounts (there is currently no insurance limit for deposits in noninterest bearing accounts). The Company has not experienced any losses with respect to cash. Management believes the Company is not exposed to any significant credit risk with respect to its cash. 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: Schedule of depreciation on property and equipment Machinery and equipment 7 years Office equipment 5 years Motor vehicles 5 years Leasehold improvements the shorter of the lease term or the estimated useful life of the 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 $ 23,911 impairment loss during the year ended September 30, 2024 to write down the leasehold improvement balance as a result of the early termination of the lease in Corona CA. No impairment expenses for property and equipment were recorded during the year ended September 30, 2023. 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.) Stock-based Compensation 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.) Loss per share 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: Schedule of accounts receivable September 30, 2024 September 30, 2023 Accounts receivable $ - $ 1,338,395 Less: allowance for credit losses - ( 1,267,960 ) Accounts receivable, net $ - $ 70,435 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: Schedule of activities in the allowance for expected credit losses September 30, 2024 September 30, 2023 Allowance for credit losses, beginning $ 1,267,960 $ - Add/ (Deduct): Provision for credit loss 59,935 1,267,960 Write-offs ( 1,327,895 ) - Allowance for credit losses, end $ - $ 1,267,960 The Company recorded credit losses of $ 59,935 and $ 1,267,960 for the years ended September 30, 2004 and 2023, respectively. Note 4 — Inventories As of September 30, 2024 and September 30, 2023, inventories consisted of the following: Schedule of inventories September 30, 2024 September 30, 2023 Raw material $ 73,109 $ 134,299 Production inventory 259,965 259,994 Total $ 333,074 $ 394,293 As of September 30, 2024 and 2023, there was no allowance for obsolescence recorded. 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 $ Nil and $ 538,765 , respectively. On December 18, 2023, the whole amount of deferred offering costs was charged to additional paid in capital upon the completion of the initial public offering. Note 6 — Prepayments and other current assets As of September 30, 2024 and 2023, prepayments and other current assets consisted of the following: Schedule of prepayments and other current assets September 30, 2024 September 30, 2023 Prepaid marketing and promotional services $ 73,750 $ - Advance to other service providers 57,624 - Advance to suppliers 250,638 87,217 Prepaid insurance 36,809 3,663 Prepaid for services by stock grants - 83,333 Other prepayments and current assets 10,052 6,254 Total $ 428,873 $ 180,467 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: Schedule of property and equipment September 30, 2024 September 30, 2023 Machinery and equipment $ 346,900 $ 346,900 Office equipment 3,064 5,488 Motor vehicles 109,276 64,082 Construction-in-progress 980,883 497,000 Leasehold improvements 18,000 54,049 Total 1,458,123 967,519 Property and equipment, gross 1,458,123 967,519 Less: accumulated depreciation ( 157,540 ) ( 97,935 ) Property and equipment, net $ 1,300,583 $ 869,584 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 $ 23,911 impairment loss during the year ended September 30, 2024 to write down the leasehold improvement balance. For the years ended September 30, 2024 and 2023, depreciation expenses amounted to $ 87,116 and $ 69,437 , respectively. 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 $ 1,000,000 with interest at the floating Prime Rate plus one percent ( 1.0 %) per annum, which is to be adjusted daily to the rate in effect. Interest shall be due and payable monthly as it accrues. The Line of Credit is secured by a Security Agreement and Financing Statement that covers certain properties of the Company and guaranteed by Mr. Dekui Liu, the former CEO of the Company. As of September 30, 2024, the line of credit was fully paid off and closed. For the years ended September 30, 2024 and 2023, the Company recorded interest expense related to the Line of Credit of $ 15,881 and $ 60,957 , respectively. As of September 30, 2024 and 2023, the total outstanding balance of the Note was $ Nil and $ 560,000 , respectively. The balance was presented on the consolidated balance sheet as a short-term loan. Short term loan without interest From June 2023 to August 2023, the Company borrowed short-term loans due on demand without interest, amounting to $ 230,000 from three individuals for operating purposes. As of September 30, 2024 and 2023, the outstanding balance due to these individuals were $ 50,000 and $ 230,000 , respectively. The balance was presented on the consolidated balance sheet as a short-term loan. Long-term loan Promissory note payable On October 28, 2021, the Company issued to BancorpSouth Bank a five-year unsecured 4.75 % promissory note, payable in equal monthly installments of $ 4,661 commencing November 28, 2021 (the “Note”). The principal amount of the Note was $ 248,500 . The Note is secured by a Security Agreement and Financing Statement that covers certain properties of the Company and guaranteed by Mr. Dekui Liu, the former CEO of the Company. For the years ended September 30, 2024 and 2023, the Company recorded interest expense related to the note of $ 6,773 and $ 8,903 , respectively. As of September 30, 2024 and 2023, the total outstanding balance of the Note was $ 110,846 and $ 160,239 , respectively, which was presented on the consolidated balance sheet as a current portion of $ 51,898 and $ 49,393 , and a non-current portion of $ 58,948 and $ 110,846 , respectively. 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 $ 1,000 . As of September 30, 2023, the amount due to Mr. Liu was $ 327,372 . 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 $ 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 , respectively. 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 during the year ended September 30, 2024. Note 10 — Other payables and accrued liabilities As of September 30, 2024 and 2023, Other payables and accrued liabilities consisted of the following: Schedule of other payables and accrued liabilities September 30, 2024 September 30, 2023 Payable to service providers 185,793 - Accrued compensation 74,915 - Other payable 27,244 92,164 Other payables and accrued liabilities $ 287,952 $ 92,164 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 200,000,000 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 2,279,960 and 1,825,173 shares of Common Stock issued and outstanding, respectively. The total authorized number of shares of capital stock was 100,000,000 shares without par value. In December 2022, The Company issued 14,286 shares of its common stock at a price of $ 35.0 per share to an accredited investor for $ 500,000 in cash. In February 2023, The Company issued 2,703 shares of its common stock at a price of $ 37.0 per share to an accredited investor for $ 100,000 in cash. In March 2023, The Company issued 7,895 shares of its common stock at a price of $ 38.0 per share to an accredited investor 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 1,973 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 $ 38.0 per share, which was the per share price for the most recent sale of the Company’s capital stock to accredited investors. On January 1, 2024, the Company issued 5,000 shares of its common stock for a total value of $ 72,000 for services to be rendered during next twelve months by one advisor firm. For the years ended September 30, 2024 and 2023, the Company recorded $ 146,333 and $ 41,667 as stock compensation expense under Selling, general and administrative expenses. As of September 30, 2024 and September 30, 2023, the remaining balance of $ 9,000 and $ 83,333 was recorded as Prepayments and other current assets, respectively. 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 250,000 shares (“the Shares”) of its common stock, no par value, the Company adopted its Amended and Restated Bylaws, effective the same day. In connection with the Offering of the Shares at an offering price of $ 40.0 per share, the Company also granted the underwriters an option exercisable for 45-days to purchase up to 37,500 shares of Common Stock as the Public Offering Price, less the underwriting discount to cover-over allotment. Additionally, the Company also issued warrants to the underwriters to purchase up to 20,125 shares of Common Stock at an exercise price of $ 48.0 per share, subject to adjustment as set forth in the warrants, exercisable from June 18, 2024 and valid until December 18, 2028 . On March 1, 2024, the Company entered into a warrant assumption agreement with the underwriter to assume those certain underwriter’s warrants for the purchase an aggregate amount of 20,125 shares of the Company’s common stock in connection with the Company’s initial public offering. Pursuant to the warrant assumption agreement, the Company paid an aggregate amount of $ 13,000 for the assumption of the Warrants. The paid amount of $ 13,000 was recorded to reduce Additional Paid-in Capital. As of September 30, 2024, the Warrants are no longer outstanding. The total gross proceeds from the Offering were $ 10,000,000 , before deducting underwriting discounts and other offering expenses associated with the Offering payable by the Company or paid by the Company. Transaction costs related to the offering amounted to $ 2,140,466 , consisting of $ 700,000 of underwriting fees, $ 345,876 of underwriting related expenses, $ 595,000 of legal fees and $ 499,590 of other costs. Of the total transaction cost of $ 2,140,466 , $ 590,466 in transaction costs were incurred and paid by the company before the closing date. These costs were recorded as deferred offering costs and were offset to equity upon the completion of the IPO. $ 8,450,000 total net cash from the Offering has been received by the Company on December 19, 2023. 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, $ 1,526,661 and $ 4,898 , respectively, were deposited with various major financial institutions in the United States. Accounts at each institution in the United States are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $ 250,000 . As of September 30, 2024, the Company had deposits in excess of the FDIC insurance limit with two financial institutions in the United States with $ 757,744 uninsured. As of September 30, 2023, the Company did not have deposit in excess of the FDIC insurance limit. 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 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. 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. 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 $ 4,129 to $ 5,089 per month. On January 1, 2024, the Company terminated the facility lease in Texas without penalty and entered into a new lease agreement 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. Subsequently, on February 1, 2024, a mutual amendment to the lease agreement was executed. Under the terms of the amendment, the Company has 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. 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 $ 6,617 to $ 7,740 per month. In August 2023, the Company relocated its California office from Corona to Diamond Bar. The Company was 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 right-of-use asset and lease liability were adjusted to reflect the termination of the lease. A loss of $ 24,710 was recognized in the income statement, representing the difference between the carrying amounts of the right-of-use assets $ 251,953 and the lease liability $ 221,156 (net with deposit of $ 39,699 ), as well as additional fees charged by the landlord. On June 20, 2024, the Company and the landlord settled the lease with a final lease payment of $ 55,000 , resulting in $ 44,204 of non-operating income. 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. 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 $ 770,676 . $ 570,295 and $ 437,770 of operating lease right-of-use assets and $ 60,236 and $ 488,094 of operating lease liabilities were reflected on the September 30, 2024 and 2023 consolidated balance sheets, respectively. Schedule of operating lease cost 2024 2023 Lease cost For the years ended September 30, 2024 2023 Operating lease cost (included in G&A in the Company’s statement of operations) $ 258,636 $ 153,241 Other information: Cash paid for amounts included in the measurement of lease liabilities $ 720,487 $ 109,430 Remaining term in years 0.5 - 3.25 1.25 – 3.58 Average discount rate – operating leases 9.5 % 8.5 % The supplemental balance sheet information related to leases is as follows: Schedule of supplement balance sheet information related to lease Operating leases September 30, 2024 September 30, 2023 Right of use asset – non-current $ 570,295 $ 437,770 Lease Liability – current 60,236 212,277 Lease Liability – non-current 0 275,817 Total operating lease liabilities $ 60,236 $ 488,094 Maturities of the Company’s lease liabilities are as follows: Schedule of lease liabilities Operating Lease For periods subsequent to September 30, 2024: 2025 $ 62,792 Less: Imputed interest/present value discount ( 2,556 ) Present value of lease liabilities $ 60,236 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 $ 73,000 . 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 $ 1.3 million from a construction project in 2020-2021, transferring the funds to the company instead of fulfilling a judgment. While the case is in its early stages, initial investigations suggest that the Company did not receive any of these funds. The Company is vigorously contesting the plaintiff’s claims and have requested the dismissal of charges against the Company due to lack of evidence. Negotiations for dismissal are ongoing. 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 $ 1.00 per share (the “Minimum Bid Price Requirement”), and Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive business days. 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 $ 1.00 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 $ 1.00 per share, and that the Company’s securities will continue to be listed and traded on The Nasdaq Stock Market. 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 35 % to 21 %, (ii) implementing a territorial tax system, (iii) imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, (iv) requiring a current inclusion of global intangible low taxed income of certain earnings of controlled foreign corporations in U.S. federal taxable income, (v) creating the base erosion anti-abuse tax regime, (vi) implementing bonus depreciation that will allow for full expensing of qualified property, and (vii) limiting deductibility of interest and executive compensation expense, among other changes. The Company has computed its tax expenses using the new statutory rate effective on January 1, 2018 of 21 %. 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 0.75 % tax is imposed for the years ended September 30, 2024 and 2023 on the Company’s taxable margin that is apportioned to Texas. Taxable margin is generally defined as revenues less certain costs. 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: Schedule of income tax provision 2024 2023 September 30, 2024 2023 Current: Federal $ — $ — State 800 — Total current income tax provision 800 — Deferred: Federal ( 1,532,244 ) ( 633,247 ) State — — Increase/(decrease) in valuation allowance 1,532,244 633,247 Total deferred taxes — — Total provision for income taxes $ 800 $ — The deferred tax asset as of September 30, 2024 and 2023 consisted of the following: Schedule of deferred tax 2024 2023 September 30, 2024 2023 Stock-based compensation $ - $ 8,750 Net operating loss 1,493,981 626,793 Depreciation ( 47,602 ) ( 53,588 ) Unearned revenue 72,917 — Investment in Passthrough Entities 8,542 18,856 Allowance for Doubtful Accounts - 266,272 Others 4,406 1,383 Total deferred tax assets 1,532,244 868,466 Less: valuation allowance ( 1,532,244 ) ( 868,466 ) Deferred tax assets net $ — $ — The company has net operating loss carry forwards of approximately $ 4.1 million and $ 2.5 million for the years ended September 30, 2024 and 2023, respectively. The operating losses do not expire. 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: Schedule of effective rate income tax rate income tax September 30, 2024 September 30, 2023 Statutory tax rate Federal 21.00 % 21.00 % State (net of federal benefit) ( 0.02 )% — % Net effect of state income tax deduction and other permanent differences ( 21.00 )% ( 21.00 )% Effective tax rate ( 0.02 )% — % As of September 30, 2024 and 2023, the outstanding income tax payable was both $ 0 . Note 15 — Subsequent events On October 14, 2024, the Company entered into an equity investment agreement with an individual, securing a 15 % ownership interest in CoreModu LLC, a company specializing in the production of light steel structural materials. The investment totaled $ 1.4 million. 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 500,000 shares (the “Shares”) of the Company’s common stock, no par value (the “Common Stock”), for an aggregate purchase price of $ 2,000,000 at $ 4.00 per share. The purchase, sale, and issuance of the Shares (the “Closing”) are planned to take place on or before November 6, 2024. The Shares were issued pursuant to the Purchase Agreement, were not registered under the Securities Act of 1933, as amended (the “Securities Act”), and were issued in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act or Regulation S promulgated under the Securities Act. The Company relied on these exemptions from registration based in part on representations made by the Investors. 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 729,167 shares of common stock, no par value, at a purchase price per share of $ 4.80 , for gross proceeds of approximately $ 3.5 million, of which proceeds will be used for working capital and other general corporate purposes. The Private Placement closed on November 20, 2024. As of November 27, 2024, the Company has received funds from six of the nine Purchasers and an aggregate purchase price of $ 2,475,000 . The remaining three Purchasers are in the process of completing their wire transfers. F- 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCAIL DISCLOSURE. None.