INNO HOLDINGS INC. 10-K

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 an innovative technology company that engages in the business of recycled consumer electronic devices. We source and purchase pre-owned consumer electronic devices such as smartphones and tablets from suppliers and sell the electronic devices to wholesalers that re-sell these products to their wholesale and/or retail customers in Southeast Asia, Middle East Asia, Europe and other regions. We conduct our business of recycled consumer electronic devices through two Hong Kong-based wholly-owned subsidiaries Lear Group Limited and Baymax High Technology Co., Limited, acquired by the Company in October and December 2024, respectively. 16 Previously the Company engaged in the business of manufacturing cold-formed-steel and offering a range of services required to transform raw materials into precise steel framing products and prefabricated homes. In the second quarter of 2025, the Company decided to discontinue its cold-formed-steel business and sold all of the Company’s ownership in the subsidiaries through which the Company conducted its cold-formed-steel business. From March 2025 till April 2025, the Company completed the disposition of all its ownership or membership interests in its former wholly- and partially-owned subsidiaries, namely Inno Metal Studs Corp, Inno AI Tech Corp., Inno Disrupts Inc., and Castor Building Tech LLC. 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, 2025, and 2024 Years Ended September 30, 2025 2024 Revenue - products $ 2,846,250 $ - 100 % Total Revenue 2,846,250 - 100 % Costs of materials and labor 2,790,500 - 100 % Selling, general and administrative expenses (exclusive of items shown separately below) 4,414,709 844,844 423 % Impairment loss on goodwill 3,514 - 100 % Operating loss (4,362,473 ) (844,844 ) 416 % Other income (expenses) (2,450,777 ) 237,952 -1130 % Income tax expense (800 ) (800 ) 0 % Net loss from discontinued operations (195,796 ) (2,643,435 ) -93 % Net loss (7,009,846 ) (3,251,127 ) 116 % Non-controlling interest 69,517 (37,298 ) -286 % Net loss attributable to INNO HOLDINGS INC. $ (7,079,363 ) $ (3,213,829 ) 120 % Revenues Revenue for the year ended September 30, 2025 increased 100% to $2,846,250 in comparison to $Nil for the year ended September 30, 2024. Revenue for the year ended September 30, 2025 consists solely of the Company’s new business of electronic products trading that started since October 2024. The new business of electronic products trading contributes to the increase in revenue for the year ended September 30, 2025 against the comparable period in 2024. Our revenues are significantly impacted by demand for economic conditions including 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 the negative overall economic conditions currently being experienced. Costs of Materials and Labor Cost of Goods Sold (COGS) includes electronic products purchased from our suppliers. COGS for the year ended September 30, 2025 increased to $2,790,500 in comparison to $Nil for the year ended September 30, 2024. COGS for the year ended September 30, 2025 consists solely of electronic products purchased from our suppliers in the Company’s new business of electronic products trading that started since October 2024. The new business of electronic products trading contributes to the increase in COGS for the year ended September 30, 2025 against the comparable period in 2024. 17 Selling, General and Administrative Expenses Selling, general and administrative expenses for the year ended September 30, 2025, increased 423% to $4,414,709 in comparison to $844,844 for the comparable period in 2024. This increase was primarily driven by stock compensation, legal expenses, auditing expenses and consulting expenses. Operating Loss Operating loss was $4,362,473 for the year ended September 30,2025, in comparison to an operating loss of $844,844 for the comparable period in 2024. The increase in operating loss was primarily attributed to the increase in selling, general and administrative expenses, as discussed above. Other Income (Expense) Other expenses for the year ended September 30, 2025, was $2,450,777, in comparison to other income of $237,952 for the comparable period in 2024. The increase in other expenses was primarily due to loss on investment disposal. Other income for the year ended September 30, 2024, were primarily attributable to the recognition of supporting services provided to one of customers and the interest income. Net Loss Net loss for the year ended September 30, 2025 was $7,009,846, in comparison to a net loss of $3,251,127 for the year ended September 30, 2024. The increase 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, 2025 and 2024, 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 $10,130,942 as of September 30, 2025 compared to $1,077,138 of cash as of September 30, 2024. The cash increase was primarily due to the proceeds from the multiple private offerings during the periods ended September 30, 2025 and offset by the cash usage in operating and investing activities during the periods ended September 30, 2025. The Company has participated in several private-placement offerings during the quarter ended December 31, 2024. On October 31, 2024, the Company entered into a securities purchase agreement with certain investors, providing for the sale and issuance of 500,000 shares of the Company’s common stock, no par value, for an aggregate purchase price of $2,000,000 at $4.00 per share (the “October 2024 Private Placement”). The offering closed on November 6, 2024. 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 (the “November 2024 Private Placement”) 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 offering closed on December 13, 2024. On December 11, 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 (the “December 2024 Private Placement”) an aggregate of 700,000 shares of common stock, no par value, at a purchase price per share of $2.50, for gross proceeds of approximately $1.75 million, of which proceeds will be used for working capital and other general corporate purposes. The offering closed on December 23, 2024. 18 On June 2, 2025, the Company entered into a securities purchase agreement with certain investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering by the Company directly to the investors (the “June 2025 Offering”), an aggregate of 1,058,000 shares (the “June 2025 Shares”) of its common stock, no par value, at a purchase price per share of $0.50. The June 2025 Offering closed on June 6, 2025 and the Company received gross proceeds of $529,000. On January 27, 2025, the Company entered into a Standby Equity Purchase Agreement (the “January SEPA”) with certain investors effective as of January 28, 2025. Pursuant to January SEPA, the Company has the right to issue and sell to the investors, from time to time, up to $15 million worth of shares of the Company’s common stock, no par value per share, subject to the terms and conditions specified in the January SEPA. On June 20,2025, the Company issued and sold an aggregate of 1,400,000 shares (the “January 2025 SEPA Shares”) of its common stock at a purchase price per share of $0.75, pursuant to January SEPA. On July 4, 2025, the Company entered into the Standby Equity Purchase Agreement (the “July SEPA”) with the Investors. Pursuant to July SEPA, the Company has the right to issue and sell to the investors, from time to time, up to $6 million worth of shares of the Company’s common stock, no par value per share, subject to the terms and conditions specified in the July SEPA. On August 27,2025, the Company issued and sold an aggregate of 3,200,000 shares of its common stock at a purchase price per share of $0.48, pursuant to July SEPA. On September 10, 2025, the Company entered into a securities purchase agreement with certain institutional investors, pursuant to which the Company offered, in a registered direct offering, 1,200,000 shares of its common stock, at a purchase price of $3.60 per share and pre-funded warrants to purchase up to 800,000 shares of common stock, at a purchase price of $3.59999 per pre-funded warrant (equal to $3.60 minus the exercise price of $0.00001 per pre-funded warrant). The closing of the offering occurred on September 11, 2025. The Company received net proceeds of approximately $6.69 million from the offering, after deducting the estimated offering expenses payable by the Company, including the placement agent fees. As of September 30, 2025, 799,998 pre-funded warrants were exercised for the issuance of 799,998 shares of the Company’s common stock. On November 12, 2025, the Company entered into a sales agreement (the “Sales Agreement”) with Aegis Capital Corp. (the “Sales Agent”), pursuant to which the Company may offer and sell, from time to time, to or through the Sales Agent, shares of the Company’s common stock, with no par value, having an aggregate offering price of up to $50.0 million (the “At-the-Market Offering”). From November 12, 2025 to December 15, 2025, the Company issued an aggregate of 85,000,000 shares of Common Stock for the gross proceeds of approximately $28 million through the Sales Agent pursuant to the Sales Agreement. As of December 15, 2025, the Sales Agreement remains in-effect. Working Capital As of September 30, 2025 and 2024, our working capital was $13,527,273 and $2,797,536, 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 For the year ended September 30, 2025, net cash used in operating activities was $4,728,738, primarily driven by the net loss from continuing operation of $6,814,050 and net loss from discontinuing operation of $265,313, partially offset by non-cash items of stock-based compensation expense of $2,185,205, loss from investment disposal of $2,152,522, a $370,546 increase in fair value of SEPA, and working capital used cash of $1,962,214, which was primarily driven by a $133,710 increase in prepayments and other current assets, and a $2,107,000 increase in inventories, and operating cash flow used by discontinued operations of $398,948. For the year ended September 30, 2024, net cash used in operating activities was $5,521,976, primarily driven by the net loss from continuing operation of $607,692 and net loss from discontinuing operation of $2,606,137, partially offset by non-cash items of $146,333 and working capital used cash of $3,882,169, which was primarily driven by a $3,844,630 increase of prepayments and other current assets, and a $37,539 decrease in accounts payable, accounts payable - related party, unearned revenue, operating lease liabilities and other current liabilities, and operating cash flow provided by discontinued operations of $1,479,390. Investing Activities For the year ended September 30, 2025, net cash used in investing activities was $3,277,453 and was primarily the result of investment in equity investee of $2,200,000, which is related to the investment in Aurora Technology Holding Limited and Flower Mouse Network Technology Limited. 19 For the year ended September 30, 2024, net cash used in investing activities was $547,060 and was mainly related to the purchase of machinery, tools, motor vehicles, and leasehold improvements by discontinued operations. Financing Activities Net cash provided by financing activities was $17,059,995 and $7,144,235, respectively, for the year ended September 30, 2025 and 2024. For the year ended September 30, 2025, net cash provided by financing activities was due to the $17,059,995 net cash from the several private-placement offerings. 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 $627,000 repayment to related parties and $180,000 payment of short-term loans and $485,765 used in financing activities by discontinued operations. 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.” 20