Inno Holdings Inc.: Form 10-K for the period ended Sep 30, 2024

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.”

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.

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.

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.

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.

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

Revenues

Total revenue for the year ended September 30, 2024 increased 11% to $885,495 in comparison to the year ended September 30, 2023.

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.

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.

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.

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.

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.