10-K/A: HNOI Amends 10-K, Restates Stock Valuation & Reports Losses

HNO International, Inc. filed an amended annual report to correct service stock valuations, revealing increased stock-based compensation and a higher net loss for fiscal year 2024.

Summary

• Filed Amendment No. 2 to the Annual Report on Form 10-K for the fiscal year ended October 31, 2024, to correct the valuation applied to service stock issuances and update related disclosures.
• The revised valuation increased stock-based compensation expense by $1,108,368 for FY2024, with corresponding adjustments to additional paid-in capital and accumulated deficit.
• The company reported a net loss of $3,338,590 for FY2024, an increase from $1,927,494 in FY2023.
• Revenue decreased to $4,241 in FY2024 from $13,000 in FY2023, primarily due to an inability to secure additional contracts for hydrogen engineering services and combustion solutions.
• Operating expenses significantly increased by $1,259,761 to $3,129,989 in FY2024, driven by higher professional fees, administrative costs, and stock-based compensation.
• Cash balance as of October 31, 2024, was $20,255, down from $235,159 in the prior year, indicating insufficient liquidity to maintain operations.
• The company's financial statements were prepared assuming it will continue as a going concern, but an accumulated deficit of $45,434,694 and insufficient operating cash flow raise substantial doubt about this ability.
• Internal controls over financial reporting were deemed ineffective as of October 31, 2024, due to inadequate segregation of duties, ineffective risk assessment, and insufficient written policies and procedures.
• A restatement for FY2023 corrected accounting errors related to service stock valuation, termination of a patent agreement, and under-accrual of accounts payable.

Sentiment

Score: 3

Explanation: The company faces severe financial distress with increasing net losses, declining revenue, and critically low cash, raising substantial doubt about its ability to continue as a going concern. The restatement and ineffective internal controls further highlight operational weaknesses. While the green hydrogen market offers significant long-term potential and the company has strategic plans for expansion and product development, its current financial state and reliance on future capital raises present high risks.

Positives

• The company is at the forefront of developing innovative integrated products for green hydrogen, including refueling systems, production facilities, and emission reduction technologies.
• The global hydrogen consumption market is projected to grow significantly from $11.6 billion in 2022 to $90 billion in 2030, representing a 55% CAGR, which aligns with the company's focus.
• A second location for hydrogen production in Lancaster, California, has been identified and contracted, indicating expansion efforts.
• The first 10 Hydrogen Carbon Cleaners were delivered in mid-March 2025, with orders and deliveries expected within 30-60 days.
• The Compact Hydrogen Refueling System (CHRS) unit has been built and marketing to customers began in the first quarter of 2025.
• The company has a robust supply chain, sourcing high-quality equipment from trusted suppliers.

Negatives

• Net loss increased significantly to $3,338,590 in FY2024 from $1,927,494 in FY2023.
• Revenue declined substantially to $4,241 in FY2024 from $13,000 in FY2023, indicating a failure to secure additional contracts.
• Gross profit decreased from $7,115 in FY2023 to $553 in FY2024.
• Operating expenses increased by $1,259,761, primarily due to higher professional fees, administrative costs, and stock-based compensation.
• Cash balance is critically low at $20,255 as of October 31, 2024, which is insufficient to maintain operations.
• The company has an accumulated deficit of $45,434,694 as of October 31, 2024.
• Internal controls over financial reporting were deemed ineffective, and material weaknesses were identified.
• The company is dependent on related party loans and equity raises to fund operations, with no binding commitments for future financing.
• A restatement for FY2023 corrected prior accounting errors, including undervaluation of stock-based compensation and issues with a patent agreement.

Risks

• Substantial doubt exists about the ability to continue as a going concern due to accumulated deficit, failure to attain profitable operations, excess of liabilities over assets, and dependence on additional financing.
• Limited operating history with no assurances of generating sufficient revenue or operating profitably in the foreseeable future.
• The company operates in a highly competitive industry with larger, more resourced competitors, potentially limiting market share and cash flow.
• Inability to raise necessary funding on acceptable terms, which could force delays or termination of product development and operations.
• Future growth may be limited by the ability to develop methodology, attract skilled employees, protect intellectual property, and secure sufficient funding.
• Reliance on key personnel, with any failure to retain qualified professionals potentially impairing the business.
• Chairman Donald Owens controls a majority of the voting power, potentially leading to decisions not in the best interests of minority stockholders and having anti-takeover effects.
• Debt owed to a related party (HNO Green Fuels, Inc., controlled by Donald Owens) may be convertible into common stock, causing substantial dilution to shareholders.
• Potential intellectual property infringement claims and inability to adequately protect existing intellectual property rights.
• Risks associated with potential business combinations, including integration challenges, unknown liabilities, and diversion of management resources.
• Future indebtedness could reduce cash available for operations and expose the company to default risks.
• High susceptibility to unfavorable economic conditions, which could reduce demand for services and negatively impact revenue and operating margins.
• Inability to meet performance targets and milestones, which are subject to inherent risks and uncertainties.
• Management has limited personal liability, and investors may lose their entire investment.
• Failure to establish and maintain an effective system of internal control, leading to inaccurate financial reporting or fraud.
• Increased compliance costs and difficulty attracting/retaining officers and directors due to public company requirements.
• Risks in executing and operating green hydrogen production projects, including cost overruns, delays, unfavorable regulations, and intense competition.
• Dependence on certain third-party key suppliers for critical components, with potential for manufacturing impairment or increased costs if suppliers fail.
• Intense competition in the energy products market from larger companies and alternative technologies.
• Technological advances in alternative energy products may render the company's products less attractive or obsolete.
• Expenses required to operate as a public company will reduce funds available for business development.
• Growth depends on external capital, which may be difficult to obtain, especially if investors are reluctant due to the stated intention to enter into a 'mining excavation operation'.
• Applicable state and international laws may prevent maximizing potential income.
• Common stock is a 'penny stock,' limiting trading and making it difficult for investors to resell shares.
• Infrequent trading and low volumes on OTC Markets Pink, making it difficult to sell shares at quoted prices.
• No active public market for common stock, and no assurance one will develop, negatively affecting value and liquidity.
• Stock price volatility due to various factors, including industry changes, competitive pressures, and economic conditions.
• Potential for 'overhang' from substantial sales of common stock, causing price decline.
• Dilution of ownership if new common stock or other securities are issued.
• A large number of authorized but unissued shares can be issued without stockholder approval, causing further dilution.
• Market valuation may fluctuate due to factors beyond control, including analyst estimates, market volumes, and competitor announcements.
• No dividends paid or intended to be paid in the foreseeable future, meaning economic return relies solely on stock appreciation.

Future Outlook

The company anticipates future increases in labor or material costs and is actively monitoring these aspects. It is assessing changes in the cost-to-revenue relationship, examining factors like price shifts and sales volume fluctuations. Operations at the Katy, Texas hydrogen production site are scheduled to commence in August 2025, with anticipated revenues of approximately $2,500,000 over the subsequent 15-20 months. The company plans to identify another 10-15 hydrogen production locations over the next 12 months, with expected expenditures of approximately $20,000,000 and revenues of $15,000,000 $25,000,000 over the next 15-20 months. Funding for these expansion plans is expected to come from existing cash, potential future equity or debt financings, and Regulation A offerings, though no binding commitments exist.

Management Comments

• We are actively monitoring these aspects to anticipate and navigate any forthcoming rises in labor or material expenses.
• We are examining the factors influencing these changes, including shifts in prices and fluctuations in the volume of services sold. Understanding the impact of these elements is crucial for maintaining a balanced and effective cost-to-revenue structure.
• Management plans to identify adequate sources of funding to provide operating capital for continued growth.
• Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
• We plan to take steps to enhance and improve the design of our internal control over financial reporting. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending October 31, 2025: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting.

Industry Context

The company operates in the rapidly growing green hydrogen and clean energy sector, which is projected to see significant expansion in hydrogen consumption (55% CAGR to $90B by 2030) and fuel cell electric vehicle (FCEV) adoption (42.2% CAGR to 1.63M units by 2030). HNO International aims to address current market challenges such as the high cost and limited availability of hydrogen refueling stations by developing compact, modular, and scalable green hydrogen production and refueling systems. While the market is competitive, with established industrial gas producers and emerging green hydrogen companies, HNO positions itself as an innovator focusing on low-cost, PGM-free electrolysis technology and integrated solutions. The increasing government support and funding for hydrogen infrastructure and decarbonization initiatives provide a favorable backdrop for the company's strategic direction, despite the inherent challenges of a nascent market.

Comparison to Industry Standards

• The global hydrogen refueling station market size was valued at USD $1.7 billion in 2020 and is projected to reach USD $7.5 billion by 2025, at a CAGR of 34.5% during the forecast period.
• The global fuel cell electric vehicle market size is projected to reach 1.63 million units by 2030, growing at a CAGR of 42.2% during the forecast period of 2025 to 2030.
• Global growth for hydrogen consumption is projected to grow from $11.6 billion in 2022 to $90 billion in 2030, growing by a 55% CAGR.
• The company's CHRS aims to solve problems of current hydrogen refueling stations, which are expensive, require long permitting/installation, and face outages, by offering compact, modular, and renewable-energy-powered solutions.
• The company's SHEP plants are described as smaller, low-cost, and quicker to permit, install, and scale compared to traditional large-scale hydrogen production plants.
• The company's use of low-cost, PGM-free electrolysis technology is highlighted as a differentiator from traditional methods that rely on expensive platinum group metals.
• Major competitors in traditional hydrogen production include Praxair, Air Products and Chemicals, Linde, Air Liquide, Messer Group, BOC, Air Gas, and Matheson Tri-gas, which will require significant investment in carbon capture.
• Early competitors in green hydrogen include Nel, Plug Power, ITM Power, and Nikola, with whom HNO either teams up or competes.

Management Changes

Corporate Governance

Legal Proceedings

• Not currently involved in any pending legal proceeding or litigation that would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.

Related Party Transactions

• Notes Payable to HNO Green Fuels, Inc. (controlled by Chairman Donald Owens): Aggregate principal amount of $1,375,000 as of October 31, 2024. All 9 notes were extended to December 31, 2025.
• Advances from Donald Owens: $950,585 advanced to the company in FY2024 to cover operating expenses.
• Advances from HNO Green Fuels, Inc.: $10,000 advanced to the company in FY2024 to cover operating expenses.
• Settlement with Vivaris Capital, LLC: On May 3, 2024, the company paid $15,500 and canceled 10,000,000 common shares previously issued to Vivaris Capital, LLC (related to an Advisory Agreement dispute).
• Share Exchange Agreements (January 2, 2025): Donald Owens exchanged 245,000,000 common shares for 245,000 Series B Convertible Preferred Stock. HNO Green Fuels, Inc. exchanged 115,000,000 common shares for 115,000 Series B Preferred Stock.
• Termination of Patent Purchase Agreement (March 13, 2025): Agreement with Donald Owens (dated January 24, 2023) terminated, patents returned to Mr. Owens, and 5,000,000 Series A Preferred Stock canceled.

Stakeholder Impact

• Shareholders: Experience significant dilution from past and future stock issuances, particularly from related party debt conversions and capital raises. Voting power is heavily concentrated with Chairman Donald Owens due to Series A and Series B Preferred Stock. The stock is a 'penny stock' with low liquidity, making it difficult to sell. No dividends are expected.
• Employees: Only one full-time employee, indicating a very lean operation. The company relies on key personnel, and any failure to retain them could impair the business.
• Customers: Potential for new green hydrogen products (CHRS, HCC, SHEP) to address market needs for decarbonization and emission reduction. However, the company's financial instability and going concern doubt could impact its ability to deliver on long-term commitments.
• Creditors: Related party notes payable are significant, and their extensions indicate ongoing financial challenges. The company's inability to generate sufficient cash from operations increases credit risk.
• Suppliers: Dependence on key third-party suppliers for critical components means any disruption could impact the company's ability to manufacture products.

Next Steps

• Raise additional funds through public or private financing, additional collaborative relationships, or other arrangements.
• Evaluate various options to further reduce cash requirements to operate at a reduced rate.
• Identify adequate sources of funding to provide operating capital for continued growth.
• Build and set up a manufacturing line for 1.25 MW electrolyzers to produce one per day.
• Commence operations at the Katy, Texas Hydrogen Farm in August 2025.
• Identify another 10-15 locations for hydrogen production over the next 12 months.
• Take orders and schedule delivery for Hydrogen Carbon Cleaners within 30-60 days after customer order (following mid-March 2025 delivery of first 10 units).
• Continue marketing the CHRS unit for delivery to customers in the first quarter of 2025.
• Implement changes to remediate material weaknesses in internal control over financial reporting, including appointing additional qualified personnel and adopting sufficient written policies and procedures during the fiscal year ending October 31, 2025.

Key Dates

Recommendation

The company's financial position is extremely precarious, marked by a substantial increase in net loss, a drastic decline in revenue, and critically low cash reserves. The explicit 'going concern' doubt, coupled with an accumulated deficit exceeding $45 million, signals severe financial instability. The restatement of prior financial statements due to accounting errors and the acknowledged ineffectiveness of internal controls raise serious concerns about financial reporting reliability and corporate governance. While the company operates in a promising green hydrogen market and has strategic plans, its current operational and financial weaknesses, heavy reliance on related-party financing, and the dilutive potential of future capital raises present an exceptionally high-risk profile. The stock's 'penny stock' status and low liquidity further exacerbate investment risks. A seasoned investor would view these factors as overwhelmingly negative, indicating a strong likelihood of further value erosion.

Keywords

Green Hydrogen, Clean Energy, Hydrogen Refueling, Fuel Cell Electric Vehicles, Decarbonization, Hydrogen Production, Energy Systems, SEC Filing, 10-K/A, Financial Restatement, Stock-Based Compensation, Going Concern, OTC Markets, HNO International