HNO International, Inc. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis may include statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other non-historical statements in the discussion, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, factors listed in other documents we file with the Securities and Exchange Commission (the "SEC''). We do not assume an obligation to update any forward-looking statements. Our actual results may differ materially from those contained in or implied by any of the forward-looking statements contained herein. Overview HNO focuses on systems engineering design, integration, and product development to generate green hydrogen-based clean energy solutions to help businesses and communities decarbonize in the near term. HNO stands for Hydrogen and Oxygen and our experienced management team has over 13 years of expertise in the green hydrogen production industry. We provide green hydrogen systems engineering design, integration, and products to multiple markets, which include: (i) the zero-emission vehicle and mobile equipment market consisting of hydrogen fuel cell electric passenger vehicles, material handling equipment such as forklifts and airport ground support equipment, as well as the medium and heavy-duty truck market; (ii) the current and emerging hydrogen gas markets encompassing ammonia, fertilizer, steel, mining, electronics, semiconductors, and fuel cell electric vehicles; (iii) and the gasoline and diesel engine emissions and maintenance reduction product and services market. On May 16, 2023, we began accepting subscription agreements from investors as part of a $75 million offering under Regulation A. During the year ended October 31, 2023, we issued 2,026,532 shares of common stock under our Regulation A offering. Results of Operations For the Years Ended October 31, 2023 and 2022 Revenues - For the year ended October 31, 2023, revenue generated from hydrogen engineering services and combustion solutions was $13,000 compared to $34,450 for the year ended October 31, 2022. The decrease in revenues of $34,450 is mainly attributable to our inability to secure additional contracts for hydrogen engineering services and combustion solutions during the current year. Cost of Sales and Gross Profits – For the year ended October 31, 2023, our cost of goods sold was $5,885, resulting in a gross profit of $7,115. In comparison, for the year ended October 31, 2022, our cost of goods sold were $27,692, resulting in a gross profit of $6,758. The cost of goods sold were expenses made to contract labor in association with revenue generation. Operating Expenses - Operating expenses for the year ended October 31, 2023, were $1,450,554 compared to $1,078,141 for the same period in 2022. This is attributable to our efforts to expand operations, which resulted in increased costs related to contract labor and general and administrative expenses. In 2023, we experienced an increase in hiring contract labor to support our Research and Development program. We also expanded our staff to support increased sales and marketing efforts. Net Loss - Net loss for the year ended October 31, 2023, was $1,441,335 compared to a net loss of $1,071,309 during the same period in 2022. Forward-Looking Considerations The Company recognizes the possibility of future increases in labor or material costs. Factors such as evolving market conditions, potential inflation, and global economic dynamics are considered. We are actively monitoring these aspects to anticipate and navigate any forthcoming rises in labor or material expenses. Cost-to-Revenue - The Company is assessing alterations in the relationship between cost of sales and revenue. 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. 37 Liquidity and Capital Resources For the Years Ended October 31, 2023 and 2022 Our cash balance of $235,159 as of October 31, 2023, combined with the profits from our operations, is not sufficient to maintain operations. Therefore, we will need to raise additional funds in the near future to support our operations and growth plans. Our cash balance on October 31, 2022, was $51,109 for a difference of $184,050. We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. We have raised capital through sales of common stock and debt securities. The effect of existing or probable government regulations on our business is not known at this time. Due to the nature of our business, it is anticipated that there may be increasing government regulation that may cause us to have to take serious corrective actions or make changes to the business plan. There are no external sources of liquidity available to us at this time. We will need to raise additional capital through equity financings or other means in order to continue operations and meet its obligations. Failure to obtain additional funding could have a material adverse effect on our financial condition and the results of operations. Cash Flow For the Years Ended October 31, 2023 and 2022 The following table summarizes our cash flows for the periods indicated below: For the Year Ended October 31, 2023 For the Year Ended October 31, 2022 Cash Used in Operating Activities (1,427,284 ) (1,121,708 ) Cash Provided by Financing Activities 2,520,033 1,172,827 Cash Used in Investing Activities (908,699 ) (10 ) Cash Used in Operating Activities During the year ended October 31, 2023 cash used in operating activities of $1,427,284 primarily reflected our net losses for the period, adjusted by non-cash charges such as depreciation and share based compensation, as well as changes in our working capital accounts, primarily consisting of an increase in accrued interest payable and payroll taxes, and a decrease in security deposit and accounts payable. During the year ended October 31, 2022 cash used in operating activities of $1,121,708 primarily reflected our net losses for the period and changes in our working capital accounts, primarily consisting of an increase in a due from related party and accrued interest payable, and a decrease in security deposit. Cash Provided by Financing Activities During the year ended October 31, 2023, cash provided by financing activities was $2,520,033, which consisted of proceeds from related party note payable of $185,000 and $2,335,033 in proceeds obtained through the Company’s active Regulation A offering sale of common stock. During the year ended October 31, 2022, cash provided by financing activities was $1,172,827, which primarily consisted of proceeds from related party notes payable of $1,172,817. Cash Provided by Investing Activities During the year ended October 31, 2023, cash used in investing activities was $908,699. The Company purchased $804,878 in property and equipment and $103,821 in SAFE note. During the year ended October 31, 2022, cash used in investing activities was $10, which consisted of the termination of an acquisition of a subsidiary. 38 Going Concern Our financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the year ended October 31, 2023, we incurred a net loss of $1,441,335 and used cash in operating activities of $1,427,284. These factors, among others, raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and the classification of liabilities that might result from this uncertainty. Off-Balance Sheet Arrangements There are no off-balance sheet arrangements with any party. Critical Accounting Policies The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions could have a material impact on our financial condition and results of operations during the period in which such changes occurred. Actual results could differ from those estimates. Our financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.