NewHydrogen, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special Note on Forward-Looking Statements. Certain statements in “Management’s Discussion and Analysis and Results of Operations” below, and elsewhere in this quarterly report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements frequently are accompanied by such words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this quarterly report. Subsequent written and oral forward looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in our annual report on Form 10-K filed with the SEC on March 31, 2022, and in other reports filed by us with the SEC. You should read the following description of our financial condition and results of operations in conjunction with the financial statements and accompanying notes included in this report. Overview We are a developer of Green Hydrogen technologies. Our current focus is on developing an electrolyzer technology to lower the cost of Green Hydrogen production. Green Hydrogen is the term used to refer to Hydrogen fuel that is created using renewable energy instead of fossil fuels. Hydrogen is the cleanest and most abundant fuel in the universe. It is zero-emission and only produces water vapor when used. However, hydrogen does not exist in its pure form on Earth so it must be extracted. For centuries, scientists have known how to utilize electricity to split water into hydrogen and oxygen using a device called an electrolyzer. Electrolyzers installed behind a solar farm or wind farm can use renewable electricity to split water, thereby producing Green Hydrogen. However, modern electrolyzers still cost too much. The chemical catalysts that enable the water-splitting reactions are currently made from platinum and iridium – both are very expensive precious metals. These catalysts account for a significant portion of the cost of the electrolyzer. We are developing technologies to significantly reduce or replace rare earth materials with inexpensive earth abundant materials in electrolyzers to help usher in a Green Hydrogen economy. As of April 30, 2021, we changed our name from BioSolar, Inc. to NewHydrogen, Inc. Recent Transactions On October 30, 2022, we executed an amendment to the Sponsored Research Agreement with UCLA with an expanded scope of research work, a new expiration date of December 31, 2025 and increased research funding of $2,797,368. 11 Application of Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using a Binomial lattice valuation model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements, include the estimate of useful lives of property and equipment, the deferred tax valuation allowance, derivative liabilities and the fair value of stock options. Actual results could differ from those estimates. Fair Value of Financial Instruments Our cash, cash equivalents, investments, inventory, prepaid expenses, and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments. Recently Issued Accounting Pronouncements Management reviewed currently issued pronouncements during the three months ended September 30, 2022, and does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed unaudited financial statements. Results of Operations – Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021. OPERATING EXPENSES General and Administrative Expenses General and administrative (“G&A”) expenses increased by $72,621 to $2,594,347 for the three months ended September 30, 2022, compared to $2,521,726 for the prior period ended September 30, 2021. The primary increase in G&A expenses was the result of an increase in fair value of non-cash stock compensation of $110,778, with a decrease in professional fees in the amount of $41,113, with an overall decrease in G&A expenses of $31,508. Research and Development Research and Development (“R&D”) expenses decreased by $(18,028) to $230,546 for the three months ended September 30, 2022, compared to $248,574 for the prior period ended September 30, 2021. This overall decrease in R&D expenses was the result of a decrease in outside research fees. Depreciation Depreciation and amortization expense for the three months ended September 30, 2022 and 2021 was $1,323 and $1,091, respectively. Other Income/(Expenses) Other income and (expenses) decreased by $(63,148) to $1,295 for the three months ended September 30, 2022, compared to $64,442 for the prior period ended September 30, 2021. The decrease in other income and (expenses) was the result of a decrease in gain of non-cash accounts associated with the change in fair value of the derivative instruments of $73,395, a decrease in interest expense of $10,609, which includes non-cash expense of amortization of debt discount in the amount of $6,889, with a decrease in interest income of $362. The decrease in other income and (expenses) was primarily due to the net change in the fair value of the derivative instruments. 12 Net Income (Loss) Our net loss for the three months ended September 30, 2022 was $(2,824,625), compared to $(2,706,949) for the prior period ended September 30, 2021. The increase in net loss was due to a decrease in non-cash other income associated with the net change in derivative instruments estimated in the current period. These estimates were based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs were subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities fluctuate from period to period, and the fluctuation may be material. The Company has not generated any revenues. Results of Operations – Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021. OPERATING EXPENSES General and Administrative Expenses G&A expenses decreased by $(12,556,504) to $8,404,052 for the nine months ended September 30, 2022, compared to $20,960,558 for the prior period ended September 30, 2021. The primary decrease in G&A expenses was the result of a decrease in fair value of non-cash stock compensation of $12,280,558, a decrease in professional fees in the amount of $304,671, with an overall increase in G&A expenses of $28,725. Research and Development R&D expenses decreased by $(73,377) to $681,637 for the nine months ended September 30, 2022, compared to $757,014 for the prior period ended September 30, 2021. This overall decrease in R&D expenses was the result of a decrease in outside research fees. Depreciation Depreciation expense for the nine months ended September 30, 2022 and 2021 was $3,188 and $3,274, respectively. Other Income/(Expenses) Other income and (expenses) decreased by $62,640,791 to $2,530 for the nine months ended September 30, 2022, compared to $66,064,185 for the prior period ended September 30, 2021. The decrease in other income and (expenses) was the result of a decrease in gain of non-cash accounts associated with the change in fair value of the derivative instruments of $63,214,903, a decrease in interest expense of $574,524, which includes non-cash expense of amortization of debt discount in the amount of $449,100, with a decrease in interest income of $412. The decrease in other income and (expenses) was primarily due to the net change in the fair value of the derivative instruments. Net Income (Loss) Our net loss for the nine months ended September 30, 2022 was $(9,086,347), compared to net income of $40,922,475 for the prior period ended September 30, 2021. The decrease in net loss was due to a decrease in non-cash other expenses associated with the net change in derivative instruments estimated in the current period. These estimates were based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs were subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities fluctuate from period to period, and the fluctuation may be material. The Company has not generated any revenues. LIQUIDITY AND CAPITAL RESOURCES Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. The unaudited condensed financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying unaudited condensed financial statements do not reflect any adjustments that might result if we are unable to continue as a going concern. During the nine months ended September 30, 2022, we did not generate any revenues, and recognized a net loss of $(9,086,347), due to a change in non-cash stock compensation, and cash of $1,250,049 used in operations. As of September 30, 2022, we had working capital of $5,420,084 and a shareholders’ equity of $1,963,414. Management believes that we will be able to continue to raise funds through the sale of our securities to existing and new investors. Management believes that funding from existing and prospective new investors and future revenue will provide the additional cash needed to meet our obligations as they become due and will allow the development of our core business operations. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity financing. As of September 30, 2022, we had working capital of $5,420,084 compared to $6,655,953 for the year ended December 31, 2021. This decrease in working capital was due primarily to a decrease in cash. During the nine months ended September 30, 2022, we used $1,250,049 of cash for operating activities, as compared to $1,720,030 for the prior period ended September 30, 2021. The decrease in the use of cash for operating activities for the current period was a result of a decrease in professional fees and research and development cost. Net cash provided from equity financing activities was $1,000 for the nine months ended September 30, 2022, as compared to $8,666,700 for the prior period ended September 30, 2021. The decrease was due to less equity financing during the current period. Our capital needs have primarily been met from the proceeds of the sale of our securities, as we currently have not generated any revenues. Our independent auditors, in their report on our audited financial statements for the year ended December 31, 2021, expressed substantial doubt about our ability to continue as a going concern. Our financial statements as of September 30, 2022 have been prepared under the assumption that we will continue as a going concern. Our ability to continue as a going concern ultimately is dependent upon our ability to generate revenue, which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. 13 PLAN OF OPERATION AND FINANCING NEEDS We are engaged in the development of innovative technologies to significantly reduce or replace catalysts made from rare earth materials with catalysts made from inexpensive earth abundant materials in electrolyzers to lower the cost of producing Green Hydrogen. Our plan of operation within the next three months is to utilize our cash balances to work on developing catalyst technologies for producing Green Hydrogen. We believe that our current cash and investment balances will be sufficient to support development activity and general and administrative expenses for the next twenty-four months. Management estimates that it will require additional cash resources during 2024, based upon its current operating plan and condition. We do expect increased expenses during the fourth quarter of 2022. There is no assurance that capital in any form would be available to us, and if available, on terms and conditions that are acceptable. If we are unable to obtain sufficient funds during the next twenty-four months, we may be forced to reduce the size of our organization, which could have a material adverse impact on, or cause us to curtail and/or cease the development of our products ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.