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 10, 2023, 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 developing a breakthrough technology that uses clean energy and water to produce the world’s cheapest green hydrogen. Hydrogen is the cleanest and most abundant element in the universe, and we can’t live without it. Hydrogen is the key ingredient in making fertilizers needed to grow food for the world. It is also used for transportation, refining oil and making steel, glass, pharmaceuticals and more. Nearly all the hydrogen today is made from hydrocarbons like coal, oil, and natural gas, which are dirty and limited resources. Water, on the other hand, is an infinite and renewable worldwide resource. However, extracting hydrogen from water is an expensive process. Electrolyzer technology is mature and is currently the most reliable method to extract hydrogen from water. Unfortunately, the chemical catalysts that enable the water-splitting reactions in modern electrolyzers are currently made from platinum and iridium - both are very expensive precious metals. Working with a research team at UCLA, we are developing technologies to significantly reduce or replace catalysts made from rare materials with catalysts made from inexpensive earth abundant materials in today’s electrolyzers to lower the cost of Green Hydrogen. This technology has moved from the discovery phase to the validation and optimization phase. 12 As of today, however, high capital cost and its reliance on expensive electricity and clean water are the other reasons why electrolyzers haven’t revolutionized the green hydrogen economy as everyone hoped. To address these critical cost drivers, we are also developing a revolutionary technology to efficiently split water using heat to produce cheap green hydrogen. Working with a UCSB research team, we are exploiting the oxidation reduction features of multi-component materials including high temperature liquids to directly split water continuously in a series of chemical looping reactions, producing hydrogen and oxygen in separate reaction chambers. If successful, it will be a novel, first of its kind, high efficiency thermochemical water-splitter that uses low-cost common materials and common industrial temperatures of less than 1,000°C to potentially produce the world’s cheapest green hydrogen.” In a 2020 report, Goldman Sachs estimated that Green Hydrogen will be a $12 trillion market opportunity by 2050. 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 nine months ended September 30, 2023, 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. 13 Results of Operations – Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022. OPERATING EXPENSES General and Administrative Expenses General and administrative (“G&A”) expenses decreased by $2,243,799 to $350,548 for the three months ended September 30, 2023, compared to $2,594,347 for the prior period ended September 30, 2022. The primary decrease in G&A expenses was the result of a decrease in fair value of non-cash stock compensation of $2,355,152, with an overall increase in G&A expenses of $111,353. Research and Development Research and Development (“R&D”) expenses decreased by $141,607 to $88,939 for the three months ended September 30, 2023, compared to $230,546 for the prior period ended September 30, 2022. 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, 2023 and 2022 was $1,027 and $1,070, respectively. Other Income/(Expenses) Other income and (expenses) decreased by $874 to $421 for the three months ended September 30, 2023, compared to $1,295 for the prior period ended September 30, 2022. The decrease in other income and (expenses) was the result of a decrease in interest income of $874. The decrease in other income and (expenses) was primarily due to the net change in interest income. Net Income (Loss) Our net loss for the three months ended September 30, 2023 was $440,093, compared to $2,824,625 for the prior period ended September 30, 2022. The decrease in net loss was due to a decrease in non-cash other income associated with the net change in stock option expense 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 stock options fluctuate, and the fluctuation may be material. The Company has not generated any revenues. Results of Operations – Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022. OPERATING EXPENSES General and Administrative Expenses General and administrative (“G&A”) expenses decreased by $5,786,526 to $2,617,526 for the nine months ended September 30, 2023, compared to $8,404,052 for the prior period ended September 30, 2022. The primary decrease in G&A expenses was the result of a decrease in fair value of non-cash stock compensation of $5,905,461, with an overall increase in G&A expenses of $118,935. Research and Development Research and Development (“R&D”) expenses decreased by $567,698 to $113,939 for the nine months ended September 30, 2023, compared to $681,637 for the prior period ended September 30, 2022. This overall decrease in R&D expenses was the result of a decrease in outside research fees. Depreciation Depreciation and amortization expense for the nine months ended September 30, 2023 and 2022 was $3,080 and $3,188, respectively. 14 Other Income/(Expenses) Other income and (expenses) decreased by $1,195 to $1,335 for the nine months ended September 30, 2023, compared to $2,530 for the prior period ended September 30, 2022. The decrease in other income and (expenses) was the result of a decrease in interest income of $1,195. The decrease in other income and (expenses) was primarily due to the net change in interest income. Net Income (Loss) Our net loss for the nine months ended September 30, 2023 was $2,733,210, compared to $9,086,347 for the prior period ended September 30, 2022. The majority of the decrease in net loss was due to a decrease in non-cash other income associated with the net change in stock option expense 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 stock options fluctuate, 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, 2023, we did not generate any revenues, and recognized a net loss of $2,734,545, due to a change in non-cash stock compensation, and cash of $790,889 used in operations. As of September 30, 2023, we had working capital of $4,055,886 and a shareholders’ equity of $595,110. 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, 2023, we had working capital of $4,055,886 compared to $4,845,188 for the year ended December 31, 2022. This decrease in working capital was due primarily to a decrease in cash. During the nine months ended September 30, 2023, we used $790,889 of cash for operating activities, as compared to $1,250,049 for the prior period ended September 30, 2022. The decrease in the use of cash for operating activities for the current period was a result of a decrease in research and development cost. Net cash provided from equity financing activities was $0 for the nine months ended September 30, 2023, as compared to $1,000 for the prior period ended September 30, 2022. 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, 2022, expressed substantial doubt about our ability to continue as a going concern without additional capital becoming available. Our financial statements as of September 30, 2023 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. 15 PLAN OF OPERATION AND FINANCING NEEDS We are engaged in the development of clean energy technologies to lower the cost of producing green hydrogen. The Company’s current focus is on developing lower cost replacements for precious metal based catalysts for existing hydrogen electrolyzers and developing a high efficiency thermochemical water splitting technology using heat to produce the cheapest green hydrogen comparable to the cost of producing gray hydrogen made from fossil fuels. Our plan of operation within the next twelve months is to utilize our cash balances to continue funding the two sponsored research programs at UCSB and UCLA, as well as further solidifying our brand and social media presence in the hydrogen technology sector. 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 2025, based upon its current operating plan and condition. 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.