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 20, 2024, 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 clean energy technologies. Our current focus is on developing a thermochemical green hydrogen production technology to lower the cost of green hydrogen production. 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. Currently, the most common method of making green hydrogen is to split water into oxygen and hydrogen with an electrolyzer using green electricity produced from solar or wind. However, green electricity is and always will be very expensive. It currently accounts for 73% of the cost of green hydrogen. By using heat directly, we can skip the expensive process of making electricity, and fundamentally lower the cost of green hydrogen. Inexpensive heat can be obtained from concentrated solar, geothermal, nuclear reactors and industrial waste heat for use in our novel low-cost thermochemical water splitting process. Working with a world class research team at UC Santa Barbara, our goal is to help usher in the green hydrogen economy that Goldman Sachs estimated to have a future market value of $12 trillion. We have previously developed an innovative material technology to reduce the cost per watt of electricity produced by Photovoltaic, or PV, solar modules. 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. 12 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 six months ended June 30, 2024, 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 June 30, 2024 Compared to the Three months ended June 30, 2023. OPERATING EXPENSES Selling and Marketing Expenses Selling and marketing (“S&M”) expenses increased by $54,380 to $70,229 for the three months ended June 30, 2024, compared to $15,849 for the prior period ended June 30, 2023. The primary increase in (S&M) expenses was the result of an increase in advertising of $25,944, and an increase in marketing cost of $28,436. General and Administrative Expenses General and administrative (“G&A”) expenses decreased by $356,347 to $278,844 for the three months ended June 30, 2024, compared to $635,191 for the prior period ended June 30, 2023. The primary decrease in G&A expenses was the result of a decrease in fair value of non-cash stock compensation of $355,455, with an overall increase in G&A expenses of $892. Research and Development Research and Development (“R&D”) expenses increased by $78,939 to $88,939 for the three months ended June 30, 2024, compared to $10,000 for the prior period ended June 30, 2023. This overall increase in R&D expenses was the result of an increase in outside research fees. Depreciation and Amortization Expense Depreciation and amortization expense for the three months ended June 30, 2024 and 2023 was $1,027 and $1,027, respectively. Other Income/(Expenses) Other income and (expenses) decreased by $152 to $297 for the three months ended June 30, 2024, compared to $449 for the prior period ended June 30, 2023. The decrease in other income and (expenses) was the result of a decrease in interest income of $152. The decrease in other income and (expenses) was primarily due to the net change in interest income. 13 Net Income (Loss) Our net loss for the three months ended June 30, 2024 was $438,742, compared to $661,618 for the prior period ended June 30, 2023. The decrease in net loss was due to a decrease in non-cash expense` 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 – Six months ended June 30, 2024 Compared to the Six months ended June 30, 2023. OPERATING EXPENSES Selling and Marketing Expenses Selling and marketing (“S&M”) expenses increased by $129,351 to $145,200 for the six months ended June 30, 2024, compared to $15,849 for the prior period ended June 30, 2023. The primary increase in (S&M) expenses was the result of an increase in marketing cost of $129,351. General and Administrative Expenses General and administrative (“G&A”) expenses decreased by $1,665,881 to $585,248 for the six months ended June 30, 2024, compared to $2,251,129 for the prior period ended June 30, 2023. The primary decrease in G&A expenses was the result of a decrease in fair value of non-cash stock compensation of $1,753,393, with an overall decrease in G&A expenses of $87,512. Research and Development Research and Development (“R&D”) expenses increased by $152,878 to $177,878 for the six months ended June 30, 2024, compared to $25,000 for the prior period ended June 30, 2023. This overall increase in R&D expenses was the result of an increase in outside research fees. Depreciation and Amortization Expense Depreciation and amortization expense for the six months ended June 30, 2024 and 2023 was $2,054 and $2,053, respectively. Other Income/(Expenses) Other income and (expenses) decreased by $279 to $634 for the six months ended June 30, 2024, compared to $913 for the prior period ended June 30, 2023. 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 six months ended June 30, 2024 was $909,746, compared to $2,293,118 for the prior period ended June 30, 2023. The decrease in net loss was due to a decrease in non-cash expense` 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. 14 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 six months ended June 30, 2024, we did not generate any revenues, and recognized a net loss of $909,746, due to a change in non-cash stock compensation, and cash of $824,205 used in operations. As of June 30, 2024, we had working capital of $2,890,580 and a shareholders’ deficit of $573,277. 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 June 30, 2024, we had working capital of $2,890,580 compared to $3,678,942 for the year ended December 31, 2023. This decrease in working capital was due primarily to a decrease in cash. During the six months ended June 30, 2024, we used $824,205 of cash for operating activities, as compared to $422,098 for the prior period ended June 30, 2023. The increase in the use of cash for operating activities for the current period was a result of an increase in research and development cost, advertising and marketing, and salaries. Net cash provided from equity financing activities for the six months ended June 30, 2024 and June 30, 2023 was $0. There was no equity financing during the current or prior 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, 2023, expressed substantial doubt about our ability to continue as a going concern without additional capital becoming available. Our financial statements as of June 30, 2024 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. 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 ThermoLoop™, a breakthrough technology that uses water and heat rather than electricity to potentially produce the world’s lowest cost green hydrogen. Our plan of operation within the next twelve months is to utilize our cash balances to maintain the existing ThermoLoop™ technology development program at UCSB. 15 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. We do not expect increased expenses until early 2026 when we ramp up prototyping efforts related to our thermochemical water splitting technology. 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.