Management's Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q are not historical facts and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events, and can often be identified by words such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of those terms. These statements involve known and unknown risks and uncertainties that may cause our actual results to differ materially from those expressed or implied, including the risks described under Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2026 (the "2026 Form 10-K"). We disclaim any obligation to update any forward-looking statement, or to disclose any difference between our actual results and those reflected in any forward-looking statement, except as required by law.

Unless the context otherwise requires, references in this Form 10-Q to "we," "us," "our," "SunHydrogen" or the "Company" refer to SunHydrogen, Inc. and its consolidated subsidiaries.

Overview

We are a development stage company developing photoelectrochemical, or PEC, panels that produce renewable hydrogen from sunlight and water. We are pursuing two pathways: commercially available thin film solar modules re-engineered with our proprietary hydrogen module design, which is the basis of the hydrogen reactors we have built to date, and our patented nanoparticle technology. We have not generated revenue from the sale of our products, we have not produced hydrogen at commercial scale, and we have funded our operations principally through sales of our equity securities.

This discussion should be read together with the condensed consolidated financial statements and notes included in this report and with the 2026 Form 10-K, which describes our business, our technology, and the risks we face.

Recent Developments

On August 11, 2026, we entered into a Technology Collaboration and Intellectual Property Protection Agreement with Sparc Hydrogen Pty Ltd, under which our hydrogen modules will be evaluated through laboratory and pilot scale testing in South Australia, followed by a jointly funded techno-economic assessment. Sparc Hydrogen has an option, exercisable within eighteen months, to negotiate a supply agreement or a manufacturing license. We cannot assure you that any supply agreement or license will result.

On September 23, 2026, we and Honda R&D Co., Ltd. extended our joint development agreement to March 31, 2028.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our 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 the Binomial valuation option pricing 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

In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to useful lives and impairment of tangible and intangible assets, accruals, income taxes, stock-based compensation expense, Binomial lattice valuation model inputs, derivative liabilities and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.

Fair Value of Financial Instruments

Fair value of financial instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2026, the amounts reported for cash, investment in affiliate, accrued interest and other expenses, notes payables, and derivative liability approximate the fair value because of their short maturities.

We adopted ASC Topic 820 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Recently Issued Accounting Pronouncements

Management reviewed currently issued pronouncements during the three months ended September 30, 2026, and does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements. Pronouncements are disclosed in notes to the financial statements.

Results of Operations for the Three Months ended September 30, 2026 compared to Three Months Ended September 30, 2025

Revenues

During the three months ended September 30, 2025, the Company recognized service income of $1,250 for consulting services provided to TECO FUEL CELL TECHNOLOGY AS, a related party. During the three months ended September 30, 2026, the Company received shares of TECO FUEL CELL TECHNOLOGY AS as payment for consulting services, which were recorded at $0 (see Note 8).

Operating Expenses

Operating expenses for the three months ended September 30, 2026 were $2,415,825, compared to $1,924,395 for the three months ended September 30, 2025. The net change of $491,430 in operating expenses consisted primarily of an increase in research and development costs and in general and administrative expenses due to increased efforts in operations.

Other Income/(Expenses)

Other income and (expenses) for the three months ended September 30, 2026 were $(46,830), compared to $363,367 for the three months ended September 30, 2025. The decrease in other income of $410,197 was mainly the result of an unrealized loss on the Company's short-term investments in the current period compared to $727 unrealized gain on the Company's short-term investments in the same period of the prior year offset by slight changes in investment income, dividend expense, and realized gain and losses.

Net Loss

For the three months ended September 30, 2026, our net loss was $2,463,097, compared to a net loss of $1,559,778 for the three months ended September 30, 2025. The increase in net loss of $903,877 was primarily due to an unrealized loss on the Company's short-term investments (on the Condensed Consolidated Balance Sheets) in the current period compared to a minimal unrealized gain on the Company's short-term investments in the prior period. In addition, the Company had increased research and development and general and administrative expenses in the current period compared to the prior period due to increased efforts in operations.

Liquidity and Capital Resources

As of September 30, 2026, we had a working capital surplus of $29,719,618, compared to $31,819,205 as of June 30, 2026. The decrease of $2,099,587 was primarily due to cash used in operating activities and an unrealized loss on short-term investments, together with an increase in current liabilities. The unrealized loss on our short-term investments primarily reflects changes in market interest rates. Substantially all of these investments are investment-grade corporate, U.S. Treasury and other fixed income securities, and if we hold them until they mature, we expect to receive their full face value, absent a default by the issuer.

Cash used in operating activities was $1,224,093 for the three months ended September 30, 2026, compared to $1,186,098 for the three months ended September 30, 2025. The net increase of $37,995 in cash used in operating activities was due to a $903,319 increase in the net loss, change of $4,051 in interest receivable, change of $331 in deposits offset by change of $105,412 in prepaid expenses, $326,833 change in accounts payable and accrued expenses, change of $1,250 in account receivable - related party and $436,211 change in non-cash net expenses. In addition, the Company had revenues in the prior period compared to none in the current period.

Cash provided by (used in) investing activities during the three months ended September 30, 2026 and September 30, 2025 was $(1,138,301) and $1,022,632, respectively. The net decrease of $2,160,933 in cash provided by investing activities was due to the redemption of short-term investments in corporate securities offset by the purchase of short-term investments in corporate securities during the three months ended September 30, 2026 as compared to the three months ended September 30, 2025.

Cash provided by (used in) financing activities during the three months ended September 30, 2026 and September 30, 2025 was $0 and $(1,000,000), respectively. The net increase of $1,000,000 in cash used in financing activities was due to decrease in cash used for the redemption of Series C preferred shares during the three months ended September 30, 2026 as compared to the three months ended September 30, 2025.

We have funded our operations principally through private placements and registered offerings of our equity securities. Our purchase agreement for the sale of up to $50,000,000 of our common stock expired on June 3, 2026, and we do not currently have a committed equity facility. In October 2026, invested approximately $3.0 million in NewHydrogen, Inc., as described in Note 13 to the condensed consolidated financial statements. We believe that our existing cash, cash equivalents, and short-term investments will be sufficient to fund our planned operations for at least the next twelve months.] We may seek additional capital through the sale of our securities. We cannot assure you that additional financing will be available on acceptable terms, or at all, and if it is not, we may be required to delay, reduce, or discontinue our development programs.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, result of operations, liquidity or capital expenditures.