Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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

Cautionary Statement Regarding Forward-Looking Statements

The information in this report may contain forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements that are not of historical fact may be deemed to be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," or "continue", the negative of the terms or other comparable terminology. Actual events or results may differ materially from the anticipated results or other expectations expressed in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks included from time to time in our reports filed with the Securities and Exchange Commission, or the SEC. These factors may cause our actual results to differ materially from any forward-looking statements. We disclaim any obligation to publicly update these statements, or disclose any difference between actual results and those reflected in these statements, except as may be required under applicable law.

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

Overview

At SunHydrogen, our goal is to replace fossil fuels with clean, renewable hydrogen.

Hydrogen is the most abundant chemical element in the universe. When hydrogen fuel is used to power transportation and industry, the only byproduct left behind is pure water, unlike hydrocarbon fuels such as oil, coal and natural gas that emit carbon dioxide and other harmful pollutants into the atmosphere. However, naturally occurring elemental hydrogen is rare - so rare, in fact, that today about 95% of hydrogen is produced from steam reforming of natural gas (Source: US Department of Energy, Hydrogen Fuel Basics). This process is both economically and environmentally unsound.

We believe the SunHydrogen solution we are developing potentially offers an efficient and cost-effective way to produce renewable hydrogen using sunlight and any source of water. Our core technology is a self-contained, nanoparticle-based hydrogen generator that mimics photosynthesis to split water molecules, resulting in hydrogen. By optimizing the science of water electrolysis at the nano-level, we are developing what we believe a low-cost method to potentially produce environmentally friendly renewable hydrogen.

In parallel, we are developing a new methodology that utilizes commercially available, mass-produced thin-film solar cells and modules, which are re-engineered with our proprietary hydrogen module design to enhance fault tolerance and increase hydrogen production efficiency. While this approach is based on principles similar to our nanoparticle technology, it leverages a mature manufacturing platform, enabling a potentially faster market entry.

We believe renewable hydrogen has already proven itself to be a key solution in helping the world meet climate targets, and we believe our technology potentially offers solutions to the challenges that the hydrogen future presents, including cost of production and transportation.

Because our process only requires sunlight and water, our technology can be installed near the point of hydrogen use. This eliminates the need for pipelines and trucks that result in high carbon emissions and high capital investment. Additionally, because our process directly uses the electrical charges created by sunlight to generate hydrogen, our nanoparticle technology does not rely on grid power or require the costly power electronics that conventional electrolyzers do. Lastly, our planned scalable system configuration of many individual hydrogen-generating panels ensures redundancy, security and stability.

With a target cost of $2.50/kg., we aspire for our technology to be cost-competitive with brown hydrogen and below the cost of clean hydrogen competitors. We believe our solution has the potential to clear a path for renewable hydrogen to compete with natural gas hydrogen and gain mass market acceptance as a true replacement for fossil fuels.

Our technology is primarily developed at three laboratories - our independent laboratory in Coralville, Iowa, the SunHydrogen laboratory at the University of Iowa, and the Singh laboratory at University of Michigan.

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, 2025, 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, 2025, 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, 2025 compared to Three Months Ended September 30, 2024

Revenues

Revenues for the three months ended September 30, 2025 were $1,250, compared to $0 for the three months ended September 30, 2024. The net change of $1,250 in revenue was due to the Company providing consulting services to a related party during the three months ended September 30, 2025 with no similar consulting services provided in the same period of the prior year.

Operating Expenses

Operating expenses for the three months ended September 30, 2025 were $1,924,395, compared to $1,036,427 for the three months ended September 30, 2024. The net change of $887,968 in operating expenses consisted primarily of an increase in research and development costs, in general and administrative expenses and selling and marketing expenses due to increased efforts in operations.

Other Income/(Expenses)

Other income and (expenses) for the three months ended September 30, 2025 were $363,367, compared to $(1,010,411) for the three months ended September 30, 2024. The increase in other income of $1,373,778 was mainly the result of an unrealized loss on the Company's investment in TECO (Equity securities, related party) in the prior period compared to no unrealized gain/(loss) on the Company's investment in TECO in the current period offset by slight changes in investment income, dividend expense, unrealized and realized gain and losses.

Net Loss

For the three months ended September 30, 2025, our net loss was $1,559,778, compared to a net loss of $2,046,838 for the three months ended September 30, 2024. The decrease in net loss of $487,060 was primarily due to an unrealized loss on the Company's investment in TECO (Equity securities, related party on the Condensed Balance Sheets) in the prior period compared to no unrealized gain/(loss) on the Company's investment in TECO in the current period. In addition, the Company generated revenues in the current period compared to none in the prior period and had a large increase in operating expenses in the current period compared to the prior period due to increased efforts in operations.

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.

As of September 30, 2025, we had a working capital surplus of $34,778,471, compared to a working capital surplus of $37,048,679 as of June 30, 2025. This decrease in working capital of $2,270,208 was primarily due to a decrease in cash and short-term investments offset by an increase in current liabilities.

Cash used in operating activities was $1,186,098 for the three months ended September 30, 2025, compared to $704,064 for the three months ended September 30, 2024. The net increase of $482,034 in cash used in operating activities was due to a $487,060 decrease in the net loss, change of $31,121 in prepaid expenses, $227,596 change in accounts payable and accrued expenses offset by $1,221,011 change in non-cash net expenses, $1,250 change in accounts receivable, related party, and $5,550 change in other receivables. In addition, the Company had revenues in the current period compared to none in the prior period.

Cash provided by investing activities during the three months ended September 30, 2025 and September 30, 2024 was $1,022,632 and $0, respectively. The net increase of $1,022,632 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, 2025 with no similar transactions in the three months ended September 30, 2024.

Cash provided by (used in) financing activities during the three months ended September 30, 2025 and September 30, 2024 was $(1,000,000) and $2,165,303, respectively. The net decrease of $3,165,303 in cash provided by (used in) financing activities was due to decreased proceeds from a purchase agreement entered with an investor for the sale of up to $45,000,000 of common stock during the three months ended September 30, 2024 with no similar transactions in the three months ended September 30, 2025 and an increase in cash used for the purchase of Series C preferred shares during the three months ended September 30, 2025 with no similar transactions in the three months ended September 30, 2024.

Our ability to continue as a going concern is dependent upon raising capital through financing transactions and future revenue. Our capital needs have primarily been met from the proceeds of private placements and registered offerings of our securities, as we have generated minimal revenues to date.

We have historically obtained funding from investors, through private placements and registered offerings of equity and debt securities. Management believes that the Company will be able to continue to raise funds through the sale of its securities to its existing shareholders and prospective new investors, which will provide the additional cash needed to meet the Company's obligations as they become due and will allow the Company to continue to develop its core business. There can be no assurance that we will be able to continue raising the required capital for our operations on terms and conditions that are acceptable to us, or at all. If we are unable to obtain sufficient funds, we may be forced to curtail and/or cease our operation.

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.