Heavy losses and going concern warning at Hypha Labs (FUNI) as debt rises
Rhea-AI Filing Summary
Hypha Labs, Inc. reported no revenue for the three and six months ended March 31, 2026 and remains pre-commercial as it pivots from cannabis testing to its Hypha Micropearl mushroom bioreactor business. The company posted a net loss of $521,114 for the quarter and $1,042,752 for six months.
At March 31, 2026, Hypha held $82,200 of cash, total assets of $159,819, total liabilities of $2,942,422, and a stockholders’ deficit of $3,116,203. Management disclosed negative working capital of $1,338,365 and an accumulated deficit of $24,692,079, and stated these factors raise substantial doubt about its ability to continue as a going concern.
To fund operations, Hypha raised $150,000 through a new senior secured convertible note, $102,500 from notes payable, and net proceeds of $57,484 from sales of Series D Preferred units under a Regulation A offering, while also converting $90,000 of debt into equity. Interest expense rose sharply to $147,339 for the six months, reflecting higher note and convertible note balances.
Positive
- None.
Negative
- None.
Insights
Hypha shows severe balance sheet strain and relies on expensive convertible debt.
Hypha Labs reported another period with no revenue and a six-month net loss of $1,042,752. Total assets were only $159,819 against liabilities of $2,942,422, leaving a stockholders’ deficit of $3,116,203 as of March 31, 2026.
Management highlighted negative working capital of $1,338,365, an accumulated deficit of $24,692,079, and cash of just $82,200. They explicitly stated these conditions raise substantial doubt about the company’s ability to continue as a going concern, underscoring significant financial risk.
To sustain operations, Hypha relied on new borrowings and hybrid securities: a $150,000 senior secured convertible note, additional notes payable, and Series D Preferred sold under a Regulation A offering. Total interest expense for the six months jumped to $147,339, reflecting growing leverage and the cost of capital while the new mushroom bioreactor business remains pre-revenue.
Key Figures
Key Terms
going concern financial
Regulation A offering regulatory
Series D Preferred financial
convertible notes payable financial
stock-based compensation financial
mezzanine equity financial
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
Quarterly Period Ended
or
For the transition period from __________ to __________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | ☐ | No |
The number of shares of the registrant’s common stock outstanding as of May 15, 2026 was .
TABLE OF CONTENTS
| Page | |||
| No. | |||
| PART I - FINANCIAL INFORMATION | 3 | ||
| ITEM 1. | FINANCIAL STATEMENTS | 3 | |
| Consolidated Balance Sheets as of March 31, 2026 (Unaudited) and September 30, 2025 | 3 | ||
| Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2026 and 2025 (Unaudited) | 4 | ||
| Consolidated Statements of Stockholders’ Deficit for the Three and Six Months Ended March 31, 2026 and 2025 (Unaudited) | 5 | ||
| Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2026 and 2025 (Unaudited) | 6 | ||
| Notes to the Consolidated Financial Statements (Unaudited) | 7 | ||
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 21 | |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 25 | |
| ITEM 4. | CONTROLS AND PROCEDURES | 25 | |
| PART II - OTHER INFORMATION | 26 | ||
| ITEM 1. | Legal Proceedings | 26 | |
| ITEM 1A. | RISK FACTORS | 26 | |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 26 | |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 26 | |
| ITEM 4. | MINE SAFETY DISCLOSURES | 26 | |
| ITEM 5. | OTHER INFORMATION | 26 | |
| ITEM 6. | EXHIBITS | 26 | |
| SIGNATURES | 27 | ||
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HYPHA LABS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Note receivable, net | ||||||||
| Prepaids and other current assets | ||||||||
| Deferred offering costs | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Right-of-use asset, net | ||||||||
| Total non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued expenses – related party | ||||||||
| Current maturities of notes payable, net of discounts | ||||||||
| Lease liabilities - current | ||||||||
| Total current liabilities | ||||||||
| Notes payable, net of current | ||||||||
| Convertible notes payable, net of current and discounts | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingent liabilities (Note 13) | ||||||||
| Mezzanine Equity | ||||||||
| Series B convertible preferred stock, $ par value, shares authorized; shares issued and outstanding as of March 31, 2026 and September 30, 2025 | ||||||||
| Stockholders’ Deficit: | ||||||||
| Series A convertible preferred stock, $ par value, shares authorized; shares issued and outstanding as of March 31, 2026 and September 30, 2025 | ||||||||
| Series D preferred stock, $ par value, shares authorized; and shares issued and outstanding as of March 31, 2026 and September 30, 2025, respectively | ||||||||
| Series C preferred stock, $ par value, shares authorized; shares issued and outstanding as of March 31, 2026 and September 30, 2025 | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding as of March 31, 2026 and September 30, 2025, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
| 3 |
HYPHA LABS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Recovery of previously written off receivables | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other expense | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding – basic | ||||||||||||||||
| Weighted average number of common shares outstanding – fully diluted | ||||||||||||||||
| Net loss per share from continuing operations – basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share from discontinued operations – diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to unaudited consolidated financial statements.
| 4 |
HYPHA LABS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2026 AND 2025
(Unaudited)
| Series B Convertible Preferred Stock | Series A Convertible Preferred Stock | Series D Preferred Stock | Series C Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2025 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares issued for cash proceeds net of fees and offering costs | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2025 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued for conversion of notes payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2026 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Series
B Convertible Preferred Stock | Series
A Convertible Preferred Stock | Series
C Preferred Stock | Common Stock | Additional
Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of shares of Series C preferred stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| 5 |
HYPHA LABS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt discounts | ||||||||
| Default penalties on notes payable charged to interest expense | ||||||||
| Deferred offering costs charged to expense | ||||||||
| Depreciation expense | ||||||||
| Amortization of right-of-use asset | ||||||||
| Decrease (increase) in assets: | ||||||||
| Prepaids and other current assets | ||||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued expenses – related parties | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from sale of Series C Preferred shares | ||||||||
| Proceeds from sale of Series D Preferred shares and warrants, net of fees | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Proceeds from notes payable | ||||||||
| Repayments on notes payable | ( | ) | ||||||
| Payment of deferred offering costs | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash – beginning | ||||||||
| Cash – ending | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Amortization of deferred offering costs | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
| 6 |
HYPHA LABS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Six Months Ended March 31, 2026 and 2025
(Unaudited)
Note 1 – Nature of Business and Significant Accounting Policies
Nature of Business
Hypha Labs, Inc. was incorporated in Nevada on October 5, 2010. Hypha Labs, Inc. and its subsidiaries (“Hypha Labs,” the “Company,” “we,” “our” or “us”) was a service-oriented independent testing laboratory, data analytics and media firm focused on the developing cannabis and hemp markets, and supported the cannabis industry’s best practices for reliable testing. Our mission was to provide pharmaceutical-grade analysis and testing to the cannabis industry, under ISO-17025:2017 guidelines, to ensure consumers and patients knew exactly what was in the cannabis they ingest and to help maximize the quality of our clients’ products through research, development, and standardization. Hypha Labs had been operating a cannabis-testing lab in Nevada since 2015.
On February 20, 2024, we completed the sale of the net assets of our wholly-owned subsidiary Digipath Labs, Inc. (“Digipath Labs”). As of that date, we were no longer in the business as a service-oriented independent testing laboratory, data analytics and media firm focused on the developing cannabis and hemp markets, which supported the cannabis industry’s best practices for reliable testing, cannabis education and training.
Effective March 12, 2024, the Company amended Article 1 of its Articles of Incorporation to change its name from Digipath, Inc. to Hypha Labs, Inc. Hypha Products, Inc., a wholly owned subsidiary of the Company, was formed on April 18, 2024.
Hypha Products Inc., a wholly owned subsidiary of the Company, was formed on April 18, 2024 to engage in the research, development and commercialization of a bioreactor, the Hypha Micropearl bioreactor, a home appliance designed to accelerate the production of nutritionally beneficial mushrooms for human consumption. The Company’s easy-to-use device, together with its replacement cartridges, safely and effectively produces enriched mycelium of functional mushrooms, or Micropearls, in just eight days. These Micropearls contain active mushroom ingredients that offer a way to harness the medicinal properties of fungi in a concentrated, easy-to-handle, tasteless and odorless form. These Micropearls can be incorporated into various food and beverages without altering the flavor.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated.
The unaudited consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. Such adjustments are of a normal, recurring nature. The consolidated financial statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025. The interim consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
| 7 |
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control and ownership at March 31, 2026 and September 30, 2025:
| Jurisdiction of | ||||
| Name of Entity | Incorporation | Relationship | ||
| (1) | |
| (2) | |
| (3) | |
| (4) |
The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company and subsidiaries will be collectively referred to herein as the “Company”, “Hypha” or “FUNI”. The Company’s headquarters are located in Las Vegas, Nevada.
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the three and six months ended March 31, 2026 and 2025, potential dilutive securities of and shares issuable upon conversion of convertible notes payable, respectively, and and shares issuable upon exercise of options, and shares issuable upon exercise of warrants, and shares issuable upon conversion of Series A Preferred and Series B Preferred shares, had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Segment Reporting
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer. The CODM allocates resources and evaluates the performance of the Company at the consolidated level using information about its operating expenses and loss from operations. All significant operating decisions are based upon an analysis of the Company as one operating segment, which is the same as its reporting segment.
Fair Value of Financial Instruments
The Company adheres to Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
| - | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| - | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| - | Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
The carrying value of cash, accounts receivable, accounts payables and accrued expenses, notes payable and convertible notes payable are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company has no assets or liabilities that are required to be remeasured at fair value at each reporting period.
| 8 |
Deferred Offering Costs
The
Company capitalizes qualified legal, accounting and other direct costs related to its efforts to raise capital through the sale of its
Series D Preferred shares under a qualified offering. Deferred offering costs will be deferred and amortized ratably upon sales under
the offering, and upon completion, they will be reclassified to additional paid-in capital as a reduction of the offering proceeds. If
the Company terminates the offering or there is a significant delay, all of the deferred offering costs will be immediately written off
to operating expenses. During the three and six months ended March 31, 2026, the Company planned to terminate the offering and as a result
recorded the remaining $
Income Taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Uncertain Tax Positions
In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands the disclosures required for income taxes. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company has adopted this ASU as of October 1, 2025, which did not have a material effect on the consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, and in January 2025, the FASB issued ASU 2025-01, Clarifying the Effective Date (“ASU 2025-01”). The amendments are intended to enhance disclosures regarding an entity’s costs and expenses by requiring additional disaggregated information disclosures about certain income statement expense line items. The amendments, as clarified by ASU 2025-01, are effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.
| 9 |
Note 2 – Going Concern
As
shown in the accompanying unaudited consolidated financial statements, as of March 31, 2026, the Company had negative working capital
of $
The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3 – Related Party Transactions
During
the three and six months ended March 31, 2026 and 2025 the Company incurred compensation expense of $
During
the six months ended March 31, 2026 and 2025, the Company accrued fees of $
During
the six months ended March 31, 2026, the Company granted
The transactions described above involve compensation and reimbursable expenses provided to members of management. These transactions may not have been conducted on an arms-length basis.
Note 4 – Note Receivable
On
various dates between December 28, 2018 and June 13, 2019, we loaned Northwest Analytical Labs, Inc. a total of $
On
December 8, 2022 (the “Transaction Date”), the Company entered into an Asset Purchase Agreement with Invictus Wealth Group
(“Invictus”), whereby the Company agreed to sell certain collateralized equipment to Invictus for a total purchase price
of $
The Company has recorded a full allowance against the Invictus Note.
| 10 |
Note 5 – Fixed Assets
Fixed assets consist of the following at March 31, 2026 and September 30, 2025, respectively:
| As of | ||||||||
| March 31, | September 30, | |||||||
| 2026 | 2025 | |||||||
| Lab equipment | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
For
the three months ended March 31, 2026 and 2025, the Company recorded depreciation expense of $
Note 6 –Notes Payable
Notes payable consists of the following at March 31, 2026 and September 30, 2025, respectively:
| March
31, 2026 | September
30, 2025 | |||||||
| On October 15, 2024, the Company
entered into a secured credit facility with a third party (the “2024 Secured Credit Facility”). Under the facility, the
Company is able to borrow up to $ | $ | $ | ||||||
| On January 25, 2025, the Company entered
into a | ||||||||
| On September 15, 2025, the Company entered
into a promissory note with a principal balance of $ | ||||||||
| On December 5, 2025,
the Company entered into a promissory note with a principal balance of $ | ||||||||
| Total notes payable | ||||||||
| Less: discounts on notes payable | ( | ) | ( | ) | ||||
| Notes payable, net of discounts | ||||||||
| Less: current maturities | ( | ) | ( | ) | ||||
| Notes payable, long term | $ | $ | ||||||
The
Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $
During
the three and six months ended March 31, 2026 the Company recorded debt amortization expense attributed to the debt discount on its notes
payable in the amounts of $
As of March 31, 2026 and as of the date of this filing, none of the above notes are in default. The secured notes are secured by the assets of the Company.
| 11 |
Note 7 - Convertible Notes Payable
Convertible notes payable consist of the following at March 31, 2026 and September 30, 2025, respectively:
| March 31, | September 30, | |||||||
| 2026 | 2025 | |||||||
| (1) On February 11, 2020, the
Company completed the sale to an accredited investor of a 9% Secured Convertible Promissory Note in the principal amount of $ | $ | $ | ||||||
| (2) On September 23, 2019, the Company received
proceeds of $ | ||||||||
| (3) On November 8, 2018, the Company received
proceeds of $ | ||||||||
| 4) On October 1, 2022, the Company entered
into a senior secured convertible note that carries an | ||||||||
| (5) On June 5, 2025, the Company received
proceeds of $ | ||||||||
| (6) On July 31, 2025, the Company received
proceeds of $ | ||||||||
| (7) On March 24, 2026,
the Company received proceeds of $ | ||||||||
| Total convertible notes payable | ||||||||
| Less: unamortized debt discounts | ( | ) | ( | ) | ||||
| Less: current maturities | ||||||||
| Convertible notes payable, long term | $ | $ | ||||||
| 12 |
The
Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $
During
the three and six months ended the Company recorded debt amortization expense attributed to the debt discount on its notes payable and
convertible notes payable in the amounts of $
As of March 31, 2026 and as of the date of this filing, none of the above notes are in default. The secured convertible notes are secured by the assets of the Company.
The Company recognized interest expense for the six months ended March 31, 2026 and 2025, respectively, as follows:
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| Interest on notes payable | $ | $ | ||||||
| Amortization of debt discounts | ||||||||
| Interest on convertible notes | ||||||||
| Default penalties added to principal | ||||||||
| Total interest expense | $ | $ | ||||||
The following summarizes the Company’s maturities of all debt instruments described above as of March 31, 2026:
| Fiscal Year Ending | Future | |||
| September 30, | Maturities | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | ||||
| 13 |
Note 8 – Stockholders’ Equity
Preferred Stock
The Company is authorized to issue shares of preferred stock with a par value of $ per share, of which have been designated as Series A Convertible Preferred Stock (“Series A Preferred”), have been designated as Series B Convertible Preferred Stock (“Series B Preferred”), shares have been designated as Series C Preferred Stock (“Series C Preferred”), and shares have been designated as Series D Preferred Stock (“Series D Preferred”), with the remaining shares available for designation from time to time by the Board as set forth below. As of March 31, 2026, there were shares of Series A Preferred issued and outstanding, shares of Series B Preferred issued and outstanding, shares of Series C Preferred issued and outstanding, and shares of Series D Preferred issued and outstanding. Our board of directors is authorized to determine any number of series into which the undesignated shares of preferred stock may be divided and to determine the rights, preferences, privileges and restrictions granted to any series of the preferred stock. Each share of Series A Preferred is currently convertible into five shares of common stock, each share of Series B Preferred is currently convertible into twenty-five shares of common stock and each share of Series D Preferred is currently convertible into one share of common stock. The Series C Preferred is not convertible into common stock.
Series A Preferred
The
conversion price is adjustable in the event of stock splits and other adjustments in the Company’s capitalization, and in the event
of certain negative actions undertaken by the Company. At the current conversion price, the shares of Series A Preferred outstanding
at March 31, 2026 are convertible into shares of the common stock of the Company.
Additional terms of the Series A Preferred include the following:
| ● | The
shares of Series A Preferred are entitled to dividends when, as and if declared by the Board as to the shares of the common stock
of the Company into which such Series A Preferred may then be converted, subject to the |
| ● | Upon
the liquidation or dissolution of the Company, or any merger or sale of all or substantially all of the assets, the shares of Series
A Preferred are entitled to receive, prior to any distribution to the holders of common stock, |
| ● | The Series A Preferred plus all declared but unpaid dividends thereon automatically will be converted into common stock, at the then applicable conversion rate, upon the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred. |
| ● | Each
share of Series A Preferred will carry a number of votes equal to the number of shares of common stock into which such Series A Preferred
may then be converted, subject to the |
| ● | Consent of the holders of the outstanding Series A Preferred , voting separately as a class, is required in order for the Company to: (i) amend or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred; (ii) authorize, create or issue shares of any class of stock having rights, preferences, privileges or powers superior to the Series A Preferred; (iii) reclassify any outstanding shares into shares having rights, preferences, privileges or powers superior to the Series A Preferred; or (iv) amend the Company’s Articles of Incorporation or Bylaws in a manner that adversely affects the rights of the Series A Preferred. |
| ● | Pursuant to various Securities Purchase Agreements, holders of Series A Preferred are entitled to unlimited “piggyback” registration rights on registrations by the Company, subject to pro rata cutback at any underwriter’s discretion. |
| 14 |
Series C Preferred
The
Series C Preferred stock was designated on July 20, 2022. The principal feature of the Series C Preferred is that it provides the holder
thereof, so long as he or she is an executive officer of the Company, with the ability to vote with the holders of
Additional terms of the Series C Preferred include the following:
| ● | The shares of Series C Preferred are not entitled to dividends. |
| ● | Upon
the liquidation or dissolution of the Company, the shares of Series C Preferred are entitled to receive, prior to any distribution
to the holders of common stock, |
| ● | The shares of Series C Preferred have no conversion rights. |
Series D Preferred
The Series D Preferred ranks, as to dividend rights and rights upon our liquidation, dissolution, or winding up, junior to the Series A Preferred and Series B Preferred and senior to the Series C Preferred and all classes or series of common stock. The terms of the Series D Preferred do not limit our ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or senior in rank to the shares of Series D Preferred as to distribution rights and rights upon our liquidation, dissolution or winding up.
The shares of Series D Preferred are not entitled to dividends, provided that if dividends are paid on the shares of common stock, the Series D Preferred will be entitled to dividends based on the number shares of common stock into which the Series D Preferred may then be converted.
The
liquidation preference for each share of Series D Preferred is $
The shares of Series D Preferred have no maturity date, and the Company is not required to redeem shares of Series D Preferred at any time. Accordingly, the shares of Series D Preferred will remain outstanding indefinitely, unless otherwise converted at the option of the holder thereof or pursuant to a mandatory conversion described below.
At any time after issuance, each share of Series D Preferred is convertible into one share of common stock at the option of the holder. At any time after issuance upon the occurrence of any of the following events, the Company shall have a right to direct the mandatory conversion of the Series D Preferred: (a) a change in control, or (b) if the closing price of the common stock closes at or above $ per share for 10 consecutive trading days.
Holders of Series D Preferred generally have no voting rights. However, certain material and adverse changes to the terms of the Series D Preferred cannot be made without the affirmative vote of holders of at least a majority of the outstanding shares of Series D Preferred, voting as a separate class.
| 15 |
Regulation A Offering
On
June 30, 2025, the Securities and Exchange Commission (the “SEC”) declared effective the Company’s offering statement
on Form 1-A (the “Offering Statement”) filed pursuant to Tier 2 of Regulation A under the Securities Act of 1933, as amended
(the “Securities Act”). On July 1, 2025, the Company commenced a public offering on a “best-efforts” basis of
up to a maximum of units (the “Units”), at a public offering price of $ per Unit. Each Unit consists of (i)
share of our Series D Preferred stock, and (ii) one Common Stock Purchase Warrant (each, a “Warrant”) to purchase
share of our common stock, par value $ per share (the “Common Stock”), for a maximum aggregate offering amount of $
The
Units have no stand-alone rights and are not certificated or issued as stand-alone securities. The Warrants became exercisable on the
180th day following the qualification date of the offering and will remain exercisable for a period of 18 months thereafter. Each Warrant
entitles the holder to purchase
On November 6, 2025, the Company filed a supplement to the Offering Statement pursuant to Rule 253(g)(2) under the Securities Act to reflect an increase in the public offering price per Unit from $ to $.
During
the six months ended March 31, 2026, the Company sold shares of Series D Preferred shares and
Common Stock
The common stock has a par value of $, and shares were authorized as of March 31, 2026, of which shares were issued and outstanding.
During
the six months ended March 31, 2026, the Company issued shares of common stock to the sole officer. The shares were valued
at the closing price on the date of issuance for an aggregate value of $
During
the six months ended March 31, 2026, the Company issued shares of common stock to outside consultants. The shares were valued
at the closing price on the date of issuance for an aggregate value of $
During
the six months ended March 31, 2026, the Company issued shares common stock upon the conversion of $
Note 9 – Mezzanine Equity
Series B Preferred
The
shares of Series B Preferred were designated on December 29, 2021. Each share of Series B Preferred has a stated value of $ and is
currently convertible into common stock at a conversion price equal to $
| 16 |
Additional terms of the Series B Preferred include the following:
| ● | The shares of Series B Preferred are not entitled to dividends, provided that if dividends are paid on the shares of common stock of the Company, the Series B Preferred will be entitled to dividends based on the number of shares of common stock into which the Series B Preferred may then be converted. |
| ● | |
| ● | Each share of Series B Preferred carries a number of votes equal to the number of shares of common stock into which such shares of Series B Preferred may then be converted. |
Due to the change in control provision of the Series B Preferred, the Series B Preferred is classified as temporary equity on the unaudited consolidated balance sheets.
Stock Incentive Plan
On June 21, 2016, we amended and restated our 2012 Stock Incentive Plan (the “2012 Plan”), which was originally adopted on March 5, 2012, and terminated on March 5, 2022. As amended, the 2012 Plan provided for the issuance of up to shares of common stock pursuant to the grant of options or other awards, including stock grants, to employees, officers or directors of, and consultants to, the Company and its subsidiaries. Options granted under the 2012 Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date of grant.
Common Stock Option Issuances
There were issuances of common stock options during the six months ended March 31, 2026.
Amortization of Stock-Based Compensation
A total of $ and $ of stock-based compensation expense was recognized during the six months ended March 31, 2026 and 2025, respectively, as a result of the vesting of common stock options issued in prior periods. As of March 31, 2026 no additional amounts of unamortized expense remains to be amortized over the vesting period.
| Shares Underlying Options Outstanding | Shares Underlying Options Exercisable | |||||||||||||||||||||
| Weighted | ||||||||||||||||||||||
| Shares | Average | Weighted | Shares | Weighted | ||||||||||||||||||
| Range of | Underlying | Remaining | Average | Underlying | Average | |||||||||||||||||
| Exercise | Options | Contractual | Exercise | Options | Exercise | |||||||||||||||||
| Prices | Outstanding | Life | Price | Exercisable | Price | |||||||||||||||||
| $ | - | years | $ | $ | ||||||||||||||||||
| 17 |
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Price | |||||||
| Balance, September 30, 2025 | $ | |||||||
| Options issued | ||||||||
| Options forfeited | ||||||||
| Balance, March 31, 2026 | $ | |||||||
| Exercisable, March 31, 2026 | $ | |||||||
As of March 31, 2026, these options in the aggregate had $ of intrinsic value for the outstanding and exercisable options, based on the per share market price of $ of the Company’s common stock as of such date was greater than the weighted-average exercise price of some of these options.
Note 11 – Common Stock Warrants
Warrants
to purchase a total of
The following is a summary of information about our warrants to purchase common stock outstanding at March 31, 2026 (including those issued to both investors and service providers).
| Shares Underlying | ||||||||||||||||||||||
| Shares Underlying Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Weighted | ||||||||||||||||||||||
| Shares | Average | Weighted | Shares | Weighted | ||||||||||||||||||
| Range of | Underlying | Remaining | Average | Underlying | Average | |||||||||||||||||
| Exercise | Warrants | Contractual | Exercise | Warrants | Exercise | |||||||||||||||||
| Prices | Outstanding | Life | Price | Exercisable | Price | |||||||||||||||||
| $ | - | years | $ | $ | ||||||||||||||||||
The following is a summary of activity of outstanding common stock warrants:
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Price | |||||||
| Balance, September 30, 2025 | $ | |||||||
| Warrants granted | ||||||||
| Warrants expired | ||||||||
| Balance, March 31, 2026 | $ | |||||||
| Exercisable, March 31, 2026 | $ | |||||||
As of March 31, 2026, these warrants in the aggregate had $ of intrinsic value as the per share market price of $ of the Company’s common stock as of such date was greater than the exercise price of certain warrants.
Note 12 – Leases
On
May 6, 2024, the Company entered into a lease to lease its operating and office facility under a non-cancelable real property lease agreement
that expires on
| 18 |
The components of lease expense were as follows:
| For the | For the | |||||||
| Six Months Ended | Six Months Ended | |||||||
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| Operating lease cost | $ | $ | ||||||
| Total net lease cost | $ | $ | ||||||
Supplemental balance sheet information related to leases was as follows:
| March 31, | September 30, | |||||||
| 2026 | 2025 | |||||||
| Operating leases: | ||||||||
| Operating lease assets | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term: | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
Supplemental cash flow and other information related to leases was as follows:
| For the | For the | |||||||
| Six Months Ended | Six Months Ended | |||||||
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used for operating leases | $ | $ | ||||||
| Financing cash flows used for finance leases | $ | $ | ||||||
| Leased assets obtained in exchange for lease liabilities: | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Total finance lease liabilities | $ | $ | ||||||
| 19 |
The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities on a fiscal year basis, including common area maintenance fees, under non-cancelable operating leases as of March 31, 2026:
| Fiscal Year Ending | Minimum Lease | |||
| September 30, | Commitments | |||
| 2026 (6 months) | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Total future undiscounted lease payments | ||||
| Less interest | ( | ) | ||
| Present value of lease payments | ||||
| Less current portion | ||||
| Long-term operating lease liabilities | $ | |||
Note 13 – Commitments and Contingencies
Legal Contingencies
There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
| 20 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The information contained in this Quarterly Report on Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended September 30, 2025 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our unaudited financial statements and the notes to the financial statements included elsewhere in this Quarterly Report on Form 10-Q.
The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Annual Report on Form 10-K for the year ended September 30, 2025 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this Quarterly Report on Form 10-Q. The following should also be read in conjunction with the unaudited financial statements and notes thereto that appear elsewhere in this Quarterly Report on Form 10-Q.
Overview
Hypha Labs, Inc. was incorporated in Nevada on October 5, 2010. Hypha Labs, Inc. and its subsidiaries (“Hypha Labs,” the “Company,” “we,” “our” or “us”) was a service-oriented independent testing laboratory, data analytics and media firm focused on the developing cannabis and hemp markets, and supported the cannabis industry’s best practices for reliable testing. Our mission was to provide pharmaceutical-grade analysis and testing to the cannabis industry, under ISO-17025:2017 guidelines, to ensure consumers and patients knew exactly what was in the cannabis they ingest and to help maximize the quality of our clients’ products through research, development, and standardization. Hypha Labs had been operating a cannabis-testing lab in Nevada since 2015.
On February 20, 2024, we completed the sale of the net assets of our wholly owned subsidiary Digipath Labs, Inc. (“Digipath Labs”). As of that date, we were no longer in the business as a service oriented independent testing laboratory, data analytics and media firm focused on the developing cannabis and hemp markets, which supported the cannabis industry’s best practices for reliable testing, cannabis education and training. Following closing of the asset sale, the Company changed its name from Digipath, Inc. to Hypha Labs, Inc.
Hypha Products Inc., a wholly owned subsidiary of the Company, was formed on April 18, 2024 to engage in the research, development and commercialization of a bioreactor, the Hypha Micropearl bioreactor, a home appliance designed to accelerate the production of nutritionally beneficial mushrooms for human consumption. The Company’s easy-to-use device, together with its replacement cartridges, safely and effectively produces enriched mycelium of functional mushrooms, or Micropearls, in just eight days. These Micropearls contain active mushroom ingredients that offer a way to harness the medicinal properties of fungi in a concentrated, easy-to-handle, tasteless and odorless form. These Micropearls can be incorporated into various food and beverages without altering the flavor.
Our Hypha Micropearl bioreactor will be sold with replaceable cartridges which are delivered pre-sterilized to the home and ready to be inserted into the device. These cartridges are filled with powerful nutrient formulations which allow for the production of the Micropearls. The QR codes on the cartridges are scanned to the Hypha Labs app and inserted into the device and the Micropearls are produced and fully formed in eight days. After harvesting the Micropearls with a strainer, they are ready to be incorporated into a variety of foods. The cartridges help to minimize the risk of mold or yeast contamination and help improve the success of the at home mushroom growth. We believe that our innovative bioreactor technology will disrupt traditional methods of mushroom production and bring lab-quality nutrient ingredients into the home with convenience and efficiency
| 21 |
We intend to continue the design, development and testing of the Hypha Micropearl bioreactor over the next nine months. Initially, we will produce a limited number of bioreactors at our headquarters for testing purposes, both with mycologists and experts in the functional mushroom industry. Upon completion of the design and successful testing of the Hypha Micropearl bioreactor, we will seek to enter into a manufacturing arrangement outside the United States to manufacture the Hypha Micropearl bioreactor for commercial sale. Our goal is to be in the position to market the Hypha Micropearl bioreactor by the latter part of calendar year 2026, although there can be no assurance we will achieve our goal in this time period, or at all.
Results of Operations for the Three Months Ended March 31, 2026 and 2025:
The following table summarizes selected items from the statement of operations for the three months ended March 31, 2026 and 2025.
| Three Months Ended March 31, | Increase / | |||||||||||
| 2026 | 2025 | (Decrease) | ||||||||||
| Operating expenses: | ||||||||||||
| General and administrative | $ | 114,389 | $ | 95,467 | $ | 18,922 | ||||||
| Professional fees | 306,004 | 573,695 | (267,691 | ) | ||||||||
| Total operating expenses: | 420,393 | 669,162 | (248,769 | ) | ||||||||
| Operating loss | (420,393 | ) | (669,162 | ) | 248,769 | |||||||
| Total other income (expense), net | (100,721 | ) | 27,340 | (128,061 | ) | |||||||
| Net loss | $ | (521,114 | ) | $ | (641,822 | ) | $ | 120,708 | ||||
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2026 were $114,389, compared to $95,467 during the three months ended March 31, 2025, an increase of $18,922, or 20%. General and administrative expenses increased primarily due to increased marketing expenses.
Professional Fees
Professional fees for the three months ended March 31, 2026 were $306,004, compared to $573,695 during the three months ended March 31, 2025, a decrease of $267,691, or 47%. Professional fees included non-cash, stock-based compensation of $0 and $389,063 during the three months ended March 31, 2026 and 2025, respectively. Professional fees decreased primarily due to the decrease in stock based compensation offset by increased corporate consulting services and legal fees during the current period as we increased our focus on developing our new business in addition to expensing the remaining portion of the deferred offering costs.
Other Income (Expense)
Other expense, on a net basis, for the three months ended March 31, 2026 was $100,721, compared to other income, on a net basis, of $27,340 during the three months ended March 31, 2025, a net increase in other expense of $128,061. Other expense consisted of interest expense of $100,721 for the three months ended March 31, 2026 compared to interest expense of $22,660 offset by the gain on the recovery of previously written off receivables for the three months ended March 31, 2025. The increase in interest expense in the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was a result of increased note payable and convertible note payable balances.
| 22 |
Results of Operations for the Six Months Ended March 31, 2026 and 2025:
The following table summarizes selected items from the statement of operations for the Six months ended March 31, 2026 and 2025.
| Six Months Ended March 31, | Increase / | |||||||||||
| 2026 | 2025 | (Decrease) | ||||||||||
| Operating expenses: | ||||||||||||
| General and administrative | $ | 300,265 | $ | 1,150,578 | $ | (850,313 | ) | |||||
| Professional fees | 595,148 | 823,848 | (228,700 | ) | ||||||||
| Total operating expenses: | 895,413 | 1,974,426 | (1,079,013 | ) | ||||||||
| Operating loss | (895,413 | ) | (1,974,426 | ) | 1,079,013 | |||||||
| Total other expense, net | (147,339 | ) | (7,037 | ) | (140,302 | ) | ||||||
| Net loss | $ | (1,042,752 | ) | $ | (1,981,463 | ) | $ | 938,711 | ||||
General and Administrative Expenses
General and administrative expenses for the six months ended March 31, 2026 were $300,265, compared to $1,150,578 during the six months ended March 31, 2025, a decrease of $850,313, or 74%. General and administrative expenses included non-cash, stock-based compensation of $48,800 and $968,356 during the six months ended March 31, 2026 and 2025, respectively. General and administrative expenses decreased primarily due to the issuance of the Series C Preferred shares to our sole officer with a value in excess of the purchase price of $968,356 during the prior period which did not occur in the current period.
Professional Fees
Professional fees for the six months ended March 31, 2026 were $595,148, compared to $823,848 during the six months ended March 31, 2025, a decrease of $228,700, or 28%. Professional fees included non-cash, stock-based compensation of $169,331 and $456,063 during the six months ended March 31, 2026 and 2025, respectively. Professional fees decreased primarily due to the decrease in stock based compensation offset by increase corporate consulting services and legal fees during the current period as we increased our focus on developing our new business in addition to expensing the remaining portion of the deferred offering costs.
Other Income (Expense)
Other expense, on a net basis, for the six months ended March 31, 2026 was $147,339, compared to other expense, on a net basis of $7,037 during the six months ended March 31, 2025, a net increase in other expense of $140,302. Other expense consisted of interest expense of $147,339 for the six months ended March 31, 2026 compared to interest expense of $45,034 and loss on the settlement of the escrow deposit of $20,003, offset by interest income of $8,000 and the recovery of previously written off receivables of $50,000 for the six months ended March 31, 2025. The increase in interest expense in the six months ended March 31, 2026 compared to the six months ended March 31, 2025 was a result of increased note payable and convertible note payable balances.
Liquidity and Capital Resources
The following is a summary of the Company’s cash flows provided by (used in) operating, investing, and financing activities for the six months ended March 31, 2026 and 2025:
| 2026 | 2025 | |||||||
| Operating Activities | $ | (200,902 | ) | $ | (41,611 | ) | ||
| Investing Activities | - | (1,730 | ) | |||||
| Financing Activities | 244,984 | (26,732 | ) | |||||
| Net increase (decrease) in Cash | $ | 44,082 | $ | (70,073 | ) | |||
Net Cash Used in Operating Activities
During the six months ended March 31, 2026, net cash used in operating activities was $200,902, compared to net cash used in operating activities of $41,611 for the same period ended March 31, 2025. The increase in net cash used in operating activities was primarily attributable to our increase in net loss related to the development of our new business, after taking into account the non-cash expense related to the issuance of Series C Preferred shares to the sole officer in the six months ended March 31, 2025.
Net Cash Used in Investing Activities
During the six months ended March 31, 2026, net cash used in investing activities was $0, compared to $1,730 used in investing activities for the same period ended March 31, 2025. The cash used in investing activities for the prior period related to the purchase of fixed assets.
| 23 |
Net Cash Provided by (Used in) Financing Activities
During the six months ended March 31, 2026, net cash provided by financing activities was $244,984, compared to net cash used in financing activities of $26,732 for the same period ended March 31, 2025. Cash provided by financing activities for the six months ended March 31, 2026 related to proceeds from notes payable of $102,500, proceeds of $150,000 from convertible notes payable and net proceeds from the sale of Series D Preferred Shares of $57,484, offset by the repayment of $65,000 on notes payable. Cash provided by financing activities for the six months ended March 31, 2025 related to proceeds from notes payable of $65,600, proceeds from purchase of Series C Preferred Shares of $100, offset by the payment of $92,432 in deferred offering costs.
Ability to Continue as a Going Concern
As of March 31, 2026, our balance of cash on hand was $82,200, and we had negative working capital of $1,338,365 and an accumulated deficit of $24,692,079 resulting from recurring losses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Until the agreement to sell the assets of the Company’s lab testing business, management was actively pursuing new customers to increase revenues. In addition, the Company was seeking additional sources of capital to fund short term operations. The Company will seek to raise funds to complete the development and testing of its bioreactor over the next 6 to 12 months and to fund the initial launch of commercial sales of its bioreactor device. The Company intends to raise such funds through either the sale of equity or debt securities, including through a Regulation A offering. The Company is also currently evaluating future investments into potential acquisition targets. There can be no assurance that we will be successful in raising the necessary funds to achieve these objectives or that we will be able to continue our business without either a temporary interruption or a permanent cessation if such funds are not available. In addition, additional financing may result in substantial dilution to existing stockholders. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.
| 24 |
While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Improvements to nonemployee share-based payment accounting pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which the consideration provided in exchange for the purchase of goods or services consists of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2026. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2026, our Chief Executive and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level as a result of the following material weaknesses:
| - | Lack of segregation of duties in financial reporting, as our financial reporting and all accounting functions are performed by our Chief Executive and Chief Financial Officer. | |
| - | Lack of a formal review process that includes multiple levels of review, as all accounting and financial reporting functions are performed by our Chief Executive and Chief Financial Officer and the work is not reviewed by anyone. | |
| - | Lack of an independent Board of Directors, and lack of a board member designated as an independent financial expert to the Company. As a result, there is a lack of independent oversight of the management team, lack of independent review of our operating and financial results, and lack of independent review of disclosures made by the Company. |
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation or subsequent to the date we carried out our evaluation which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any system of controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.
ITEM 1A. RISK FACTORS.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
[Open – do the shares issued upon note conversion need to be added here. They were issued directly under DTC Fast by the TA]
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
During
the three months ended March 31, 2026, no director or officer of the Company
ITEM 6. EXHIBITS.
| Exhibit | Description | |
| 31.1* | Section 302 Certification of Principal Executive and Principal Financial Officer | |
| 32.1** | Section 1350 Certification of Principal Executive and Principal Financial Officer | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Schema Document | |
| 101.CAL* | Inline XBRL Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Labels Linkbase Document | |
| 101.PRE* | Inline XBRL Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) |
* Filed herewith.
**Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Hypha Labs, INC. | ||
| (Registrant) | ||
| By: | /s/ A. Stone Douglass | |
| A. Stone Douglass | ||
Chairman, President, Chief Executive Officer, Chief Financial Officer and Secretary (Principal Executive Officer and Principal Financial/Accounting Officer) | ||
| Dated: | May 15, 2026 | |
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