10-Q: Balance Labs Faces Going Concern Doubt Amid Loan Defaults

Balance Labs, Inc. reported a net loss for the quarter and six months ended June 30, 2026, highlighting substantial doubt about its ability to continue as a going concern due to significant operating losses, working capital deficits, and defaults on related-party promissory notes.

Summary

• Balance Labs, Inc. reported a net loss of $236,841 for the three months ended June 30, 2026, and $59,038 for the six months ended June 30, 2026.
• The company has substantial doubt about its ability to continue as a going concern, citing a working capital deficit of $2,773,414 as of June 30, 2026, and a net loss from operations of $988,644 for the six months ended June 30, 2026.
• Two promissory notes totaling $500,000 payable to The Farkas Group, Inc. matured in May 2026 and remain unpaid, constituting a default.
• The company generated $7,333 in revenue for the three months ended June 30, 2026, and $40,000 for the six months ended June 30, 2026, primarily from consulting services.
• Operating expenses increased significantly due to higher salaries and wages, including $661,963 in non-cash stock-based compensation for the six-month period.
• A derivative liability related to the CEO's anti-dilution provision resulted in a significant non-cash gain of $982,505 for the six-month period, which offset operational losses.
• Disclosure controls and procedures were found to be not effective due to material weaknesses including limited formalized controls, lack of an audit committee, and inadequate segregation of duties.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this filing as highly negative due to significant going concern issues, defaults on related-party loans, and material weaknesses in internal controls, despite some non-cash gains.

Positives

• Generated $7,333 in consulting revenue for the three months ended June 30, 2026, and $40,000 for the six months ended June 30, 2026, indicating some client engagement.
• A significant non-cash gain of $982,505 from the remeasurement of a derivative liability for the six-month period helped to reduce the reported net loss.
• The company is actively seeking additional capital to support operations for the next year.
• Management plans to initiate a marketing campaign to sell its services.
• The company has evaluated subsequent events and entered into a new consultancy agreement with Challenger Deep SAS (Kaiko) for $20,000 per month starting July 2026.

Negatives

• Substantial doubt exists about the company's ability to continue as a going concern.
• The company has a working capital deficit of $2,773,414 as of June 30, 2026.
• Two related-party promissory notes totaling $500,000 matured in May 2026 and remain unpaid, constituting a default.
• Net cash used in operating activities was $241,510 for the six months ended June 30, 2026.
• Disclosure controls and procedures were not effective due to material weaknesses in financial reporting controls, lack of an audit committee, and inadequate segregation of duties.
• The derivative liability related to the CEO's anti-dilution provision, while providing a non-cash gain, represents a potential future dilution for existing stockholders.
• Cash and cash equivalents decreased from $358,975 at December 31, 2025, to $117,465 at June 30, 2026.

Risks

• Failure to repay matured promissory notes payable to a related party could adversely affect liquidity and operations, as the lender retains the right to demand payment at any time.
• The Chief Executive Officer's anti-dilution right may result in substantial dilution to existing stockholders and volatility in reported results, as it is triggered by future equity issuances.
• The company's ability to continue as a going concern is in doubt without additional sources of debt or equity capital.
• If the company cannot meet revenue forecasts or obtain timely financing, it may need to delay vendor payments, initiate cost reductions, or cease operations.
• The derivative liability, settled through share issuances, will dilute existing stockholders.
• The company has not established an audit committee, leading to a lack of independent review and oversight of financial reporting.

Future Outlook

The company intends to seek additional capital within the next twelve months to support operations and plans to launch a marketing campaign to sell its advisory services. However, there is substantial doubt about its ability to continue as a going concern without securing this financing.

Management Comments

• Management believes the remeasurement of the derivative liability reflects period-over-period changes in the estimated fair value of an anti-dilution obligation and does not reflect the Company's ongoing operational performance or cash requirements.
• Management plans to seek to raise additional capital within the next twelve months which, if obtained, management believes would support the Company's operations for the next year.
• Management believes that the material weaknesses set forth above were the result of the scale of our operations and are intrinsic to our small size.
• Management is also evaluating the appointment of independent directors and the formation of an audit committee, which would address the absence of independent oversight described above.

Industry Context

StockSavvy.ai notes that Balance Labs operates in the digital asset advisory space, a sector that has seen increased institutional interest but also faces significant regulatory and market volatility. The company's struggles with liquidity and debt highlight the challenges of scaling a niche advisory business, especially when competing for institutional capital and navigating complex financial instruments like derivative liabilities.

Comparison to Industry Standards

• The company's revenue generation of $40,000 for the first six months of 2026 is extremely low compared to established digital asset advisory firms or even smaller consulting practices, which typically generate significantly higher revenues.
• The material weaknesses in internal controls (lack of audit committee, inadequate segregation of duties) are not standard for companies of any significant size and are typically addressed early in a company's development.
• The reliance on related-party debt and the subsequent defaults are concerning and deviate from standard corporate finance practices where independent lenders and clear repayment schedules are expected.
• The significant non-cash gain from derivative liability remeasurement, while reducing reported net loss, is an unusual item that can obscure underlying operational performance, unlike typical revenue or profit metrics used for industry comparison.

Corporate Governance

Legal Proceedings

• The company states that in the normal course of business, it may be involved in legal proceedings, claims, and assessments, but management believes the ultimate disposition will not have a material adverse effect.

Related Party Transactions

• Accounts payable - related party: $926,659 as of June 30, 2026.
• Short-term advances from Michael Farkas: $18,000 principal with $2,299 accrued interest as of June 30, 2026.
• Notes payable to The Farkas Group, Inc.: $500,000 principal with $25,753 accrued interest as of June 30, 2026, which are in default.
• Office space at 407 Lincoln Road, Miami Beach, FL is provided by The Farkas Group, Inc. at no cost.
• Interest expense on related party notes totaled $10,780 for the three months ended June 30, 2026, and $21,443 for the six months ended June 30, 2026.

Stakeholder Impact

• Shareholders: Potential for significant dilution due to the CEO's anti-dilution provision and the need for future capital raises. The going concern issue also poses a risk to shareholder value.
• Creditors: The default on related-party notes creates uncertainty regarding repayment and could lead to demands for immediate payment, impacting liquidity.
• Employees: The company's financial instability and potential cessation of operations pose a risk to employee job security.
• Suppliers: Potential for delayed payments if the company faces further liquidity constraints.

Next Steps

• Management plans to seek additional capital within the next twelve months.
• The company expects to begin a marketing campaign to market and sell its services.
• Management will reassess the segregation of duties weakness at the end of the fiscal year.
• Management is evaluating the appointment of independent directors and the formation of an audit committee.

Key Dates

Recommendation

The filing reveals severe financial distress, including substantial doubt about the company's ability to continue as a going concern, defaults on significant related-party loans, and material weaknesses in internal controls. Despite a non-cash gain that masks operational losses, the fundamental financial instability and lack of clear path to profitability or sustainable operations warrant a sell recommendation.

Keywords

digital asset advisory, consulting services, going concern, loan default, derivative liability, stock-based compensation, related party transactions, financial reporting