10-Q: Balance Labs Reports Q1 2026 Results, Faces Going Concern Doubt

Balance Labs, Inc. reported a net income of $177,803 for Q1 2026, largely due to a non-cash gain, while facing substantial doubt about its ability to continue as a going concern.

Summary

• Balance Labs, Inc. reported a net income of $177,803 for the first quarter ended March 31, 2026, a significant swing from a net loss of $6,406 in the same period of 2025.
• This net income was primarily driven by a substantial non-cash gain of $706,056 from the remeasurement of a derivative liability related to the CEO's employment agreement.
• Revenue for the quarter was $32,667, all of which was unbilled at the end of the period, compared to no revenue in Q1 2025.
• Total operating expenses increased significantly to $520,754 in Q1 2026 from $78,839 in Q1 2025, largely due to a $329,153 non-cash stock-based compensation expense related to CEO equity awards.
• The company has an accumulated deficit of $37,473,843 and a working capital deficit of $2,869,383 as of March 31, 2026.
• Substantial doubt exists regarding the company's ability to continue as a going concern within the next twelve months without additional capital.
• Management plans to seek additional capital and expects to begin a marketing campaign for its services.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this filing as negative due to the substantial doubt about the company's going concern status, significant operating losses (excluding non-cash gains), and material weaknesses in internal controls, despite a reported net income.

Positives

• Reported net income of $177,803 for Q1 2026, compared to a net loss of $6,406 in Q1 2025.
• Generated $32,667 in consulting revenue during Q1 2026.
• The derivative liability decreased by $706,056, contributing to net income.
• Stock-based compensation expense recognized in Q1 2026 was $329,153, reflecting equity awards.

Negatives

• Significant operating expenses of $520,754 in Q1 2026, up from $78,839 in Q1 2025.
• Substantial doubt exists about the company's ability to continue as a going concern.
• Working capital deficit of $2,869,383 as of March 31, 2026.
• Accumulated deficit of $37,473,843 as of March 31, 2026.
• Net cash used in operating activities was $142,609 in Q1 2026.
• The convertible note payable to Chase Mortgage, Inc. remains in default with accrued interest of $53,119.
• Related-party promissory notes totaling $500,000, plus accrued interest of approximately $20,700, matured on May 3 and May 11, 2026, and remain outstanding.
• Disclosure controls and procedures were not effective as of March 31, 2026, due to material weaknesses including limited formalized controls, lack of an audit committee, and inadequate segregation of duties.

Risks

• Substantial doubt about the company's ability to continue as a going concern for the next twelve months without additional financing.
• Potential need to cease operations, liquidate, or seek bankruptcy protection if financing is not obtained or revenue forecasts are not met.
• Future financing may contain restrictions on operations (debt) or cause substantial dilution (equity).
• The company's business, financial condition, and results of operations could be materially adversely affected if it cannot meet internal revenue forecasts or obtain additional financing.
• The default on the Chase Mortgage convertible note could lead to further complications.
• The outstanding related-party notes that have matured pose a risk if not repaid or renegotiated.
• Material weaknesses in internal controls could lead to a material misstatement of financial statements not being prevented or detected in a timely manner.

Future Outlook

Management plans to seek additional capital within the next twelve months to support operations and expects to launch a marketing campaign to sell its advisory services. The company anticipates that the outstanding related-party notes that have matured will either be repaid or have their maturity dates extended through negotiation.

Management Comments

• Management believes the gain on 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 believes the material weaknesses in internal controls are the result of the scale of operations and are intrinsic to the company's small size, and intends to take remedial actions upon receiving funding.
• Management believes that additional capital, if obtained, would support the company's operations for the next year.

Industry Context

StockSavvy.ai notes that Balance Labs operates in the digital asset advisory space, a sector that has seen significant institutional interest but also faces regulatory scrutiny and market volatility. The company's focus on strategic guidance and treasury management for institutions is a niche area. The reported financial results, particularly the reliance on non-cash gains and the going concern warning, highlight the challenges faced by early-stage firms in this complex and evolving industry.

Comparison to Industry Standards

• The company's revenue of $32,667 for the quarter is extremely low compared to established financial advisory firms, which typically generate millions in revenue per quarter.
• The significant operating expenses relative to revenue, particularly the high proportion of non-cash stock-based compensation, are not typical for mature, profitable companies in the financial services sector.
• The existence of a going concern warning is a critical indicator of financial distress, a situation not generally seen in well-established, publicly traded financial advisory firms.
• The company's reliance on a derivative liability gain to report net income is an unusual financial event, unlike the more predictable revenue streams of many industry peers.

Corporate Governance

Legal Proceedings

• In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's condensed consolidated financial position or results of operations.

Related Party Transactions

• Office space is provided by The Farkas Group, Inc. at no cost.
• Outstanding related party notes and advances as of March 31, 2026, include $18,000 from Michael Farkas (18% interest) and $500,000 from The Farkas Group, Inc. (8% interest).
• Related party interest expense for Q1 2026 was $10,663, compared to $42,435 for Q1 2025.
• Two promissory notes totaling $500,000 from The Farkas Group, Inc. matured on May 3 and May 11, 2026, and remain outstanding with accrued interest of approximately $20,700.

Stakeholder Impact

• Shareholders: Potential for substantial dilution if equity financing is pursued; current financial instability raises concerns about the company's long-term viability.
• Creditors: The default on the Chase Mortgage convertible note and the outstanding matured related-party notes pose risks to creditors.
• Employees: The company's going concern status and potential need for cost reductions could impact employee job security.
• Management: The identified material weaknesses in internal controls and the going concern issue place significant pressure on management to secure funding and improve financial reporting.

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 at the end of the fiscal year to determine if improvements are feasible.
• Remedial actions for material weaknesses in internal controls are intended to be taken upon receiving funding.

Key Dates

Recommendation

The company's reported net income is misleading due to significant non-cash items, and the explicit statement of substantial doubt about its going concern status presents a high-risk profile. While there is potential for future capital raises and operational improvements, the current financial precariousness and control deficiencies warrant a cautious 'hold' stance until a clearer path to sustainability emerges.

Keywords

Balance Labs, 10-Q, Quarterly Report, Digital Asset Advisory, Going Concern, Derivative Liability, Stock-Based Compensation, Financial Statements, SEC Filing, Miami Beach