10-Q: Balance Labs Reports Soaring Losses, Pivots to Digital Assets

Balance Labs, Inc. reported a significant increase in net loss for the nine months ended September 30, 2025, amidst a strategic pivot to digital asset management and ongoing going concern doubts.

Summary

• Net loss for the nine months ended September 30, 2025, increased significantly to $3,747,212, compared to $410,480 for the same period in 2024.
• The substantial increase in net loss was primarily driven by a $3,425,796 loss on derivative and expenses related to the issuance of stock to CEO Alan Campbell.
• Cash and cash equivalents decreased to $4,512 as of September 30, 2025, from $13,199 at December 31, 2024.
• Working capital deficiency worsened to $8,675,685 as of September 30, 2025, from $5,071,106 at December 31, 2024.
• Management has identified substantial doubt about the company's ability to continue as a going concern for the next twelve months without additional debt or equity capital.
• The company is transitioning its business model from a consulting firm to a "digital asset corporate treasury company" focused on acquiring, holding, and managing liquid, large-capitalization cryptocurrencies.
• Subsequent to the reporting period, $4,166,946.69 of outstanding promissory notes and debentures were converted into 16,667,788 shares of common stock at $0.25 per share.
• An additional 7,784,268 shares of common stock were issued to employees, executives, and consultants as equity compensation at $0.25 per share.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, including a substantial going concern doubt, critically low cash, and a significantly increased net loss. While a strategic pivot and recent debt-to-equity conversions offer some restructuring, the underlying operational challenges and lack of revenue remain critical concerns, indicating a very high-risk profile.

Positives

• Settlement of an outstanding accounts payable balance with a law firm resulted in a gain of $127,579 for the nine months ended September 30, 2025.
• Appointment of Alan Campbell as CEO, bringing over 20 years of experience in financial-data and index-management businesses.
• Strategic pivot to a "digital asset corporate treasury company" could potentially open new avenues for growth and yield generation.
• Successful conversion of over $4.1 million in debt into equity post-period, reducing liabilities.

Negatives

• Significant increase in net loss to $3,747,212 for the nine months ended September 30, 2025, primarily due to a large loss on derivative and increased stock-based compensation.
• Cash balance is critically low at $4,512, and the working capital deficiency has substantially worsened to $8,675,685.
• Substantial doubt about the company's ability to continue as a going concern.
• Numerous related-party and non-related-party notes payable are in default, indicating severe liquidity issues.
• Zero operating revenues for the reported periods.
• Identified material weaknesses in internal controls, including functional controls, lack of an audit committee, and inadequate segregation of duties.
• The CEO's base salary is subject to activation following a capital raise or 75 days from appointment, indicating current cash constraints.

Risks

• **Going Concern**: Substantial doubt exists about the company's ability to continue as a going concern for the next twelve months without additional debt or equity capital.
• **Liquidity Risk**: Critically low cash balance and significant working capital deficiency pose a high risk to ongoing operations.
• **Capital Raising Risk**: No assurance that future financing will be available on acceptable terms, or at all, and equity financing could cause substantial dilution.
• **Operational Risk**: The company does not currently generate operating revenues and does not expect material revenues until its digital asset treasury scale supports consistent yield activities.
• **Internal Control Weaknesses**: Material weaknesses in internal controls (functional controls, lack of audit committee, inadequate segregation of duties) increase the risk of financial misstatement.
• **Market Risk (Digital Assets)**: The new business model involves acquiring, holding, and managing digital assets, which are subject to significant market volatility and regulatory uncertainty.
• **Default Risk**: Numerous notes payable and convertible notes are in default, potentially leading to legal actions or further financial strain.
• **Dilution Risk**: Future equity financing or debt conversions could lead to substantial dilution for existing stockholders.

Future Outlook

The company plans to transition its business model to a digital asset corporate treasury company, focusing on acquiring, holding, and managing a diversified portfolio of liquid, large-capitalization cryptocurrencies. It intends to generate yield through staking and other on-chain activities. No material operating revenues are expected until the treasury scale supports consistent yield activities. Management plans to seek additional capital within the next twelve months to sustain operations and expects to begin a marketing campaign for its services.

Management Comments

• Management plans to seek to raise additional capital within the next twelve months that is expected to sustain its operations for the next year.
• The Company expects to begin a marketing campaign to market and sell its services.
• 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 believes these weaknesses did not have a material effect on our financial results and intends to take remedial actions upon receiving funding for the Company's business operations.
• We do not currently generate operating revenues and do not expect material revenues until our treasury scale supports consistent yield activities.

Industry Context

The company's stated pivot to a "digital asset corporate treasury company" aligns with a growing trend among some public companies to incorporate cryptocurrency holdings into their balance sheets, often seeking to generate yield or capitalize on potential appreciation. This move places Balance Labs within the nascent but rapidly evolving digital asset industry, contrasting sharply with its previous consulting focus. The shift suggests an attempt to find a more viable business model given its lack of operating revenue and significant financial distress in its traditional consulting services.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Related Party Transactions

• Accounts payable of $911,659 owed to Michael Farkas (President and Chairman) for consulting services from 2015-2022, with no formal repayment terms or accrued interest.
• Unpaid compensation of $230,000 to the President as of September 30, 2025, included in accounts payable.
• Balance Group LLC (related party) loaned $66,850, now in default with $46,488 accrued interest.
• The Foundation (related party) loaned $40,000, now in default with $31,641 accrued interest.
• President and companies controlled by the President loaned $1,833,858, now in default with $858,978 accrued interest.
• Convertible note payable from President for $53,192, now in default with $27,194 accrued interest.
• Convertible note payable from Balance Group LLC for $120,000, now in default with $108,066 accrued interest.
• CEO Alan Campbell's employment agreement includes an anti-dilution feature, which is accounted for as a derivative liability.
• Subsequent to the period, $945,111.90 in principal and $191,697.72 in accrued interest from related parties (The Farkas Group, Inc., Michael D. Farkas, NextNRG Inc., The Sammy Farkas Foundation, Shilo Holding Group LLC) were converted into 4,547,240 shares of common stock at $0.25 per share.
• New promissory notes totaling $268,000 were entered into with The Farkas Group, Inc. and the President in October and November 2025.

Stakeholder Impact

• **Shareholders**: Significant dilution from recent debt-to-equity conversions and equity compensation issuances. Potential for further dilution from future capital raises. High risk due to going concern doubt and lack of profitability.
• **Creditors**: Many related-party and non-related-party debts are in default, indicating high credit risk. Recent debt conversions have reduced some liabilities but at the cost of equity.
• **Employees/Executives**: New CEO appointed with an equity grant. Other employees, executives, and consultants received equity compensation, potentially aligning interests with company performance, but also subject to dilution and company viability risks.
• **Customers**: The company is pivoting its business model, which may impact existing or potential consulting clients. The new digital asset focus does not immediately involve traditional customers.

Next Steps

• Seek additional capital within the next twelve months to sustain operations.
• Begin a marketing campaign to market and sell services.
• Establish institutional-grade custody arrangements for digital assets.
• Implement a disciplined allocation strategy for digital assets.
• Maintain risk management frameworks and internal controls for digital asset holdings.
• Deploy staking and yield-generating protocols where viable.
• Evaluate third-party providers for custody, execution, trading, and index methodology support.
• Expand accounting, audit, compliance, and management resources to meet SEC reporting and internal control requirements.
• Management will reassess internal control weaknesses at the end of the fiscal year to determine if improvement in segregation of duties is feasible.

Key Dates

Recommendation

The company exhibits severe financial distress, including a substantial going concern doubt, critically low cash reserves, and a significantly increased net loss. While the strategic pivot to digital asset management and recent debt-to-equity conversions are attempts to restructure, the company currently generates no operating revenue and faces significant operational and market risks in its new venture. The material weaknesses in internal controls further compound the risk. The high level of related-party debt and its conversion at a low price point, coupled with substantial dilution, makes this a highly speculative and risky investment with a strong likelihood of further value erosion.

Keywords

digital assets, cryptocurrency, consulting, going concern, SEC filing, 10-Q, financial reporting, liquidity, debt conversion, related party transactions, internal controls, startup services, equity compensation