10-Q: Hypha Labs Pivots to Mushroom Tech Amid Deepening Losses

Sentiment:

Quarterly Report 21 August 2025 4:06 PM

Hypha Labs, Inc. shifts focus from cannabis testing to mushroom cultivation technology, reporting significant losses and a going concern doubt during its R&D phase.

Delay expectedThe Invictus Note maturity date was extended multiple times, most recently to December 31, 2025, from an original maturity of December 31, 2023.Several convertible promissory notes and a secured credit facility had their maturity dates extended to July 31, 2027, from earlier dates (e.g., February 11, 2024, August 11, 2022, February 11, 2025).The goal to market the Hypha Micropearl accelerator by the end of calendar year 2025 is stated with the caveat "although there can be no assurance we will achieve our goal in this time period, or at all."

Capital raiseThe company intends to raise funds to complete the development and testing of its accelerator and to fund the initial launch of commercial sales.Funds will be sought through either the sale of equity or debt securities, including through a Regulation A offering, during the next 6 to 12-month period.Proceeds from notes payable of $115,600 and convertible notes payable of $130,000 were received during the nine months ended June 30, 2025.

Worse than expectedNet loss from continuing operations significantly increased to $2,543,486 for the nine months ended June 30, 2025, compared to $904,586 for the same period in 2024.Total operating expenses surged by 204% to $2,510,453 for the nine months ended June 30, 2025.Negative working capital worsened to $1,846,324 as of June 30, 2025.The company explicitly states "substantial doubt about the Company's ability to continue as a going concern."

Summary

Hypha Labs, Inc. has fully transitioned from its former cannabis and hemp testing business (Digipath Labs) to focus on the research, development, and commercialization of the "Hypha Micropearl accelerator," a home appliance for producing nutritionally beneficial mushrooms.
The company reported no revenues for the three and nine months ended June 30, 2025, reflecting its current R&D phase.
Net loss from continuing operations significantly increased to $2,543,486 for the nine months ended June 30, 2025, compared to $904,586 for the same period in 2024.
Total operating expenses surged by 204% to $2,510,453 for the nine months ended June 30, 2025, driven by increased general and administrative expenses and professional fees.
The company's financial position shows negative working capital of $1,846,324 and an accumulated deficit of $23,090,912 as of June 30, 2025, raising substantial doubt about its ability to continue as a going concern.
Cash on hand increased to $147,192 as of June 30, 2025, from $91,166 at September 30, 2024, primarily due to proceeds from new notes payable and convertible notes.

Sentiment

Score: 2

Explanation: The company is in a critical pre-revenue R&D phase for a new product, facing significant operating losses, worsening negative working capital, and explicitly stating substantial doubt about its ability to continue as a going concern. While it has secured some debt financing and has a new strategic direction, the financial health is precarious, and future success is highly uncertain and dependent on successful product development and significant capital raises.

Positives

Successful pivot to a new business segment, Hypha Micropearl accelerator, targeting the functional mushroom market.
Increased cash balance to $147,192 as of June 30, 2025, from $91,166 at September 30, 2024.
Secured new financing through notes payable ($115,600) and convertible notes payable ($130,000) during the nine months ended June 30, 2025.
Extended maturity dates for several secured credit facilities and convertible promissory notes to July 31, 2027, providing additional financial flexibility.

Negatives

No revenue generated for the three and nine months ended June 30, 2025, as the company is in the development phase of its new product.
Significant increase in net loss from continuing operations to $2,543,486 for the nine months ended June 30, 2025, compared to $904,586 in the prior year.
Total operating expenses more than doubled, increasing by 204% to $2,510,453 for the nine months ended June 30, 2025.
Negative working capital worsened to $1,846,324 as of June 30, 2025, from $983,470 at September 30, 2024.
Accumulated deficit grew to $23,090,912, indicating a history of recurring losses.
Substantial doubt about the company's ability to continue as a going concern.
Disclosure controls and procedures were not effective as of June 30, 2025.
Significant non-cash compensation expense, including $968,356 for Series C Preferred shares issued to the sole officer.

Risks

Substantial doubt about the company's ability to continue as a going concern due to negative working capital, accumulated recurring losses, and limited cash on hand.
Uncertainty in achieving the goal of marketing the Hypha Micropearl accelerator by the end of calendar year 2025, or at all.
No assurance of successfully raising additional funds through equity or debt securities to complete development and fund initial commercial sales.
Potential for substantial dilution to existing stockholders if additional equity financing is pursued.
Risk of mold or yeast contamination in at-home mushroom growth, despite cartridge design.
Disclosure controls and procedures were not effective, indicating potential weaknesses in financial reporting.

Future Outlook

Hypha Labs intends to continue the design, development, and testing of the Hypha Micropearl accelerator over the next six months. The company plans to produce a limited number of accelerators for testing with mycologists and functional mushroom experts. Upon successful testing, it will seek an international manufacturing arrangement for commercial sale, with a goal to market the product by the end of calendar year 2025, though there is no assurance this timeline will be met. The company also plans to raise funds through equity or debt securities, including a Regulation A offering, within the next 6 to 12 months to support development and initial sales, and is evaluating potential acquisition targets.

Management Comments

Our goal is to be in the position to market the Hypha Micropearl accelerator by the end of calendar year 2025, although there can be no assurance we will achieve our goal in this time period, or at all.
We believe that our innovative accelerator technology will disrupt traditional methods of mushroom production and bring lab-quality nutrient ingredients into the home with convenience and efficiency.
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.
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.

Industry Context

Hypha Labs is pivoting from the highly regulated and competitive cannabis testing market, which it exited in February 2024, to the emerging and growing functional mushroom and nutraceuticals market. This strategic shift positions the company in a consumer-focused segment, aiming to disrupt traditional mushroom production methods with a home appliance. The success of this pivot will depend on product development, market acceptance, and effective commercialization in a nascent but potentially high-growth industry driven by increasing consumer interest in health and wellness.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Preferred Stock Designation	Designation of Series D Preferred Stock with 60,000,000 shares authorized, effective April 2, 2025. This new series ranks junior to Series A and B Preferred and senior to Series C and common stock regarding dividends and liquidation rights.	2025-04-02	Introduces a new class of preferred stock that could be used for future capital raises, potentially diluting common stockholders but providing a new financing tool. Its senior ranking to common stock in liquidation adds a layer of preference for potential future investors in this series.
Internal Control Effectiveness	Management concluded that disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2025.	2025-06-30	Indicates a material weakness in internal controls over financial reporting, which could lead to errors or misstatements in financial disclosures and raises concerns about the reliability of financial information. This requires immediate attention and remediation efforts.

Related Party Transactions

Incurred $90,000 in compensation expense for services provided by its sole officer during the nine months ended June 30, 2025.
Owed $30,000 to the sole officer for services provided as of June 30, 2025.
Accrued $15,000 in fees for services provided by its directors during the nine months ended June 30, 2025, with a total of $22,500 accrued as of June 30, 2025.
Accrued $7,401 in reimbursable expenses owed to the officer and directors as of June 30, 2025.
Entered into a Securities Purchase Agreement with A. Stone Douglass (Chairman, President, CEO, CFO, Secretary, and Director) on December 10, 2024, for the purchase of 1,000 shares of Series C Preferred stock for $100 cash. The company determined the shares had a value in excess of the stated value by $968,356, which was recorded as compensation expense to the officer.
Issued 3,000,000 shares of common stock to the Board of Directors in exchange for services performed, valued at $90,000, during the nine months ended June 30, 2025.

Stakeholder Impact

Shareholders: Significant dilution risk from potential future equity raises and ongoing issuance of shares/options/warrants for services. Existing shareholders face substantial accumulated deficit and going concern doubt, indicating potential for further value erosion.
Creditors: Extended maturity dates on debt provide some relief, but the company's negative working capital and going concern doubt indicate elevated credit risk.
Employees/Consultants: Continued reliance on stock-based compensation for services, which may be attractive if the new venture succeeds but carries risk given the company's financial state.
Customers (Future): The success of the new mushroom accelerator product will determine future customer base and revenue generation.

Next Steps

Continue design, development, and testing of the Hypha Micropearl accelerator over the next six months.
Produce a limited number of accelerators at headquarters for testing with mycologists and functional mushroom industry experts.
Seek to enter into a manufacturing arrangement outside the United States for commercial sale of the Hypha Micropearl accelerator.
Goal to market the Hypha Micropearl accelerator by the end of calendar year 2025.
Seek to raise funds through equity or debt securities, including a Regulation A offering, during the next 6 to 12-month period.
Evaluate future investments into potential acquisition targets.

Key Dates

Date	Description
2010-10-05	Hypha Labs, Inc. incorporated in Nevada.
2012-03-05	2012 Stock Incentive Plan originally adopted.
2015-01-01	Hypha Labs began operating a cannabis-testing lab in Nevada.
2016-06-21	2012 Stock Incentive Plan amended and restated.
2018-11-08	Company received $350,000 on a senior secured convertible note.
2018-12-28	Loaned Northwest Analytical Labs, Inc. $95,000.
2019-06-13	Final loan to Northwest Analytical Labs, Inc. for a total of $95,000.
2019-09-23	Company received $200,000 on a senior secured convertible note.
2020-02-11	Completed sale of 9% Secured Convertible Promissory Note for $50,000.
2020-09-30	Maturity date of senior secured convertible note extended to August 10, 2022, and conversion price amended to $0.03 per share.
2020-12-28	Conversion price of 9% Secured Convertible Promissory Note amended to $0.03 per share in exchange for $10,000 additional proceeds.
2020-12-29	Note holder converted $10,000 of principal into 333,334 common shares.
2021-02-22	Noteholder converted $90,000 of principal into 3,000,000 common shares.
2021-09-30	Senior secured convertible note amended to add outstanding short term notes and accrued interest into principal balance, making it $355,469.
2021-12-29	Series B Preferred shares designated.
2022-07-20	Series C Preferred stock designated.
2022-08-08	Note holder agreed to extend maturity date of 9% Secured Convertible Promissory Note to February 11, 2024.
2022-10-01	Company entered into a senior secured convertible note for $362,765 and further extended maturity dates of other notes to February 11, 2024.
2022-12-08	Company entered into an Asset Purchase Agreement with Invictus Wealth Group to sell certain equipment for $900,000.
2023-04-20	Company and Digipath Labs entered into an Asset Purchase Agreement with DPL NV, LLC for $2,300,000.
2023-04-30	Company, Digipath Labs, and Buyer entered into a Management Services Agreement.
2023-06-30	Company received full down payment of $275,000 from Invictus.
2023-09-30	Invictus Note amended to extend maturity date to March 31, 2024, with $100,000 principal payment due.
2023-10-17	Nevada Cannabis Compliance Board approved the Management Services Agreement.
2023-12-31	Invictus Note amended for a second time to extend maturity date to December 31, 2025, with $50,000 principal payment due.
2024-01-18	Company received approval from the CCB to transfer assets pursuant to the Purchase Agreement.
2024-01-22	Company further amended senior secured convertible notes to extend maturity dates to February 11, 2025, and reduced conversion prices to $0.01.
2024-01-29	Holder converted $40,000 of a senior secured convertible note into common shares.
2024-02-14	Note holder agreed to further extend the maturity date of the 9% Secured Convertible Promissory Note to July 31, 2025.
2024-02-20	Completed the sale of net assets of Digipath Labs, Inc.
2024-04-02	Series D Preferred Stock designated.
2024-04-18	Hypha Products Inc. formed.
2024-05-06	Company entered into a lease for its operating and office facility.
2024-06-24	Company and Buyer settled final amount owed on working capital adjustment for $42,835.
2024-09-30	Fiscal year ended.
2024-10-15	Company entered into a secured credit facility with a third party for up to $200,000.
2024-11-27	Company entered into an amendment to the Asset Purchase Agreement with Buyer for early release of escrow deposit.
2024-12-03	Company received the escrow deposit amount ($200,000).
2024-12-10	Company entered into a Securities Purchase Agreement with A. Stone Douglass for Series C Preferred stock.
2025-01-25	Company entered into a 12% secured credit facility for up to $200,000.
2025-02-10	Facility holder agreed to extend maturity date of 2024 Secured Credit Facility to July 31, 2025.
2025-06-05	Company received proceeds of $130,000 on a senior secured convertible note.
2025-06-18	Company issued 2,500,000 shares of common stock to outside consultants.
2025-06-23	Company issued 3,000,000 shares of common stock to outside consultants and 3,000,000 shares to its board of directors.
2025-06-30	Quarterly period ended.
2025-08-18	Holder of 2024 Secured Credit Facility and convertible promissory notes agreed to further extend maturity dates to July 31, 2027.
2025-08-21	Date of filing of the 10-Q report.

Recommendation

strong sell

Hypha Labs is in a highly speculative and precarious financial position. The company has no revenue from its new business, is incurring substantial and increasing operating losses, and has a worsening negative working capital position. The explicit 'going concern' doubt, coupled with ineffective disclosure controls, signals severe operational and financial instability. While the pivot to functional mushrooms offers a new narrative, it is entirely unproven, pre-revenue, and requires significant future capital raises, which will likely lead to substantial dilution. The current financial state presents an extremely high risk for investors, making it an unattractive investment at this time.

Keywords

Hypha Labs, Mushroom Cultivation, Micropearl Accelerator, Functional Mushrooms, Biotechnology, Startup, SEC Filing, 10-Q, Going Concern, Cannabis Industry Exit, R&D Phase, Convertible Notes, Stock-Based Compensation

Disclaimer:The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.