Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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

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.

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.

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.

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.