Quarterly Report for Quarter Ending March 31, 2025 (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, 2024 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 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, 2024 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. Until February 20, 2024, 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 an accelerator, the Hypha Micropearl accelerator, 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 accelerator 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 accelerator 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 accelerator over the next six months. Initially, we will produce a limited number of accelerators 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 accelerator, we will seek to enter into a manufacturing arrangement outside the United States to manufacture the Hypha Micropearl accelerator for commercial sale. 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.

Results of Operations for the Three Months Ended March 31, 2025 and 2024:

The following table summarizes selected items from the statement of operations for the three months ended March 31, 2025 and 2024.

		Three Months Ended March 31,								Increase /
		2025				2024				(Decrease)
Operating expenses:
General and administrative			65,467				182,504				(117,037	)
Professional fees			603,695				391,543				212,152
Total operating expenses:			669,162				574,047				95,115
Operating loss			(669,162	)			(574,047	)			(95,115	)
Total other income			27,340				566,053				(538,713	)
Net loss from continuing operations			(641,822	)			(56,708	)			(633,828	)
Net income from discontinued operations			-				292,529				(292,529	)
Net income (loss)		$	(641,822	)		$	235,821			$	(877,643	)

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2025 were $65,467, compared to $182,504 during the three months ended March 31, 2024, a decrease of $117,037, or 64%. General and administrative expenses decreased primarily due to decreased corporate overhead activities.

Professional Fees

Professional fees for the three months ended March 31, 2025 were $603,695, compared to $391,543 during the three months ended March 31, 2024, an increase of $212,152, or 17%. Professional fees included non-cash, stock-based compensation of $389,063 and $0 during the three months ended March 31, 2025 and 2024, respectively. Professional fees increased primarily due to corporate consulting services and legal fees during the current period as we increased our focus on developing our new business.

Other Income

Other income, on a net basis, for the three months ended March 31, 2025 was $27,340, compared to other income, on a net basis, of $566,053 during the three months ended March 31, 2024, a net decrease of $538,713. Other expense consisted of interest expense of $22,660 offset by recovery of previously written off receivables of $50,000 for the three months ended March 31, 2024.

Results of Operations for the Six Months Ended March 31, 2025 and 2024:

The following table summarizes selected items from the statement of operations for the six months ended March 31, 2025 and 2024.

		Six Months Ended March 31,								Increase /
		2025				2024				(Decrease)
Operating expenses:
General and administrative			1,090,578				197,247				893,331
Professional fees			883,848				447,364				436,484
Total operating expenses:			1,974,426				644,611				1,329,815
Operating loss			(1,974,426	)			(644,611	)			(1,329,815	)
Total other income (expense)			(7,037	)			495,636				(502,673	)
Net loss from continuing operations			(1,981,463	)			(197,689	)			(1,783,774	)
Net income from discontinued operations			-				585,156				(585,156	)
Net income (loss)		$	(1,981,463	)		$	387,467			$	(2,368,930	)

General and Administrative Expenses

General and administrative expenses for the six months ended March 31, 2025 were $1,090,578, compared to $197,247 during the six months ended March 31, 2024, an increase of $893,331, or 489%. General and administrative expenses increased primarily due to increased corporate overhead activities and the issuance of the Series C Preferred shares to our sole officer with a value in excess of the purchase price of $968,356.

Professional Fees

Professional fees for the six months ended March 31, 2025 were $883,848, compared to $447,364 during the six months ended March 31, 2024, an increase of $436,484, or 111%. Professional fees included non-cash, stock-based compensation of $456,063 and $222,257 during the six months ended March 31, 2025 and 2024, respectively. Professional fees increased primarily due to corporate consulting services and legal fees during the current period as we increased our focus on developing our new business.

Operating Loss

Our operating loss for the six months ended March 31, 2025 was $1,974,426, compared to an operating loss of $644,611 during the six months ended March 31, 2024, an increase of $1,329,815, or 147%. Our operating loss increased primarily due to our increased general and administrative expenses.

Other Income (Expense)

Other expense, on a net basis, for the six months ended March 31, 2025 was $7,037, compared to other income, on a net basis, of $495,636 during the six months ended March 31, 2024. Other expense consisted of 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. Other income consisted of interest expense of $158,271, loss on extinguishment of debt of $956,494, the receipt from an insurance claim, and the gain on the sale of the net assets of Digipath Labs of $1,596,505 for the six months ended March 31, 2024.

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, 2025 and 2024:

		2025				2024
Operating Activities		$	(41,611	)		$	(61,123	)
Investing Activities			(1,730	)			2,115,267
Financing Activities			(26,732	)			(1,261,749	)
Net increase in Cash		$	(70,073	)		$	792,395

Net Cash Used In Operating Activities

During the six months ended March 31, 2025, net cash used in operating activities was $41,611, compared to net cash used in operating activities of $61,123 for the same period ended March 31, 2024, including cash used in operating activities from discontinued operations of $0 for the six months ended March 31, 2025 compared to cash provided by operating activities from discontinued operations of $373,913 for the six months ended March 31, 2025. The decrease in cash used in operating activities was primarily attributable to our increase in net loss related to the development of our new business.

Net Cash Provided by (Used in) Investing Activities

During the six months ended March 31, 2025, net cash used in investing activities was $1,730 compared to $2,115,267 provided by investing activities for the same period ended March 31, 2024, including cash used in investing activities from discontinued operations of $0 for the six months ended March 31, 2025 compared to cash used in investing activities from discontinued operations of $11,667 for the six months ended March 31, 2024.

Net Cash Used in Financing Activities

During the six months ended March 31, 2025, net cash used in financing activities was $26,732, compared to net cash used in financing activities of $1,261,749 for the same period ended March 31, 2024, including cash used in financing activities from discontinued operations of $0 for the six months ended March 31, 2025 compared to cash used in financing activities from discontinued operations of $15,784 for the six months ended March 31, 2024.

Ability to Continue as a Going Concern

As of March 31, 2025, our balance of cash on hand was $21,093, and we had negative working capital of $1,546,801 and an accumulated deficit of $22,528,889 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 accelerator over the next 6 to 12 months and to fund the initial launch of commercial sales of its accelerator device. The Company intends to raise such funds through either the sale of equity or debt securities, including through a potential Regulation A offering, following such 6 to 12-month period to successfully execute its business plan. The Company is also currently evaluating future investments into potential acquisition targets. There can be no assurance that we will be successful in achieving these objectives, becoming profitable or continuing our business without either a temporary interruption or a permanent cessation. In addition, additional financing may result in substantial dilution to existing stockholders.

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.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 - Revenue from Contracts with Customers. Under ASC 606, the Company recognized revenue from the sale of lab testing services through our subsidiary Digipath Labs.

Our historical revenue was primarily generated through our subsidiary, Digipath Labs, which recognized revenue from the analytical testing of cannabis products for licensed producers and cultivators within the state of Nevada on a determinable fixed fee per test, or panel of tests, basis. Revenue from the performance of those services was recognized upon completion of the tests, at which time test results were delivered to the customer, provided collectability of the fee is reasonably assured. We typically required payment within thirty days of the delivery of results.

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 Equity-Based Payments to Non-employees 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.