Functional Brands (NASDAQ: MEHA) swings to $7M loss and reports going concern risk
Functional Brands Inc. reported a sharply wider loss for the quarter ended March 31, 2026, while revenue grew modestly. Net revenue rose to $1.65M from $1.59M, with nutraceutical supplements contributing nearly all sales as the company wound down its hemp-based products business.
Despite higher gross profit of $0.96M, operating expenses jumped to $1.64M, driving an operating loss of $0.68M. A large noncash loss of $6.31M related to preferred stock and derivative remeasurement pushed net loss to $6.99M, or $(0.36) per share, versus a $0.13M loss a year earlier.
The balance sheet weakened materially: cash declined to $1.08M, total assets were $7.21M, and total liabilities increased to $11.72M, resulting in stockholders’ deficit of $4.51M. Management discloses substantial doubt about the company’s ability to continue as a going concern and is relying on additional debt and equity financing while carrying significant Series C preferred, convertible notes and warrant overhang.
Positive
- None.
Negative
- Substantial going concern doubt: management states that recurring losses, limited cash of $1.08M, and dependence on new financing raise substantial doubt about the company’s ability to continue as a going concern.
- Large net loss and equity wipeout: Q1 2026 net loss expanded to $6.99M from $0.13M a year earlier, leading to a stockholders’ deficit of $4.51M as liabilities of $11.72M exceeded assets.
- Complex, dilutive capital structure: the company now has Series C preferred, senior secured convertible notes, and warrants representing up to 35,926,299 shares, creating significant potential dilution for common stockholders.
- Rising operating costs: general and administrative expenses nearly doubled to $1.38M, driving a much larger operating loss of $0.68M despite modest revenue growth.
Insights
Large noncash charges, weak balance sheet, and going concern risk weigh heavily on Functional Brands.
Functional Brands Inc. showed stable top-line performance, with net revenue of $1.65M versus $1.59M a year earlier and slightly higher gross profit. However, general and administrative costs nearly doubled to $1.38M, leaving the core business loss-making before financing effects.
The capital structure changed significantly through exchanges of Series A and B preferred into Series C preferred, convertible notes, common stock and cash. This drove a reported $6.31M loss on issuance of preferred stock and contributed to a net loss of $6.99M. At March 31, 2026, liabilities of $11.72M exceeded assets, producing a stockholders’ deficit of $4.51M, while cash stood at $1.08M.
Management explicitly highlights “substantial doubt” about the company’s ability to continue as a going concern. The filing details significant potential dilution from Series B and Series C preferred, convertible notes and 35,926,299 warrant-linked shares, alongside 12% senior secured notes and mezzanine-classified preferred liabilities. Future results will depend on successful capital raises and execution of the nutraceutical-focused strategy after exiting hemp-based products.
Key Figures
Key Terms
going concern financial
Series C Convertible Preferred Stock financial
senior secured convertible promissory notes financial
derivative liabilities financial
Monte Carlo simulation model financial
beneficial ownership limitation financial
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
OR
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| NONE |
| (Former name or former address, if changed since last report.) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange On Which Registered | ||
| The |
Indicate by checkmark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ | Smaller Reporting Company | |
| Emerging Growth Company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with a new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by checkmark whether the registrant is
a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of registrant’s common stock outstanding
as of May 13, 2026:
FUNCTIONAL BRANDS INC.
TABLE OF CONTENTS
| Page No. | |||
| PART I. | FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements (Unaudited) | 1 | |
| Unaudited Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025 | 1 | ||
| Unaudited Consolidated Statements of Operations for the three months ended March 31, 2026 and 2025 | 2 | ||
| Unaudited Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three months ended March 31, 2026 and 2025 | 3 | ||
| Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025 | 4 | ||
| Notes to Unaudited Consolidated Financial Statements | 5 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 39 | |
| Item 4. | Controls and Procedures | 39 | |
| PART II. | OTHER INFORMATION | 40 | |
| Item 1. | Legal Proceedings | 40 | |
| Item 1A. | Risk Factors | 40 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 40 | |
| Item 3. | Defaults Upon Senior Securities | 40 | |
| Item 4. | Mine Safety Disclosures | 40 | |
| Item 5. | Other Information | 40 | |
| Item 6. | Exhibits | 41 | |
| PART III. | Signatures | 42 |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FUNCTIONAL BRANDS INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In U.S. dollars, except share data or otherwise noted)
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Noncurrent assets: | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity / (deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Line of credit | - | |||||||
| SBA loan, current | ||||||||
| Lease liabilities, current | ||||||||
| Other current liabilities | ||||||||
| Derivative liabilities, current | - | |||||||
| Liability with conditional timing | - | |||||||
| Loans payable (related party), current | ||||||||
| Loans payable | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Lease liabilities, net of current | ||||||||
| SBA loan, net of current | ||||||||
| Convertible note | - | |||||||
| Derivative liabilities, noncurrent | - | |||||||
| Preferred shares liabilities | - | |||||||
| Loan payable (related party), net of current | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity / (deficit) | ||||||||
| Series A Preferred stock, par value $ | - | |||||||
| Series B Preferred stock, par value $ | ||||||||
| Series C Preferred stock, par value $ | - | - | ||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity / (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity / (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1
FUNCTIONAL BRANDS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In U.S. dollars, except share data or otherwise noted)
| Three Months Ended | Three Months Ended | |||||||
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| Revenue, net of returns | ||||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income / (expense) | ||||||||
| Interest income | ||||||||
| Other income | - | |||||||
| Interest expense | ( | ) | ( | ) | ||||
| Change in fair value of derivative liabilities | - | |||||||
| Loss on issuance of preferred stock | ( | ) | - | |||||
| Total other income / (expense) | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share of common stock attributable to common stockholders | - | |||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares used in computing net loss per share of common stock | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
FUNCTIONAL BRANDS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY / (DEFICIT) (UNAUDITED)
(In U.S. dollars, except share data or otherwise noted)
| Preferred Stock | Common Stock | Additional | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Common Stock | to be issued | Paid in | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | / (Deficit) | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | - | $ | - | - | $ | - | - | - | $ | - | - | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for convertible notes payable and accrued interest | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued with respect of loan payable | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2025 | - | - | - | - | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2025 | $ | $ | - | $ | - | $ | - | - | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | - | - | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Buyback of preferred stock | ( | ) | ( | ) | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Shares issued as part of exchange agreement | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Warrant exercises | - | - | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2026 | - | $ | - | $ | $ | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
FUNCTIONAL BRANDS INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(In U.S. dollars, except share data or otherwise noted)
| Three Months Ended | Three Months Ended | |||||||
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Reconcile net loss to cash provided by operating activities | ||||||||
| Allowance for doubtful accounts receivable | - | ( | ) | |||||
| Allowance for inventory obsolescence | - | |||||||
| Depreciation of property and equipment | ||||||||
| Amortization of right-of-use assets | ||||||||
| Amortization of intangible assets | ||||||||
| Stock-based compensation | ||||||||
| Financing expense on warrants | - | |||||||
| Change in fair value of derivative liabilities | ( | ) | - | |||||
| Loss on issuance of preferred stock | - | |||||||
| Dividends | ( | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Other current liabilities | ( | ) | ( | ) | ||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Net cash used in investing activities: | - | - | ||||||
| Cash flows from financing activities: | ||||||||
| Deferred offering costs | - | ( | ) | |||||
| Payments for payable for acquisition | - | ( | ) | |||||
| Repayment of liability conditional timing | ( | ) | - | |||||
| Repayment of loans | ( | ) | ( | ) | ||||
| Buyback of preferred stock | ( | ) | - | |||||
| Proceeds from line of credit | - | |||||||
| Line of credit repayment | ( | ) | ( | ) | ||||
| SBA loan repayment | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Increase (decrease) in cash | ( | ) | ||||||
| Cash beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Declaration of preferred stock dividend recorded as an increase in accrued liabilities | - | |||||||
| Extinguishment of Series A&B preferred shares | $ | ( | ) | |||||
| Derecognition of derivative liabilities upon extinguishment of Series A&B preferred shares | $ | ( | ) | |||||
| Issuance of Series C preferred shares | $ | ( | ) | |||||
| Recognition of Series C convertible notes | $ | ( | ) | |||||
| Recognition of derivative liabilities upon issuance of Series C preferred shares & convertible notes | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
FUNCTIONAL BRANDS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 1. | Organization and Nature of Operations |
Functional Brands Inc. (formerly HT Naturals Inc.,
the “Company”) was organized under the General Corporation Law in the State of Delaware on
On March 22, 2023, the Company changed its name from HT Naturals Inc. to Functional Brands Inc. to better reflect its corporate identity.
As of March 31, 2026, and 2025, the consolidated financial statements consist of the Company and its wholly owned subsidiary HTO Nevada Inc. (d/b/a Kirkman), which is a nutraceutical manufacturer and distributor based in the Pacific Northwest. All intercompany transactions and balances have been eliminated in consolidation.
| 2. | Summary of Significant Accounting Policies |
Going Concern
The accompanying financial statements have been
prepared assuming the Company will continue as a going concern. For the three months ended March 31, 2026, the Company had net loss of
$
Management believes that its existing cash balances combined with future capital raises through debt and equity and cash receipts from product sales will be sufficient to fund ongoing operations through at least one year from the date the audited consolidated financial statements are issued. In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is significantly dependent upon its ability to secure additional equity and/or debt financing. There are no assurances that the Company will be successful in obtaining additional capital.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These financial statements do not include any adjustments that might arise from this uncertainty.
Unaudited Financial Information
The Company’s unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, they do not include all information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting of a normal recurring nature, considered necessary for a fair statement of the Company’s financial condition and results of operations. Operating results for the periods presented are not necessarily indicative of the results that might be expected for the full year. As such, the information included in this report should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2025, which are included in the Company’s Form 10-K, dated and filed with the SEC on March 27, 2026, which is accessible on the SEC’s website at www.sec.gov.
During the three months ended March 31, 2026, there were no changes to the Company’s significant accounting policies as described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2025.
5
Principles of Consolidation
The financial statements of the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies.
Functional Brands Inc. (formerly HT Naturals Inc.)
| ● | Functional Brands Inc. (formerly HT Naturals Inc.) is the parent company. |
HTO Nevada Inc. dba Kirkman
| ● | HTO Nevada Inc. dba Kirkman, which is owned by the Company is the sole subsidiary. |
As part of the restructuring efforts, ownership
of HTO Nevada Inc. dba Kirkman was transferred from HTO Holdings Inc. to Functional Brands Inc. (formerly HT Naturals Inc.) on May 19,
2023, in exchange for
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on previously reported net income or stockholders’ equity.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and be based on events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating, therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired, or as additional information is obtained.
Cash
Cash consists of cash in readily available checking
accounts and deposits in transit. As of March 31, 2026 and December 31, 2025, cash balances were deposited at major and other financial
institutions. On March 31, 2026 and December 31, 2025, the Company had approximately $
Accounts Receivable, net
Accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company provides for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. On a periodic basis management evaluates its accounts receivable and determines the requirement for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.
6
Inventories
Inventory consists of raw materials, packaging supplies and finished goods. Inventory is measured at the lower of cost or net realizable value. Inventory costs include direct labor and certain overhead expenses such as in-bound shipping and handling costs incurred to bring the inventory to its present location and conditions. Cost is determined by using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. If the Company determines that the estimated net realizable value of its inventory is less than the carrying value of such inventory, it records a charge to impairment expenses.
As of March 31, 2026 and December 31, 2025 there was no impairment to the Company’s net realizable value of its inventory.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is recorded using the straight-line method over the assets’ estimated useful lives. Amortization of fixed assets under capital leases is included in depreciation expense.
The categories of capital assets are amortized on a straight-line basis as follows:
| ● | Machinery and equipment |
| ● | Furniture and fixtures |
| ● | Computer equipment |
The Company allocates the amount initially recognized for a capital asset to its significant parts and amortizes separately each part. Residual values, methods of amortization and useful lives of the capital assets are reviewed annually and adjusted if appropriate.
Gains and losses on disposals of capital assets are determined by comparing the proceeds with the carrying amount of the capital asset and are included in the consolidated statement of operations.
The assets’ residual values, useful lives and methods of depreciation are reviewed at each fiscal year-end and adjusted prospectively if appropriate. An item of equipment is retired upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on sale or retirement of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in the consolidated statement of operations in the year the asset is retired. Such assets are tested annually for impairment, or more frequently, if events or changes in circumstances indicate that they might be impaired.
7
Intangible Assets
Intangible assets are recorded at cost, less accumulated amortization and impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization is provided on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any. Intangible assets that have indefinite useful lives are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.
The categories of the intangible assets are amortized on a straight-line basis as follows:
| ● | Customer relationships |
| ● | cGMP certification |
| ● | Goodwill (including Assembled Workforce) |
| ● | Kirkman brand |
Expenditures in the research phase and post-development maintenance costs are expensed as incurred.
Goodwill
Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquire, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill acquired in a business combination is not amortized but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.
Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (referred to as a component). The Company allocates goodwill to reporting units based on the reporting unit expected to benefit from the business combination. Assets and liabilities are assigned to each reporting unit if they are employed by a reporting unit and are considered in the determination of the reporting unit fair value. The Company has one reporting unit with goodwill, which is the Kirkman business.
The Company’s indefinite-lived intangible assets are tested for impairment at the consolidated level. In evaluating the recoverability of the Kirkman brand name and Current Good Manufacturing Practice (“cGMP”) certification which refers to U.S. Food and Drug Administration (“FDA”) regulations ensuring that food, drug, and medical device manufacturers maintain high standards for safety, quality, and purity through proper design, monitoring, and control of manufacturing processes and facilities. The Company compared the fair value of the asset to its carrying amount to determine potential impairment. The Company’s estimate of the fair value of the Kirkman brand name is derived using the income approach, specifically the relief-from-royalty method and the fair value of the cGMP certification is derived using the income approach.
The fair value determination of the reporting units and the indefinite-lived intangible asset is judgmental in nature and requires the use of significant estimates and assumptions that are sensitive to changes. Assumptions include estimation of the royalty rate, estimation of future revenue and projected margins, which are dependent on internal cash flow forecasts, estimation of the terminal growth rates and capital spending, and determination of discount rates. As a result, there can be no assurance that the estimates and assumptions made for purposes of quantitative goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the reporting units may include such items as: (i) volatility in the equity and debt markets or other macroeconomic factors, (ii) an increase in the weighted-average cost of capital due to further increases in interest rates, (iii) decrease in future cash flows due to lower than expected sales, or (iv) fluctuations in foreign currency exchange rates that may negatively impact the Company’s reported results of operations. Accordingly, if the current cash flow assumptions are not realized, we experience further increases in costs of capital, it is possible that an additional impairment charge may be recorded in the future, which could be material.
8
Right-of-Use Assets and Lease Liabilities
The Company accounts for leases in accordance with ASC 842, Leases. At the commencement date of a lease (i.e., the date the underlying asset is made available for use), the Company recognizes a right-of-use (“ROU”) asset and a corresponding lease liability on the balance sheet.
Right-of-Use Assets
ROU assets are initially measured at cost, which consists of:
| ● | the initial amount of the lease liability; |
| ● | any lease payments made at or before the commencement date, less any lease incentives received; and |
| ● | any initial direct costs incurred. |
Subsequently, ROU assets are measured at cost less accumulated amortization and any impairment losses, and are adjusted for the effect of any remeasurement of the related lease liability. Unless the Company is reasonably certain to obtain ownership of the underlying asset by the end of the lease term, ROU assets are amortized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term, in accordance with ASC 842.
Lease Liabilities
Lease liabilities are initially measured at the present value of the lease payments expected to be made over the lease term. Lease payments include:
| ● | fixed payments, including in-substance fixed payments, net of any lease incentives receivable; |
| ● | variable lease payments that depend on an index or a rate; |
| ● | amounts the Company expects to pay under residual value guarantees, if applicable; |
| ● | the exercise price of a purchase option if the Company is reasonably certain to exercise the option; and |
| ● | payments for penalties to terminate the lease if the lease term assumes the Company will exercise such an option. |
Variable lease payments that do not depend on an index or rate are expensed as incurred in the period in which the related obligation arises, consistent with occupancy or operating expense recognition guidance under ASC 842.
Discount Rate and Subsequent Measurement
In determining the present value of lease payments, the Company uses the rate implicit in the lease, if readily determinable; otherwise, the Company uses its incremental borrowing rate (“IBR”) at the lease commencement date, as required under ASC 842.
After lease commencement, the lease liability is:
| ● | increased by the accretion of interest, and |
| ● | reduced by lease payments made. |
Lease liabilities are remeasured when certain changes occur, such as modifications to the lease agreement, a change in the lease term, a change in in-substance fixed payments, or a revised assessment regarding the exercise of a purchase or termination option. Corresponding adjustments are recorded to the ROU asset.
Leases as Lessee
The Company determines if an arrangement is a lease at inception of an arrangement. Operating and finance lease assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Lease assets represent the Company’s right to use an underlying asset for the lease term, while lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company uses the internal incremental borrowing rate based on the information available at the lease commencement date, in determining the present value of lease payments. The length of a lease term includes options to extend or terminate the lease when it is reasonably certain the Company will exercise those options. The Company made an accounting policy election to not recognize lease assets or liabilities for leases with a term of 12 months or less. Additionally, when accounting for leases, the Company combines payments for leased assets, related services and other components of a lease. The Company applies a portfolio approach to determine the discount rate for leases with similar characteristics.
9
For leases classified as operating, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus unamortized initial direct costs, plus/(minus) any unamortized prepaid/(accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For leases classified as finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset to the Company, or the Company is reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. The Company expects to exercise the options to purchase the assets which are leased under finance leases. Accordingly, these assets are included in property and equipment, and depreciation thereon is recognized as depreciation expense. When the Company makes contractually required payments under finance leases, a portion is allocated to reduce the finance lease obligation, and a portion is recognized as interest expense.
Derivative Liabilities
Accounting for Convertible Preferred Stock and Embedded Derivative Liabilities
The Company has issued convertible preferred stock and senior secured convertible promissory notes that contain complex conversion, redemption and contingent features. The accounting for these instruments requires significant judgment in the application of U.S. GAAP, including ASC 480 – Distinguishing Liabilities from Equity, ASC 470 – Debt, ASC 815 – Derivatives and Hedging, and ASC 820 – Fair Value Measurement. Management evaluates the contractual terms of each instrument to determine the appropriate classification and measurement of the host instrument and any embedded features. In November 2025, the Company issued Series A and Series B Convertible Preferred Stock containing variable-priced embedded conversion features. The Series A and Series B host instruments were classified within stockholders’ equity, and the embedded conversion features were bifurcated and recorded as derivative liabilities measured at fair value through earnings. On March 9, 2026, all then-outstanding Series A and Series B preferred shares were exchanged for newly issued Series C Convertible Preferred Stock, senior secured convertible promissory notes, common stock and cash, and no Series A or Series B preferred shares remain outstanding.
Classification of Series C Convertible Preferred Stock
Under ASC 480-10-25-4, preferred stock is classified as a liability when it is mandatorily redeemable through the transfer of the issuer’s assets at a specified or determinable date. The Series C Convertible Preferred Stock contains a forced amortization feature requiring the Company to redeem the outstanding stated value in monthly installments over 12 months beginning 90 days after the closing date. The Company has the contractual right, exercisable at its election on each installment date, to satisfy the applicable installment in either cash or shares of common stock. Management concluded that the Company has a substantive election to satisfy the forced amortization in shares of common stock and that the Series C Convertible Preferred Stock is not within the scope of ASC 480-10-25-4.
Because the Company’s right to settle in shares is conditioned on equity conditions that are not entirely within the Company’s control, cash settlement may be required in circumstances outside the Company’s sole control. Accordingly, in accordance with ASC 480-10-S99-3A, the Series C Convertible Preferred Stock is classified outside of permanent equity, in mezzanine (temporary) equity. The Company assesses the probability of cash redemption at each reporting date and accretes the carrying amount of the Series C Convertible Preferred Stock to the redemption amount using the effective interest method only when, and to the extent that, cash redemption becomes probable.
Classification of Senior Secured Convertible Notes
The senior secured convertible promissory notes (the “Notes”) are classified as debt in accordance with ASC 470. The Notes do not contain features that would require liability classification under ASC 480. The Company applied ASU 2020-06 to the Notes, which requires convertible debt instruments to be accounted for as a single instrument at amortized cost where no embedded derivative is required to be bifurcated under ASC 815-15.
10
Embedded Features
Management evaluates the embedded conversion, redemption and other contingent features of the Series C Convertible Preferred Stock and the Notes under ASC 815 to determine whether such features must be separated from the host instrument and accounted for as derivatives. This assessment requires judgment regarding whether each feature is clearly and closely related to its host contract and whether it qualifies for the scope exception in ASC 815-10-15-74(a) for instruments that are both indexed to the Company’s own stock and would be classified within stockholders’ equity if freestanding (as further described in ASC 815-40).
The Series C Convertible Preferred Stock is convertible at three fixed conversion prices, applied as a tier allocation, that were established as of the closing date and are subject only to customary equitable anti-dilution adjustments. The Notes are convertible at a single fixed conversion price established as of the closing date and similarly subject only to customary equitable anti-dilution adjustments. Each instrument also contains a contingent variable conversion right that becomes operative only on or after a date occurring after the scheduled redemption or amortization period, or upon the occurrence and during the continuance of an event of default, together with a down-round protection feature that adjusts the applicable conversion price upon certain qualifying dilutive issuances. Management concluded that the fixed conversion features of both instruments are indexed to the Company’s own common stock within the meaning of ASC 815-40, that the down-round protection features are excluded from the indexed-to-own-stock evaluation in accordance with ASU 2017-11, and that the contingent variable conversion features do not represent substantive embedded derivatives requiring bifurcation pursuant to ASC 815-15-25-42 because the Series C Convertible Preferred Stock is scheduled to be redeemed in full prior to the date on which its variable conversion right would become operative and the occurrence of an event of default is considered remote. As a result, no embedded feature of the Series C Convertible Preferred Stock or the Notes has been bifurcated, and the conversion and other contingent features are accounted for as part of the respective host instruments.
Initial Measurement
The Series C Convertible Preferred Stock and the Notes were initially measured at fair value on the closing date of the exchange in accordance with ASC 820. The Company determined fair value using a Monte Carlo simulation model that incorporates the contractual terms of each instrument together with assumptions regarding the Company’s common stock price, expected volatility, expected term, the timing of forced amortization or contractual amortization installments, and the probability that contingent features become operative. The fair value of the Notes was further discounted using a credit-adjusted discount rate to reflect their senior secured debt nature.
Subsequent Measurement
The Series C Convertible Preferred Stock host instrument is not remeasured through earnings while it remains in mezzanine equity. The Notes are subsequently measured at amortized cost, with the difference between the face amount and the initial debt-host carrying amount accreted to interest expense over the contractual term using the effective interest method. Stated interest on the Notes is accrued separately. Upon conversion of the Series C Convertible Preferred Stock or the Notes into common stock, the Company derecognizes the associated carrying amount and recognizes the related equity or earnings impact in accordance with the applicable extinguishment guidance.
Fair Value Measurements and Significant Estimates
The Monte Carlo simulation used to measure the fair value of the Series C Convertible Preferred Stock and the Notes at issuance involves significant unobservable inputs and requires substantial management judgment. Key assumptions used in the model include:
| ● | Expected volatility of the Company’s common stock | |
| ● | Expected term of each instrument and the timing of forced amortization or contractual amortization installments | |
| ● | Risk-free interest rates | |
| ● | The Company’s credit-adjusted discount rate, applied to the Notes | |
| ● | The probability of default and the probability that the contingent variable conversion mechanisms become operative |
Because these assumptions are not directly observable in the market, the resulting fair-value measurements are classified as Level 3 within the fair value hierarchy under ASC 820. Changes in these assumptions or in market conditions could have resulted in materially different fair-value measurements at issuance.
11
Stock-Based Compensation Plan
The Board of Directors has approved a 2026 Equity Incentive Plan that may be used to compensate or reward the members of its board of directors, executive officers, employees and consultants for services rendered. Such plan will be implemented once it receives requisite stockholder approval.
No expense is recognized for performance-based awards that do not vest. Expense for service-based award is recognized upon receipt of the agreed upon services. Where the terms of an equity settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee as measured at the date of modification.
Compensation expense is recognized for all share-based payments to employees and non-employees, including restricted stock units, in the statements of operation based on the fair value of the awards that are granted. As necessary, the Company’s stock price at the date of grant was estimated using an acceptable valuation technique such as a recent round of fundraising or the probability-weighted expected return model. The fair value of RSUs granted before the Nasdaq public listing was assessed at the grant date, using the share price established in the most recent 409a valuation report conducted by an external appraiser. For future RSU grants, fair value will be based on the Company’s stock price at the time of issuance.
Compensation expense for restricted stock awards with performance-based vesting conditions is calculated based on the number of awards that are expected to vest during the performance period if it is probable that the performance metrics will be achieved. Generally, measured compensation cost, net of actual forfeitures, is recognized on a straight-line basis over the vesting period of the related share-based compensation award. The Company accounts for forfeitures of stock-based awards as they occur.
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. Revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Outbound shipping charged to customers is recognized at the time the related merchandise revenues are recognized and are included in net revenues.
Per Company policy, any product that does not meet the customer’s expectations can be returned within 30 days of delivery in exchange for another product, or for a full refund. Any product sold through a distributor or retailer must be returned to the original purchase location for any return or exchange. For the three months ended March 31, 2026 and 2025, the Company did not record any reserves on revenue for product returns or exchanges.
12
Earnings / (Loss) per Share
Basic earnings / (loss) per common share is calculated by dividing the net income (loss) distributed to the common class minus the preferred stock dividends, by the weighted-average number of shares outstanding during the period, without consideration for potentially dilutive securities. Diluted earnings (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares and potentially dilutive securities outstanding for the period.
For purposes of the diluted net loss per share calculation, restricted stock units (RSUs), outstanding warrants, conversion of Series B and Series C Preferred stock, and conversion of convertible notes. are considered to be potentially dilutive securities.
As of March 31, 2026,
As of March 31, 2025, there were
The following is a reconciliation of the numerator and denominator used in the basic and diluted earnings (loss) per share (“EPS”) calculations for the three months ended March 31, 2026 and 2025.
| March 31. | ||||||||
| 2026 | 2025 | |||||||
| Numerator: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted-average shares of common stock | ||||||||
| Diluted weighted average of common stock | ||||||||
| Net income (loss) per common share from: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
Business Combinations
Business combinations are accounted for using the acquisition method. The fair value of total purchase consideration is allocated to the fair values of identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount being classified as goodwill. All assets, liabilities and contingent liabilities acquired or assumed in a business combination are recorded at their fair values at the date of acquisition. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, and selection of comparable companies. Estimates of fair value are based on assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from those estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. At the conclusion of the measurement period, any subsequent adjustments are reflected in the statements of operations. Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in the Company’s statements of operations.
13
Risks and Uncertainties
The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and federal governmental policy decisions. Several factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include but are not limited to, general consumer demand, and new regulations imposed by the FDA. These adverse conditions could affect the Company’s consolidated financial condition and the results of its operations.
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update enhance the transparency and decision usefulness of income tax disclosures, primarily by requiring more detailed information about an entity’s effective tax rate reconciliation and income taxes paid, including disaggregation by jurisdiction. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.
As the Company operates in a single jurisdiction and does not have significant rate reconciliation items, the adoption of ASU 2023-09 is not expected to have a material impact on its consolidated financial statements or related disclosures aside from stating the disclosure requirements.
| 3. | Cash |
Cash consists of liquid funds and deposits in transit.
| March 31, 2026 | December 31, 2025 | |||||||
| Cash | $ | $ | 2724,432 | |||||
| Deposits in transit | ||||||||
| Total Cash | $ | $ | ||||||
| 4. | Accounts Receivable |
Accounts receivable consists of trade receivables, net of allowance for doubtful accounts.
| March 31, 2026 | December 31, 2025 | |||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for doubtful accounts | - | - | ||||||
| Accounts receivable, net | $ | $ | ||||||
There were no allowance for doubtful accounts for the three months ended March 31, 2026 and for the year ended December 31 2025. The Company reviews on a quarterly basis and is adjusted based on management’s determination of collectability.
| 5. | Inventories |
Inventories consisted of raw materials (minerals – magnesium, calcium, vitamins, botanical extracts), finished goods (capsules, tablets, powders, and creams) and packaging and supplies (bottles, labels, covers, filters, tipping paper and packaging materials).
| March 31, 2026 | December 31, 2025 | |||||||
| Raw materials | $ | $ | ||||||
| Packaging, supplies & other | ||||||||
| Finished goods | ||||||||
| Allowance for inventory obsolescence | ( | ) | ( | ) | ||||
| Total inventories, net | $ | $ | ||||||
The Company reviews the allowance for inventory obsolescence on a quarterly basis and adjusted as necessary.
14
| 6. | Prepaid Expenses and Other Current Assets |
| March 31, 2026 | December 31, 2025 | |||||||
| Prepaids & deposits | $ | $ | ||||||
| Other current assets | ||||||||
| Total prepaids and other current assets | $ | $ | ||||||
Prepaid expenses consist of prepayments made to vendors as deposit and or retainers for professional services and insurance, and other current assets consists of refunds owed on insurance policies.
| 7. | Property and Equipment |
Property and equipment consist of the following: The machinery and equipment owned by Kirkman allows the Company to carry out the entire production process in-house, from mixing raw materials to creating finished products, including encapsulation, labeling, and packaging.
| March 31, 2026 | December 31, 2025 | |||||||
| Machinery & Equipment | $ | $ | ||||||
| Computer Equipment | ||||||||
| Furniture & Fixtures | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense totaled $
| 8. | Right-of-Use Assets and Lease Liabilities |
The Company maintains leases on a building and certain business equipment as detailed below. These obligations include the minimum lease payments as recognized on a straight-line basis over the lease term. The following are the expected payments on these leases as of March 31, 2026. The leases are considered “operating lease” and consequently lease payments are calculated on a straight-line basis, including the total amount of interest related.
The changes in the right-of-use assets is as follows:
| March 31, 2026 | December 31, 2025 | |||||||
| Right of use assets: | ||||||||
| Right of use assets recognized as of January 1st | $ | $ | ||||||
| Additions | - | - | ||||||
| Amortization Expense | ( | ) | ( | ) | ||||
| Right of use assets, net | $ | $ | ||||||
The changes in lease liabilities are as follows:
| March 31, 2026 | December 31, 2025 | |||||||
| Lease liabilities recognized as of January 1st | $ | $ | ||||||
| Additions | - | - | ||||||
| Lease payments | ( | ) | ( | ) | ||||
| Lease liabilities at period end | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
15
The following table presents information about the future maturity of the lease liabilities under the Company’s operating and financing leases as of March 31, 2026.
| Maturity of Lease Liabilities | 1. Operating Facility | 2. Office Equipment | 3. Office Equipment | Total Amount | ||||||||||||
| 2026 | $ | $ | $ | $ | ||||||||||||
| 2027 | - | - | ||||||||||||||
| 2028 | - | - | ||||||||||||||
| 2029 | - | - | ||||||||||||||
| 2030 | - | - | ||||||||||||||
| Total future minimum lease payments | ||||||||||||||||
| Less: Imputed interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Present value of lease liabilities | $ | $ | $ | $ | ||||||||||||
| Remaining lease term (in years) | ||||||||||||||||
Right-of-use assets and lease liabilities comprise three leases.
Lease 1, Operating Facility
On January 1, 2023, the Company entered into a
The base monthly rent is $
Leases 2 and 3, Equipment
On September 30, 2021, the Company entered into
a
On March 14, 2022, the Company also entered into
a
| 9. | Intangible Assets and Goodwill |
On July 3, 2019, the Company entered into an Asset
Purchase Agreement (the “APA”) with the Kirkman Group Inc. and David Humphrey (collectively, “Kirkman”) to acquire
certain tangible and intangible assets for a purchase price of $
The excess of purchase consideration over the fair value of net assets acquired was recorded as goodwill.
The Kirkman brand and the cGMP certification were
assigned an indefinite useful life, whereas the customer relationships were assigned a life span of
The following table summarizes the remaining fair value of assets acquired and liabilities assumed from the acquisition of Kirkman in July 2019.
| March 31, 2026 | December 31, 2025 | |||||||
| Kirkman brand, net | $ | $ | ||||||
| cGMP certification | ||||||||
| Customer relationships | ||||||||
| Total intangible assets, gross | ||||||||
| Less: Accumulated amortization: Customer relationships | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
16
The following table presents the amortization for the remaining useful life of the customer relationships:
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Total | $ |
There were no impairments to the intangible assets for the three months ended March 31, 2026 and year ended December 31, 2025.
Goodwill
| March 31, 2026 | December 31, 2025 | |||||||
| $ | $ | |||||||
There were no impairments to goodwill for the three months ended March 31, 2025 and year ended December 31, 2025.
| 10. | Accounts Payable and Accrued Liabilities |
The Company’s accounts payable consist of obligations that are payable to vendors and other third parties in the normal course of business operations, as well as dividends payable to investors, and its accrued liabilities and accrued compensation are comprised of accrued expenses for consulting, advisory services, professional, audit services and equity awards earned but not yet issued.
| March 31, 2026 | December 31, 2025 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accrued compensation - shares earned but not issued | ||||||||
| Total accounts payable and accrued liabilities | $ | $ | ||||||
11. |
Lines of Credit |
On August 19, 2025, the Company entered into two lines of credit agreements
with a third-party whereby the Company received a total of $
| March 31, 2026 | December 31, 2025 | |||||||
| Line of credit recognized as of January 1 | $ | $ | ||||||
| Proceeds from debt facilities | - | |||||||
| Payments on debt facilities | ( | ) | ( | ) | ||||
| Line of credit as of period end | - | |||||||
| Less: current portion | - | ( | ) | |||||
| Long-term portion | $ | - | $ | - | ||||
17
| 12. | SBA Loan Payable |
On July 7, 2020, Kirkman applied for and was granted
a thirty (
| March 31, 2026 | December 31, 2025 | |||||||
| SBA loan due as of January 1 | $ | $ | ||||||
| Proceeds from SBA loan | - | - | ||||||
| Payments on SBA loan | ( | ) | ( | ) | ||||
| SBA loan due as of December 31 | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
The Company has the following SBA loan future commitments as of March 31, 2026.
| Amount | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 and beyond | ||||
| Total | $ | |||
| 13. | Derivative Liability |
Series A & B
Embedded Conversion Features
On November 5, 2025, the Company issued
Fair Value Measurement
At issuance, the fair value of the derivative liabilities was determined using a Monte Carlo simulation model incorporating equity price volatility, probability-weighted financing scenarios, and conversion price reset provisions.
The residual proceeds were allocated to the preferred stock host instruments.
Upon each conversion and share buyback, the Company remeasured the derivative liability immediately prior to settlement in accordance with ASC 815-10-35 and derecognized the related carrying amount. No gain or loss was recognized upon settlement, as the derivative was derecognized at its carrying amount.
Revaluation upon exchange
The derivative liabilities are remeasured to fair
value at each reporting date, with changes in fair value recognized in earnings.
18
Level 3 Roll-forward
| March 31, 2026 | December 31, 2025 | |||||||||||||||||||||||
| Series A | Series B | Total | Series A | Series B | Total | |||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | - | $ | - | $ | - | |||||||||||||||
| Initial recognition of derivative liability upon issuance | - | - | - | |||||||||||||||||||||
| Change on revaluation of fair value of derivative liability | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Derecognition upon conversions | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||
| Derecognition upon share buybacks | ( | ) | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||
| Derecognition upon exchange | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Ending balance | $ | - | $ | $ | $ | $ | $ | |||||||||||||||||
The derivative liabilities are classified within Level 3 of the fair
value hierarchy due to the use of significant unobservable inputs.
| Input | At Exchange | 31-Dec-25 | ||||||
| Common stock price | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term | ||||||||
| Probability of dilutive financing | % | % | ||||||
Series C
Embedded Conversion Features
On March 9, 2026, the Company entered into an Exchange and Amendment Agreement with holders of its outstanding Series A and Series B preferred stock. Pursuant to the agreement, the Company exchanged all issued and outstanding Series A and Series B preferred shares for a combination of:
| ● | Series C Convertible Preferred Stock (the “Series C Preferred”) | |
| ● | Senior Secured Convertible Promissory Notes (the “Convertible Notes”) | |
| ● | Cash consideration |
The transaction resulted in the legal extinguishment of the Series A and Series B preferred stock and the issuance of new financial instruments. The Series C preferred stock contains embedded conversion features, including anti-dilution and reset provisions, which result in variability in settlement. The Company evaluated the Series C preferred stock under ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging.
Based on this evaluation, the Company determined that the Series C preferred stock represents an obligation to settle a fixed monetary amount through a variable number of shares and therefore meets the criteria for liability classification under ASC 480-10-25-14. The embedded conversion features were further evaluated under ASC 815-15 and were determined to be not clearly and closely related to the host instrument and not eligible for the equity scope exception under ASC 815-40. Accordingly, the Company bifurcated these features and recorded them as derivative liabilities at fair value on the date of issuance. The derivative liabilities are presented as a separate line item, “Derivative liabilities,” on the consolidated balance sheet and are subsequently remeasured at fair value, with changes in fair value recognized in earnings.
Fair Value Measurement
At issuance, the fair value of the derivative liabilities was determined using a Monte Carlo simulation model incorporating equity price volatility, probability-weighted financing scenarios, and conversion price reset provisions.
Period-end Revaluation
Derivative liabilities are remeasured to fair
value at each reporting date in accordance with ASC 815, with changes in fair value recognized in earnings within the consolidated statement
of operations. For the three months ended March 31, 2026, the Company recognized unrealized gains of $
These amounts reflect the impact of changes in assumptions and market conditions, including the Company’s stock price and other valuation inputs, during the period.
19
Level 3 Roll-forward
| March 31, 2026 | December 31, 2025 | |||||||||||||||||||||||
| Series C Preferred Stock | Series C Convertible Note | Series C Total | Series C Preferred Stock | Series C Convertible Note | Series C Total | |||||||||||||||||||
| Beginning balance | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
| Initial recognition of derivative liability upon issuance | - | - | - | |||||||||||||||||||||
| Change on revaluation of fair value of derivative liability | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||
| Derecognition upon conversions | - | - | - | - | - | - | ||||||||||||||||||
| Derecognition upon exchange | - | - | ||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | - | $ | - | $ | - | |||||||||||||||
The derivative liabilities are classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs. The Company utilized a Monte Carlo simulation model incorporating the following key assumptions as of March 31, 2026:
| Input | At Issuance | 31-Mar-26 | ||||||
| Common stock price | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term | ||||||||
| Probability of dilutive financing | % | % | ||||||
| 14. | Loans Payable, Related Party |
On March 11, 2024, the Company executed a loan
agreement with a related party in the amount of $
On March 10, 2025, the Company executed a loan
agreement with a related party in the amount of $
| March 31, 2026 | December 31, 2025 | |||||||
| Loans payable, related party as of January 1 | $ | $ | ||||||
| Loan agreement executed with related party during the periods | - | |||||||
| Reclass to loans payable | - | ( | ) | |||||
| Payments to related party | ( | ) | ( | ) | ||||
| Loans payable, related party as of period end | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
| 15. | Loans Payable |
In December 2023, the Company entered into a short-term
debt facility with an officer and director of the parent company, Hemptown Organics Corp., whereby the Company received a non-interest-bearing
loan in the amount of $
On August 29, 2025 the Company entered into a
loan agreement with a third party whereby the Company received approximately $
20
On November 5, 2025 the company entered into a
loan agreement with a third party whereby the company received approximately $
| March 31, 2026 | December 31, 2025 | |||||||
| Loan payables as of January 1 | $ | $ | ||||||
| Loan agreement executed during the periods | - | |||||||
| Reclass to loan payable | - | |||||||
| Payments to loan payable | ( | ) | ( | ) | ||||
| Loan payable as of December 31 | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | - | $ | - | ||||
| 16. | Convertible Note |
On March 9, 2026, in connection with the Exchange and Amendment Agreement
(the “Exchange Agreement”) entered into among the Company and the holders of the Company’s Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock, the Company issued senior secured convertible promissory notes (collectively, the “Notes”)
with an aggregate original principal amount of $
Principal Terms of the Notes
The Notes have substantially identical terms, summarized below.
Maturity
The Notes mature on August 9, 2027, which is seventeen (17) months after the issue date.
Interest
The Notes bear interest at a stated rate
of
Amortization
Beginning one year after the issue date (the “Amortization Start Date”), the Company is required to amortize the original principal amount in six equal monthly installments equal to one-sixth (1/6) of the original principal amount per month, with any remaining unpaid principal, accrued and unpaid interest, and other amounts due payable on the maturity date. Amortization payments may, at the Company’s election, be made in cash monthly or, subject to the satisfaction (or waiver by the holder) of certain customary equity conditions defined in the Exchange Agreement (including a minimum dollar trading volume requirement), in shares of common stock weekly. If shares are elected and the equity conditions are not satisfied (and not waived), the applicable installment must be paid in cash.
Security and Ranking
The Notes are senior secured obligations of the Company, secured by a first priority security interest in substantially all of the Company’s assets pursuant to a Security and Pledge Agreement of even date with the Notes. The Notes rank senior in right of payment to all current and future indebtedness of the Company and its subsidiaries, subject to a permitted carve-out for purchase money equipment financing. The Company has agreed to cause the holders of any future senior secured indebtedness to enter into customary subordination agreements in favor of the holders of the Notes.
Optional Prepayment
The Company may prepay the Notes in whole
or in part at any time prior to maturity, upon five (5) business days’ prior written notice, at a prepayment price equal to
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Conversion
The holder may, at its option, convert
all or any portion of the outstanding principal amount and accrued and unpaid interest of the Notes into shares of the Company’s common
stock at the applicable conversion price (the “Conversion Price”). The Conversion Price is equal to
Beneficial Ownership Limitation
A holder may not convert any portion of
the Notes to the extent that, after giving effect to such conversion, the holder (together with its affiliates) would beneficially own
in excess of
Nasdaq Stockholder Approval Limitation
The Notes may not be converted, and shares of common stock may not be issued thereunder, to the extent such conversion or issuance would require stockholder approval under the rules of The Nasdaq Stock Market, including Nasdaq Listing Rule 5635(d), until and unless such approval is obtained. The Company is required to seek any such required stockholder approval within 30 days following the date such approval is first required.
Anti-Dilution Adjustments
The Fixed Conversion Price is subject to customary adjustments for stock splits, stock dividends, recapitalizations, and similar transactions, and is also subject to a full-ratchet anti-dilution adjustment in the event the Company sells or issues common stock or securities convertible into common stock at an effective price per share lower than the then-effective Fixed Conversion Price, subject to customary exceptions for exempt issuances.
Covenants
The Notes contain customary affirmative
and negative covenants, including, among others, restrictions on (i) declaring or paying cash dividends on common stock, (ii) entering
into variable rate transactions (subject to a carve-out for the Company’s contemplated equity line of credit facility), (iii) repurchasing
common stock, (iv) incurring additional indebtedness senior to or pari passu with the Notes, and (v) entering into Section 3(a)(10) transactions
or factoring/merchant cash advance arrangements. The Company is also required to apply
Events of Default
The Notes contain customary events of default, including, among others,
failure to pay principal or interest when due, failure to reserve or deliver shares of common stock upon conversion, breach of covenants
or representations, judgments in excess of $
Accounting Treatment
The Company evaluated the Notes under ASC 470, Debt, and ASC 815, Derivatives and Hedging. The Company concluded that the Notes meet the definition of debt and are accounted for as such, with the embedded conversion feature evaluated separately under ASC 815-15.
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Bifurcation of Embedded Conversion Feature
The conversion feature embedded in the Notes is indexed to the Company’s common stock and, upon the occurrence of an Event of Default or after the Alternate Conversion Eligibility Date, is convertible at a variable price tied to the trading price of the common stock. The Company concluded that the embedded conversion feature (i) is not clearly and closely related to the debt host instrument under ASC 815-15-25-1 and ASC 815-15-25-26, (ii) does not qualify for the scope exception in ASC 815-10-15-74(a) because it does not meet the “fixed-for-fixed” settlement criterion under ASC 815-40, and (iii) meets the definition of a derivative under ASC 815-10. Accordingly, the embedded conversion feature has been bifurcated from the debt host and accounted for as a separate derivative liability measured at fair value, with subsequent changes in fair value recognized in earnings in accordance with ASC 815-10-35.
Initial Measurement
At issuance, the Notes were recognized at the principal amount of $
Subsequent Measurement
The Notes are subsequently measured at amortized cost using the effective interest method in accordance with ASC 835-30. The bifurcated derivative liability is remeasured at fair value at each reporting date, with changes in fair value recorded in earnings as a component of other income (expense).
Carrying Value and Activity
The following table summarizes the components of the Notes and the related embedded derivative liability as of March 31, 2026:
| Notes Payable | Embedded Derivative Liability | |||||||
| Issuance — March 9, 2026 | $ | $ | ||||||
| Change in fair value | — | ( | ) | |||||
| Balance — March 31, 2026 | $ | $ | ||||||
The Notes are presented as long-term debt on the condensed consolidated balance sheet, with no portion classified as current as of March 31, 2026, as the first scheduled amortization payment is due more than twelve months after the balance sheet date. The embedded derivative liability is presented within derivative liabilities on the condensed consolidated balance sheet.
For the three months ended March 31, 2026, the
Company recognized interest expense of approximately $
Future Principal Payments
The aggregate scheduled principal payments under the Notes as of March 31, 2026 are as follows:
| Year Ending December 31, | Amount | |||
| 2026 | $ | — | ||
| 2027 | ||||
| Total | $ | |||
Fair Value Measurements
The fair value of the bifurcated embedded derivative liability is classified within Level 3 of the fair value hierarchy under ASC 820, as its valuation requires significant unobservable inputs, including expected volatility of the Company’s common stock and probability-weighted estimates of the timing and method of conversion. See note 15 for measurement details.
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| 17. | Stock-based compensation |
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Awards granted to executives, employees, directors, and non-employees — consisting primarily of restricted stock units (“RSUs”) — are measured at grant-date fair value and recognized as expense in the consolidated statements of operations on a straight-line basis over the requisite service period, with forfeitures recognized as they occur. Awards subject to performance conditions are expensed when achievement of the underlying condition is considered probable, and awards subject to market conditions are expensed over the derived service period regardless of whether the condition is ultimately achieved. Fair value is determined by reference to the closing price of the Company’s common stock on the grant date for awards granted following the Company’s Nasdaq listing, and by reference to the share price established in the most recent Section 409A valuation report prepared by an independent third-party appraiser for awards granted prior to listing.
During the three-month periods ending March 31, 2026, and 2025, the
Company recorded general and administrative expense of $
| 18. | Common and Preferred Stock |
All shares of common stock are entitled to
Preferred Stock
On March 9, 2026, the Company entered into an Exchange and Amendment Agreement with holders of its outstanding Series A and Series B preferred stock. Pursuant to the agreement, the Company exchanged all issued and outstanding Series A and Series B preferred shares for a combination of:
| ● | Series C Convertible Preferred Stock (the “Series C Preferred”) | |
| ● | Senior Secured Convertible Promissory Notes (the “Convertible Notes”) | |
| ● | Cash consideration |
The transaction resulted in the legal extinguishment of the Series A and Series B preferred stock and the issuance of new financial instruments.
Extinguishment of Series A and B Preferred Stock
The Company accounted for the exchange as an extinguishment of the Series A and Series B preferred stock. The extinguishment was measured as the difference between:
| ● | The carrying amount of the Series A and Series B preferred stock (including associated derivative liabilities), and | |
| ● | The fair value of the consideration transferred |
As a result, the Company recognized a loss on extinguishment of approximately
$
Prior to extinguishment, derivative liabilities associated with the Series A and Series B preferred stock were remeasured to fair value, with changes recognized in earnings.
Series C Convertible Preferred Stock
Classification
Although the Series C Preferred is legally structured as equity, the Company determined that it should be classified as a liability in the consolidated balance sheet in accordance with the applicable guidance in ASC 480 and ASC 815.
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This conclusion is based on the substantive contractual terms of the instrument, which include:
| ● | Variable conversion features | |
| ● | Alternative conversion pricing mechanisms (including pricing based on a discount to market) | |
| ● | Anti-dilution provisions | |
| ● | Economic provisions designed to preserve a fixed or determinable monetary value |
These features result in the Series C Preferred representing an obligation to settle a fixed monetary amount through cash or a variable number of shares, which is consistent with liability classification.
Embedded Derivative Features
The Series C Preferred contains embedded conversion features that require bifurcation under ASC 815.
Specifically, these features:
| ● | Are not clearly and closely related to the economics characteristics of the host instrument | |
| ● | Meet the definition of derivatives under ASC 815 | |
| ● | Do not qualify for the scope exception for contracts indexed to and settled in the Company’s own stock. |
Accordingly, the embedded features are bifurcated from the host instrument and recognized as derivative liabilities at fair value upon issuance. Subsequent changes in fair value are recognized in earnings within the consolidated statement of operations.
Convertible Notes
Classification
The Convertible Notes are accounted for as debt instruments in accordance with ASC 470 and include standard debt-like features, including:
| ● | Fixed principal amounts | |
| ● | Stated interest rate | |
| ● | Contractual maturity | |
| ● | Secured status |
Embedded Conversion Features
The Convertible Notes contain embedded conversion features that require evaluation under ASC 815:
| ● | Are indexed to the Company’s common stock price | |
| ● | Are not clearly and closely related to the economic characteristics of the debt host. | |
| ● | Do not qualify for the scope exception for contracts indexed to and settled in the Company’s own stock |
Accordingly, the embedded features are bifurcated from the host debt instrument and accounted for as derivative liabilities. These derivatives are initially recognized at fair value, with subsequent changes in fair value recognized in earnings within the consolidated statement of operations.
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Common stock
Classification
The Common Stock Consideration Shares (including the portion represented by Blocker Holdback Shares) are classified as permanent equity. Under ASC 480, the shares (i) are not mandatorily redeemable, (ii) carry no obligation for the Company to repurchase its equity, and (iii) do not represent an obligation to issue a variable number of shares — the share count is fixed as of the Exchange Date based on the Market Price determined on that date and does not vary with subsequent changes in fair value, a fixed monetary amount, or movements inversely related to the Company’s shares.
Blocker Holdback Shares are presented within stockholders’ equity
as “Common stock to be issued.” The
The shares were measured at fair value on the Exchange Date based on the quoted market price of the Common Stock (Level 1 of the ASC 820 fair value hierarchy) and included as a component of the consideration transferred in measuring the loss on extinguishment of the Series A and Series B preferred stock.
Features
Aggregate shares
Pricing mechanism
Determined per exchanged share as
Beneficial Ownership Limitation
Issuance is capped at
Leak-Out limitation
Holders are restricted from selling Common Stock in the open market
prior to the next shareholder meeting record date and are subject thereafter to a daily volume cap of
No new consideration
Shares are issued solely in exchange for outstanding Series A and Series B preferred stock; no cash or other consideration is received from the Holders. The holding period of the shares tacks back to the Holders’ original acquisition date of the exchanged preferred stock pursuant to Rule 144(d)(3)(ii).
No embedded features
The Common Stock Consideration Shares are standard common stock with no conversion rights, redemption features, or other embedded terms requiring bifurcation or separate accounting.
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Deferred Cash Consideration (ELOC-Related Obligation)
As part of the Exchange and Amendment Agreement entered into on March
9, 2026, the Company agreed to pay aggregate cash consideration of approximately $
| ● | A total of $ | |
| ● | The remaining $ |
If the Company does not have sufficient cash to satisfy the full payment at that time, any shortfall is required to be paid in six equal monthly installments.
Accounting Treatment
The Company evaluated this obligation under ASC 450, Contingencies, and ASC 405, Liabilities.
The Company determined that:
| ● | The obligation to pay the remaining $ | |
| ● | Accordingly, the Company recognized the obligation as a liability at the transaction date, with timing dependent on the occurrence of the ELOC effectiveness |
Presentation
The liability is included within:
| ● | Liability with conditional timing (or current liabilities) as of March 31, 2026. |
Liquidity Considerations
The timing of the payment is dependent on:
| ● | Effectiveness of the ELOC registration statement, or | |
| ● | The contractual fallback payment schedule |
The Company expects to fund this obligation through:
| ● | Available cash resources and/or | |
| ● | Proceeds from financing arrangements |
Key Judgments and Estimates
The accounting for this transaction required significant judgment, including:
| ● | Determining that the Series C Preferred represents a liability based on its obligation to deliver a fixed monetary value through variable settlement | |
| ● | Evaluating whether embedded features require bifurcation | |
| ● | Estimating the fair value of derivative liabilities |
Changes in these assumptions could materially impact the Company’s financial position and results of operations.
The preferred stock have not been issued as of April 30, 2026.
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Earnings Per Share
The Company evaluated the impact of the Series C Convertible Preferred Stock, Convertible Notes, and associated embedded derivative features on earnings per share (“EPS”) in accordance with ASC 260.
For the three months ended March 31, 2026, the Company reported a net loss. Accordingly, all potentially dilutive securities were excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive.
Potential common shares excluded from diluted EPS include:
| ● | Shares issuable upon conversion of Series B Preferred shares | |
| ● | Shares issuable upon conversion of the Series C Preferred | |
| ● | Shares issuable upon conversion of the Convertible Notes | |
| ● | Shares issuable upon settlement of derivative instruments | |
| ● | Shares issuable upon exercise of warrants |
Basic and diluted EPS are therefore the same for the period presented.
The Company will continue to evaluate these instruments for potential dilution in future periods when the Company reports net income.
Issued Warrants
| Number of warrants | Weighted-Average Exercise Price per Share | Weighted-Average Remaining Life | ||||||||||
| Outstanding at December 31, 2025 | $ | | - | |||||||||
| Granted | - | - | - | |||||||||
| Exercised | ( | ) | - | - | ||||||||
| Canceled or expired | - | - | - | |||||||||
| Outstanding at March 31, 2026 | $ | |||||||||||
| Exercisable at March 31, 2026 | $ | |||||||||||
| Intrinsic value at March 31, 2026 | - | - | - | |||||||||
On March 10, 2025, the Company issued a lender
a warrant for the purchase of
On June 1, 2025, the Company issued a lender a
warrant for the purchase of
On November 5, 2025 the Company issued finder
warrants for the purchase of
On November 17, 2025 the Company issued a lender
a warrant for the purchase of
For the three months ended March 31, 2026 the
lender exercised
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| 19. | Segment Reporting |
The Company historically operated through
| (1) | Kirkman, which sold a range of nutraceuticals, supplements and related products; and |
| (2) | HT Naturals, which sold a range of hemp-based consumer products. |
During the three months ended March 31, 2026, the Company ceased the operations of HT Naturals and wound down its hemp-based consumer products business. Following the closure, the Company’s continuing operations consist solely of the Kirkman business.
The Company has a corporate function, which is not an operating segment and includes expenses related to corporate management and administration, including legal, audit, accounting, tax, SEC reporting, and investor and public relations, among other corporate expenses.
The Company follows ASC 280, Segment Reporting, as amended by ASU 2023-07. ASC 280-10-50-1 defines an operating segment as a component of a public entity that:
| ● | Engages in business activities from which it may earn revenues and incur expenses; | |
| ● | ||
| ● | Has discrete financial information available. |
As a result of the closure of HT Naturals, the CODM reviews financial information and makes operating decisions, including the allocation of resources and the assessment of performance, on a consolidated basis. Accordingly, effective with the closure of HT Naturals during the quarter, the Company has determined that it operates as a single operating segment and a single reportable segment. Prior period segment information has been recast to conform with the current period presentation.
The CODM uses consolidated net income (loss) as reported in the Company’s condensed consolidated statements of operations as the measure of segment profit or loss for purposes of assessing performance and deciding how to allocate resources. The significant expense categories and amounts regularly provided to the CODM are those presented on the face of the condensed consolidated statements of operations, including cost of sales, sales and marketing, general and administrative, and research and development expenses. The measure of segment assets is reported on the condensed consolidated balance sheets as total consolidated assets.
Substantially all of the Company’s long-lived assets are located in the United States, and substantially all of the Company’s revenues are generated from customers located in the United States.
Entity-Wide Disclosures
Geographic Revenue Information
For the three months ended March 31, 2026 and
2025,
| 20. | Revenue, net |
This table shows revenue by product type:
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Nutraceutical (supplements) | $ | $ | ||||||
| Hemp derived products | ||||||||
| Total revenue by product type | $ | $ | ||||||
As of March 31, 2026, the Company ceased the operations of HT Naturals and wound down its hemp-based consumer products business.
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| 21. | Concentration |
For the three months ended March 31, 2026 sales
to two customers represented
| 22. | Other Income / (expenses) |
Other income / (expenses) for the three months
ended March 31, 2026 and 2025 was a negative $
| 23. | Commitments and Contingencies |
The Company has an exclusive license agreement
with Trailer Park Boys Incorporated (“TPB”) to market and sell hemp derived products. This license was effective as of
July 21, 2021, expired on
As of March 31, 2026, the Company was engaged
in a contractual dispute with TPB concerning the TPB License. The Company asserts that TPB has not fulfilled certain material obligations
under the TPB License and, as a result, disputes the remaining $
| 24. | Subsequent Events |
Change to executive compensation
On April 17, 2026, the Compensation Committee of the Board of Directors of the Company approved Amendment No. 2 to the Executive Employment Agreement, dated as of March 1, 2025, as amended, by and between the Company and Eric Gripentrog, the Chief Executive Officer of the Company, to
| (i) | Align the term of the executive’s employment with the Company’s fiscal calendar year, | |
| (ii) | Clarify that all dollar amounts referenced under the Agreement are stated in United States dollars and | |
| (iii) | Restate the essential duties and responsibilities of the executive and the consolidated net revenue targets for bonus determination. |
Warrant Exercises
Subsequent to March 31, 2026, a warrant holder converted
Share conversions
Subsequent to March 31, 2026, the Company issued
Subsequent to March 31, 2026, the Company issued
Loan conversions
Subsequent to March 31, 2026, the Company issued
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Letter of Intent
On May 8, 2026, the Company entered into a letter of intent with a third party regarding a proposed acquisition of certain technical asset intellectual property and related assets. The letter of intent is non-binding with respect to the proposed acquisition, except for certain customary binding provisions, including provisions relating to due diligence and exclusivity, confidentiality, no trading, severability, assignment, due diligence and access to information, expenses, term and termination, governing law, and authority. As of the date these financial statements were issued, no definitive acquisition agreement had been executed.
The proposed acquired assets include, among other things, a blockchain-based financial ecosystem comprising blockchain infrastructure, native tokens, gateway and oracle systems, decentralized finance protocols, consumer applications, institutional treasury products, and related internal tooling.
Under the letter of intent, the proposed consideration
for the acquired assets would consist of convertible preferred stock of the Company with an aggregate stated value of approximately $
Based on the capitalization assumptions set forth
in the letter of intent, if the proposed transaction is consummated, the Company’s current stockholders would retain approximately
The proposed transaction remains subject to significant conditions, including completion of due diligence to the Company’s satisfaction, receipt of an independent valuation report, negotiation and execution of definitive transaction documents, receipt of required board, stockholder, regulatory and Nasdaq approvals, completion of financing, and other customary closing conditions. Accordingly, no assurance can be given that definitive agreements will be executed or that the proposed transaction will be consummated on the terms described in the letter of intent, or at all.
The Company determined that the letter of intent represents a nonrecognized subsequent event. Accordingly, no adjustment has been made to the accompanying financial statements. As of the date these financial statements were issued, the Company is unable to reasonably estimate the financial statement impact of the proposed transaction because the transaction remains subject to definitive documentation, due diligence, valuation, approvals, financing and other closing conditions.
If the proposed transaction is not consummated, the Company may not obtain the strategic assets, anticipated financing opportunities, business expansion, or other benefits expected from the transaction. As a result, the Company would need to continue to rely on its existing operations, available cash resources, debt or equity financing alternatives, expense reductions, or other strategic transactions to fund its obligations and execute its business plan. There can be no assurance that such alternatives would be available on acceptable terms, or at all.
Amendment
On May 11, 2026, the Company entered into a Conversion Price Reduction
and Waiver Agreement with certain holders of the Company’s Series C Convertible Preferred Stock and related senior secured convertible
promissory notes. Pursuant to the agreement, the conversion price applicable to the Series C Convertible Preferred Stock during the Fixed
Conversion Period was amended to $
In addition, pursuant to the agreement, any unpaid cash consideration
under the applicable exchange documents as of the effective date of the agreement is to be added to and capitalized as additional principal
under each applicable holder’s existing note. The added principal is unsecured, is not entitled to the benefit of any lien, security
interest, collateral or guarantee securing the original principal balance of the exchange notes or any other obligations under the transaction
documents, and is convertible, at the option of the applicable holder, into shares of the Company’s common stock at a conversion
price equal to
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. References to “Note” are to the notes included in our unaudited consolidated financial statements appearing elsewhere in this Quarterly Report.
Cautionary note regarding forward looking statements
This report contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “can,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future”, “goal,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements contained in this report may include, but are not limited to, statements about:
| ○ | our goal and strategies; |
| ○ | our future business development, financial condition and results of operations; |
| ○ | expected changes in our revenue, costs or expenditures; |
| ○ | growth of and competition trends in our industry; |
| ○ | our expectations regarding demand for, and market acceptance of, our products; |
| ○ | our expectations regarding our relationships with investors, institutional funding partners and other parties with whom we collaborate; |
| ○ | fluctuations in general economic and business conditions in the markets in which we operate; and |
| ○ | relevant government policies and regulations relating to our industry. |
We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate, and financial trends that we believe may affect our business, financial condition, results of operations, and prospects, but these forward-looking statements are not guarantees of future performance or development. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this report, whether as a result of any new information, future events, or otherwise.
There are a number of risks, uncertainties, and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this report, including, among others, those factors set forth in the “Risk Factors” section of our Registration Statement on Form S-1, as amended, and may be subsequently updated by information in future annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Forms 8-K, filed with the Securities and Exchange Commission from time to time.
Overview
Our Company operates in the nutraceutical supplement industry. We are a manufacturer and distributor of supplements in categories such as pain, energy, prenatal, general health, bone and joint, gastro, immunity, cardiac, detox, mental clarity and focus, sleep, prenatal and urinary. Our end markets focus on end-consumers through different channels that include pharmacies, U.S. wholesalers, international distributors and direct-to-consumers sales. Our products are sold over-the-counter, and consumers do not need a prescription to purchase our products.
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Results of Operations
Comparison of the Three Months Ended March 31, 2026, to the Three Months Ended March 31, 2025
| Three Months Ended March 31, | Change | |||||||||||||||
| 2026 | 2025 | Amount | Percentage | |||||||||||||
| Statements of Operations | ||||||||||||||||
| Net revenue | $ | 1,645,524 | $ | 1,590,256 | $ | 55,268 | 3 | % | ||||||||
| Cost of goods sold | 684,391 | 723,492 | (39,101 | ) | (5 | )% | ||||||||||
| Gross profit | 961,133 | 866,764 | 94,369 | 11 | % | |||||||||||
| Sales and marketing expenses | 263,707 | 178,630 | 85,077 | 48 | % | |||||||||||
| General and administrative expenses | 1,380,231 | 720,234 | 659,997 | 92 | % | |||||||||||
| Operating loss | (682,805 | ) | (32,100 | ) | (650,705 | ) | 2027 | % | ||||||||
| Other income / (expenses) | (6,307,984 | ) | (94,682 | ) | (6,213,302 | ) | 6562 | % | ||||||||
| Net loss | $ | (6,990,789 | ) | $ | (126,782 | ) | $ | (6,864,007 | ) | 5414 | % | |||||
Net revenue for the three months ended March 31, 2026 was $1,645,524 compared to $1,590,256 for the three months ended March 31, 2025 representing an increase of approximately 3%. This increase of $55,268 in net revenue was primarily due to the increase in the demand from our direct-to-consumer sales channel.
Cost of goods sold
Cost of goods sold for the three months ended March 31, 2026 was $684,391 compared to $723,492 for the three months ended March 31, 2025 representing a decrease of approximately 5%. This decrease of $39,101 in cost of goods primarily due to receiving better terms on raw materials.
Gross profit
Gross profit for the three months ended March 31, 2026 was $961,133 compared to 866,764 representing an increase of 11%. This increase of $94,369 was primarily due to the increase in demand from direct to consumer sales channel and better terms on our raw materials.
Sales and marketing expenses
Sales and marketing expenses for the three months ended March 31, 2026, was $263,707 compared to $178,630 for the three months ended March 31, 2025, representing an increase of approximately 48%. This increase of $85,077 was primarily due to the increase in amazon referral fees and commissions.
General and administrative expenses
General and administrative expenses for the three months ended March 31, 2026 was $1,380,231, compared to $720,234 for the three months ended March 31, 2025, representing an increase of approximately 92%. This increase of $659,997 was primarily attributable to an increase payroll of approximately $200,000, an increase in professional fees of $300,000, an increase in amazon seller fees of approximately $69,000, increase in insurance premiums of $50,000, and an increase in of $30,000 in public company fees.
Other income / (expenses)
Other income /expense for the three months ended March 31, 2026 was a negative $6,307,984 compared to a negative of $94,682 for the three month ended March 31, 2025, representing an increase of approximately 6562%. This increase of $6,213,302 was primarily due to a reduction in interest expense of $69,290, change of fair value of derivative liability of $25,374, and a loss on issuance of preferred stock of $6,310,464.
Liquidity and Capital Resources
Sources and Uses of Cash for the three months ended March 31, 2026 and 2025
The table below, for the periods indicated, provides selected cash flow information:
| Three months Ended March 31, 2026 | Three months Ended March 31, 2025 | |||||||
| Net cash, provided by (used in) operating activities | $ | (424,559 | ) | $ | 175,993 | |||
| Net cash used in investing activities | - | - | ||||||
| Net cash used in financing activities | (1,224,170 | ) | (174,004 | ) | ||||
| Net increase (decrease) in cash | $ | (1,648,729 | ) | $ | 1,989 | |||
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Use of cash
The change in net cash used in financing activities was primarily the result of the payment for payable acquisition as well as line of credit repayment.
Source of cash
Cash Flows from Operating Activities
During the three months ended March 31, 2026, we used $424,559 in operating activities as a result of our net loss of $6,990,789, $123,288 in stock-based compensation, offset by change in fair value of derivative liabilities of $25,374, loss on issuance of preferred stock of $6,310,464, dividends of $77,050, and net changes in operating assets and liabilities of $130,909.
During the three months ended March 31, 2025, our operating activities provided $175,993 of cash as a result of our net loss of $126,782, offset primarily by stock-based compensation of $252,905, amortization of right-of-use and intangible assets of $91,887. and net changes in operating assets and liabilities of $(87,876).
Cash Flows from Financing Activities
During the three months ended March 31, 2026, our financing activities used $1,224,170 of cash proceeds resulting primarily from $450,000 in repayment of liability conditional timing, $149,137 in repayment of loans, and $616,027 buyback of series A preferred shares,
During the three months ended March 31, 2025, we used $174,004 in financing activities primarily as a result of deferred offering costs of $127,775, repayment of loans for $50,177 and proceeds from line of credit for 48,947.
Letter of Intent
On May 11, 2026, the Company entered into a binding letter of intent with a third party regarding a proposed acquisition of certain intellectual property and related assets.
Under the terms of such letter of intent, the proposed consideration for the acquired assets is expected to consist of convertible preferred stock of the Company with an aggregate stated value of approximately $142.9 million, subject to independent third-party valuation and verification. The preferred stock is expected to automatically convert into shares of the Company’s common stock upon receipt of the required stockholder approval. Based on the capitalization assumptions set forth in the letter of intent, following the closing of the proposed transaction and prior to giving effect to any other equity financing, the current stockholders of the Company would own approximately 1.72% of the combined surviving company and the seller would own approximately 98.28% of the combined surviving company.
If the proposed transaction is not consummated, the Company may not obtain the strategic assets, anticipated financing opportunities, business expansion, or other benefits expected from the transaction. As a result, the Company would need to continue to rely on its existing operations, available cash resources, debt or equity financing alternatives, expense reductions, or other strategic transactions to fund its obligations and execute its business plan. There can be no assurance that such alternatives would be available on acceptable terms, or at all.
Amendment
On May 11, 2026, the Company entered into a Conversion Price Reduction and Waiver Agreement with certain holders of the Company’s Series C Convertible Preferred Stock and related senior secured convertible promissory notes. Pursuant to the agreement, the conversion price applicable to the Series C Convertible Preferred Stock during the Fixed Conversion Period was amended to $0.1636 per share of common stock, replacing and superseding the previously applicable Tier 1, Tier 2 and Tier 3 fixed conversion prices and related tier allocation in their entirety.
In addition, pursuant to the agreement, any unpaid cash consideration under the applicable exchange documents as of the effective date of the agreement is to be added to and capitalized as additional principal under each applicable holder’s existing note.
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Sources of cash
On November 5, 2025 the company entered into a loan agreement with a third party whereby the company received approximately $169,048. The terms of the loan are for 10 months, with a 7.0% interest rate over the term of the loan.
On November 4, 2025, Functional Brands Inc. completed a private placement to six institutional investors for gross proceeds of $8,000,000, and net of commissions the Company received proceeds of approximately $7,360,000. In exchange the investors were issued a total of 100,000 Series A preferred shares and 80,000 Series B preferred shares
On August 29, 2025 the Company entered into a loan agreement with a third party whereby the Company received approximately $95,277. The terms of the loan were for 10 months, with a 7.5% interest rate over the term of the loan.
On August 21, 2025, the Company entered into two lines of credit agreements with a third-party whereby the Company received a total of $26,354. The term of the loans were for six months, with a 9% contract interest rate. The loans are to be repaid in Feb 2026.
On April 29, 2025, the Company entered into a loan agreement with a third-party whereby the Company received $100,000. The term of the loan is for 1 year with a 22.95% finance charge.
On March 10, 2025, the Company executed a loan agreement with a related party in the amount of $225,000, with an annual interest rate of 18% and a due date of March 7, 2029.
During the three months ended March 31, 2025 the Company entered into multiple lines of credit agreements with third parties to finance invoices to satisfy multiple vendors of which were repaid during the three months ended March 31, 2026.
On June 18, 2024, the Company executed a loan agreement with a lender in the amount of $150,000. The payment terms are 12.5% OID, initial principal amount consisting of a $150,000 loan plus $21,500 OID totaling $171,500. In addition, the loan required the Company to issue 37,500 warrants with anti-dilution protection as well as an equity interest in the amount of 2,045 shares of the Company’s stock with reverse split protection through the Senior Exchange Listing. Loan is to mature the earlier of six months from execution, completion of a senior exchange listing of the Company or as mutually agreed, with an interest rate of the higher of 12% or WSJ Prime plus 4% guaranteed.
On March 11, 2024, the Company executed a loan agreement with a related party in the amount of $130,000, with an annual interest rate of 20% and a due date of March 11, 2031.
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Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of our operations is based on our audited consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain amounts included in or affecting the audited consolidated financial statements presented in this Form 10-K and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the audited consolidated financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the Company. A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results of operations and that involves difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.
The judgements made in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements include:
| ● | Obsolescence of inventories; |
| ● | Recoverability of the carrying value of long-lived assets including property and equipment, and intangible assets; |
| ● | Recoverability of carrying value of goodwill; |
| ● | Discount rate used to calculate present value of future minimum lease payments for right-of-use asset and liabilities; |
| ● | Recognition and measurement of provisions and contingencies; and |
| ● | Valuation of deferred income tax assets. |
Inventories, net
The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions, including forecasted demand compared to quantities on hand, as well as other factors such as potential excess or aged inventories based on product shelf life, and other factors that affect inventory obsolescence. As of March 31, 2026, the allowance for inventory obsolescence decreased by $53,855 resulting in a reserve of $10,972. As of December 31, 2025 the inventory reserve was $64,827.
Long-Lived Assets
Long-lived assets consist primarily of property and equipment. Long-lived assets are tested for impairment when events and circumstances indicate the assets might be impaired by first comparing the estimated future undiscounted cash flows of the asset or asset group to the carrying value. If the carrying value exceeds the estimated future undiscounted cash flows, an impairment loss is recognized based on the amount that the carrying value exceeds the fair value of the asset or asset group. The Company did not recognize impairment losses during the years ended March 31, 2026, and 2024.
Fair value of financial instruments
The Company determines the fair value of financial assets and liabilities using the fair value hierarchy established in Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The hierarchy describes three levels of inputs that may be used to measure fair value, as follows:
| ● | Level 1 — Observable inputs, such as quoted prices in active markets for identical assets and liabilities. |
| ● | Level 2 — Observable inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
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Application within the Company’s Financial Statements
The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, accrued liabilities, related-party loans, line of credit, government loans, loans payable, convertible debentures (prior to conversion), and warrants issued in connection with financing arrangements. Management believes that, unless otherwise noted, the carrying amounts of these instruments approximate their fair values due to their short-term nature or because they bear interest at market rates.
The following items required fair value measurement or valuation analysis during the periods presented:
| ● | Convertible Debenture |
| ● | Warrants Issued in Financing Transactions |
| ● | Equity Instruments Issued for Services and Financing |
| ● | Business Combination and Intangible Assets (Historical) |
| ● | Financial Instruments Carried at Amortized Cost |
During the three months ended March 31, 2026, the Company primarily applied fair value measurement to equity-linked financing instruments (warrants and stock issued for services), and historically, to convertible debt and business combination accounting. The majority of the Company’s remaining financial instruments are short-term or bear market-rate interest and therefore approximate fair value.
Derivative liabilities
Accounting for Convertible Preferred Stock and Embedded Derivative Liabilities
The Company issued Series A and Series B convertible preferred stock that contain complex conversion features. The accounting for these instruments requires significant judgment in the application of U.S. GAAP, including ASC 480 – Distinguishing Liabilities from Equity, ASC 815 – Derivatives and Hedging, and ASC 820 – Fair Value Measurement. Management evaluates the contractual terms of these instruments to determine the appropriate classification and measurement of the preferred stock and any embedded features.
Classification of Preferred Stock
Management evaluates whether preferred stock instruments should be classified as liabilities or equity under ASC 480. Instruments are classified as liabilities if they are mandatorily redeemable, require the issuer to repurchase shares by transferring assets, or obligate the issuer to issue a variable number of shares with a fixed or predominantly fixed monetary value.
The Company’s Series A and Series B preferred stock do not contain mandatory redemption provisions, holder put rights, or other obligations requiring the Company to transfer cash or other assets to the holders. Accordingly, management concluded that the preferred stock represents equity instruments and the host contracts are classified within stockholders’ equity.
Embedded Conversion Features
The preferred stock includes conversion features that allow holders to convert the preferred shares into common stock at variable conversion prices that are subject to market-based adjustments, reset provisions, and anti-dilution protections.
Management evaluates these features under ASC 815 to determine whether they must be separated from the host instrument and accounted for as derivatives. This assessment requires judgment regarding whether the features:
| ● | Meet the definition of a derivative under ASC 815 |
| ● | Are clearly and closely related to the host contract |
| ● | Qualify for equity classification under ASC 815-40 |
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The Company concluded that the embedded conversion features meet the definition of derivatives because they are based on the Company’s stock price, involve a notional amount representing the shares issuable upon conversion, require minimal initial investment, and permit net settlement through the issuance of publicly traded shares.
Management further concluded that the conversion features are not clearly and closely related to the equity host instrument and do not qualify for equity classification because the variable conversion pricing and reset mechanisms cause the features to fail the “indexed to the Company’s own stock” requirement under ASC 815-40. Accordingly, the embedded conversion features are bifurcated and recorded separately as derivative liabilities.
Initial Measurement and Allocation of Proceeds
At issuance, the derivative liabilities are measured at fair value. The Company determined the fair value of the embedded conversion features using a Monte Carlo simulation model, which incorporates assumptions regarding expected stock price volatility, expected term, risk-free interest rates, and the impact of contractual reset and floor provisions.
The proceeds received from the issuance of the preferred stock are allocated between the derivative liability and the preferred stock host instrument using the residual method. Under this method, the derivative liability is recorded at fair value and the remaining amount of the proceeds is allocated to the preferred stock. Because the stated value of the preferred shares exceeds the amount allocated to the host instrument, the Company records the difference as a contra-equity discount within stockholders’ equity.
Subsequent Measurement
After initial recognition, the derivative liabilities are remeasured at fair value at each reporting date, with changes in fair value recognized in the consolidated statements of operations. The preferred stock host instrument remains classified within equity and is not subsequently remeasured.
Upon conversion of preferred shares into common stock, the Company derecognizes the associated portion of the derivative liability and adjusts the related equity discount accordingly.
Fair Value Measurements and Significant Estimates
The valuation of the derivative liabilities involves the use of significant unobservable inputs and requires substantial management judgment. Key assumptions used in the valuation model include:
| ● | Expected volatility of the Company’s common stock |
| ● | Expected term of the instruments |
| ● | Risk-free interest rates |
| ● | Expected conversion behavior and the impact of contractual reset provisions |
Because these assumptions are not directly observable in the market, the derivative liabilities are classified as Level 3 measurements within the fair value hierarchy under ASC 820.
Changes in these assumptions or market conditions could materially affect the estimated fair value of the derivative liabilities and result in significant non-cash gains or losses in future reporting periods.
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Segment Reporting
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires entities to report incremental information about significant segment expenses included in a segment’s profit or loss measure as well as the title and position of the chief operating decision maker (“CODM”). The new standard also requires interim disclosures related to reportable segment profit or loss and assets that had previously only been disclosed annually. The Company adopted ASU 2023-07 effective December 31, 2024 on a retrospective basis.
Income taxes
The Company must exercise judgment in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Company recognizes liabilities and contingencies for expected tax audit issues based on the Company’s current understanding of the tax law. For matters where it is probable that an adjustment will be made, the Company records its best estimate of the tax liability including the related interest and penalties in the current tax provision.
In addition, the Company recognizes deferred tax assets relating to tax losses carried forward to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and as a result are not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2026. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective due to the existence of the material weaknesses in the Company’s internal control over financial reporting.
Notwithstanding the conclusion by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures as of March 31, 2026 were not effective, and notwithstanding material weaknesses in our internal control over financial reporting, management believes that the unaudited consolidated financial statements and related financial information included in this Report fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2026 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Trailer Park Boys
On November 13, 2025, Trailer Park Boys Inc. (“TPB”) commenced a civil claim against the Company and certain other defendants alleging breach of contract. On February 27, 2026, the Company filed a Statement of Defense denying the allegations advanced by TPB. The Company has also filed a Statement of Counterclaim against TPB asserting claims for breach of contract and negligent misrepresentation in connection with the same agreement. The litigation is at an early stage. The Company intends to vigorously defend the TPB claim and pursue its counterclaim.
True Health
On May 25, 2021, True Health Medical Center, S.C. (“True Health”) amended an existing complaint against Kirkman Group, Inc. (“Kirkman”), James Hall and David Humphries to assert claims against HTO Nevada, Inc. and HTO Holdings, Inc. (collectively, HTO Nevada, Inc. and HTO Holdings, Inc. are referred to as the “HTO Parties”). Kirkman was the seller of certain assets to the HTO Parties and is a separate legal entity. Affiliates of the HTO Parties were first named in the lawsuit on September 23, 2020. The case is pending in the Circuit Court for the Eighteenth Judicial Circuit, DuPage County, Illinois. Kirkman had terminated a royalty agreement prior to selling its assets to the HTO Parties but the royalty agreement has a provision that allows True Health to continue to receive royalties after the termination of the agreement. True Health claims that Kirkman underpaid the royalties due to True Health prior to the sale of assets to the HTO Parties. There is no dispute that Kirkman stopped paying royalties to True Health around the time it terminated the agreement and that the HTO Parties have never paid royalties to True Health. True Health contends that as the purchaser of certain Kirkman assets, the HTO Parties should be bound by the terms of the royalty agreement. There is no certain amount at this time in connection with the alleged in the damages claim against the HTO Parties. It is not possible to predict the outcome of this proceeding at this time. To date, the parties have engaged in some discovery including a limited number of depositions. True Health has filed a motion for summary judgment that addresses its claims against Kirkman, but does not address any claim against the HTO Parties. Briefing is not yet complete on the summary judgment motion and a ruling is likely more than 60 days away. Regardless of how the court rules on summary judgment, there will be remaining claims in the case and it is likely that additional discovery will be conducted. No trial date has been scheduled at this time.
Item 1A. Risk Factors
As of the date of this Quarterly Report, there have been no material changes with respect to those risk factors previously disclosed in our Form 10-K filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| (a) | Unregistered Sales of Equity Securities |
See note 18 in the footnotes to the financial statements.
| (b) | Not applicable. |
| (c) | Issuer purchases of equity securities: None. |
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Adoption or Termination of Rule 10b5-1 or non-Rule 10b5-1 Trading Arrangements
During the quarter ended March 31, 2026, no director
or officer
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Item 6. Exhibits
The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:
EXHIBIT INDEX
| Exhibit No. | Description | |
| 3.1 | Form (Revised) of Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Share (incorporated by reference to Exhibit 3.8 to the Registration Statement on Form S-1 filed with the SEC on October 16, 2025) | |
| 3.2 | Form (Revised) of Certificate of Designation, Preferences and Rights of the Series B Convertible Preferred Share (incorporated by reference to Exhibit 3.9 to the Registration Statement on Form S-1 filed with the SEC on October 16, 2025) | |
| 10.1 | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-1 filed with the SEC on October 16, 2025) | |
| 10.2 | Form of Amendment to Securities Purchase Agreement (incorporated by reference to Exhibit 10.29 to the Registration Statement on Form S-1 filed with the SEC on October 16, 2025) | |
| 10.3 | Escrow Agreement, dated August 6, 2025 (incorporated by reference to Exhibit 10.26 to the Registration Statement on Form S-1 filed with the SEC on October 16, 2025) | |
| 10.4 | Eighth Amended Forbearance (incorporated by reference to Exhibit 10.28 to the Registration Statement on Form S-1 filed with the SEC on October 16, 2025) | |
| 10.5 | Ninth Amended Forbearance (incorporated by reference to Exhibit 10.30 to the Registration Statement on Form S-1 filed with the SEC on October 16, 2025) | |
| 10.6 | Marketing Services Agreement, dated July 23, 2025, between the Company and Outside The Box Capital Inc. (incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-1 filed with the SEC on October 16, 2025) | |
| 31.1* | Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1** | Certificate of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2** | Certificate of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed herewith |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Functional Brands Inc. | ||
| Date: May 15, 2026 | By: | /s/ Eric Gripentrog |
| Name: | Eric Gripentrog | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: May 15, 2026 | By: | /s/ Tariq Rahim |
| Name: | Tariq Rahim | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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