10-K: Functional Brands 10-K: Nasdaq Listing, New Platform, Losses

Functional Brands Inc. reports a Nasdaq listing, new health platform launch, but faces delisting risk and internal control weaknesses.

Summary

• Functional Brands Inc. operates in the nutraceutical supplement industry, manufacturing and distributing products primarily through its Kirkman division.
• The company discontinued its hemp-derived product line under the Hemptown brand subsequent to December 31, 2025.
• Functional Brands completed a direct listing of its common stock on the Nasdaq Stock Market LLC under the symbol MEHA on November 5, 2025.
• On December 30, 2025, the company received a Nasdaq deficiency letter for failing to meet the minimum $1.00 bid price requirement, with a compliance period until June 29, 2026.
• In February 2026, the company launched Tru2u.health, a new digitally native health platform offering supplements and integrated wellness services, including GLP-1 weight management programs, in partnership with CareValidate.
• Net revenue for the year ended December 31, 2025, increased by 1% to $6,611,484, primarily driven by direct-to-consumer sales.
• Gross profit decreased by 3% to $3,483,966 in 2025, largely due to inventory write-offs associated with the discontinuance of the hemp business.
• The operating loss significantly widened by 510% to $(1,398,572) in 2025 from $(229,092) in 2024.
• The company reported a net income of $758,478 in 2025, a substantial improvement from a net loss of $(559,356) in 2024, primarily due to a $7,358,935 gain from the change in fair value of derivative liabilities and a $419,947 Employee Retention Tax Credit (ERTC) refund, offset by a $5,294,242 loss on issuance of preferred stock derivative liability.
• Cash used in operating activities was $(1,271,544) in 2025, compared to $1,990 provided in 2024.
• The independent registered public accounting firm expressed "substantial doubt about its ability to continue as a going concern" due to recurring losses, negative cash flows, and an accumulated deficit of $6,981,325.
• The company repurchased 12,022 shares of Series A Preferred Stock for $180,330 on December 31, 2025, and an additional 12,445 shares for $622,250 on February 5, 2026.
• On March 9, 2026, the company exchanged outstanding Series A and Series B Convertible Preferred Stock for newly issued Series C Convertible Preferred Stock, cash, senior secured convertible promissory notes, and common stock, with an aggregate assigned value of approximately $8.38 million for the exchanged preferred stock.
• Material weaknesses in internal control over financial reporting were identified as of December 31, 2025, including management override of controls, insufficient financial reporting expertise, and inadequate support for revenue recognition.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a company facing significant operational and financial challenges, including a Nasdaq delisting threat and material internal control weaknesses, despite some strategic initiatives and a positive net income driven by non-operating gains.

Positives

• Successfully completed a direct listing on the Nasdaq Stock Market LLC on November 5, 2025.
• Launched Tru2u.health in February 2026, a new digitally native health platform expanding into integrated supported wellness services and the fast-growing digital health market.
• The Kirkman brand has a 70+ year history, loyal customer base, and maintains rigorous quality standards, including FDA registration, cGMP certification, and extensive testing for heavy metals and microbial contamination.
• The P2i by Kirkman prenatal vitamin is positioned as the only certified prenatal vitamin in the market aligning with FIGO's low-toxicity standards, addressing a significant market need.
• Net revenue increased by 1% to $6,611,484 in 2025, driven by growth in direct-to-consumer sales.
• Recognized $419,947 from an Employee Retention Tax Credit (ERTC) reimbursement and $71,854 in related interest income in 2025.
• Reported a net income of $758,478 in 2025, primarily due to a significant non-cash gain from the change in fair value of derivative liabilities.
• Secured $8,000,000 in gross proceeds from a private placement of Series A Convertible Preferred Stock in November 2025.
• Amended bylaws on February 1, 2026, to reduce the quorum requirement for stockholder meetings to 33.4%, aiming to improve the ability to hold such meetings.

Negatives

• Received a Nasdaq deficiency letter on December 30, 2025, for failing to meet the minimum $1.00 bid price requirement, risking delisting if compliance is not regained by June 29, 2026.
• The independent registered public accounting firm expressed "substantial doubt about its ability to continue as a going concern" due to recurring losses, negative cash flows, and an accumulated deficit of $6,981,325.
• Operating loss increased significantly by 510% from $(229,092) in 2024 to $(1,398,572) in 2025.
• Gross profit decreased by 3% in 2025, partly due to inventory write-offs from discontinuing the hemp business.
• Net cash used in operating activities was $(1,271,544) in 2025, a significant deterioration from $1,990 provided in 2024.
• General and administrative expenses increased by 30% to $4,250,124 in 2025, and sales and marketing expenses increased by 10% to $632,414.
• One customer, iHerb, accounts for a substantial portion of revenue (34% in 2025) and accounts receivable (82% as of December 31, 2025), posing a significant concentration risk.
• Internal control over financial reporting was deemed "not effective" as of December 31, 2025, with material weaknesses identified, including management override of controls, insufficient financial reporting expertise, and inadequate support for revenue recognition.
• The common stock price has fallen significantly from a high of $8.00 in Q4 2025 to $0.1739 as of March 24, 2026.
• Series A Preferred Stock carries increasing annual cash dividend rates (5% to 15% and then an additional 3% per month thereafter), which could strain cash flow.
• Holders of Series B Preferred Stock may require the company to use up to 25% of future financing proceeds for redemption, potentially limiting capital availability.
• Incurred significant debt, including related-party loans with high annual interest rates (18% and 20%).
• Ongoing legal proceedings (Trailer Park Boys Inc. and True Health Medical Center, S.C.) could result in significant liabilities and reputational damage.

Risks

• The independent registered public accounting firm has expressed doubt about the company's ability to continue as a going concern due to recurring losses, negative cash flows, and an accumulated deficit.
• The company may be unable to effectively manage future growth, leading to capacity constraints and pressure on internal systems and controls.
• Additional financing will be required in the future, which may not be available when needed or may be costly and dilutive to existing stockholders.
• The company has a limited operating history and may not be able to successfully operate its business or execute its business plan.
• There is a risk of incurring significant debt and potentially defaulting on it, jeopardizing business viability.
• The company operates in a highly competitive, brand-conscious industry with larger, well-financed competitors, which may adversely affect distribution relationships and market expansion.
• Inability to maintain a positive brand image due to negative public relations, product quality issues, or perceptions regarding the nutraceutical industry could materially affect results.
• Failure to continue developing new products to satisfy rapidly changing consumer preferences could prevent market share gains and long-term profitability.
• Reduced demand for some products may occur due to health concerns and legislative initiatives, including additional or revised regulatory requirements.
• Reliance on third-party pharmacy partners for the Tru2u.health platform exposes the company to risks of non-compliance, reputational harm, and litigation.
• International expansion efforts could significantly increase operational, regulatory, compliance, reputational, and foreign exchange rate risks.
• Reliance on distributors, retailers, and brokers could affect the ability to efficiently and profitably distribute and market products, and the loss of any key accounts would harm the business.
• Pandemics, such as COVID-19, could continue to negatively affect various aspects of the business, including supply chains, travel, and demand for products.
• Reliance on suppliers, manufacturers, and contractors means events adversely affecting them (e.g., supply chain interruptions, price increases) would adversely affect the company.
• The company has one customer (iHerb) that accounts for a substantial portion of its revenues (34% in 2025), and the loss of this customer would significantly impact total revenues.
• The company may sustain losses that cannot be recovered through insurance or other preventative measures, and product liability claims could be costly.
• Product recalls or other product quality issues, real or imagined, could tarnish the company's image and affect profitability.
• Failure to adequately manage inventory levels could adversely affect operating results due to overstocking or inability to meet demand.
• Increases in costs or shortages of raw materials, influenced by global supply chain dynamics, inflation, and trade policies, could harm the business and financial results.
• Increases in costs of energy and increased regulations may have an adverse impact on gross margin.
• Disruption within the supply chain, contract manufacturing, or distribution channels could adversely affect the business.
• Inability to attract and retain key personnel, particularly executive officers Eric Gripentrog and Tariq Rahim, could impair future operations.
• Failure to protect trademarks and trade secrets could harm the brand, reputation, and ability to compete effectively.
• Disruptions to information technology systems due to cyber-attacks or failure to upgrade systems may materially impair operations.
• The business is subject to many regulations (FDA, FTC, state laws), and noncompliance is costly, potentially leading to fines or production stoppages.
• The nutraceutical industry may become subject to expanded regulation and increased enforcement by the FDA and FTC, potentially requiring product approval or new marketing restrictions.
• Litigation or legal proceedings, such as the Trailer Park Boys and True Health cases, could expose the company to significant liabilities and damage its reputation.
• Climate change may negatively affect the business through impacts on agricultural productivity, supply chain disruptions, and increased regulatory requirements.
• Results of operations may fluctuate from quarter to quarter due to seasonality and other factors, making period-to-period comparisons unreliable.
• Changes in the effective tax rate due to jurisdictional profit allocation, tax audits, or changes in tax laws could impact financial results.
• Global economic, political, social, and other conditions, including geopolitical instability, may continue to adversely impact the business.
• Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect financial results.
• The use and effects of tariffs could materially impact the macroeconomic framework, increasing costs for raw materials sourced internationally.
• The public price of common stock could be subject to wide fluctuations and volatility, potentially leading to a loss of investment.
• There is no assurance that the company will be able to satisfy Nasdaq listing requirements or obtain/maintain a listing of its common stock.
• Listing on a securities exchange increases regulatory burden and costs.
• Future sales of common stock by existing stockholders could cause the share price to decline.
• Future issuances of preferred stock or additional common stock could dilute existing stockholders.
• The company has no current plans to pay cash dividends on common stock, meaning capital appreciation is the sole source of gain.
• Reduced disclosure requirements as an emerging growth company and smaller reporting company may make common stock less attractive to some investors.
• Lack of research coverage by securities industry analysts or unfavorable reports could negatively affect the market price and trading volume.
• Future issuances of debt securities or preferred stock could rank senior to common stock, adversely affecting the return on common stock.
• The company is authorized to issue blank check preferred stock without stockholder approval, which could adversely impact the rights of common stock holders.
• If common stock becomes subject to penny stock rules, it would become more difficult to trade shares.

Future Outlook

The company aims to become a leader in the nutraceutical space by maintaining high quality standards, strengthening its existing 70-year-old Kirkman brand, and investing heavily in sales and marketing, including the newly launched Tru2u.health platform. Strategic plans include launching multiple brands like P2i by Kirkman, modernizing manufacturing capabilities, and identifying synergistic partnerships or acquisitions. The company anticipates increased sales and marketing and general and administrative expenses as it expands operations and fulfills public company obligations. Management believes existing cash and future capital raises will fund operations for at least one year, but acknowledges reliance on external financing.

Management Comments

• 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.
• Management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance period comparisons or results expected for the fiscal year.
• Management has evaluated the Hemp and Supplements operating segments under the qualitative aggregation criteria in ASC 280-10-50-11 and determined that: The segments have similar economic characteristics, and They are similar in the nature of products and services, production processes, type of customers, distribution methods, and regulatory environment.
• Management believes that the audited 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).
• Management monitors our websites and online accounts frequently to manage risks associated with cyber-security risks.
• Management has more than 20 years of experience working in the technology industry, which enables it to identify cybersecurity risks associated with the Company.
• Management communicates with our board on matters of cybersecurity but, has not had to inform them of any breaches thus far.

Industry Context

StockSavvy.ai notes that Functional Brands operates in the growing nutraceutical supplement market, valued at approximately $517.09 billion in 2025 with a projected CAGR of 6.6% from 2026 to 2033. The launch of Tru2u.health aligns with broader consumer trends towards integrated, digitally delivered health solutions and the fast-growing digital health market. The company's focus on high-purity, rigorously tested products, particularly the P2i prenatal vitamin, positions it well within the increasing consumer demand for preventive healthcare and nutritional transparency, especially given FIGO's recent position statement on toxic chemicals in prenatal vitamins. The discontinuance of hemp products reflects a strategic shift away from a potentially volatile and heavily regulated segment.

Comparison to Industry Standards

• Functional Brands' 1% net revenue growth in 2025 significantly lags the projected global nutritional supplements market CAGR of 6.6% (2026-2033) and the U.S. nutritional supplements market CAGR of 4.9% (2025-2030).
• The company's P2i by Kirkman prenatal vitamin is highlighted as the only certified prenatal vitamin aligning with the FIGO position statement, offering a unique selling proposition in a global market projected to grow at an 8.5% CAGR (2024-2030).
• In the broader multi-vitamin and supplement segments, market leaders include private label store brands, Nature Made, Centrum, One-A-Day, Nature's Bounty, Emergen-C, Bausch+Lomb, and Airborne, indicating Functional Brands holds a smaller market share despite operating in 95% of major subsegments.
• Functional Brands' rigorous product testing, including for 90 metals and toxins in raw materials and testing every batch for heavy metals below California's Prop 65 limits and microbial contamination, exceeds the FDA's minimum requirement of at least one appropriate test for dietary ingredients, providing a potential competitive advantage in product quality and safety.

Corporate Governance

Legal Proceedings

• **Trailer Park Boys Inc. (TPB) Civil Claim**: On November 13, 2025, TPB commenced a civil claim against the company alleging breach of contract related to a license agreement for hemp-derived products. The company filed a Statement of Defense denying allegations and a Statement of Counterclaim asserting claims for breach of contract and negligent misrepresentation. The company disputes $150,000 in minimum cash payments. The litigation is at an early stage, and the company intends to vigorously defend and pursue its counterclaim.
• **True Health Medical Center, S.C. (True Health) Lawsuit**: On May 25, 2021, True Health amended an existing complaint to assert claims against Kirkman Group, Inc., HTO Nevada, Inc., and HTO Holdings, Inc. True Health claims Kirkman underpaid royalties prior to an asset sale and contends the HTO Parties should be bound by the royalty agreement. A trial was conducted from February 23, 2026, through February 26, 2026, with a decision expected within approximately 90 days. David Humphrey has agreed to take on the defense for all defendants in this litigation and reimburse the company $59,000 for legal fees and expenses previously incurred.

Related Party Transactions

• On March 11, 2024, the company executed a loan agreement with Eric Gripentrog, the Chief Executive Officer, in the amount of $130,000, with an annual interest rate of 20% and a due date of March 11, 2031.
• On March 10, 2025, the company executed a loan agreement with Eric Gripentrog, the Chief Executive Officer, in the amount of $225,000, with an annual interest rate of 18% and a due date of March 7, 2029.
• The company has contractual employment agreements with Eric Gripentrog (CEO) and Tariq Rahim (CFO), detailing base salaries, annual bonuses, and performance-based equity awards. For 2025, $293,333 was accrued for Eric Gripentrog's cash bonus and $500,000 in performance-based equity awards.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from future equity issuances and convertible preferred stock. The common stock price has fallen significantly, and there is a risk of delisting from Nasdaq. No cash dividends are planned, making capital appreciation the sole source of gain.
• **Employees**: The company's success depends on its ability to attract and retain highly qualified employees. Staff turnover could adversely affect efficiency and operations.
• **Customers**: The launch of Tru2u.health and the P2i prenatal vitamin aims to broaden consumer engagement and offer integrated wellness services. The Kirkman brand's high purity and quality standards are intended to maintain customer loyalty.
• **Suppliers**: The company's reliance on suppliers for raw materials means disruptions or price increases in the supply chain could harm the business and financial results.
• **Creditors**: The company has significant debt obligations, including related-party loans, and the auditor's expression of doubt about its ability to continue as a going concern could impact creditors. The exchange of preferred stock for senior secured convertible promissory notes provides a first-priority security interest to those investors.

Next Steps

• Regain compliance with Nasdaq's minimum $1.00 bid price requirement by June 29, 2026, potentially by initiating a reverse stock split.
• Monitor and adjust the operating plan to respond to developments in the business, markets, and broader economy.
• Strengthen the existing Kirkman brand by curating the product mix to cater to the specific needs of the autism community.
• Invest heavily into sales and marketing activities and business development, such as the Tru2u.health platform, to increase sales and distribution.
• Launch multiple brands, including P2i by Kirkman, to increase market share.
• Modernize manufacturing capabilities by reorganizing space and introducing new and efficient machinery and equipment.
• Identify key companies with synergistic strengths for partnerships or acquisitions.
• Hire additional accountants with expertise in complex accounting topics and enhance technical skills in financial reporting to address internal control weaknesses.
• Implement sufficient controls for reviewing and approving manual journal entries, requiring approval from both the CEO and CFO.
• Improve documentation retention policies and procedures, especially for phone orders, to support revenue recognition.
• Consistently apply U.S. GAAP ASC 480, 815, and 820 for the presentation and recording of convertible Preferred Stock Series A and B and derivative liabilities.
• Maintain effective controls to support and review assumptions and data used in estimating the inventory allowance.
• Ensure compliance with all details stipulated in material contracts to avoid improper accounting treatment and potential legal ramifications.
• Accrue expenses in the correct accounting period to prevent overstatement or understatement of expenses and liabilities.
• A court decision in the True Health litigation is expected within approximately 90 days following the conclusion of the trial (February 23-26, 2026).
• The Compensation Committee and board of directors are considering adopting a 2026 Equity Incentive Plan, which will be submitted for stockholder approval.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a 510% increase in operating loss, negative cash flow from operations, and an auditor's "going concern" warning. The Nasdaq delisting threat due to a sub-$1.00 stock price, coupled with material weaknesses in internal controls, indicates significant operational and governance issues. While strategic initiatives like Tru2u.health and the P2i prenatal vitamin offer long-term potential, the immediate financial instability, high customer concentration, and ongoing legal challenges present substantial risks that outweigh any perceived positives. Investors should consider selling to avoid further capital erosion.

Keywords

Nutraceuticals, Dietary Supplements, Kirkman, Tru2u.health, Nasdaq Listing, Delisting Risk, Financial Performance, Going Concern, Internal Controls, Preferred Stock, Common Stock, Capital Raise, Telehealth, Prenatal Vitamins, MEHA, SEC Filing, 10-K, Corporate Governance, Risk Management, Supply Chain