Functional Brands Inc. Commitments Disclosure
| 25. | 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, will expire on December 31, 2025, and has been subject to several amendments (the “TPB License”). Under the TPB License, the Company is obligated to pay TPB a total of minimum cash payments over the life of the TPB License of $725,000, and is obligated to issue to the TPB 14,440 shares of common stock of the Company.
During the year ended December 31, 2025, the Company made minimum payments in the amount of $50,000, with total life-to-date payments amounting to $575,000. As of December 31, 2025, the Company has accrued $75,000 for minimum cash payments. The royalty rates under this agreement are between 15% - 30% of the net sales of the Company derived from sales related to the TPB License. The TPB License may be terminated with reasonable cause upon six months written notice or for certain triggering events without recourse or an opportunity to cure.
As of December 31, 2025, 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 $150,000 minimum cash payments. The Company has not accrued for any legal fees for the disputed amount mentioned above as management believes a loss is not probable at this time in accordance with ASC 450, Contingencies.
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.