Functional Brands Inc. Debt Disclosure
| 18. | Convertible Debenture |
On October 7, 2022, the Company entered into a Convertible Debenture Purchase Agreement pursuant to which the Company issued an unsecured convertible debenture (the “Convertible Debenture”). The Company issued the Convertible Debenture in the aggregate principal amount of $100,000, of which the proceeds were used to pay the expenses of the reorganization and for other general corporate purposes. Interest accrued on the principal balance of the Convertible Debenture at 10.0% per annum totaling $2,338. The Convertible Debenture ranks on a parity with the Company’s other existing debt and matured on December 31, 2022. The outstanding principal and accrued interest on Convertible Debenture was to convert into shares of the Company’s common stock on maturity date at a price per share equal to $0.92 per share, however the maturity was delayed at the request of the debenture holder.
On January 17, 2025, the holder of its Convertible Debenture converted an aggregate principal amount of $100,000 and accrued interest of $22,331 into 133,441 shares of common stock at a price equal to approximately $0.92 per share.
As of December 31, 2025, the Company has outstanding Convertible Debentures.
About Debt Disclosures
Debt disclosures detail a company's borrowing structure — the types of instruments, interest rates, maturity schedule, and covenant restrictions that define its financial obligations and flexibility. This section is essential for assessing refinancing risk, interest rate exposure, and the margin of safety against financial distress.
Key signals: the maturity schedule reveals concentration risk — large maturities within 1-2 years during tight credit markets can force dilutive refinancing or asset sales. Compare the fair value of debt against carrying amount to gauge whether the market views the company's credit risk differently than the balance sheet suggests. Watch covenant compliance disclosures for tightening cushions, especially leverage and interest coverage ratios. Variable-rate debt exposure quantifies sensitivity to interest rate changes. Secured versus unsecured mix affects recovery rates and future borrowing capacity. Compare net debt-to-EBITDA against industry peers and covenant limits to assess financial health.