Functional Brands Inc. Segments Disclosure

21.	Segment Reporting

 

The Company has two operating segments:

 

1)

Kirkman, which sells a range of nutraceuticals, supplements and related products; and

 

2)

HT Naturals, which sells a range of hemp-based consumer products.

 

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/public relations, among other corporate expenses.

 

The Company follows ASC 280, Segment Reporting, as amended by ASU 2023-07, which requires entities to report financial and descriptive information about their reportable operating segments. ASC 280-10-50-1 states that an operating segment is a component of a public entity that:

 

●

Engages in business activities from which it may earn revenues and incur expenses;

 

●

Has operating results that are regularly reviewed by the Chief Operating Decision Maker (CODM), who is the Company’s Chief Executive Officer, to make decisions about resource allocation and performance assessment; and

 

●

Has discrete financial information available.

 

Under ASC 280-10-50-5, a public entity is required to report separately only those operating segments that meet certain quantitative thresholds. However, as specified in ASC 280-10-50-11, if a company’s business activities are managed as a single operating segment and reviewed on a basis, the company may report as a single segment. The Company has determined that it operates as one reportable segment, as its CODM reviews the business as a whole rather than by distinct business components.

 

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.

 

Accordingly, in accordance with ASC 280-10-50-11, the Hemp segment will be aggregated with the Supplements segment into a single reportable segment.

 

Furthermore, based on the quantitative thresholds in ASC 280-10-50-12 and management’s assessment, only the Kirkman operating segment meets the criteria to be classified as a reportable segment. HT Naturals represents approximately 3% of consolidated revenue and does not meet any of the other quantitative thresholds for disclosure as a separate reportable segment.

 

Therefore, the Company has two operating segments that were aggregated to one reporting segment because the HT Natural segment is considered immaterial.

Measure of Segment Profit or Loss 

 

		December 31,
		2025				2024
Revenue, net of returns		$	6,611,484			$	6,566,455
Costs of goods sold			3,127,518				2,959,609
Gross profit			3,483,966				3,606,846
Operating expenses
Sales and marketing			632,414				576,315
General and administrative expenses			4,250,124				3,259,623
Total operating expenses			4,882,538				3,835,938
Operating loss			(1,398,572	)			(229,092	)
Other income / expenses
Interest expense			(402,398	)			(331,836	)
Other income - ERTC refund			419,947				-
Other income			112				-
Interest income			74,696				1,572
Change in fair value of derivative liabilities			7,358,935				-
Loss on issuance of preferred stock derivative liability			(5,294,242	)			-
Total other income / (expenses)			2,157,050				(330,264	)
Net income / (loss) for the periods		$	758,478			$	(559,356	)

 

Significant Segment Expenses

 

The Company considers the following significant expenses in evaluating its performance: 

 

●

General and administrative, which includes personnel costs, professional fees, and other overhead expenses.

 

●

Sales and marketing which includes personnel costs and other sales-related expenses.

 

●

Cost of goods sold, which includes labor costs, material costs and manufacturing overhead costs associated with the production of materials transferred to the customer from the Company’s facility.

 

Since the Company has only one reportable segment, no additional segment disclosures are required beyond entity-wide disclosures presented below.

 

Entity-Wide Disclosures

 

Geographic Revenue Information

 

As of December 31, 2025, and 2024, 93% and 93% respectively of the Company’s net sales were generated in North America.