0001213900-26-035675
SEC filingFunctional Brands, Inc. (EVMN) reported net income of $758K for FY 2025, a significant improvement from a net loss of $559K in FY 2024. This positive result was driven by a $2.6M gain from other income, primarily from a $420K Employee Retention Tax Credit refund and a $7.4M non-cash gain from the change in fair value of derivative liabilities, which offset a $1.4M operating loss. Revenue grew modestly by 1% to $6.6M, while gross profit decreased by 3% to $3.5M due to inventory write-offs from discontinuing the hemp product line. The company strengthened its liquidity with $8.0M in proceeds from a preferred stock private placement, ending the year with $2.7M in cash. However, the auditor expressed doubt about the company's ability to continue as a going concern due to recurring losses and negative operating cash flow of $1.3M.
Functional Brands reported net income of $758,478 for FY 2025, a significant reversal from a net loss of $559,356 in FY 2024. This $1.3 million improvement was primarily driven by $2.6 million in other income, which included a $420,000 Employee Retention Tax Credit refund and a $7.4 million non-cash gain from the change in fair value of derivative liabilities. Revenue increased modestly by 1% to $6,611,484, while gross profit declined 3% to $3,483,966 due to inventory write-offs associated with discontinuing the hemp product line. The company reported an operating loss of $1,398,572, reflecting continued challenges in achieving profitability from core operations. Despite the net income improvement, the independent auditor expressed substantial doubt about the company's ability to continue as a going concern due to recurring losses, negative cash flows, and an accumulated deficit of $7.0 million.
Revenue increased by $45,029 (1%) to $6,611,484 in FY 2025, driven primarily by growth in direct-to-consumer sales channels. The company derives substantially all revenue from the sale of nutraceutical dietary supplements under the Kirkman brand, with products sold through domestic and international distributors, professional healthcare practitioners, wholesalers, e-commerce platforms, and direct-to-consumer channels. Customer concentration is significant, with iHerb accounting for 34% of total revenue in FY 2025. The company discontinued its hemp-derived products line during the year, which contributed to the modest revenue growth. In February 2026, the company launched Tru2u.health, a digitally native health platform designed to expand its strategic footprint from traditional dietary supplement manufacturing into integrated wellness services.
Gross margin declined from 54.9% in FY 2024 to 52.7% in FY 2025, primarily due to inventory write-offs associated with discontinuing the hemp product line. Cost of goods sold increased by 6% to $3,127,518, outpacing the 1% revenue growth. Operating expenses increased significantly, with general and administrative expenses rising 30% to $4,250,124 due to increased stock-based compensation, professional services, and bonus accruals. Sales and marketing expenses increased 10% to $632,414 as the company invested in advertising and promotional activities for new initiatives including Tru2u.health and Amazon management services. The operating loss widened to $1,398,572 from $229,092 in the prior year, indicating continued pressure on operational profitability despite the net income improvement from non-operating items.
Operating activities used $1,271,544 in cash during FY 2025, compared to providing $1,990 in the prior year. The negative operating cash flow resulted from net income of $758,478 being offset by significant non-cash items including stock-based compensation of $543,068 and changes in operating assets and liabilities of $1,256,556. Financing activities provided $3,795,111 in cash, primarily from $8,000,000 in proceeds from the issuance of preferred stock in November 2025, partially offset by payments for acquisitions and deferred offering costs. The company ended the period with $2.7 million in cash, $9.1 million in total assets, and $7.6 million in total liabilities. Stockholders' equity stood at $1.5 million, with an accumulated deficit of $7.0 million. The company has derivative liabilities of $3.3 million and lease liabilities totaling $1.8 million.
The company faces significant challenges, including the auditor's going concern qualification, recurring operating losses, and negative cash flows from operations. Management acknowledges the need to meet sales goals and increase revenue to reduce reliance on external financing. The company plans to focus on strengthening the 70-year-old Kirkman brand, investing in sales and marketing activities, launching new brands including P2i by Kirkman (a certified prenatal vitamin), modernizing manufacturing capabilities, and pursuing strategic partnerships or acquisitions. The company received a Nasdaq deficiency letter in December 2025 for failing to maintain the minimum $1.00 bid price requirement and has until June 29, 2026, to regain compliance. The discontinuation of hemp products and launch of Tru2u.health represent strategic shifts, but execution risks remain high given the company's financial constraints and competitive industry environment.