Material Agreement, Financial Obligation (Form 8-K)

Item 1.01. Entry into a Material Definitive Agreement

The descriptions below as they relate to the, Series C Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Shares of the Company (the "CoD"), the Senior Secured Convertible Notes (the "Notes"), the Exchange and Amendment Agreement (the "Exchange Agreement"), and the Pledge and Security Agreement (the "Security Agreement"), do not purport to be complete and are qualified in their entirety by the copies of such documents filed herewith as Exhibits 3.1, 4.1, 10.1 and 10.2, respectively, and are incorporated by reference into this Item 1.01.

Exchange Agreement

Effective as of March 9, 2026, Functional Brands Inc. (the "Company") entered into the Exchange Agreement with Leonite Fund I, LP, Kips Bay Select LP, FirstFire Global Opportunities Fund, LLC and 3i LP (collectively, the "Investors") pursuant to which the Investors agreed to exchange all of the Company's Series A and Series B Convertible Preferred Stock held by such Investors for a combined consideration package consisting of shares of the Company's new Series C Convertible Preferred Stock (the "Series C Preferred"), cash, Notes and shares of the Company's common stock , par value $0.00001 per share (the "Common Stock"). The remaining stated values of the Series A Preferred and Series B Preferred were, for purposes of the exchange, valued at 80% and 100% respectively, yielding an aggregate assigned stated value of $8,378,000 to be covered by the consideration package, The aggregate consideration paid for the exchange consists of (i) $6,032,160 in stated value of Series C Preferred, (ii) $900,000 in cash, $450,000 payable immediately and $450,000 to be paid upon the earlier of effectiveness of a registration statement covering Common Stock to be issued in connection with a proposed equity line of credit or 90 days after the date of the Exchange Agreement, (iii) $837,800 in principal amount of Notes and (iv) 5,190,171 shares of Common Stock.

The Investors also agreed not to sell any shares of Common Stock in the open market prior to the record date for the next annual or special meeting of stockholders of the Company and after such record date the aggregate number of shares of Common Stock sold by the Investors in the open market on any trading day may not exceed 15% of the trading volume for such trading day.

Series C Preferred.

The Series C Preferred has a stated value of $1,000 per share. The Series C Preferred is convertible into Common Stock at three fixed conversion price tiers. Fifty percent (50%) of the Series C Preferred stated value is convertible at $0.30 per share, twenty-five percent (25%) of the stated value is convertible at $0.35 per share and the remaining twenty-five percent (25%) of stated value is convertible at $0.41 per share. The Series A Preferred has standard anti-dilution provisions. The Series C Preferred will not bear dividends so long as the Company is not in default on its obligations under the CoD. The Company has the right to repurchase all or a portion of the Series C Preferred at the stated value thereof.

Notes

The principal amount the Notes bear interest at 12% per annum which accrues monthly. The principal of the Notes is payable seventeen (17) months from the date of issuance with the Notes amortizing in one-sixth (1/6) monthly installment amounts payable commencing one year after the date of issuance. The Company may prepay the Notes in whole at any time, upon five (5) days' prior notice at price of 100% of the outstanding principal amount thereof plus accrued interest.

The Notes are convertible into Common Stock at a rate equivalent to 120% of the closing price of the Common Stock on the date of the exchange. The Notes contain standard default provisions including, but not limited to, failure to pay principal and interest, failure to reserve sufficient shares for conversion, failure to deliver shares upon conversion, breach of covenants or representations and warranties, delisting of the Common Stock, defaults by the Company in other obligations that result in a material adverse effect and bankruptcy events.

Security Agreement

In order to secure its obligations under the Notes, the Exchange Agreement and related documents, the Company has granted the Investors a security interest in and lien on substantially all of the assets of the Company.

Item 2.03. Creation of a Direct Financial Obligation.

The information set forth in Item 1.01 of this Current Report on Form 8-K with respect to the Notes is hereby incorporated by reference into this Item 2.03 in its entirety.