BranchOut Food Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS BRANCHOUT FOOD INC. CONDENSED BALANCE SHEETS September 30, December 31, 2023 2022 (Unaudited) Assets Current assets: Cash $ 1,008,484 $ 312,697 Accounts receivable 322,682 78,236 Advances on inventory purchases 427,745 29,500 Inventory 341,117 159,761 Other current assets 793,306 497,779 Total current assets 2,893,334 1,077,973 Restricted cash - 235,750 Deferred offering costs - 543,664 Property and equipment, net 921,335 1,022,290 Right-of-use asset 158,190 - Note receivable 384,628 384,628 Total Assets $ 4,357,487 $ 3,264,305 Liabilities and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $ 128,308 $ 239,939 Accounts payable, related parties 55,890 40,140 Accounts payable 55,890 40,140 Accrued expenses 196,883 688,722 Convertible notes payable, related parties - 140,000 Convertible notes payable, unrelated parties - 4,919,191 Convertible notes payable - 4,919,191 Notes payable, current portion 200,000 2,250,000 Revolving line of credit - 91,541 Lease liability, current portion 32,426 - Total current liabilities 613,507 8,369,533 Notes payable, net of current portion 34,500 34,500 Lease liability, net of current portion 109,075 - Total Liabilities 757,082 8,404,033 Stockholders’ Equity (Deficit): Preferred stock, $ 0.001 par value, 8,000,000 shares authorized; no shares issued and outstanding - - Common stock, $ 0.001 par value, 80,000,000 shares authorized; 4,007,274 and 1,200,769 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively 4,007 1,201 Additional paid-in capital 14,937,825 3,743,902 Accumulated deficit ( 11,341,427 ) ( 8,884,831 ) Total Stockholders’ Equity (Deficit) 3,600,405 ( 5,139,728 ) Total Liabilities and Stockholders’ Equity (Deficit) $ 4,357,487 $ 3,264,305 See accompanying notes to financial statements. 3 BRANCHOUT FOOD INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) 2023 2022 2023 2022 For the Three Months Ended For the Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Net revenue $ 906,996 $ 181,930 $ 1,347,401 $ 725,649 Cost of goods sold 878,664 172,830 1,255,526 875,336 Gross profit (loss) 28,332 9,100 91,875 ( 149,687 ) Operating expenses: General and administrative 230,459 351,110 552,390 745,686 Salaries and wages 222,764 110,091 910,812 430,963 Professional fees 218,160 112,519 520,506 395,954 Depreciation expense 55,939 37,252 167,520 37,414 Total operating expenses 727,322 610,972 2,151,228 1,610,017 Operating loss ( 698,990 ) ( 601,872 ) ( 2,059,353 ) ( 1,759,704 ) Other income (expense): Interest income 3,001 2,937 8,757 9,960 Interest expense ( 10,004 ) ( 217,346 ) ( 406,000 ) ( 2,046,792 ) Total other income (expense) ( 7,003 ) ( 214,409 ) ( 397,243 ) ( 2,036,832 ) Net loss $ ( 705,993 ) $ ( 816,281 ) $ ( 2,456,596 ) $ ( 3,796,536 ) Weighted average common shares outstanding - basic and diluted 3,984,144 1,200,769 2,286,164 1,199,951 Net loss per common share - basic and diluted $ ( 0.18 ) $ ( 0.68 ) $ ( 1.07 ) $ ( 3.16 ) See accompanying notes to financial statements. 4 BRANCHOUT FOOD INC. CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited) Shares Amount Shares Amount Capital Deficit (Deficit) For the Three Months Ended September 30, 2023 Preferred Stock Common Stock Additional Paid-In Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balance, June 30, 2023 - $ - 3,962,940 $ 3,963 $ 14,826,972 $ ( 10,635,434 ) $ 4,195,501 Common stock issued for services - - 44,334 44 99,707 - 99,751 Stock options issued for services - - - - 11,146 - 11,146 Net loss - - - - - ( 705,993 ) ( 705,993 ) Balance, September 30, 2023 - $ - 4,007,274 $ 4,007 $ 14,937,825 $ ( 11,341,427 ) $ 3,600,405 For the Three Months Ended September 30, 2022 Preferred Stock Common Stock Additional Paid-In Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balance, June 30, 2022 - $ - 1,200,769 $ 1,201 $ 3,708,750 $ ( 7,221,734 ) $ ( 3,511,783 ) Stock options issued for services - - - - 17,104 - 17,104 Net loss - - - - - ( 816,281 ) ( 816,281 ) Balance, September 30, 2022 - $ - 1,200,769 $ 1,201 $ 3,725,854 $ ( 8,038,015 ) $ ( 4,310,960 ) For the Nine Months Ended September 30, 2023 Preferred Stock Common Stock Additional Paid-In Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balance, December 31, 2022 - $ - 1,200,769 $ 1,201 $ 3,743,902 $ ( 8,884,831 ) $ ( 5,139,728 ) Common stock issued pursuant to initial public offering - - 1,190,000 1,190 4,940,856 - 4,942,046 Common stock issued for services - - 44,334 44 99,707 - 99,751 Stock options issued for services - - - - 79,638 - 79,638 Common stock issued for debt conversions - - 1,572,171 1,572 6,027,632 - 6,029,204 Common stock warrants granted to note holders pursuant to debt financing - - - - 46,090 - 46,090 Net loss - - - - - ( 2,456,596 ) ( 2,456,596 ) Balance, September 30, 2023 - $ - 4,007,274 $ 4,007 $ 14,937,825 $ ( 11,341,427 ) $ 3,600,405 For the Nine Months Ended September 30, 2022 Preferred Stock Common Stock Additional Paid-In Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balance, December 31, 2021 - $ - 1,192,424 $ 1,192 $ 2,618,455 $ ( 4,241,479 ) $ ( 1,621,832 ) Balance - $ - 1,192,424 $ 1,192 $ 2,618,455 $ ( 4,241,479 ) $ ( 1,621,832 ) Common stock sold for cash - - 2,425 3 9,997 - 10,000 Common stock issued for services - - 5,920 6 24,414 - 24,420 Stock options issued for services - - - - 51,054 - 51,054 Common stock warrants granted to note holders pursuant to debt financing - - - - 14,050 - 14,050 Modification of warrants - - - - 377,200 - 377,200 Modification of derivatives - - - - 630,684 - 630,684 Net loss - - - - - ( 3,796,536 ) ( 3,796,536 ) Balance, September 30, 2022 - $ - 1,200,769 $ 1,201 $ 3,725,854 $ ( 8,038,015 ) $ ( 4,310,960 ) Balance - $ - 1,200,769 $ 1,201 $ 3,725,854 $ ( 8,038,015 ) $ ( 4,310,960 ) See accompanying notes to financial statements. 5 BRANCHOUT FOOD INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, 2023 2022 Cash flows from operating activities Net loss $ ( 2,456,596 ) $ ( 3,796,536 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 167,520 37,414 Amortization of debt discounts 46,090 1,248,168 Common stock issued for services 99,751 24,420 Options and warrants issued for services 79,638 51,054 Amended warrants - 377,200 Decrease (increase) in assets: Accounts receivable ( 244,446 ) ( 24,874 ) Advances on inventory purchases ( 398,245 ) 147,464 Inventory ( 181,356 ) 97,010 Other current assets ( 295,527 ) ( 430,138 ) Right-of-use asset 10,130 - Increase (decrease) in liabilities: Accounts payable ( 111,631 ) 23,607 Accounts payable, related parties 15,750 ( 4,883 ) Accrued expenses 10,674 236,503 Net cash used in operating activities ( 3,258,248 ) ( 2,013,591 ) Cash flows from investing activities Payments received on notes receivable - 22,714 Purchase of property and equipment ( 66,565 ) ( 45,150 ) Net cash used in investing activities ( 66,565 ) ( 22,436 ) Cash flows from financing activities Payment of deferred offering costs ( 740,290 ) ( 276,894 ) Proceeds received on convertible notes payable, related parties 25,000 - Proceeds received on convertible notes payable, unrelated parties 442,500 2,048,500 Repayments on convertible notes payable - ( 20,000 ) Proceeds received on notes payable 370,000 - Repayment of notes payable ( 2,420,000 ) ( 69,206 ) Proceeds received on revolving line of credit - 239,241 Repayments on revolving line of credit ( 91,541 ) ( 279,421 ) Principal payments on finance lease ( 26,819 ) - Proceeds from sale of common stock 6,226,000 10,000 Net cash provided by financing activities 3,784,850 1,652,220 Net increase in cash 460,037 ( 383,807 ) Cash and restricted cash - beginning of period 548,447 856,082 Cash - ending of period $ 1,008,484 $ 472,275 Supplemental disclosures: Interest paid $ 429,280 $ 220,954 Income taxes paid $ - $ - Non-cash investing and financing transactions: Value of warrants issued as a debt discount $ 46,090 $ 14,050 Value of shares issued on debt conversions $ 6,029,204 $ - Initial recognition of right-of-use assets and lease liabilities $ 168,320 $ - See accompanying notes to financial statements. 6 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1 – Nature of Business and Significant Accounting Policies Nature of Business BranchOut Food Inc. (“BranchOut,” the “Company,” “we,” “our” or “us”) was incorporated as Avochips Inc. in Oregon on February 21, 2017, and converted into AvoLov, LLC, an Oregon limited liability company, on November 2, 2017. On November 19, 2021, the Company converted from an Oregon limited liability company into BranchOut Food Inc., a Nevada corporation. The Company is engaged in the development, marketing, sale, and distribution of plant-based, dehydrated fruit and vegetable snacks and powders. The Company’s products are currently manufactured for it by two contract manufacturers, one based in Chile and the other in Peru, where BranchOut’s continuous through-put dehydration machine is located. Our manufacturers produce products for us using a new proprietary dehydration technology licensed by the Company. The Company’s customers are primarily located throughout the United States. Basis of Accounting The accompanying unaudited condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) . Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of September 30, 2023, the results of operations for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2022 was derived from our audited financial statements. The accompanying condensed financial statements and notes thereto should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2022, included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b)(4) on June 21, 2023. When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Initial Public Offering In June 2023, the Company completed its initial public offering (“IPO”) in which it issued and sold 1,190,000 shares of its common stock at a price of $ 6.00 per share pursuant to an Underwriting Agreement between the Company and Alexander Capital, L.P. (the “Underwriter”) . The Company received net proceeds of $ 6,226,000 , after deducting underwriters’ discounts and commissions and before consideration of other issuance costs. In connection with the IPO, a total of $ 6,029,204 of convertible debt, consisting of $ 5,526,691 of principal and $ 502,513 of interest, was converted into 1,572,171 shares of common stock, inclusive of $ 179,687 , consisting of $ 165,000 of principal and $ 14,687 of interest, that converted into 43,562 shares of common stock issued upon the conversion of debts held by related parties. Pursuant to the Underwriting Agreement, the Company also issued to the Underwriter a Common Stock Purchase Warrant to purchase up to 82,110 shares of Common Stock at an exercise price of $ 7.20 , which may be exercised for a five-year period beginning December 18, 2023. Prior to the IPO, all deferred offering costs were capitalized in other noncurrent assets on the balance sheets. Deferred offering costs of $ 1,283,954 , primarily consisting of accounting, legal, and other fees related to the Company’s IPO, were offset against the IPO proceeds upon the closing of the Company’s IPO in June 2023. As of September 30, 2023, all deferred offering costs were paid. Unpaid deferred offering costs totaled $ 543,664 as of December 31, 2022. Reverse Stock Split On June 15, 2023, the Company effected a 2.5-for-1 reverse stock split of its outstanding shares of capital stock. There was no preferred stock outstanding prior to or after the reverse stock split. All issued and outstanding shares of common stock have been adjusted in these condensed financial statements, on a retrospective basis, to reflect the reverse stock split for all periods presented, as well as all common stock warrants and stock option awards which, by the terms thereof, were subject to adjustment in connection with the reverse stock split. The par value of the common stock was not adjusted by the reverse stock split. 7 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Reclassifications Certain reclassifications have been made to the prior years’ financial statements to conform to current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings. Going Concern As shown in the accompanying condensed financial statements, as of September 30, 2023, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $ 11,341,427 , with working capital of only $ 2,279,827 , which may not be sufficient to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. Management believes these factors will contribute to achieving profitability. The accompanying condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. These condensed financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities, that might be necessary should the Company be unable to continue as a going concern. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Segment Reporting ASC 280, Segment Reporting , requires annual and interim reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations. Fair Value of Financial Instruments The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement and Disclosures (ASC 820). Under ASC 820-10-05, the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments. Cash and Cash Equivalents Cash equivalents include money market accounts which have maturities of three months or less. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market value. There were no cash equivalents on hand on September 30, 2023 or December 31, 2022. 8 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Cash in Excess of FDIC Insured Limits The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 , under current regulations. The Company had $ 758,484 and $ 62,697 in excess of FDIC insured limits on September 30, 2023 and December 31, 2022, respectively, and has not experienced any losses in such accounts. Accounts Receivable Accounts receivable is carried at their estimated collectible amounts. Trade accounts receivable is periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Company had no allowance for doubtful accounts on September 30, 2023 or December 31, 2022. Inventory The Company’s products consist of pre-packaged and bulk-dried fruit and vegetable-based snacks, powders and ingredients purchased from contract-manufacturers in Chile and/or Peru. The Company’s contract manufacturer in Peru uses equipment purchased by the Company in its manufacturing process. Raw materials consist of packaging materials. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. No reserve for obsolete inventories has been recognized. Inventory, consisting of raw materials and finished goods are stated at the lower of cost or net realizable value using the average cost valuation method, and consisted of the following as of September 30, 2023 and December 31, 2022: Schedule of Inventory September 30, December 31, 2023 2022 Raw materials $ 26,855 $ 10,824 Finished goods 314,262 148,937 Total inventory $ 341,117 $ 159,761 The Company had prepaid inventory advances on product in the amount of $ 427,745 and $ 29,500 as of September 30, 2023 and December 31, 2022, respectively. Advances of 70 % of estimated finished product costs are made to enable manufacturers to purchase raw materials necessary to produce finished products. The remaining 30 % of finished product costs are paid upon receipt of finished goods. License Agreement In 2021, the Company entered into a license agreement under which it acquired a license to utilize certain technology and production equipment developed and manufactured by another company relating to avocado products. The license is not discernible from the equipment; therefore, the license costs have been capitalized and depreciated over the useful life of the equipment. The license agreement also entitles the licensor to a royalty on all revenue from the sale of products produced using the equipment. These royalties are recognized as royalty expenses as the products are sold. There have been no royalty payments to date, and any future minimum royalty payments or equipment purchases under this license agreement are an unrecognized commitment as they relate to retaining exclusivity of the avocado products going forward. See Note 15, below. Derivatives We evaluate convertible notes payable, stock options, stock warrants and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date. 9 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customer . Under ASC 606, the Company recognizes revenue from the sale of its plant-based snack products in accordance with a five-step model in which the Company evaluates the transfer of promised goods or services and recognizes revenue when customers obtain control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as separate performance obligations, and the related costs are recorded as selling expenses in general and administrative expenses in the statement of operations. Revenue is reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time. The Company’s sales are predominantly generated from the sale of finished products to retailers, and to a lesser extent, direct to consumers through third party website platforms. These sales contain a single performance obligation, and revenue is recognized at a single point in time when ownership, risks and rewards transfer. Typically, this occurs when the goods are received by the retailer or customer, or when the title of goods is exchanged. Revenues are recognized in an amount that reflects the net consideration the Company expects to receive in exchange for the goods. The Company promotes its products with advertising, consumer incentives and trade promotions. These programs include discounts, slotting fees, coupons, rebates, in-store display incentives and volume-based incentives. Customer trade promotion and consumer incentive activities are recorded as a reduction to the transaction price based on amounts estimated as being due to customers and consumers at the end of a period. The Company derives these estimates based principally on historical utilization and redemption rates. The Company does not receive a distinct service in relation to the advertising, consumer incentives and trade promotions. Payment terms in the Company’s invoices are based on the billing schedule established in contracts and purchase orders with customers. Expenses such as slotting fees, sales discounts, and allowances are accounted for as a direct reduction of revenues as follows for the three and nine months ended September 2023 and 2022: Schedule of Revenue 2023 2022 2023 2022 For the Three Months Ended For the Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenue $ 1,124,578 $ 209,260 $ 1,576,571 $ 831,340 Less: slotting, discounts, and allowances ( 217,582 ) 27,330 229,170 105,691 Net revenue $ 906,996 $ 181,930 $ 1,347,401 $ 725,649 Cost of Goods Sold Cost of goods sold represents costs directly related to the purchase, production and manufacturing of the Company’s products. Costs include purchase costs, product development, freight-in, packaging, and print production costs . Advertising Costs The Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $ 105,402 and $ 149,767 for the nine months ended September 30, 2023 and 2022, respectively. Stock-Based Compensation The Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation (“ASC 718”). All transactions in which the consideration provided in exchange for the purchase of goods or services consists of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The Company issued stock-based compensation in the amount of $ 179,389 and $ 75,474 for the nine months ended September 30, 2023 and 2022, respectively. 10 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption. In July 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-03 to amend various SEC paragraphs in the Accounting Standards Codification to primarily reflect the issuance of SEC Staff Accounting Bulletin No. 120. ASU No. 2023-03, “ Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a significant impact on our financial statements. Note 2 – Related Party Transactions Accounts Payable As of September 30, 2023 and December 31, 2022, the Company owed Chase Innovations, Inc., a Company owned by our then Chief Financial Officer, Douglas Durst, $ 55,890 and $ 40,140 , respectively, for services rendered. Convertible Notes Payable As disclosed in Note 10, below, On January 5, 2023, the Company sold an unsecured convertible promissory note to the Chief Executive Officer’s parents, Mr. Tom and Mrs. Carol Healy, bearing interest at 8 % per annum, in the face amount of $ 25,000 . The note was convertible at a fixed conversion price of $ 4.125 per common share. On June 15, 2023, the note, consisting of $ 25,000 of principal and $ 800 of interest, was converted into 6,255 shares of common stock. As disclosed in Note 10, below, the Company’s then Chief Financial Officer, Douglas Durst, holds an unsecured convertible promissory note (“CFO Note”), in the face amount of $ 90,000 , as outstanding at September 30, 2023 and December 31, 2022. The note was convertible at a fixed conversion price of $ 4.125 per common share. On June 15, 2023, the note, consisting of $ 90,000 of principal and $ 6,362 of interest, was converted into 23,361 shares of common stock. As disclosed in Note 10, below, the Company’s Chief Financial Officer, Chris Coulter, held an unsecured convertible promissory note (“Coulter Note”), in the face amount of $ 50,000 that was outstanding at December 31, 2022. The note was convertible at a fixed conversion price of $ 4.125 per common share. On June 15, 2023, the note, consisting of $ 50,000 of principal and $ 7,525 of interest, was converted into 13,946 shares of common stock. Common Stock Options Issued for Services On August 8, 2023, the Company granted options to purchase an aggregate 30,000 shares of the Company’s common stock, having an exercise price of $ 6.00 per share, exercisable over a 10 -year term, to the chairman of the audit committee. The options vest monthly over a one-year period. On August 8, 2023, the Company granted options to purchase an aggregate 30,000 shares of the Company’s common stock, having an exercise price of $ 2.51 per share, exercisable over a 10 -year term, to one of its directors. The options vest monthly over a one-year period. Note 3 – Fair Value of Financial Instruments Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value. The Company has cash, notes receivable, derivative liabilities and debts that must be measured under the fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows: Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. 11 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balances sheet as of September 30, 2023 and December 31, 2022: Schedule of Valuation of Financial Instruments at Fair Value on a Recurring Basis Level 1 Level 2 Level 3 Fair Value Measurements at September 30, 2023 Level 1 Level 2 Level 3 Assets Cash $ 1,008,484 $ - $ - Right-of-use-asset - - 158,190 Notes receivable - 384,628 - Total assets 1,008,484 384,628 158,190 Liabilities Notes payable - 234,500 - Lease liability - - 141,501 Total liabilities - 234,500 141,501 Total assets and liabilities $ 1,008,484 $ 150,128 $ 16,689 Level 1 Level 2 Level 3 Fair Value Measurements at December 31, 2022 Level 1 Level 2 Level 3 Assets Cash $ 312,697 $ - $ - Cash, restricted 235,750 - - Notes receivable - 384,628 - Total assets 548,447 384,628 - Liabilities Convertible notes payable, related parties - - 140,000 Convertible notes payable, unrelated parties - - 4,919,191 Notes payable - 2,284,500 - Revolving line of credit - 91,541 - Total liabilities - 2,376,041 5,059,191 Total assets and liabilities $ 548,447 $ ( 1,991,413 ) $ ( 5,059,191 ) There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the nine months ended September 30, 2023 or the year ended December 31, 2022. Note 4 – Major Customers and Accounts Receivable The Company had certain customers whose revenue individually represented 10 % or more of the Company’s total net revenue, or whose accounts receivable balances individually represented 10 % or more of the Company’s total accounts receivable, as follows: For the nine months ended September 30, 2023 and 2022, two customers accounted for 87 % and 68 % of net revenue, respectively. For the nine months ended September 30, 2023, one customer, accounted for 79 % of accounts receivable, and for the nine months ended September 30, 2022, four customers accounted for 72 % of accounts receivable. 12 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 5 – Other Current Assets Other current assets consisted of the following as of September 30, 2023 and December 31, 2022: Schedule of Other Current Assets September 30, December 31, 2023 2022 Prepaid insurance costs $ 1,094 $ 959 Prepaid advertising and trade show fees 26,598 19,485 Prepaid professional fees 20,417 12,617 Value added taxes receivable 243,305 - Refunds receivable - 1,594 Interest receivable 16,627 7,996 Advances to co-manufacturer, NXTDried (1) 485,265 455,128 Total $ 793,306 $ 497,779 (1) The Company has advanced NXTDried Superfoods SAC (“NXTDried”), a company organized under the laws of Peru, with its principal office in San Isidro, Lima, Peru, a total of $ 495,930 over various dates between January 28, 2022 and September 27, 2023, for the purchase and construction of the facility and infrastructure necessary to facilitate the manufacturing of the Company’s products. The advance is to be repaid in the form of a $1.00 USD per kilogram discount on all products manufactured for the Company . The advance is not documented by a promissory note, and is unsecured. A total of $ 10,665 was credited against purchases made from NXTDried during the nine months ended September 30,2023. Note 6 – Restricted Cash On May 7, 2021, the Company entered into a secured loan agreement (“Loan Agreement”) with EnWave Corporation (“EnWave”) that was partially collateralized with a cash pledge in the amount of $ 125,000 , which was subsequently supplemented by a Guarantee Agreement, dated November 22, 2021, in which the cash pledge was increased to $ 235,750 to cover EnWave’s responsibility for additional Value Added Taxes (“VAT”). On May 25, 2023, the pledged funds were released to the Company, net of a finance cost of $ 2,082 . The following table provides a reconciliation of cash and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows as of September 30, 2023 and December 31, 2022: Summary of Reconciliation of Cash and Restricted Cash September 30, December 31, 2023 2022 Cash $ 1,008,484 $ 312,697 Restricted cash - 235,750 Total cash and restricted cash $ 1,008,484 $ 548,447 Note 7 – Property and Equipment Property and equipment as of September 30, 2023 and December 31, 2022 consisted of the following: Schedule of Property and Equipment September 30, December 31, 2023 2022 Equipment and machinery $ 1,183,334 $ 1,116,769 Less: Accumulated depreciation ( 261,999 ) ( 94,479 ) Total property and equipment, net $ 921,335 $ 1,022,290 Depreciation of property and equipment was $ 167,520 and $ 37,414 for the nine months ended September 30, 2023 and 2022, respectively. 13 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 8 – Notes Receivable Nanuva Note Receivable On February 4, 2021, the Company entered into a Manufacturing and Distributorship Agreement (“MDA”) with Natural Nutrition SpA, a Chilean company (“Nanuva”), in which the Company loaned $ 500,000 to Nanuva (“Advance Payment”) to help finance the capital investment needed for Nanuva to purchase two industrial fruit drying machines to be used in servicing the Company’s manufacturing needs. Pursuant to the MDA, the Company will recover the Advance Payment no later than May 31, 2027, and the loan bears interest at a rate of 3 % per annum. The loan is to be repaid pursuant to a two-dollar ($2/kg) deduction in the price of any product exported by Nanuva to the Company with certain mandatory minimum annual payments. The MDA expires on May 31, 2027 , with automatic annual renewals thereafter, unless it is terminated in accordance with the provisions within the agreement. As of September 30, 2023, a total of $ 131,594 of the Advance Payment had been repaid as a reduction of inventory costs, consisting of $ 115,372 of principal and $ 16,222 of interest. As of September 30, 2023, a total of $ 401,255 was due from Nanuva, consisting of $ 384,628 of principal and $ 16,627 of unpaid interest. The Advance Payment is collateralized by a second lien in the equipment. Pursuant to the MDA, the Company has been appointed as Nanuva’s exclusive distributor in the following territories: Summary of Nanuva’s Exclusive Distributor in Territories Exclusivity Minimum Volume Product Territories (Kg/month)(“MOQ”) Avocado Powder Worldwide (except Chile) 1,000 Banana Chips Worldwide (except Chile) 1,000 Avocado Snacks North America (Canada and USA) 1,000 Avocado Chips Worldwide 1,000 Other Powders No Exclusivity - 0 - Note 9 – Accrued Expenses Accrued expenses consisted of the following as of September 30, 2023 and December 31, 2022, respectively: Schedule of Accrued Expenses September 30, December 31, 2023 2022 Accrued payroll and taxes $ 30,498 $ 40,089 Accrued interest 30,363 602,246 Accrued chargebacks 136,022 46,387 Total accrued expenses $ 196,883 $ 688,722 Note 10 – Convertible Notes Payable, Related Parties Convertible notes payable, related parties consisted of the following at September 30, 2023 and December 31, 2022, respectively: Schedule of Convertible Notes Payable, Related Parties September 30, December 31, 2023 2022 On January 5, 2023, the Company sold an unsecured convertible promissory note for $ 25,000 to the Chief Executive Officer’s parents, Mr. Tom and Carol Healy, bearing interest at 8 % per annum, mature on the earlier of: a) June 30, 2023 , b) the closing of a Qualified Subsequent Financing, c) the closing of a change of control, or d) the Company’s S-1 registration statement being declared effective and the signing of a firm commitment underwriting agreement for a capital raise of at least ten million dollars ($10,000,000) . The note was convertible at a fixed conversion price of $ 4.125 per common share, and all interest was deemed to have stopped accruing as of a date selected by the Company that is up to 10 days prior to the effective date of the registration statement filed in connection with the IPO. The note was mandatorily convertible upon the Company’s S-1 registration statement being declared effective and the signing of a firm commitment underwriting agreement for a capital raise of at least ten million dollars ($10,000,000) . The public offering proceeds threshold had subsequently been amended to $ 5,000,000 , along with all of the other outstanding convertible notes. The note carried a default interest rate of 18 % per annum. (See the description of the First Quarter of 2023 Convertible Notes in Note 11 – Convertible Notes Payable, below). On June 15, 2023, the note, consisting of $ 25,000 of principal and $ 800 of interest, was converted into 6,255 shares of common stock. The note was converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. $ - $ - 14 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) On December 31, 2021, the Company sold an unsecured convertible promissory note (“CFO Note”) to the Company’s then Chief Financial Officer, Douglas Durst, in the face amount of $ 90,000 . The CFO Note, carried interest at 5 % per annum, originally carried an automatic conversion upon (i) a Qualified Financing, consisting of the closing of the sale of shares of its stock of at least $ 1,000,000 , at a conversion rate of the lesser of (i) the product of (x) eight-tenths (0.8) and (y) the price per share paid by the purchasers of the preferred stock sold in the Qualified Financing and (ii) the price per share obtained by dividing $ 7,000,000 (the “Valuation Cap”) by the Company’s fully-diluted capitalization immediately prior to the Qualified Financing (excluding any shares issued upon conversion of convertible debt), were amended on December 17, 2021 to be automatically converted upon the date on which a registration statement for the Company’s underwritten public offering of its common stock with total proceeds to the Company of not less than $ 10,000,000 (the “IPO”) was effective, at a fixed conversion price of $ 4.125 per common share, and all interest was deemed to have stopped accruing as of a date selected by the Company that is up to 10 days prior to the effective date of the registration statement filed in connection with the IPO. The maturity date was extended to June 30, 2023 and the public offering proceeds threshold had been amended to $ 5,000,000 . On June 15, 2023, the note, consisting of $ 90,000 of principal and $ 6,362 of interest, was converted into 23,361 shares of common stock. The note was converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. - 90,000 On May 28, 2020, the Company sold an unsecured convertible promissory note (“Coulter Note”) to the Company’s Chief Financial Officer, Chris Coulter, in the face amount of $ 50,000 . The Coulter Note, carried interest at 5 % per annum, originally carried an automatic conversion upon (i) a Qualified Financing, consisting of the closing of the sale of shares of its stock of at least $ 1,000,000 , at a conversion rate of the lesser of (i) the product of (x) eight-tenths (0.8) and (y) the price per share paid by the purchasers of the preferred stock sold in the Qualified Financing and (ii) the price per share obtained by dividing $ 7,000,000 (the “Valuation Cap”) by the Company’s fully-diluted capitalization immediately prior to the Qualified Financing (excluding any shares issued upon conversion of convertible debt), were amended on December 17, 2021 to be automatically converted upon the date on which a registration statement for the Company’s underwritten public offering of its common stock with total proceeds to the Company of not less than $ 10,000,000 (the “IPO”) was effective, at a fixed conversion price of $ 4.125 per common share, and all interest was deemed to have stopped accruing as of a date selected by the Company that is up to 10 days prior to the effective date of the registration statement filed in connection with the IPO. The maturity date was also extended to June 30, 2023 and the public offering proceeds threshold had been amended to $ 5,000,000 . On June 15, 2023, the note, consisting of $ 50,000 of principal and $ 7,525 of interest, was converted into 13,946 shares of common stock. The note was converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. - 50,000 Convertible notes payable, related parties $ - $ 140,000 In accordance with ASC 470-20 Debt with Conversion and Other Options, the Company recorded total discounts of $ 19,054 on the CFO Note and $ 19,961 on the Coulter Note upon the respective origination dates. The discounts were amortized to interest expense over the term of the debentures using the effective interest method. The Company recorded $ 19,003 of interest expense pursuant to the amortization of note discounts during the nine months ended September 30, 2022. The Company recorded interest expense pursuant to the stated interest rates on the Convertible Notes, Related Parties in the amount of $ 3,696 and $ 4,125 for the nine months ended September 30, 2023 and 2022, respectively. 15 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 11 – Convertible Notes Payable, Unrelated Parties Convertible notes payable, unrelated parties, consists of the following at September 30, 2023 and December 31, 2022, respectively: Schedule of Convertible Notes Payable, Unrelated Parties September 30, December 31, 2023 2022 On various origination dates between January 5, 2023 and March 27, 2023, the Company sold a total of ten (10) individual unsecured convertible promissory notes (“First Quarter of 2023 Convertible Notes”) with substantially the same terms in exchange for gross proceeds of $ 442,500 . The First Quarter of 2023 Convertible Notes, bearing interest at 8 % per annum, matured on the earlier of: a) June 30, 2023 , b) the closing of a Qualified Subsequent Financing, c) the closing of a change of control, or d) the Company’s S-1 registration statement being declared effective and the signing of a firm commitment underwriting agreement for a capital raise of at least ten million dollars ($10,000,000) . Each First Quarter of 2023 Convertible Notes was convertible at a fixed conversion price of $ 4.125 per common share, and all interest shall be deemed to have stopped accruing as of a date selected by the Company that is up to 10 days prior to the effective date of the registration statement filed in connection with the IPO. Each note is mandatorily convertible upon the Company’s S-1 registration statement being declared effective and the signing of a firm commitment underwriting agreement for a capital raise of at least ten million dollars ($10,000,000) . The public offering proceeds threshold has subsequently been amended to $ 5,000,000 , along with all of the other outstanding convertible notes. The First Quarter of 2023 Convertible Notes carry a default interest rate of 18 % per annum. On June 15, 2023, the notes, consisting of an aggregate $ 442,500 of principal and $ 9,801 of interest, were converted into 109,655 shares of common stock. The notes were converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. $ - $ - On various origination dates between October 28, 2022 and December 13, 2022, the Company sold a total of sixteen (16) individual unsecured convertible promissory notes (“2022 Convertible Notes”) with substantially the same terms in exchange for gross proceeds of $ 645,600 . The Convertible Notes, bearing interest at 8 % per annum, matured on the earlier of: a) June 30, 2023, as extended from the original maturity date of June 30 2023 , b) the closing of a Qualified Subsequent Financing, c) the closing of a change of control, or d) the Company’s S-1 registration statement being declared effective and the signing of a firm commitment underwriting agreement for a capital raise of at least ten million dollars ($10,000,000) . Each note was convertible at a fixed conversion price of $ 4.125 per common share, and all interest shall be deemed to have stopped accruing as of a date selected by the Company that is up to 10 days prior to the effective date of the registration statement filed in connection with the IPO. Each note is mandatorily convertible upon the Company’s S-1 registration statement being declared effective and the signing of a firm commitment underwriting agreement for a capital raise of at least ten million dollars ($10,000,000) . The public offering proceeds threshold has subsequently been amended to $ 5,000,000 . The notes carry a default interest rate of 18 % per annum. On June 15, 2023, the notes, consisting of an aggregate $ 645,600 of principal and $ 27,925 of interest, were converted into 163,284 shares of common stock. The notes were converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. - 645,600 16 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) On June 6, 2022, the Company completed the sale of (i) an unsecured convertible promissory note in the principal amount of $ 200,000 (“Fluffco Convertible Note”) to Fluffco, LLC (“Fluffco”), and (ii) a five -year warrant to purchase 8,485 shares of the Company’s common stock at an exercise price of $ 6.50 per share, for an aggregate purchase price of $ 186,000 , pursuant to a Securities Purchase Agreement between the Company and Fluffco (the “Purchase Agreement”). The Fluffco Convertible Note carried interest at 8 % per annum and a default rate of 18 %, which was mandatorily convertible upon the date on which a registration statement for the Company’s underwritten public offering of its common stock with total proceeds to the Company of not less than $ 10,000,000 was effective, at a fixed conversion price of $ 4.125 per common share. The note matured on November 30, 2022 , and all interest was deemed to have stopped accruing as of a date selected by the Company that was up to 10 days prior to the effective date of the registration statement filed in connection with the IPO. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 35 % and a call option value of $ 0.2679 , was $ 8,485 , and was amortized as a debt discount over the life of the loan. The Company received net proceeds of $ 186,000 after deductions of debt discounts, consisting of $ 14,000 of legal fees. The maturity dates were extended to June 30, 2023 and the public offering proceeds threshold had been amended to $ 5,000,000 . On June 15, 2023, the note, consisting of $ 200,000 of principal and $ 15,737 of interest, was converted into 52,300 shares of common stock. The note was converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. - 200,000 On May 26, 2022, the Company completed the sale of (i) an unsecured convertible promissory note in the principal amount of $ 1,250,000 (“Foss Convertible Note”) to Don Foss (“Foss”), and (ii) a five -year warrant to purchase 45,833 shares of the Company’s common stock at an exercise price of $ 6.50 per share, for an aggregate purchase price of $ 1,162,500 , pursuant to a Securities Purchase Agreement between the Company and Foss (the “Purchase Agreement”). The Foss Convertible Note carried interest at 8 % per annum and a default rate of 18 %, which was mandatorily convertible upon the date on which a registration statement for the Company’s underwritten public offering of its common stock with total proceeds to the Company of not less than $ 10,000,000 was effective, at a fixed conversion price of $ 4.125 per common share. The note matured on November 30, 2022 , and all interest was deemed to have stopped accruing as of a date selected by the Company that is up to 10 days prior to the effective date of the registration statement filed in connection with the IPO. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 34 % and a call option value of $ 0.2570 , was $ 45,833 , and was amortized as a debt discount over the life of the loan. The Company received net proceeds of $ 1,162,500 after deductions of debt discounts, consisting of $ 87,500 of legal fees. The maturity dates were extended to June 30, 2023 and the public offering proceeds threshold had been amended to $ 5,000,000 . On June 15, 2023, the note, consisting of $ 1,250,000 of principal and $ 99,726 of interest, was converted into 327,207 shares of common stock. The note was converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. - 1,250,000 On various origination dates between February 15, 2022 and February 25, 2022, the Company sold two (2) individual unsecured convertible promissory notes (“First Convertible Eagle Vision Notes”) with a face value of $ 350,000 each, under substantially the same terms. The First Convertible Eagle Vision Notes carried interest at 5 % per annum and a default rate of 18 %, which were mandatorily convertible upon the date on which a registration statement for the Company’s underwritten public offering of its common stock with total proceeds to the Company of not less than $ 10,000,000 was effective, at a fixed conversion price of $ 4.125 per common share. The notes matured on November 30, 2022 , and all interest was deemed to have stopped accruing as of a date selected by the Company that was up to 10 days prior to the effective date of the registration statement filed in connection with the IPO. The maturity dates were extended to June 30, 2023 and the public offering proceeds threshold had been amended to $ 5,000,000 . On June 15, 2023, the notes, consisting of an aggregate $ 700,000 of principal and $ 44,590 of interest, were converted into 180,508 shares of common stock. The notes were converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. - 700,000 17 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) On various origination dates between March 1, 2018 and December 31, 2021, the Company sold a total of fifty-two (52) individual unsecured convertible promissory notes (“Convertible Notes”) with substantially the same terms, for total proceeds of $ 2,143,591 . The Convertible Notes carried interest at 5 % per annum, which originally carried an automatic conversion upon (i) a Qualified Financing, consisting of the closing of the sale of shares of its stock of at least $ 1,000,000 , at a conversion rate of the lesser of (i) the product of (x) eight-tenths (0.8) and (y) the price per share paid by the purchasers of the preferred stock sold in the Qualified Financing and (ii) the price per share obtained by dividing $ 7,000,000 (the “Valuation Cap”) by the Company’s fully-diluted capitalization immediately prior to the Qualified Financing (excluding any shares issued upon conversion of convertible debt), were amended on December 17, 2021 to be automatically converted upon the date on which a registration statement for the Company’s underwritten public offering of its common stock with total proceeds to the Company of not less than $ 5,000,000 , as amended, was effective at fixed conversion prices of either $ 2.05 or $ 4.125 per common share (six (6) of the Convertible Notes, totalling $ 355,000 of principal, were amended to convert at $ 2.05 per common share, and forty-six (46) of the Convertible Notes, totalling $ 1,788,591 of principal, were amended to convert at $ 4.125 per common share), and all interest was deemed to have stopped accruing as of a date selected by the Company that was up to 10 days prior to the effective date of the registration statement filed in connection with the IPO. On February 14, 2022, one of the Convertible Notes was repaid, consisting of $ 20,000 of principal and $ 3,586 of interest. The Convertible Notes were originally set to mature after eighteen months but were later amended to extend the maturity to June 30, 2023 and the public offering proceeds threshold had been amended to $ 5,000,000 . On June 15, 2023, the notes, consisting of an aggregate $ 2,123,591 of principal and $ 290,047 of interest, were converted into 695,655 shares of common stock. The notes were converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. - 2,123,591 Total convertible notes payable, unrelated parties $ - $ 4,919,191 In accordance with ASC 470, the Company recorded total discounts of $ 1,604,537 incurred as of December 31, 2022. The discounts were amortized to interest expense over the term of the debentures using the effective interest method. The Company recorded $ 1,028,509 of interest expense pursuant to the amortization of note discounts for the nine months ended September 30, 2022. The Company recorded interest expense pursuant to the Convertible Notes, Unrelated Parties in the amount of $ 138,316 and $ 218,856 , consisting of stated interest rates on the Convertible Notes, Unrelated Parties in the amount of $ 138,316 and $ 141,158 , and $- 0 - and $ 77,698 of amortized debt discounts, for the nine months ended September 30, 2023 and 2022, respectively, including $ 9,441 of amortized debt discounts on warrants for the nine months ended September 30, 2022. Note 12 – Notes Payable On June 12, 2023, we accepted subscriptions for $ 170,000 and issued senior secured promissory notes and stock purchase warrants to four accredited investors. Each promissory note (titled a “Subordinated Note”) accrued interest at an annual rate of 15 %, of which 10 % was to be paid monthly, and the remaining 5 % to remain unpaid, compound annually, and was due and payable on the maturity date. Upon default, the aggregate interest rate would increase to 18 % per annum. Each Subordinated Note was due and payable on the earlier of: (i) December 31, 2023, (b) the closing of a “Qualified Subsequent Financing”, and (c) the closing of an initial public offering, as amended. In the event a note was pre-paid, we were required to pay a minimum one-year of interest. The term “Qualified Subsequent Financing” means the next sale, or series of related sales, of any security in which we received $ 2,000,000 or more from any parties that do not currently own, directly or indirectly, any of our common stock. We received proceeds of $ 170,000 in connection with the offering. The Subordinated Notes were a general secured obligation of the Company, subordinated to the Senior Secured Notes mentioned below. During the quarter ended June 30, 2023, the Subordinated Notes were repaid in full, along with $ 25,500 of guaranteed interest. 18 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) In addition to the Subordinated Notes, each investor received a warrant to purchase shares of our common stock at $ 6.00 per share, with an issuance date of July 1, 2023, and expiring ten years from the issuance date. The aggregate number of shares available for purchase under the warrants are 30,000 shares, which were amortized as a debt discount over the life of the notes. We were required to register the resale of the shares issuable upon exercise of the warrants with the SEC. Prior to the exercise of a warrant, we are required to provide the investor monthly unaudited financial statements of income, cash flows, and stockholders’ equity. The Company recorded total debt discounts of $ 46,090 on warrants granted to the four investors for warrants issued in consideration of the debt financing received on June 12, 2023. The debt discounts were amortized as a debt discount over the original life of the notes, resulting in $ 46,090 of finance costs for the nine months ended September 30, 2023. On March 15, 2023, the Company completed the sale of a Note to The John & Kristen Hinman Trust Dated February 23, 2016 (the “Hinman Note”), pursuant to the Loan Agreement between the Company and the Hinman Trust. The Hinman Note bears interest at 18 % per annum, based on a 360-day year, and carries a monthly default rate of 1.5 % of all outstanding principal, interest, fees and penalties. The Hinman Note matures on January 10, 2024, as amended, and is secured by the Company’s accounts receivable from Walmart. On May 7, 2021, we accepted subscriptions for $ 1,000,000 and issued senior secured promissory notes and stock purchase warrants to six accredited investors (the “May 2021 Bridge Financing”). Each promissory note (titled a “Subordinated Note”) accrued interest at an annual rate of 15 %, of which 10 % was to be paid monthly, and the remaining 5 % to remain unpaid, compound annually, and was due and payable on the maturity date. Upon default, the aggregate interest rate would increase to 18 % per annum. Each Subordinated Note was due and payable on the earlier of: (i) November 30, 2022, (b) the closing of a “Qualified Subsequent Financing”, and (c) the closing of an initial public offering, as amended. In the event a note was pre-paid, we are required to pay a minimum one-year of interest. The term “Qualified Subsequent Financing” means the next sale, or series of related sales, of any security in which we received $ 2,000,000 or more from any parties that do not currently own, directly or indirectly, any of our common stock. The maturity dates were extended to June 30, 2023. We received gross proceeds of $ 1,000,000 in connection with the offering, and net proceeds of $ 890,000 , after payment of $ 110,000 in diligence fees to Eagle Vision Ventures, Inc. (“Eagle Vision”), which was amortized as a debt discount over the original life of the notes. The Subordinated Notes were a general secured obligation of the Company, subordinated to the Senior Secured Notes mentioned below. During the quarter ended September 30, 2023, the Subordinated Notes were repaid in full, along with $ 143,663 of interest. A total of $ 18,750 of interest was still owed as of September 30, 2023. In addition to the Subordinated Notes issued in the May 2021 Bridge Financing, each investor received a warrant to purchase shares of our common stock at $ 7.10 per share, expiring ten years from the issuance date, as subsequently amended on March 7, 2022. The total number of shares available for purchase under the warrants are 154,243 shares, including 15,382 warrants issued as offering costs in connection with the Subordinated Notes, which were also amortized as a debt discount over the life of the notes. We were required to register the resale of the shares issuable upon exercise of the warrants with the SEC. Prior to the exercise of a warrant, we are required to provide the investor monthly unaudited financial statements of income, cash flows, and stockholders’ equity. The Company recorded total discounts of $ 176,228 on the Subordinated Notes, consisting of $ 110,000 of loan origination costs paid to Eagle Vision Ventures, Inc, and an aggregate $ 66,228 of debt discounts on warrants granted to the eight investors for warrants issued in consideration of the debt financing received on May 7, 2021, including warrants issued as offering costs to two additional parties. The debt discounts were amortized as a debt discount over the original life of the notes, resulting in $ 70,580 of finance costs, including $ 26,525 of amortized discounts attributable to the warrants for the nine months ended September 30, 2022. On December 8, 2020, we accepted subscriptions for $ 1,250,000 and issued senior secured promissory notes and stock purchase warrants to three accredited investors. Each promissory note (titled a “Senior Secured Note”) accrued interest at an annual rate of 15 %, of which 10 % was to be paid monthly, and the remaining 5 % to remain unpaid, compound annually, was due and payable on the maturity date. Upon default, the aggregate interest rate would increase to 18 % per annum. Each Senior Secured Note was due and payable on the earlier of: (i) November 30, 2022, (b) the closing of a “Qualified Subsequent Financing”, and (c) the closing of an initial public offering, as amended. In the event a note was pre-paid, we were required to pay a minimum one-year of interest. The term “Qualified Subsequent Financing” means the next sale, or series of related sales, of any security in which we received $ 2,000,000 or more from any parties that do not currently own, directly or indirectly, any of our common stock. The maturity dates were extended to June 30, 2023. We received net proceeds of $ 1,115,000 , after payment of $ 135,000 in diligence fees to Eagle Vision, in connection with the offering. During the quarter ended June 30, 2023, the Senior Secured Notes were repaid in full, along with $ 214,609 of interest. A total of $ 20,833 of interest was still owed as of September 30, 2023. 19 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) The Senior Secured Notes were a general secured obligation of the Company, senior in all respects to the liens, terms, covenants, and conditions of all existing debt of the Company, except for our loans from Small Business Administration. In addition to the Senior Secured Notes, each investor received a warrant to purchase shares of our common stock at $ 2.60 per share, expiring ten years from the issuance date, as subsequently amended on March 7, 2022. The total number of shares available for purchase under the warrants are 179,396 shares, including 47,811 warrants issued as offering costs in connection with the Subordinated Notes, which were also amortized as a debt discount over the original life of the notes. We were required to register the shares issuable upon exercise of the warrants with the SEC. Prior to the exercise of a warrant, we are required to provide the investor monthly unaudited financial statements of income, cash flows, and stockholders’ equity for each such monthly period. The principal balance of the Senior Secured Notes was paid in full as of September 30, 2023, and $ 1,250,000 was outstanding at December 31, 2022. The Company recorded total discounts of $ 180,196 on the Senior Secured Notes, consisting of $ 135,000 of loan origination costs paid to Eagle Vision Ventures, Inc, and an aggregate $ 45,196 of debt discounts on warrants granted to the five investors for warrants issued in consideration of the debt financing received on December 8, 2020, including warrants issued as offering costs to two additional parties. The debt discounts were amortized as a debt discount over the original life of the notes, resulting in $ 52,377 of finance costs, including $ 13,136 of amortized discounts attributable to the warrants for the nine months ended September 30, 2022. On May 17, 2020, the Company entered into a loan agreement with the United States Small Business Administration (the “SBA”), as lender, pursuant to the SBA’s Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business (the “EIDL Loan Agreement”) encompassing a $ 34,500 Promissory Note issued to the SBA (the “EIDL Note”) (together with the EIDL Loan Agreement, the “EIDL Loan”), bearing interest at 3.75 % per annum. In connection with entering into the EIDL Loan, the Company also executed a security agreement, dated May 17, 2020, between the SBA and the Company pursuant to which the EIDL Loan is secured by a security interest on all of the Company’s assets. Under the EIDL Note, the Company is required to pay principal and interest payments of $ 169 every month beginning May 17, 2021; however, the SBA extended the repayment date to November 17, 2022. All remaining principal and accrued interest is due and payable on May 17, 2050. The EIDL Note may be repaid at any time without penalty. The principal balance of the EIDL Loan was $ 34,500 as of September 30, 2023 and December 31, 2022. Notes payable consists of the following as of September 30, 2023 and December 31, 2022: Schedule of Notes Payable September 30, December 31, 2023 2022 Total notes payable $ 234,500 $ 2,284,500 Less: unamortized debt discounts - - Notes payable $ 234,500 $ 2,284,500 Less: current maturities 200,000 2,250,000 Notes payable, less current maturities $ 34,500 $ 34,500 The Company recognized $ 251,249 and $ 825,906 of interest expense on notes payable for the nine months ended September 30, 2023 and 2022, respectively. Interest expense consisted of $ 205,159 of stated interest expense and $ 46,090 of amortized debt discounts due to warrants issued on a Subordinated Note during the nine months ended September 30, 2023. Interest expense consisted of $ 257,491 of stated interest expense and $ 151,554 of amortized debt discounts, including $ 39,661 of amortization of the debt discount due to warrants on the Senior Secured Notes and Subordinated Notes, and $ 377,200 of expense related to the amendment of those warrants, during the nine months ended September 30, 2022. 20 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 13 – Revolving Line of Credit On October 1, 2021, we entered into a Growth Line of Credit Agreement (“LOC”) with Ampla LLC, formerly known as Gourmet Growth (“Gourmet Growth”), which allows us to draw funds from time to time, up to an aggregate principal amount of $ 400,000 , for the purpose of purchasing inventory. The LOC accrues interest at 15 % per annum and requires a 2 % origination fee on each draw. The LOC was secured by all receivables, and all other tangible and intangible personal property, including, but not limited to cash, inventory, equipment, investments, contract rights and other general intangibles and chattel paper. The LOC requires that we collect payments on our accounts receivable in an account in which Gourmet Growth is able to collect a percentage of the collections to repay the LOC. The line of credit is revolving and automatically renewed upon use for a 12-month period. Repayment is made from current receivables, and the outstanding balance of $ 42,750 was paid in full on July 13, 2023. The Company’s balance of the LOC was $ 91,541 as of December 31, 2022. The Company recorded interest expense pursuant to the stated interest rates on the LOC in the amount of $ 8,251 and $ 17,108 for the nine months ended September 30, 2023 and 2022, respectively. The Company recognized interest expense for the nine months ended September 30, 2023 and 2022 respectively, as follows: Schedule of Recognized Interest Expense September 30, September 30, 2023 2022 Interest on convertible notes payable, related parties $ 3,696 $ 4,125 Interest on convertible notes payable 138,316 141,158 Interest on notes payable 205,159 257,491 Amortization of debt discounts - 151,554 Amortization of debt discounts, warrants 46,090 49,102 Amended warrants - 377,200 Amortization of debt discounts, derivatives - 1,047,512 Interest on revolving line of credit 8,251 17,108 Finance charge on letter of credit 2,082 - Interest on credit cards 2,406 1,542 Total interest expense $ 406,000 $ 2,046,792 The aggregate amounts of maturities of notes payable during each of the periods set forth below, including amounts due within one year and classified as current, are as follows: Schedule of Maturities of Notes Payable December 31, EIDL Hinman Total Fiscal Year Ending Note Payable Maturities December 31, EIDL Hinman Total 2023 * $ - $ - $ - 2024 - 200,000 200,000 2025 - - - 2026 - - - 2027 83 - 83 2028 and thereafter 34,417 - 34,417 Total notes payable gross $ 34,500 $ 200,000 $ 234,500 Less effects of discounting - - - Total notes payable $ 34,500 $ 200,00 $ 234,500 * Based on the remaining three months for the year ending December 31, 2023. 21 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 14 – Leases The Company has financed production equipment with an acquisition cost of approximately $ 168,141 under a finance lease with a five-year term and a bargain purchase price of $ 1.00 at the end of the lease term. The finance lease commenced on May 9, 2023 and expires on August 31, 2027 , with monthly lease payments of $ 3,657 commencing June 1, 2023, subject to the ASU 2016-02. As the Company’s lease does not provide implicit discount rates, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The components of lease expense were as follows: Schedule of Components of Lease Expenses 2023 2022 For the Nine Months Ended September 30, 2023 2022 Finance lease cost: Amortization of right-of-use asset $ 10,130 $ - Interest on lease liability 5,889 - Total finance lease cost $ 16,019 $ - Supplemental balance sheet information related to leases was as follows: Schedule of Supplemental Information Related to Leases September 30, December 31, 2023 2022 Finance lease: Finance lease assets $ 158,190 $ - Current portion of finance lease liability $ 32,426 - Noncurrent finance lease liability 109,075 - Total finance lease liability $ 141,501 $ - Weighted average remaining lease term: Finance lease 3.6 years Weighted average discount rate: Finance lease 11.00 % Supplemental cash flow and other information related to finance leases was as follows: Schedule of Supplemental Cash and Other Information Related to Finance Leases 2023 2022 For the Nine Months Ended September 30, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Finance cash flows used for finance leases $ 26,819 $ - Leased assets obtained in exchange for lease liabilities: Total finance lease liabilities $ 168,320 $ - The future minimum lease payments due under finance leases as of September 30, 2023 is as follows: Schedule of Future Minimum Lease Payments Year Ending Minimum Lease December 31, Commitments 2023 (for the three months remaining) $ 14,629 2024 43,886 2025 43,886 2026 43,886 2027 and thereafter 29,258 Total $ 175,545 Less effects of discounting 34,044 Lease liability recognized $ 141,501 22 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 15 – Commitments and Contingencies Legal Matters From time to time, the Company may be a party to various legal matters, threatened claims, or proceedings in the normal course of business. Legal fees and other costs associated with such actions are expensed as incurred. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. Legal accruals are recorded when and if it is determined that a loss related to a certain matter is both probable and reasonably estimable. Finance Lease The Company leases equipment under a non-cancelable finance lease payable in monthly installments of $ 3,657 expiring on August 31, 2027. Revolving Line of Credit The Company has contractual obligations under its LOC. Additionally, the Company from time to time may be involved in various inquiries, administrative proceedings and litigation relating to matters arising in the normal course of business. The Company is not aware of any inquiries or administrative proceedings and is not currently a defendant in any material litigation and is not aware of any threatened litigation that could have a material effect on the Company. Other Contractual Commitments On January 19, 2022, the Company entered into a contract manufacturing agreement with NXTDried Superfoods SAC to produce products for distribution by the Company. The Company agreed to pre-pay for inventory via an advance to enable the manufacturer to invest in necessary processing facilities that will be reimbursed to the Company on an agreed per kg basis over the period of 2022 to 2026. On May 7, 2021, the Company entered into a license agreement (“License Agreement”) with EnWave, pursuant to which EnWave licensed to the Company a collection of patents and intellectual property (the “EnWave Technology”) used to manufacture and operate vacuum microwave dehydration machines purchased by the Company from EnWave (the “EnWave Equipment”). The License Agreement entitles EnWave to a fixed royalty percentage on all of the Company’s revenue from the sale of products produced using the EnWave Technology, net of trade or volume discounts, refunds paid, settled claims for damaged goods, applicable excise, sales and withholding taxes imposed at the time of the sale, and provides the Company with certain exclusivity rights with respect to the production of avocado products. In order to maintain the exclusivity, the Company agreed to annual royalty minimum payments as follows: Schedule of Maturity of Annual royalty Year Exclusivity Retention Royalty 2021 $ - 2022 - 2023 - 2024 100,000 2025 and each subsequent year of the term 250,000 2026 250,000 2027 250,000 Total* $ 850,000 The unrecognized commitment thereafter is $ 250,000 in perpetuity, as long as the Company elects to maintain exclusivity. In addition to the initial EnWave Equipment we purchased, the Company agreed to purchase additional equipment from EnWave over time. The additional equipment purchase schedule, as amended, requires the Company to purchase a “Second EnWave Machine” and pay a non-refundable down payment of 40 % of the purchase price on or before, September 29, 2023, or pay up-to four non-refundable deposits for the Second EnWave Machine in the amount of fifty thousand dollars ($ 50,000 ) each on September 30, 2023, December 31, 2023, March 31, 2024 and June 30, 2024 (the “Interim Deposits”), and pay the remainder of a 40 % down payment of the purchase price on or before June 30, 2024. The Company paid the first non-refundable deposit of $ 50,000 on September 27, 2023. The Company is also required to execute an Equipment Purchase Agreement for a 120kW, or greater rated power, EnWave Equipment (the “Third EnWave Machine”) on or before December 31, 2025, and satisfy the payment obligations required with respect to the Third EnWave Machine by the License Agreement. The Company is also required to enter into an Equipment Purchase Agreement for a 120kW, or greater, rated power EnWave Equipment (the “Fourth EnWave Machine”) on, or before, December 31, 2026, and to satisfy the payment obligations required with respect to the Fourth EnWave Machine by the License Agreement. The License Agreement is effective as long as EnWave possesses its EnWave technology. There have been no royalty payments to date, and any future minimum royalty payments or equipment purchases under this license agreement are an unrecognized commitment, as they relate to retaining exclusivity of the avocado products going forward and the Company can elect not to pay. 23 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 16 – Changes in Stockholders’ Equity (Deficit) Preferred Stock The Company has authorized 8,000,000 shares of $ 0.001 par value preferred stock. As of September 30, 2023, none of the preferred stock had been designated or issued. Common Stock The Company has authorized 80,000,000 shares of $ 0.001 par value common stock. As of September 30,2023, a total of 4,007,274 shares of common stock had been issued. Each holder of common stock is entitled to one vote for each share of common stock held. Common Stock Issued for Services On August 17, 2023, the Company issued 44,334 shares under the 2022 Equity Plan, to its securities counsel for services performed. The aggregate fair value of the shares was $ 99,751 , based on the closing traded price of the common stock on the date of grant . Initial Public Offering In June 2023, the Company completed its initial public offering IPO in which it issued and sold 1,190,000 shares of its common stock at a price of $ 6.00 per share pursuant to an Underwriting Agreement between the Company and Alexander Capital, L.P. (the “Underwriter”) . The Company received net proceeds of $ 6,226,000 , after deducting underwriters’ discounts and commissions and before consideration of other issuance costs. Pursuant to the Underwriting Agreement, the Company also issued to the Underwriter a Common Stock Purchase Warrant to purchase up to 82,110 shares of Common Stock at an exercise price of $ 7.20 , which may be exercised for a five-year period beginning December 18, 2023. Prior to the IPO, all deferred offering costs were capitalized in other noncurrent assets on the balance sheets. Deferred offering costs of $ 1,283,954 , primarily consisting of accounting, legal, and other fees related to the Company’s IPO, were offset against the IPO proceeds upon the closing of the Company’s IPO in June 2023. As of September 30, 2023, all deferred offering costs were paid. Unpaid deferred offering costs totaled $ 543,664 as of December 31, 2022. Debt Conversions In connection with the IPO, a total of $ 6,029,204 of convertible debt, consisting of $ 5,526,691 of principal and $ 502,513 of interest, was converted into 1,572,171 shares of common stock, inclusive of $ 179,687 , consisting of $ 165,000 of principal and $ 14,687 of interest, that converted into 43,562 shares of common stock issued upon the conversion of debts held by related parties. The notes were converted in accordance with the conversion terms; therefore, no gain or loss had been recognized. Note 17 – Common Stock Options Stock Incentive Plan Our board of directors and shareholders adopted our 2022 Omnibus Equity Incentive Plan on January 1, 2022 (the “2022 Plan”). Our 2022 Plan allows for the grant of a variety of equity vehicles to provide flexibility in implementing equity awards, including nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, incentive bonus awards, other cash-based awards and other stock-based awards. The number of shares reserved for issuance under the 2022 Equity Plan was initially an aggregate of 600,000 shares, as adjusted on June 15, 2023 in connection with the Company’s reverse stock split, subject to annual increases under the plan. There were 184,403 options with a weighted average exercise price of $ 4.11 per share outstanding as of September 30, 2023. 24 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Common Stock Options Issued for Services On August 8, 2023, the Company granted options to purchase an aggregate 30,000 shares of the Company’s common stock under the 2022 Plan, having an exercise price of $ 6.00 per share, exercisable over a 10 -year term, to the chairman of the audit committee. The options will vest monthly over a one -year period. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 39 % and a call option value of $ 0.1644 , was $ 4,932 . The options are being expensed over the vesting period, resulting in $ 719 of stock-based compensation expense during the nine months ended September 30, 2023. As of September 30, 2023, a total of $ 4,213 of unamortized expenses are expected to be expensed over the remaining vesting period. On August 8, 2023, the Company granted options to purchase an aggregate 30,000 shares of the Company’s common stock under the 2022 Plan, having an exercise price of $ 2.51 per share, exercisable over a 10 -year term, to one of its directors. The options will vest monthly over a one-year period. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 39 % and a call option value of $ 0.7885 , was $ 23,655 . The options are being expensed over the vesting period, resulting in $ 3,450 of stock-based compensation expense during the nine months ended September 30, 2023. As of September 30, 2023, a total of $ 20,205 of unamortized expenses are expected to be expensed over the remaining vesting period. On February 28, 2023, the Company awarded fully vested options to purchase 16,000 shares of common stock under the 2022 Plan at an exercise price equal to $ 4.125 per share, exercisable over a ten-year period to an employee. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 50 % and a call option value of $ 2.0249 , was $ 32,399 . The options were expensed as stock-based compensation expense during the nine months ended September 30, 2023. Note 18 – Common Stock Warrants Warrants to purchase a total of 447,246 shares of common stock at a weighted average exercise price of $ 6.83 per share, with a weighted average remaining life of 6.9 years, were outstanding as of September 30, 2023. Warrants Issued Pursuant to Debt Offering On July 1, 2023 , the Company issued warrants to purchase an aggregate total of 30,000 shares of common stock at an exercise price of $ 6.00 per share to note holders in connection with the sale of senior secured promissory notes in the aggregate principal amount of $ 170,000 to four accredited investors. The proceeds received were allocated between the debt and warrants on a relative fair value basis. The aggregate estimated value of the warrants using the Black-Scholes Pricing Model, based on a weighted average volatility rate of 54 % and a weighted average call option value of $ 3.8171 , was $ 114,513 , of which $ 46,090 was recognized as finance expense during the nine months ended September 30, 2023. As of September 30, 2023, there were no unamortized expenses expected to be expensed over the remaining life of the outstanding debt, as the debt was repaid in full on June 16, 2023. Underwriters’ Warrants Issued Pursuant to IPO In June 21, 2023, the Company issued warrants to purchase 82,110 shares at $ 7.20 per share, exercisable between December 18, 2023 and December 18, 2028, pursuant to the underwriters’ agreement. The aggregate estimated value of the warrants using the Black-Scholes Pricing Model, based on a weighted average volatility rate of 54 % and a weighted average call option value of $ 1.7981 , was $ 147,639 . Note 19 - Income Taxes The Company incurred a net operating loss for the nine months ended September 30, 2023, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. On September 30, 2023, the Company had approximately $ 6.7 million of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2041. The effective income tax rate for the nine months ended September 30, 2023 and 2022, was 21 %. The Company has incurred cumulative losses which make realization of a deferred tax asset difficult to support in accordance with ASC 740. Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, a valuation allowance has been recorded against the Federal and state deferred tax assets as of September 30, 2023 and December 31, 2022. Additionally, in accordance with ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions. Note 20 – Subsequent Events The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued , noting no reportable event, except as follows: Common Stock Issued for Services On November 1, 2023, the Company issued 24,478 shares under the 2022 Equity Plan, to its securities counsel for services performed. The aggregate fair value of the shares was $ 40,389 , based on the closing traded price of the common stock on the date of grant . On October 26, 2023, the Company issued 12,500 shares, restricted in accordance with Rule 144, to a consultant for services performed. The aggregate fair value of the shares was $ 19,000 , based on the closing traded price of the common stock on the date of grant . Options Granted On October 24, 2023, the Company granted options to purchase an aggregate 42,500 shares of the Company’s common stock, having an exercise price of $ 1.60 per share, exercisable over a 10 -year term, to a total of four employees. The options will vest one-year from the date of grant. 25