BranchOut Food Inc. 10-K

ITEM 8. Financial Statements and Supplementary Data BRANCHOUT FOOD INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 TABLE OF CONTENTS Page Report of Independent Registered Public Accounting Firm, M&K CPAS, PLLC (PCAOB ID: 2738 ) F-1 Balance Sheets as of December 31, 2023 and 2022 F-3 Statements of Operations for the years ended December 31, 2023 and 2022 F-4 Statement of Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and 2022 F-5 Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-6 Notes to Financial Statements F-7 35 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of BranchOut Food Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of BranchOut Food, Inc. (the Company) as of December 31, 2023 and 2022, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring losses from operations and had a working capital deficit and a stockholders’ deficit as of December 31, 2023 which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved are especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. F- 1 Capital Stock and Other Equity Accounts As discussed in Note 19 and Note 20, the Company issued stock options to purchase common stock to employees and an officer of the Company and the Company issued warrants with notes payable to third parties. Auditing management’s calculation of the fair value of the stock options and the warrants issued can be a significant judgment due to the need of a specialist to evaluate the fair value of the stock options and warrants issued and the auditor has to test the inputs and estimates used. Auditing management’s calculation of the fair value of the stock options and warrants issued can be a significant judgment given the fact that the Company uses management estimates on various inputs to the calculations. We evaluated management’s conclusions regarding their fair values and reviewed support for the significant inputs used in the valuation model, as well as assessing the model for reasonableness. In addition, we evaluated the Company’s disclosures in relation to this matter included in Note 19 and Note 20 to the financial statements. /s/ M&K CPAS, PLLC M&K CPAS, PLLC PCAOB ID 2738 We have served as the Company’s auditor since 2021. The Woodlands, TX April 1, 2024 F- 2 BRANCHOUT FOOD INC. BALANCE SHEETS December 31, December 31, 2023 2022 Assets Current assets: Cash $ 657,789 $ 312,697 Accounts receivable 635,549 78,236 Advances on inventory purchases - 29,500 Inventory 336,805 159,761 Other current assets 48,100 497,779 Total current assets 1,678,243 1,077,973 Restricted cash - 235,750 Deferred offering costs - 543,664 Property and equipment, net 914,999 1,022,290 Right-of-use asset 147,228 - Note receivable 384,628 384,628 Total Assets $ 3,125,098 $ 3,264,305 Liabilities and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $ 382,948 $ 239,939 Accounts payable, related parties - 40,140 Accounts payable - 40,140 Accrued expenses 165,244 688,722 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 30,901 - Total current liabilities 779,093 8,369,533 Notes payable, net of current portion 34,500 34,500 Lease liability, net of current portion 101,029 - Total Liabilities 914,622 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; 4,044,252 and 1,200,769 shares issued and outstanding at December 31, 2023 and 2022, respectively 4,044 1,201 Additional paid-in capital 15,016,973 3,743,902 Accumulated deficit ( 12,810,541 ) ( 8,884,831 ) Total Stockholders’ Equity (Deficit) 2,210,476 ( 5,139,728 ) Total Liabilities and Stockholders’ Equity (Deficit) $ 3,125,098 $ 3,264,305 The accompanying notes are an integral part of these financial statements. F- 3 BRANCHOUT FOOD INC. STATEMENTS OF OPERATIONS 2023 2022 For the Years Ended December 31, 2023 2022 Net revenue $ 2,825,855 $ 752,178 Cost of goods sold 2,922,085 922,728 Gross loss ( 96,230 ) ( 170,550 ) Operating expenses: General and administrative 1,581,474 929,726 Salaries and wages 1,129,858 628,637 Professional fees 694,596 583,920 Depreciation expense - 93,253 Total operating expenses 3,405,928 2,235,536 Operating loss ( 3,502,158 ) ( 2,406,086 ) Other income (expense): Interest income 11,719 13,627 Interest expense ( 435,271 ) ( 2,250,893 ) Total other income (expense) ( 423,552 ) ( 2,237,266 ) Net loss $ ( 3,925,710 ) $ ( 4,643,352 ) Weighted average common shares outstanding - basic and diluted 2,726,330 1,200,157 Net loss per common share - basic and diluted $ ( 1.44 ) $ ( 3.87 ) The accompanying notes are an integral part of these financial statements. F- 4 BRANCHOUT FOOD INC. STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) Shares Amount Shares Amount Capital Deficit Equity (Deficit) Additional Total Preferred Stock Common Stock Paid-In Accumulated Stockholders’ Shares Amount Shares Amount Capital Deficit Equity (Deficit) Balance, December 31, 2021 - $ - 1,192,424 $ 1,192 $ 2,618,455 $ ( 4,241,479 ) $ ( 1,621,832 ) Modification of derivatives - - - - 630,685 - 630,685 Fair value of warrants issued as debt discounts - - - - 14,050 - 14,050 Modification of warrants - - - - 377,200 - 377,200 Common stock sold for cash - - 2,425 3 9,997 - 10,000 Common stock issued for services - - 5,920 6 24,414 - 24,420 Amortization of stock options issued for services - - - - 69,101 - 69,101 Net loss - - - - - ( 4,643,352 ) ( 4,643,352 ) Balance, December 31, 2022 - $ - 1,200,769 $ 1,201 $ 3,743,902 $ ( 8,884,831 ) $ ( 5,139,728 ) Balance - $ - 1,200,769 $ 1,201 $ 3,743,902 $ ( 8,884,831 ) $ ( 5,139,728 ) Common stock issued pursuant to initial public offering, net of offering costs - - 1,190,000 1,190 4,940,856 - 4,942,046 Common stock issued for services - - 81,312 81 159,059 - 159,140 Stock options issued for services - - - - 99,434 - 99,434 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 - - - - - ( 3,925,710 ) ( 3,925,710 ) Balance, December 31, 2023 - $ - 4,044,252 $ 4,044 $ 15,016,973 $ ( 12,810,541 ) $ 2,210,476 Balance - $ - 4,044,252 $ 4,044 $ 15,016,973 $ ( 12,810,541 ) $ 2,210,476 The accompanying notes are an integral part of these financial statements. F- 5 BRANCHOUT FOOD INC. STATEMENTS OF CASH FLOWS 2023 2022 For the Years Ended December 31, 2023 2022 Cash flows from operating activities Net loss $ ( 3,925,710 ) $ ( 4,643,352 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 223,856 93,253 Amortization of debt discounts 66,090 1,286,021 Impairment of assets 761,085 - Common stock issued for services 159,140 24,420 Options and warrants issued for services 99,434 69,101 Amended warrants - 377,200 Decrease (increase) in assets: Accounts receivable ( 557,313 ) 65,083 Advances on inventory purchases ( 3,015 ) 231,235 Inventory ( 177,044 ) 44,208 Other current assets ( 278,891 ) ( 438,244 ) Right-of-use asset 21,092 - Increase (decrease) in liabilities: Accounts payable 143,009 12,894 Accounts payable, related parties ( 40,140 ) 20,115 Accrued expenses ( 20,965 ) 390,385 Net cash used in operating activities ( 3,529,372 ) ( 2,467,681 ) Cash flows from investing activities Payments received on notes receivable - 22,714 Purchase of property and equipment ( 116,565 ) ( 45,150 ) Net cash used in investing activities ( 116,565 ) ( 22,436 ) Cash flows from financing activities Payment of deferred offering costs ( 740,290 ) ( 351,382 ) Proceeds received on convertible notes payable, related parties 25,000 - Proceeds received on convertible notes payable, unrelated parties 442,500 2,694,100 Repayments on convertible notes payable - ( 20,000 ) Proceeds received on notes payable 350,000 - Repayment of notes payable ( 2,420,000 ) ( 85,445 ) Proceeds received on revolving line of credit - 239,241 Repayments on revolving line of credit ( 91,541 ) ( 304,032 ) Principal payments on finance lease ( 36,390 ) - Proceeds from sale of common stock 6,226,000 10,000 Net cash provided by financing activities 3,755,279 2,182,482 Net increase in cash 109,342 ( 307,635 ) Cash and restricted cash - beginning of period 548,447 856,082 Cash - ending of period $ 657,789 $ 548,447 Supplemental disclosures: Interest paid $ 466,337 $ 246,661 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 $ - Modification of derivative liabilities $ - $ 630,685 The accompanying notes are an integral part of these financial statements. F- 6 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Note 1 – Nature of Business 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. Note 2 – Basis of Presentation Basis of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). All references to GAAP are in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the GAAP hierarchy. 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. These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. 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 December 31, 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. F- 7 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Going Concern As shown in the accompanying financial statements, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $ 12,810,541 , and working capital of $ 899,150 as of December 31, 2023, and the Company’s cash on hand 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 toward achieving profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These 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. Note 3 – Summary of Significant Accounting Policies 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 ASC 820, Fair Value Measurements and Disclosures , establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following: - Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. - Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. - Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. F- 8 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS 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 December 31, 2023 and 2022. 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 $ 407,789 and $ 62,697 in excess of FDIC insured limits on December 31, 2023 and 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 December 31, 2023 and 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, at December 31, 2023 and 2022, consisted of the following: Schedule of Inventory 2023 2022 December 31, 2023 2022 Raw materials $ 13,734 $ 10,824 Finished goods 323,071 148,937 Total inventory $ 336,805 $ 159,761 The Company had prepaid inventory advances on product in the amount of $ 29,500 as of December 31, 2022. Advances of 70 % of estimated finish product costs are made to enable manufacturer’s purchase of raw materials to produce finished products. The remaining 30 % is paid upon receipt of finished goods. Property and Equipment Property and equipment are stated at the lower of cost or estimated net recoverable amount. The cost of property, plant and equipment is depreciated using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based on the following life expectancy: SCHEDULE OF ESTIMATED USEFUL LIVES Office equipment 3 years Furniture and fixtures 5 years Equipment and machinery 5 years Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which extend the useful life of an asset, are capitalized, and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, the cost and related accumulated depreciation are eliminated, and any resulting gain or loss is reflected in operations. Depreciation expense was $ 223,856 and $ 93,253 for the years ended December 31, 2023 and 2022, respectively. F- 9 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Impairment of Long-Lived Assets Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations. Our indefinite-lived brand names and trademarks acquired and are assigned an indefinite life as we anticipate that these brand names will contribute cash flows to the Company perpetually. We evaluate the recoverability of intangible assets periodically by considering events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. The Company expenses internally developed trademarks. License Agreement In 2021, the Company entered into a license agreement to license the rights to certain production equipment developed and manufactured by another company through the purchase of that company’s equipment. The license is not discernable 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 and the Company can elect not to pay as disclosed in Note 17, below. Derivatives The Company evaluates 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. 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. F- 10 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS 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: Schedule of Revenue 2023 2022 December 31, 2023 2022 Gross revenue $ 3,184,018 $ 888,893 Less: slotting, discounts, and allowances 358,163 136,715 Net revenue $ 2,825,855 $ 752,178 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 $ 162,048 and $ 199,287 for the years ended December 31, 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 $ 258,574 and $ 93,521 for the years ended December 31, 2023 and 2022, respectively. Basic and Diluted Loss Per Share The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 2023 and 2022, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. Income Taxes The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not. F- 11 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Uncertain Tax Positions In accordance with ASC 740, Income Taxes , the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited, and fully resolved. The Company has not yet undergone an examination by any taxing authorities. The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions. 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 4 – Related Party Transactions Accounts Payable As of December 31, 2022, the Company owed Chase Innovations, Inc., a company owned by owned by our then Chief Financial Officer , Douglas Durst, $ 40,140 for services rendered through the year ended December 2022. Convertible Notes Payable As disclosed in Note 12, 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 12, below, the Company’s then Chief Financial Officer, Douglas Durst, held an unsecured convertible promissory 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 12, below, the Company’s then Chief Financial Officer, Chris Coulter, held an unsecured convertible promissory 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. F- 12 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Common Stock Sales On January 10, 2022, the Company sold 1,213 shares of common stock to the Company’s Controller at $ 4.125 per share for proceeds of $ 5,000 . Common Stock Issued for Services On October 26, 2023, the Company issued 12,500 shares, restricted in accordance with Rule 144, to a consultant, who later became a Company director, 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 . Common Stock Options Issued for Services On August 8, 2023, the Company granted options to purchase 30,000 shares of the Company’s common stock under its 2022 Equity Incentive Plan (the “2022 Plan”), having an exercise price of $ 6.00 per share, exercisable over a 10 -year term, to the then chairman of the audit committee and now, Chief Financial Officer. The options 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 $ 1,952 of stock-based compensation expense during the year ended December 31, 2023. As of December 31, 2023, a total of $ 2,980 of unamortized expenses are expected to be expensed over the vesting period. On August 8, 2023, the Company granted options to purchase 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 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 $ 9,364 of stock-based compensation expense during the year ended December 31, 2023. As of December 31, 2023, a total of $ 14,291 of unamortized expenses are expected to be expensed over the vesting period. On January 1, 2022, the Company awarded options to purchase 57,600 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 the Company’s then Chief Financial Officer. The options vest monthly over an eighteen (18) month period, with the initial vesting commencing on January 1, 2022. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 29 % and a call option value of $ 1.1531 , was $ 66,419 . The options were expensed over the vesting period, resulting in $ 23,619 and $ 44,280 of stock-based compensation expense during the years ended December 31, 2023 and 2022, respectively. The options terminated 90 days from the employee’s terminated services, on November 14, 2023. Note 5 – 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. F- 13 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balances sheet as of December 31, 2023 and 2022: Schedule of Valuation of Financial Instruments at Fair Value on a Recurring Basis Level 1 Level 2 Level 3 Fair Value Measurements at December 31, 2023 Level 1 Level 2 Level 3 Assets Cash $ 657,789 $ - $ - Right-of-use-asset - - 147,228 Notes receivable - 384,628 - Total assets 657,789 384,628 147,228 Liabilities Notes payable - 235,000 - Lease liability - - 131,930 Total liabilities - 235,000 131,930 Total assets and liabilities $ 657,789 $ 149,628 $ 15,298 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 - - 4,919,191 Notes payable - 2,284,000 - 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 and Level 2 inputs for the years ended December 31, 2023 and 2022. Note 6 – 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 years ended December 31, 2023 and 2022, two customers accounted for 90 % and 70 % of net revenue, respectively. The customers were not the same from year to year. For the year ended December 31, 2023, Wal-Mart Stores and Costco accounted for 77 % and 13 % of net sales, respectively. For the year ended December 31, 2022, KEHE Distributors and Costco accounted for 11 % and 59 % of net sales, respectively. On December 31, 2023, Wal-Mart Stores accounted for 57 % and Costco accounted for 28 % of accounts receivable. On December 31, 2022, KeHE Distributors accounted for 58 %, Wal-Mart Stores accounted for 18 % and United Natural Foods accounted for 16 % of accounts receivable. F- 14 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Note 7 – Other Current Assets Other current assets at December 31, 2023 and 2022, consisted of the following: Schedule of Other Current Assets 2023 2022 December 31, 2023 2022 Prepaid insurance costs $ 2,403 $ 959 Prepaid advertising and trade show fees 20,106 19,485 Prepaid professional & license fees 6,056 12,617 Refunds receivable - 1,594 Interest receivable 19,535 7,996 Advances to co-manufacturer, NXTDried (1) - 455,128 Total other current assets $ 48,100 $ 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 year ended December 31, 2023, resulting in a balance owed of $ 485,265 . During the fourth quarter of 2023, one of NXTDried’s creditors filed suit against NXTDried and foreclosed on its collateral pursuant to a secured promissory note. As a result, the Company recognized impairment expense of $ 761,085 for the year ended, December 31, 2023, consisting of $ 485,265 on the remaining unpaid balance of the advances to NXTDried, $ 243,305 related to a VAT tax receivable, and $ 32,515 of prepaid inventory that was owed to the Company by NXTDried. Note 8 – 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: Summary of Reconciliation of Cash and Restricted Cash 2023 2022 December 31, 2023 2022 Cash $ 657,789 $ 312,697 Restricted cash - 235,750 Total cash and restricted cash shown in the statement of cash flows $ 657,789 $ 548,447 Note 9 – Property and Equipment Property and equipment at December 31, 2023 and 2022, consisted of the following: Schedule of Property and Equipment 2023 2022 December 31, 2023 2022 Equipment and machinery $ 1,233,334 $ 1,116,769 Less: Accumulated depreciation ( 318,335 ) ( 94,479 ) Total property and equipment, net $ 914,999 $ 1,022,290 Depreciation of property and equipment was $ 223,856 and $ 93,253 for the years ended December 31, 2023 and 2022, respectively. Property and equipment was placed in service during the third quarter of 2022, and commenced production activities on January 1, 2023, resulting in the recognition of depreciation as a component of cost of goods sold for the year ended December 31, 2023. F- 15 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Note 10 – 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 is entitled to recover the Advance Payment in full no later than May 31, 2027, which prior to repayment, will bear interest at 3 % per annum. The Advance Payment 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. Repayments commence on the earlier of a) the first invoice issued by Nanuva after installation of the drying equipment, or b) June 30, 2021. The MDA expires on May 31, 2027 , with automatic annual renewals thereafter, unless it is terminated in accordance with the terms of the MDA. The Company deferred collection of the minimum annual payment requirement for 2023 until 2024 when several large orders were placed. A total of $ 33,100 of the Advance Payment had been repaid during the year ended December 31, 2022, consisting of $ 22,714 of principal and $ 10,386 of interest. As of December 31, 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. All payments consisted of reductions in inventory costs, other than a payment of $ 15,000 in cash on March 24, 2021. As of December 31, 2023, a total of $ 404,163 was outstanding from Nanuva, consisting of $ 384,628 of principal and $ 19,535 of unpaid interest. As of December 31, 2022, a total of $ 392,625 was outstanding from Nanuva, consisting of $ 384,628 of principal and $ 7,997 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 Product Exclusivity Territories Minimum Volume (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 11 – Accrued Expenses Accrued expenses consist of the following: Schedule of Accrued Expenses 2023 2022 December 31, 2023 2022 Accrued payroll and taxes $ 43,376 $ 40,089 Accrued interest 2,577 602,246 Accrued chargebacks 119,291 46,387 Total accrued expenses $ 165,244 $ 688,722 F- 16 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Note 12 – Convertible Notes Payable, Related Parties Convertible notes payable, related parties consisted of the following at December 31, 2023 and 2022, respectively: Schedule of Convertible Notes Payable, Related Parties December 31, 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. $ - $ - 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 $ 19,004 of interest expense pursuant to the amortization of note discounts during the year ended December 31, 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 $ 6,999 for the years ended December 31, 2023 and 2022, respectively. F- 17 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Note 13 – Convertible Notes Payable, Unrelated Parties Convertible notes payable, unrelated parties, consists of the following at December 31, 2023 and 2022, respectively: Schedule of Convertible Notes Payable, Unrelated Parties December 31, 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 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. 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 had subsequently been amended to $ 5,000,000 , along with all of the other outstanding convertible notes. The First Quarter of 2023 Convertible Notes carried 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 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. Each 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 . The notes carried 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 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 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, totaling $ 355,000 of principal, were amended to convert at $ 2.05 per common share, and forty-six (46) of the Convertible Notes, totaling $ 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 year ended December 31, 2022. The Company recorded interest expense pursuant to the Convertible Notes, Unrelated Parties in the amount of $ 138,316 and $ 327,353 , consisting of stated interest rates on the Convertible Notes, Unrelated Parties, in the amount of $ 138,316 and $ 211,803 , and $- 0 - and $ 115,550 of amortized debt discounts, for the years ended December 31, 2023 and 2022, respectively, including $ 14,050 of amortized debt discounts on warrants for the year ended December 31, 2022. F- 18 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Note 14 – Notes Payable On June 12, 2023, the Company 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. The Company received net proceeds of $ 150,000 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 year ended December 31, 2023, the Subordinated Notes were repaid in full, along with $ 25,500 of guaranteed interest. 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. The Company is required to register the resale of the shares issuable upon exercise of the warrants with the SEC. Prior to the exercise of a warrant, the Company is 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 year ended December 31, 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 matured on January 10, 2024, as amended, and was secured by the Company’s accounts receivable from Walmart before being repaid in the first quarter of 2024. On May 7, 2021, the Company 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. The Company 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 year ended December 31, 2023, the Subordinated Notes were repaid in full, along with $ 162,413 of interest. 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. The Company is required to register the resale of the shares issuable upon exercise of the warrants with the SEC. Prior to the exercise of a warrant, the Company is 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 and were fully amortized as of December 31, 2022, resulting in $ 70,580 of finance costs, including $ 26,525 of amortized discounts attributable to the warrants for the year ended December 31, 2022. During the year ended December 31, 2023, the Subordinated Notes in the May 2021 Bridge Financing were repaid in full, along with $ 162,413 of interest. The principal balance of the notes payable was $ 1,000,000 at December 31, 2022. The Company recognized $ 168,151 and $ 149,592 of stated interest expense on the May 2021 Bridge Financing for the years ended December 31, 2023 and 2022, respectively. F- 19 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS On December 8, 2020, the Company 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 the Company received $ 2,000,000 or more from any parties that do not currently own, directly or indirectly, any of the Company’s common stock. The maturity dates were extended to June 30, 2023. The Company 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 year ended December 31, 2023, the Senior Secured Notes were repaid in full, along with $ 235,442 of interest. 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. The Company was required to register the shares issuable upon exercise of the warrants with the SEC. Prior to the exercise of a warrant, the Company is 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 during the year ended December 31, 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 year ended December 31, 2022. As of December 31, 2022, the debt discounts had been fully amortized. 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 December 31, 2023 and 2022. F- 20 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Notes payable consists of the following as of December 31, 2023 and 2022: Schedule of Notes Payable 2023 2022 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 $ 260,520 and $ 846,536 of interest expense on notes payable for the years ended December 31, 2023 and 2022, respectively. Interest expense consisted of $ 214,430 of stated interest expense and $ 46,090 of amortized debt discounts due to warrants issued on a Subordinated Note during the year ended December 31, 2023. Interest expense consisted of $ 346,378 of stated interest expense and $ 500,158 of amortized debt discounts, including $ 39,661 of amortization of the debt discount on the Subordinated Notes due to warrants and $ 377,200 of expense related to the amendment of those warrants, during the year ended December 31, 2022. Note 15 – Revolving Line of Credit; Interest Expense; Maturities On October 1, 2021, the Company 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 $ 19,886 for the years ended December 31, 2023 and 2022, respectively. The Company recognized interest expense as follows for the years ended December 31, 2023, and 2022, respectively: Schedule of Recognized Interest Expense 2023 2022 December 31, 2023 2022 Interest on convertible notes payable, related parties $ 3,696 $ 6,999 Interest on convertible notes payable 138,316 211,803 Interest on notes payable 214,430 346,378 Amortization of debt discounts, convertible notes payable - 101,500 Amortization of debt discounts, warrants, convertible notes payable - 14,050 Amortization of debt discounts, notes payable 20,000 83,297 Amended warrants - 377,200 Amortization of debt discounts, warrants, notes payable 46,090 39,661 Amortization of debt discounts on convertible notes payable, related parties, derivatives - 19,004 Amortization of debt discounts on convertible notes payable, derivatives - 1,028,509 Amortization of debt discounts - 1,028,509 Interest on revolving line of credit 8,251 19,886 Finance charge on letter of credit 2,082 - Interest on credit cards 2,406 2,606 Total interest expense $ 435,271 $ 2,250,893 F- 21 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS The aggregate amounts of maturities of notes payable during each of the five years following the balance sheet date and thereafter, 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 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 $ 200,000 $ 234,500 Note 16 – 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 Years Ended December 31, 2023 2022 Finance lease cost: Amortization of right-of-use asset $ 21,092 $ - Interest on lease liability 10,947 - Total finance lease cost $ 32,039 $ - Supplemental balance sheet information related to leases was as follows: Schedule of Supplemental Information Related to Leases December 31, December 31, 2023 2022 Finance lease: Finance lease assets $ 147,228 $ - Current portion of finance lease liability $ 30,901 - Noncurrent finance lease liability 101,029 - Total finance lease liability $ 131,930 $ - Weighted average remaining lease term: Finance lease 3.35 years Weighted average discount rate: Finance lease 11.00 % F- 22 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS 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 Years Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Finance cash flows used for finance leases $ 36,390 $ - 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 December 31, 2023 is as follows: Schedule of Future Minimum Lease Payments Year Ending Minimum Lease December 31, Commitments 2024 $ 43,886 2025 43,886 2026 43,886 2027 and thereafter 29,258 Total $ 160,916 Less effects of discounting 28,986 Lease liability recognized $ 131,930 Note 17 – 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. 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. See Note 7 above regarding amounts owed to us by NXTDried Superfoods SAC. F- 23 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS 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 Exclusivity Year Retention Royalty 2024 $ 100,000 2025 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 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”). The Company paid the first two non-refundable deposits of $ 50,000 on September 27, 2023 and December 31, 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. Note 18 – Stockholders’ Equity (Deficit) Preferred Stock The Company has authorized 20,000,000 shares of $ 0.001 par value preferred stock. As of December 31, 2022, none of the preferred stock has been designated or issued. Common Stock The Company has authorized 8,000,000 shares of $ 0.001 par value common stock. As of December 31, 2023, a total of 4,044,252 shares of common stock have been issued. Each holder of common stock is entitled to one vote for each share of common stock held . 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. F- 24 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS 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 December 31, 2023, all deferred offering costs were paid. Unpaid deferred offering costs totaled $ 543,664 as of December 31, 2022. Common Stock Sales, Related Party for the Year Ended December 31, 2022 On January 10, 2022, the Company sold 3,031 shares of common stock to the Company’s Controller at $ 1.65 per share for proceeds of $ 5,000 . Common Stock Sales for the Year Ended December 31, 2022 On January 7, 2022, the Company sold 1,213 shares of common stock to an accredited investor at $ 4.125 per share for proceeds of $ 5,000 . Common Stock Issued for Services for the Year Ended December 31, 2023 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 under the 2022 Equity Plan to a consultant, who later became a Company director, 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 . 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 . Common Stock Issued for Services for the Year Ended December 31, 2022 On April 30, 2022, the Company awarded 1,000 shares of common stock to a consultant for services provided. The fair value of the common stock was $ 4,125 based on recent sales of common stock to third parties. On January 17, 2022, the Company awarded 4,920 shares of common stock to a consultant for services provided. The fair value of the common stock was $ 20,295 based on recent sales of common stock to third parties. 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 19 – 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 169,304 options with a weighted average exercise price of $ 3.47 per share outstanding as of December 31, 2023. F- 25 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Common Stock Options Issued for Services 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. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 93 % and a call option value of $ 0.7118 , was $ 30,253 . The options are being expensed over the vesting period, resulting in $ 5,672 of stock-based compensation expense during the year ended December 31, 2023. As of December 31, 2023, a total of $ 24,581 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 $ 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 $ 1,952 of stock-based compensation expense during the year ended December 31, 2023. As of December 31, 2023, a total of $ 2,980 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 $ 9,364 of stock-based compensation expense during the year ended December 31, 2023. As of December 31, 2023, a total of $ 14,291 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 year ended December 31, 2023. On September 19, 2022, the Company awarded options to purchase 10,004 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. One fourth of the options vest one year from the grant date, and the remaining shares vest monthly over a thirty-six (36) month period from the 1-year anniversary of the grant date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 39 % and a call option value of $ 1.715 , was $ 17,155 . The options are being expensed over the vesting period, resulting in $ 4,288 and $ 1,201 of stock-based compensation expense during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, a total of $ 11,666 of unamortized expenses are expected to be expensed over the vesting period. On January 2, 2022, the Company awarded options to purchase 40,800 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 options vest monthly over a twenty-four (24) month period, with the initial vesting commencing on January 2, 2022. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 29 % and a call option value of $ 1.1578 , was $ 47,239 . The options were expensed over the vesting period, resulting in $ 23,619 and $ 23,620 of stock-based compensation expense during the years ended December 31, 2023 and 2022, respectively. On January 1, 2022, the Company awarded options to purchase 57,600 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 the Company’s then Chief Financial Officer. The options vest monthly over an eighteen (18) month period, with the initial vesting commencing on January 1, 2022. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 29 % and a call option value of $ 1.1531 , was $ 66,419 . The options were expensed over the vesting period, resulting in $ 23,619 and $ 44,280 of stock-based compensation expense during the years ended December 31, 2023 and 2022, respectively. The options terminated 90 days from the employee’s terminated services, on November 14, 2023. F- 26 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS The following is a summary of information about the Stock Options outstanding at December 31, 2023. Schedule of Underlying Stock Options Outstanding Shares Underlying Shares Underlying Options Outstanding Options Exercisable Weighted Shares Average Weighted Shares Weighted Underlying Remaining Average Underlying Average Range of Options Contractual Exercise Options Exercise Exercise Prices Outstanding Life Price Exercisable Price $ 1.60 – 6.00 169,304 7.4 years $ 3.47 79,926 $ 4.59 The following is a summary of activity of outstanding stock options: Schedule of Stock Options Outstanding Activity Weighted Average Number Exercise of Shares Prices Balance, December 31, 2021 - $ - Options granted 108,404 4.125 Balance, December 31, 2022 108,404 4.125 Options granted 118,500 3.194 Options canceled ( 57,600 ) ( 4.125 ) Balance, December 31, 2023 169,304 $ 3.639 Exercisable, December 31, 2023 79,926 $ 4.594 Note 20 – Common Stock Warrants Warrants to purchase a total of 477,251 shares of common stock at a weighted average exercise price of $ 6.83 per share, with a weighted average remaining life of 6.65 years, were outstanding as of December 31, 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 year ended December 31, 2023. As of December 31, 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 . Amendment to Common Stock Warrants for the Year Ended December 31, 2022 On March 7, 2022, the Company amended outstanding warrants previously issued pursuant to the sale of convertible debt securities. The warrant terms immediately prior to the amendments consisted of the option to purchase an aggregate 16.5 % of the Company’s then-outstanding capital stock, calculated on a fully diluted basis as of the time of exercise, at an aggregate exercise price of $ 2,250,000 , which were subsequently amended to purchase an aggregate 343,413 shares of common stock at a weighted average exercise price of $ 6.77 per share, exercisable over the remaining useful lives on a weighted average basis of 7.12 years. The additional fair value of the warrants, in the amount of $ 377,200 , was expensed as stock-based compensation within professional fees on the statements of operations. F- 27 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Warrants to Purchase Common Stock Issued as Promissory Note Commitments for the Year Ended December 31, 2022 The Company paid a commitment fee in connection with the issuance of the Fluffco Convertible Note on June 6, 2022, consisting of warrants to purchase 3,394 shares of common stock at an exercise price of $ 7.50 per share over a five -year term. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 35 % and a call option value of $ 0.6697 , was $ 2,273 . The warrants were expensed over the vesting period, resulting in $ 2,273 of stock-based compensation expense during the year ended December 31, 2022. The Company paid a commitment fee in connection with the issuance of the Foss Convertible Note on May 26, 2022, consisting of warrants to purchase 18,334 shares of common stock at an exercise price of $ 7.50 per share over a five-year term. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 34 % and a call option value of $ 0.6424 , was $ 11,777 . The warrants were expensed over the vesting period, resulting in $ 11,777 of stock-based compensation expense during the year ended December 31, 2022. The following is a summary of information about our warrants to purchase common stock outstanding at December 31, 2023. Schedule of Warrants to Purchase Common Stock Outstanding Shares Underlying Shares Underlying Warrants Outstanding Warrants Exercisable Weighted Shares Average Weighted Shares Weighted Range of Underlying Remaining Average Underlying Average Exercise Warrants Contractual Exercise Warrants Exercise Prices Outstanding Life Price Exercisable Price $ 6.00 -$ 7.50 477,251 6.65 years $ 6.83 477,251 $ 6.83 The fair value of each warrant grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plan: Schedule of Weighted-Average Assumptions Used for Grants Under the Fixed Option Plan December 31, December 31, 2023 2022 Average risk-free interest rates 4.04 % 2.68 % Average expected life (in years) 6.34 5.00 Volatility 54.4 % 34.5 % The weighted average fair value of warrants granted with exercise prices at the current fair value of the underlying stock was approximately $ 6.88 and $ 6.81 per warrant for the years ended December 31, 2023 and 2022, respectively. The following is a summary of activity of outstanding common stock warrants, as retrospectively presented pursuant to the amendment on March 7, 2022: Schedule of Outstanding Common Stock Warrants Weighted Average Number Exercise of Shares Prices Balance, December 31, 2021 343,413 $ 6.77 Warrants granted 21,728 7.50 Balance, December 31, 2022 365,141 6.81 Warrants granted 112,110 6.88 Balance, December 31, 2023 477,251 $ 6.83 Exercisable, December 31, 2023 477,251 $ 6.83 F- 28 BRANCHOUT FOOD INC. NOTES TO FINANCIAL STATEMENTS Note 21 – Income Taxes The Company incurred a net operating loss for the period from November 19, 2021 (the effective date of the conversion from a limited liability company to a corporation) through December 31, 2023 and, 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. At December 31, 2023, the Company had approximately $ 8,000,000 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2041. The provision (benefit) for income taxes for the period from November 19, 2021 (the effective date of the conversion from a limited liability company to a corporation) through December 31, 2023 were assuming a 21 % effective tax rate. The components of the Company’s deferred tax asset are as follows: Schedule of Deferred Tax Asset December 31, December 31, 2023 2022 Deferred tax assets: Net operating loss carry forwards $ 1,680,000 $ 932,400 Net deferred tax assets before valuation allowance $ 1,680,000 $ 932,400 Less: Valuation allowance ( 1,680,000 ) ( 932,400 ) Net deferred tax assets $ - $ - 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, the Company provided for a full valuation allowance against its net deferred tax assets at December 31, 2023. In accordance with ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions. Note 22 – Subsequent Events The Company evaluates events that have occurred after the balance sheet date through the date hereof, which these financial statements were issued. No events occurred of a material nature that would have required adjustments to or disclosure in these financial statements except as follows: Debt Financing On January 10, 2024, the Company completed the sale of $ 400,000 of Senior Secured Promissory Notes (“Notes”) and Warrants (“Warrants”) to purchase an aggregate of 100,000 shares of the Company’s common stock, to a group of six investors (the “Investors”) led by Eagle Vision Fund LP (“Eagle Vision”), an affiliate of John Dalfonsi, CFO of the Company, pursuant to a Subscription Agreement between the Company and the Investors (the “Subscription Agreement”). Pursuant to the Subscription Agreement, Eagle Vision was paid a cash fee in the amount of $ 40,000 upon the closing of the transaction for due diligence fees. The Notes mature on the earlier of December 31, 2024, or the occurrence of a Qualified Subsequent Financing or Change of Control (as such terms are defined in the Subscription Agreement) and bear interest at a rate of 15 % per annum. In addition, the Notes are subject to covenants, events of defaults and other terms and conditions set forth in the Subscription Agreement. The Company’s obligations under the Notes are secured by liens on substantially all of the Company’s assets pursuant to the terms of a Security Agreement between the Company and the Investors (the “Security Agreement”). Each Warrant is exercisable for a ten -year period at an exercise price of $ 2.00 per share. Pursuant to the Subscription Agreement, the proceeds received by the Company from the sale of the Notes and Warrants were used to repay outstanding indebtedness owed by the Company to John Hinman in the principal amount of $ 200,000 , with the balance to be used for working capital purposes. Common Stock Options Issued for Services On February 22, 2024, the Company granted options to purchase an aggregate 315,000 shares of the Company’s common stock, having an exercise price of $ 1.92 per share, exercisable over a 10 -year term, to a total of six employees, including options to purchase 140,000 and 75,000 shares issued to the Company’s CEO and CFO, respectively. The options vested immediately. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 41 % and a call option value of $ 0.8581 , was $ 270,296 . On February 22, 2024, the Company also granted options to purchase an aggregate 79,166 shares of the Company’s common stock, having an exercise price of $ 1.92 per share, exercisable over a 10 -year term, to a total of three of the Company’s directors. The options vested immediately. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 41 % and a call option value of $ 1.1407 , was $ 90,306 . F- 29 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None