BranchOut Food Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS BRANCHOUT FOOD INC. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2025 2024 (Unaudited) Assets Current assets: Cash $ 2,386,381 $ 2,329,452 Accounts receivable, net 1,453,567 418,463 Advances on inventory purchases 233,093 123,792 Inventory 1,589,867 1,930,535 Other current assets 128,697 114,372 Total current assets 5,791,605 4,916,614 Property and equipment, net 4,281,227 4,056,299 Right-of-use assets 1,528,422 1,575,497 Other assets 2,149,947 1,947,483 Note receivable 359,982 359,982 Total Assets $ 14,111,183 $ 12,855,875 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,137,566 $ 1,194,079 Accrued expenses 626,683 333,614 Other current liabilities 456,714 912,000 Convertible notes payable, related parties, net of discounts 3,349,832 3,333,413 Notes payable, current portion 167,412 251,647 Notes payable, related parties 2,760,000 2,760,000 Notes payable, current portion 2,760,000 2,760,000 Finance lease liability, current portion 30,054 29,243 Total current liabilities 8,528,261 8,813,996 Notes payable, net of current portion 34,500 34,500 Operating lease liability, net of current portion 1,583,120 1,573,035 Finance lease liability, net of current portion 84,263 92,761 Total Liabilities 10,230,144 10,514,292 Stockholders’ Equity: 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; 9,584,769 and 8,424,600 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively 9,585 8,425 Additional paid-in capital 22,352,265 19,903,796 Accumulated other comprehensive loss ( 372 ) ( 8,581 ) Accumulated deficit ( 18,480,439 ) ( 17,562,057 ) Total Stockholders’ Equity 3,881,039 2,341,583 Total Liabilities and Stockholders’ Equity $ 14,111,183 $ 12,855,875 See accompanying notes to financial statements. 3 BRANCHOUT FOOD INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) For the Three Months Ended March 31, 2025 2024 Net revenue $ 3,193,522 $ 1,467,016 Cost of goods sold 2,641,007 1,183,428 Gross profit 552,515 283,588 Operating expenses: General and administrative 685,779 319,736 Salaries and wages 314,242 598,286 Professional fees 235,034 390,666 Total operating expenses 1,235,055 1,308,688 Operating loss ( 682,540 ) ( 1,025,100 ) Other income (expense): Interest income 5,136 2,877 Interest expense ( 240,978 ) ( 28,744 ) Total other income (expense) ( 235,842 ) ( 25,867 ) Net loss $ ( 918,382 ) $ ( 1,050,967 ) Other comprehensive gain: Gain on foreign currency translation $ 8,209 $ - Net other comprehensive loss $ ( 910,173 ) $ ( 1,050,967 ) Weighted average common shares outstanding - basic and diluted 8,745,747 4,109,467 Net loss per common share - basic and diluted $ ( 0.11 ) $ ( 0.26 ) See accompanying notes to financial statements. 4 BRANCHOUT FOOD INC. CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Shares Amount Shares Amount Capital Payable Income Deficit Equity Accumulated Additional Other Total Preferred Stock Common Stock Paid-In Subscriptions Comprehensive Accumulated Stockholders’ Shares Amount Shares Amount Capital Payable Loss Deficit Equity Balance, December 31, 2024 - $ - 8,424,600 $ 8,425 $ 19,903,796 $ - $ ( 8,581 ) $ ( 17,562,057 ) $ 2,341,583 Common stock issued pursuant to ATM program - - 1,120,422 1,120 2,406,328 - - - 2,407,448 Exercise of underwriters’ warrants - - 39,747 40 38,117 - - - 38,157 Stock options issued for services - - - - 4,024 - - - 4,024 Gain on foreign currency translation - - - - - - 8,209 - 8,209 Net loss - - - - - - - ( 918,382 ) ( 918,382 ) Balance, March 31, 2025 - $ - 9,584,769 $ 9,585 $ 22,352,265 $ - $ ( 372 ) $ ( 18,480,439 ) $ 3,881,039 Shares Amount Shares Amount Capital Payable Income Deficit Equity Accumulated Additional Other Total Preferred Stock Common Stock Paid-In Subscriptions Comprehensive Accumulated Stockholders’ Shares Amount Shares Amount Capital Payable Loss Deficit Equity 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 Common stock issued for services - - 77,094 77 113,498 36,019 - - 149,594 Stock options issued for services - - - - 376,384 - - - 376,384 Common stock warrants granted to note holders pursuant to debt financing - - - - 8,861 - - - 8,861 Net loss - - - - - - - ( 1,050,967 ) ( 1,050,967 ) Balance, March 31, 2024 - $ - 4,121,346 $ 4,121 $ 15,515,716 $ 36,019 $ - $ ( 13,861,508 ) $ 1,694,348 Balance - $ - 4,121,346 $ 4,121 $ 15,515,716 $ 36,019 $ - $ ( 13,861,508 ) $ 1,694,348 See accompanying notes to financial statements. 5 BRANCHOUT FOOD INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2025 2024 For the Three Months Ended March 31, 2025 2024 Cash flows from operating activities Net loss $ ( 918,382 ) $ ( 1,050,967 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 152,355 56,336 Loss on disposal of property and equipment 558 - Amortization of debt discounts 16,419 14,666 Common stock issued for services - 149,594 Options and warrants issued for services 4,024 376,384 Decrease (increase) in assets: Accounts receivable ( 1,035,104 ) 135,573 Advances on inventory purchases ( 109,301 ) ( 319,974 ) Inventory 340,668 218,740 Other current assets ( 14,325 ) ( 31,437 ) Right-of-use asset 47,075 8,454 Other assets ( 202,464 ) - Increase (decrease) in liabilities: Accounts payable ( 56,513 ) 14,194 Accounts payable, related parties - 12,000 Accrued expenses ( 162,217 ) ( 87,141 ) Operating lease liability 10,085 - Net cash used in operating activities ( 1,927,122 ) ( 503,578 ) Cash flows from investing activities Purchase of property and equipment ( 377,841 ) ( 50,000 ) Payments received on notes receivable - 9,900 Net cash used in investing activities ( 377,841 ) ( 40,100 ) Cash flows from financing activities Payment of deferred offering costs ( 15,610 ) - Repayment of notes payable ( 84,235 ) ( 200,000 ) Proceeds received on notes payable, related parties - 345,000 Principal payments on finance lease ( 7,687 ) ( 7,411 ) Proceeds from sale of common stock pursuant to ATM program 2,423,058 - Proceeds from exercise of underwriters’ warrants 38,157 - Net cash provided by financing activities 2,353,683 137,589 Effect of exchange rate changes on cash 8,209 - Net increase (decrease) in cash 56,929 ( 406,089 ) Cash - beginning of period 2,329,452 657,789 Cash - ending of period $ 2,386,381 $ 251,700 Supplemental disclosures: Interest paid $ 63,621 $ 14,617 Income taxes paid $ - $ - Non-cash investing and financing transactions: Relative fair value of warrants issued as a debt discount $ - $ 8,861 See accompanying notes to financial statements. 6 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1 – Nature of Business and Significant Accounting Policies Nature of Business BranchOut Food Inc. (“BranchOut,” the “Company,” “we,” “our” or “us”) was incorporated as Avochips Inc. in Oregon on February 21, 2017, and converted into AvoLov, LLC, an Oregon limited liability company, on November 2, 2017. On November 19, 2021, the Company converted from an Oregon limited liability company into BranchOut Food Inc., a Nevada corporation. The Company is engaged in the development, marketing, sale, and distribution of plant-based, dehydrated fruit and vegetable snacks and powders. The Company’s products are currently manufactured at its new production facility that commenced production in Pisco Peru in December 2024, and is supported by contract manufacturers, as necessary. The Company’s products are manufactured using a new proprietary dehydration technology licensed by the Company. The Company’s customers are primarily located throughout the United States. Basis of Accounting The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) . Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of March 31, 2025, the results of operations for the three months ended March 31, 2025 and 2024, and cash flows for the three months ended March 31, 2025 and 2024. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2024 was derived from our audited financial statements. The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements for the year ended December 31, 2024, which were included in our Annual Report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports. 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. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control and ownership at March 31, 2025: Name of Entity Jurisdiction Relationship BranchOut Food Inc. (1) Nevada, U.S. Parent BranchOut Food Sucursal Peru (2) Peru Subsidiary (1) Holding company in the form of a corporation. (2) Peruvian wholly-owned subsidiary of BranchOut Food Inc. established on April 26, 2024 in the form of a branch. The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s headquarters are located in Bend, Oregon. Going Concern As shown in the accompanying condensed consolidated financial statements, as of March 31, 2025, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $ 18,480,439 , with negative working capital of $ 2,736,656 , which may not be sufficient to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. Management believes these factors will contribute to achieving profitability. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. These condensed consolidated 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. 7 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) 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 Under ASC 280, Segment Reporting , operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company has two components, consisting of its sales operations in the United States, and its production operations in Peru. Therefore, the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s operations based on these two operating segments for the manufacture and distribution of its products. Fair Value of Financial Instruments The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement and Disclosures (ASC 820). Under ASC 820-10-05, the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments. Cash and Cash Equivalents Cash equivalents include money market accounts which have maturities of three months or less. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market value. There were no cash equivalents on hand on March 31, 2025 or December 31, 2024. 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 $ 1,628,846 and $ 1,555,223 in excess of FDIC insured limits on March 31, 2025 and December 31, 2024, 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 an allowance for doubtful accounts of $ 25,586 at March 31, 2025 and December 31, 2024. Inventory The Company’s products consist of pre-packaged and bulk-dried fruit and vegetable-based snacks, powders and ingredients developed at its production facility in Peru, and purchased products from contract-manufacturers in Chile and/or Peru. Raw materials consist of purchased fruits and vegetables and 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, work in progress and finished goods are stated at the lower of cost or net realizable value using the average cost valuation method, and consisted of the following as of March 31, 2025 and December 31, 2024: Schedule of Inventory March 31, December 31, 2025 2024 Raw materials $ 223,385 $ 464,681 Work in progress 683,264 - Finished goods 683,218 1,465,854 Total inventory 1,589,867 1,930,535 8 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) The Company had prepaid inventory advances on product in the amounts of $ 233,093 and $ 123,792 as of March 31, 2025 and December 31, 2024, respectively. Advances of 70 % of estimated finished product costs are made to enable manufacturers to purchase raw materials necessary to produce finished products. The remaining 30 % of finished product costs are paid upon receipt of finished goods. 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 - 10 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. 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 The Company is party to a license agreement under which it is licensed to utilize certain technology and production equipment developed and manufactured by another company, relating on an exclusive basis to avocado products and on a non-exclusive basis to other products. The license is not discernible from the equipment; therefore, the license costs have been capitalized and depreciated over the useful life of the equipment. The license agreement also entitles the licensor to a royalty on all revenue from the sale of products produced using the equipment. These royalties are recognized as royalty expenses as the products are sold. There was a total of $ 40,585 of royalty payments made during the three months ended March 31, 2025, and no ne during the three months ended March 31, 2024. 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 See Note 14, 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. 9 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customer . Under ASC 606, the Company recognizes revenue from the sale of its plant-based snack products in accordance with a five-step model in which the Company evaluates the transfer of promised goods or services and recognizes revenue when customers obtain control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as separate performance obligations, and the related costs are recorded as selling expenses in general and administrative expenses in the statement of operations. Revenue is reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time. The Company’s sales are predominantly generated from the sale of finished products to retailers, and to a lesser extent, direct to consumers through third party website platforms. These sales contain a single performance obligation, and revenue is recognized at a single point in time when ownership, risks and rewards transfer. Typically, this occurs when the goods are received by the retailer or customer, or when the title of goods is exchanged. Revenues are recognized in an amount that reflects the net consideration the Company expects to receive in exchange for the goods. The Company promotes its products with advertising, consumer incentives and trade promotions. These programs include discounts, slotting fees, coupons, rebates, in-store display incentives and volume-based incentives. Customer trade promotion and consumer incentive activities are recorded as a reduction to the transaction price based on amounts estimated as being due to customers and consumers at the end of a period. The Company derives these estimates based principally on historical utilization and redemption rates. The Company does not receive a distinct service in relation to the advertising, consumer incentives and trade promotions. Payment terms in the Company’s invoices are based on the billing schedule established in contracts and purchase orders with customers. Expenses such as slotting fees, sales discounts, and allowances are accounted for as a direct reduction of revenues as follows for the three months ended March 31, 2025 and 2024: Schedule of Revenue For the Three Months Ended March 31, 2025 2024 Revenue $ 3,232,291 $ 1,470,836 Less: slotting, discounts, and allowances 38,769 3,820 Net revenue $ 3,193,522 $ 1,467,016 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 $ 156,226 and $ 57,059 for the three months ended March 31, 2025 and 2024, 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. 10 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) The Company incurred stock-based compensation of $ 4,024 and $ 525,978 for the three months ended March 31, 2025 and 2024, respectively. 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. Recently Adopted Accounting Standards In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, “S egment Reporting (Topic 280): Improvements to Reportable Segment Disclosure. ” The ASU updated reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. The Company adopted ASU No. 2023-07 during the year ended December 31, 2024. See Note 19 “ Segment Reporting ” in the accompanying Notes to the Consolidated Financial Statements for additional information. Accounting Standards Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, “ Income Taxes (Topic 740): Improvements to Income Tax Disclosures” . The amendments in this ASU add specific requirements for income tax disclosures to improve transparency and decision usefulness. The guidance in ASU 2023-09 requires that public business entities disclose specific categories in the income tax rate reconciliation and provide additional qualitative information for reconciling items that meet a quantitative threshold. In addition, the amendments in ASU 2023-09 require that all entities disclose the amount of income taxes paid disaggregated by federal, state, and foreign taxes and disaggregated by individual jurisdictions. The ASU also includes other disclosure amendments related to the disaggregation of income tax expense between federal, state and foreign taxes. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this update should be applied on a prospective basis and retrospective application is permitted. The Company is currently evaluating this ASU to determine its impact on the Company’s disclosures. In November 2024, the FASB issued Accounting Standards Update (“ASU”) 2024-03 and in January 2025, the FASB issued ASU 2025-01, “ Income Statement - Reporting Comprehensive Income -Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ” The guidance requires disclosures about specific expense categories, including but not limited to, purchases of inventory, employee compensation, depreciation, amortization and selling expenses. The ASU is effective in the first annual reporting period beginning after December 15, 2026, and for interim periods within annual reporting periods beginning after December 15, 2027. The Company is currently assessing the effect that adoption of this guidance will have on its Consolidated Financial Statements. Note 2 – Related Party Transactions Kaufman Convertible Note On July 15, 2024, the Company entered into a Securities Purchase Agreement (as amended, the “SPA”) with Daniel L. Kaufman, pursuant to which Mr. Kaufman agreed to purchase from the Company, in a private placement (i) a 12 % Senior Secured Convertible Promissory Note in the principal amount of up to $ 3,400,000 (the “Convertible Note”), convertible into shares of the Company’s common stock at a fixed price of $ 0.7582 per share of common stock, a (ii) a warrant to purchase 1,000,000 shares of common stock at an exercise price of $ 1.00 per share (the “$ 1.00 Warrant”), and (iii) a warrant to purchase 500,000 shares of common stock at an exercise price of $ 1.50 per share (the “$ 1.50 Warrant” and, together with the $ 1.00 Warrant, the “Warrants” and together with the Convertible Note, the “Purchased Securities”), in consideration of an initial loan in the principal amount of $ 2,000,000 (the “Initial Loan”) made to the Company under the Convertible Note, subject to the terms and conditions thereof. On July 19, 2024, the Company, Mr. Kaufman and Kaufman Kapital LLC (“Kaufman Kapital”) entered into an amendment to the SPA, which among other things, replaced Mr. Kaufman with Kaufman Kapital as the “Investor” under the SPA. On July 24, 2024, the Company issued the Purchased Securities to Kaufman Kapital in consideration of making the Initial Loan to the Company. On December 9, 2024, Kaufman Kapital made an additional loan to the Company under the Convertible Note in the amount of $ 1,400,000 . The Convertible Note matures on the earlier of (i) December 31, 2025 , (ii) the sale by the Company of $ 5,000,000 of equity or debt securities in a single transaction or series of related transactions (excluding certain specified transactions), or (iii) the closing of a change of control transaction as provided in the Convertible Note. Loans outstanding under the Convertible Note bear interest at an initial rate of 12 % per annum, and together with accrued principal are convertible into common stock. 11 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) The Company’s obligations under the Convertible Note are secured by a lien granted to Kaufman Kapital on substantially all of the Company’s assets pursuant to a Security Agreement entered between the Company and Kaufman Kapital (the “Security Agreement”). In addition, the Convertible Note includes affirmative and negative covenants, events of defaults and other terms and conditions, customary in transactions of this nature. Kaufman Promissory Note On August 30, 2024, the Company borrowed $ 1,200,000 from Kaufman Kapital pursuant to a Senior Secured Promissory Note in the principal amount of $ 1,200,000 (the “Note”) issued by the Company to Kaufman Kapital. The Note matures on June 30, 2025 , as amended. The loan under the Note bears interest at a rate of 15 % per annum. The Company’s obligations under the Note are secured by a lien on substantially all of the Company’s assets pursuant to the Security Agreement. In addition, the Note includes affirmative and negative covenants, events of defaults and other terms and conditions, customary in transactions of this nature. Eagle Vision Promissory Notes In connection with the sale of the Purchased Securities to Kaufman Kapital LLC under the SPA, the Company entered into an Omnibus Amendment to Note Documents with substantially all of the holders (the “Holders”) of the Company’s Senior Notes and Warrants issued under that certain Subscription Agreement dated as of January 10, 2024, as amended, pursuant to which, among other things, (i) the exercise price of the Warrants issued to the Holders was reduced from $ 2.00 to $ 1.00 , (ii) the outside maturity date of the Senior Notes held by the Holders was extended from December 31, 2024 to December 31, 2025 (subject to further extension in the event the maturity date of the Convertible Note is extended), (iii) the Company’s obligation to make payments of principal under the Senior Notes held by the Holders beginning July 1, 2024 has been eliminated, and instead all obligations of the Company under such Senior Notes will be due in one lump sum on the maturity date of the Senior Notes, and (iv) the Company’s obligations under the Convertible Note and liens granted to the holder thereof, will be pari passu with the Company’s obligations under the Senior Notes held by the Holders and liens granted to the holders thereof. The amendment warrants resulted in $ 89,949 of additional interest expense. On various dates from January 9, 2024 through May 22, 2024, the Company completed the sale of an aggregate $ 1,675,000 of Senior Secured Promissory Notes (“Senior Notes”) and Warrants (“Warrants”) to purchase an aggregate of 518,750 shares of the Company’s common stock, to a group of Investors (“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. Pursuant to the subscription agreements, Eagle Vision was paid aggregate cash fees in the amount of $ 177,500 upon the closing of the transactions for due diligence fees in consideration of services rendered and to be rendered by Eagle Vision to the Company and the investors, including conducting due diligence with respect to the Company, monitoring the performance by the Company of its obligations under the senior secured notes, servicing the interest and principal payments for purchasers, engaging in ongoing discussions with the Company’s management regarding the Company’s operations and financial condition, acting as collateral agent, and evaluating financial and non-financial information related to the Company, which services are to be provided by Eagle Vision until the senior secured notes have been paid in full, and an aggregate $ 35,000 of legal fees was paid to Investors’ counsel. The Notes mature on the earlier of December 31, 2025 , 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. Each Warrant is exercisable for a 10 -year period at an exercise price of $ 1.00 per share. Note 3 – Fair Value of Financial Instruments Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value. 12 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) 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. The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of March 31, 2025 and December 31, 2024: Schedule of Valuation of Financial Instruments at Fair Value on a Recurring Basis Level 1 Level 2 Level 3 Fair Value Measurements at March 31, 2025 Level 1 Level 2 Level 3 Assets Cash $ 2,386,381 $ - $ - Right-of-use-asset - - 1,528,422 Notes receivable - 359,982 - Total assets 2,386,381 359,982 1,528,422 Liabilities Convertible notes payable, related parties net of $ 50,168 of discounts - - 3,349,832 Notes payable - 201,912 - Notes payable, related parties - 2,760,000 - Lease liabilities - - 1,697,437 Total liabilities - 2,961,912 5,047,269 Total assets and liabilities $ 2,386,381 $ ( 2,601,930 ) $ ( 3,518,847 ) Level 1 Level 2 Level 3 Fair Value Measurements at December 31, 2024 Level 1 Level 2 Level 3 Assets Cash $ 2,329,452 $ - $ - Right-of-use-asset - - 1,575,497 Notes receivable - 359,982 - Total assets 2,329,452 359,982 1,575,497 Liabilities Convertible notes payable, related parties net of $ 66,587 of discounts - - 3,333,413 Notes payable - 286,147 - Notes payable, related parties - 2,760,000 - Lease liabilities - - 1,695,039 Total liabilities - 3,046,147 5,028,452 Total assets and liabilities $ 2,329,452 $ ( 2,686,165 ) $ ( 3,452,955 ) There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the three months ended March 31, 2025, or the year ended December 31, 2024. 13 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 4 – Major Customers and Accounts Receivable The Company had certain customers whose revenue individually represented 10 % or more of the Company’s total net revenue, or whose accounts receivable balances individually represented 10 % or more of the Company’s total accounts receivable, as follows: For the three months ended March 31, 2025, two customers accounted for 92 % of net revenue and 88 % of accounts receivable at the end of the period, and for the three months ended March 31, 2024, one customer accounted for 99 % of net revenue and 93 % of accounts receivable at the end of the period. Note 5 – Other Current Assets Other current assets consisted of the following as of March 31, 2025 and December 31, 2024: Schedule of Other Current Assets March 31, December 31, 2025 2024 Prepaid insurance costs $ 24,528 $ 21,736 Prepaid advertising and trade show fees 5,927 14,944 Prepaid professional fees & license fees 50,434 27,369 Prepaid taxes 6,472 - Miscellaneous prepaid expenses 7,271 19,583 Interest receivable 33,403 30,740 Refunds receivable 662 - Total other current assets $ 128,697 $ 114,372 Note 6 – Property and Equipment Property and equipment as of March 31, 2025 and December 31, 2024 consisted of the following: Schedule of Property and Equipment March 31, December 31, 2025 2024 Equipment and machinery $ 4,957,824 $ 4,580,541 Less: Accumulated depreciation ( 676,597 ) ( 524,242 ) Total property and equipment, net $ 4,281,227 $ 4,056,299 Depreciation of property and equipment was $ 152,355 and $ 56,336 for the three months ended March 31, 2025 and 2024, respectively. For the three months ended March 31, 2025, a total of $ 152,265 of depreciation was included in the inventoried production costs, which is expensed through Cost of Goods Sold as the inventory is sold. Note 7 – Other Assets Other assets consisted of the following as of March 31, 2025 and December 31, 2024: Schedule of Other Assets March 31, December 31, 2025 2024 First position mortgage (1) $ 1,267,000 $ 1,267,000 VAT tax receivable (2) 882,947 680,483 Total other assets $ 2,149,947 $ 1,947,483 (1) On May 10, 2024, in connection with the lease of the Company’s facility in Peru, the Company paid $ 275,000 toward the purchase of a First Position Mortgage (“FPM”) receivable in the amount of $ 1,267,000 , which is secured by the Peru facility and was owed by the landlord of the Peru facility to its former tenant, for a purchase price of $ 1,267,000 . The Company paid an additional $ 80,000 during the fourth quarter of 2024, and another $ 456,000 during the first quarter of 2025. The remaining $ 456,000 due on the FPM is to be paid in monthly installments of $ 152,000 through June 23, 2025 , as presented in other current liabilities on the balance sheet. The unpaid balance accrues interest at 9 %. At March 31, 2025, a total of $ 50,081 of interest was accrued. The FPM enables the Company to have uninterrupted access to the leased facility, and secures the option to purchase the facility by becoming the primary lien-holder on the facility. The Company intends to exercise its option to purchase the facility at some point in the future, in which case the FPM would either be repaid out of the proceeds from a mortgage, or the FPM would be used to reduce the purchase price of the facility. (2) VAT tax receivable is comprised of taxes that were paid as the Company imported equipment and raw materials into Peru. These taxes will be refunded as inventory is exported, or if equipment is exported for any unforeseeable reason. 14 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 8 – Notes Receivable Nanuva Note Receivable On February 4, 2021, the Company entered into a Manufacturing and Distributorship Agreement (“MDA”) with Natural Nutrition SpA, a Chilean company (“Nanuva”), in which the Company loaned $ 500,000 to Nanuva (“Advance Payment”) to help finance the capital investment needed for Nanuva to purchase two industrial fruit drying machines to be used in servicing the Company’s manufacturing needs. Pursuant to the MDA, the Company 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. As of March 31, 2025, a total of $ 156,241 of the Advance Payment had been repaid as a reduction of inventory costs, consisting of $ 140,018 of principal and $ 16,223 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 March 31, 2025, a total of $ 393,385 was outstanding from Nanuva, consisting of $ 359,982 of principal and $ 33,403 of unpaid interest. The Advance Payment is collateralized by a second lien in the equipment. Pursuant to the MDA, the Company has been appointed as Nanuva’s exclusive distributor in the following territories: Summary of Nanuva’s Exclusive Distributor in Territories Exclusivity Minimum Volume Product Territories (Kg/month)(“MOQ”) Avocado Powder Worldwide (except Chile) 1,000 Banana Chips Worldwide (except Chile) 1,000 Avocado Snacks North America (Canada and USA) 1,000 Avocado Chips Worldwide 1,000 Other Powders No Exclusivity - 0 - Note 9 – Accrued Expenses Accrued expenses consisted of the following as of March 31, 2025 and December 31, 2024, respectively: Schedule of Accrued Expenses March 31, December 31, 2025 2024 Accrued payroll and taxes $ 195,958 $ 82,338 Accrued interest 371,721 210,783 Accrued chargebacks 18,419 26,663 Accrued royalties 40,585 13,830 Total accrued expenses $ 626,683 $ 333,614 Note 10 – Convertible Notes Payable, Related Parties As discussed in further detail in Note 2, on July 24, 2024, the Company issued the $ 3.4 million Convertible Note to Kaufman Kapital, together with Warrants, convertible into shares of common stock at a fixed price of $ 0.7582 per share. The Convertible Note matures on the earlier of (i) December 31, 2025 , (ii) the sale by the Company of $ 5,000,000 of equity or debt securities in a single transaction or series of related transactions (excluding certain specified transactions), or (iii) the closing of a change of control transaction as provided in the Convertible Note. Loans outstanding under the Convertible Note bear interest at an initial rate of 12 % per annum, and together with accrued principal are convertible into common stock. The Company’s obligations under the Convertible Note are secured by a lien granted to Kaufman Kapital on substantially all of the Company’s assets pursuant to the Security Agreement. In addition, the Convertible Note includes affirmative and negative covenants, events of defaults and other terms and conditions, customary in transactions of this nature. In accordance with ASC 470, the Company recorded total discounts of $ 95,958 , consisting of $ 75,000 of legal fees and $ 20,958 related to the relative fair value of the Warrants. The discounts are amortized to interest expense over the term of the loan using the effective interest method. As of March 31, 2025, a total of $ 50,168 of unamortized debt discounts are expected to be expensed over the remaining life of the loan. The Company recognized $ 117,022 of interest expense on convertible notes payable, related parties for the three months ended March 31, 2025, consisting of $ 100,603 of stated interest expense, $ 12,833 of amortized debt discounts and $ 3,586 of amortized debt discounts due to warrants. 15 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 11 – Notes Payable Notes payable consists of the following as of March 31, 2025 and December 31, 2024: Schedule of Notes Payable March 31, December 31, 2025 2024 On May 22, 2023, the Company entered into an equipment purchase agreement with the EnWave Corporation (“EnWave”), for the purchase of a used 100kW Rev vacuum microwave dehydration machine (the “EnWave Machine”). Cash payments of $ 500,000 were paid towards the $ 1,000,000 purchase price on the EnWave Machine, while the $ 500,000 balance due is to be paid in twelve (12) monthly installments of $ 44,424 , bearing interest 12 % per annum, commencing August 1, 2024. $ 167,412 $ 251,647 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. 34,500 34,500 Total notes payable $ 201,912 $ 286,147 Less: current maturities 167,412 251,647 Notes payable, less current maturities $ 34,500 $ 34,500 The Company recognized $ 5,008 and $ 598 of interest expense on notes payable for the three months ended March 31, 2025 and 2024, respectively. Note 12 – Notes Payable, Related Parties Kaufman Note As discussed in Note 2, on August 30, 2024, the Company borrowed $ 1,200,000 from Kaufman Kapital pursuant to a Senior Secured Promissory Note that, as amended, matures on June 30, 2025 . The loan under the Note bears interest at a rate of 15 % per annum. The Company’s obligations under the Note are secured by a lien on substantially all of the Company’s assets pursuant to the Security Agreement. In addition, the Note includes affirmative and negative covenants, events of defaults and other terms and conditions, customary in transactions of this nature. Eagle Vision Notes As discussed in Note 2, in connection with the sale of the Purchased Securities to Kaufman Kapital under the SPA, the Company entered into an Omnibus Amendment to Note Documents with substantially all of the Holders of the Company’s Senior Notes and Warrants issued under that certain Subscription Agreement dated as of January 10, 2024, as amended, pursuant to which, among other things, (i) the exercise price of the Warrants issued to the Holders was reduced from $ 2.00 to $ 1.00 , (ii) the outside maturity date of the Senior Notes held by the Holders was extended from December 31, 2024 to December 31, 2025 (subject to further extension in the event the maturity date of the Convertible Note is extended), (iii) the Company’s obligation to make payments of principal under the Senior Notes held by the Holders beginning July 1, 2024 has been eliminated, and instead all obligations of the Company under such Senior Notes will be due in one lump sum on the maturity date of the Senior Notes, and (iv) the Company’s obligations under the Convertible Note and liens granted to the holder thereof, will be pari passu with the Company’s obligations under the Senior Notes held by the Holders and liens granted to the holders thereof. The amendment warrants resulted in $ 89,949 of additional interest expense. 16 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) During the period of May 14, 2024 through May 22, 2024, the Company completed the sale of an aggregate of $ 1,050,000 of Senior Notes, and Warrants to purchase an aggregate of 262,500 shares of the Company’s common stock, to a group of Investors led by Eagle Vision, an affiliate of John Dalfonsi, a director of the Company and its Chief Financial Officer. The sales were effected pursuant to a Subscription Agreement, dated January 10, 2024, between the Company and the investors in the Senior Notes, as amended by an amendment (“First Amendment”) to the Subscription Agreement dated as of April 16, 2024 (as so amended, the “Subscription Agreement”). The Senior Notes mature on the earlier of December 31, 2025, 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 Senior 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 the Security Agreement entered into by the Company on January 10, 2024 in favor of holders of the Senior Notes (the “Security Agreement”). Each Warrant is exercisable for a 10 -year period at an exercise price of $ 1.00 per share. On April 16, 2024, the Company completed the sale of $ 225,000 of Senior Notes, and Warrants to purchase an aggregate of 56,250 shares of the Company’s common stock, to a group of seven Investors, pursuant to a First Amendment to the Subscription Agreement between the Company and the Investors dated as of April 16, 2024. The First Amendment incorporates and amends certain provisions of the Subscription Agreement, dated January 10, 2024, previously entered into by the Company and investors that purchased Notes and Warrants from the Company on January 10, 2024 (the “January Investors”). On July 30, 2024, the Company repaid an aggregate total of $ 115,000 of principal to three of the seven Investors in settlement of their promissory notes. The First Amendment also (i) increased the aggregate principal amount of the Senior Notes available to be sold from time to time under the Subscription Agreement from $ 400,000 to $ 2,000,000 , (ii) increased the number of shares of common stock of the Company available to be issued under Warrants sold from time to time under the Subscription Agreement from 100,000 to 600,000 , (iii) provides for an aggregate one-time payment in the amount of $ 46,290 to the January Investors and the issuance to them of Warrants to purchase 100,000 shares of common stock, in consideration of their agreement to enter into the First Amendment, and (iv) provided for the payment of up to $ 80,000 to Eagle Vision Fund with the proceeds of Notes to be issued by the Company at subsequent closings of sales of Senior Notes and Warrants, in consideration of services rendered and to be rendered by Eagle Vision to holders of the Senior Notes while the Notes are outstanding, including acting as collateral agent and due diligence and collateral monitoring services. On January 9, 2024, the Company completed the sale of $ 400,000 of Senior Notes and Warrants to purchase an aggregate of 100,000 shares of the Company’s common stock, to a group of six Investors led by Eagle Vision, pursuant to a Subscription Agreement between the Company and the Investors. In accordance with ASC 470, the Company recorded total discounts of $ 339,698 , including $ 80,908 on the relative fair value of the Warrants during the year ended December 31, 2024. The discounts were amortized to interest expense during 2024 using the effective interest method. Eagle Vision has been paid aggregate cash fees in the amount of $ 177,500 from the sales of the Senior Notes in consideration of services rendered and to be rendered by Eagle Vision to the Company and the holders of the Senior Notes, including for conducting due diligence with respect to the Company, monitoring the performance by the Company of its obligations under the Senior Notes, servicing the interest and principal payments for holders of the Senior Notes, engaging in ongoing discussions with the Company’s management regarding the Company’s operations and financial condition, acting as collateral agent, and evaluating financial and non-financial information related to the Company. The Company has also paid an aggregate of $ 35,000 of the investors’ legal fees from sales of the Senior Notes. To date, in a series of closings pursuant to the Subscription Agreement, including the most recent sales described above, the Company has issued an aggregate $ 1,675,000 of principal pursuant to the Senior Notes, and Warrants to purchase an aggregate 518,750 shares of common stock. 17 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Notes payable, related parties, consists of the following as of March 31, 2025 and December 31, 2024: Schedule of Notes Payable Related Parties March 31, December 31, 2025 2024 Total Kaufman Note $ 1,200,000 $ 1,200,000 Total Senior Notes held by Eagle Vision 1,560,000 1,560,000 Total Senior Notes payable 1,560,000 1,560,000 Total notes payable, related parties 2,760,000 2,760,000 Less: current maturities 2,760,000 2,760,000 Notes payable, related parties, less current maturities $ - $ - The Company recognized $ 102,082 of interest expense on notes payable, related parties for the three months ended March 31, 2025, and $ 28,146 of interest expense on notes payable, related parties for the three months ended March 31, 2024, consisting of $ 13,480 of stated interest expense, $ 2,034 of amortized debt discounts and $ 12,632 of amortized debt discounts due to warrants. The Company recognized aggregate interest expense for the three months ended March 31, 2025 and 2024 respectively, as follows: Schedule of Recognized Interest Expense March 31, March 31, 2025 2024 Interest on convertible notes payable, related parties $ 100,603 $ - Amortization of debt discounts on related party convertible notes 12,833 - Amortization of debt discounts on related party convertible notes, warrants 3,586 - Amortization of debt discounts on related party convertible notes 3,586 - Interest on notes payable 5,008 598 Interest on notes payable, related parties 102,082 13,480 Interest on notes payable 102,082 13,480 Amortization of debt discounts on related party notes - 12,632 Amortization of debt discounts on related party notes, warrants - 2,034 Amortization of debt discounts on related party notes - 2,034 Interest on first credit position financing 16,866 - Total interest expense $ 240,978 $ 28,744 Note 13 – Leases Equipment Lease 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 May 31, 2028 , with monthly lease payments of $ 3,657 commencing June 1, 2023, and a pre-funding and acceptance fee of $ 18,079 , 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. Peru Facility Lease On May 10, 2024, the Company entered into a ten-year lease for the 50,000 square-foot Peru Facility, which commenced operations in December of 2024. The lease of the Peru Facility requires monthly lease payments of $ 8,000 in the first two years of the lease, $ 20,000 in the third year of the lease, $ 22,000 in the fourth year of the lease, $ 24,000 in the fourth year of the lease, and $ 25,000 thereafter. The lease also has a 10 -year renewal option, and a buy-out option under which we may purchase the Peru Facility for $ 1,865,456 . In connection with the lease of the Peru Facility, the Company purchased a first position mortgage receivable in the amount of $ 1,267,000 , which is secured by the Peru Facility and was owed by the landlord of the Peru Facility to its former tenant, for a purchase price of $ 1,267,000 , of which $ 456,000 was paid during the three months ended March 31, 2025, and $ 355,000 was paid during the year ended December 31, 2024. The remaining $ 456,000 is to be paid in monthly installments of $ 152,000 through June 23, 2025, as presented in other current liabilities on the balance sheet. The unpaid balance accrues interest at 9 %. At March 31, 2025, a total of $ 50,081 of interest was accrued. 18 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) The components of lease expense were as follows: Schedule of Components of Lease Expenses 2025 2024 For the Three Months Ended March 31, 2025 2024 Operating lease cost: Amortization of right-of-use asset $ 38,679 $ - Interest on lease liability 10,012 - Total operating lease cost 48,691 - Finance lease cost: Amortization of right-of-use asset $ 8,396 $ 8,454 Interest on lease liability 3,285 3,561 Total finance lease cost 11,681 12,015 Total lease costs $ 60,372 $ 12,015 Supplemental balance sheet information related to leases was as follows: Schedule of Supplemental Information Related to Leases March 31, December 31, 2025 2024 Operating lease: Operating lease assets $ 1,405,357 $ 1,444,036 Current portion of operating lease liability $ - - Noncurrent operating lease liability 1,583,120 1,573,035 Total operating lease liability $ 1,583,120 $ 1,573,035 Finance lease: Finance lease assets $ 123,065 $ 131,461 Current portion of finance lease liability $ 30,054 29,243 Noncurrent finance lease liability 84,263 92,761 Total finance lease liability $ 114,317 $ 122,004 Weighted average remaining lease term: Operating lease 9.61 years 9.86 years Finance lease 2.90 years 3.13 years Weighted average discount rate: Operating lease 9 % 9 % Finance lease 11 % 11 % Supplemental cash flow and other information related to finance leases was as follows: Schedule of Supplemental Cash and Other Information Related to finance Leases 2025 2024 For the Three Months Ended March 31, 2025 2024 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used for operating leases $ 10,085 $ - Finance cash flows used for finance leases $ 7,687 $ 7,411 19 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) The future minimum lease payments due under operating leases as of March 31, 2025 is as follows: Schedule of Future Minimum Operating Lease Payments Year Ending Minimum Lease December 31, Commitments 2025 (for the three months remaining) $ 72,000 2026 192,000 2027 256,000 2028 280,000 2029 296,000 Thereafter 1,300,000 Total minimum lease payments 2,396,000 Less effects of discounting 812,880 Lease liability recognized 1,583,120 Less current portion - Long-term operating lease liability $ 1,583,120 The future minimum lease payments due under finance leases as of March 31, 2025 is as follows: Schedule of Future Minimum Lease Payments Year Ending Minimum Lease December 31, Commitments 2025 (for the three months remaining) $ 29,257 2026 43,886 2027 43,886 2028 18,286 Total minimum lease payments 135,315 Less effects of discounting 20,998 Lease liability recognized 114,317 Less current portion 30,054 Long-term finance lease liability $ 84,263 Note 14 – 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. There are currently no pending legal matters. Operating Lease On May 10, 2024, the Company entered into a ten-year lease for the 50,000 square-foot Peru Facility, which commenced operations in December of 2024. The lease requires monthly lease payments of $ 8,000 in the first two years of the lease, $ 20,000 in the third year of the lease, $ 22,000 in the fourth year of the lease, $ 24,000 in the fourth year of the lease, and $ 25,000 thereafter. The lease also has a 10 -year renewal option, and a buy-out option under which the Company may purchase the Peru Facility for $ 1,865,456 . Finance Lease The Company leases equipment under a non-cancelable finance lease payable in monthly installments of $ 3,657 expiring on May 31, 2028 . 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. 20 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) 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 was amended on October 26, 2022, September 27, 2023 and May 23, 2024, to, among other things, modify the exclusivity retention royalty payments required to be paid by the Company. 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 must make annual royalty minimum payments to EnWave of $ 250,000 per year, commencing in 2025 and continuing through each subsequent year 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, required the Company to purchase a “Second EnWave Machine”, which was purchased in full on December 12, 2024. 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. The Company recognized $ 40,585 of royalty expenses for the three months ended March 31,2025. 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 15 – Changes in Stockholders’ Equity Preferred Stock The Company has authorized 8,000,000 shares of $ 0.001 par value preferred stock. As of March 31, 2025, none of the preferred stock had been designated or issued. Common Stock The Company has authorized 80,000,000 shares of $ 0.001 par value common stock. As of March 31, 2025, a total of 9,584,769 shares of common stock had been issued. Each holder of common stock is entitled to one vote for each share of common stock held. ATM Offering On February 18, 2025, the Company entered into a First Amendment to an At-The-Market Issuance Sales Agreement (the “ATM Agreement”) to increase the aggregate offering price of the shares of common stock that the Company may sell under the ATM Agreement from $ 3,000,000 to up to $ 5,000,000 . During the three months ended March 31, 2025, the Company sold a total of 1,303,115 shares of common stock, including 182,693 shares authorized, but unissued at December 31, 2024, at prevailing market prices under the ATM Agreement for aggregate net proceeds of $ 2,407,448 , after deducting applicable expenses, including commissions paid to Alexander Capital, L.P., as sales agent, equal to 3 % of the gross proceeds from the sale of the shares. Exercise of Warrants On February 14, 2025, the Company received aggregate proceeds of $ 38,157 on the exercise of Representative’s Warrants to purchase an aggregate of 39,747 shares of common stock. Note 16 – Common Stock Options Stock Incentive Plan Our board of directors and shareholders adopted the 2022 Equity Plan on January 1, 2022. The 2022 Equity 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, resulting in 1,633,000 reserved shares as of March 31, 2025. There were 603,470 options with a weighted average exercise price of $ 2.39 per share, and a weighted average remaining life of approximately 8.16 years, outstanding as of March 31, 2025. 21 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Common Stock Options Issued for Services On February 13, 2025, the Company granted options to purchase 10,000 shares of the Company’s common stock, having an exercise price of $ 2.50 per share, exercisable over a 10 -year term, to a new employee. The options will vest quarterly over three years from the date of grant. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 43 % and a call option value of $ 1.2384 , was $ 12,384 . The options are being expensed over the vesting period, resulting in $- 0 - of stock-based compensation expense during the three months ended March 31, 2025. As of March 31, 2025, a total of $ 12,384 of unamortized expenses are expected to be expensed over the vesting period. Note 17 – Common Stock Warrants Warrants to purchase a total of 3,422,415 shares of common stock at a weighted average exercise price of $ 1.89 per share, with a weighted average remaining life of approximately 4.88 years, were outstanding as of March 31, 2025. Exercise of Warrants On February 14, 2025, the Company received aggregate proceeds of $ 38,157 on the exercise of Representative’s Warrants to purchase an aggregate of 39,747 shares of common stock. Note 18 - Income Taxes The Company incurred a net operating loss for the three months ended March 31, 2025, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. On March 31, 2025, the Company had approximately $ 10.45 million of federal net operating losses. The net operating loss carryforwards, if not utilized, will begin to expire in 2041. The effective income tax rate for the three months ended March 31, 2025 and 2024, was 21 %. The Company has incurred cumulative losses which make realization of a deferred tax asset difficult to support in accordance with ASC 740. Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, a valuation allowance has been recorded against the Federal and state deferred tax assets as of March 31, 2025 and December 31, 2024. Additionally, in accordance with ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions. Note 19 – Segment Reporting 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 at its new production facility that commenced production in Pisco Peru in December 2024, and is supported by contract manufacturers in Peru, as necessary. The Company’s customers are located throughout the United States. The Company’s sales operations, which represent 100% of the Company’s consolidated sales, are one of its two reportable segments. The sales operations’ segment revenues are predominately earned as consumer products are sold to big box retail customers throughout the United States and via the Company’s online platform. The Company aggregates its operating divisions into two reportable segments due to the operating divisions having similar economic characteristics with similar long-term financial performance, but different geographic locations. The Company’s sales occur entirely from, and within, the United States, while all of the Company’s production processes are conducted in Latin America, which represent its other operating segment. In addition, the Company’s operating divisions offer customers the same products, operate in similar regulatory environments, purchase the majority of the merchandise for retail sale from similar (and in many cases identical) vendors on a coordinated basis from a centralized location, serve of the same customers, and are allocated capital from a centralized location. Operating divisions are organized primarily on a geographical basis so the operating division management team can be responsive to local needs of the operating division and can execute company strategic plans and initiatives throughout the locations in their operating division. This geographical separation is the primary differentiation between these operating divisions. The geographical basis of organization reflects how the business is managed and how the Company’s Chief Executive Officer, who acts as the Company’s chief operating decision maker (“CODM”), assesses performance internally. 22 BRANCHOUT FOOD INC. NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) The accounting policies of the retail operations segment are the same as those described in the summary of significant accounting policies in Note 1 to the Condensed Consolidated Financial Statements. The Company’s CODM assesses performance and allocates resources for the retail operations segment using segment earnings before net interest expense, income tax expense and depreciation and amortization (“EBITDA”). The Company defines EBITDA as earnings before interest taxes and depreciation. The Company’s CODM also uses segment EBITDA to measure the operational effectiveness of the Company’s financial model, compare the performance of core operating results between periods, against budget and against competitors and evaluate whether to invest capital in the retail operations segment or in other parts of the Company, such as for share repurchases, debt repayments or capital expenditures. The Company’s CODM is not provided asset information by reportable segment as asset information is provided to the CODM on a consolidated basis. The Company’s capital expenditures are predominately used in the Company’s production operations, rather than its retail operations. The following table presents the Company’s retail operations segment revenue, measure of segment profit or loss, significant segment expenses and reconciliation of the U.S. and Latin America operations segments’ EBITDA to consolidated net earnings before income tax expense for the three months ended March 31, 2025 and 2024: Schedule of Segment Reporting For the Three Months Ended March 31, 2025 2024 U.S. operations segment sales $ 3,193,522 $ 1,467,016 Latin American operations segment cost of goods sold $ 2,488,743 $ 1,127,092 U.S. operations segment expenses: General and administrative 525,668 319,736 Rent 11,831 - Salaries and wages 241,046 598,286 Professional fees 166,622 390,666 Total U.S. operating expenses $ 945,167 $ 1,308,688 U.S. operations segment EBITDA $ 2,248,355 $ 158,328 Latin American operations segment cost of goods sold $ 2,488,743 $ 1,127,092 Latin American operations segment expenses: General and administrative 109,505 - Rent 38,684 - Salaries and wages 73,196 - Professional fees 68,412 - Total Latin American operating expenses 289,797 - Operating expenses 289,797 - Latin American operations segment EBITDA $ ( 2,778,540 ) $ ( 1,127,092 ) Consolidated EBITDA $ ( 530,185 ) $ ( 968,764 ) Reconciliation of net earnings before income tax expense: Consolidated EBITDA $ ( 530,185 ) $ ( 968,764 ) EBITDA $ ( 530,185 ) $ ( 968,764 ) Depreciation ( 152,355 ) ( 56,336 ) Interest income 5,136 2,877 Interest expense ( 240,978 ) ( 28,744 ) Consolidated net loss before income tax expense $ ( 918,382 ) $ ( 1,050,967 ) Note 20 – Subsequent Events The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued , noting no reportable event, except as follows: Repayment on Notes Payable, Related Parties On May 7, 2025, the Company repaid $ 325,000 of principal on the $ 1,200,000 Senior Secured Promissory Note from Kaufman Kapital that matures on June 30, 2025 . Common Stock Options Issued to Directors for Services On April 14, 2025, the Company granted options to purchase an aggregate 90,000 shares of the Company’s common stock, consisting of options to purchase 15,000 shares to each of six directors, having an exercise price of $ 1.94 per share, exercisable over a 10 -year term, including options to purchase 15,000 shares issued to the Company’s CEO and CFO in consideration of their services as directors. The options vest monthly over 6 months following the issuance date. The aggregate estimated value using the plain vanilla Black-Scholes Pricing Model, based on a volatility rate of 46 % and a call option value of $ 0.8796 , and an expected term of 5 years, was $ 791,170 . On April 11, 2025, the Company granted options to purchase 30,000 shares of the Company’s common stock, having an exercise price of $ 1.93 per share, exercisable over a 10 -year term, to one of the Company’s directors. The options vested immediately. The estimated value using the plain vanilla Black-Scholes Pricing Model, based on a volatility rate of 46 % and a call option value of $ 0.8765 , and an expected term of 5 years, was $ 26,294 . 23