UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________to ________.
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2)
has been subject to filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
| Title or class | Shares outstanding as of November 14, 2024 | |
| Common Stock, $ par value |
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRANCHOUT FOOD INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Advances on inventory purchases | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Other assets | ||||||||
| Note receivable | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Notes payable, current portion | ||||||||
| Notes payable, related parties | ||||||||
| Operating lease liability, current portion | ||||||||
| Finance lease liability, current portion | ||||||||
| Total current liabilities | ||||||||
| Convertible notes payable, related parties, net of discounts, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Notes payable, related parties, net of discounts, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Finance lease liability, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ |
See accompanying notes to financial statements.
| 3 |
BRANCHOUT FOOD INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Loss on foreign currency translation | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net other comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
See accompanying notes to financial statements.
| 4 |
BRANCHOUT FOOD INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| For the Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | Income | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | | ||||||||||||||||||||||||||
| Common stock issued pursuant to secondary public offering | - | |||||||||||||||||||||||||||||||||||
| Common stock units sold to executives | - | |||||||||||||||||||||||||||||||||||
| Stock options issued for services | - | - | ||||||||||||||||||||||||||||||||||
| Common stock warrants granted to note holders pursuant to debt financing | - | - | ||||||||||||||||||||||||||||||||||
| Amended warrants | - | - | ||||||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| For the Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | Income | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Common stock issued for services | - | |||||||||||||||||||||||||||||||||||
| Stock options issued for services | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| 5 |
| For the Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | Income | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Common stock issued pursuant to secondary public offering | - | |||||||||||||||||||||||||||||||||||
| Common stock units sold to executives | - | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | |||||||||||||||||||||||||||||||||||
| Stock options issued for services | - | - | ||||||||||||||||||||||||||||||||||
| Common stock warrants granted to note holders pursuant to debt financing | - | - | ||||||||||||||||||||||||||||||||||
| Amended warrants | - | - | ||||||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | Income | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Common stock issued pursuant to initial public offering | - | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | |||||||||||||||||||||||||||||||||||
| Stock options issued for services | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for debt conversions | - | |||||||||||||||||||||||||||||||||||
| Common stock warrants granted to note holders pursuant to debt financing | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
See accompanying notes to financial statements.
| 6 |
BRANCHOUT FOOD INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Amortization of debt discounts | ||||||||
| Common stock issued for services | ||||||||
| Options and warrants issued for services | ||||||||
| Amended warrants | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Advances on inventory purchases | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Right-of-use asset | ||||||||
| Other assets | ( | ) | ||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable, related parties | ||||||||
| Accrued expenses | ||||||||
| Operating lease liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Payments received on notes receivable | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Payment of deferred offering costs | ( | ) | ( | ) | ||||
| Proceeds received on convertible notes payable, related parties | ||||||||
| Proceeds received on convertible notes payable, unrelated parties | ||||||||
| Proceeds received on notes payable | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Proceeds received on notes payable, related parties | ||||||||
| Repayment of notes payable, related parties | ( | ) | ||||||
| Repayments on revolving line of credit | ( | ) | ||||||
| Principal payments on finance lease | ( | ) | ( | ) | ||||
| Proceeds from sale of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net increase in cash | ||||||||
| Cash and restricted cash - beginning of period | ||||||||
| Cash - ending of period | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing transactions: | ||||||||
| Equipment purchased with debt financing | $ | $ | ||||||
| Relative fair value of warrants issued as a debt discount | $ | $ | ||||||
| Relative fair value of shares issued on debt conversions | $ | $ | ||||||
| Initial recognition of right-of-use assets and lease liabilities | $ | $ | ||||||
See accompanying notes to financial statements.
| 7 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED CONSOLIDATED 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. On April 26, 2024, the Company formed a wholly-owned subsidiary in Peru, in the form of a legal
entity called a branch, for the purpose of operating a
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 September 30, 2024, the results of operations for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2023 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, 2023, 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 September 30, 2024:
| 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. 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.
Reclassifications
Certain reclassifications have been made to the prior years’ financial statements to conform to current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.
| 8 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Going Concern
As
shown in the accompanying condensed consolidated financial statements, as of September 30, 2024, the Company has incurred recurring losses
from operations resulting in an accumulated deficit of $
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Segment Reporting
ASC 280, Segment Reporting, requires annual and interim reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
Fair Value of Financial Instruments
The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement and Disclosures (ASC 820). Under ASC 820-10-05, the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments.
Cash and Cash Equivalents
Cash
equivalents include money market accounts which have maturities of three months or less. For the purpose of the statements of cash flows,
all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Cash equivalents
are stated at cost plus accrued interest, which approximates market value. There were
| 9 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Cash in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (“FDIC”) up to $
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
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. Raw materials consist of packaging materials. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. No reserve for obsolete inventories has been recognized. Inventory, consisting of raw materials and finished goods are stated at the lower of cost or net realizable value using the average cost valuation method, and consisted of the following as of September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | ||||||||
The
Company had prepaid inventory advances on product in the amount of $
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:
| Office equipment | ||||
| Furniture and fixtures | ||||
| Equipment and machinery |
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.
| 10 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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 to avocado products. The license is not discernible from the equipment; therefore, the license costs have been capitalized and depreciated over the useful life of the equipment. The license agreement also entitles the licensor to a royalty on all revenue from the sale of products produced using the equipment. These royalties are recognized as royalty expenses as the products are sold. There have been no royalty payments to date, and any future minimum royalty payments or equipment purchases under this license agreement are an unrecognized commitment as they relate to retaining exclusivity of the avocado products going forward. See Note 15, below.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customer. Under ASC 606, the Company recognizes revenue from the sale of its plant-based snack products in accordance with a five-step model in which the Company evaluates the transfer of promised goods or services and recognizes revenue when customers obtain control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as separate performance obligations, and the related costs are recorded as selling expenses in general and administrative expenses in the statement of operations. Revenue is reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.
The Company’s sales are predominantly generated from the sale of finished products to retailers, and to a lesser extent, direct to consumers through third party website platforms. These sales contain a single performance obligation, and revenue is recognized at a single point in time when ownership, risks and rewards transfer. Typically, this occurs when the goods are received by the retailer or customer, or when the title of goods is exchanged. Revenues are recognized in an amount that reflects the net consideration the Company expects to receive in exchange for the goods.
The Company promotes its products with advertising, consumer incentives and trade promotions. These programs include discounts, slotting fees, coupons, rebates, in-store display incentives and volume-based incentives. Customer trade promotion and consumer incentive activities are recorded as a reduction to the transaction price based on amounts estimated as being due to customers and consumers at the end of a period. The Company derives these estimates based principally on historical utilization and redemption rates. The Company does not receive a distinct service in relation to the advertising, consumer incentives and trade promotions. Payment terms in the Company’s invoices are based on the billing schedule established in contracts and purchase orders with customers.
Expenses such as slotting fees, sales discounts, and allowances are accounted for as a direct reduction of revenues as follows for the three and nine months ended September 2024 and 2023:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Less: slotting, discounts, and allowances | ||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
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.
| 11 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Advertising Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $
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 incurred stock-based compensation of $ and $ for the nine months ended September 30, 2024 and 2023, 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.
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.
| 12 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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
On July 24, 2024, the Company issued the Purchased Securities to the Investor in consideration of the Investor making the Initial Loan to the Company.
The
Convertible Note matures on the earlier of (i)
The Company’s obligations under the Convertible Note are secured by a lien granted to the Investor on substantially all of the Company’s assets pursuant to a Security Agreement entered between the Company and the Investor (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 $
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 $
On
various dates from January 9, 2024 through May 22, 2024, the Company completed the sale of an aggregate $
| 13 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Pursuant
to the subscription agreements, Eagle Vision was paid aggregate cash fees in the amount of $
The
Notes mature on the earlier of
Each
Warrant is exercisable for a period at an exercise price of $
Unit Offering Sale of Common Stock and Warrants
On
July 15, 2024, the Company entered into Subscription Agreements (the “Subscription Agreements”) with three related
parties, consisting of Eric Healy, the Company’s Chief Executive Officer; Eagle Vision, an affiliate of John Dalfonsi, the
Company’s Chief Financial Officer; and the Company’s President, pursuant to which such investors agreed to purchase
$
Common Stock Options Issued for Services
On February 22, 2024, the Company granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a -year term, to the Company’s CEO. The options vested immediately.
On February 22, 2024, the Company granted options to purchase shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a -year term, to the Company’s CFO. The options vested immediately.
On February 22, 2024, the Company also granted options to purchase an aggregate shares of the Company’s common stock, having an exercise price of $ per share, exercisable over a -year term, to a total of three of the Company’s directors. The options vested immediately.
Note 3 – Formation of Subsidiary
On
April 26, 2024, the Company formed a wholly-owned subsidiary in Peru, in the form of a legal entity called a branch, for the purpose
of operating the
Note 4 – 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.
| 14 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of September 30, 2024 and December 31, 2023:
| Fair Value Measurements at September 30, 2024 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use-assets | ||||||||||||
| Notes receivable | ||||||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, net of $ | ||||||||||||
| Notes payable | ||||||||||||
| Notes payable, related parties, net of $ | ||||||||||||
| Lease liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| ( | ) | ( | ) | |||||||||
| Fair Value Measurements at December 31, 2023 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use-asset | ||||||||||||
| Notes receivable | ||||||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Notes payable | ||||||||||||
| Lease liability | ||||||||||||
| Total liabilities | ||||||||||||
There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the nine months ended September 30, 2024, or the year ended December 31, 2023.
Note 5 – Major Customers and Accounts Receivable
The
Company had certain customers whose revenue individually represented
For
the nine months ended September 30, 2024, two customers accounted for
Note 6 – Other Current Assets
Other current assets consisted of the following as of September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Prepaid insurance costs | $ | $ | ||||||
| Prepaid advertising and trade show fees | ||||||||
| Prepaid professional fees & license fees | ||||||||
| Prepaid software service | ||||||||
| Interest receivable | ||||||||
| Refund receivable | ||||||||
| Total other current assets | $ | $ | ||||||
| 15 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 7 – Property and Equipment
Property and equipment as of September 30, 2024 and December 31, 2023 consisted of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Equipment and machinery | $ | $ | ||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
of property and equipment was $
Note 8 – Other Assets
Other assets consisted of the following as of September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Deposit on first position mortgage(1) | $ | $ | ||||||
| VAT tax receivable(2) | ||||||||
| Total other current assets | $ | $ | ||||||
| (1) |
| (2) |
Note 9 – 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 $
| Exclusivity | Minimum Volume | |||||
| Product | Territories | (Kg/month)(“MOQ”) | ||||
| Avocado Powder | Worldwide (except Chile) | |||||
| Banana Chips | Worldwide (except Chile) | |||||
| Avocado Snacks | North America (Canada and USA) | |||||
| Avocado Chips | Worldwide | |||||
| Other Powders | No Exclusivity | - | ||||
Note 10 – Accrued Expenses
Accrued expenses consisted of the following as of September 30, 2024 and December 31, 2023, respectively:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accrued payroll and taxes | $ | $ | ||||||
| Accrued interest | ||||||||
| Accrued chargebacks | ||||||||
| Total accrued expenses | $ | $ | ||||||
| 16 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 11 – Convertible Notes Payable, Related Parties
As
discussed in further detail in Note 2, on July 24, 2024, the Company issued to Kaufman Kapital in a private placement, (i) a
The
Convertible Note matures on the earlier of (i)
The Company’s obligations under the Convertible Note are secured by a lien granted to the Investor 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.
The
Company recognized $
Note 12 – Notes Payable
Notes payable consists of the following as of September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| 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 $ | $ | $ | ||||||
| On March 15, 2023, the Company completed
the sale of a $ | ||||||||
| 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 $ | ||||||||
| Total notes payable | $ | $ | ||||||
| Less: current maturities | ||||||||
| Notes payable, less current maturities | $ | $ | ||||||
The
Company recognized $
| 17 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 13 – Notes Payable, Related Parties
Kaufman Note
As
discussed in Note 2, on August 30, 2024, the Company borrowed $
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 $
During
the period of May 14, 2024 through May 22, 2024, the Company completed the sale of an aggregate of $
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
On
April 16, 2024, the Company completed the sale of $
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 $
On
January 9, 2024, the Company completed the sale of $
| 18 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In
accordance with ASC 470, the Company recorded total discounts of $
Eagle
Vision has been paid aggregate cash fees in the amount of $
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 $
Notes payable, related parties, consists of the following as of September 30, 2024 and December 31, 2023:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Total Kaufman Note | $ | $ | ||||||
| Total Senior Notes held by Eagle Vision | $ | $ | ||||||
| Total notes payable, related parties | ||||||||
| Less: debt discounts | ||||||||
| Less: current maturities | ||||||||
| Notes payable, related parties, less current maturities | $ | $ | ||||||
The
Company recognized $
The Company recognized aggregate interest expense for the nine months ended September 30, 2024 and 2023 respectively, as follows:
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Interest on convertible notes payable, related parties | $ | $ | ||||||
| Amortization of debt discounts on related party convertible notes | ||||||||
| Amortization of debt discounts on related party convertible notes, warrants | ||||||||
| Interest on convertible notes payable | ||||||||
| Interest on notes payable | ||||||||
| Interest on notes payable, related parties | ||||||||
| Amortization of debt discounts on related party notes | ||||||||
| Amortization of debt discounts on modification of Eagle Vision warrants | ||||||||
| Amortization of debt discounts on related party notes, warrants | ||||||||
| Interest on revolving line of credit | ||||||||
| Finance charge on letter of credit | ||||||||
| Interest on credit cards | ||||||||
| Total interest expense | $ | $ | ||||||
| 19 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 14 – Leases
Equipment Lease
The
Company has financed production equipment with an acquisition cost of approximately $
Peru Facility Lease
On
May 10, 2024, the Company entered into a ten-year lease for the
In
connection with the lease of the Peru Facility, the Company entered into a first position mortgage receivable in the amount of $
The components of lease expense were as follows:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease cost: | ||||||||
| Amortization of right-of-use asset | $ | $ | ||||||
| Interest on lease liability | ||||||||
| Total operating lease cost | ||||||||
| Finance lease cost: | ||||||||
| Amortization of right-of-use asset | $ | $ | ||||||
| Interest on lease liability | ||||||||
| Total finance lease cost | ||||||||
| Total finance lease cost | $ | $ | ||||||
Supplemental balance sheet information related to leases was as follows:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Operating lease: | ||||||||
| Operating lease assets | $ | $ | ||||||
| Current portion of operating lease liability | $ | |||||||
| Noncurrent operating lease liability | ||||||||
| Total operating lease liability | $ | $ | ||||||
| Finance lease: | ||||||||
| Finance lease assets | $ | $ | ||||||
| Current portion of finance lease liability | $ | |||||||
| Noncurrent finance lease liability | ||||||||
| Total finance lease liability | $ | $ | ||||||
| Weighted average remaining lease term: | ||||||||
| Operating lease | - | |||||||
| Finance lease | ||||||||
| Weighted average discount rate: | ||||||||
| Operating lease | % | - | ||||||
| Finance lease | % | % | ||||||
| 20 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Supplemental cash flow and other information related to finance leases was as follows:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used for operating leases | $ | $ | ||||||
| Finance cash flows used for finance leases | $ | $ | ||||||
| - | ||||||||
| Leased assets obtained in exchange for lease liabilities: | - | |||||||
| Total operating lease liabilities | $ | $ | ||||||
| Total finance lease liabilities | $ | $ | ||||||
The future minimum lease payments due under operating leases as of September 30, 2024 is as follows:
| Year Ending | Minimum Lease | |||
| December 31, | Commitments | |||
| 2024 (for the three months remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less effects of discounting | ||||
| Lease liability recognized | ||||
| Less current portion | ||||
| Long-term operating lease liability | $ | |||
The future minimum lease payments due under finance leases as of September 30, 2024 is as follows:
| Year Ending | Minimum Lease | |||
| December 31, | Commitments | |||
| 2024 (for the three months remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total minimum lease payments | ||||
| Less effects of discounting | ||||
| Lease liability recognized | ||||
| Less current portion | ||||
| Long-term finance lease liability | $ | |||
| 21 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 15 – Commitments and Contingencies
Legal Matters
From time to time, the Company may be a party to various legal matters, threatened claims, or proceedings in the normal course of business. Legal fees and other costs associated with such actions are expensed as incurred. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. Legal accruals are recorded when and if it is determined that a loss related to a certain matter is both probable and reasonably estimable. There are currently no pending legal matters.
Operating Lease
On
May 10, 2024, the Company entered into a ten-year lease for the
Finance Lease
The
Company leases equipment under a non-cancelable finance lease payable in monthly installments of $
Other Contractual Commitments
On January 19, 2022, the Company entered into a contract manufacturing agreement with NXTDried Superfoods SAC to produce products for distribution by the Company. The Company agreed to pre-pay for inventory via an advance to enable the manufacturer to invest in necessary processing facilities that will be reimbursed to the Company on an agreed per kg basis over the period of 2022 to 2026.
On
May 7, 2021, the Company entered into a license agreement (“License Agreement”) with EnWave, pursuant to which EnWave licensed
to the Company a collection of patents and intellectual property (the “EnWave Technology”) used to manufacture and operate
vacuum microwave dehydration machines purchased by the Company from EnWave (the “EnWave Equipment”). The License Agreement
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 $
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 ($
| 22 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 16 – Changes in Stockholders’ Equity
Preferred Stock
The Company has authorized shares of $ par value preferred stock. As of September 30, 2024, none of the preferred stock had been designated or issued.
Common Stock
The
Company has authorized shares of $ par value common stock. As of September 30, 2024, a total of shares of common
stock had been issued.
Unit Offering Sale of Common Stock and Warrants, Related Parties
On
July 15, 2024, the Company entered into Subscription Agreements (the “Subscription Agreements”) with three related
parties, consisting of Eric Healy, the Company’s Chief Executive Officer; Eagle Vision; and the Company’s President,
pursuant to which such investors agreed to purchase $
Common Stock Sales
On
June 26, 2024, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Alexander Capital,
L.P. as the Representative of the underwriters named therein (the “Representative” and such other Underwriters, the “Underwriters”),
relating to the issuance and sale by the Company to the Underwriters (the “Public Offering”) of Shares (the “Shares”)
of common stock at a price to the public of $ per share, less underwriting discounts and commissions. Pursuant to the Underwriting
Agreement, the Representative was granted an option (the “Over-Allotment Option”), for a period of 45 days, to purchase from
the Company up to
Pursuant to the Underwriting Agreement, the Company agreed to an % underwriting discount on the gross proceeds received by the Company for the Shares, in addition to reimbursement of certain expenses, made customary representations, warranties and covenants concerning the Company, and also agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. In addition, the officers and directors of the Company have agreed not to offer, sell, transfer or otherwise dispose of any shares of the Company’s common stock, or securities convertible into, or exercisable or exchangeable for, shares of common stock, during the six-month period following the date of the Prospectus, and the Company agreed that it will not issue or announce the issuance or proposed issuance of any shares of common stock or common stock equivalents for a period of six months following the date of the Prospectus, other than certain exempt issuances.
The
Offering closed on June 28, 2024. The Company received net proceeds from the Offering of $
On
July 19, 2024, the Underwriters exercised their Over-Allotment Option to purchase shares of common stock at a price of $per share. The Company received net proceeds $
Common Stock Issued for Services
On
June 1, 2024, the Company issued shares of the Company’s common stock under the 2022 Omnibus Equity Incentive Plan (the “2022
Equity Plan”) to PCG Advisory, Inc. (“PCG”) as payment for services in lieu of cash. The fair value of the shares was
$
On
May 1, 2024, the Company issued shares of the Company’s common stock under the 2022 Equity Plan to PCG as payment for services
in lieu of cash. The fair value of the shares was $
On
April 22, 2024, the Company issued shares under the 2022 Equity Plan to its securities counsel for services performed. The fair
value of the shares was $
On
April 1, 2024, the Company issued shares of the Company’s common stock under the 2022 Equity Plan to PCG as payment for services
in lieu of cash. The fair value of the shares was $
On
February 19, 2024, the Company issued shares under the Company’s 2022 Equity Plan to its securities counsel for services
performed. The fair value of the shares was $
On
January 26, 2024, the Company issued shares under the 2022 Equity Plan, to its securities counsel for services performed. The
fair value of the shares was $
On
January 5, 2024, the Company retained PCG to provide strategic advisory and investor relations services pursuant to an Advisory Agreement
under which the Company agreed to issue PCG an aggregate shares of the Company’s common stock as payment for services in
lieu of cash for the months of January, February, and March 2024. The aggregate fair value of the shares was $
| 23 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 17 – 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 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 reserved shares as of September 30, 2024. There were options with a weighted average exercise price of $ per share, and a weighted average remaining life of approximately years, outstanding as of September 30, 2024.
Common Stock Options Issued for Services
On
May 1, 2024, the Company granted options to purchase shares of the Company’s common stock, having an exercise price of $
per share, exercisable over a -year term, to a new employee. The options will vest monthly over three years from the date of grant.
The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $,
was $
On
February 22, 2024, the Company granted options to purchase an aggregate shares of the Company’s common stock, having an
exercise price of $ per share, exercisable over a 10-year term, to a total of six employees, including options to purchase
and 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 % and a call option value of $, was $
On
February 22, 2024, the Company also granted options to purchase an aggregate shares of the Company’s common stock, having
an exercise price of $ per share, exercisable over a -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 % and a call
option value of $, was $
Note 18 – Common Stock Warrants
Warrants
to purchase a total of
Warrants Issued Pursuant to Convertible Note Financing
As discussed in further detail in Note
2, on July 24, 2024, the Company issued to Kaufman Kapital, in a private placement (i) a
| 24 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Warrants Issued Pursuant to Executive Unit Offering Sale
On
July 15, 2024, the Company entered into Subscription Agreements with three related parties, consisting of Eric Healy, the
Company’s Chief Executive Officer; Eagle Vision; and the Company’s President, pursuant to which such investors agreed to
purchase $
Warrants Issued Pursuant to Underwriting Agreement
On
June 28, 2024, pursuant to the
Warrants Issued Pursuant to Debt Offering
On
various dates from January 9, 2024 through May 22, 2024, the Company issued Warrants to
purchase an aggregate total of
Amendment of Senior Notes and Warrants
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 $
| 25 |
BRANCHOUT FOOD INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 19 - Income Taxes
The
Company incurred a net operating loss for the nine months ended September 30, 2024, accordingly, no provision for income taxes has been
recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. On
September 30, 2024, the Company had approximately $
The
effective income tax rate for the nine months ended September 30, 2024 and 2023, was
The Company has incurred cumulative losses which make realization of a deferred tax asset difficult to support in accordance with ASC 740. Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, a valuation allowance has been recorded against the Federal and state deferred tax assets as of September 30, 2024 and December 31, 2023.
Additionally, in accordance with ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note 20 – Subsequent Events
The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued, noting no reportable event, except as follows:
Nasdaq Compliance
On
April 11, 2024, we received a letter from The Nasdaq Stock Market stating that we were not in compliance with Nasdaq Listing Rule
5550(b)(1) (the “Rule”) because our stockholders’ equity of $
October
23, 2024 the Company entered into an At-The-Market Issuance Sales Agreement (the “ATM Agreement”) with Alexander Capital,
L.P. (“Alexander Capital”). Pursuant to the ATM Agreement, the Company may from time-to-time issue and sell to, or through,
Alexander Capital, acting as the Company’s sales agent, shares of the Company’s common stock (the “Shares”),
having an aggregate offering price of up to $
As
of November 14, 2024, as a result of the sale of
Shares under the ATM Agreement for aggregate gross offering proceeds of approximately $
Common Stock Sales
On
October 23, 2024 the Company entered into an At-The-Market Issuance Sales Agreement (the “ATM Agreement”) with Alexander
Capital, L.P. (“Alexander Capital”). Pursuant to the ATM Agreement, the Company may from time-to-time issue and sell to,
or through Alexander Capital, acting as the Company’s sales agent, shares of the Company’s common stock, par value $
per share (the “Shares”), having an aggregate offering price of up to $
On
October 24, 2024, the Company placed
shares into an account with Alexander Capital for the purpose of effecting sales of Shares under the ATM Agreement. As of November
14, 2024,
of these Shares have been sold under the ATM Agreement, for aggregate gross offering proceeds of approximately $
| 26 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. In addition to historical condensed financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Overview
We were incorporated as Avochips Inc., an Oregon corporation, on February 21, 2017, and on November 2, 2017, we converted into Avochips, LLC, an Oregon limited liability company. On November 19, 2021, we converted from an Oregon limited liability company into BranchOut Food Inc., a Nevada corporation.
We are engaged in the development, marketing, sale, and distribution of plant-based, dehydrated fruit and vegetable snacks and powders. Our products have historically been manufactured for us by two contract manufacturers, one based in the Republic of Chile, and the other in the Republic of Peru, which housed our large-scale continuous through-put dehydration machine that completed its first production run in the first quarter of 2023. Our dehydrated fruit and vegetable products are produced using a new proprietary dehydration technology licensed by us from a third party. Our customers are primarily located throughout the United States. In 2024, we decided to initiate our own production facility in Peru to become vertically integrated. We recently completed the build out of the new facility, which commenced operations in October 2024, and utilizes three large-scale REV machines (a REV 60, REV 100 and REV 120) that we recently purchased from EnWave Corporation, as well as, a small REV 10 R&D machine that is being used for product development and customer sample purposes.
Using our licensed technology platform, we believe our lines of branded, private-label and industrial ingredient products positively address current consumer trends. In our experience, conventional dehydration methods, such as freeze-drying and air drying, tend to degrade most fruit and vegetables through oxidation, browning/color degradation, nutritional content reduction and/or flavor loss. As a result, certain highly sensitive fruits, such as avocados and bananas, have not previously been successfully offered as a dehydrated base for consumer products. We believe that our licensed technology platform and process is the only way to produce quality avocado and banana-based snack and powdered products. Additionally, we believe our licensed technology platform produces superior products when using other fruits and vegetables when compared to conventional drying and dehydration technologies. We license technology, consisting of a portfolio of patents, and purchased production machines, from EnWave, and we have been granted the exclusive rights to use the licensed technology platform as applied to avocados. In addition, BranchOut has the nonexclusive rights to use the licensed technology platform for other products.
Our Products
We plan to grow revenues strategically by penetrating the multi-billion dollar grocery market opportunity presented by our current product lines, as well as expanding our platform to include additional products that meet our strict plant-based ingredient criteria. Our current primary branded products are:
| ● | BranchOut Snacks: dehydrated fruit and vegetable-based snacks, including Avocado Chips, Chewy Banana Bites, Pineapple Chips, Brussels Sprout Crisps and Bell Pepper Crisps. | |
| ● | BranchOut Powders: Avocado Powder, Banana Powder and Blueberry Powder. | |
| ● | BranchOut Industrial Ingredients: Bulk Avocado Powder, dried avocado pieces and other fruit powders/pieces. |
We are currently developing additional products, including dragon fruit and private label products for large retailers.
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Going Concern Uncertainty
As of September 30, 2024, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $16,074,867, with working capital of $702,541. We are too early in our development stage to project revenue with a necessary level of certainty; therefore, we may not have sufficient funds to sustain our operations for the next twelve months and we may need to raise additional cash to fund our operations. These factors raise substantial doubt about our ability to continue as a going concern. The Company continues to develop its operations. In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives.
The condensed consolidated 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. The 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. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
Access to our Equipment in Peru; NXTDried Superfoods
During the fourth quarter of 2023, NXTDried Superfoods, our contract manufacturer located in Peru, became involved in a legal dispute with its landlord and another third party, which resulted in that manufacturer suspending operations. As a result of such dispute, we currently do not have access to the dehydration machine that was previously operated by this manufacturer. Although we have been able to continue to fulfill orders by shifting fulfillment to other manufacturing sources, and have recently opened our new facility in Peru, our costs of goods for the three and nine month periods ending September 30, 2024, have increased as a result. In addition, during 2023, we recognized $761,085 of impairment expense, consisting of $485,265, $243,305 and $32,515 on the collectability of a note receivable, VAT taxes receivable and prepaid inventory, respectively, owed to us by NXTDried Superfoods.
Peru Facility Lease
Given the situation with NXTDried Superfoods, we were required to shift fulfillment of orders to alternative manufacturing sources. On May 10, 2024 we entered into a ten-year lease for a 50,000 square-foot food processing plant located in Peru. The lease of the Peru Facility requires us to make 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 our lease of the Peru Facility, we paid $275,000 on May 10, 2024, toward the purchase of 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. The remaining $992,000 was due and payable by us on August 10, 2024, subject to certain requirements which haven’t yet been met, therefore the Company has deferred payment until a later date, to be determined.
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Results of Operations for the Three Months Ended September 30, 2024 and 2023
The following table summarizes selected items from the statement of operations for the three months ended September 30, 2024 and 2023, respectively.
| Three Months Ended | ||||||||||||
| September 30, | Increase / | |||||||||||
| 2024 | 2023 | (Decrease) | ||||||||||
| Net revenue | $ | 2,181,495 | $ | 906,996 | $ | 1,274,499 | ||||||
| Cost of goods sold | 1,845,155 | 934,603 | 910,552 | |||||||||
| Gross profit | 336,340 | (27,607 | ) | 363,947 | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 560,537 | 230,459 | 330,078 | |||||||||
| Salaries and benefits | 309,433 | 222,764 | 86,669 | |||||||||
| Professional services | 369,525 | 218,160 | 151,365 | |||||||||
| Total operating expenses | 1,239,495 | 671,383 | 568,112 | |||||||||
| Operating loss | (903,155 | ) | (698,990 | ) | 204,165 | |||||||
| Other income (expense): | ||||||||||||
| Interest income | 2,882 | 3,001 | (119 | ) | ||||||||
| Interest expense | (370,532 | ) | (10,004 | ) | 360,528 | |||||||
| Total other income (expense) | (367,650 | ) | (7,003 | ) | 360,647 | |||||||
| Net loss | $ | (1,270,805 | ) | $ | (705,993 | ) | $ | 564,812 | ||||
Net Revenue
Our net revenue for the three months ended September 30, 2024 was $2,181,495, compared to $906,996 for the three months ended September 30, 2023, an increase of $1,274,499, or 141%. The increase in revenue was primarily due to increased sales to our largest customer during the three months ended September 30, 2024.
Cost of Goods Sold and Gross Profit
Our cost of goods sold for the three months ended September 30, 2024 was $1,845,155, compared to $934,603 for the three months ended September 30, 2023, an increase of $910,552, or 97%. Cost of goods sold increased primarily due to increased sales during the three months ended September 30, 2024. As a result of the foregoing, we had gross profit of $336,340, representing gross margins of 15%, for the three months ended September 30, 2024 as compared to a gross loss of $27,607, or negative gross margins of 3%, for the three months ended September 30, 2023. Our gross profit margin increased primarily due to cost savings realized as a result of our transition to bulk shipping arrangements during the current period. Cost of goods sold included depreciation expense for the three months ended September 30, 2024 of $60,614, compared to $55,939 for the three months ended September 30, 2023, an increase of $4,675, or 8%.
General and Administrative
Our general and administrative expense for the three months ended September 30, 2024 was $560,537, compared to $230,459 for the three months ended September 30, 2023, an increase of $330,078, or 143%. The largest components of our general and administrative expenses are advertising and marketing, rent, travel, commissions, and storage, shipping and handling expense, as shown below.
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Difference | % change | |||||||||||||
| Advertising and marketing | $ | 125,597 | $ | 43,042 | $ | 82,555 | 192 | % | ||||||||
| Rent | $ | 160,751 | $ | 20,069 | $ | 140,682 | 701 | % | ||||||||
| Travel | $ | 30,502 | $ | 12,121 | $ | 18,381 | 152 | % | ||||||||
| Commissions | $ | 24,910 | $ | 63,723 | $ | (38,813 | ) | (61 | )% | |||||||
| Storage, shipping and handling | $ | 118,252 | $ | 51,485 | $ | 66,767 | 130 | % | ||||||||
Advertising and marketing expenses increased for the three months ended September 30, 2024, compared to the corresponding period in 2023, as we focused our resources on our IPO in the prior period. Our rent increased primarily due to leases entered into in the current year, as we began to develop our operating facility in Peru, which resulted in increased travel expenses for the same reason. Sales commissions decreased as we focused most of our resources on servicing our largest customer. We expect commissions to increase as we grow. Storage, shipping and handling expenses increased primarily due to increased international shipping rates and increased production that was driven by our increased sales.
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Salaries and Wages
Salaries and wages for the three months ended September 30, 2024 was $309,433, compared to $222,764 for the three months ended September 30, 2023, an increase of $86,669, or 39%. This increase was primarily attributable to an increased head count necessary to service our expanded sales and build out of our production facility in Peru. In addition, salaries and wages included $14,565 of non-cash, stock-based compensation related to stock options awarded during the current period.
Professional Fees
Professional fees for the three months ended September 30, 2024 was $369,525, compared to $218,160 for the three months ended September 30, 2023, an increase of $151,365, or 69%. This increase was primarily attributable to increased legal and consulting fees in the current period. Professional fees included $110,897 of non-cash, stock-based compensation for the three months ended September 30, 2023.
Other Income (Expense)
In the three months ended September 30, 2024, other expense was $367,650 on a net basis, consisting of $370,532 of interest expense, as partially offset by $2,882 of interest income. For the three months ended September 30, 2023, other expense was $7,003 on a net basis, consisting of $10,004 of interest expense, as partially offset by $3,001 of interest income. Other expense increased by $360,647, or 5,150%, primarily due to interest on increased outstanding debt as we funded our expansion into Peru during the current period.
Net loss
Net loss for the three months ended September 30, 2024 was $1,270,805, compared to $705,993 for the three months ended September 30, 2023, an increase of $564,812, or 80%. The increased net loss was primarily due to increased compensation and compliance costs related to reporting as a public company during the current period and increased interest expense, as partially offset by increased gross profits and a $96,332 decrease in stock-based compensation.
Results of Operations for the Nine Months Ended September 30, 2024 and 2023
The following table summarizes selected items from the statement of operations for the nine months ended September 30, 2024 and 2023, respectively.
| Nine Months Ended | ||||||||||||
| September 30, | Increase / | |||||||||||
| 2024 | 2023 | (Decrease) | ||||||||||
| Net revenue | $ | 5,011,497 | $ | 1,347,401 | $ | 3,664,096 | ||||||
| Cost of goods sold | 4,242,810 | 1,423,046 | 2,819,764 | |||||||||
| Gross profit | 768,687 | (75,645 | ) | 844,332 | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 1,201,474 | 552,390 | 649,084 | |||||||||
| Salaries and benefits | 1,257,316 | 910,812 | 346,504 | |||||||||
| Professional services | 1,064,567 | 520,506 | 544,061 | |||||||||
| Total operating expenses | 3,523,357 | 1,983,708 | 1,539,649 | |||||||||
| Operating loss | (2,754,670 | ) | (2,059,353 | ) | 695,317 | |||||||
| Other income (expense): | ||||||||||||
| Interest income | 8,577 | 8,757 | (180 | ) | ||||||||
| Interest expense | (518,233 | ) | (406,000 | ) | 112,233 | |||||||
| Total other income (expense) | (509,656 | ) | (397,243 | ) | 112,413 | |||||||
| Net loss | $ | (3,264,326 | ) | $ | (2,456,596 | ) | $ | 807,730 | ||||
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Net Revenue
Our net revenue for the nine months ended September 30, 2024 was $5,011,497, compared to $1,347,401 for the nine months ended September 30, 2023, an increase of $3,664,096, or 272%. The increase in revenue was primarily due to increased sales to our largest customer during the nine months ended September 30, 2024.
Cost of Goods Sold and Gross Profit
Our cost of goods sold for the nine months ended September 30, 2024 was $4,242,810, compared to $1,423,046 for the nine months ended September 30, 2023, an increase of $2,819,764, or 198%. Cost of goods sold increased primarily due to increased sales during the nine months ended September 30, 2024. As a result of the foregoing, we had gross profit of $768,687, representing gross margins of 15%, for the nine months ended September 30, 2024 as compared to a gross loss of $75,645, or negative gross margins of 6%, for the nine months ended September 30, 2023. Our gross profit margin increased primarily due to cost savings realized as a result of our transition to bulk shipping arrangements during the current period. Cost of goods sold included depreciation expense for the nine months ended September 30, 2024 of $173,285, compared to $167,520 for the nine months ended September 30, 2023, an increase of $5,765, or 3%.
General and Administrative
Our general and administrative expense for the nine months ended September 30, 2024 was $1,201,474, compared to $552,390 for the nine months ended September 30, 2023, an increase of $649,084, or 118%. The largest components of our general and administrative expenses are advertising and marketing, rent, travel, commissions, and storage, shipping and handling expense, as shown below.
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Difference | % change | |||||||||||||
| Advertising and marketing | $ | 223,801 | $ | 105,402 | $ | 118,399 | 112 | % | ||||||||
| Rent | $ | 160,751 | $ | 20,069 | $ | 140,682 | 701 | % | ||||||||
| Travel | $ | 99,132 | $ | 41,532 | $ | 57,600 | 139 | % | ||||||||
| Commissions | $ | 139,049 | $ | 124,488 | $ | 14,561 | 12 | % | ||||||||
| Storage, shipping and handling | $ | 311,073 | $ | 153,099 | $ | 157,974 | 103 | % | ||||||||
Advertising and marketing expenses increased for the nine months ended September 30, 2024, compared to the corresponding period in 2023, as we focused our resources on our IPO in the prior period. Our rent increased primarily due to leases entered into in the current year, as we began to develop our operating facility in Peru, which resulted in increased travel expenses for the same reason. Commissions increased due to our increased sales, and storage, shipping and handling expenses increased primarily due to increased international shipping rates and increased production that was driven by our increased sales.
Salaries and Wages
Salaries and wages for the nine months ended September 30, 2024 was $1,257,316, compared to $910,812 for the nine months ended September 30, 2023, an increase of $346,504, or 38%. This increase was primarily attributable to $408,700 of non-cash, stock-based compensation related to stock options awarded during the current period.
Professional Fees
Professional fees for the nine months ended September 30, 2024 was $1,064,567, compared to $520,506 for the nine months ended September 30, 2023, an increase of $544,061, or 105%. This increase was primarily attributable to increased legal and consulting fees in the current period, as a portion of these fees were capitalized as offering costs on our IPO in the comparative period. Professional fees included $290,085 and $179,389 of non-cash, stock-based compensation for the nine months ended September 30, 2024 and 2023, respectively.
Other Income (Expense)
In the nine months ended September 30, 2024, other expense was $509,656 on a net basis, consisting of $518,233 of interest expense, as partially offset by $8,577 of interest income. For the nine months ended September 30, 2023, other expense was $397,243 on a net basis, consisting of $406,000 of interest expense, as partially offset by $8,757 of interest income. Other expense decreased by $112,413, or 28%, primarily due to interest on increased outstanding debt as we funded our expansion into Peru during the current period.
Net loss
Net loss for the nine months ended September 30, 2024 was $3,264,326, compared to $2,456,596 for the nine months ended September 30, 2023, an increase of $807,730, or 33%. The increased net loss was primarily due to increased compensation and compliance costs related to reporting as a public company, including a $519,396 increase in stock-based compensation during the current period and increased interest expense, as partially offset by increased gross profits.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working capital as of September 30, 2024 and December 31, 2023.
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Current Assets | $ | 3,341,293 | $ | 1,678,243 | ||||
| Current Liabilities | $ | 2,638,752 | $ | 779,093 | ||||
| Working Capital | $ | 702,541 | $ | 899,150 | ||||
As of September 30, 2024, we had working capital of $702,541. We have incurred net losses since our inception and we anticipate net losses and negative operating cash flows for the near future, and we may not be profitable or realize growth in the value of our assets. To date, our primary sources of capital have been cash generated from the sales of our products, common stock sales, and debt and equity financing. As of September 30, 2024, we had cash of $1,069,193, total liabilities of $8,042,725, and an accumulated deficit of $16,074,867. As of December 31, 2023, we had cash of $657,789, total liabilities of $914,622, and an accumulated deficit of $12,810,541.
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Cash Flow
Comparison of the Nine Months Ended September 30, 2024 and the Nine Months Ended September 30, 2023
The following table sets forth the primary sources and uses of cash for the periods presented below:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (3,259,049 | ) | $ | (3,258,248 | ) | ||
| Net cash used in investing activities | (2,095,691 | ) | (66,565 | ) | ||||
| Net cash provided by financing activities | 5,767,938 | 3,784,850 | ||||||
| Effect of exchange rate changes on cash | (1,794 | ) | - | |||||
| Net change in cash | $ | 411,404 | $ | 460,037 | ||||
Net Cash Used in Operating Activities
Net cash used in operating activities was $3,259,049 for the nine months ended September 30, 2024, compared to $3,258,248 for the nine months ended September 30, 2023, an increase of $801. The increase was primarily due to our increased net loss and increased inventory purchases, as adjusted for increased stock-based compensation, increased accounts payable, and a $275,000 payment for other assets.
Net Cash Used in Investing Activities
Net cash used in investing activities was $2,095,691 for the nine months ended September 30, 2024, compared to $66,565 for the nine months ended September 30, 2023, an increase of $2,029,126, or 3,048%. This increase was primarily attributable to $2,120,337 of property and equipment purchases, as partially offset by $24,646 of advances received on notes receivable in the current period, compared to $66,565 of property and equipment purchases in the comparative period.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $5,767,938 for the nine months ended September 30, 2024, compared to $3,784,850 for the nine months ended September 30, 2023, an increase of $1,983,088, or 52%. Our increased cash provided by financing activities was primarily from $3,703,710 of increased net proceeds received on debt financing, $2,071,439 of decreased debt repayments, $326,975 of decreased deferred offering cost payments, and $3,964 of decreased principal payments on finance leases, as partially offset by $4,123,000 of decreased proceeds received on the sale of common stock.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial results are affected by the selection and application of accounting policies and methods. In the nine-month period ended September 30, 2024 there were no changes to the application of critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this report, other than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of our management for future operations, any statements concerning proposed new products or services, any statements regarding the integration, development or commercialization of the business or any assets acquired from other parties, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “seeks,” “believes,” “estimates,” “potential,” “forecasts,” “continue,” or other forms of these words or similar words or expressions, or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results will likely differ, and could differ materially, from those projected or assumed in the forward-looking statements. Investors are cautioned not to unduly rely on any such forward-looking statements.
All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Our actual results will likely differ, and may differ materially, from anticipated results. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections.
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NOTICE REGARDING TRADEMARKS
This report includes trademarks, tradenames and service marks that are our property or the property of others. Solely for convenience, such trademarks and tradenames sometimes appear without any “™” or “®” symbol. However, failure to include such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate disclosure controls and procedures for our company. Consequently, our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of September 30, 2024. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective.
Changes in Internal Control Over Financial Reporting
During the three-month period ended September 30, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may become, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities. We are not currently party to any pending legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, cash flows or results of operations.
ITEM 1A. RISK FACTORS
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following issuances of equity securities by the Company during the three-month period ended September 30, 2024 were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder:
On August 30, 2024, the Company issued 131,891 shares of common stock, restricted in accordance with Rule 144, to Eagle Vision Fund LP, a Company owned by the Company’s CFO, pursuant to the sale of a unit offering.
On July 23, 2024, the Company issued 32,973 shares of common stock, restricted in accordance with Rule 144, to the Company’s President pursuant to the sale of a unit offering.
On July 23, 2024, the Company issued 527,565 shares of common stock, restricted in accordance with Rule 144, to the Company’s CEO pursuant to the sale of a unit offering.
In connection with the above security issuances, we did not pay any underwriting discounts or commissions. None of the sales of securities described or referred to above was registered under the Securities Act. In making the sales without registration under the Securities Act, we relied upon one or more of the exemptions from registration contained in Section 4(2) of the Securities Act, and in Regulation D promulgated under the Securities Act. No general solicitation or advertising was used in connection with the sales.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS.
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registration has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Signature | Title | Date | ||
| /s/ Eric Healy | Chief Executive Officer | November 14, 2024 | ||
| Eric Healy | (Principal Executive Officer) | |||
| /s/ John Dalfonsi | Chief Financial Officer | November 14, 2024 | ||
| John Dalfonsi | (Principal Accounting and Financial Officer) |
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