What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-04-15 · 470 added, 519 removed, 34 unchanged (97% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of the Company

for the fiscal years ended December 31, 2024 and 2023.

The discussion and analysis that follows should be read together with the section

entitled “Forward Looking Statements” and our financial statements and the notes to the financial statements included elsewhere

in this annual report on Form 10-K.

for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties

and are based upon judgments concerning various factors that are beyond the Company’s control.

Consequently, and because forward-looking

statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results

and outcomes discussed in the forward-looking statements.

You are urged to carefully review and consider the various disclosures made

by us in this report.

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.

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 December 2024, and utilizes three large-scale REV machines (a REV 60, REV 100 and REV 120) that

we recently purchased from EnWave, as well as, a small REV 10 R&D machine that is being used for product development and customer

sample purposes.

We expect operating margins to be further improved in 2025, as we become more vertically integrated with the transition

of more of our production from third party contract manufacturers to internal production.

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

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 several products in Peru, and avocado based products in the United States.

In addition, BranchOut has the nonexclusive

rights to use the licensed technology platform for other products.

plan to continue to grow revenues strategically by penetrating the multi-billion dollar grocery, industrial ingredient and online markets.

Our current product line includes:

BranchOut Snacks:

dehydrated fruit and vegetable-based

snacks, including Avocado Chips, Chewy Banana Bites, Pineapple Chips, Brussels Sprout Crisps, Strawberry Crisps and Bell Pepper Crisps.

Private Label:

Prunes, Carrots, Brussel

Sprouts and Raisins sold to major retailers.

BranchOut Industrial Ingredients:

Mango, Blueberry, Pineapple, Cherry Tomato, Avocado and many others.

are currently developing many additional products for all sales channels.

Concern Uncertainty

of December 31, 2024, we had a cash balance of $2,329,452, a working capital deficit of $3,897,382 and had incurred recurring losses

from operations resulting in an accumulated deficit of $17,562,057.

Subsequent to December 31, 2024, we received gross proceeds of approximately

$2.4 million from sales of our common stock in an “At-the-Market” registered offering.

Although we anticipate that our results

of operations will improve substantially as a result of the recent launch of our new facility in Peru, there can be no assurance in that

If we continue to generate substantial operating losses, we will not have sufficient funds to sustain our operations for the

next twelve months and we will need to raise additional cash to fund our operations.

These factors raise substantial doubt about our

ability to continue as a going concern.

report of our independent registered public accounting firm that accompanies our audited financial statements in this Annual Report on

Form 10-K contains an explanatory paragraph regarding the substantial doubt about our ability to continue as a going concern.

financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty.

the fourth quarter of 2023, NXTDried Superfoods, one of our former contract manufacturers 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 had to fulfill orders by shifting fulfillment to other manufacturing sources until we commenced operations at our own fully integrated

production facility in Peru in the fourth quarter of 2024.

D uring 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.

Facility Lease

the situation with NXTDried Superfoods, we were required to shift fulfillment of orders to alternative manufacturing sources.

10, 2024 we entered into a ten-year lease for our 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 facility for $1,865,456.

connection with our lease of the Peru Facility, we paid $275,000 on May 10, 2024 and another $80,000 during the fourth quarter of 2024,

as part of 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.

The remaining $912,000 is due and payable in monthly installments

of $152,000 through June 23, 2025, at which time an additional $55,604 of interest is due, based on a 9% financing rate.

Accounting Policies

establishment and consistent application of accounting policies is a vital component of accurately and fairly presenting our financial

statements in accordance with generally accepted accounting principles in the United States (“GAAP”), as well as ensuring

compliance with applicable laws and regulations governing financial reporting.

While there are rarely alternative methods or rules from

which to select in establishing accounting and financial reporting policies, proper application often involves significant judgment regarding

a given set of facts and circumstances and a complex series of decisions.

Public Offering

June 2023, we completed our IPO in which we sold 1,190,000 shares of common stock at a price of $6.00 per share pursuant to an Underwriting

Agreement with Alexander Capital, L.P.

(the “Underwriter”) .

received net proceeds of $6,226,000, after deducting underwriters’ discounts and commissions and before consideration of other

issuance costs.

In connection with the IPO, a total of $6,029,204 of convertible debt, consisting of $5,526,691 of principal and $502,513

of interest, was converted into 1,572,171 shares of common stock, inclusive of $179,687, consisting of $165,000 of principal and $14,687

of interest, that converted into 43,562 shares of common stock issued upon the conversion of debts held by related parties.

to the Underwriting Agreement, we also issued the Underwriter a Common Stock Purchase Warrant to purchase up to 82,110 shares of Common

Stock at an exercise price of $7.20, which may be exercised for a five-year period beginning December 18, 2023.

to the IPO, all deferred offering costs were capitalized in other noncurrent assets on the balance sheets.

Deferred offering costs of

$1,283,954, primarily consisting of accounting, legal, and other fees related to the Company’s IPO, were offset against the IPO

proceeds upon the closing of the IPO in June 2023.

June 15, 2023, we effected a 2.5-for-1 reverse stock split of our outstanding shares of capital stock.

All issued and outstanding shares

of common stock have been adjusted in these condensed financial statements, on a retrospective basis, to reflect the reverse stock split

for all periods presented, as well as all common stock warrants and stock option awards which, by the terms thereof, were subject to

adjustment in connection with the reverse stock split.

The par value of the common stock was not adjusted by the reverse stock split.

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.

ASC 280, Segment Reporting , operating segments are defined as components of an enterprise where discrete financial information

is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources

and in assessing performance.

The Company has two components, consisting of its sales operations in the United States, and its production

operations in Peru.

Therefore, the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s

operations based on these two operating segments for the manufacture and distribution of its products.

Value of Financial Instruments

820, Fair Value Measurements and Disclosures , establishes a fair value hierarchy for instruments measured at fair value that distinguishes

between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs).

inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent

of the Company.

Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants

would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid

to transfer a liability in an orderly transaction between market participants.

As a basis for considering market participant assumptions

in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

Level 1 inputs to the valuation methodology

are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology

include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability,

either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to valuation methodology

are unobservable and significant to the fair measurement.

assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination

of fair value requires more judgment.

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest

for instruments categorized in Level 3.

A financial instrument’s level within the fair value hierarchy is based on the lowest level

of any input that is significant to the fair value measurement.

and Cash Equivalents

equivalents include money market accounts which have maturities of three months or less.

For the purpose of the statements of cash flows,

all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

Cash equivalents

are stated at cost plus accrued interest, which approximates market value.

There were no cash equivalents on hand on December 31, 2024

in Excess of FDIC Insured Limits

Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.

Accounts are guaranteed by

the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000, under current regulations.

The Company had $1,555,223

and $407,789 in excess of FDIC insured limits on December 31, 2024 and 2023, respectively, and has not experienced any losses in such

receivable is carried at their estimated collectible amounts.

Trade accounts receivable is periodically evaluated for collectability

based on past credit history with customers and their current financial condition.

The Company had an allowance for doubtful accounts

of $25,586 at December 31, 2024.

No allowance for doubtful accounts was necessary at December 31, 2023.

Company’s products consist of pre-packaged and bulk-dried fruit and vegetable-based snacks, powders and ingredients purchased from

contract-manufacturers in Chile and/or Peru.

The Company’s contract manufacturer in Peru uses equipment purchased by the Company

in its manufacturing process.

Raw materials consist of packaging materials.

Appropriate consideration is given to obsolescence, excessive

levels, deterioration, and other factors in evaluating net realizable value.

No reserve for obsolete inventories has been recognized.

Inventory, consisting of raw materials and finished goods are stated at the lower of cost or net realizable value using the average cost

valuation method, at December 31, 2024 and 2023, consisted of the following:

Raw materials

Finished goods

Company had prepaid inventory advances on products in the amount of $123,792 and $-0- as of December 31, 2024 and 2023, respectively.

Advances of 70% of estimated finish product costs are made to enable manufacturer’s purchase of raw materials to produce finished

The remaining 30% is paid upon receipt of finished goods.

and Equipment

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

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.

expense was $171,873 and $223,856 for the years ended December 31, 2024 and 2023, respectively.

of Long-Lived Assets

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.

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.

Company is party to a license agreement under which it is licensed to utilize certain technology and production equipment developed and

manufactured by another company, relating on an exclusive basis to avocado products and on a non-exclusive basis to other products.

license is not discernible from the equipment;

therefore, the license costs have been capitalized and depreciated over the useful life

of the equipment.

The license agreement also entitles the licensor to a royalty on all revenue from the sale of products produced using

the equipment.

These royalties are recognized as royalty expenses as the products are sold.

There was a total of $41,673 of royalty payments

made during the year ended December 31, 2024, and none during the year ended December 31, 2023.

Any future minimum royalty

payments or equipment purchases under this license agreement are an unrecognized commitment as they relate to retaining exclusivity of

the avocado products going forward and the Company can elect not to pay as disclosed in Note 17 to the financial statements included

in this 10-K.

Company evaluates convertible notes payable, stock options, stock warrants and other contracts to determine if those contracts or embedded

components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40,

Derivative Instruments and Hedging:

Contracts in Entity’s Own Equity.

result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and

is marked-to-market at each balance sheet date and recorded as a liability.

In the event that the fair value is recorded as a liability,

the change in fair value is recorded in the statement of operations as other income or other expense.

Upon conversion or exercise of

a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are

reclassified to a liability account at the fair value of the instrument on the reclassification date.

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:

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

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.

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.

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

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.

such as slotting fees, sales discounts, and allowances are accounted for as a direct reduction of revenues as follows:

Gross revenue

slotting, discounts,

and allowances

of Goods Sold

of goods sold represents costs directly related to the purchase, production and manufacturing of the Company’s products.

include purchase costs, product development, freight-in, packaging, and print production costs.

Company expenses the cost of advertising and promotions as incurred.

Advertising and promotions expense was $311,586 and $162,048

for the years ended December 31, 2024 and 2023, respectively.

Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation

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.

Company issued stock-based compensation in the amount of $704,699 and $258,574 for the years ended December 31, 2024 and 2023, respectively.

and Diluted Loss Per Share

basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding.

net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average

number of common shares outstanding plus potential dilutive securities.

For the years ended December 31, 2024 and 2023, potential

dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and

liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered.

The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more

likely than not.

Tax Positions

accordance with ASC 740, Income Taxes , the Company recognizes the tax benefit from an uncertain tax position only if it is more

likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits

of the position.

These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition

and measurement of a tax position taken or expected to be taken in a tax return.

These standards also provide guidance on de-recognition,

classification, interest and penalties, accounting in interim periods, disclosure, and transition.

taxing authorities periodically audit the Company’s income tax returns.

These audits include questions regarding the Company’s

tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.

In evaluating

the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for

probable exposures.

A number of years may elapse before a particular matter, for which an allowance has been established, is audited,

and fully resolved.

The Company has not yet undergone an examination by any taxing authorities.

assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s

various filing positions.

discussion summarizes the significant factors affecting the Company’s results of operations, financial condition, liquidity, and

cash flows for the fiscal years ended December 31, 2025 and 2024.

The following discussion and analysis should be read in conjunction

with the section entitled “Forward-Looking Statements” and the Company’s consolidated financial statements and related

notes included elsewhere in this Annual Report on Form 10-K.

section contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Except for statements

of historical fact, all statements regarding the Company’s expected future financial position, results of operations, cash flows,

liquidity, business strategy, and plans and objectives of management are forward-looking statements.

These statements are based on current

expectations and assumptions that are subject to risks, uncertainties, and other factors, many of which are beyond the Company’s

control, that could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

are urged to carefully review and consider the disclosures set forth in this Annual Report on Form 10-K, including the risk factors and

other cautionary statements, when evaluating these forward-looking statements.

(collectively with its subsidiary, “BranchOut,” the “Company,” “we,” “us”

or “our”), is a growth-stage consumer packaged foods company focused on developing, manufacturing, marketing, and

distributing clean-label, plant-based dried fruit and vegetable snacks for retail and foodservice markets through BranchOut-branded

products, private-label offerings, and ingredient sales.

The Company operates a 50,000 square foot manufacturing facility in Pisco,

Peru, (“Peru Facility”) where it produces finished goods using proprietary GentleDry™ technology licensed from

EnWave Corporation.

Our operating model is manufacturing-led and dependent on agricultural sourcing, production scale, and retail

distribution.

Company Realignment

Beginning in April 2024, we initiated an organizational

realignment to expand our manufacturing capabilities through the development and operation of the Peru Facility.

This initiative represents

a transition from reliance on third-party manufacturers to in-house production.

From April 2024 through December 31, 2025, we incurred aggregate costs

of approximately $6.7 million related to this initiative, consisting of (i) approximately $5.1 million of facility start-up costs, including

equipment purchases, facility build-out, and initial supplies, (ii) approximately $1.2 million of idle capacity costs associated with

underutilization during the ramp-up period, and (iii) approximately $0.4 million of professional fees, legal fees, and travel costs.

of December 31, 2025, the Company has substantially completed the organizational realignment.

We continue to expand distribution with large national retail customers while

increasing production at our Peru Facility.

Operations during the year reflected continued scale-up of manufacturing and commercial activities,

with production operating below normalized utilization levels.

Operating Position

are in a growth and scaling phase.

Operating results continue to be influenced by production levels, manufacturing utilization, working

capital requirements, and access to capital.

Our operating results during the period reflect production operating below normalized utilization.

We continue to operate with recurring losses and negative working capital, and liquidity management remains a key focus.

Considerations Going Forward

near-term operating performance will depend primarily on revenue growth, production scale, cost management, and capital availability.

Management continues to focus on increasing production volumes, improving manufacturing efficiency, managing working capital, and supporting

distribution expansion.

While operating leverage may improve as production scales, we remain dependent on external financing to support

operations and working capital requirements.

strategy is focused on executing a manufacturing-led growth model:

Expanding distribution of existing retail customers, developing new customer relationships, and introducing new products

to support increased sales volumes.

Manufacturing Scale:

Increasing utilization at the Peru Facility and improving production efficiency.

Margin Discipline:

Managing logistics, production, and operating costs as production scales.

Liquidity Management:

Maintaining access to capital and managing working capital to support operations during the scale-up phase.

Compared to 2024

the year ended December 31, 2025, net revenue increased to $13.7 million from $6.4 million in 2024, primarily driven by increased sales

volumes to existing customers and new product introductions.

Gross profit increased to $2.05 million from $0.8 million in the prior year,

and gross margin improved to 14.8% from 12.2%.

The improvement in gross margin reflects increased internal manufacturing, changes in

product mix, and logistics efficiencies during the period.

expenses increased to $7.4 million in 2025 from $4.7 million in 2024, reflecting expanded commercial activities, higher administrative

costs associated with operating as a public company, and costs associated with scaling production at the Peru Facility.

A portion of these expenses relates to production operating below normalized utilization levels.

Operating loss increased to $5.4 million

from $3.9 million in 2024.

Net loss increased to $6.1 million from $4.8 million in the prior year;

however, net loss as a percentage

of revenue declined due to higher revenue and improved gross margin.

used in operating activities increased during 2025 primarily as a result of higher operating losses and increased investment in working

capital to support revenue growth.

Gross Margin (Non-GAAP)

In addition to gross margin calculated in accordance with U.S.

accepted accounting principles (“GAAP”), we use adjusted gross margin, a non-GAAP supplemental measure to evaluate underlying

manufacturing performance.

Non-GAAP adjusted gross margin excludes depreciation included in cost of goods sold, tariffs incurred under

the International Emergency Economic Powers Act (“IEEPA”) during 2025, which were subsequently ruled unlawful by the U.S.

Court of International Trade, and certain air freight costs incurred during the year ended December 31, 2025.

Gross profit (GAAP) was

$2.0 million versus adjusted gross profit (non-GAAP) of $3.8 million, and gross margin was 14.8% compared to adjusted gross margin of

in April 2024, we initiated an organizational realignment to transition from third-party manufacturing to in-house production at our

Peru Facility.

This transition required significant upfront investment in equipment and facility build-out, resulting in increased depreciation

that is not yet aligned with production throughput.

gross margin was higher than reported gross margin, reflecting the impact of this depreciation and air freight costs incurred to support

customer-required timelines, primarily related to new product introductions.

These air freight costs were driven by specific timing and

fulfillment requirements and are not expected to recur at similar levels.

Additionally, adjusted gross margin excludes the impact of a potential tariff refund of $348,752, which is treated

as a gain contingency under ASC 450 and not recognized in the 2025 financial statements.

believe adjusted gross margin provides additional visibility into the underlying unit economics of our manufacturing model during this

scale-up phase.

As the plant gains operating experience and throughput increases, we expect reported gross margin to improve as additional

products achieve manufacturing efficiency.

Currently, a limited number of products are produced at or near optimal manufacturing efficiency,

while other products remain in earlier stages of production and optimization.

New product introductions also begin at lower efficiency

levels as they transition from development into scaled production and improve over time.

reconciliation of gross profit (GAAP) to adjusted gross profit (non-GAAP), and the related gross margin measures, is presented below:

Gross profit (GAAP)

Depreciation included in cost of goods sold

Air freight related to customer fulfillment and production ramp

IEEPA tariffs incurred in 2025 (gain contingency)

Adjusted gross profit (non-GAAP)

Gross margin (GAAP)

Adjusted gross margin (non-GAAP)

Model and Margin Considerations

operating results are closely tied to production volume, facility utilization, product mix, and input costs.

We began operating our Peru

Facility in December 2024 and are continuing to scale production.

gross margin improvement reflects increased production volumes, improved throughput, and better manufacturing efficiency, including gains

in uptime, yields, and production flow.

As operations continue to scale and become more consistent, we expect further improvements in

per-unit costs.

Gross margin is also influenced by product mix across our BranchOut-branded, private-label, and industrial ingredient

channels, as well as variability in agricultural raw materials, packaging, labor, and freight.

In addition, the timing of raw material

sourcing and reliance on spot market purchases, when required, can impact input costs.

2025, production levels remained below normalized capacity as we continued to ramp up operations.

As a result, a portion of fixed

manufacturing costs was not absorbed into inventory and was recognized as idle capacity expense within operating expenses, which

impacted operating margin.

As production volumes increase and utilization improves, we expect a greater portion of these costs to be

absorbed into product costs and a corresponding reduction in idle capacity expense.

expenses primarily reflect the cost of supporting our manufacturing platform and growth, including facility-related overhead, distribution

expansion, and public company requirements.

As the business scales, we expect operating expenses to be more effectively leveraged relative

Position and Operating Scale

are in a growth and scale-up phase.

Future operating performance will depend on revenue growth, production levels, cost management, and

working capital requirements.

While gross margin improved during 2025, we continue to operate at a net loss and have negative working

Future results will depend on our ability to increase production volumes, manage operating expenses, and maintain access to

of Operations for the Years Ended December 31, 2025 and 2024

1 unchanged sentence

Cost of goods sold

profit (loss)

Operating expenses:

General and administrative

Salaries and benefits

operating expenses

Salaries and wages

Professional services

Shipping and handling

Advertising and promotions

Total operating expenses

Operating loss

Operating margin

Other income (expense):

Interest income

other income (expense)

Interest expense

Total other income (expense)

$ (6,124,672 )

$ (4,751,516 )

net revenue for the year ended December 31, 2024 was $6,516,337, compared to $2,825,855 for the year ended December 31, 2023, an

increase of $3,690,482, or 131%.

The increase in revenue was primarily due to increased sales to our largest customer during the year

ended December 31, 2024.

of Goods Sold and Gross Profit (Loss)

cost of goods sold for the year ended December 31, 2024 was $5,652,717, compared to $2,922,085 for the year ended December 31, 2023,

an increase of $2,730,632, or 93%.

Cost of goods sold included $171,843 and $223,856 of depreciation on production equipment during the

years ended December 31, 2024 and 2023, respectively.

Cost of goods sold increased primarily in line with the increase in our

sales for the period.

As a result of the foregoing, we had a gross profit of $863,620, or 13% of revenues, for the year ended December 31,

2024, compared to a gross operating loss of $96,230, or (3%) of revenues, for the year ended December 31, 2023.

Our gross profit

margin increased primarily due to cost savings realized as a result of our transition to bulk shipping arrangements and transitioning

to our own production facility during the current period.

$ (1,373,156 )

net revenue for the year ended December 31, 2025 was $13,724,563, compared to $6,434,514 for the year ended December 31, 2024, an increase

of $7,290,049, or 113%.

The increase in revenue was primarily due to higher sales to our largest customers, driven by increased volumes

and new product releases.

Our revenue may fluctuate due to the seasonal nature of raw material harvest cycles and variability in the

timing and size of customer orders.

2025, revenue more than doubled while gross margin improved as production efficiency increased and the business continued to scale.

Peru Facility is not yet operating at normalized utilization, and current margins still reflect early-stage operating inefficiencies

and the burden of fixed cost absorption.

of Goods Sold and Gross Profit

of goods sold for the year ended December 31, 2025 was $11,690,116, compared to $5,652,717 for the year ended December 31, 2024, an increase

of $6,037,399, or 107%.

Cost of goods sold included $414,518 and $223,856 of depreciation related to the Peru Facility during the years ended

December 31, 2025 and 2024, respectively.

The increase in cost of goods sold was primarily due to higher sales volumes during the year.

profit for the year ended December 31, 2025 was $2,034,447, or 14.8% of net revenue, compared to $781,797 or 12.2% of net revenue, for

the year ended December 31, 2024.

The increase in gross margin was mainly driven by cost savings from higher proportion of production

at our manufacturing facility and the use of bulk shipping arrangements.

Additionally, revenue increased at a faster rate than operating

expenses, reflecting higher production and sales volumes.

Adjusted gross profit (non-GAAP) for the year ended December 31, 2025 was

$3,820,100, or 27.8% of net revenue.

Adjusted gross profit excludes depreciation included in cost of goods sold, certain air freight costs

related to customer fulfillment and production ramp, and tariffs incurred under the International Emergency Economic Powers Act (“IEEPA”)

during 2025, which were subsequently ruled unlawful by the U.S.

Court of International Trade.

The expected tariff refund is treated as

a gain contingency under ASC 450 and was not recognized in the 2025 financial statements.

We believe this measure provides additional

insight into underlying manufacturing performance by excluding items not indicative of normalized production costs.

margins have not yet reached expected long-term levels, as the manufacturing facility operated below normalized utilization during the

year and results continue to reflect the impact of fixed cost absorption.

Gross margin may continue to be affected by changes in production

volumes, input costs, and operating efficiency.

The Company’s manufacturing operations include a meaningful fixed-cost component,

and as production volumes increase, these costs are expected to be spread over a larger number of units, which may reduce unit production

costs and improve margins.

and Administrative Expense

general and administrative expense for the year ended December 31, 2024 was $1,870,720, compared to $1,581,474 for the year ended

December 31, 2023, an increase of $289,246, or 18%.

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.

Ended December 31,

Advertising and marketing

Storage, shipping and handling

Asset impairment expense

and marketing expenses increased for the year ended December 31, 2024, as compared to the corresponding period in 2023, as we focused

our resources on growing our sales.

Our rent increased primarily due to leases entered into in the current year, as we began to develop

our operating facility in Peru, which also resulted in increased travel expenses.

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.

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 , related to amounts owed from NXTDried Superfoods, one of our prior co-manufacturers.

and wages for the year ended December 31, 2024 was $1,604,200, compared to $1,129,858 for the year ended December 31, 2023,

and administrative expense for the year ended December 31, 2025 was $3,485,195, compared to $1,100,045 for the year ended December 31,

2024, an increase of $2,385,150, or 217%.

This increase was primarily attributable to increased headcount in line with our expanded operations,

including $414,614 of non-cash, stock-based compensation related to stock options awarded during the current year.

fees for the year ended December 31, 2024 was $1,291,141, compared to $694,596 for the year ended December 31, 2023, an increase

The increase was primarily related to higher operating activity and the expansion of our manufacturing

and administrative infrastructure.

The largest components of our general and administrative expenses are plant idle capacity, loan receivable

impairment, research and development, rent, travel, sales commissions, and royalties as shown below.

Year Ended December 31,

Increase / (Decrease)

Idle capacity

Loan receivable impairment

Research and development

Sales Commissions

capacity expense increased during 2025 due to unallocated fixed overhead associated with operating our manufacturing facility below

normal utilization levels.

We began operations at our manufacturing facility in Pisco, Peru in December 2024, and idle capacity was

not measured in 2024.

Production during 2025 was below the Peru Facility’s expected long-term capacity.

These costs primarily

reflect operating the facility and supporting production capabilities ahead of full utilization, as well as investments to expand

distribution.

As production volumes increase, a greater portion of these fixed costs are expected to be absorbed into

Loan receivable impairment increased

during 2025 to $401,522 consisting of a non-cash credit loss expense to fully reserve the Nanuva note receivable, driven by our

decision to discontinue third-party manufacturing with Nanuva and the resulting uncertainty regarding repayment.

and development expense increased as we continued product development activities.

Sales commissions increased in line with higher sales

Rent expense decreased modestly compared to the prior year, while travel expense increased primarily due to higher business

and wages for the year ended December 31, 2025 were $1,622,567, compared to $1,604,200 for the year ended December 31, 2024, an increase

of $18,367, or 1%.

This increase was primarily attributable to increased consulting fees.

Professional fees included $290,085 and $258,574

of non-cash, stock-based compensation related to common stock and stock options awarded during the years ended December 31, 2024

and 2023, respectively.

The relatively flat year-over-year change was primarily due to lower stock-based compensation expense compared to

the prior year, largely offset by higher cash compensation associated with the commencement of operations at Peru Facility.

While a substantial portion of Peru production labor is capitalized to inventory then expensed in cost of goods sold, non-capitalized

Peru salaries and U.S.-based salaries both increased during 2025.

fees for the year ended December 31, 2025 were $1,142,512, compared to $1,291,141 for the year ended December 31, 2024, a decrease of

$148,629, or 12%.

The decrease was primarily attributable to lower stock-based compensation issued to third-party service providers during

2025 compared to the prior year, as well as a reduction in legal, accounting, and advisory costs associated with operating as a public

and handling expense for the year ended December 31, 2025 was $632,989, compared to $459,089 for the year ended December 31, 2024, an

increase of $173,900, or 38%.

The increase was primarily attributable to higher sales volumes during the year.

The rate of increase in

shipping and handling expense was lower than the rate of revenue growth, primarily due to improved pricing associated with bulk shipping

arrangements.

and Promotions

and promotions for the year ended December 31, 2025, was $514,661, compared to $229,763 for the year ended December 31, 2024, an increase

of $284,898, or 124%.

This increase is primarily due to expanded product distribution, entry into new retail locations, and the introduction

of new products.

These expenses include costs associated with in-store product demonstrations and sampling programs, as well as customer

promotional support related to merchandising, marketing, and in-store product testing.

Income (Expense)

the year ended December 31, 2024, other expense was $849,075, consisting of $863,231 of interest expense, as partially offset by

the year ended December 31, 2025, other expense was $761,195, consisting of $780,595 of interest expense, partially offset by $19,400

of interest income.

During the year ended December 31, 2023, other expense was $423,552, consisting of $435,271 of interest

expense, as partially offset by $11,719 of interest income.

Other expense increased by $425,523, or 100%, primarily due to interest on

increased outstanding debt as we funded our expansion into Peru during the current year.

loss for the year ended December 31, 2024 was $4,751,516, compared to $3,925,710 during the year ended December 31, 2023, an

increased net loss of $825,806, or 21%.

The increased net loss was primarily due to increased compensation and compliance costs related

to reporting as a public company, $427,960 of increased interest expense, and $536,074 of increased stock-based compensation during the

current year, as partially offset by increased gross profits during the current year, in addition to $761,085 of impairment expense in

2023 that wasn’t incurred in the current year.

For the year ended December 31, 2024, other expense was $849,075, consisting of $863,231 of interest expense, partially

offset by $14,156 of interest income.

Other expense decreased by $87,880, or 10%, primarily due to lower interest expense following the

repayment of certain debt financing during 2025.

loss for the year ended December 31, 2025 was $6,124,672, compared to $4,751,516 for the year ended December 31, 2024, an increase of

$1,373,156, or 29%.

Despite the increase in net loss, net loss as a percentage of net revenue improved to 44.6% for 2025, compared to 73.8%

for 2024, reflecting higher revenue and improved operating performance.

The improvement in net loss margin was primarily driven by an

improvement in negative operating margin, which improved to 39.1% of net revenue in 2025 from 60.6% in 2024.

increase in net loss was primarily driven by continued investment in scaling production and operations at our manufacturing facility.

Results for the period also reflect costs associated with operating the facility below normalized utilization as well as expanded commercial

Because our manufacturing model includes a significant fixed-cost component, operating results are sensitive to production

volumes and sales growth, particularly during the early stages of scaling operations.

Changes in production levels, operating efficiency,

and sales volumes may continue to affect operating results in future periods.

and Capital Resources

following table summarizes our total current assets, liabilities and working capital as of December 31, 2024 and December 31,

following table summarizes our total current assets, liabilities and working capital as of December 31, 2025 and 2024.

Current Assets

Current Liabilities

1 unchanged sentence

$ (3,897,382 )

of December 31, 2024, we had negative working capital of $3,897,382.

We have incurred net losses since our inception and we anticipate

net losses and negative operating cash flows for the near future.

To date, our primary sources of capital have been cash generated from

the sales of our products, common stock sales, and debt and convertible debt financing.

As of December 31, 2024, we had cash of

$2,329,452, total liabilities of $10,514,292, and an accumulated deficit of $17,562,057.

As of December 31, 2023, we had cash of

$657,789, total liabilities of $914,622, and an accumulated deficit of $12,810,541.

of the Year Ended December 31, 2024 and the Year Ended December 31, 2023

of December 31, 2025, we had negative working capital of $584,240 compared to negative working capital of $3,897,382 as of December 31,

The improvement in working capital was primarily driven by the repayment of certain notes payable to related parties and increases

in current assets, including accounts receivable and inventory.

date, our primary sources of capital have been cash generated from the sales of our products, common stock sales, and debt and equity

As of December 31, 2025, we had cash of $616,278, total liabilities of $8,887,985, and an accumulated deficit of $23,686,729.

As of December 31, 2024, we had cash of $2,329,452, total liabilities of $10,514,292, and an accumulated deficit of $17,562,057.

of Cash Obligations for the Next 12 Months

ability to meet our cash requirements is dependent on our ability to increase sales volumes, improve operating cash flows, manage working

capital, and, as needed, access additional capital.

Based on our current operating plan, we expect that existing cash balances and cash

generated from operations will not be sufficient to fund our operating requirements for at least the next twelve months, and we may need

to obtain additional financing.

Historically,

we have raised capital primarily through debt and convertible debt financings and the issuance of equity securities.

Any additional financing

may not be available when needed or may not be available on acceptable terms.

In addition, any future financings may result in dilution

to existing stockholders and may contain restrictive covenants that could limit our operating flexibility.

Financing Activities

to December 31, 2025, we entered into an at-the-market issuance sales agreement with Alexander Capital, L.P., under which sold shares

of our common stock having an aggregate offering price of approximately $1.5 million.

January 28, 2026, we borrowed $1.5 million from Kaufman Kapital LLC (“Kaufman Kapital”) pursuant to a senior secured promissory

note that matures on January 28, 2027 and bears interest at 8% per annum.

The obligations under the note are secured by a lien on substantially

all of our assets under an existing security agreement.

In addition, in January 2026, Kaufman Kapital converted $500,000 of principal

outstanding under a 12% senior secured convertible promissory note into shares of common stock.

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.

These conditions raise substantial doubt about our ability to

continue as a going concern within one year after the date the consolidated financial statements are issued.

are pursuing initiatives to increase revenues and is seeking additional sources of capital to fund operations.

While these actions may

improve our liquidity position, there can be no assurance that they will be sufficient to alleviate the substantial doubt

regarding the our ability to continue as a going concern.

accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the

realization of assets and the settlement of liabilities in the normal course of business.

The consolidated financial statements do not

include any adjustments that might result from the outcome of this uncertainty, including adjustments to the recoverability and classification

of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as

a going concern.

following table sets forth the primary sources and uses of cash for the periods presented below:

4 unchanged sentences

Net cash provided by financing activities

Effect of exchange rate

changes on cash

Net change in cash

Effect of exchange rate changes on cash

Net increase (decrease) in cash

$ (1,713,174 )

Cash Used in Operating Activities

cash used in operating activities was $4,859,816 for the year ended December 31, 2024, compared to $3,529,372 for the year ended December 31,

used in operating activities was $6,999,712 for the year ended December 31, 2025, compared to $4,859,816 for the year ended December

31, 2024, an increase of $2,139,896, or 44%.

The increase was primarily due to our increased net loss and increased purchases of inventory

and other assets, as adjusted for increased stock-based compensation, increased accounts payable, and $761,085

of impairment expense on the collectability of a note receivable, VAT taxes receivable and prepaid inventory during the prior year .

The increase in cash used in operating activities was primarily driven by higher operating

losses and changes in working capital, including increases in accounts receivable, advances on inventory purchases, inventory, and prepaid

These uses of cash were partially offset by non-cash charges, including depreciation, stock-based compensation, and amortization

of debt discounts.

Cash Used in Investing Activities

cash used in investing activities was $2,822,561 for the year ended December 31, 2024, compared to $116,565 for the year ended December 31,

2023, an increase of $2,705,996, or 2,321%.

This increase was primarily attributable to increased property and equipment purchases of

$2,847,207 during the current year, as partially offset by $24,646 of advances received on notes receivable in the current year that

were not replicated in the prior year, and $116,565 of property and equipment purchases in the prior year.

used in investing activities was $747,043 for the year ended December 31, 2025, compared to $2,822,561 for the year ended December 31,

2024, a decrease of $2,075,518, or 74%.

The decrease in cash used in investing activities during 2025 primarily related to purchases

of property and equipment, which were lower than the prior year as significant investments in Peru Facility occurred

Cash Provided by Financing Activities

cash provided by financing activities was $9,362,621 for the year ended December 31, 2024, compared to $3,755,279 for the year ended

December 31, 2023, an increase of $5,607,342, or 149%.

Our increased cash provided by financing activities was primarily from $7,071,898

of increased net proceeds received on debt and convertible debt financing, $206,183 of decreased deferred offering cost payments, and

$5,489 of decreased principal payments on finance leases, as partially offset by $1,697,203 of decreased proceeds received on the sale

of common stock.

Our financing activities during the year ended December 31, 2024 are further described below.

Convertible Note

to a Securities Purchase Agreement dated July 15, 2025 (as amended, the “SPA”) on July 24, 2024 Kaufman Capital LLC (“Kaufman

Capital”) purchased from us (i) a 12% Senior Secured Convertible Promissory Note in the principal amount of up to $3,400,000 (the

“Convertible Note”), convertible into shares of common stock at a fixed price of $0.7582 per share, (ii) a warrant to purchase

1,000,000 shares of common stock at an exercise price of $1.00 per share, and (iii) a warrant to purchase 500,000 shares of common stock

at an exercise price of $1.50 per share, in consideration of an initial loan in the principal amount of $2,000,000 made to the Company

under the Convertible Note.

On December 9, 2024, Kaufman Kapital made an additional loan to the Company under the Convertible Note in

the amount of $1,400,000.

The Convertible Note matures on the earlier of (i) December 31, 2025, (ii) the sale by the Company of $5,000,000

of equity or debt securities in a single transaction or series of related transactions (excluding certain specified transactions), or

(iii) the closing of a change of control transaction as provided in the Convertible Note.

Loans outstanding under the Convertible Note

bear interest at an initial rate of 12% per annum, and together with accrued principal are convertible into common stock.

The Company’s

obligations under the Convertible Note are secured by a lien granted to Kaufman Kapital on substantially all of the Company’s assets

pursuant to a Security Agreement entered between the Company and Kaufman Kapital (the “Security Agreement”).

Promissory Note

August 30, 2024, the Company borrowed $1,200,000 from Kaufman Kapital pursuant to a Senior Secured Promissory Note in the principal amount

of $1,200,000 (the “Note”) issued by the Company to Kaufman Kapital.

The Note matures on June 30, 2025.

The loan under

the Note bears interest at a rate of 15% per annum.

The Company’s obligations under the Note are secured by a lien on substantially

all of the Company’s assets pursuant to the Security Agreement.

Vision Promissory Notes

various dates from January 9, 2024 through May 22, 2024, the Company completed the sale of an aggregate $1,675,000 of Senior Secured

Promissory Notes (“Senior Notes”) and warrants to purchase an aggregate of 518,750 shares of the Company’s common stock,

to a group of Investors (“Investors”) led by Eagle Vision Fund LP (“Eagle Vision”), an affiliate of John Dalfonsi,

CFO of the Company, pursuant to a subscription agreement between the Company and the Investors.

The Notes mature on the earlier of December

31, 2025, or the occurrence of a “Qualified Subsequent Financing” or “Change of Control” and bear interest at

a rate of 15% per annum.

The Company’s obligations under the Notes are secured by liens on substantially all of the Company’s

assets pursuant to the terms of a Security Agreement between the Company and the Investors.

October 23, 2024, we entered into an ATM Agreement with Alexander Capital for the sale of shares of common stock from time to time through

Alexander Capital having an aggregate offering price of up to $3 million.

As of December 31, 2024, we had sold 1,317,307 shares

of common stock under the ATM Agreement resulting in gross proceeds of approximately $2.5 million and aggregate net proceeds of approximately

$2.3 million, after deducting expenses, including a 3% commission paid to Alexander Capital.

Subsequent to December 31, 2024, the ATM

Agreement was amended to increase the aggregate offering price of shares of common stock that may

be sold under the ATM Agreement to $5 million.

Following December 31, 2024, we sold 1,303,115 additional shares of common stock

under the ATM Agreement for gross proceeds of approximately $2.5 million and aggregate net proceeds of approximately $2.4 million.

As of the date of the filing of this Annual Report on Form 10-K, as a result of such sales of common stock under the ATM Agreement, the

Company believes it has stockholders’ equity in excess of $2.5 million, in compliance with Nasdaq Listing Rule 5550(b)(1).

Party Financing

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, an affiliate of John Dalfonsi, the Company’s Chief Financial Officer;

and the Company’s

President, pursuant to which such investors agreed to purchase $525,000 of “Units” from the Company, each Unit consisting

of (i) 100 shares of common stock, and (ii) a warrant to purchase 125 shares of common stock over the following ten years at an exercise

price of $1.00 per share, at a purchase price per Unit equal to $75.82.

The Company completed the sale of the Units to Eric Healy and

the Company’s President on July 23, 2024, and the sale of the Units to Eagle Vision on August 30, 2024, resulting in the issuance

of an aggregate of 692,429 shares of common stock and warrants to purchase 865,536 shares of common stock.

Public Offering

June 26, 2024, we sold 1,750,000 shares of common stock in a public offering at a price of $0.80 per share, less underwriting discounts

and commissions, and on July 19, 2024, the underwriter in the offering exercised its over-allotment option to purchase an additional

222,500 shares of common stock.

We received aggregate net proceeds in this offering of $1,164,685 after deducting the underwriting

discounts and commissions and offering expenses.

of our Cash Obligations for the Next 12 Months

of December 31, 2024, we had incurred recurring losses from operations resulting in an accumulated deficit of $17,562,057, cash

on hand of $2,329,452 and negative working capital of $3,897,382.

Subsequent to December 31, 2024, we received gross proceeds of approximately

$2.4 million from sales of our common stock in an “At-the-Market” offering.

However, assuming we continue to generate substantial

losses from operations, we will not have sufficient funds to fund our operations at their current levels for the next twelve months.

Although we anticipate that our results of operations will improve substantially as a result of the recent launch of our new facility

in Peru, there can be no assurance in that regard, and we may be required to obtain additional financing to fund operations.

Since inception,

we have raised funds primarily through debt and convertible debt financing, and the sale of equity securities.

No assurance can be given

that any future financing will be available if required, or, if available, that it will be on terms that are satisfactory to us.

if we are able to obtain additional financing, it may contain undue restrictions on our operations or cause substantial dilution for

our stockholders.

We cannot guarantee that we will become profitable.

Even if we achieve profitability, given the competitive and evolving

nature of the industry in which we operate, we may not be able to sustain or increase profitability and our failure to do so would adversely

affect our business, including our ability to raise additional funds.

accompanying financial statements appearing in this 10-K have been prepared assuming that we will continue as a going concern, which

contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

The financial

statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and

classification of liabilities that might be necessary should we be unable to continue as a going concern.

provided by financing activities was $5,998,135 for the year ended December 31, 2025, compared to $9,362,621 for the year ended December

31, 2024, a decrease of $3,364,486, or 36%.

The decrease in cash provided by financing activities during 2025 was primarily attributable

to repayments of notes payable, including repayments to related parties, principal payments on finance lease obligations, and payment

of deferred offering costs.

The repayments were partially offset by proceeds from the issuance of common stock and proceeds from the

exercise of warrants.

In the prior year, financing activities were primarily driven by proceeds from convertible debt and equity financing.

cash used in operating activities increased primarily due to higher operating losses and increased investment in working capital investment

as we scaled operations, while financing activities remained the primary source of liquidity.

Events, and Uncertainties

operating results, liquidity, and financial condition continue to be shaped by several key operating trends and structural characteristics

of our business model that management believes are reasonably likely to have a material impact on future performance.

Production and Margin Progression

began operating our Peru Facility in December 2024, transitioning from a third-party manufacturing model to in-house production.

This shift is expected to improve margins over time through greater control over manufacturing processes and costs.

2025, production volumes remained below normalized capacity as we continued to ramp up operations.

As a result, fixed manufacturing

costs were not fully absorbed resulting in significant idle capacity expense, which impacted the operating margin.

current focus is on increasing throughput, expanding distribution, broadening our product portfolio, and onboarding new customers.

the same time, we are working to improve uptime, yields, and overall production flow.

As volumes increase and operations become more

consistent, we expect per-unit costs to decline and fixed costs to be more fully absorbed.

The pace of these improvements will depend

on demand growth and our ability to execute efficiently at scale.

Growth and Demand Variability

growth is being driven by expansion within existing retail accounts, the addition of new customers, and continued product development

across our BranchOut-branded, private-label, and industrial ingredient product lines.

We work closely with both existing and prospective

customers to develop products tailored to their shelf and category needs.

ordering patterns are typically based on purchase orders rather than long-term commitments, which can result in variability in the timing

and level of revenue.

This requires ongoing discipline in production planning and inventory management as we scale.

support customer demand and improve inventory flexibility, we have also focused on extending the shelf life of our products.

Demand for Clean-Label and Better-for-You Snacks

interest in snacks made with simple ingredients and perceived health benefits continues to influence our category.

Retailers are allocating

shelf space to products positioned around clean-label, plant-based, limited-ingredient and/or minimally processed, which aligns with

our product portfolio.

the same time, the category remains competitive, with ongoing pressure from pricing, promotional activity, and shifting consumer preferences.

As we expand distribution and introduce new products, our performance will depend in part on our ability to stay relevant with consumers

and maintain our position within these retail channels.

Innovation and Manufacturing Capability Expansion

are working with certain large retail customers to develop new snack products aligned with evolving consumer preferences, including products

with higher protein and fiber content.

These products are expected to incorporate combinations of fruit and high-protein dairy ingredients.

To support these initiatives, the Company incurred capital expenditures in the first quarter of 2026 to expand manufacturing capabilities

at the Peru Facility, including the installation of additional dehydration capacity for high-protein dairy applications.

This expansion

is expected to increase production flexibility, enable manufacturing in an allergen-controlled environment, and support more efficient

production processes.

a manufacturing perspective, these products are expected to be more efficient to produce than certain existing products, as they require

less raw material preparation and are anticipated to yield higher protein density following dehydration.

As a result, as production volumes

increase and these products are commercialized, they may contribute to improved gross margins.

timing and extent of revenue associated with these products will depend on successful product development, customer acceptance, and commercialization.

There can be no assurance that these initiatives will result in material revenue or improved operating results.

Capital and Cash Flow Dynamics

operating model requires a meaningful investment in working capital to support inventory for both existing orders and anticipated demand.

Production is planned in advance of customer needs and aligned with agricultural harvest cycles, which results in inventory being manufactured

ahead of sales.

raw material sourcing through production, international shipment, and delivery to customers, the process generally spans six to eight

weeks, followed by standard customer payment terms.

This creates a longer operating cycle and timing differences between when cash is

invested and when it is collected.

we scale, we remain focused on managing inventory levels, aligning production with demand, and improving cash conversion efficiency.

Chain and Input Costs

cost structure is significantly influenced by agricultural raw materials, which are subject to seasonal harvest cycles and availability.

When sourcing is planned in advance, we are generally able to secure more stable pricing.

However, when demand changes or production

planning does not align with harvest timing, we may rely on spot market purchases, which typically carry higher costs.

we scale, we are focused on improving demand forecasting, production planning, and supplier coordination to better align raw material

sourcing with our production schedule and reduce reliance on higher-cost spot purchases.

addition to raw materials, our cost structure includes labor, packaging, freight, and indirect taxes such as Peru value-added tax (IGV).

These costs can fluctuate based on production levels, wage pressures, logistics conditions, and the timing of exports and recoverability

of VAT credits.

We are focused on improving overall cost management across these areas through increased production efficiency, better

planning, and scale.

Accounting Estimates

preparation of the Company’s consolidated financial statements in conformity with U.S.

generally accepted accounting principles

(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,

revenues and expenses, and related disclosures.

Management bases its estimates on historical experience, current conditions, and various

other assumptions believed to be reasonable under the circumstances.

Actual results may differ from these estimates, and such differences

may be material to the consolidated financial statements.

believes the following accounting estimates involve a higher degree of judgment and complexity and are most critical to understanding

the Company’s financial condition and results of operations.

Company recognizes revenue when control of goods is transferred to customers in an amount that reflects the consideration it expects

Revenue is primarily derived from the sale of finished food products to retail, private-label, and ingredient customers.

Judgments are required in determining the timing of revenue recognition, estimating variable consideration such as customer deductions,

promotional allowance, and evaluating collectability.

Changes in customer programs, pricing arrangements, or sales incentives may affect

the timing and amount of revenue recognized.

valuation requires significant management judgment.

Cost includes allocated fixed manufacturing overhead based on normal production capacity.

Because actual production levels during 2025 were below the capacity of the Peru facility, a portion of fixed overhead was expensed to

idle capacity as incurred.

Determining normal capacity involves judgment regarding expected production volumes and future utilization

of the Company’s Peru manufacturing facility.

is also evaluated for recoverability and stated at the lower of cost or net realizable value.

Net realizable value estimates require

assumptions regarding expected selling prices, trade allowances, sales commissions, outbound freight, product turnover, and demand forecasts.

These assumptions are based on historical experience, current contractual terms, and market conditions as of the balance sheet date.

in production levels, demand forecasts, pricing, trade programs, or other market conditions could materially impact inventory valuation

and cost of goods sold in future periods.

Company accounts for stock-based compensation in accordance with ASC 718, which requires measurement of compensation cost based on the

fair value of equity instruments on the grant date.

Determining fair value involves the use of valuation models and assumptions, including

expected volatility, risk-free interest rate, expected term, and forfeiture rates.

Changes in these assumptions may materially affect

the amount and timing of stock-based compensation expense.

and Convertible Instruments

Company has issued warrants and convertible instruments that require evaluation under U.S.

GAAP to determine appropriate classification

as equity or liabilities.

Certain instruments require valuation using option-pricing models and involve assumptions related to volatility,

discount rates, and expected term.

Changes in these assumptions may impact recorded amounts of equity, liabilities, and non-cash expense.

Assets and Manufacturing Equipment

Company evaluates long-lived assets, including manufacturing equipment and facility-related assets, for impairment when events or changes

in circumstances indicate that the carrying value may not be recoverable.

This evaluation requires management to estimate future cash

flows, production levels, and operating performance.

Changes in production utilization, operating results, or market conditions could

result in impairment charges in future periods.

Concern and Liquidity

evaluates the Company’s ability to continue as a going concern based on its current financial condition, operating results, cash

flows, and access to capital.

This assessment requires judgment regarding future revenue, operating performance, working capital needs,

and the availability of financing.

If actual results differ from management’s assumptions, the Company’s liquidity and financial

condition could be adversely affected.

Currency Translation

Company’s financial results include operations in Peru, where the functional currency is the Peruvian sol.

The translation of foreign

currency financial statements into U.S.

dollars requires the use of exchange rates at the balance sheet date for assets and liabilities

and average exchange rates for revenues and expenses.

As a result, the Company’s reported financial position and results of operations

are subject to fluctuations in foreign currency exchange rates.

Changes in exchange rates may impact accumulated other comprehensive

income as well as period-to-period comparability of operating results.

Issued Accounting Pronouncements

Company considers the applicability and impact of new accounting standards issued by the Financial Accounting Standards Board (“FASB”).

The Company adopted ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, during the year ended

December 31, 2024 and ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, during the year ended December 31,

The adoption of these standards primarily resulted in enhanced disclosures and did not have a material impact on the Company’s

consolidated financial position, results of operations, or cash flows.

November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,

which requires additional disaggregation of certain income statement expenses in the notes to the financial statements.

is effective for annual reporting periods beginning after December 15, 2026, with interim reporting required beginning after December

The Company is currently evaluating the impact of this guidance on its financial statement disclosures.

July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts

Receivable and Contract Assets, which introduces a practical expedient for estimating expected credit losses on certain accounts receivable

and contract assets.

The guidance is effective for the Company beginning January 1, 2026.

The Company is currently evaluating the impact

of this update on its consolidated financial statements.

Sheet Arrangements

did not have any off-balance sheet arrangements, such as structured finance, special purpose entities, or variable interest entities

during the years ended December 31, 2024 and 2023.

Growth Company

an emerging growth company under the JOBS Act, we are eligible to take advantage of certain exemptions from various reporting requirements

that are applicable to other public companies that are not emerging growth companies.

We have elected to avail ourselves of this exemption

from new or revised accounting standards and, therefore, while we are an emerging growth company, we will not be subject to new or revised

accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies.

a result, our financial statements and interim financial statements may not be comparable to companies that comply with new or revised

accounting pronouncements as of public company effective dates.

will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year in which we have total annual

gross revenues of $1.235 billion or more, (ii) the last day of the first fiscal year in which we become a “large accelerated filer”

as defined in Rule 12b-2 under the Exchange Act, with at least $700 million of equity securities held by non-affiliates as of the end

of the last business day of the second quarter of that fiscal year, (iii) the date on which we have issued, in any three-year period,

more than $1.0 billion in non-convertible debt securities, or (iv) the last day of our fiscal year after the fifth anniversary of the

date of the completion of our IPO.

to the terms of the Licensing Agreement with EnWave, we cannot undertake any transaction that would result in a change of control of

us without the prior written consent of EnWave.

of December 31, 2025 and 2024, the Company did not have any off-balance sheet arrangements, as defined in Item 303 of Regulation S-K,

that have or are reasonably likely to have a material effect on its financial condition, results of operations, liquidity, capital expenditures,

or capital resources.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis