Item 1. Business
ITEM
1. BUSINESS
Overview
BranchOut
Food Inc. (together with its subsidiaries, the “Company,” “BranchOut,” “we,” “our,” or
“us”) was originally incorporated as AvoChips Inc., an Oregon corporation, on February 21, 2017. On November 2, 2017, AvoChips
Inc. converted into Avochips, LLC, an Oregon limited liability company and on November 19, 2021, Avochips, LLC converted into a Nevada
corporation named BranchOut Food Inc.
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 (the “Peru
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 Corporation (“EnWave”), 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 several core 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.
We
entered into a private labeling contract with one of the world’s largest retailers in late 2022 to supply the retailer with two
products for placement in half of their domestic stores. In late 2023, the same retailer agreed to carry two additional products of ours
in certain of their stores. In April 2024, we received a commitment from this retailer to carry another product of ours in their stores.
Based on this most recent commitment, our products have been carried in a total of 1,400 of this retailer’s stores as of December
31, 2024.
On
October 23, 2024, we entered into an At-The-Market Issuance Sales Agreement (the “ATM Agreement”) with Alexander Capital,
L.P. (“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 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).
In
June 2023, we completed our initial public offering (“IPO”) in which we issued 1,190,000 shares of common stock at a price
of $6.00 per share. We received net proceeds of $6,226,000 in the IPO 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.
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Our
Products
We
plan to continue to grow revenues strategically by penetrating the multi-billion dollar grocery, industrial ingredient and online market.
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: Banana,
Mango, Blueberry, Pineapple, Cherry Tomato, Avocado and many others.
We
are currently developing many additional products for all sales channels.
BranchOut
Snacks
We
currently produce all of our BranchOut snack products at our plant in Peru using our licensed technology. Our snacks are mostly single
ingredient products. Our Avocado Chips are real avocado slices, dehydrated using our licensed technology and process to create crispy,
crunchy avocado slices while maintaining their vibrant green color, rich creamy avocado flavor, and superfood nutritional content. We
offer these in three flavors, “Sea Salt with a Hint of Lime”, “Chili Lime” and “Sriracha” seasoned
topically on the avocado slices.
We
also offer a “Chewy Banana Bite”. Each “Banana Bite” is an actual banana slice, providing a unique marshmallow-like,
chewy texture. Previous market offerings in the banana snack space include fried plantain chips and dark brown air-dried banana snacks.
We believe that our “Chewy Banana Bite” product is superior due to its fresh-looking, natural yellow color, single ingredient
base and fresh banana flavor. We offer the banana bites in two flavors, “Original”, and “Cinnamon Churro”. According
to widely accepted market data, fresh bananas have historically shown to be the most consumed fruit in America and the highest selling
item in grocery stores; however, we do not believe that any banana snack has been offered prior to our “Chewy Banana Bite”
product that is of similar quality.
Our
“Pineapple Chip” product is made up of 100% dried pineapple slices. The Pineapple Chips are made from real pineapple slices
and offer a fresh pineapple flavor.
In addition,
we recently added two vegetable-based snacks, Brussels Sprout Crisps and Bell Pepper Crisps to our BranchOut branded product line.
BranchOut
Private Label
We
also manufacture and supply products to major retailers in North America on a private label basis. The business line allows us to manufacture
and supply fruits and vegetables from South America to the distribution centers of major US retailers.
BranchOut
Industrial Ingredients
While
BranchOut remains focused on the growth of its branded snack business, demand for industrial ingredients has continued to increase as
we expand our market presence. To accelerate the scaling of this growing business line, we have entered into an Agreement with MicroDried,
a market leader in premium dried ingredients. This partnership leverages MicroDried’s strong industry relationships and sales infrastructure
alongside BranchOut’s proprietary GentleDry™ technology. Under the agreement, the companies will collaborate on the production
and commercialization of fruit and vegetable pieces, powders and fragments, manufactured at our Peru Facility. The collaboration is expected
to generate several million dollars in annual ingredient sales for BranchOut, with upside potential as the partnership expands.
Products
in Development
We
are currently working on several new items at the request of major national retailers, consumer product brands and ingredient manufacturers
for their private label brand, as well as our own brand. In addition, we have been in discussions with the U.S. Army about the possibility
of including certain of our products in their Meals Ready-to-Eat for their personnel. The U.S. Army has asked us to develop snack concepts
for sensory and shelf-life testing, which is currently in progress. Separately, we have been developing a line of salad toppers with
one of the largest salad dressing producers in the U.S.
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Industry
We
operate within the U.S. grocery market, which reached approximately $1.5 trillion in 2024, making it the largest retail sector in the
country by sales volume. Within this market, BranchOut is focused on the growing demand for clean-label, minimally processed snack products
that meet modern consumer expectations for quality, convenience, and transparency.
The
shift in consumer behavior over the past several years has moved firmly away from highly processed, artificial, and sugar-laden packaged
foods. Shoppers are increasingly seeking snacks with short ingredient lists, simple processing, and real food appeal, especially in categories
like chips, fruit snacks, and shelf-stable produce alternatives. This trend is reflected in the rapid expansion of premium snack sets
in national retailers, club stores, and e-commerce platforms.
Among
shelf-stable snack technologies, freeze-drying has gained popularity for its ability to extend shelf life while maintaining nutritional
integrity. However, freeze-dried products often suffer from poor texture, muted flavor, and high production costs—limitations that
have hindered broader consumer adoption.
We
believe that many traditional snack brands, and freeze-dried products in particular, are failing to meet evolving consumer demands. BranchOut
is uniquely positioned to fill this gap with our proprietary GentleDry™ technology, which delivers superior taste, texture, and
color, while preserving up to 95% of the nutrition found in fresh produce.
Our
Growth Strategy
BranchOut’s
long-term goal is to build a scalable and widely recognized brand that delivers exceptional products across multiple grocery aisles,
supported by complementary private label and bulk ingredient businesses. In a category crowded with short-lived brands and lookalike
products, we believe that a reputation for quality and trust remains one of the most effective barriers to entry and a critical driver
of long-term value in the competitive consumer-packaged goods space.
In
addition, we aim to leverage our capabilities by offering major retailers private label products. These two approaches make up the heart
of our platform strategy. Our primary growth strategies are as follows:
Open-Ended
and Long Duration Growth Opportunity in the Enormous Grocery Market
The
U.S. grocery market is one of the largest retail end-markets in the world. BranchOut’s strategy is to maximize penetration of this
opportunity through a variety of avenues, including growing brand trust and recognition, significantly expanding our grocery distribution
footprint to multiples of our current level of customer retail locations, driving shelf velocity through an acceleration of online and
offline advertising and introducing new products to expand our store footprint.
Exposure
to Plant-Based, Functional and Natural Foods Portions of the Grocery Market
Within
the grocery category, there is an ongoing secular shift from highly processed legacy brands that demonstrate little nutritional benefit
to natural, nutrient-dense, functional and plant-based alternatives. We expect that the shift in consumer tastes driving the growth of
natural and plant-based alternatives will continue for the foreseeable future as consumers become better educated on nutrition and focus
on health and wellness. There is also clear evidence that an increasing number of natural and plant-based products in stores are moving
beyond the natural and specialty segments and into conventional grocery stores. The continuation of these trends should benefit BranchOut
as we seek to penetrate the very large overall grocery market.
Continued
Expansion of Distribution Footprint
Currently,
our products are marketed and sold through a diverse set of physical retail channels, including grocery chains, club stores, specialty
and natural food outlets, and on our website at www.branchoutfood.com. Maximizing potential distribution would be a key growth
driver for BranchOut and our goal is to expand distribution so that our products are available wherever our customers choose to shop,
whether it be a retail store, food service environment or directly online. While expanding distribution, we plan to simultaneously increase
our brand awareness through an extensive program of online and offline marketing initiatives to accelerate the sell-through velocity
of our products once they reach the shelves of our wholesale partners.
Maximize
Market Penetration of Existing Product Lines
We
believe that our existing snacks and nutritional powders represent a multi-billion-dollar opportunity. We believe simply penetrating
these core markets with our differentiated product lines will provide BranchOut with a large and long-duration growth opportunity. In
the near-term, BranchOut plans to focus on growing its share within these categories. We plan to drive growth and brand recognition of
both our snacks and nutritional powders through distribution expansion and increased marketing and advertising. We plan to also attempt
to leverage our new and existing wholesale relationships to gain additional shelf space for our full suite of existing products.
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Expected
Increases in Gross Margins, Fixed-Cost Leverage and a Capital Efficient Sales and Marketing Strategy Should Allow Earnings to Grow Faster
than Sales, Providing a Path to Profitability
While
generating topline growth is of primary importance to BranchOut, we are also highly focused on growing earnings faster than net sales
and achieving profitability. Our new large-scale continuous throughput dehydration machine was commissioned in September 2022 and
we completed the first production run in the first quarter of 2023.
During
2024, we completed the build out of our 50,000 square-foot facility in Peru, which commenced operations in December 2024, and utilizes
three large-scale REV machines 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.
New
Product Development
We
intend to grow by launching new products over time. In the first and second quarters of 2020, we launched three flavors of Avocado Chips,
three flavors of our Chewy Banana Bites and our Pineapple Chips. In the first quarter of 2022, we launched Banana Powder and Blueberry
Powder to complement our Avocado Powder which was already on the market. In 2023, we launched a line of vegetable-based snacks including
Brussels Sprout Crisps, and Bell Pepper Crisps, and in March 2024 we introduced our Salad Toppers and Kids Snack Pack line aimed at kids’
school lunches. We are also developing Broccoli Bites, Mango Chips, Mandarin Crisps and others. In addition, we are developing several
new items at the request of a national retailer which are planned to be sold under their brand.
These
new products have been, and we expect that our future products will be, developed primarily through internal research and development.
Using our unique licensed technology and South American supply chain, we believe that BranchOut is in a position to create a wide variety
of innovative new products. We intend to continue to create innovative products that conform to our brand ethos of uniqueness, great
taste, high-quality ingredients, nutritional density, and functionality.
Regulation
Our
operations involve food products and are subject to the oversight of, among others, the Food and
Drug Administration (the “FDA”) and state, local and foreign counterparts, and United States Department of Agriculture
(the “USDA”). The FDA, pursuant to the FDCA, as amended by the Food Safety Modernization Act (“FSMA”), enforces
statutory standards regarding the growing, harvesting, manufacturing, processing, packaging, holding, distributing, importing, exporting,
labeling and safety of food products, establishes requirements for or limitations on ingredients or substances in foods and establishes
standards of identity for certain foods. Similar functions are performed by state, local and foreign governmental entities with respect
to food products produced or distributed in their respective jurisdictions. FSMA, which is a major reform of U.S. food safety laws, aims
to ensure the U.S. food supply is safe by focusing on preventing contamination. We have been working to comply with the new requirements
of FSMA as the FDA has begun implementing and enforcing these provisions, and we will aim to ensure continued compliance as new regulations
are promulgated and additional requirements go into effect. The USDA regulates imports and exports of agricultural and food products
into and from the United States. The USDA also oversees the National Organic Program, which provides the national standards for labeling
products as USDA organic, and regulates the introduction of certain genetically engineered organisms.
Competition
The
food retail industry is very competitive. We compete with a number of Natural, Organic and Functional Food and Beverage producers, including
Bare Snacks, which is a brand owned by PepsiCo, Rind Snacks, Inc., and Mariani Packing Co., Inc. In addition, our online business competes
with food retail stores, supermarkets, warehouse clubs and other mass and general retail and online merchandisers. We face significant
competition from these producers and retailers. Any changes in their merchandising and operational strategies could negatively affect
our sales and profitability. In particular, if Natural, Organic and Functional Food and Beverage competitors seek to gain or retain market
share by reducing prices, we would likely be forced to reduce our prices on similar product offerings in order to remain competitive,
which may result in a decrease in our market share, net sales and profitability and may require a change in our operating strategies.
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We
have been able to compete successfully by differentiating ourselves from our competitors by providing an expanding selection of products,
competitive pricing, convenience and customer service. If changes in consumer preferences decrease the competitive advantage attributable
to these factors, or if we fail to otherwise positively differentiate our product offering or customer experience from our competitors,
our business, financial condition, and results of operations could be materially and adversely affected.
Many
of our competitors have longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technical
capabilities, significantly greater financial, marketing, and other resources and larger customer bases than we do. These factors may
allow our competitors to derive greater net sales and profits from their existing customer bases, acquire customers at lower costs or
respond more quickly than we can to new or emerging technologies and changes in consumer preferences or habits. These competitors may
engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns, and adopt more aggressive
pricing policies (including but not limited to predatory pricing policies and the provision of substantial discounts), which may allow
them to build larger customer bases or generate net sales from those customer bases more effectively than we are able to execute upon.
There can be no assurance that we will be able to successfully compete against these competitors.
Principal
Executive Offices
Our
principal executive offices are located at 205 SE Davis Ave., Suite C, Bend, Oregon 97702. Our telephone number is (844) 263-6637.
We believe our facilities are adequate to meet our current and near-term needs.
Employees
As
of March 31, 2025, we had approximately 185 full-time employees, including 180 employees in Peru. Our employees are not represented by
labor unions. We consider our relationship with our employees to be positive.
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