BranchOut Food Inc

Previous wording

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. The manufacturing facility in Peru houses our new large-scale continuous through-put dehydration machine that completed its first production run in the first quarter of 2023, and which substantially increased our production capacity. 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. Our new factory is currently being built out and expected to be online and operational by October 2024. We have two large-scale REV machines on order from Enwave Corporation, a REV 100 and REV 120 machine. Both are currently in transit to the Peru facility. We also purchased a small REV 10 R&D machine that is also being delivered to Peru for installation into our new facility. In addition, we expect to move the REV 60 machine thatis installed at ourprior leased facility to our new facility in thenear term.

Current wording

We are engaged in the development, marketing, sale, and distribution of plant-based, dehydrated fruit and vegetable snacks and powders. Our products have historically been manufactured for us by two contract manufacturers, one based in the Republic of Chile, and the other in the Republic of Peru, which housed our large-scale continuous through-put dehydration machine that completed its first production run in the first quarter of 2023. Our dehydrated fruit and vegetable products are produced using a new proprietary dehydration technology licensed by us from a third party. Our customers are primarily located throughout the United States. In 2024, we decided to initiate our own production facility in Peru to become vertically integrated. We recently completed the build out of the new facility, which commenced operations in October 2024, and utilizes three large-scale REV machines(a REV 60, REV 100 and REV 120) that we recently purchased from EnWave Corporation, as well as, a small REV 10 R&D machine that isbeing used for product development and customer sample purposes.

Previous wording

Using our licensed technology platform, we believe our lines of both branded and private-labeled food products positively address current consumer trends. In our experience, conventional dehydration methods, such as freeze-drying and air drying, tend to degrade most fruit and vegetables through oxidation, browning/color degradation, nutritional content reduction and/or flavor loss. As a result, certain highly sensitive fruits, such as avocados and bananas, have not previously been successfully offered as a dehydrated base for consumer products. We believe that our licensed technology platform and process is the only way to produce quality avocado and banana-based snack and powdered products. Additionally, we believe our licensed technology platform produces superior products when using other fruits and vegetables when compared to conventional drying and dehydration technologies. We license technology, consisting of a portfolio of patents, and purchased production machines, from Enwave, and we have been granted the exclusive rights to use the licensed technology platform as applied to avocados. In addition, BranchOut has the nonexclusive rights to use the licensed technology platform for other products.

Current wording

Using our licensed technology platform, we believe our lines of branded, private-label and industrial ingredient products positively address current consumer trends. In our experience, conventional dehydration methods, such as freeze-drying and air drying, tend to degrade most fruit and vegetables through oxidation, browning/color degradation, nutritional content reduction and/or flavor loss. As a result, certain highly sensitive fruits, such as avocados and bananas, have not previously been successfully offered as a dehydrated base for consumer products. We believe that our licensed technology platform and process is the only way to produce quality avocado and banana-based snack and powdered products. Additionally, we believe our licensed technology platform produces superior products when using other fruits and vegetables when compared to conventional drying and dehydration technologies. We license technology, consisting of a portfolio of patents, and purchased production machines, from EnWave, and we have been granted the exclusive rights to use the licensed technology platform as applied to avocados. In addition, BranchOut has the nonexclusive rights to use the licensed technology platform for other products.

Previous wording

As of June 30, 2024, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $14,804,062, with working capital of $1,302,986. We are too early in our development stage to project revenue with a necessary level of certainty; therefore, we may not have sufficient funds to sustain our operations for the next twelve months and we may need to raise additional cash to fund our operations. These factors raise substantial doubt about our ability to continue as a going concern. The Company continues to develop its operations. In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives.

Current wording

As of September 30, 2024, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $16,074,867, with working capital of $702,541. We are too early in our development stage to project revenue with a necessary level of certainty; therefore, we may not have sufficient funds to sustain our operations for the next twelve months and we may need to raise additional cash to fund our operations. These factors raise substantial doubt about our ability to continue as a going concern. The Company continues to develop its operations. In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives.

Previous wording

During the fourth quarter of 2023, NXTDried Superfoods, our contract manufacturer located in Peru, became involved in a legal dispute with its landlord and another third party, which resulted in that manufacturer suspending operations. As a result of such dispute, we currently do not have access to the dehydration machine that was previously operated by this manufacturer. Although we have been able to continue to fulfill orders by shifting fulfillment to other manufacturing sources, our costs of goods have increased as a result. In addition, during 2023, we recognized $761,085 of impairment expense, consisting of $485,265, $243,305 and $32,515 on the collectability of a note receivable, VAT taxes receivable and prepaid inventory, respectively, owed to us by NXTDried Superfoods.

Current wording

During the fourth quarter of 2023, NXTDried Superfoods, our contract manufacturer located in Peru, became involved in a legal dispute with its landlord and another third party, which resulted in that manufacturer suspending operations. As a result of such dispute, we currently do not have access to the dehydration machine that was previously operated by this manufacturer. Although we have been able to continue to fulfill orders by shifting fulfillment to other manufacturing sources, and have recently opened our new facility in Peru, our costs of goods for the three and nine month periods ending September 30, 2024, have increased as a result. In addition, during 2023, we recognized $761,085 of impairment expense, consisting of $485,265, $243,305 and $32,515 on the collectability of a note receivable, VAT taxes receivable and prepaid inventory, respectively, owed to us by NXTDried Superfoods.

Previous wording

Given the situation with NXTDried Superfoods, we were required to shift fulfillment of orders to alternative manufacturing sources. On May 10, 2024 we entered into a ten-year lease for a 50,000 square-foot food processing plant located in Peru. We expect to relocate our dehydration machine to the Peru Facility along with a new large-scale machine we recently ordered form Enwave, and resume our Peruvian manufacturing operations there in the third quarter of 2024. The lease of the Peru Facility requires us to make monthly lease payments of $8,000 in the first two years of the lease, $20,000 in the third year of the lease, $22,000 in the fourth year of the lease, $24,000 in the fourth year of the lease, and $25,000 thereafter. The lease also has a 10-year renewal option, and a buy-out option under which we may purchase the Peru Facility for $1,865,456.

Current wording

Given the situation with NXTDried Superfoods, we were required to shift fulfillment of orders to alternative manufacturing sources. On May 10, 2024 we entered into a ten-year lease for a 50,000 square-foot food processing plant located in Peru. The lease of the Peru Facility requires us to make monthly lease payments of $8,000 in the first two years of the lease, $20,000 in the third year of the lease, $22,000 in the fourth year of the lease, $24,000 in the fourth year of the lease, and $25,000 thereafter. The lease also has a 10-year renewal option, and a buy-out option under which we may purchase the Peru Facility for $1,865,456.

Previous wording

Our net revenue for the three months ended June 30, 2024 was $1,362,986, compared to $343,065 for the three months ended June 30, 2023, an increase of $1,019,921, or 297%. The increase in revenue was primarily due to increased sales to our largest customer during the three months ended June 30, 2024.

Current wording

Our net revenue for the three months ended September 30, 2024 was $2,181,495, compared to $906,996 for the three months ended September 30, 2023, an increase of $1,274,499, or 141%. The increase in revenue was primarily due to increased sales to our largest customer during the three months ended September 30, 2024.

Previous wording

Our cost of goods sold for the three months ended June 30, 2024 was $1,214,227, compared to $361,461 for the three months ended June 30, 2023, an increase of $852,766, or 236%. Cost of goods sold increased primarily due to increased sales during the three months ended June 30, 2024. As a result of the foregoing, we had gross profit of $148,759, representing gross margins of 11%, for the three months ended June 30, 2024 as compared to a gross loss of $18,396, or negative gross margins of 5%, for the three months ended June 30, 2023. Our gross profit margin increased primarily due to cost savings realized as a result of our transition to bulk shipping arrangements during the current period. Cost of goods sold included depreciation expense for the three months ended June 30, 2024 of $56,335, compared to $55,758 for the three months ended June 30, 2023, an increase of $577, or 1%.

Current wording

Our cost of goods sold for the three months ended September 30, 2024 was $1,845,155, compared to $934,603 for the three months ended September 30, 2023, an increase of $910,552, or 97%. Cost of goods sold increased primarily due to increased sales during the three months ended September 30, 2024. As a result of the foregoing, we had gross profit of $336,340, representing gross margins of 15%, for the three months ended September 30, 2024 as compared to a gross loss of $27,607, or negative gross margins of 3%, for the three months ended September 30, 2023. Our gross profit margin increased primarily due to cost savings realized as a result of our transition to bulk shipping arrangements during the current period. Cost of goods sold included depreciation expense for the three months ended September 30, 2024 of $60,614, compared to $55,939 for the three months ended September 30, 2023, an increase of $4,675, or 8%.

Previous wording

Our general and administrative expense for the three months ended June 30, 2024 was $321,201, compared to $141,031 for the three months ended June 30, 2023, an increase of $180,170, or 128%. The largest components of our general and administrative expenses are advertising and marketing, travel, commissions, and storage, shipping and handling expense, as shown below.

Current wording

Our general and administrative expense for the three months ended September 30, 2024 was $560,537, compared to $230,459 for the three months ended September 30, 2023, an increase of $330,078, or 143%. The largest components of our general and administrative expenses are advertising and marketing, rent, travel, commissions, and storage, shipping and handling expense, as shown below.

Previous wording

Advertising and marketing expenses increased for the six months ended June 30, 2024, compared to the corresponding period in 2023, as we focused our resources on our IPO in the prior period. Our travel expenses increased for the same reason, as we resumed our international travel after the IPO that was completed in the prior year. Storage, shipping and handling expenses increased primarily due to increased international shipping rates and increased production that was driven by our increased sales. Likewise, commissions increased due to our increased sales.

Current wording

Advertising and marketing expenses increased for the three months ended September 30, 2024, compared to the corresponding period in 2023, as we focused our resources on our IPO in the prior period. Our rent increased primarily due to leases entered into in the current year, as we began to develop our operating facility in Peru, which resulted in increased travel expenses for the same reason. Sales commissions decreased as we focused most of our resources on servicing our largest customer. We expect commissions to increase as we grow. Storage, shipping and handling expenses increased primarily due to increased international shipping rates and increased production that was driven by our increased sales.

Previous wording

Salaries and wages for the three months ended June 30, 2024 was $349,597, compared to $436,238 for the three months ended June 30, 2023, a decrease of $86,641, or 20%. This decrease was primarily attributable to bonuses awarded in the comparative period that were not recognized in the current period. In addition, salaries and wages included $17,751 of non-cash, stock-based compensation related to stock options awarded during the current period.

Current wording

Salaries and wages for the three months ended September 30, 2024 was $309,433, compared to $222,764 for the three months ended September 30, 2023, an increase of $86,669, or 39%. This increase was primarily attributable to an increased head count necessary to service our expanded sales and build out of our production facility in Peru. In addition, salaries and wages included $14,565 of non-cash, stock-based compensation related to stock options awarded during the current period.

Previous wording

Professional fees for the six months ended June 30, 2024 was $695,042, compared to $302,346 for the six months ended June 30, 2023, an increase of $392,696, or 130%. This increase was primarily attributable to increased legal and consulting fees in the current period, as a portion of these fees were capitalized as offering costs on our IPO in the comparative period. Professional fees included $290,85 and $68,492 of non-cash, stock-based compensation for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Professional fees for the three months ended September 30, 2024 was $369,525, compared to $218,160 for the three months ended September 30, 2023, an increase of $151,365, or 69%. This increase was primarily attributable to increased legal and consulting fees in the current period. Professional fees included $110,897 of non-cash, stock-based compensation for the three months ended September 30, 2023.

Previous wording

In the three months ended June 30, 2024, other expense was $116,139 on a net basis, consisting of $118,957 of interest expense, as partially offset by $2,818 of interest income. For the three months ended June 30, 2023, other expense was $219,640 on a net basis, consisting of $222,551 of interest expense, as partially offset by $2,911 of interest income. Other expense decreased by $103,501, or 47%, primarily due to the decreased interest on debt which was mostly settled in June of 2023.

Current wording

In the three months ended September 30, 2024, other expense was $367,650 on a net basis, consisting of $370,532 of interest expense, as partially offset by $2,882 of interest income. For the three months ended September 30, 2023, other expense was $7,003 on a net basis, consisting of $10,004 of interest expense, as partially offset by $3,001 of interest income. Other expense increased by $360,647, or 5,150%, primarily due to interest on increased outstanding debt as we funded our expansion into Peru during the current period.

Previous wording

Net loss for the three months ended June 30, 2024 was $942,554, compared to $973,510 for the three months ended June 30, 2023, a decrease of $30,956, or 3%. The decreased net loss was primarily due to increased gross profit and decreased interest on debt, as partially offset by increased non-cash, stock-based compensation costs and compliance costs related to reporting as a public company.

Current wording

Net loss for the three months ended September 30, 2024 was $1,270,805, compared to $705,993 for the three months ended September 30, 2023, an increase of $564,812, or 80%. The increased net loss was primarily due to increased compensation and compliance costs related to reporting as a public company during the current period and increased interest expense, as partially offset by increased gross profits and a $96,332 decrease in stock-based compensation.

Previous wording

The following table summarizes selected items from the statement of operations for the six months ended June 30, 2024 and 2023, respectively.

Current wording

The following table summarizes selected items from the statement of operations for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Our net revenue for the six months ended June 30, 2024 was $2,830,002, compared to $440,405 for the six months ended June 30, 2023, an increase of $2,389,597, or 543%. The increase in revenue was primarily due to increased sales to our largest customer during the six months ended June 30, 2024.

Current wording

Our net revenue for the nine months ended September 30, 2024 was $5,011,497, compared to $1,347,401 for the nine months ended September 30, 2023, an increase of $3,664,096, or 272%. The increase in revenue was primarily due to increased sales to our largest customer during the nine months ended September 30, 2024.

Previous wording

Our cost of goods sold for the six months ended June 30, 2024 was $2,397,655, compared to $488,443 for the six months ended June 30, 2023, an increase of $1,909,212, or 391%. Cost of goods sold increased primarily due to increased sales during the six months ended June 30, 2024. As a result of the foregoing, we had gross profit of $432,347, representing gross margins of 15%, for the six months ended June 30, 2024 as compared to a gross loss of $48,038, or negative gross margins of 11%, for the six months ended June 30, 2023. Our gross profit margin increased primarily due to cost savings realized as a result of our transition to bulk shipping arrangements during the current period. Cost of goods sold included depreciation expense for the six months ended June 30, 2024 of $112,671, compared to $111,581 for the six months ended June 30, 2023, an increase of $1,091, or 1%.

Current wording

Our cost of goods sold for the nine months ended September 30, 2024 was $4,242,810, compared to $1,423,046 for the nine months ended September 30, 2023, an increase of $2,819,764, or 198%. Cost of goods sold increased primarily due to increased sales during the nine months ended September 30, 2024. As a result of the foregoing, we had gross profit of $768,687, representing gross margins of 15%, for the nine months ended September 30, 2024 as compared to a gross loss of $75,645, or negative gross margins of 6%, for the nine months ended September 30, 2023. Our gross profit margin increased primarily due to cost savings realized as a result of our transition to bulk shipping arrangements during the current period. Cost of goods sold included depreciation expense for the nine months ended September 30, 2024 of $173,285, compared to $167,520 for the nine months ended September 30, 2023, an increase of $5,765, or 3%.

Previous wording

Our general and administrative expense for the six months ended June 30, 2024 was $640,937, compared to $321,931 for the six months ended June 30, 2023, an increase of $319,006, or 99%. The largest components of our general and administrative expenses are advertising and marketing, travel, commissions, and storage, shipping and handling expense, as shown below.

Current wording

Our general and administrative expense for the nine months ended September 30, 2024 was $1,201,474, compared to $552,390 for the nine months ended September 30, 2023, an increase of $649,084, or 118%. The largest components of our general and administrative expenses are advertising and marketing, rent, travel, commissions, and storage, shipping and handling expense, as shown below.

Previous wording

Advertising and marketing expenses increased for the three months ended June 30, 2024, compared to the corresponding period in 2023, as we focused our resources on our IPO in the prior period. Our travel expenses increased for the same reason, as we resumed our international travel after the IPO that was completed in the prior year. Storage, shipping and handling expenses increased primarily due to increased international shipping rates and increased production that was driven by our increased sales. Likewise, commissions increased due to our increased sales.

Current wording

Advertising and marketing expenses increased for the nine months ended September 30, 2024, compared to the corresponding period in 2023, as we focused our resources on our IPO in the prior period. Our rent increased primarily due to leases entered into in the current year, as we began to develop our operating facility in Peru, which resulted in increased travel expenses for the same reason. Commissions increased due to our increased sales, and storage, shipping and handling expenses increased primarily due to increased international shipping rates and increased production that was driven by our increased sales.

Previous wording

Salaries and wages for the six months ended June 30, 2024 was $947,883, compared to $688,048 for the six months ended June 30, 2023, an increase of $259,835, or 38%. This increase was primarily attributable to $394,135 of non-cash, stock-based compensation related to stock options awarded during the current period.

Current wording

Salaries and wages for the nine months ended September 30, 2024 was $1,257,316, compared to $910,812 for the nine months ended September 30, 2023, an increase of $346,504, or 38%. This increase was primarily attributable to $408,700 of non-cash, stock-based compensation related to stock options awarded during the current period.

Previous wording

Professional fees for the three months ended June 30, 2024 was $304,376, compared to $158,205 for the three months ended June 30, 2023, an increase of $146,171, or 92%. This increase was primarily attributable to increased legal and consulting fees in the current period, as a portion of these fees were capitalized as offering costs on our IPO in the comparative period. Professional fees included $140,491 and $18,046 of non-cash, stock-based compensation for the three months ended June 30, 2024 and 2023, respectively.

Current wording

Professional fees for the nine months ended September 30, 2024 was $1,064,567, compared to $520,506 for the nine months ended September 30, 2023, an increase of $544,061, or 105%. This increase was primarily attributable to increased legal and consulting fees in the current period, as a portion of these fees were capitalized as offering costs on our IPO in the comparative period. Professional fees included $290,085 and $179,389 of non-cash, stock-based compensation for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

In the six months ended June 30, 2024, other expense was $142,006 on a net basis, consisting of $147,701 of interest expense, as partially offset by $5,695 of interest income. For the six months ended June 30, 2023, other expense was $390,240 on a net basis, consisting of $395,996 of interest expense, as partially offset by $5,756 of interest income. Other expense decreased by $248,234, or 64%, primarily due to the decreased interest on debt which was mostly settled in June of 2023.

Current wording

In the nine months ended September 30, 2024, other expense was $509,656 on a net basis, consisting of $518,233 of interest expense, as partially offset by $8,577 of interest income. For the nine months ended September 30, 2023, other expense was $397,243 on a net basis, consisting of $406,000 of interest expense, as partially offset by $8,757 of interest income. Other expense decreased by $112,413, or 28%, primarily due to interest on increased outstanding debt as we funded our expansion into Peru during the current period.

Previous wording

Net loss for the six months ended June 30, 2024 was $1,993,521, compared to $1,750,603 for the six months ended June 30, 2023, an increase of $242,918, or 14%. The increased net loss was primarily due to increased non-cash, stock-based compensation costs, and compliance costs related to reporting as a public company, as partially offset by increased gross profits and decreased interest on debt which was mostly settled in the prior year.

Current wording

Net loss for the nine months ended September 30, 2024 was $3,264,326, compared to $2,456,596 for the nine months ended September 30, 2023, an increase of $807,730, or 33%. The increased net loss was primarily due to increased compensation and compliance costs related to reporting as a public company, including a $519,396 increase in stock-based compensation during the current period and increased interest expense, as partially offset by increased gross profits.

Previous wording

As of June 30, 2024, we had working capital of $1,302,986. We have incurred net losses since our inception and we anticipate net losses and negative operating cash flows for the near future, and we may not be profitable or realize growth in the value of our assets. To date, our primary sources of capital have been cash generated from the sales of our products, common stock sales, and debt financing. As of June 30, 2024, we had cash of $936,061, total liabilities of $4,672,312, and an accumulated deficit of $14,804,062. As of December 31, 2023, we had cash of $657,789, total liabilities of $914,622, and an accumulated deficit of $12,810,541.

Current wording

As of September 30, 2024, we had working capital of $702,541. We have incurred net losses since our inception and we anticipate net losses and negative operating cash flows for the near future, and we may not be profitable or realize growth in the value of our assets. To date, our primary sources of capital have been cash generated from the sales of our products, common stock sales, and debt and equity financing. As of September 30, 2024, we had cash of $1,069,193, total liabilities of $8,042,725, and an accumulated deficit of $16,074,867. As of December 31, 2023, we had cash of $657,789, total liabilities of $914,622, and an accumulated deficit of $12,810,541.

Previous wording

Comparison of the Six Months Ended June 30, 2024 and the Six Months Ended June 30, 2023

Current wording

Comparison of the Nine Months Ended September 30, 2024 and the Nine Months Ended September 30, 2023

Previous wording

Net cash used in operating activities was $1,357,463 for the six months ended June 30, 2024, compared to $2,799,724 for the six months ended June 30, 2023, a decrease of $1,442,261, or 52%. The decrease was primarily due to our increased stock-based compensation, accounts receivable, and accounts payable, as partially offset by the $275,000 payment for other assets.

Current wording

Net cash used in operating activities was $3,259,049 for the nine months ended September 30, 2024, compared to $3,258,248 for the nine months ended September 30, 2023, an increase of $801. The increase was primarily due to our increased net loss and increased inventory purchases, as adjusted for increased stock-based compensation, increased accounts payable, and a $275,000 payment for other assets.

Previous wording

Net cash used in investing activities was $566,431 for the six months ended June 30, 2024, compared to $10,100 for the six months ended June 30, 2023, an increase of $556,331, or 5,508%. This increase was primarily attributable to $576,331 of property and equipment purchases, as partially offset by $9,900 of advances received on notes receivable in the current period, compared to $10,100 of property and equipment purchases in the comparative period.

Current wording

Net cash used in investing activities was $2,095,691 for the nine months ended September 30, 2024, compared to $66,565 for the nine months ended September 30, 2023, an increase of $2,029,126, or 3,048%. This increase was primarily attributable to $2,120,337 of property and equipment purchases, as partially offset by $24,646 of advances received on notes receivable in the current period, compared to $66,565 of property and equipment purchases in the comparative period.

Previous wording

Net cash provided by financing activities was $2,202,108 for the six months ended June 30, 2024, compared to $3,850,171 for the six months ended June 30, 2023, a decrease of $1,648,063, or 43%. Our decreased cash provided by financing activities was primarily from $4,826,000 of decreased proceeds received on the sale of common stock and $10,779 of increased principal payments on finance leases, as partially offset by $578,710 of increased net proceeds received on debt financing, $2,268,791 fewer debt repayments, and $341,215 of decreased deferred offering cost payments in the prior period.

Current wording

Net cash provided by financing activities was $5,767,938 for the nine months ended September 30, 2024, compared to $3,784,850 for the nine months ended September 30, 2023, an increase of $1,983,088, or 52%. Our increased cash provided by financing activities was primarily from $3,703,710 of increased net proceeds received on debt financing, $2,071,439 of decreased debt repayments, $326,975 of decreased deferred offering cost payments, and $3,964 of decreased principal payments on finance leases, as partially offset by $4,123,000 of decreased proceeds received on the sale of common stock.

Previous wording

Our financial results are affected by the selection and application of accounting policies and methods. In the six-month period ended June 30, 2024 there were no changes to the application of critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Our financial results are affected by the selection and application of accounting policies and methods. In the nine-month period ended September 30, 2024 there were no changes to the application of critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.