Executive Summary / Key Takeaways

• BranchOut Food is leveraging its proprietary GentleDry™ technology and new vertically integrated Peru facility to disrupt the dehydrated fruit and vegetable market, targeting premium snacks, private label, and industrial ingredients.
• Q1 2025 saw record net revenue of $3.19 million, a 118% year-over-year increase, driven by significant expansion with major retail partners, demonstrating strong market traction for its products.
• The new Peru facility, operational since December 2024, is central to improving cost structure and supply chain efficiency, although initial ramp-up costs slightly impacted Q1 gross margins. Management expects significant margin and efficiency improvements as utilization increases in Q2 and beyond.
• A strategic partnership with MicroDried is expected to add $5-6 million in annual revenue from the industrial ingredient channel, while U.S. tariffs on Chinese imports provide a favorable competitive tailwind.
• Despite recurring losses and negative working capital ($2.74M as of March 31, 2025), the company has secured recent financing and plans to use warrant proceeds and operating cash flow to eliminate current liability notes payable by year-end 2025, aiming for positive operating income in 2025.

The Seed of Innovation: A Tech-Driven Approach to Dehydration

BranchOut Food Inc. began its journey in 2017, initially focused on avocado-based snacks, recognizing a gap in the market for high-quality, dehydrated versions of sensitive fruits and vegetables. Its core strategy revolves around a licensed, proprietary dehydration technology known as GentleDry™. This technology, protected by over 17 patents and licensed from EnWave Corporation (NWAVF), is the foundational strength of the company. Unlike conventional methods such as freeze-drying or air drying, GentleDry™ is designed to preserve up to 95% of the original nutrition, vibrant color, and natural flavor of fresh produce. The company believes this process is uniquely capable of successfully dehydrating challenging items like avocados and bananas, while also yielding superior results for other fruits and vegetables compared to traditional techniques. This technological edge provides BranchOut with a distinct competitive moat in the health-focused, plant-based snack and ingredient market.

The competitive landscape for BranchOut includes large consumer packaged goods companies like PepsiCo (PEP) and General Mills (GIS), which offer broader snack portfolios including some dried fruit and vegetable options, as well as more focused natural and organic players like The Hain Celestial Group (HAIN). While giants like PepsiCo and General Mills benefit from immense scale, vast distribution networks, and significant marketing budgets, BranchOut's competitive positioning is built on differentiation. Its GentleDry™ technology allows for potentially higher processing efficiency and better product quality compared to the more traditional drying methods often employed by larger competitors. For instance, the technology is stated to enable faster processing cycles and reduced energy consumption per unit compared to conventional methods, which, as the Peru facility ramps up, is expected to translate into improved margins relative to its own past performance and potentially offer a cost advantage in specific product categories. Against companies like Hain Celestial, which also focuses on natural products, BranchOut's specific technological capabilities and unique product offerings, particularly in avocado, provide a distinct value proposition. However, BranchOut's smaller scale presents vulnerabilities, leading to potentially higher operating costs per unit compared to its larger, more efficient rivals and exposing it to supply chain dependencies that can impact costs.

Cultivating Control: The Strategic Shift to Vertical Integration

Recognizing the need for greater control over product quality, cost structure, and supply chain efficiency, BranchOut embarked on a significant strategic initiative in 2024: establishing its own production facility in Peru. This move marked a pivot from primary reliance on contract manufacturers to a vertically integrated model. The 50,000 square-foot facility in Pisco, Peru, which commenced operations in December 2024, is equipped with three large-scale GentleDry™ machines and boasts an annual production capacity exceeding $40 million. This facility is positioned as the world's largest GentleDry™ production hub, central to the company's ability to scale and meet growing demand.

The first quarter of 2025 represented the initial full quarter of operations at the Peru facility. While this transition is a critical step towards long-term efficiency and profitability, it introduced some near-term challenges. Q1 2025 gross margins slightly decreased to 17% from 19% in Q1 2024, primarily due to costs incurred during this ramp-up phase. Initial startup dynamics included addressing a manufacturing backlog by sourcing higher-cost raw materials ($200,000 in excess costs) and utilizing air shipping ($160,000 in air freight) to meet customer deadlines. These expenses were attributed to compressed timelines rather than structural inefficiencies, and management expects to secure materials at more favorable pricing with proper lead times going forward. Furthermore, the facility operated at relatively low utilization in Q1, which amplified fixed overhead costs per unit. Management anticipates meaningful improvements in efficiency and substantial improvements in gross margin and cost structure beginning in Q2 2025 and continuing throughout the year as production scales and utilization increases.

Expanding Reach: Commercial Momentum Across Channels

Concurrent with its operational transformation, BranchOut has demonstrated significant commercial momentum across its key sales channels: branded retail, private label, and industrial ingredients. This multi-pronged approach is designed to penetrate various segments of the multi-billion dollar snack and ingredient markets.

A major driver of recent growth has been the partnership with the nation's largest warehouse club. Following strong performance in 2024, this relationship expanded significantly in early 2025, with increased orders across five U.S. regions and an expanded product count. The company projects approximately $4 million in sales from this partner in H1 2025 alone (as stated in January news), or nearly $3 million in Q1 2025 alone (as stated in May news), highlighting the substantial impact of this relationship. BranchOut also has five private-label products, including innovative Brussels Sprout Crisps and Carrot Sticks, in the nation's largest retailer, now available nationwide.

Further diversifying its revenue streams, BranchOut entered into a strategic partnership with MicroDried in March 2025 to lead sales and distribution in the industrial ingredient channel. This collaboration is expected to generate $5-6 million in annual ingredient sales by leveraging MicroDried's deep relationships with major CPG companies. The company successfully delivered its first order to MicroDried in Q1 and is ramping up production for follow-on orders.

A notable tailwind for BranchOut's Peru-based production model is the imposition of 30% U.S. tariffs on Chinese imports. Many competing freeze-dried retail products are sourced from China. BranchOut's vertically integrated model, combining Peru production with U.S. packaging, offers a cost-efficient, scalable, and tariff-advantaged alternative. This positions the company to potentially disrupt the category and gain market share against brands heavily reliant on Chinese sourcing, and it is actively discussing replacing China-sourced private label SKUs with its own offerings with national retailers.

Financial Snapshot and Path to Sustainability

BranchOut's strategic investments and commercial successes are beginning to translate into top-line growth. Net revenue for the three months ended March 31, 2025, reached a record $3.19 million, a substantial 118% increase compared to $1.47 million in the same period of 2024. This growth was primarily fueled by increased sales to the company's two largest customers. Despite the revenue increase, the company reported a net loss of $918,382 in Q1 2025, a 13% decrease from the $1.05 million net loss in Q1 2024. The decrease in net loss was primarily due to higher gross profits and significantly lower non-cash stock-based compensation compared to the prior year, partially offset by increased general and administrative expenses related to the Peru expansion and increased marketing.

Financially, the company faces significant challenges. As of March 31, 2025, it had an accumulated deficit of $18.48 million and negative working capital of $2.74 million, raising substantial doubt about its ability to continue as a going concern.

The ability to scale production and distribution is heavily dependent on securing additional capital. Cash used in operating activities increased in Q1 2025 ($1.93M vs $503.6K in Q1 2024), largely due to increased accounts receivable reflecting higher sales. Investing activities also saw a significant increase in cash used ($377.8K vs $40.1K), driven by property and equipment purchases for the Peru facility.

To fund operations and expansion, BranchOut has relied on financing activities. Net cash provided by financing activities was $2.35 million in Q1 2025, primarily from proceeds from its At-The-Market (ATM) equity program ($2.41M) and warrant exercises ($38.2K). Interest expense increased substantially in Q1 2025 ($241K vs $28.7K) due to debt incurred for the Peru expansion.

Subsequent to the quarter end, the company has taken steps to address its liquidity and debt profile. On May 7, 2025, it repaid $325,000 of principal on a key promissory note. Further, in early June 2025, Kaufman Kapital exercised a warrant, providing a $1 million cash infusion by June 16, 2025, and agreed to extend key debt maturities. BranchOut plans to use these warrant proceeds and expected operating cash flow to eliminate all current liability notes payable by the end of 2025, including debt maturing on December 31, 2025.

Management anticipates generating positive operating income in 2025 and does not expect to use the recently filed $10 million shelf registration for debt repayment or operating losses, but rather for strategic growth opportunities if they arise, anticipating raising no more than $1-3 million in the second half of 2025 for such purposes.

Conclusion

BranchOut Food stands at a pivotal juncture, transitioning from a development-focused company reliant on contract manufacturing to a vertically integrated player leveraging proprietary technology for scaled production. The strategic investment in the Peru facility, while impacting near-term financials with ramp-up costs, is fundamental to realizing the long-term potential of its GentleDry™ technology and improving cost structure. Record Q1 2025 revenue and expanding relationships with major retailers and industrial partners underscore growing market acceptance and demand for its differentiated products.

While the company faces significant financial hurdles, including recurring losses and the need for ongoing capital management, recent financing activities and a clear plan to address near-term debt obligations provide a potential pathway to improved financial health. The combination of a unique technological advantage, increasing operational control, and favorable market dynamics like the Chinese tariffs positions BranchOut for potential significant growth. Investors should closely monitor the company's progress in increasing utilization and efficiency at the Peru facility, the realization of expected revenue from new partnerships, and the successful execution of its debt reduction plan as key indicators of its trajectory towards sustained profitability.