BranchOut Food Inc. — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; filed April 1, 2024. This is an annual report, not a standalone fourth-quarter filing. The company develops and sells plant-based dehydrated snacks, powders and ingredients, using licensed dehydration technology and contract manufacturers in Chile and Peru. Its sales are primarily in the United States.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net revenue | $2.83 million | $752,178 |
| Gross loss (margin) | $96,230 (approximately -3%) | $170,550 (approximately -23%) |
| Operating loss | $3.50 million | $2.41 million |
| Net loss | $3.93 million | $4.64 million |
| Net cash used in operations | $3.53 million | $2.47 million |
- Revenue increased 276%, primarily from sales to large retailers. Cost of goods sold rose 217%; bulk shipping savings improved gross margin, but the company still reported a gross loss.
- Operating expenses increased $1.17 million, including a $761,085 impairment charge tied to its Peruvian contract manufacturer: $485,265 in advances, $243,305 in VAT receivable and $32,515 in prepaid inventory.
- Cash was $657,789 at year-end; current assets were $1.68 million, current liabilities $779,093 and reported working capital $899,150. Total liabilities were $914,622. Notes payable were $234,500, and finance-lease liabilities were $131,930.
- The June 2023 IPO generated $6.226 million in net proceeds before other issuance costs. Convertible debt of $6.029 million, including interest, converted into shares. This substantially reduced reported liabilities and helped fund the year’s cash needs.
- Interest expense fell to $435,271 from $2.25 million, largely because prior-period debt-discount amortization declined and debt was mostly settled or converted in June 2023. Basic and diluted loss per share was $1.44, versus $3.87.
Material changes, outlook and risks
- Manufacturing disruption: The Peruvian contract manufacturer suspended operations amid a dispute, and BranchOut reported it lacked access to its dehydration machine there. Orders were shifted to other sources, with higher costs expected; failure to regain access could materially harm results.
- Customer concentration: Walmart and Costco accounted for 77% and 13% of 2023 net sales, respectively. The company generally relies on purchase orders, not long-term customer commitments.
- Going concern and financing: The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern. Management said cash may not fund operations at current levels for the next 12 months and that additional financing is being sought; no assurance is given it will be available or on acceptable terms. The company reported a $12.81 million accumulated deficit and recurring losses.
- Subsequent financing: In January 2024, the company raised $400,000 through secured notes bearing 15% interest and issued warrants for 100,000 shares. Proceeds repaid a $200,000 Hinman note, with the balance for working capital. The notes are secured by substantially all assets and mature by December 31, 2024, or earlier upon specified events.
- Growth plans, not quantified guidance: Management aims to expand retail distribution, private-label supply and product offerings, and expects larger-scale production and bulk shipping to support margins. The filing provides no quantified revenue, earnings or margin guidance. Product concepts and discussions—including Army meal applications and retailer projects—are not established sales commitments.
- Other notable exposures: The business depends on contract manufacturers, concentrated suppliers, agricultural inputs and a third-party technology license. Maintaining avocado-product exclusivity entails disclosed minimum royalties of $850,000 through 2027, plus $250,000 annually thereafter if the company elects to retain exclusivity; additional equipment commitments also apply. Food safety, regulatory, competition and financing risks remain.
- Controls and governance: Management identified material weaknesses involving related-party transaction controls, written financial-control procedures, segregation of duties and resources for complex accounting. The filing’s control disclosures are internally inconsistent: it says controls were ineffective, but later includes language stating they were effective. The company also says it has no formal cybersecurity risk-management process.
Most important facts for investors to verify
- Current liquidity and cash runway, subsequent cash burn, and whether further financing is needed; reconcile the positive $899,150 working capital reported in the balance sheet and MD&A with the auditor’s going-concern paragraph, which refers to a working capital deficit.
- Status of the Peruvian manufacturer dispute, access to company-owned equipment, recovery prospects for impaired receivables and advances, and resulting production costs and capacity.
- Whether Walmart and Costco orders and sell-through support repeat revenue, and how the company is reducing customer concentration.
- Terms, collateral, maturity and related-party connections of the January 2024 secured financing, as well as the dilution potential from outstanding warrants and options.
- Reconciliation of the conflicting internal-control conclusions and evidence of remediation of the disclosed material weaknesses.
- Actual cost and conditions of retaining EnWave exclusivity, including future minimum royalties and equipment purchases.
The auditor issued an unmodified opinion that the financial statements present fairly in all material respects, while separately emphasizing the going-concern uncertainty. The auditor was not engaged to, and did not, express an opinion on internal-control effectiveness.