BranchOut Food Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations in conjunction with the condensed financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024. In addition to historical condensed financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Overview BranchOut Food Inc., is reimagining how the world eats fruits and vegetables. We are engaged in the development, marketing, sale and distribution of plant-based, dehydrated fruit and vegetable snacks and powders manufactured in a 50,000 square foot production facility that we lease in Pisco, Peru (the “Peru Facility”). At the Peru Facility, utilizing proprietary GentleDry™ Technology, we are able to turn fresh fruits and vegetables into clean, crunchy snacks and industrial ingredients within just 10 days. GentleDry™ Technology is an advanced dehydration platform licensed to us exclusively by EnWave Corporation for certain fruits and vegetables. This technology allows us to develop differentiated fruit and vegetable products using optimized GentleDry™ settings that preserve taste, texture, color, and nutrients. We believe GentleDry™ is superior to traditional freeze-dry processing because it retains: ● three times more natural flavor compounds, ● up to 22 times more aromatic compounds, and ● up to 95% of original vitamins and antioxidants. Additionally, our process speed is faster, making us more energy efficient; our food doesn’t oxidize, preserving the flavor and color; and our technology is protected by more than 17 patents. Our Products We 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: Banana, Mango, Blueberry, Pineapple, Cherry Tomato, Avocado and many others. We are currently developing many additional products for all sales channels. Going Concern Uncertainty As of September 30, 2025, we had a cash balance of $812,007, a positive working capital of $2,118,922, and had incurred recurring losses from operations resulting in an accumulated deficit of $21,656,147. 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. 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. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The condensed consolidated financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities and further increase the value of our brands is largely dependent on our success in raising additional capital. Peru Facility Lease On May 10, 2024, we entered into a ten-year lease for the 50,000 square-foot Peru Facility, which commenced operations in December of 2024. The lease of the Peru Facility requires 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 the Company plans to exercise the buy-out option and purchase the Peru Facility for $1,865,456. In connection with the lease of the Peru Facility, we purchased 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, for a purchase price of $1,267,000, of which payments were made in various installments totaling $355,000 as of December 31, 2024 and $912,000 during the nine months ended September 30, 2025. 30 Results of Operations for the Three Months Ended September 30, 2025, and 2024 The following table summarizes selected items from the statement of operations for the three months ended September 30, 2025, and 2024, respectively. Three Months Ended September 30, Increase / 2025 2024 (Decrease) Net revenue $ 3,220,027 $ 2,181,495 $ 1,038,532 Cost of goods sold 2,650,477 1,845,155 805,322 Gross profit 569,550 336,340 233,210 Gross margin 17.7 % 15.4 % Operating expenses: General and administrative 897,512 316,688 580,824 Salaries and benefits 422,069 309,433 112,636 Professional services 248,640 369,525 (120,885 ) Advertising and promotions 271,872 125,597 146,275 Shipping and handling 156,961 118,252 38,709 Total operating expenses 1,997,054 1,239,495 757,559 Operating loss (1,427,504 ) (903,155 ) (524,349 ) Other income (expense): Interest income 3,916 2,882 1,034 Interest expense (148,964 ) (370,532 ) 221,568 Total other income (expense) (145,048 ) (367,650 ) 222,602 Net loss $ (1,572,552 ) $ (1,270,805 ) $ (301,747 ) Net Revenue Our net revenue for the three months ended September 30, 2025, was $3,220,027, compared to $2,181,495 for the three months ended September 30, 2024, an increase of $1,038,532, or 48%. The increase in revenue was primarily due to increased sales to our largest customer during the three months ended September 30, 2025. Cost of Goods Sold and Gross Profit Our cost of goods sold for the three months ended September 30, 2025, was $2,650,477, compared to $1,845,155 for the three months ended September 30, 2024, an increase of $805,322, or 44%. Cost of goods sold increased primarily due to increased sales during the three months ended September 30, 2025. We had gross profit of $569,550, representing gross margins of 17.7%, for the three months ended September 30, 2025, as compared to a gross profit of $336,340, or 15.4%, for the three months ended September 30, 2024. Gross margin increased primarily due to the transition of manufacturing operations from third-party suppliers to our facility located in Pisco, Peru. This insourcing initiative created greater control over production processes, improved product quality, reduced contract manufacturing costs, and improved overall efficiency shortening the production cycle and allowing for faster order fulfillment. As production continues to scale, we expect further margin expansion from manufacturing existing products more efficiently and from our enhanced ability to bring new products to market more quickly. 31 General and Administrative Our general and administrative expense for the three months ended September 30, 2025, was $897,512, compared to $316,688 for the three months ended September 30, 2024, an increase of $580,824, or 183%. The largest components of our general and administrative expenses are plant idle capacity, research and development, rent, travel, and commissions, as shown below. Three Months Ended September 30, 2025 2024 Difference % Change Idle Capacity $ 368,586 $ - $ 368,586 100 % Research and development $ 190,875 $ - $ 190,875 100 % Rent $ 50,870 $ 160,751 $ (109,881 ) (68 )% Travel $ 39,894 $ 30,502 $ 9,392 31 % Commissions $ 63,928 $ 24,910 $ 39,018 157 % Idle capacity increased due to the opening of the production facility located in Pisco, Peru. In December 2024 operations commenced at the facility. As our factory scales, idle capacity will decrease. Commissions increased due to increased sales. Salaries and Wages Salaries and wages for the three months ended September 30, 2025, was $422,069, compared to $309,433 for the three months ended September 30, 2024, an increase of $112,636, or 36%. This increase was primarily attributable to $55,206 of amortization of stock options issued to employees for services performed and $42,238 in salaries and wages relates to the hiring of employees to support production ramp-up at the Peru facility. Professional Fees Professional fees for the three months ended September 30, 2025, was $248,640, compared to $369,525 for the three months ended September 30, 2024, a decrease of $120,885, or 33%. The decrease is mostly attributable to a decrease in legal fees related to establishing the Company’s Peru facility in 2024. Shipping and handling Shipping and handling for the three months ended September 30, 2025, was $156,961, compared to $118,252 for the three months ended September 30, 2024, an increase of $38,709 or 33%. This increase was primarily attributable to an increase in sales volumes. Advertising and promotions Advertising and promotions for the three months ended September 30, 2025, was $271,872, compared to $125,597 for the three months ended September 30, 2024, an increase of $146,275, or 116%. Advertising and promotions expenses increased for the three months ended September 30, 2025, mostly due to increased in-store product demos with one of our largest customers. Other Income (Expense) In the three months ended September 30, 2025, other expense was $145,048 on a net basis, consisting of $148,964 of interest expense, as partially offset by $3,916 of interest income. For 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. Other expense decreased by $222,602, or 61%, primarily due to the 2024 $150,462 write-off of deferred financing costs and $89,949 of additional interest expense related to the modification of warrants. Net loss Net loss for the three months ended September 30, 2025, was $1,572,552, compared to $1,270,805 for the three months ended September 30, 2024, an increase of $301,747, or 24%. The increased net loss was due to scaling up production at our in-house manufacturing facility. Our objective is to achieve 100% utilization, which we believe will allow us to leverage fixed costs, improve operating efficiency, and capture additional gross margin benefits as production volumes grow. 32 Results of Operations for the Nine Months Ended September 30, 2025, and 2024 The following table summarizes selected items from the statement of operations for the nine months ended September 30, 2025, and 2024, respectively. Nine Months Ended September 30, Increase / 2025 2024 (Decrease) Net revenue $ 9,713,287 $ 5,011,497 $ 4,701,790 Cost of goods sold 7,984,763 4,242,810 3,741,953 Gross profit 1,728,524 768,687 959,837 Gross margin 17.8 % 15.3 % Operating expenses: General and administrative 2,204,559 666,600 1,537,959 Salaries and benefits 1,172,474 1,257,316 (84,842 ) Professional services 806,736 1,064,567 (257,831 ) Advertising and promotions 579,507 223,801 355,706 Storage, shipping and handling 421,313 311,073 110,240 Total operating expenses 5,184,589 3,523,357 1,661,232 Operating loss (3,456,065 ) (2,754,670 ) (701,395 ) Other income (expense): Interest income 15,652 8,577 7,075 Interest expense (653,677 ) (518,233 ) (135,444 ) Total other income (expense) (638,025 ) (509,656 ) (128,369 ) Net loss $ (4,094,090 ) $ (3,264,326 ) $ (829,764 ) Net Revenue Our net revenue for the nine months ended September 30, 2025, was $9,713,287, compared to $5,011,497 for the nine months ended September 30, 2024, an increase of $4,701,790, or 94%. The increase in revenue was primarily due to increased sales to our two largest customers during the nine months ended September 30, 2025. Cost of Goods Sold and Gross Profit Our cost of goods sold for the nine months ended September 30, 2025, was $7,984,763, compared to $4,242,810 for the nine months ended September 30, 2024, an increase of $3,741,953, or 125%. Cost of goods sold increased primarily due to increased sales during the nine months ended September 30, 2025. As a result of the foregoing, we had gross profit of $1,728,524, representing gross margins of 17.8%, for the nine months ended September 30, 2025, as compared to a gross margin of $768,687, of 15.3%, for the nine months ended September 30, 2024. Gross margin increased primarily due to the transition of manufacturing operations from third-party suppliers to our facility located in Pisco, Peru. This insourcing initiative created greater control over production processes, improved product quality, reduced contract manufacturing costs, and improved overall efficiency shortening the production cycle and allowing for faster order fulfillment. As production continues to scale, we expect further margin expansion from manufacturing existing products more efficiently and from our enhanced ability to bring new products to market more quickly. 33 General and Administrative Our general and administrative expense for the nine months ended September 30, 2025, was $2,204,559, compared to $666,600 for the nine months ended September 30, 2024, an increase of $1,537,959, or 231%. The largest components of our general and administrative expenses are plant idle capacity, research and development, rent, travel, and commissions, as shown below. Nine Months Ended September 30, 2025 2024 Difference % Change Idle Capacity $ 848,906 $ - $ 848,906 100 % Research & Development $ 208,265 $ 14,348 $ 193,917 1,352 % Rent $ 152,020 $ 160,751 $ (8,731 ) (5 )% Travel $ 172,118 $ 99,132 $ 72,986 74 % Commissions $ 197,130 $ 139,049 $ 58,081 42 % Idle capacity increased due to the opening of the production facility located in Pisco, Peru. In December 2024 operations commenced at the facility. As our factory scales, idle capacity will decrease. Rent increase is related to the Pisco, Peru production facility. Travel increased due to the opening of the facility in Peru and sales initiatives to expand production distribution. Commissions increased due to increased sales. Salaries and Wages Salaries and wages for the nine months ended September 30, 2025, was $1,172,474, compared to $1,257,316 for the nine months ended September 30, 2024, a decrease of $84,842, or 7%. This decrease was primarily attributable to $408,700 of non-cash, stock-based compensation for the nine months ended September 30, 2024, compared to $102,289 of non-cash, stock-based compensation related to stock options awarded during the current period. This decrease is mostly offset by increases in salaries and wages related to the hiring of employees to support production ramp-up at the Peru facility. Professional Fees Professional fees for the nine months ended September 30, 2025, was $806,736, compared to $1,064,567 for the nine months ended September 30, 2024, a decrease of $257,831, or 24%. This decrease was primarily attributable to $290,085 of non-cash, stock-based compensation for the nine months ended September 30, 2024. Shipping and handling Shipping and handling for the nine months ended September 30, 2025, was $421,313, compared to $311,073 for the nine months ended September 30, 2024, an increase of $110,240 or 35%. This increase was primarily attributable to an increase in sales volumes. Advertising and promotions Advertising and promotions for the nine months ended September 30, 2025, was $579,507, compared to $223,801 for the nine months ended September 30, 2024, an increase of $355,706, or 159%. Advertising and promotions expenses increased for the nine months ended September 30, 2025, compared to the corresponding period in 2024, mostly due to increased in-store product demos with one of our largest customers. Other Income (Expense) In the nine months ended September 30, 2025, other expense was $638,025 on a net basis, consisting of $653,677 of interest expense, as partially offset by $15,652 of interest income. For 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. Other expense increased by $128,369, or 25%, primarily due to interest on the Kaufman Convertible Note and notes payable with related parties. 34 Net loss Net loss for the nine months ended September 30, 2025, was $4,094,090, compared to $3,264,326 for the nine months ended September 30, 2024, an increase of $829,764, or 25%. The increased net loss was due to scaling up production at our in-house manufacturing facility. Our objective is to achieve 100% utilization, which we believe will allow us to leverage fixed costs, improve operating efficiency, and capture additional gross margin benefits as production volumes grow. Liquidity and Capital Resources The following table summarizes our total current assets, liabilities and working capital as of September 30, 2025 and December 31, 2024. September 30, December 31, 2025 2024 Current Assets $ 5,460,580 $ 4,916,614 Current Liabilities $ 3,341,658 $ 8,813,996 Working Capital $ 2,118,922 $ (3,897,382 ) As of September 30, 2025, we had positive working capital of $2,118,922. 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, 2025, we had cash of $812,007, total liabilities of $9,544,563, and an accumulated deficit of $21,656,147. 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. Cash Flow Comparison of the Nine Months Ended September 30, 2025, and the Nine Months Ended September 30, 2024 The following table sets forth the primary sources and uses of cash for the periods presented below: Nine Months Ended September 30, 2025 2024 Net cash used in operating activities $ (5,064,017 ) $ (3,259,049 ) Net cash used in investing activities (573,991 ) (2,095,691 ) Net cash provided by financing activities 4,093,929 5,767,938 Effect of exchange rate changes on cash 26,634 (1,794 ) Net change in cash $ (1,517,445 ) $ 411,404 Net Cash Used in Operating Activities Net cash used in operating activities was $5,064,017 for the nine months ended September 30, 2025, compared to $3,259,049 for the nine months ended September 30, 2024, an increase of $1,804,968, or 55%. The increase was primarily due to a $1,065,942 increase in accounts receivable due to increased sales volumes and a $573,303 increase in prepaid inventory to secure raw materials. 35 Net Cash Used in Investing Activities Net cash used in investing activities was $573,991 for the nine months ended September 30, 2025, compared to $2,095,691 for the nine months ended September 30, 2024, a decrease of $1,521,700, or 73%. This decrease was primarily attributable to less equipment purchases and capital expenditures for the build out of the Peru facility. Net Cash Provided by Financing Activities Net cash provided by financing activities was $4,093,929 for the nine months ended September 30, 2025, compared to $5,767,938 for the nine months ended September 30, 2024, an decrease of $1,674,009, or 29%. Our decreased cash provided by financing activities was primarily due to principal repayments on notes payable to related parties offset by proceeds from the sale of common stock and exercise of warrants. Effect of Exchange Rate Changes on Cash For the nine months ended September 30, 2025, the effect of exchange rate changes on cash and cash equivalents primarily reflects the translation impact from fluctuations in the value of the Peruvian sol relative to the U.S. dollar. During the period, the sol experienced modest depreciation against the U.S. dollar, resulting in a gain on foreign currency translation of $26,634 compared to a loss of $1,794 in the comparative period. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our financial results are affected by the selection and application of accounting policies and methods. As of April 1, 2025, we changed our manufacturing cost allocation methodology from kilograms produced, to machine hours used in production, to improve costing as we scale product mix and invest in research and development. The change resulted in an immaterial impact to the valuation of inventory and resulting costs of goods sold from our Annual Report on Form 10-K for the year ended December 31, 2024. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this report, other than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of our management for future operations, any statements concerning proposed new products or services, any statements regarding the integration, development or commercialization of the business or any assets acquired from other parties, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “seeks,” “believes,” “estimates,” “potential,” “forecasts,” “continue,” or other forms of these words or similar words or expressions, or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results will likely differ, and could differ materially, from those projected or assumed in the forward-looking statements. Investors are cautioned not to unduly rely on any such forward-looking statements. 36 All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Our actual results will likely differ, and may differ materially, from anticipated results. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections. NOTICE REGARDING TRADEMARKS This report includes trademarks, tradenames and service marks that are our property or the property of others. Solely for convenience, such trademarks and tradenames sometimes appear without any “™” or “®” symbol. However, failure to include such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.