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 unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2025. In addition to historical 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. Business Overview BranchOut Food Inc. (collectively with its subsidiary, “BranchOut,” the “Company,” “we,” “us” or “our”), is a growth-stage consumer packaged foods company focused on developing, manufacturing, marketing, and distributing clean-label, plant-based dried fruit and vegetable snacks for retail and foodservice markets through BranchOut-branded products, private-label offerings, and ingredient sales. The Company operates a 50,000 square foot manufacturing facility in Pisco, Peru, (“Peru Facility”) where it produces finished goods using proprietary GentleDry™ technology licensed from EnWave Corporation. Our operating model is manufacturing-led and dependent on agricultural sourcing, production scale, and retail distribution. We continue to scale manufacturing operations at our Peru Facility while supporting existing customer programs and pursuing new product opportunities. Including expansion of a new production area intended to support high-protein dehydrated cheese products in an allergen-free environment. We believe additional capacity may support future revenue growth, improved production flexibility and margin enhancement, although no assurance can be given regarding timing or results. Organizational Realignment and Manufacturing Transition Beginning in 2024, we initiated an operational transition from reliance on third-party manufacturers to in-house production through the development and ramp-up of the Peru Facility. As of December 31, 2025, the principal build-out and start-up phase of this transition was substantially complete. Products We develop, manufacture and market dehydrated fruit and vegetable products using licensed GentleDry™ technology at the Peru Facility. Our products are sold through three primary channels: BranchOut branded retail snack products, private-label products for major retailers, and fruit and vegetable ingredient products sold to food manufacturers. Our BranchOut branded products consist primarily of shelf-stable fruit and vegetable snacks designed to preserve the natural flavor, color and texture of the underlying produce. These products are distributed through grocery, club, online and direct-to-consumer channels. We also manufacture private-label dehydrated snack products for major North American retailers, which are sold under customer brands through their existing retail distribution channels. In addition, we produce dehydrated fruit and vegetable ingredients, including pieces, powders and inclusions, for use in cereals, snack bars, baked goods, salads, ready-to-eat meals and other packaged food applications. We continue to develop additional fruit and vegetable snack products and ingredient formats for both branded and private label customers. Product development efforts are focused on expanding our snack portfolio, supporting private label programs for large retailers, and developing new ingredient applications for food manufacturers. From time to time, we engage with potential commercial partners and institutional customers to develop products tailored to specific applications. 30 Operating Strategy and Key Performance Drivers BranchOut is focused on executing a growth-stage strategy that balances product innovation, distribution expansion, and disciplined manufacturing scale-up. As a manufacturing-led business, our strategy emphasizes aligning customer growth and product development with production capacity, supply-chain execution, and cost control. Key elements of our strategy include: ● Driving revenue growth through customer onboarding and product expansion , by developing new snack and ingredient products designed to generate repeat consumer demand and support scalable retail and foodservice placement. ● Expanding distribution channels across national and regional retail, club, grocery, and private-label platforms to increase product availability while maintaining disciplined customer and channel selection. ● Scaling manufacturing utilization and capacity , with a focus on achieving high utilization at our Peru Facility while investing in incremental capacity expansion to support anticipated demand, operational efficiency, and margin improvement. ● Maintaining operational discipline during scale-up , including production planning, inventory management, quality control, and supply-chain coordination, to support consistent product quality, reliable fulfillment, and cost management as volumes increase. Management believes that executing a manufacturing-led growth strategy allows us to compete effectively by pairing differentiated products with scalable operations, while managing the complexity and execution demands inherent in expanding within the consumer-packaged foods industry. Gross margin performance may be affected by sales mix, throughput levels, manufacturing efficiencies, uptime, yields, availability or shortages of agricultural raw materials, packaging, labor and freight costs, as well as sourcing timing and spot market purchases when necessary. Operating Model and Margin Considerations Our operating results are closely tied to production volume, facility utilization, sales mix and input costs. We are focused on scaling production and optimizing manufacturing performance, while expanding our product portfolio to align with evolving customer demand and support growth across our core sales channels. Despite improvements in production volumes, throughput and manufacturing efficiencies, including gains in uptime, yields and production flow, gross margins have decreased in both the first and second quarters of 2026, due to (i) increased downtime at the plant, and lower production levels during January and February, (ii) an unfavorable sales mix driven by a higher proportion of lower-margin bulk ingredient sales, (iii) a shortened procurement timeline for a bulk strawberry ingredient product as discussed below, and (iv) the launch of a new mixed variety pack to Sam’s Club. Gross margin is influenced by sales mix across our branded, private-label and ingredient channels, as well as variability in agricultural raw materials, packaging, labor and freight costs. The timing of raw material sourcing and reliance on spot market purchases, when necessary, may also affect margins. As the Company scales production to support new customer programs, initial production runs are often completed on a compressed procurement timeline to meet customer delivery requirements. As a result, raw materials may be purchased at prevailing market prices rather than through advance procurement, resulting in higher input costs and gross margins below the Company’s long-term target margins for recurring products. In certain cases, initial production runs may generate minimal or negative gross margins. Management believes these initial production runs are an important part of securing long-term customer relationships and recurring production volumes, which are expected to have more favorable procurement economics. Management intentionally prioritizes establishing new customer relationships and securing product placements with large retailers, recognizing that the economics of initial production runs may differ from those of recurring production. As customer demand becomes recurring, the Company expects to procure raw materials further in advance, negotiate more favorable pricing, and improve manufacturing efficiencies, resulting in improved gross margins. The Company has already secured future strawberry raw material supply under executed procurement contracts at prices significantly lower than the raw material costs incurred for strawberry production during the first half of 2026. While the Company currently manufactures primarily to customer order, management believes that recently launched products, including the variety pack and strawberry product offerings, will transition to recurring production, enabling the Company to procure raw materials further in advance and, over time, improve manufacturing economics. 31 Operating expenses primarily reflect costs associated with supporting our Peru Facility, growth initiatives to establish new customer relationships, distribution expansion and public company requirements. We continue to operate at a net loss and with negative working capital. Future operating performance will depend on revenue growth, production scale, cost management, availability of raw materials, product mix, working capital efficiency and continued access to capital. Adjusted Gross Margin (Non-GAAP) In addition to gross margin calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), we use adjusted gross margin, a non-GAAP supplemental measure to evaluate underlying manufacturing performance. Non-GAAP adjusted gross margin excludes depreciation included in cost of goods sold and certain air freight costs during the three and six months ended June 30, 2026 and 2025. For the three months ended June 30, 2026, gross profit (GAAP) was $96,825 versus adjusted gross profit (non-GAAP) of $0.37 million, and gross margin was 2.2% compared to adjusted gross margin of 8.3%. For the three months ended June 30, 2025 gross profit (GAAP) was $0.58 million versus adjusted gross profit (non-GAAP) of $0.8 million, and gross margin was 17.8% compared to adjusted gross margin of 24.3%. For the six months ended June 30, 2026, gross profit (GAAP) was $0.5 million versus adjusted gross profit (non-GAAP) of $0.91 million, and gross margin was 7.0% compared to adjusted gross margin of 12.9%. For the six months ended June 30, 2025 gross profit (GAAP) was $1.1 million versus adjusted gross profit (non-GAAP) of $1.6 million, and gross margin was 17.2% compared to adjusted gross margin of 25.5%. Adjusted gross margin was higher than reported gross margin, reflecting the impact of depreciation and air freight costs incurred to support customer-required timelines, primarily related to new product introductions. These air freight costs were driven by specific timing and fulfillment requirements and are not expected to recur at similar levels. Gross margin and adjusted gross margin for the three-month period ended June 30, 2026 were also negatively impacted by the production of a bulk strawberry ingredient product and the delivery of a new product launched at Sam’s Club. The products incurred higher raw material costs due to a shortened procurement timeline, resulting in margins significantly below management’s long-term target margins for recurring products. Management expects margins to improve as repeat customer orders provide longer procurement lead times, enabling more efficient raw material sourcing and production planning and resulting in margins more consistent with the Company’s consumer packaged goods business. We believe adjusted gross margin provides additional visibility into the underlying manufacturing economics of our operations by excluding certain non-cash depreciation and unusual air freight costs. As production continues to scale and customer orders transition from initial product launches to recurring production, we expect reported gross margin to improve through higher manufacturing throughput, greater operating efficiencies, and improved raw material procurement. A reconciliation of gross profit (GAAP) to adjusted gross profit (non-GAAP), and the related gross margin measures, for the six months ended June 30, 2026 and 2025, is presented below: Three Months Ended Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Gross profit (GAAP) $ 96,825 $ 581,667 $ 497,485 $ 1,111,523 Depreciation included in cost of goods sold 121,802 71,116 213,005 222,622 Air freight related to customer fulfillment timing requirements 151,548 141,901 202,769 306,571 Adjusted gross profit (non-GAAP) 370,175 794,684 913,259 1,640,716 Net revenue $ 4,458,271 $ 3,274,946 $ 7,065,066 $ 6,445,809 Gross margin (GAAP) 2.2 % 17.8 % 7.0 % 17.2 % Adjusted gross margin (non-GAAP) 8.3 % 24.3 % 12.9 % 25.5 % 32 Results of Operations for the Three Months Ended June 30, 2026, and 2025 The following table summarizes selected items from the statement of operations for the three months ended June 30, 2026, and 2025, respectively. Three Months Ended June 30, Increase / 2026 2025 (Decrease) Net revenue $ 4,458,271 $ 3,274,946 $ 1,183,325 Cost of goods sold 4,361,446 2,693,279 1,668,167 Gross profit 96,825 581,667 (484,842 ) Gross margin 2.2 % 17.8 % Operating expenses: General and administrative 1,167,053 846,662 320,391 Salaries and benefits 677,282 436,163 241,119 Professional services 314,145 323,062 (8,917 ) Shipping and handling to customers 220,523 157,807 62,716 Advertising and promotions 283,134 126,617 156,517 Total operating expenses 2,662,137 1,890,311 771,826 Operating loss (2,565,312 ) (1,310,448 ) (1,256,668 ) Operating margin (57.5 )% (40.0 )% Other income (expense): Interest income 59 6,600 (6,541 ) Other income 29,768 - 29,768 Interest expense (184,551 ) (301,112 ) 116,561 Total other income (expense) (154,724 ) (294,512 ) 139,788 Net loss $ (2,720,036 ) $ (1,603,156 ) $ (1,116,880 ) Net margin (61.0 )% (49.0 )% Net Revenue Our net revenue for the three months ended June 30, 2026 was $4.5 million, compared to $3.3 million for the three months ended June 30, 2025, an increase of $1.2 million, or 36%. Net revenue increased primarily due to sales of bulk strawberry ingredient and the launch of a new branded product variety at Sam’s Club. While the bulk ingredient product contributed meaningfully to revenue growth, it generated lower gross margins than the Company’s targeted recurring product margins. Our results may fluctuate period to period due to the timing and size of customer orders, product mix, and the seasonal nature of raw material harvest cycles, among other factors. Cost of Goods Sold and Gross Profit Cost of goods sold for the three months ended June 30, 2026 was $4.4 million, compared to $2.7 million for the three months ended June 30, 2025, an increase of $1.7 million, or 62%. Gross profit for the three months ended June 30, 2026 was $96,825, or 2.2% of net revenue, compared to $581,667, or 17.8% of net revenue. The increase in cost of goods sold relative to net revenue was primarily attributable to product mix, including the manufacture of a bulk strawberry ingredient product. Due to a compressed procurement timeline, the Company incurred significantly higher raw material costs for this product, resulting in gross margins below the Company’s long-term target margins for recurring products. 33 General and Administrative Expense General and administrative expense for the three months ended June 30, 2026 was $1.2 million, compared to $0.85 million for the three months June 30, 2025, an increase of $0.35 million, or 38%. The increase was primarily related to costs associated with the settlement of an employment-related legal matter involving the Company’s former Chief Financial Officer. The largest components of our general and administrative expenses were plant idle capacity, employment-related legal settlement, research and development, travel, sales commissions, and royalties as shown below. Three Months Ended June 30, 2026 2025 Difference % Change Idle capacity $ 466,994 $ 480,320 $ (13,326 ) (3 )% Employment-related legal settlement 303,390 - 303,390 100 % Research and development 64,562 9,648 54,914 569 % Travel 109,633 24,779 84,854 342 % Sales commissions 25,840 72,143 (46,303 ) (64 )% Royalties 62,500 44,496 18,004 40 % Research and development expense increased due to continued product development activities. Sales commissions decreased due to changes in customer sales mix. Travel expense remained relatively consistent, reflecting ongoing travel between the United States and Peru to support operations. Royalties increased primarily due to higher production volumes on EnWave equipment. Salaries and Wages Salaries and wages for the three months ended June 30, 2026 were $0.68 million, compared to $0.44 million for the prior year period, an increase of $0.24 million, or 55%. The increase was primarily attributable to increases in stock-based compensation expense, together with higher payroll costs associated with additional personnel to support the Company’s continued growth. Professional Fees Professional fees for the three months ended June 30, 2026 were $0.31 million, compared to $0.32 million for the three months ended June 30, 2025, a decrease of $0.01 million, or 3%. Shipping and Handling Shipping and handling expense for the three months ended June 30, 2026 was $0.22 million, compared to $0.16 million for the three months ended June 30, 2025, an increase of $0.06 million, or 40%. The increase was primarily due to more customer deliveries and increased shipping costs during the period. Advertising and Promotions Advertising and promotions expense for the three months ended June 30, 2026 was $0.28 million, compared to $0.13 million for the three months ended June 30, 2025, an increase of $0.15 million, or 124%. The increase was primarily due to the timing of product demonstration programs and promotional costs associated with the lunch of a new branded product at Sam’s Club. Other Income (Expense) For the three months ended June 30, 2026, other expense was $154,724, consisting of $184,551 of interest expense, partially offset by $29,768 of other income and $59 of interest income. Other income is the recognition of tariff reimbursements received related to previously paid U.S. import duties. The Company received a portion of these reimbursements during the period and recognized the related income in accordance with U.S. GAAP. For the three months ended June 30, 2025, other expense was $294,512, consisting of $301,112 of interest expense, partially offset by $6,600 of interest income. Other expense decreased by $139,788, or 47%, primarily due to lower interest expense following the repayment of certain debt financing during 2025. Net loss Net loss for the three months ended June 30, 2026 was $2.7 million, compared to $1.6 million for the three months ended June 30, 2025, an increase of $1.1 million, or 70%. The increase in net loss was primarily attributable to lower gross profit, as discussed above, one-time settlement of an employment-related legal matter involving the Company’s former Chief Financial Officer, and higher personnel costs associated with increased stock-based compensation expense. Operating results continue to be influenced by production volumes, capacity utilization, product mix, and raw material procurement. 34 Results of Operations for the Six Months Ended June 30, 2026, and 2025 The following table summarizes selected items from the statement of operations for the six months ended June 30, 2025, and 2024, respectively. Six Months Ended June 30, Increase / 2026 2025 (Decrease) Net revenue $ 7,065,066 $ 6,445,809 $ 619,257 Cost of goods sold 6,567,581 5,334,286 1,233,295 Gross profit 497,485 1,111,523 (614,038 ) Gross margin 7.0 % 17.2 % Operating expenses: General and administrative 2,026,273 1,232,301 793,972 Salaries and benefits 1,343,618 750,405 593,213 Professional services 574,834 558,096 16,738 Shipping and handling to customers 376,414 264,352 112,062 Advertising and promotions 360,788 260,184 100,604 Total operating expenses 4,681,927 3,065,338 1,616,589 Operating loss (4,184,442 ) (1,953,815 ) (2,230,627 ) Operating margin (59.2 )% (30.3 )% Other income (expense): Interest income 1,808 11,736 (9,928 ) Other income 29,768 - - Interest expense (359,454 ) (579,459 ) 220,005 Total other income (expense) (327,878 ) (567,723 ) 239,845 Net loss $ (4,512,320 ) $ (2,521,538 ) $ (1,990,782 ) Net margin (63.9 )% (39.1 )% Net Revenue Our net revenue for the six months ended June 30, 2026 was $7.1 million, compared to $6.5 million for the six months ended June 30, 2025, an increase of $0.6 million, or 10%. The increase in revenue was primarily due to sales of a bulk strawberry ingredient product and the launch of a new branded product variety at Sam’s Club. While the bulk ingredient product contributed meaningfully to revenue growth, it generated lower gross margins than the Company’s long-term target margins for recurring products. Our results may fluctuate period to period due to the timing and size of customer orders, product mix, and the seasonal nature of raw material harvest cycles, among other factors. Cost of Goods Sold and Gross Profit Cost of goods sold for the six months ended June 30, 2026 was $6.6 million, compared to $5.3 million for the six months ended June 30, 2025, an increase of $1.3 million, or 23%. Gross profit for the six months ended June 30, 2026 was $0.5 million, or 7.0% of net revenue, compared to $1.1 million, or 17.2% of net revenue, for the six months ended June 30, 2025. The increase in cost of goods sold relative to net revenue was primarily attributable to product mix, including the manufacture of a bulk strawberry ingredient product. Due to a compressed procurement timeline, the Company incurred significantly higher raw material costs for this product, resulting in gross margins substantially below the Company’s long-term target margins for recurring products. 35 General and Administrative Expense General and administrative expense for the six months ended June 30, 2026 was $2.0 million, compared to $1.2 million for the six months June 30, 2025, an increase of $0.8 million, or 64%. The increase was primarily related to an increase in idle capacity expense during the six months ended June 30, 2026 due to unallocated fixed overhead resulting from operating the Peru Facility below normal utilization levels. The facility began operations in December 2024, and idle capacity was not measured through March 31, 2025. Additionally, the Company incurred costs related to a settlement of an employment-related legal matter involving its former Chief Financial Officer. The largest components of our general and administrative expenses were plant idle capacity, employment-related legal settlement, research and development, travel, sales commissions, and royalties as shown below. Six Months Ended June 30, 2026 2025 Difference % Change Idle capacity $ 949,807 $ 480,320 $ 469,487 98 % Employment-related legal settlement 303,390 - 303,390 100 % Research and development 81,200 17,390 63,810 369 % Travel 211,253 132,224 79,029 60 % Sales commissions 48,725 133,202 (84,477 ) (63 )% Royalties 125,000 85,081 39,919 47 % Research and development expense increased due to continued product development activities. Sales commissions decreased due to changes in customer sales mix. Travel expense increased reflecting ongoing travel between the United States and Peru to support operations. Royalties increased primarily due to higher production volumes on EnWave equipment. Salaries and Wages Salaries and wages for the six months ended June 30, 2026 were $1.3 million, compared to $0.75 million for the six months ended June 30, 2025, an increase of $0.55 million, or 79%. The increase was primarily attributable to increases in stock-based compensation expense, together with higher payroll costs associated with additional personnel to support the Company’s continued growth. Professional Fees Professional fees for the six months ended June 30, 2026 were $0.57 million, compared to $0.56 million for the six months ended June 30, 2025, an increase of $0.01 million, or 3%. Shipping and Handling Shipping and handling expense for the six months ended June 30, 2026 was $0.38 million, compared to $0.26 million for the six months ended June 30, 2025, an increase of $0.12 million, or 42%. The increase was primarily due to more customer deliveries and increased shipping costs during the period. Advertising and Promotions Advertising and promotions expense for the six months ended June 30, 2026 was $0.36 million, compared to $0.26 million for the six months ended June 30, 2025, an increase of $0.1 million, or 39%. The increase was primarily due to the timing of product demonstration programs and promotional costs associated with the lunch of a new branded product at Sam’s Club. Other Income (Expense) For the six months ended June 30, 2026, other expense was $327,878, consisting of $359,454 of interest expense, partially offset by $1,808 of interest income and $29,768 of other income. Other income is the recognition of tariff reimbursements received related to previously paid U.S. import duties. The Company received a portion of these reimbursements during the period and recognized the related income in accordance with U.S. GAAP. For the six months ended June 30, 2025, other expense was $567,723, consisting of $579,459 of interest expense, partially offset by $11,736 of interest income. Other expense decreased by $239,845, or 42%, primarily due to lower interest expense following the repayment of certain debt financing during 2025. Net loss Net loss for the six months ended June 30, 2026 was $4.5 million, compared to $2.5 million for the six months ended June 30, 2025, an increase of $2.0 million, or 79%. The increase in net loss was primarily attributable to lower gross profit, as discussed above, higher idle capacity costs, higher personnel costs associated with increased stock-based compensation expense, and costs related to the settlement of an employment-related legal matter involving the Company’s former Chief Financial Officer. Operating results continue to be influenced by production volumes, capacity utilization, product mix, and raw material procurement. 36 Liquidity and Capital Resources The following table summarizes our total current assets, liabilities and working capital as of June 30, 2026 and December 31, 2025. June 30, December 31, 2026 2025 Current Assets $ 8,002,894 $ 5,684,907 Current Liabilities $ 7,762,123 $ 6,269,147 Working Capital $ 240,771 $ (584,240 ) As of June 30, 2026, we had working capital of $.24 million, compared to negative working capital of $0.6 million as of December 31, 2025. The Company’s working capital position at June 30, 2026 primarily reflects the financing of rapid revenue growth. Higher sales volumes increased investments in accounts receivable and inventory, while these working capital requirements were funded through increased accounts payable and borrowings under the Company’s promissory note with Kaufman Kapital. To date, our primary sources of capital have been cash generated from the sales of our products, common stock sales, and debt and equity financings. As of June 30, 2026, we had cash of $0.21 million, total liabilities of $12.8 million, and an accumulated deficit of $28.2 million, compared to cash of $0.6 million, total liabilities of $8.9 million, and an accumulated deficit of $23.7 million as of December 31, 2025. Liquidity Outlook Our ability to meet our cash requirements is dependent on our ability to increase sales volumes, improve operating cash flows, manage working capital, and, as needed, access additional capital. Based on our current operating plan, we expect that existing cash balances and cash generated from operations will not be sufficient to fund our operating requirements for at least the next twelve months, and we may need to obtain additional financing. Historically, we have raised capital primarily through debt and convertible debt financings and the issuance of equity securities. Any additional financing may not be available when needed or may not be available on acceptable terms. In addition, any future financings may result in dilution to existing stockholders and may contain restrictive covenants that could limit our operating flexibility. Going Concern 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. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date the condensed consolidated financial statements are issued. We are pursuing initiatives to increase revenues and are seeking additional sources of capital to fund operations. While these actions may improve our liquidity position, there can be no assurance that they will be sufficient to alleviate the substantial doubt regarding our ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty, including adjustments to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. 37 Cash Flow Comparison of the Six Months Ended June 30, 2026, and the Six Months Ended June 30, 2025 The following table sets forth the primary sources and uses of cash for the periods presented below: Six Months Ended June 30, 2026 2025 Net cash used in operating activities $ (4,884,193 ) $ (3,963,245 ) Net cash used in investing activities (719,909 ) (491,332 ) Net cash provided by financing activities 5,256,223 2,737,491 Effect of exchange rate changes on cash (56,414 ) 28,763 Net change in cash $ (404,293 ) $ (1,688,323 ) Net Cash Used in Operating Activities Cash used in operating activities was $4.8 million for the six months June 30, 2026, compared to $4.0 million for the six months June 30, 2025, an increase of $0.8 million, or 23%. Cash used in operating activities increased primarily due to increased investments in working capital to support revenue growth, including higher accounts receivable and inventory balances, together with a higher net loss. These working capital investments were partially offset by increases in accounts payable and accrued expenses, reflecting the timing of vendor payments. Net Cash Used in Investing Activities Cash used in investing activities was $0.72 million for the six months ended June 30, 2026, compared to $0.5 million for the six months ended June 30, 2025, an increase of $0.22 million, or 47%. The increase was primarily attributable to purchases of property and equipment related to the build-out of new production space at the Peru Facility intended to manufacture high-protein dehydrated cheese products in an allergen-free environment. Net Cash Provided by Financing Activities Cash provided by financing activities was $5.3 million for the six months ended June 30, 2026, compared to $2.7 million for the six months ended June 30, 2025, an increase of $2.5 million, or 92%. The increase was primarily attributable to $3.0 million in proceeds from a promissory note to fund working capital needs to support revenue growth, partially offset by lower proceeds from equity issuances during the current period. Effect of Exchange Rate Changes on Cash For the six months ended June 30, 2026, exchange rate changes decreased cash and cash equivalents by $56,414, compared to an increase of $28,763 in the prior-year period. The change reflects fluctuations in the exchange rate between the Peruvian sol and the U.S. dollar on cash balances held by the Company’s Peru subsidiary. 38 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our financial results are affected by the selection and application of accounting policies and methods. In the six months ended June 30, 2026 there were no material changes in the Company’s critical accounting policies and estimates from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2025. 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. 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.