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. 27 Going Concern Uncertainty As of June 30, 2025, we had a cash balance of $641,129, a positive working capital of $662,217, and had incurred recurring losses from operations resulting in an accumulated deficit of $20,083,595. 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 six months ended June 30, 2025. 28 Results of Operations for the Three Months Ended June 30, 2025, and 2024 The following table summarizes selected items from the statement of operations for the three months ended June 30, 2025, and 2024, respectively. Three Months Ended June 30, Increase / 2025 2024 (Decrease) Net revenue $ 3,299,738 $ 1,362,986 $ 1,936,752 Cost of goods sold 2,693,279 1,214,227 1,479,052 Gross profit 606,459 148,759 457,700 Gross margin 18.4 % 10.9 % Operating expenses: General and administrative 784,872 175,758 609,114 Salaries and benefits 436,163 349,597 86,566 Shipping and handling 323,062 304,376 18,686 Advertising and promotions 157,807 88,384 69,423 Professional services 250,576 57,059 193,517 Total operating expenses 1,952,480 975,174 977,306 Operating loss (1,346,021 ) (826,415 ) (519,606 ) Other income (expense): Interest income 6,600 2,818 3,782 Interest expense (263,735 ) (118,957 ) (144,778 ) Total other income (expense) (257,135 ) (116,139 ) (140,996 ) Net loss $ (1,603,156 ) $ (942,554 ) $ (660,602 ) Net Revenue Our net revenue for the three months ended June 30, 2025, was $3,299,738, compared to $1,362,986 for the three months ended June 30, 2024, an increase of $1,936,752, or 142%. The increase in revenue was primarily due to increased sales to our largest customer during the three months ended June 30, 2025. Cost of Goods Sold and Gross Profit Our cost of goods sold for the three months ended June 30, 2025, was $2,693,279, compared to $1,214,227 for the three months ended June 30, 2024, an increase of $1,479,052, or 122%. Cost of goods sold increased primarily due to increased sales during the three months ended June 30, 2025. We had gross profit of $606,459, representing gross margins of 18.4%, for the three months ended June 30, 2025, as compared to a gross profit of $148,759, or 10.9%, for the three months ended June 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. General and Administrative Our general and administrative expense for the three months ended June 30, 2025, was $784,872, compared to $175,758 for the three months ended June 30, 2024, an increase of $609,114, or 347%. The largest components of our general and administrative expenses are plant idle capacity, rent, travel, and commissions, as shown below. Three Months Ended June 30, 2025 2024 Difference % change Idle Capacity $ 480,320 $ - $ 480,320 100 % Rent $ 50,635 $ 47,913 $ 2,722 6 % Travel $ 24,779 $ 27,220 $ (2,441 ) 9 % Commissions $ 72,142 $ 47,625 $ 12,125 51 % 29 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 June 30, 2025, was $436,163, compared to $349,597 for the three months ended June 30, 2024, an increase of $86,566, or 25%. This increase was primarily attributable to $28,494 of amortization of stock options issued to employees for services performed. Professional Fees Professional fees for the three months ended June 30, 2025, was $323,062, compared to $304,376 for the three months ended June 30, 2024, an increase of $18,686, or 6%. The modest increase primarily reflects normal fluctuations in legal, consulting, and accounting expenses and does not represent a significant change in the level of professional services utilized. Shipping and handling Shipping and handling for the three months ended June 30, 2025, was $157,807, compared to $88,384 for the three months ended June 30, 2024, an increase of $69,423 or 79%. This increase was primarily attributable to an increase in sales volumes. Advertising and promotions Advertising and promotions for the three months ended June 30, 2025, was $250,576, compared to $57,059 for the three months ended June 30, 2024, an increase of $193,517, or 339%. Advertising and promotions expenses increased for the three months ended June 30, 2025, mostly due to increased in-store product demos with one of our largest customers. Other Income (Expense) In the three months ended June 30, 2025, other expense was $257,135 on a net basis, consisting of $263,735 of interest expense, as partially offset by $6,600 of interest income. For 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. Other expense increased by $140,996, or 121%, primarily due to the increase of interest on the Kaufman Convertible Note and Notes Payable with related parties. Net loss Net loss for the three months ended June 30, 2025, was $1,603,156, compared to $942,554 for the three months ended June 30, 2024, an increase of $660,602, or 70%. 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. 30 Results of Operations for the Six Months Ended June 30, 2025, and 2024 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 / 2025 2024 (Decrease) Net revenue $ 6,493,260 $ 2,830,002 $ 3,663,258 Cost of goods sold 5,334,286 2,397,655 2,936,631 Gross profit 1,158,974 432,347 726,627 Gross margin 17.8 % 15.3 % Operating expenses: General and administrative 1,307,047 349,912 957,135 Salaries and benefits 750,405 947,883 (197,478 ) Professional services 558,096 695,042 (136,946 ) Storage, shipping and handling 264,352 192,821 71,531 Advertising and promotions 307,635 98,204 209,431 Total operating expenses 3,187,535 2,283,862 903,673 Operating loss (2,028,561 ) (1,851,515 ) (177,046 ) Other income (expense): Interest income 11,736 5,695 6,041 Interest expense (504,713 ) (147,701 ) (357,012 ) Total other income (expense) (492,977 ) (142,006 ) (350,917 ) Net loss $ (2,521,538 ) $ (1,993,521 ) $ (528,017 ) Net Revenue Our net revenue for the six months ended June 30, 2025, was $6,493,260, compared to $2,830,002 for the six months ended June 30, 2024, an increase of $3,663,258, or 129%. The increase in revenue was primarily due to increased sales to our two largest customers during the six months ended June 30, 2025. Cost of Goods Sold and Gross Profit Our cost of goods sold for the six months ended June 30, 2025, was $5,334,286, compared to $2,397,655 for the six months ended June 30, 2024, an increase of $2,936,631, or 122%. Cost of goods sold increased primarily due to increased sales during the six months ended June 30, 2025. As a result of the foregoing, we had gross profit of $1,158,974, representing gross margins of 17.8%, for the six months ended June 30, 2025, as compared to a gross margin of $432,347, of 15.3%, for the six months ended June 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 six months ended June 30, 2025, was $1,307,047, compared to $349,912 for the six months ended June 30, 2024, an increase of $957,135, or 274%. The largest components of our general and administrative expenses are plant idle capacity, rent, travel, and commissions, as shown below. Six Months Ended June 30, 2025 2024 Difference % change Idle Capacity $ 480,320 $ - $ 480,320 100 % Rent $ 101,150 $ 47,913 $ 53,237 111 % Travel $ 132,224 $ 68,630 $ 63,594 93 % Commissions $ 133,202 $ 114,139 $ 19,063 17 % 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 six months ended June 30, 2025, was $750,405, compared to $947,883 for the six months ended June 30, 2024, a decrease of $197,478, or 21%. This decrease was primarily attributable to $394,135 of non-cash, stock-based compensation for the six months ended June 30, 2024, compared to $81,097 of non-cash, stock-based compensation related to stock options awarded during the current period. Professional Fees Professional fees for the six months ended June 30, 2025, was $558,096, compared to $695,042 for the six months ended June 30, 2024, a decrease of $136,946, or 20%. This decrease was primarily attributable to $290,085 of non-cash, stock-based compensation for the six months ended June 30, 2024. Shipping and handling Shipping and handling for the six months ended June 30, 2025, was $264,352, compared to $192,821 for the six months ended June 30, 2024, an increase of $71,531 or 37%. This increase was primarily attributable to an increase in sales volumes. Advertising and promotions Advertising and promotions for the six months ended June 30, 2025, was $307,635, compared to $98,204 for the six months ended June 30, 2024, an increase of $209,431, or 213%. Advertising and promotions expenses increased for the six months ended June 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 six months ended June 30, 2025, other expense was $492,977 on a net basis, consisting of $504,713 of interest expense, as partially offset by $11,736 of interest income. For 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. Other expense increased by $350,971, or 247%, primarily due to interest on the Kaufman Convertible Note and Notes Payable with related parties. Net loss Net loss for the six months ended June 30, 2025, was $2,521,538, compared to $1,993,521 for the six months ended June 30, 2024, an increase of $528,017, or 26%. 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 Liquidity and Capital Resources The following table summarizes our total current assets, liabilities and working capital as of June 30, 2025 and December 31, 2024. June 30, December 31, 2025 2024 Current Assets $ 5,201,109 $ 4,916,614 Current Liabilities $ 4,538,892 $ 8,813,996 Working Capital $ 662,217 $ (3,897,382 ) As of June 30, 2025, we had working capital of $662,217. 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 June 30, 2025, we had cash of $641,129, total liabilities of $9,608,777, and an accumulated deficit of $20,083,595. 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 Six Months Ended June 30, 2025, and the Six Months Ended June 30, 2024 The following table sets forth the primary sources and uses of cash for the periods presented below: Six Months Ended June 30, 2025 2024 Net cash used in operating activities $ (3,942,856 ) $ (1,357,463 ) Net cash used in investing activities (491,332 ) (566,431 ) Net cash provided by financing activities 2,717,102 2,202,108 Effect of exchange rate changes on cash 28,763 58 Net change in cash $ (1,688,323 ) $ 278,272 Net Cash Used in Operating Activities Net cash used in operating activities was $3,942,856 for the six months ended June 30, 2025, compared to $1,357,463 for the six months ended June 30, 2024, an increase of $2,610,442, or 190%. The increase was primarily due to a $1,440,275 increase in accounts receivable due to increased sales volumes and a $548,367 increase in prepaid inventory to secure raw materials. Net Cash Used in Investing Activities Net cash used in investing activities was $491,332 for the six months ended June 30, 2025, compared to $566,431 for the six months ended June 30, 2024, a decrease of $75,099, or 13%. This decrease was primarily attributable to $491,332 of equipment purchases, compared to $576,331 of equipment purchases, as partially offset by $9,900 of advances received on notes receivable, in the comparative period. Net Cash Provided by Financing Activities Net cash provided by financing activities was $2,717,102 for the six months ended June 30, 2025, compared to $2,202,108 for the six months ended June 30, 2024, an increase of $514,994, or 23%. Our increased cash provided by financing activities was primarily from $2,423,058 proceeds from the sale of common stock and $1,173,157 from the exercise of warrants, offset by $847,917 of principal repayments on notes payable. Effect of Exchange Rate Changes on Cash For the six months ended June 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 $28,763 compared to $58 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. 33 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.