10-Q: BranchOut Food Reports Strong Revenue Growth, Persistent Losses

BranchOut Food Inc. reported significant revenue growth and improved gross margins for Q3 and the first nine months of 2025, driven by its new Peru facility, but continues to face substantial operating losses and a going concern warning.

Summary

• Net revenue for the three months ended September 30, 2025, increased by 48% to $3,220,027, compared to $2,181,495 in the prior year.
• Net revenue for the nine months ended September 30, 2025, surged by 94% to $9,713,287, up from $5,011,497 in the same period of 2024.
• Gross profit for the three months increased by 69.3% to $569,550, with gross margin improving to 17.7% from 15.4%.
• Gross profit for the nine months increased by 125% to $1,728,524, with gross margin improving to 17.8% from 15.3%.
• The company reported a net loss of $(1,572,552) for the three months, an increase of 24% from $(1,270,805) in the prior year.
• The net loss for the nine months increased by 25.4% to $(4,094,090), compared to $(3,264,326) in the same period of 2024.
• Accumulated deficit reached $(21,656,147) as of September 30, 2025.
• Cash balance decreased to $812,007 as of September 30, 2025, from $2,329,452 at December 31, 2024.
• Working capital improved significantly to a positive $2,118,922 as of September 30, 2025, from a negative $(3,897,382) at December 31, 2024.
• The company commenced operations at its 50,000 square-foot production facility in Pisco, Peru, in December 2024, incurring approximately $6.4 million in total realignment costs through September 30, 2025.
• Management concluded that disclosure controls and procedures were not effective as of September 30, 2025.

Sentiment

Score: 3

Explanation: While the company shows strong revenue growth and improved gross margins due to strategic insourcing, the persistent and increasing net losses, significant cash burn from operations, and the explicit 'going concern' warning are major negative indicators. The ineffective disclosure controls further compound the risk. The reliance on continuous capital raises to sustain operations points to a highly speculative investment.

Positives

• Net revenue for the three months ended September 30, 2025, increased by 48% to $3,220,027, driven by increased sales to its largest customer.
• Net revenue for the nine months ended September 30, 2025, increased by 94% to $9,713,287, due to increased sales to its two largest customers.
• Gross margin improved to 17.7% for the three months and 17.8% for the nine months, primarily due to the transition to in-house manufacturing at the Peru facility, which reduced contract manufacturing costs and improved efficiency.
• Working capital significantly improved to a positive $2,118,922 as of September 30, 2025, from a negative $(3,897,382) at December 31, 2024.
• Net cash used in investing activities decreased by 73% to $(573,991) for the nine months, reflecting fewer equipment purchases and capital expenditures for the Peru facility build-out.
• The company secured a global exclusive license from EnWave for Dragon Fruit products using its GentleDry technology.
• Successfully raised capital through At-The-Market (ATM) programs, generating net proceeds of $5,239,988 for the nine months ended September 30, 2025.
• Warrant exercises generated aggregate cash proceeds of $1,386,873 for the nine months ended September 30, 2025.

Negatives

• The company incurred recurring losses from operations, with a net loss of $(1,572,552) for the three months and $(4,094,090) for the nine months ended September 30, 2025.
• Accumulated deficit increased to $(21,656,147) as of September 30, 2025.
• Cash balance decreased by 65% to $812,007 as of September 30, 2025, from $2,329,452 at December 31, 2024.
• Net cash used in operating activities increased by 55% to $(5,064,017) for the nine months, primarily due to increased accounts receivable and prepaid inventory.
• General and administrative expenses increased by 183% for the three months and 231% for the nine months, largely due to plant idle capacity and increased R&D.
• Interest expense increased by 26% to $(653,677) for the nine months, mainly due to the Kaufman Convertible Note and other related party notes.
• The company has a high customer concentration, with three customers accounting for approximately 96% of net revenue and 97% of accounts receivable for the nine months ended September 30, 2025.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to recurring operating losses and an accumulated deficit of $21,656,147.
• High customer concentration, with three customers representing approximately 96% of net revenue and 97% of accounts receivable, poses a significant risk if any of these relationships are disrupted.
• A lawsuit by the former chief financial officer alleging wrongful termination is pending, with an unpredictable ultimate outcome.
• Management concluded that disclosure controls and procedures were not effective as of September 30, 2025, indicating potential weaknesses in financial reporting oversight.
• The company relies on raising additional capital to fund short-term operations and scale production and distribution capabilities.
• Significant investment in the Peru facility has led to increased idle capacity costs, which will only decrease as the factory scales to 100% utilization.

Future Outlook

Management anticipates that results of operations will improve substantially as the new Peru facility scales production to 100% utilization, leveraging fixed costs, improving operating efficiency, and capturing additional gross margin benefits. The company expects to continue investing in R&D to expand its GentleDry product portfolio and bring new offerings to market. However, the ability to scale production and distribution and increase brand value is dependent on successfully raising additional capital.

Management Comments

• "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."
• "We expect to continue investing in R&D as we scale our GentleDry product portfolio and bring new, innovative offerings to market that align with evolving consumer needs."
• "Management is actively pursuing new customers and continues to expand the Company's product mix to increase revenues."
• "Management believes these factors will contribute to achieving profitability."

Industry Context

BranchOut Food operates in the fast-moving plant-based, dehydrated fruit and vegetable snack and powder category, which is shaped by shifting consumer preferences towards healthier and convenient food options. The company's proprietary GentleDry Technology positions it with a differentiated offering, claiming superior preservation of taste, texture, color, and nutrients compared to traditional freeze-drying. The strategic shift to in-house manufacturing in Peru aims to enhance control over production, improve quality, and reduce costs, which aligns with broader industry trends of supply chain optimization and vertical integration for better margin control. The significant increase in R&D spending suggests a focus on innovation to capture market share in this competitive segment.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks. Therefore, a direct comparison to industry standards is not possible based solely on the provided information.
• The company's gross margin improvement from 15.4% to 17.7% (three months) and 15.3% to 17.8% (nine months) is positive, but without industry benchmarks for similar specialized dehydration snack producers, it's difficult to definitively assess if this is above or below average.
• The high customer concentration (96% of revenue from three customers) is a notable characteristic that may differ from more diversified industry players and represents a higher risk profile.

Corporate Governance

Legal Proceedings

• The company is the subject of a lawsuit recently commenced by its former chief financial officer alleging wrongful termination. Management believes the outcome is not probable to result in a material adverse effect, but the ultimate outcome is not possible to predict, and no liability has been accrued.

Related Party Transactions

• Kaufman Kapital, a beneficial owner holding more than 10% of common stock, provided a 12% Senior Secured Convertible Promissory Note (principal amount up to $3,400,000) and a 15% Senior Secured Promissory Note ($1,200,000, with $500,000 outstanding as of September 30, 2025).
• Kaufman Kapital exercised warrants to purchase 1,000,000 shares of common stock for $1,000,000 cash.
• Eagle Vision Fund LP, led by the company's CFO John Dalfonsi, was involved in the sale of Senior Secured Notes (aggregate $1,675,000 principal, all repaid as of September 30, 2025) and Warrants (518,750 shares).
• Warrants issued to purchasers of Senior Secured Notes (led by Eagle Vision) were exercised to purchase 307,500 shares of common stock for $307,500 cash.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from ongoing ATM offerings and warrant exercises. The 'going concern' warning and increasing accumulated deficit pose substantial risk to investment value. However, revenue growth and gross margin improvement could be seen as positive long-term indicators if profitability is achieved.
• **Employees**: Hiring for the Peru facility indicates job creation, but the lawsuit by the former CFO and the 'going concern' warning could create uncertainty.
• **Customers**: Benefit from increased production capacity and potentially improved product quality and faster fulfillment due to the Peru facility. High customer concentration means a few large customers have significant influence.
• **Creditors**: Related party creditors (Kaufman Kapital) hold secured notes, providing some protection, but the overall financial health and 'going concern' risk are critical for all creditors.
• **Suppliers**: Increased inventory purchases and equipment acquisitions indicate growing demand for raw materials and machinery, benefiting suppliers like EnWave.

Next Steps

• Achieve 100% utilization of the Peru manufacturing facility to leverage fixed costs and improve operating efficiency.
• Continue investing in research and development to scale the GentleDry product portfolio and introduce new offerings.
• Actively pursue new customers and expand the product mix to increase revenues.
• Seek additional sources of capital to fund short-term operations.
• Acquire ownership of the Peru facility either through the landlord's bankruptcy settlement process or by exercising the purchase option at the end of the lease term.
• Execute an Equipment Purchase Agreement for a Fourth EnWave Machine (120kW or greater) on or before December 31, 2026.

Key Dates

Recommendation

Despite impressive revenue growth and improved gross margins, the company's financial health remains precarious. The persistent and increasing net losses, substantial accumulated deficit, and significant cash burn from operations raise serious 'going concern' doubts. The explicit statement that disclosure controls and procedures were 'not effective' is a major red flag for corporate governance and investor confidence. While the strategic shift to in-house manufacturing has potential, the current financial instability, high customer concentration, and continuous reliance on dilutive capital raises make this a high-risk investment. A seasoned investor would likely view the 'going concern' warning and control deficiencies as overriding factors, suggesting a 'sell' or 'strong sell' recommendation until there is clear evidence of sustained profitability and robust internal controls.

Keywords

plant-based snacks, dehydrated fruit, dehydrated vegetables, GentleDry Technology, EnWave Corporation, SEC filing, 10-Q, financial results, going concern, manufacturing facility, Peru operations, food technology, consumer packaged goods, private label, industrial ingredients