BranchOut Food Inc. - 10-Q Summary (Q1 2026)
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2026. BranchOut Food Inc. is a growth-stage consumer packaged foods company developing, manufacturing, and distributing plant-based, dehydrated fruit and vegetable snacks. The company operates a 50,000-square-foot production facility in Pisco, Peru, utilizing proprietary GentleDry™ technology licensed from EnWave Corporation. The company is classified as a smaller reporting company and an emerging growth company.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Revenue | $2,606,795 | $3,170,863 |
| Gross Profit | $400,660 | $529,856 |
| Gross Margin | 15.4% | 16.7% |
| Operating Loss | $(1,619,130) | $(645,171) |
| Net Loss | $(1,792,284) | $(918,382) |
| Cash and Equivalents (End of Period) | $917,661 | $2,386,381 |
| Total Liabilities | $11,241,471 | $8,887,985 |
| Working Capital | $(1,110,891) | $(584,240) |
Adjusted Gross Margin (Non-GAAP): 20.8% for Q1 2026 (excludes depreciation and air freight costs).
Material Changes vs. Prior Period
- Revenue Decline: Net revenue decreased 18% to $2.6 million, primarily due to planned maintenance at the Peru Facility and the timing of a major customer order shifted to Q2 2026.
- Margin Compression: Gross margin declined to 15.4% from 16.7%, driven by lower production volumes, unfavorable sales mix (higher proportion of lower-margin bulk ingredients), and early-stage production inefficiencies.
- Expense Increase: Operating expenses rose 72% to $2.0 million. General and administrative expenses increased significantly due to $482,813 in idle capacity costs (unallocated fixed overhead) as the facility operated below normal utilization. Salaries and wages increased 112%, partly due to $242,812 in stock-based compensation.
- Inventory Build: Inventory increased 69% to $4.0 million, reflecting production in advance of scheduled Q2 shipments.
- Debt Activity: The company borrowed $1.5 million from a related party (Kaufman Kapital) in January 2026. Additionally, $500,000 of convertible debt was converted into common stock.
Outlook, Risks, and Contingencies
- Going Concern: The company has incurred recurring losses and has an accumulated deficit of $25.5 million. Management states that existing cash and operating cash flows will not be sufficient to fund operations for the next 12 months, raising substantial doubt about the company's ability to continue as a going concern without additional financing.
- Liquidity Strategy: The company is actively seeking additional sources of capital. Subsequent to the quarter end, the company secured an additional $750,000 in debt financing and received $750,000 from warrant exercises.
- Legal Proceedings: The company is subject to a wrongful termination lawsuit filed by its former CFO. Settlement discussions are ongoing, but no liability has been recorded as the outcome is uncertain.
- Operational Risks: Production levels remain below normalized capacity. Margins are sensitive to throughput, raw material costs, and sales mix. The company relies heavily on three customers who accounted for 97.2% of Q1 2026 revenue.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $0.9 million cash balance against the negative operating cash flow of $2.1 million and the stated need for additional financing within 12 months.
- Customer Concentration: Assess the risk associated with three customers representing 97.2% of revenue and 99.6% of accounts receivable.
- Idle Capacity Costs: Monitor the absorption of fixed manufacturing costs as production volumes ramp up; currently, $482k in idle capacity is expensed rather than capitalized.
- Related Party Debt: Review the terms of the $2.9 million convertible note and $1.5 million secured note held by Kaufman Kapital, including covenants and maturity dates.
- Legal Exposure: Track the status of the former CFO lawsuit and potential settlement costs.