BOF — Q2 2026 Financial Report Analysis

BranchOut Food makes dried fruit and vegetable snacks (crunchy fruit chips, mixes, powders) at a factory it leases in Pisco, Peru, using a licensed low-temperature drying process it calls GentleDry. It sells three ways: its own BranchOut-branded snacks, store-brand ("private label") snacks made for large retailers, and bulk dried fruit sold as an ingredient to other food makers. In the second quarter of 2026 (April–June), revenue hit a company record of $4.46 million, up 36% from a year earlier, but almost none of it turned into profit at the factory level: gross margin, the share of sales left after paying for fruit, packaging, labour and running the plant, fell to 2.2% from 17.8%. The company says that collapse came from two deliberate, rushed first orders: a large bulk strawberry ingredient order bought at high spot prices, and a new mixed-fruit product launched at Sam's Club. The net loss widened to $2.72 million, and the company ended June with $212,000 in cash.

At a glance

• Revenue $4.46M, +36%: the biggest quarter in the company's history, driven, per the 10-Q, by "sales of bulk strawberry ingredient and the launch of a new branded product variety at Sam's Club."
• Gross margin 2.2% (vs 17.8%): the company kept just $96,825 of gross profit on $4.46M of sales, so the extra revenue did nothing to cover overheads.
• Cash $0.21M at June 30, with a going-concern warning: management says existing cash and operating cash flow "will not be sufficient to fund our operating requirements for at least the next twelve months." Since quarter-end it has raised about $3.5M more (a $1.0M loan draw and a ~$2.5M net share sale).

The numbers

For the first half (January–June) revenue was $7.07M, up 9.6%, and the net loss was $4.51M versus $2.52M. Subtracting Q2 from the half-year figures gives a first quarter of about $2.61M in revenue at a 15.4% gross margin, so the margin did not just fall versus last year; it fell sharply from the quarter immediately before.

Why revenue rose but profit fell

The 10-Q is direct about it. Cost of goods sold rose 62% ($2.69M to $4.36M) while revenue rose 36%, and the filing attributes the gap "primarily ... 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." In its August 13 business update the company put a number on it: strawberries were bought "at a time when raw material costs were nearly twice normal seasonal pricing."

In plain terms: to win two large customers, BranchOut agreed to deliver quickly, had to buy fruit on the open market at peak prices instead of contracting it in advance, and paid to fly product in on time. Management describes this as a choice: it "intentionally prioritizes establishing new customer relationships ... recognizing that the economics of initial production runs may differ from those of recurring production." Its own list of first-half margin drags also includes plant downtime and lower production in January and February, and a higher share of low-margin bulk ingredient sales.

The company publishes an "adjusted gross margin" that adds back depreciation in cost of goods sold ($121,802) and air freight it calls one-off ($151,548). Even on that friendlier basis, the margin was 8.3%, down from 24.3%. The add-backs do not explain the decline; the fruit cost does.

Below gross profit, operating expenses rose $0.77M (+41%):

• General and administrative +$0.32M to $1.17M, mostly a $303,390 settlement with the company's former chief financial officer (an 8-K dated July 31 shows $247,500 to him, $55,890 to his affiliated company, and a warrant for 57,600 shares).
• Idle capacity of $466,994 sits inside G&A. This is the fixed cost of the Peru plant that was not absorbed into product because the plant ran below normal output. It was roughly flat on a year ago, which means the plant was still far from full in Q2.
• Salaries and wages +55% to $0.68M, which the filing attributes mainly to stock-based compensation (Q2: $272,932 vs $77,074) plus added staff.
• Advertising and promotions more than doubled to $0.28M, for in-store demos and launch support at Sam's Club.

Interest expense fell to $0.18M from $0.30M after debt was repaid in 2025 and the main convertible note's rate was cut from 12% to 8% in May.

What the headline numbers hide

Cash burn far exceeds the cash on hand. Over the first half, operations used $4.88M of cash and the plant build-out took another $0.72M, about $5.6M in total, or roughly $0.93M a month. That is more than the $4.51M accounting loss, because growth tied up cash: money owed by customers (receivables) doubled to $2.67M from $1.32M in December, and inventory rose 40% to $3.34M. Part of that was offset by paying suppliers more slowly (payables up $1.04M). The half-year was funded by $3.0M of new loans from Kaufman Kapital (a related party, see below), $1.43M of at-the-market share sales and $1.02M of warrant exercises.

What came in after the quarter. A further $1.0M was drawn from Kaufman Kapital on July 1; an underwritten offering of 820,588 shares at $3.40 closed on August 28 for about $2.5M net; and the company received about $370,000 in tariff refunds from U.S. Customs. That is about $3.9M of new money, which at the first half's burn rate covers about four months. So the company's runway depends on the second-half margin recovery it is promising.

Debt is concentrated with one lender, and all of it falls due by the end of 2027. At June 30, BranchOut owed $3.0M (now $4.0M) on a senior secured note to Kaufman Kapital due January 28, 2027, plus about $2.9M on a convertible note from the same lender due December 31, 2027. Both are secured on substantially all of the company's assets. The convertible note can be swapped for shares at $0.7582 each, far below the $3.40 offering price. If fully converted, $2.9M would become about 3.8 million new shares, on top of 15.3M shares outstanding at June 30.

Dilution is already large. The weighted share count rose 57.5% in a year (9.66M to 15.22M), so the loss per share barely moved (-$0.17 to -$0.18) even though the dollar loss grew 70%. The per-share figure understates how much worse the quarter was.

Four customers are almost the whole business. Four customers made up 95.9% of Q2 revenue, and three made up about 88% of receivables at June 30. Losing or delaying one large order would move revenue by a large fraction.

One-offs on both sides. The $303,390 legal settlement is a one-off cost. Without it the operating loss would have been about $2.26M rather than $2.57M, still far wider than last year's $1.31M. On the other side, a $29,768 tariff refund was booked as other income in Q2, and the further ~$370,000 refund will be recognised in Q3, which will flatter that quarter's bottom line without any change in how the business is running.

Takeaway: BranchOut can now win shelf space with big retailers. What it has not yet shown is that it can make money on those orders. The record quarter came at a 2.2% gross margin, with $0.21M in the bank and a $4.0M secured loan due January 2027. The second half needs to show whether lower contracted fruit costs and a busier plant lift gross margin back toward management's targets, because the company's runway depends on it.

Outlook

Management's August 13 business update (not part of the audited or reviewed financials) laid out specific targets:

• Q4 2026 revenue of about $6–7 million, "based on current booked orders" and dependent on delivery timing. That would be roughly 1.5 times Q2's record.
• The Crunchy Fruit Chips at "the nation's second-largest warehouse club" (the 10-Q names Sam's Club as the Q2 launch customer) moving from a one-time order to an approximately $8 million a year "everyday" program in 309 clubs, starting in September, plus an estimated $2 million Tropical Mix order shipping from December.
• A five-product launch at a major U.S. mass retailer from September, including the first vegetable- and dairy-based products. The 10-Q notes capital spending on a new allergen-free area in the Peru plant for dehydrated cheese.
• Ingredient revenue of about $6–7 million in 2026, up from about $2 million in 2025.
• Monthly output rising from about 35–40 to 70–80 metric tons, which management says would cut fixed overhead per pound "by roughly half". Strawberry supply for the recurring programs has been contracted "at prices significantly lower" than in the first half, and the company says those programs should earn gross margins of about 40%.

Our read: the revenue path has some substance behind it, since management ties it to named programs and booked orders rather than to general demand. The margin path is mostly promise so far. Q2's gross margin was below Q1's, and the plant still carried $0.47M of idle-capacity cost. Q3 (July–September, 10-Q due around mid-November) is the first quarter that should show whether contracted fruit and higher volume actually lift gross margin; the tariff refund will help that quarter's net loss but not its gross margin. Given the January 2027 maturity of the secured note, investors should also expect either more share issuance or another extension or refinancing with Kaufman Kapital, so dilution is the main risk to watch even if the operating plan works.