Core Insights - Rocky Mountain Chocolate Factory, Inc. has announced a significant milestone in its transformation strategy with the rollout of a new store prototype and the signing of four area development agreements for a total of 34 new stores, representing nearly 25% growth in full franchise stores, marking the largest development surge in the company's history [1][3][9] Company Strategy - The new store prototype emphasizes handcrafted chocolate making, featuring a warm interior design and in-store sampling of fresh products made daily, supported by improved operational systems and an upgraded franchise platform [2][3] - The transformation strategy is described as a reaffirmation of the company's heritage and craft, aiming for national growth through sophisticated multi-unit operators [3][9] Franchise Development - The company is experiencing strong interest from franchise operators, with a disciplined sales strategy and improved operational processes contributing to this acceleration [3][9] - Current franchise commitments include a nine-store development plan in Southeast Florida and a ten-store agreement in the greater Chicago metro area, showcasing the brand's appeal to experienced operators [4][5][6] Market Expansion - The first new prototype store opened in Charleston, SC, with plans for eight additional stores across Charleston, Denver, and Santa Fe, indicating a strategic focus on key markets [7][9] - The company is also returning to Central New Jersey with a seven-store plan, highlighting its commitment to re-establishing a presence in regions where it once thrived [8][9] Company Overview - Rocky Mountain Chocolate Factory, Inc. is a leading franchiser of premium chocolate and confectionery retail concepts, operating over 250 stores across the United States and several international locations [10]

Summary of Rocky Mountain Chocolate Factory FY Conference Call Company Overview - **Company**: Rocky Mountain Chocolate Factory (NasdaqGM: RMCF) - **Industry**: Premium Chocolate and Confectionery - **Current Status**: The company operates 143 stores across 26 states, with a focus on franchising and premium chocolate products [2][5][10] Key Points and Arguments Company History and Challenges - The company was founded in 1981 and went public in 1985, peaking at 238 stores in the mid-2010s [5][6] - Experienced a decline in revenues and store count over the last decade, with stock prices down nearly 90% from previous highs [9][10] - The interim CEO, Jeff Geygan, emphasized the need for a turnaround and transformation of the company [4][6] Strategic Plan for Transformation 1. **Data and Analytics**: Implementation of POS and ERP systems to improve data collection and operational insights [7][12] 2. **Revenue Growth**: Aiming to increase revenues from $30 million to higher levels, with historical highs around $40 million [7][12] 3. **Operational Efficiency**: Achieved $1.5 million in cost savings in SG&A expenses [8][32] 4. **Financial Stability**: Sold non-core assets and refinanced debt to stabilize finances [9][10] Recent Performance Metrics - For the first half of FY 2026, revenues were approximately $13 million, slightly up from $12.8 million the previous year [12] - Adjusted EBITDA was at break-even compared to a loss of $2 million last year [12][17] Market Opportunities - The chocolate industry is highly fragmented, with no competitor holding more than 15% market share, presenting significant growth opportunities [14][15] - The company aims to modernize its brand and store design to enhance customer experience and attract new franchisees [14][16] Franchise Development - Currently, there are about 110 unique franchisees, with a focus on attracting well-capitalized individuals capable of opening multiple stores [21][45] - A new franchisee has committed to opening nine stores in Miami, marking a significant multi-store deal [21][23] Store Performance and Expansion - Average unit volume (AUV) across stores is approximately $613,000, with plans to increase sales through existing franchisees and new store openings [22][24] - Recent store openings in Charleston and Chicago, with expectations of strong sales performance [22][23] Cost Management and Raw Material Strategy - Cocoa prices have fluctuated significantly, impacting raw material costs, with chocolate comprising 47% of raw material expenses [19][20] - Implemented a natural hedging strategy to manage cocoa price volatility, locking in prices at favorable rates [20][51] Future Outlook - The company aims to achieve positive EBITDA by the end of the fiscal year, with a focus on human capital investment rather than capital equipment [17][18] - Plans to roll out a loyalty program and enhance digital assets to drive sales [34] Cultural and Operational Changes - Emphasis on improving company culture and operational efficiency, with a focus on accountability and critical thinking among employees [40][41] Additional Important Insights - The company is working on a refreshed brand image, including a new logo and store design [14][16] - The CEO highlighted the importance of franchisee relationships and the need for financially sophisticated operators [44][45] - The company is exploring third-party delivery options to increase sales and profitability [30] This summary encapsulates the key points discussed during the conference call, highlighting the company's strategic direction, market opportunities, and operational challenges.

Core Insights - Rocky Mountain Chocolate Factory is launching a new prototype store on King Street from November 13-15, featuring an immersive chocolate experience that engages all five senses [1][3] - The store design includes a modern layout with warm wood accents, an expanded ice cream counter, and signature handcrafted chocolates, maintaining the brand's heritage [2][3] Company Overview - Rocky Mountain Chocolate Factory, Inc. is a leading franchiser of premium chocolate and confectionery retail stores, producing a wide range of products since 1981 [5] - The company operates over 250 stores across the United States and has several international locations, with its stock listed on the Nasdaq Global Market under the symbol "RMCF" [5] Grand Opening Details - The grand opening will feature a ribbon-cutting ceremony on November 13 at 10 a.m., along with promotions such as free caramel apples or truffles with purchases over $25 [4] - Additional activities include a Golden Ticket Giveaway, free samples, and exclusive giveaways throughout the weekend [4]

Core Insights - Rocky Mountain Chocolate Factory, Inc. is actively engaging with investors through participation in the Southwest IDEAS Investor Conference and media interactions, highlighting its commitment to transparency and communication [2][4] - The company is recognized as a leading franchiser in the premium chocolate and confectionery retail sector, operating over 250 stores in the U.S. and several international locations [3] Company Overview - Founded in 1981, Rocky Mountain Chocolate Factory produces a wide range of premium chocolates and confectionery products, including gourmet caramel apples [3] - The company is headquartered in Durango, Colorado, and has been ranked among Entrepreneur's Franchise 500 for 2025 and Franchise Times' Franchise 400 for 2024 [3] - The common stock of the company is listed on the Nasdaq Global Market under the symbol "RMCF" [3] Upcoming Events - The company will present at the Southwest IDEAS Investor Conference on November 19, 2025, in Dallas, Texas, at 2:40 p.m. CT, and will host one-on-one meetings throughout the day [4] - The presentation will be available via live webcast on the company's investor relations website [4] - An interview featuring the company's Interim CEO Jeff Geygan and CFO Carrie Cass was recently aired on the Pitch the PM Podcast [4]

Core Viewpoint - Rocky Mountain Chocolate Factory, Inc. (RMCF) has experienced a significant decline in stock performance despite a modest increase in revenue, indicating challenges in profitability and operational efficiency [1][3]. Financial Performance Overview - For Q2 of fiscal 2026, total revenues increased by 6.9% year over year to $6.8 million, driven by stronger franchise and royalty fees and favorable pricing actions [2]. - Product sales rose by 5.4% to $5.2 million, while franchise and royalty fees advanced by 12.2% to $1.6 million [2]. Profitability Challenges - Despite revenue growth, RMCF reported a gross loss of $33,000 compared to a profit of $600,000 in the previous year, impacted by high input costs and operational inefficiencies [3]. - The net loss remained at $0.7 million, or $(0.09) per share, unchanged from the prior year [3]. Operational Improvements - Management has initiated a transformation phase focusing on disciplined execution, with new leadership in operations and franchising to enhance accountability and decision-making [4]. - Cost-saving measures have been introduced to reduce overtime and waste, improving product availability for franchisees [4]. Financial Position - RMCF ended the quarter with $2 million in cash, an increase from $0.7 million at the end of fiscal 2025, after drawing $1.8 million in new borrowings [5]. - Total debt stood at $7.8 million as of August 31, 2025 [5]. Franchise Growth and Brand Reinvigoration - The company added two new franchise locations and acquired a company-owned store, which is expected to enhance earnings and retail presence [7]. - A rebranding initiative aims to modernize store aesthetics and improve customer experience, with plans to remodel nearly all stores within 24 months [8]. Digital Expansion and Customer Engagement - RMCF launched a redesigned website to enhance online-to-store integration and plans to introduce a new loyalty program in early 2026 [9]. - Partnerships with DoorDash and other delivery services are being expanded to improve product accessibility and profitability for franchisees [10]. Factors Influencing Results - Higher input costs, particularly for cocoa and dairy, have negatively impacted profitability, but management anticipates margin improvements as cocoa prices decline [11]. - Cost-optimization initiatives are expected to lower transportation expenses and enhance factory utilization in future quarters [11]. Management Commentary - The interim CEO described the company as entering a "renaissance" period, focusing on strategic growth and efficiency improvements [12]. - A culture of accountability and progress in technology adoption and franchise engagement are emphasized as key to returning to historical profitability levels [12]. Other Developments - RMCF completed the acquisition of its Camarillo store and executed a successful store remodel in Corpus Christi, TX [13]. - The company is in negotiations for a new franchise location at Houston Hobby Airport as part of its U.S. expansion strategy [13].

[Company Overview & Strategic Update](index=1&type=section&id=Company%20Overview%20%26%20Strategic%20Update) This section outlines Rocky Mountain Chocolate Factory's profile and the CEO's strategic commentary on transformation and growth [Company Profile](index=1&type=section&id=Company%20Profile) Rocky Mountain Chocolate Factory, Inc. is a leading franchiser of premium chocolate and confectionery retail stores, operating over 250 locations globally - **RMCF is America's Chocolatier**, a leading franchiser of premium chocolate and confectionery retail stores, producing gourmet caramel apples since 1981[1](index=1&type=chunk)[6](index=6&type=chunk) - The company operates **over 250 Rocky Mountain Chocolate stores** across the United States and internationally[6](index=6&type=chunk) - RMCF is headquartered in Durango, Colorado, and is listed on the Nasdaq Global Market under "**RMCF**"[1](index=1&type=chunk)[6](index=6&type=chunk) [CEO's Strategic Commentary](index=1&type=section&id=CEOs_Strategic_Commentary) Interim CEO Jeff Geygan highlighted initial progress in transformation and modernization, focusing on strengthening operations, scalable growth, and data-driven decisions - The company is undergoing a **transformation and modernization**, showing early signs of progress, with a focus on strengthening operations and scalable growth[2](index=2&type=chunk) - **New ERP and POS systems** are providing clearer insights into store performance and customer trends, enabling faster, data-driven decisions[2](index=2&type=chunk) - The company launched a **rebrand and new store developments**, including two new franchise locations in Folsom, CA, and New Jersey, and a company-owned location in Camarillo, CA, with a Chicago flagship expected around the holidays[2](index=2&type=chunk) - Future initiatives include introducing a **new loyalty program and expanding digital capabilities** to enhance customer connections[2](index=2&type=chunk) [Fiscal Second Quarter 2026 Financial Highlights](index=2&type=section&id=Fiscal%20Second%20Quarter%202026%20Financial%20Highlights) Key financial metrics for Q2 FY2026 are presented, covering revenue, gross profit, net loss, and earnings per share [Key Financial Metrics (Q2 FY2026 vs. Year-Ago Quarter)](index=2&type=section&id=Key%20Financial%20Metrics%20Q2%20FY2026%20vs.%20Year-Ago%20Quarter) Total revenue for Q2 FY2026 increased to $6.8 million, while product and retail gross profit saw a loss, and net loss remained relatively flat Fiscal Second Quarter 2026 Financial Highlights (in thousands) | Metric | Q2 FY2026 | Q2 FY2025 | Change (YoY) | | :----------------------------- | :-------- | :-------- | :----------- | | Total Revenue | $6,823 | $6,380 | +$443 (+6.9%) | | Total Product & Retail Gross Profit | $(33) | $600 | -$633 (-105.5%) | | Total Costs & Expenses | $7,302 | $7,294 | +$8 (+0.1%) | | Net Loss | $(662) | $(722) | +$60 (-8.3%) | | Basic Loss per Common Share | $(0.09) | $(0.11) | +$0.02 | - **Total revenue increase** was attributed to pricing actions and a more profitable sales mix following the Company's exit from lower-margin specialty markets[7](index=7&type=chunk) - The **decline in product and retail gross profit** was due to higher input costs and operational inefficiencies, offsetting benefits from pricing actions and market exit[7](index=7&type=chunk) [Detailed Financial Statements](index=4&type=section&id=Detailed%20Financial%20Statements) Detailed condensed consolidated balance sheets and statements of operations are presented [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of August 31, 2025, total assets and liabilities increased, while stockholders' equity decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | August 31, 2025 (Unaudited) | February 28, 2025 | Change (vs. Feb 28, 2025) | | :-------------------------- | :-------------------------- | :---------------- | :------------------------ | | Cash and cash equivalents | $2,017 | $720 | +$1,297 | | Total current assets | $10,183 | $9,223 | +$960 | | Total Assets | $22,254 | $21,175 | +$1,079 | | Total current liabilities | $6,651 | $6,869 | -$218 | | Notes payable | $7,766 | $5,957 | +$1,809 | | Total Liabilities | $16,128 | $14,200 | +$1,928 | | Total Stockholders' Equity | $6,126 | $6,975 | -$849 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenue increased for both three and six-month periods, with significant improvements in loss from operations and net loss year-over-year Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric (Three Months Ended Aug 31) | 2025 | 2024 | Change (YoY) | | :--------------------------------- | :-------- | :-------- | :----------- | | Sales | $5,183 | $4,918 | +$265 (+5.4%) | | Franchise and royalty fees | $1,640 | $1,462 | +$178 (+12.2%) | | Total Revenue | $6,823 | $6,380 | +$443 (+6.9%) | | Loss from Operations | $(479) | $(914) | +$435 (-47.6%) | | Net Loss | $(662) | $(722) | +$60 (-8.3%) | | Basic Loss per Common Share | $(0.09) | $(0.11) | +$0.02 | | **Metric (Six Months Ended Aug 31)** | **2025** | **2024** | **Change (YoY)** | | Total Revenue | $13,196 | $12,787 | +$409 (+3.2%) | | Loss from Operations | $(624) | $(2,544) | +$1,920 (-75.5%) | | Net Loss | $(986) | $(2,380) | +$1,394 (-58.6%) | | Basic Loss per Common Share | $(0.13) | $(0.37) | +$0.24 | - **Sales and franchise/royalty fees both contributed to the overall revenue increase** for both the three-month and six-month periods[13](index=13&type=chunk) - **Significant improvement in loss from operations and net loss** for both periods indicates better cost management or operational efficiency compared to the prior year[13](index=13&type=chunk) [Additional Information](index=2&type=section&id=Additional%20Information) Details for the upcoming conference call, forward-looking statements, and investor contact are provided [Conference Call Information](index=2&type=section&id=Conference%20Call%20Information) A conference call to discuss financial results will be held on Tuesday, October 14, 2025, at 9:00 a.m. Eastern time, with dial-in and webcast details provided - A conference call to discuss financial results will be held on **Tuesday, October 14, 2025, at 9:00 a.m. Eastern time**[4](index=4&type=chunk) - **Dial-in and live webcast registration links are available**, and the call will be broadcast live and available for replay on the company's investor relations website[4](index=4&type=chunk)[5](index=5&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) The press release includes forward-looking statements about future expectations, subject to various risks and uncertainties, with no obligation to update them - The press release includes **forward-looking statements about future financial and operating results**, business strategy, store pipeline, and transformation[8](index=8&type=chunk) - These statements are **subject to various risks and uncertainties**, including inflationary impacts, legal proceedings, changes in the confectionery business, seasonality, raw material costs, competition, and government regulations[8](index=8&type=chunk) - The company **advises caution against undue reliance on forward-looking statements** and does not undertake to update them unless legally required[8](index=8&type=chunk) [Investor Contact](index=3&type=section&id=Investor%20Contact) Investor inquiries can be directed to Sean Mansouri, CFA, at Elevate IR, via phone or email - Investor contact: **Sean Mansouri, CFA, Elevate IR, 720-330-2829, RMCF@elevate-ir.com**[9](index=9&type=chunk)

FORM 10-Q Filing Information [Filing Details](index=1&type=section&id=Filing%20Details) This document is a Quarterly Report on Form 10-Q for the period ended August 31, 2025, filed by Rocky Mountain Chocolate Factory, Inc. (RMCF) - The report is a Quarterly Report on Form 10-Q for the period ended August 31, 2025[2](index=2&type=chunk) - The registrant is Rocky Mountain Chocolate Factory, Inc., incorporated in Delaware[2](index=2&type=chunk) [Registrant Information](index=1&type=section&id=Registrant%20Information) Rocky Mountain Chocolate Factory, Inc. is listed on the Nasdaq Global Market under the trading symbol RMCF, with 7,800,508 shares of common stock outstanding as of October 10, 2025 Registrant Securities Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------------------ | :---------------- | :---------------------------------------- | | Common Stock, $0.001 par value | RMCF | Nasdaq Global Market | - The registrant had **7,800,508 shares** of common stock, $0.001 par value per share, outstanding on October 10, 2025[4](index=4&type=chunk) [Filer Status](index=1&type=section&id=Filer%20Status) The company is classified as a Non-accelerated filer and a Smaller reporting company, having filed all required reports during the preceding 12 months - The registrant has filed all required reports during the preceding 12 months and has been subject to such filing requirements for the past 90 days[3](index=3&type=chunk) Registrant Filer Status | Filer Status | Selection | | :------------------------ | :-------- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☐ | Cautionary Note Regarding Forward-Looking Statements [Forward-Looking Statements Disclosure](index=3&type=section&id=Forward-Looking%20Statements%20Disclosure) This report contains forward-looking statements regarding the company's expectations, intentions, plans, and beliefs, which are subject to various risks and uncertainties, and the company does not undertake to publicly update or revise these statements, except as required by law - The report includes forward-looking statements concerning future financial and operating results, business strategy, strategic priorities, store pipeline, and transformation[9](index=9&type=chunk) - Key risks and uncertainties include inflationary impacts, legal proceedings, changes in the confectionery business environment, seasonality, consumer interest, raw material costs, competition, co-branding success, international expansion, financial covenants, and government regulations[9](index=9&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[9](index=9&type=chunk) PART I. FINANCIAL INFORMATION [ITEM 1. Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=ITEM%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including statements of operations, balance sheets, cash flows, and changes in stockholders' equity, along with detailed notes explaining the company's accounting policies, financial performance, and position [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (Three Months Ended August 31) | Metric (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Total Revenue | $6,823 | $6,380 | $443 | 6.9% | | Total Costs & Expenses| $7,302 | $7,294 | $8 | 0.1% | | Loss from Operations | $(479) | $(914) | $435 | -47.6% | | Net Loss | $(662) | $(722) | $60 | -8.3% | | Basic Loss per Share | $(0.09) | $(0.11) | $0.02 | -18.2% | Condensed Consolidated Statements of Operations (Six Months Ended August 31) | Metric (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :------- | :------- | :--------- | :--------- | | Total Revenue | $13,196 | $12,787 | $409 | 3.2% | | Total Costs & Expenses| $13,820 | $15,331 | $(1,511) | -9.9% | | Loss from Operations | $(624) | $(2,544) | $1,920 | -75.5% | | Net Loss | $(986) | $(2,380) | $1,394 | -58.6% | | Basic Loss per Share | $(0.13) | $(0.37) | $0.24 | -64.9% | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Asset/Liability/Equity | August 31, 2025 (Unaudited) | February 28, 2025 | | :--------------------- | :-------------------------- | :---------------- | | Total Current Assets | $10,183 | $9,223 | | Total Assets | $22,254 | $21,175 | | Total Current Liabilities| $6,651 | $6,869 | | Total Liabilities | $16,128 | $14,200 | | Total Stockholders' Equity| $6,126 | $6,975 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Six Months Ended August 31, in thousands) | Cash Flow Activity | 2025 | 2024 | | :------------------------ | :------- | :------- | | Operating Activities | $(138) | $(5,670) | | Investing Activities | $(365) | $173 | | Financing Activities | $1,800 | $4,388 | | Net Increase (Decrease) | $1,297 | $(1,109) | | Cash, Beginning of Period | $720 | $2,082 | | Cash, End of Period | $2,017 | $973 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Changes in Stockholders' Equity (Six Months Ended August 31, 2025, in thousands) | Item | Common Stock (Shares) | Common Stock (Amount) | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity | | :------------------------------------ | :-------------------- | :-------------------- | :------------------------- | :------------------ | :------------------------- | | Balances as of February 28, 2025 | 7,722,174 | $8 | $12,355 | $(5,388) | $6,975 | | Equity compensation, net of withheld | 69,102 | - | $137 | - | $137 | | Net loss | - | - | - | $(986) | $(986) | | Balances as of August 31, 2025 | 7,791,276 | $8 | $12,492 | $(6,374) | $6,126 | Changes in Stockholders' Equity (Six Months Ended August 31, 2024, in thousands) | Item | Common Stock (Shares) | Common Stock (Amount) | Additional Paid-In Capital | Retained Earnings / (Accumulated Deficit) | Total Stockholders' Equity | | :------------------------------------ | :-------------------- | :-------------------- | :------------------------- | :---------------------------------------- | :------------------------- | | Balances as of February 29, 2024 | 6,306,027 | $6 | $9,896 | $734 | $10,636 | | Equity compensation, net of withheld | 32,560 | - | $81 | - | $81 | | Issuance of common stock | 1,250,000 | $2 | $2,186 | - | $2,188 | | Net loss | - | - | - | $(2,380) | $(2,380) | | Balances as of August 31, 2024 | 7,588,587 | $8 | $12,163 | $(1,646) | $10,525 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=NOTE%201%20-%20NATURE%20OF%20OPERATIONS%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - Rocky Mountain Chocolate Factory, Inc. (RMCF) is an international franchisor, confectionery producer, and retail operator, founded in 1981 and headquartered in Durango, Colorado[25](index=25&type=chunk) - Revenues are primarily derived from sales of manufactured chocolates to franchisees, initial franchise fees and royalties, sales at company-owned stores, and marketing fees[26](index=26&type=chunk) Rocky Mountain Chocolate Factory Brand Store Count (August 31, 2025) | Store Type | Open at Feb 28, 2025 | Opened | Closed/Transferred | Open at Aug 31, 2025 | | :------------------------- | :------------------- | :----- | :----------------- | :------------------- | | Company-owned stores | 2 | - | (1) | 3 | | Franchise stores - Domestic| 138 | 2 | (3) | 136 | | International license stores| 3 | - | - | 3 | | Cold Stone Creamery - co-branded| 107 | - | (3) | 104 | | U-Swirl - co-branded | 10 | - | - | 10 | | Total | 260 | | | 256 | - The company incurred a net loss of **$1.0 million** and used **$0.1 million** in cash from operating activities during the six months ended August 31, 2025, raising substantial doubt about its ability to continue as a going concern[30](index=30&type=chunk) - The company was not in compliance with the liabilities to tangible net worth covenant (2.0:1.0) as of August 31, 2025, for both debt agreements but received a waiver from its lenders[30](index=30&type=chunk) - Management plans to reduce overhead, improve manufacturing efficiencies, increase profits and gross margins, and boost e-commerce sales to address liquidity concerns[31](index=31&type=chunk) [NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION](index=11&type=section&id=NOTE%202%20-%20SUPPLEMENTAL%20CASH%20FLOW%20INFORMATION) Supplemental Cash Flow Information (Six Months Ended August 31, in thousands) | Item | 2025 | 2024 | | :---------------------------------------- | :---- | :--- | | Cash paid for Interest | $378 | $98 | | Cash paid for Income taxes | $- | $17 | | Non-cash additions to operating lease ROU assets and liabilities | $652 | $- | | Accounts receivable exchanged for notes receivable | $112 | $- | | Inventory accrued but not yet paid | $24 | $- | [NOTE 3 - REVENUE FROM CONTRACTS WITH CUSTOMERS](index=11&type=section&id=NOTE%203%20-%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) - Revenue from customer contracts is recognized over the life of the contract (generally 10 years) as initial franchise services are not distinct from continuing rights/services[40](index=40&type=chunk)[42](index=42&type=chunk) Contract Liabilities (in thousands) | Item | Six Months Ended August 31, 2025 | Six Months Ended August 31, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Contract liabilities at beginning of year | $743 | $828 | | Revenue recognized | $(68) | $(108) | | Contract fees received | $20 | $98 | | Contract liabilities at end of period | $695 | $818 | - The company recognizes gift card breakage using the proportionate method when redeemed or deemed remote, but no breakage was recognized in the six months ended August 31, 2025 or 2024[44](index=44&type=chunk) - Durango Product Sales, Retail Sales, and Royalty/Marketing Fees are recognized at the point of sale or when sales occur[45](index=45&type=chunk) [NOTE 4 - DISAGGREGATION OF REVENUE](index=13&type=section&id=NOTE%204%20-%20DISAGGREGATION%20OF%20REVENUE) Disaggregated Revenue by Segment (Three Months Ended August 31, 2025, in thousands) | Revenue Type | Franchising | Manufacturing | Retail | Total | | :------------------------ | :---------- | :------------ | :----- | :---- | | Franchise fees | $32 | $- | $- | $32 | | Durango Product sales | $- | $4,750 | $- | $4,750| | Retail sales | $- | $- | $433 | $433 | | Royalty and marketing fees| $1,608 | $- | $- | $1,608| | Total Revenues | $1,640 | $4,750 | $433 | $6,823| Disaggregated Revenue by Segment (Six Months Ended August 31, 2025, in thousands) | Revenue Type | Franchising | Manufacturing | Retail | Total | | :------------------------ | :---------- | :------------ | :----- | :---- | | Franchise fees | $68 | $- | $- | $68 | | Durango Product sales | $- | $9,148 | $- | $9,148| | Retail sales | $- | $- | $752 | $752 | | Royalty and marketing fees| $3,228 | $- | $- | $3,228| | Total Revenues | $3,296 | $9,148 | $752 | $13,196| [NOTE 5 - INVENTORIES](index=15&type=section&id=NOTE%205%20-%20INVENTORIES) Inventories (in thousands) | Inventory Category | August 31, 2025 | February 28, 2025 | | :------------------------ | :-------------- | :---------------- | | Ingredients and supplies | $2,613 | $2,864 | | Finished candy | $1,663 | $2,277 | | Reserve for slow moving inventory | $(140) | $(511) | | Total inventories | $4,136 | $4,630 | [NOTE 6 - PROPERTY AND EQUIPMENT, NET](index=15&type=section&id=NOTE%206%20-%20PROPERTY%20AND%20EQUIPMENT,%20NET) Property and Equipment, Net (in thousands) | Asset Category | August 31, 2025 | February 28, 2025 | | :------------------------ | :-------------- | :---------------- | | Land | $124 | $124 | | Building | $5,518 | $5,415 | | Machinery and equipment | $15,025 | $14,904 | | Furniture and fixtures | $660 | $519 | | Leasehold improvements | $136 | $136 | | Transportation equipment | $326 | $326 | | Less accumulated depreciation | $(12,692) | $(12,015) | | Property and equipment, net | $9,097 | $9,409 | - Depreciation expense related to property and equipment was **$0.3 million** for the three months ended August 31, 2025 (vs **$0.2 million** in 2024) and **$0.7 million** for the six months ended August 31, 2025 (vs **$0.5 million** in 2024)[51](index=51&type=chunk) [NOTE 7 - GOODWILL AND INTANGIBLE ASSETS](index=16&type=section&id=NOTE%207%20-%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill and Intangible Assets (August 31, 2025, in thousands) | Asset Category | Amortization Period (Years) | Gross Carrying Value | Accumulated Amortization | | :------------------------------ | :-------------------------- | :------------------- | :----------------------- | | Intangible assets subject to amortization: | | | | | Store design | 10 | $395 | $(303) | | Trademark/Non-competition agreements | 5 - 20 | $250 | $(145) | | Goodwill and intangible assets not subject to amortization: | | | | | Retail Goodwill | | $362 | - | | Franchising Goodwill | | $97 | - | | Manufacturing Goodwill | | $97 | - | | Trademark Goodwill | | $20 | - | | Total Goodwill and Intangible Assets | | $1,221 | $(448) | - Amortization expense for intangible assets was **$7 thousand** for the three and six months ended August 31, 2025 and 2024, respectively[53](index=53&type=chunk) Estimated Annual Amortization of Intangible Assets (in thousands) | Fiscal Year | Amount | | :---------- | :----- | | FYE 2026 | $14 | | FYE 2027 | $27 | | FYE 2028 | $27 | | FYE 2029 | $27 | | FYE 2030 | $27 | | Thereafter | $75 | | Total | $197 | [NOTE 8 - NOTES PAYABLE](index=16&type=section&id=NOTE%208%20-%20NOTES%20PAYABLE) - On September 30, 2024, the Company entered into a Credit Agreement with RMC Credit Facility, LLC (a related party), for a **$6.0 million** advance at **12% interest**, maturing September 30, 2027[55](index=55&type=chunk)[57](index=57&type=chunk) - On August 28, 2025, the Credit Agreement was amended for an additional **$0.6 million** advance, and RMC waived the maximum liabilities to tangible net worth covenant for Q3 and Q4 2025[59](index=59&type=chunk) - As of August 31, 2025, **$6.6 million** was outstanding on the RMC Credit Agreement, and the Company was not in compliance with the liabilities to tangible net worth covenant but received a waiver[60](index=60&type=chunk) - On August 28, 2025, the Company entered into a new RMCF2 Credit Agreement with RMCF2 Credit, LLC (affiliated with the Interim CEO), for a **$1.2 million** advance at **12% interest**, maturing September 30, 2027[61](index=61&type=chunk) - RMCF2 also waived the maximum liabilities to tangible net worth covenant for Q3 and Q4 2025, as the Company was not in compliance as of August 31, 2025[62](index=62&type=chunk)[63](index=63&type=chunk) [NOTE 9 - COMMON STOCK](index=18&type=section&id=NOTE%209%20-%20COMMON%20STOCK) - On August 5, 2024, the Company issued **1,250,000 shares** of common stock to certain investors, including a director, for approximately **$2.2 million** at **$1.75 per share**[66](index=66&type=chunk) - The 2024 Equity Incentive Plan has **1,031,940 shares** authorized, with **676,132 shares** unused and available for issuance as of August 31, 2025[67](index=67&type=chunk) - Stock-based compensation expense was **$56 thousand** for the three months ended August 31, 2025 (vs **$41 thousand** in 2024) and **$0.1 million** for the six months ended August 31, 2025 (vs **$0.1 million** in 2024)[68](index=68&type=chunk) Non-Vested Restricted Stock Unit Transactions (Six Months Ended August 31, 2025) | Item | Amount | | :---------------------------------------- | :----- | | Outstanding non-vested RSUs at beginning of year | 235,664| | Granted | 11,091 | | Vested | (69,102)| | Cancelled/forfeited | (30,758)| | Outstanding non-vested RSUs as of August 31 | 146,895| | Weighted average grant date fair value | $1.96 | | Weighted average remaining vesting period (years) | 1.09 | [NOTE 10 - EARNINGS PER SHARE](index=19&type=section&id=NOTE%2010%20-%20EARNINGS%20PER%20SHARE) - Basic EPS is calculated using weighted-average common shares outstanding, while diluted EPS includes potential dilution from restricted stock units[70](index=70&type=chunk) - **146,895 shares** of common stock issuable upon vesting of restricted stock units were excluded from diluted EPS computation for the six months ended August 31, 2025, as their effect would have been anti-dilutive[72](index=72&type=chunk) [NOTE 11 - LEASING ARRANGEMENTS](index=20&type=section&id=NOTE%2011%20-%20LEASING%20ARRANGEMENTS) - The Company leases retail facilities, trucking equipment, and warehouse space under non-cancelable operating leases, with terms up to ten years and renewal options[73](index=73&type=chunk)[75](index=75&type=chunk) - Two new leases were entered into during the six months ended August 31, 2025, for Camarillo (10 years) and Miami (18 months) locations, with a total future lease liability of **$0.6 million**[76](index=76&type=chunk) - Lease expense recognized was **$0.2 million** for both the six months ended August 31, 2025 and 2024[77](index=77&type=chunk) Maturities of Lease Liabilities (August 31, 2025, in thousands) | Fiscal Year | Amount | | :---------- | :----- | | FYE 26 | $301 | | FYE 27 | $412 | | FYE 28 | $266 | | FYE 29 | $238 | | FYE 30 | $146 | | Thereafter | $857 | | Total | $2,220 | | Less: Imputed interest | $(543) | | Present value of lease liabilities | $1,677 | - The weighted average discount rate for operating leases was **7.9%** at August 31, 2025, up from 3.9% at February 28, 2025[78](index=78&type=chunk) [NOTE 12 - COMMITMENTS AND CONTINGENCIES](index=21&type=section&id=NOTE%2012%20-%20COMMITMENTS%20AND%20CONTINGENCIES) - The Company enters into 6-12 month purchase contracts for chocolate and nuts at fixed prices, designated as normal under derivatives accounting standards[83](index=83&type=chunk) - The Company is in the early stages of a legal dispute regarding the sale of U-Swirl franchise rights and intangible assets, but does not expect a material impact[84](index=84&type=chunk) [NOTE 13 - ACQUISITION](index=21&type=section&id=NOTE%2013%20-%20ACQUISITION) - On August 15, 2025, the Company acquired substantially all assets of a Rocky Mountain Chocolate Factory franchise in Camarillo, California, making it the Company's third retail store[85](index=85&type=chunk)[87](index=87&type=chunk) - The total purchase price was approximately **$0.2 million**, consisting of **$69 thousand** in franchise revenue forgiveness, **$86 thousand** in direct payments to lenders for seller debts, and a **$10 thousand** holdback[88](index=88&type=chunk) [NOTE 14 - OPERATING SEGMENTS](index=23&type=section&id=NOTE%2014%20-%20OPERATING%20SEGMENTS) - The Company operates in three reportable segments: Franchising, Manufacturing, and Retail Stores, with an 'Unallocated' category for corporate costs[91](index=91&type=chunk) Segment Profit (Loss) (Three Months Ended August 31, 2025, in thousands) | Segment | Total Revenues | Segment Profit (Loss) | | :------------ | :------------- | :-------------------- | | Franchising | $1,641 | $862 | | Manufacturing | $4,749 | $(357) | | Retail | $433 | $92 | | Unallocated | $- | $(1,076) | | Consolidated | $6,823 | $(479) | Segment Profit (Loss) (Six Months Ended August 31, 2025, in thousands) | Segment | Total Revenues | Segment Profit (Loss) | | :------------ | :------------- | :-------------------- | | Franchising | $3,296 | $1,701 | | Manufacturing | $9,148 | $(265) | | Retail | $752 | $117 | | Unallocated | $- | $(2,177) | | Consolidated | $13,196 | $(624) | [NOTE 15 - INCOME TAXES](index=26&type=section&id=NOTE%2015%20-%20INCOME%20TAXES) - The Company uses the liability method for income taxes, recognizing deferred taxes based on temporary differences between financial reporting and tax bases of assets and liabilities[99](index=99&type=chunk) - A valuation allowance is established for deferred tax assets when realization is not more likely than not, and the Company evaluates this quarterly[100](index=100&type=chunk)[102](index=102&type=chunk) - The Company does not have significant unrecognized tax benefits and does not anticipate a significant change in the next twelve months[103](index=103&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance indicators, recent credit agreements, business outlook, and factors affecting liquidity and capital resources [Overview](index=29&type=section&id=Overview) - Rocky Mountain Chocolate Factory, Inc. is an international franchisor, confectionery producer, and retail operator, with revenues primarily from its franchised/licensed retail stores[107](index=107&type=chunk) - As of August 31, 2025, there were **256** Rocky Mountain Chocolate Factory brand stores operating in 36 states and the Philippines (3 Company-owned, 114 licensee-owned, 139 franchised)[28](index=28&type=chunk)[107](index=107&type=chunk) - The Company entered into a **$6.0 million** credit agreement with RMC Credit Facility, LLC (related party) in FY2025, and an additional **$0.6 million** advance on August 28, 2025[108](index=108&type=chunk)[109](index=109&type=chunk) - A new **$1.2 million** credit agreement was signed with RMCF2 Credit, LLC (affiliated with the Interim CEO) on August 28, 2025, both loans mature on September 30, 2027, with **12% interest**[110](index=110&type=chunk)[111](index=111&type=chunk) - Waivers were obtained for the maximum liabilities to total net worth covenant for Q3 and Q4 2025, as the Company was not in compliance as of August 31, 2025[109](index=109&type=chunk)[113](index=113&type=chunk) [Business and Outlook](index=30&type=section&id=Business%20and%20Outlook) - The Company expects continued higher raw material, labor, and freight costs due to macroeconomic inflationary trends, impacting cost of goods sold[114](index=114&type=chunk) - Sales are subject to seasonal fluctuations, with strongest sales during key holidays and summer vacation seasons, and quarterly results are affected by new store openings and franchise sales[115](index=115&type=chunk) - Key growth factors include increasing sales of premium chocolate products from the Durango facility, increasing customer visits and transaction values at franchised stores, e-commerce growth, and new franchise store growth[116](index=116&type=chunk) [Results of Continuing Operations](index=30&type=section&id=Results%20of%20Continuing%20Operations) [Three Months Ended August 31, 2025 Compared To the Three Months Ended August 31, 2024](index=30&type=section&id=Three%20Months%20Ended%20August%2031,%202025%20Compared%20To%20the%20Three%20Months%20Ended%20August%2031,%202024) Three Months Ended August 31: Key Financial Highlights (in thousands, except per share) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Basic Loss per Share | $(0.09) | $(0.11) | $0.02 | -18.2% | | Total Revenues | $6,823 | $6,380 | $443 | 6.9% | | Operating Loss | $(479) | $(914) | $435 | -47.6% | Three Months Ended August 31: Revenue Breakdown (in thousands) | Revenue Category | 2025 | 2024 | Change ($) | Change (%) | | :------------------------ | :------ | :------ | :--------- | :--------- | | Durango product and retail sales | $5,183 | $4,918 | $265 | 5.4% | | Franchise fees | $32 | $38 | $(6) | -15.8% | | Royalty and marketing fees| $1,608 | $1,424 | $184 | 12.9% | | Total | $6,823 | $6,380 | $443 | 6.9% | - Durango product and retail sales increased by **5.4%** (**$0.3 million**) primarily due to sales price increases[121](index=121&type=chunk) - Royalty and marketing fees increased by **$0.2 million** due to higher store sales subject to royalty fees[122](index=122&type=chunk) Three Months Ended August 31: Costs and Expenses (in thousands) | Expense Category | 2025 | 2024 | Change ($) | Change (%) | | :------------------------ | :------ | :------ | :--------- | :--------- | | Total cost of sales | $5,216 | $4,350 | $866 | 19.9% | | Franchise costs | $552 | $952 | $(400) | -42.0% | | Sales and marketing | $223 | $138 | $85 | 61.6% | | General and administrative| $976 | $1,622 | $(646) | -39.8% | | Retail operating | $227 | $194 | $33 | 17.0% | | Depreciation and amortization (excl. cost of sales) | $108 | $38 | $70 | 184.2% | | Total | $7,302 | $7,294 | $8 | 0.1% | - Total gross margin percentage decreased to **(0.6)%** from 11.5%, primarily due to increased raw material costs (e.g., cocoa) and transportation[127](index=127&type=chunk) - Franchise costs decreased by **42.0%** due to operational efficiencies and cost-cutting measures[128](index=128&type=chunk) - General and administrative costs decreased by **39.8%** due to cost-cutting measures[130](index=130&type=chunk) - Total other expense was **$0.2 million** in 2025, compared to other income of **$0.2 million** in 2024, driven by increased interest expense and the absence of a gain on asset disposal seen in 2024[133](index=133&type=chunk) [Six Months Ended August 31, 2025 Compared To the Six Months Ended August 31, 2024](index=34&type=section&id=Six%20Months%20Ended%20August%2031,%202025%20Compared%20To%20the%20Six%20Months%20Ended%20August%2031,%202024) Six Months Ended August 31: Key Financial Highlights (in thousands, except per share) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Basic Loss per Share | $(0.13) | $(0.37) | $0.24 | -64.9% | | Total Revenues | $13,196 | $12,787 | $409 | 3.2% | | Operating Loss | $(624) | $(2,544)| $1,920 | -75.5% | Six Months Ended August 31: Revenue Breakdown (in thousands) | Revenue Category | 2025 | 2024 | Change ($) | Change (%) | | :------------------------ | :------ | :------ | :--------- | :--------- | | Durango product and retail sales | $9,900 | $10,197 | $(297) | -2.9% | | Franchise fees | $68 | $108 | $(40) | -37.0% | | Royalty and marketing fees| $3,228 | $2,482 | $746 | 30.1% | | Total | $13,196 | $12,787 | $409 | 3.2% | - Durango product and retail sales decreased by **2.9%** (**$0.3 million**) due to the non-renewal of an unprofitable contract with a specialty market customer[136](index=136&type=chunk) - Royalty and marketing fees increased by **$0.7 million**, driven by higher sales of store-made products by franchisees[137](index=137&type=chunk) Six Months Ended August 31: Costs and Expenses (in thousands) | Expense Category | 2025 | 2024 | Change ($) | Change (%) | | :------------------------ | :------ | :------ | :--------- | :--------- | | Total cost of sales | $9,608 | $9,936 | $(328) | -3.3% | | Franchise costs | $1,147 | $1,493 | $(346) | -23.2% | | Sales and marketing | $429 | $568 | $(139) | -24.5% | | General and administrative| $1,977 | $2,861 | $(884) | -30.9% | | Retail operating | $433 | $393 | $40 | 10.2% | | Depreciation and amortization (excl. cost of sales) | $226 | $80 | $146 | 182.5% | | Total | $13,820 | $15,331 | $(1,511) | -9.9% | - Total gross margin percentage increased to **2.9%** from 2.6%, primarily due to sales price increases[141](index=141&type=chunk) - Franchise costs decreased by **23.2%** due to operational efficiencies and cost-cutting measures[142](index=142&type=chunk) - General and administrative costs decreased by **30.9%** due to cost-cutting measures[144](index=144&type=chunk) - Other expense was **$0.4 million** in 2025, compared to other income of **$0.2 million** in 2024, mainly due to increased interest expense and the absence of a significant gain on asset disposal[147](index=147&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) - Working capital increased to **$3.5 million** as of August 31, 2025, from **$2.4 million** as of February 28, 2025, primarily due to increased cash and notes receivable, and decreased accrued salaries and wages[148](index=148&type=chunk) - Cash and cash equivalents increased from **$0.7 million** to **$2.0 million**, mainly from **$1.8 million** in notes payable proceeds[148](index=148&type=chunk) - Operating activities used **$0.1 million** cash in the six months ended August 31, 2025, a significant improvement from **$5.7 million** used in the prior year period[149](index=149&type=chunk) - Investing activities used **$0.4 million**, primarily for property and equipment purchases (**$0.2 million**) and the Camarillo retail store acquisition (**$0.2 million**)[150](index=150&type=chunk) - Financing activities provided **$1.8 million**, mainly from notes payable, compared to **$4.4 million** in the prior year which included proceeds from a line of credit and common stock issuance[151](index=151&type=chunk) - The Company continues to rely on external financing, and its inability to comply with debt covenants (despite waivers) raises substantial doubt about its ability to continue as a going concern[152](index=152&type=chunk)[158](index=158&type=chunk) [Significant Accounting Policies](index=38&type=section&id=Significant%20Accounting%20Policies) - There have been no material changes to the Company's significant accounting policies disclosed in its Annual Report on Form 10-K for the fiscal year ended February 28, 2025[159](index=159&type=chunk) [Off Balance Sheet Arrangements](index=39&type=section&id=Off%20Balance%20Sheet%20Arrangements) - As of August 31, 2025, the Company had purchase obligations of approximately **$2.4 million**, primarily for future commodity purchases for manufacturing[160](index=160&type=chunk) [Impact of Inflation](index=39&type=section&id=Impact%20of%20Inflation) - Inflationary factors, such as increases in ingredient and labor costs, directly affect the Company's operations and lease expenses[161](index=161&type=chunk) - There is no assurance that the Company will be able to pass on increased costs to its customers[161](index=161&type=chunk) [Seasonality](index=39&type=section&id=Seasonality) - The Company's sales are subject to seasonal fluctuations, with the strongest sales historically occurring during key holidays and the summer vacation season[163](index=163&type=chunk) - Quarterly results are also affected by the timing of new store openings and franchise sales, meaning any single quarter's results are not indicative of a full fiscal year[163](index=163&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, Rocky Mountain Chocolate Factory, Inc. is not required to provide specific quantitative and qualitative disclosures about market risk in this report - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[164](index=164&type=chunk) [ITEM 4. Controls and Procedures](index=39&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section details the company's disclosure controls and procedures, confirming their effectiveness as of August 31, 2025, and states that there were no material changes in internal control over financial reporting during the quarter [Disclosure Controls and Procedures](index=39&type=section&id=Disclosure%20Controls%20and%20Procedures) - Management, under the supervision of the Interim CEO and CFO, evaluated the Company's disclosure controls and procedures and concluded they were effective as of August 31, 2025[166](index=166&type=chunk) [Changes in Internal Control over Financial Reporting](index=39&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There were no changes in internal control over financial reporting during the quarter ended August 31, 2025, that materially affected or are reasonably likely to materially affect internal control over financial reporting[167](index=167&type=chunk)[168](index=168&type=chunk) PART II. OTHER INFORMATION [ITEM 1. Legal Proceedings](index=41&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is not aware of any pending legal actions that would have a material adverse effect on its business and operations, though it may be involved in ordinary course disputes - The Company is not aware of any pending legal actions that would have a material adverse effect on its business and operations[169](index=169&type=chunk) - The Company may become involved in disputes in the ordinary course of business, and any such claims, if unresolved, could be time-consuming and costly[170](index=170&type=chunk) [ITEM 1A. Risk Factors](index=41&type=section&id=ITEM%201A.%20Risk%20Factors) This section updates the risk factors from the annual report, specifically addressing non-compliance with Nasdaq listing standards due to a director's resignation and the potential adverse effects of not meeting financial covenants in credit agreements [Nasdaq Listing Compliance](index=41&type=section&id=Nasdaq%20Listing%20Compliance) - Due to a director's resignation on September 15, 2025, the Company is not in compliance with Nasdaq Listing Rules 5605(b) (majority independent directors) and 5605(c) (audit committee composition)[172](index=172&type=chunk)[175](index=175&type=chunk) - The Company has a cure period until September 15, 2026, to regain compliance by appointing an additional independent director[173](index=173&type=chunk) - Failure to regain compliance could lead to delisting from Nasdaq, resulting in decreased ability to issue securities, limited market quotations, and reduced trading activity[174](index=174&type=chunk)[176](index=176&type=chunk) [Inability to Meet Financial Covenants](index=42&type=section&id=Inability%20to%20Meet%20Financial%20Covenants) - The Company is not in compliance with the total liabilities to total net worth covenant in its 2024 and 2025 Credit Agreements for the fiscal quarters ending August 31, 2025, and November 30, 2025, though waivers have been granted[177](index=177&type=chunk) - If lenders demand repayment due to covenant violations, the Company does not have enough cash on hand to satisfy obligations, potentially leading to foreclosure on assets and adverse effects on liquidity and financial condition[178](index=178&type=chunk) - Lenders retain the right to act on future covenant violations, and the Company may need to seek alternative financing if waivers are not granted[179](index=179&type=chunk) [ITEM 2. Unregistered Sale of Equity Securities and Use of Proceeds](index=42&type=section&id=ITEM%202.%20Unregistered%20Sale%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report during the period - There were no unregistered sales of equity securities and use of proceeds to report[180](index=180&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=42&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[181](index=181&type=chunk) [ITEM 4. Mine Safety Disclosures](index=42&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the Company[182](index=182&type=chunk) [ITEM 5. Other Information](index=42&type=section&id=ITEM%205.%20Other%20Information) This section reports that no directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter, and provides the approximate number of common stock record holders - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended August 31, 2025[183](index=183&type=chunk) - As of October 1, 2025, there were approximately **406** record holders of the Company's common stock[184](index=184&type=chunk) [ITEM 6. Exhibits](index=43&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including credit agreements, promissory notes, deeds of trust, and certifications - Exhibits include the Credit Agreement and Promissory Note with RMCF2 Credit, LLC, Deed of Trust, and the First Amendment to Credit Agreement with RMC Credit Facility, LLC[185](index=185&type=chunk) - Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed herewith[185](index=185&type=chunk) Signatures [Report Signatures](index=44&type=section&id=Report%20Signatures) The report is duly signed on October 14, 2025, by Jeffrey R. Geygan, Interim Chief Executive Officer, and Carrie E. Cass, Chief Financial Officer - The report was signed on October 14, 2025, by Jeffrey R. Geygan, Interim Chief Executive Officer, and Carrie E. Cass, Chief Financial Officer[190](index=190&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q2 2026 was $6.8 million, an increase from $6.4 million in the same period last year [24] - Product sales rose to $5.2 million from $4.9 million year-over-year, while franchise and royalty fees increased to $1.6 million from $1.5 million [24] - The total product and retail gross profit was negative $33,000, reflecting year-over-year comparability factors and timing of inventory adjustments [24] - The net loss was $0.7 million, or negative $0.09 per share, compared to a net loss of $0.7 million or negative $0.11 per share in Q2 2025 [24] Business Line Data and Key Metrics Changes - The company is focusing on franchise growth and operational improvements, with a new VP of Operations implementing cost-saving strategies [5][6] - The franchise development momentum is building, with renewed interest from existing and prospective operators [8][11] Market Data and Key Metrics Changes - The company is expanding its geographic footprint and exploring new markets, including areas with historically little presence [9] - The acquisition of a store in Camarillo, California, is expected to enhance market presence and profitability [17][18] Company Strategy and Development Direction - The company is transitioning from transformational planning to transformational performance, aiming for disciplined execution and long-term value creation [4][22] - A rebranding initiative is underway, modernizing customer touchpoints and enhancing the overall brand experience [11][12] - The company is focused on quality over quantity in franchise recruitment, targeting well-capitalized operators in high-traffic markets [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledges ongoing operational challenges but is optimistic about returning to historic levels of profitability [5][21] - The company is well-positioned for the holiday season, with improved logistics and inventory management [20][21] - Management emphasizes a cultural shift towards a more accountable and results-oriented organization [20][22] Other Important Information - The company has made significant investments in technology and automation while maintaining its handcrafted legacy [7] - A new loyalty program is set to launch, aimed at enhancing customer engagement and understanding purchasing behavior [15][16] Q&A Session Summary Question: Background of the new Chief Operating Officer - The new COO, Luis Burgos, has over 30 years of experience in manufacturing and operations, including roles at Kimberly Clark [28] Question: Targets for new store openings in 2026 and 2027 - The company aims for net positive store growth annually, exceeding closures with new openings [29] Question: Discussion on owned versus franchised stores - The company believes owning stores helps them be better franchisors and plans to strategically acquire more stores for testing and development [30][32] Question: Cash burn and potential need for equity financing - The company does not expect to continue burning cash for the next 12 months, with Q3 and Q4 historically being stronger periods [33][35] Question: Increase in franchise demand beyond visual aspects - The company offers a low labor model and defined costs for new store builds, making it attractive for franchisees [40] Question: Changes in factory operations impacting costs - The new VP of Operations is implementing changes that are still being tested for best practices [42] Question: Impact of easing cocoa prices on margins - Cocoa prices have decreased significantly, which is expected to improve margins as chocolate constitutes 40% of raw material costs [44]

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Core Viewpoint - Rocky Mountain Chocolate Factory, Inc. is undergoing a transformation aimed at modernizing its operations and achieving scalable growth, with early signs of progress being observed [2] Financial Performance - Total revenue for the second quarter of fiscal 2026 increased to $6.8 million, up from $6.4 million in the same quarter last year, driven by pricing actions and a more profitable sales mix [5] - The company reported a gross profit loss of $33,000 in the second quarter of fiscal 2026, compared to a profit of $600,000 in the year-ago quarter, primarily due to higher input costs and operational inefficiencies [5] - Total costs and expenses remained flat at $7.3 million compared to the previous year [5] - The net loss for the second quarter was $0.7 million, or $(0.09) per share, compared to a net loss of $0.7 million, or $(0.11) per share, in the year-ago quarter [5] Operational Initiatives - The company is focusing on strengthening operations and enhancing visibility through new ERP and POS systems, which are expected to facilitate data-driven decisions [2] - A rebranding initiative and new store developments are underway, with two new franchise locations announced in California and New Jersey, and a company-owned location in Camarillo, California [2] - The company plans to introduce a new loyalty program and expand digital capabilities to improve customer engagement for franchisees [2] Company Overview - Rocky Mountain Chocolate Factory, Inc. is a leading franchiser of premium chocolate and confectionery retail stores, operating over 250 locations across the United States and several international locations [7] - The company has been recognized in Entrepreneur's Franchise 500 for 2025 and Franchise Times' Franchise 400 for 2024 [7]