Financial Data and Key Metrics Changes - Total revenue for Q1 2026 was $6.4 million, essentially flat compared to the prior period [23] - Product sales decreased to $4.7 million from $5.3 million year-over-year, while franchise and royalty fees increased to $1.7 million from $1.1 million [23] - Total product and retail gross profit improved to $300,000 from a negative $300,000, driven by pricing adjustments and operational efficiencies [24] - Costs and expenses decreased to $6.5 million from $8 million year-over-year, primarily due to lower general and administrative costs [24] - Net loss was $300,000 or negative $0.04 per share, compared to a net loss of $1.7 million or negative $0.26 per share [24] - EBITDA for the quarter was $2 million, compared to a negative $1.4 million last year [24] Business Line Data and Key Metrics Changes - The company waived all freight charges for franchisees to drive volume and improve product freshness [8] - A flat monthly fee program for freight delivery was implemented to encourage more frequent store orders [8] - The adoption of the new POS system accelerated, enhancing visibility into operations and decision-making [11] Market Data and Key Metrics Changes - The company opened a new store in Charleston, South Carolina, featuring a refreshed brand identity [13] - Construction is expected to begin shortly on a new location in Downtown Chicago, targeting an opening ahead of the holiday season [13] Company Strategy and Development Direction - The company is focused on stabilizing the business and transitioning from a rebuilding mode to an execution mode [5][6] - A new consumer packaging and e-commerce platform are set to launch, aimed at enhancing brand presentation and online conversions [18] - The company is actively building a development pipeline for new units while seeking capable franchise operators [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the progress made and the discipline applied across the business [7] - The first quarter demonstrated foundational investments and operational improvements beginning to produce desired results, with expectations for continued growth throughout the year [22] - The company believes it is in a better position to execute its strategy than in many years, aiming for sustainable growth and long-term value creation [22] Other Important Information - The company hired a new VP of operations with significant experience in manufacturing and logistics [12] - The refreshed website will include a section for new franchisees, making it more intuitive for potential operators [21] Q&A Session Summary Question: What early indicators are being watched to evaluate the impact of the flat freight charge? - The company is monitoring order frequency, which has improved since waiving the fee, encouraging franchisees to order more frequently [28] Question: What processes or decisions are expected to change with the ERP data stabilization? - The ERP data provides insights into manufacturing efficiencies and profitability, which will inform decision-making across departments [29] Question: How does the online strategy differ with the e-commerce relaunch? - The new website features a contemporary user interface and is positioned as a core brand experience, with results expected to be reported in the future [30][31] Question: What operational levers are expected to drive continued EBITDA expansion? - Continued improvements in pricing, SG&A discipline, and factory efficiencies are anticipated to drive EBITDA growth [32] Question: What are the capital needs for expansion? - Currently, the company is not planning to raise capital but is in ongoing discussions with the board regarding future needs [39][40] Question: How is the growth strategy for new franchisees being developed? - The company is focusing on existing franchisees for expansion and employing business consultants to improve store performance [46][47]

Overview and Management Commentary [Management Commentary](index=1&type=section&id=Management%20Commentary) Interim CEO Jeff Geygan described Fiscal 2025 as the start of a "transformative era" for the company, initiating restructuring, cultural rebuilding, operational discipline, and system modernization - Fiscal 2025 marked the beginning of a major transformation focused on restructuring the business, rebuilding culture, restoring operational discipline, and modernizing core systems[2](index=2&type=chunk) - Key changes included bringing consumer packaging back in-house, implementing a new point-of-sale system, overhauling the e-commerce platform, and realigning product pricing[2](index=2&type=chunk) - With operational changes effective March 1, 2025, management believes the company has been stabilized and is now focused on disciplined, profitable growth for fiscal 2026[2](index=2&type=chunk) Operational Highlights and Strategic Initiatives [Operational and Franchise Network Improvements](index=1&type=section&id=Operational%20and%20Franchise%20Network%20Improvements) The company resolved key operational challenges, strengthened its franchise network by retiring co-packing, exiting unprofitable markets, and implementing a new pricing model - Retired the company's co-packing operations in Salt Lake City in February 2025[5](index=5&type=chunk) - Adjusted or exited unprofitable Specialty Market relationships during fiscal 2025[5](index=5&type=chunk) - A new franchise product pricing model was implemented on March 1, 2025, to address systemic margin pressures for franchisees[5](index=5&type=chunk) [Brand Modernization and Digital Enhancements](index=1&type=section&id=Brand%20Modernization%20and%20Digital%20Enhancements) The company is advancing brand modernization with new store designs, a Charleston opening, a Chicago flagship, systemwide signage, and a redesigned website launching July 2025 - A new store opened in Charleston, South Carolina on June 3, 2025, featuring the refreshed branding and design[5](index=5&type=chunk) - Construction is planned for a flagship location in downtown Chicago, with an expected opening before the holiday season[5](index=5&type=chunk) - A redesigned website is expected to launch in July 2025, followed by updated packaging aligned with the new brand identity in early August 2025[7](index=7&type=chunk) Financial Performance [Fiscal Fourth Quarter 2025 Financial Results](index=2&type=section&id=Fiscal%20Fourth%20Quarter%202025%20Financial%20Results) Q4 FY2025 revenue increased to $8.9 million, but gross loss widened to $(0.8) million due to higher raw material costs, leading to a net loss of $(2.9) million Q4 FY2025 vs. Q4 FY2024 Financial Highlights (in millions, except per share data) | Metric | Q4 FY2025 | Q4 FY2024 | | :--- | :--- | :--- | | **Total Revenue** | $8.9 | $7.3 | | **Total Product and Retail Gross Profit** | $(0.8) | $0.1 | | **Total Costs and Expenses** | $11.6 | $8.8 | | **Net Loss from Continuing Operations** | $(2.9) | $(1.6) | | **Loss per Share from Continuing Operations** | $(0.37) | $(0.25) | - The decrease in gross profit was primarily due to higher raw material costs[13](index=13&type=chunk) - The increase in total costs and expenses was mainly attributed to investments in marketing and administrative infrastructure related to the brand refresh and prototype store rollout[13](index=13&type=chunk) [Fiscal Year 2025 Financial Results](index=3&type=section&id=Fiscal%20Year%202025%20Financial%20Results) FY2025 revenue grew to $29.6 million, but gross profit significantly declined to $0.1 million due to inflationary pressures, resulting in an expanded net loss of $(6.1) million Fiscal Year 2025 vs. 2024 Financial Highlights (in millions, except per share data) | Metric | FY2025 | FY2024 | | :--- | :--- | :--- | | **Total Revenue** | $29.6 | $28.0 | | **Total Product and Retail Gross Profit** | $0.1 | $1.4 | | **Total Costs and Expenses** | $35.5 | $32.9 | | **Net Loss from Continuing Operations** | $(6.1) | $(4.9) | | **Loss per Share from Continuing Operations** | $(0.86) | $(0.77) | - The decrease in annual gross profit was primarily due to a sharp increase in the cost of cocoa, other inflationary pressures, higher overhead costs, and reduced production volume[13](index=13&type=chunk) Financial Statements [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of February 28, 2025, total assets increased to $21.2 million, but total liabilities significantly rose to $14.2 million, decreasing stockholders' equity to $7.0 million Selected Balance Sheet Data (in thousands) | Account | Feb 28, 2025 | Feb 29, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $720 | $2,082 | | Total Assets | $21,175 | $20,577 | | Total Liabilities | $14,200 | $9,941 | | Total stockholders' equity | $6,975 | $10,636 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) FY2025 total revenues increased to $29.6 million, but rising costs led to a wider loss from operations of $(5.9) million and a net loss of $(6.1) million Fiscal Year Statement of Operations Summary (in thousands) | Account | Year Ended Feb 28, 2025 | Year Ended Feb 28, 2024 | | :--- | :--- | :--- | | Total Revenue | $29,579 | $27,950 | | Total costs and expenses | $35,521 | $32,852 | | Loss from Operations | $(5,942) | $(4,902) | | Loss from Continuing Operations | $(6,122) | $(4,875) | | Net Loss | $(6,122) | $(4,172) | Conference Call and Company Information [Conference Call Information](index=3&type=section&id=Conference%20Call%20Information) The company will host a conference call on June 18, 2025, at 9:00 a.m. Eastern time to discuss its financial results - A conference call to discuss financial results is scheduled for June 18, 2025, at 9:00 a.m. Eastern time[9](index=9&type=chunk) [About Rocky Mountain Chocolate Factory, Inc.](index=3&type=section&id=About%20Rocky%20Mountain%20Chocolate%20Factory%2C%20Inc.) Rocky Mountain Chocolate Factory, Inc. is a leading franchiser of premium chocolate and confectionery retail stores, operating nearly 260 locations - The company is a leading franchiser of premium chocolate stores, operating nearly 260 locations across the United States and internationally[11](index=11&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section provides a standard disclaimer for forward-looking statements, highlighting inherent risks and uncertainties that could cause actual results to differ - The press release includes forward-looking statements that are subject to various risks and uncertainties which could cause actual results to differ materially from expectations[12](index=12&type=chunk) - Key risks include inflationary impacts, changes in the business environment, seasonality, raw material costs, and competition[14](index=14&type=chunk)

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This Quarterly Report contains forward-looking statements, which involve various risks and uncertainties, identifiable by specific terminology - This Quarterly Report contains forward-looking statements, which involve various risks and uncertainties, identifiable by words such as 'will,' 'intend,' 'believe,' 'expect,' and 'anticipate'[8](index=8&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[8](index=8&type=chunk) - Key risks and uncertainties include inflationary impacts, legal proceedings, changes in the confectionery business environment, seasonality, consumer interest, costs and availability of raw materials, and competition[8](index=8&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements for Rocky Mountain Chocolate Factory, Inc. and its subsidiaries, including statements of operations, balance sheets, cash flows, and changes in stockholders' equity, along with detailed notes explaining significant accounting policies and specific financial line items [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the company's unaudited condensed consolidated statements of operations, detailing revenues, costs, expenses, and net loss for the period | Metric | Three Months Ended May 31, 2025 (in thousands) | Three Months Ended May 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Total Revenue | $6,373 | $6,407 | $(34) | (0.5)% | | Total Costs and Expenses | $6,518 | $8,037 | $(1,519) | (18.9)% | | Loss from Operations | $(145) | $(1,630) | $1,485 | (91.1)% | | Net Loss | $(324) | $(1,658) | $1,334 | (80.5)% | | Basic Loss per Common Share | $(0.04) | $(0.26) | $0.22 | (84.6)% | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's unaudited condensed consolidated balance sheets, outlining assets, liabilities, and stockholders' equity at specific dates | Metric | May 31, 2025 (in thousands) | February 28, 2025 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------- | :------------------------------- | :-------------------- | :------- | | Total Assets | $20,096 | $21,175 | $(1,079) | (5.1)% | | Total Liabilities | $13,364 | $14,200 | $(836) | (5.9)% | | Total Stockholders' Equity | $6,732 | $6,975 | $(243) | (3.5)% | | Cash and cash equivalents | $893 | $720 | $173 | 24.0% | | Accounts receivable, less allowance for credit losses | $2,327 | $3,405 | $(1,078) | (31.7)% | | Inventories | $4,633 | $4,630 | $3 | 0.1% | | Accounts payable | $4,172 | $4,816 | $(644) | (13.4)% | [Condensed Consolidated Statement of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) This section presents the company's unaudited condensed consolidated statement of cash flows, categorizing cash activities into operating, investing, and financing | Metric | Three Months Ended May 31, 2025 (in thousands) | Three Months Ended May 31, 2024 (in thousands) | Change (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Net Cash Provided by (Used in) Operating Activities | $350 | $(2,157) | $2,507 | | Net Cash Used in Investing Activities | $(177) | $(38) | $(139) | | Net Cash Provided by Financing Activities | $- | $750 | $(750) | | Net Increase (Decrease) in Cash and Cash Equivalents | $173 | $(1,445) | $1,618 | | Cash and Cash Equivalents, End of Period | $893 | $637 | $256 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This section presents the company's unaudited condensed consolidated statements of changes in stockholders' equity, detailing movements in capital accounts | Metric (in thousands) | May 31, 2025 | February 28, 2025 | Change (in thousands) | | :-------------------------------- | :----------- | :---------------- | :-------------------- | | Total Stockholders' Equity | $6,732 | $6,975 | $(243) | | Accumulated Deficit | $(5,712) | $(5,388) | $(324) | | Equity compensation, restricted stock units, net of shares withheld | $81 | $- | $81 | | Metric (in thousands) | May 31, 2024 | February 29, 2024 | Change (in thousands) | | :-------------------------------- | :----------- | :---------------- | :-------------------- | | Total Stockholders' Equity | $9,018 | $10,636 | $(1,618) | | Retained Earnings / (Accumulated Deficit) | $(924) | $734 | $(1,658) | | Equity compensation, restricted stock units, net of shares withheld | $40 | $- | $40 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes to the condensed consolidated financial statements, explaining significant accounting policies and specific financial line items [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) This note describes the company's business, revenue sources, store network, and addresses going concern considerations - Rocky Mountain Chocolate Factory, Inc. is an international franchisor, confectionery producer, and retail operator, founded in 1981 and headquartered in Durango, Colorado[24](index=24&type=chunk) - Revenues are primarily derived from sales of confectionery products to franchisees, initial franchise fees and royalties, sales at Company-owned stores, and marketing fees[25](index=25&type=chunk) | Store Type | Open at Feb 28, 2025 | Opened | Closed | Sold | Open at May 31, 2025 | | :----------------------------- | :------------------- | :----- | :----- | :--- | :------------------- | | Company-owned stores | 2 | - | - | - | 2 | | Franchise stores - Domestic | 138 | 1 | (3) | - | 136 | | International license stores | 3 | - | - | - | 3 | | Cold Stone Creamery - co-branded | 107 | - | (3) | - | 104 | | SWRL - co-branded | 10 | - | - | - | 10 | | **Total** | **260** | **1** | **(6)** | **-** | **255** | - The company incurred a net loss of **$0.3 million** and was not in compliance with a debt covenant as of May 31, 2025, raising substantial doubt about its ability to continue as a going concern, though a waiver was received[29](index=29&type=chunk) - Management plans to reduce overhead, improve manufacturing efficiencies, increase profits and gross margins, and boost sales through holiday products and e-commerce to address going concern issues[30](index=30&type=chunk) [NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION](index=11&type=section&id=NOTE%202%20-%20SUPPLEMENTAL%20CASH%20FLOW%20INFORMATION) This note provides additional details on cash paid for interest and income taxes, along with non-cash investing and financing activities | Cash Paid (Received) For (in thousands) | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :------------------------------------- | :------------------------------ | :------------------------------ | | Interest | $188 | $35 | | Income taxes | $- | $6 | | Supplemental Non-Cash Activities (in thousands) | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | | Accounts receivable exchanged for notes receivable | $112 | $- | | Inventory accrued but not yet paid | $219 | $- | [NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS](index=11&type=section&id=NOTE%203%20%E2%80%93%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) This note outlines the company's policies for recognizing revenue from customer contracts, including franchise fees and gift card breakage - Initial franchise fees and license fees are recognized as revenue proportionately over the term of the franchise agreement, generally **10 years**, as initial services are not distinct from continuing rights[39](index=39&type=chunk)[40](index=40&type=chunk)[42](index=42&type=chunk) | Contract Liabilities (in thousands) | May 31, 2025 | May 31, 2024 | | :---------------------------------- | :----------- | :----------- | | Beginning of period | $743 | $829 | | Revenue recognized | $(36) | $(70) | | Contract fees received | $11 | $53 | | End of period | $718 | $812 | - No gift card breakage was recognized during the three months ended May 31, 2025, or 2024, as recognition is based on historical redemption patterns or when redemption likelihood is remote[43](index=43&type=chunk) [NOTE 4 – DISAGGREGATION OF REVENUE](index=13&type=section&id=NOTE%204%20%E2%80%93%20DISAGGREGATION%20OF%20REVENUE) This note presents a detailed breakdown of the company's total revenues by segment and revenue type | Revenue Type (in thousands) | Franchising (2025) | Manufacturing (2025) | Retail (2025) | Total (2025) | Franchising (2024) | Manufacturing (2024) | Retail (2024) | Total (2024) | | :-------------------------- | :----------------- | :------------------- | :------------ | :----------- | :----------------- | :------------------- | :------------ | :----------- | | Franchise fees | $36 | $- | $- | $36 | $70 | $- | $- | $70 | | Durango Product sales | $- | $4,399 | $- | $4,399 | $- | $4,957 | $- | $4,957 | | Retail sales | $- | $- | $319 | $319 | $- | $- | $322 | $322 | | Royalty and marketing fees | $1,619 | $- | $- | $1,619 | $1,058 | $- | $- | $1,058 | | **Total Revenues** | **$1,655** | **$4,399** | **$319** | **$6,373** | **$1,128** | **$4,957** | **$322** | **$6,407** | [NOTE 5 - INVENTORIES](index=14&type=section&id=NOTE%205%20-%20INVENTORIES) This note details the composition of the company's inventories, including ingredients, finished goods, and reserves | Inventory Component (in thousands) | May 31, 2025 | February 28, 2025 | | :--------------------------------- | :----------- | :---------------- | | Ingredients and supplies | $2,791 | $2,864 | | Finished candy | $2,015 | $2,277 | | Reserve for slow moving inventory | $(173) | $(511) | | **Total inventories** | **$4,633** | **$4,630** | [NOTE 6 – PROPERTY AND EQUIPMENT, NET](index=14&type=section&id=NOTE%206%20%E2%80%93%20PROPERTY%20AND%20EQUIPMENT%2C%20NET) This note provides a breakdown of the company's property and equipment, net of accumulated depreciation, and related depreciation expense | Property and Equipment (in thousands) | May 31, 2025 | February 28, 2025 | | :------------------------------------ | :----------- | :---------------- | | Land | $124 | $124 | | Building | $5,468 | $5,415 | | Machinery and equipment | $15,019 | $14,904 | | Furniture and fixtures | $519 | $519 | | Leasehold improvements | $136 | $136 | | Transportation equipment | $326 | $326 | | Less accumulated depreciation | $(12,354) | $(12,015) | | **Property and equipment, net** | **$9,238** | **$9,409** | - Depreciation expense related to property and equipment totaled **$0.3 million** during the three months ended May 31, 2025, an increase from **$0.2 million** in the prior year[51](index=51&type=chunk) [NOTE 7 – GOODWILL AND INTANGIBLE ASSETS](index=15&type=section&id=NOTE%207%20%E2%80%93%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) This note details the company's goodwill and intangible assets, including their gross carrying values and accumulated amortization | Asset Type (in thousands) | May 31, 2025 Gross Carrying Value | May 31, 2025 Accumulated Amortization | February 28, 2025 Gross Carrying Value | February 28, 2025 Accumulated Amortization | | :------------------------ | :-------------------------------- | :------------------------------------ | :------------------------------------- | :----------------------------------------- | | Intangible assets subject to amortization: | | | | | | Store design | $395 | $(300) | $395 | $(295) | | Trademark/Non-competition agreements | $259 | $(151) | $259 | $(149) | | Goodwill: | | | | | | Retail | $362 | $- | $362 | $- | | Franchising | $97 | $- | $97 | $- | | Manufacturing | $97 | $- | $97 | $- | | Trademark | $20 | $- | $20 | $- | | **Total Goodwill and Intangible Assets** | **$1,230** | **$(451)** | **$1,230** | **$(444)** | - Amortization expense related to intangible assets totaled approximately **$7 thousand** during both the three months ended May 31, 2025, and 2024[52](index=52&type=chunk) [NOTE 8 – NOTE PAYABLE](index=16&type=section&id=NOTE%208%20%E2%80%93%20NOTE%20PAYABLE) This note describes the company's credit agreement, note payable terms, collateral, and compliance with debt covenants - The company entered into a credit agreement with RMC Credit Facility, LLC, a related party, for a **$6.0 million** note payable maturing on **September 30, 2027**, with interest accruing at **12%** per annum[55](index=55&type=chunk) - The Credit Agreement is collateralized by the company's Durango real estate property, related inventory and property, plant and equipment, accounts receivable, and cash accounts[55](index=55&type=chunk) - As of May 31, 2025, the company was not in compliance with the maximum liabilities to tangible net worth covenant (**2.0:1.0**) but received a waiver from the Lender[57](index=57&type=chunk) [NOTE 9 – COMMON STOCK](index=16&type=section&id=NOTE%209%20%E2%80%93%20COMMON%20STOCK) This note outlines the company's equity incentive plan, stock awards, and stock-based compensation expense - The 2024 Equity Incentive Plan authorizes a total of **1,031,940 shares** for stock awards, with **645,374 shares** available for issuance as of May 31, 2025[58](index=58&type=chunk) | Metric (in thousands) | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :-------------------- | :------------------------------ | :------------------------------ | | Stock-based compensation expense | $81 | $40 | - Total unrecognized stock-based compensation expense for non-vested restricted stock units was approximately **$0.4 million**, expected to be recognized over the next **1.19 years**[61](index=61&type=chunk) [NOTE 10 - EARNINGS PER SHARE](index=17&type=section&id=NOTE%2010%20-%20EARNINGS%20PER%20SHARE) This note explains the calculation of basic and diluted earnings per share and the treatment of anti-dilutive securities - Basic earnings per share is calculated using the weighted-average number of common shares outstanding, while diluted earnings per share reflects potential dilution from restricted stock units[63](index=63&type=chunk) - During the three months ended May 31, 2025, **204,445 shares** issuable upon vesting of restricted stock units were excluded from diluted EPS computation because their effect would have been anti-dilutive[64](index=64&type=chunk) [NOTE 11 – LEASING ARRANGEMENTS](index=17&type=section&id=NOTE%2011%20%E2%80%93%20LEASING%20ARRANGEMENTS) This note details the company's operating lease arrangements, lease expenses, and future lease liability maturities - The company conducts its retail operations and supports production through non-cancelable operating leases for facilities, trucking equipment, and warehouse space[65](index=65&type=chunk)[68](index=68&type=chunk) - Lease expense recognized in the consolidated statements of operations was **$0.1 million** for both the three months ended May 31, 2025, and 2024[68](index=68&type=chunk) | Lease Liabilities Maturities (in thousands) | Amount | | :---------------------------------------- | :----- | | FYE 26 | $369 | | FYE 27 | $287 | | FYE 28 | $137 | | FYE 29 | $105 | | FYE 30 | $51 | | Thereafter | $304 | | Total | $1,253 | | Less: Imputed interest | $(113) | | Present value of lease liabilities | $1,140 | - The weighted average lease term at May 31, 2025, was **5.65 years**, and the weighted average discount rate used for operating leases was **3.9%**[69](index=69&type=chunk) [NOTE 12 – COMMITMENTS AND CONTINGENCIES](index=18&type=section&id=NOTE%2012%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This note discusses the company's purchase commitments for raw materials and involvement in legal disputes - The company frequently enters into **6-12 month** purchase contracts for chocolate and certain nuts at fixed prices, designated as normal under the normal purchase and sale exception for derivatives[71](index=71&type=chunk)[73](index=73&type=chunk) - The company is involved in the early stages of a legal dispute regarding the fulfillment of an agreement to sell franchise rights and intangible assets in connection with the sale of U-Swirl, but does not expect a material impact[74](index=74&type=chunk) [NOTE 13 - OPERATING SEGMENTS](index=20&type=section&id=NOTE%2013%20-%20OPERATING%20SEGMENTS) This note provides financial information for the company's reportable segments: Franchising, Manufacturing, and Retail Stores - The company classifies its business interests into three reportable segments: Franchising, Manufacturing, and Retail Stores, along with an Unallocated category, for performance evaluation and resource allocation[77](index=77&type=chunk) | Segment (in thousands) | Total Revenues (2025) | Segment Profit (Loss) (2025) | Total Assets (2025) | Total Revenues (2024) | Segment Profit (Loss) (2024) | Total Assets (2024) | | :--------------------- | :-------------------- | :--------------------------- | :------------------ | :-------------------- | :--------------------------- | :------------------ | | Franchising | $1,655 | $839 | $1,936 | $1,128 | $144 | $989 | | Manufacturing | $4,399 | $92 | $13,947 | $4,957 | $(508) | $12,947 | | Retail | $319 | $25 | $776 | $322 | $(1) | $505 | | Unallocated | $- | $(1,101) | $3,437 | $- | $(1,265) | $4,579 | | **Consolidated Net Loss** | **$6,373** | **$(324)** | **$20,096** | **$6,407** | **$(1,658)** | **$19,020** | - The Manufacturing segment's profit improved significantly from a loss of **$(508) thousand** in 2024 to a profit of **$92 thousand** in 2025[77](index=77&type=chunk)[79](index=79&type=chunk) [NOTE 14 - INCOME TAXES](index=21&type=section&id=NOTE%2014%20-%20INCOME%20TAXES) This note describes the company's accounting for income taxes, including deferred taxes and valuation allowances - The company provides for income taxes using the liability method, recognizing deferred income taxes based on temporary differences between financial reporting and income tax bases of assets and liabilities[80](index=80&type=chunk) - A valuation allowance to reduce the carrying amount of deferred income tax assets is established when it is more likely than not that some portion or all of the tax benefit will not be realized[81](index=81&type=chunk) - The company does not have any significant unrecognized tax benefits and does not anticipate a significant increase or decrease in unrecognized tax benefits within the next twelve months[84](index=84&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results for the three months ended May 31, 2025, compared to the prior year, highlighting key trends, revenue and expense drivers, liquidity, and significant accounting policies [Overview](index=24&type=section&id=Overview) This section provides a high-level description of Rocky Mountain Chocolate Factory, Inc.'s business, store operations, and key financial arrangements - Rocky Mountain Chocolate Factory, Inc. is an international franchisor, confectionery producer, and retail operator, founded in 1981 and headquartered in Durango, Colorado[88](index=88&type=chunk) - As of May 31, 2025, the company operated **255 stores** (**2** Company-owned, **114** licensee-owned, and **139** franchised) across **34 states** and the Philippines[88](index=88&type=chunk) - The company has a **$6.0 million** credit agreement with RMC Credit Facility, LLC, a related party, with the note maturing on **September 30, 2027**[89](index=89&type=chunk) [Current Trends Affecting Our Business and Outlook](index=24&type=section&id=Current%20Trends%20Affecting%20Our%20Business%20and%20Outlook) This section discusses macroeconomic factors, seasonal business fluctuations, and strategic drivers influencing the company's future performance - Macroeconomic inflationary trends and global supply chain disruptions have led to higher raw material, labor, and freight costs, contributing to lower factory, retail, and e-commerce sales[90](index=90&type=chunk) - The business is subject to seasonal fluctuations, with the strongest sales historically occurring during key holidays and summer vacation seasons[91](index=91&type=chunk) - Continued growth in earnings depends on increasing sales of premium chocolate products from the Durango facility, franchisee support for customer visits and transaction values, ongoing e-commerce revenue growth, and new franchise store growth[92](index=92&type=chunk) [Results of Continuing Operations](index=25&type=section&id=Results%20of%20Continuing%20Operations) This section analyzes the company's financial performance for the three months ended May 31, 2025, compared to the prior year, detailing revenue and expense changes [Three Months Ended May 31, 2025 Compared To the Three Months Ended May 31, 2024](index=25&type=section&id=Three%20Months%20Ended%20May%2031%2C%202025%20Compared%20To%20the%20Three%20Months%20Ended%20May%2031%2C%202024) This section provides a comparative analysis of the company's financial results for the three months ended May 31, 2025, against the same period in the prior year [Results Summary](index=25&type=section&id=Results%20Summary) This summary highlights key financial outcomes, including basic loss per share, revenues, operating loss, and net loss for the period | Metric | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | Change | % Change | | :-------------------------- | :------------------------------ | :------------------------------ | :----- | :------- | | Basic loss per share | $(0.04) | $(0.26) | $0.22 | (84.6)% | | Revenues | $6,373 | $6,407 | $(34) | (0.5)% | | Operating loss | $(145) | $(1,630) | $1,485 | (91.1)% | | Net loss | $(324) | $(1,658) | $1,334 | (80.5)% | [REVENUES](index=25&type=section&id=REVENUES) This section details the company's revenue streams, including product sales, franchise fees, and royalty and marketing fees, and their period-over-period changes | Revenue Type (in thousands) | May 31, 2025 | May 31, 2024 | Change | % Change | | :-------------------------- | :----------- | :----------- | :----- | :------- | | Durango product and retail sales | $4,718 | $5,279 | $(561) | (10.6)% | | Franchise fees | $36 | $70 | $(34) | (48.6)% | | Royalty and marketing fees | $1,619 | $1,058 | $561 | 53.0% | | **Total** | **$6,373** | **$6,407** | **$(34)** | **(0.5)%** | - The decrease in Durango product and retail sales was primarily due to the non-renewal of an unprofitable contract with a specialty market customer[97](index=97&type=chunk) - Royalty and marketing fees increased by **$0.6 million**, driven by higher royalties on sales revenue generated from products made in the store, while franchise fee revenue decreased due to fewer store openings[100](index=100&type=chunk) [COSTS AND EXPENSES](index=26&type=section&id=COSTS%20AND%20EXPENSES) This section analyzes the company's various cost and expense categories, including cost of sales, franchise costs, and general and administrative expenses | Expense Category (in thousands) | May 31, 2025 | May 31, 2024 | Change | % Change | | :------------------------------ | :----------- | :----------- | :----- | :------- | | Total cost of sales | $4,392 | $5,586 | $(1,194) | (21.4)% | | Franchise costs | $595 | $541 | $54 | 10.0% | | Sales and marketing | $206 | $430 | $(224) | (52.1)% | | General and administrative | $1,001 | $1,239 | $(238) | (19.2)% | | Retail operating | $206 | $199 | $7 | 3.5% | | Depreciation and amortization (excl. cost of sales) | $118 | $42 | $76 | 181.0% | | **Total** | **$6,518** | **$8,037** | **$(1,519)** | **(18.9)%** | | Gross Margin (in thousands) | May 31, 2025 | May 31, 2024 | Change | % Change | | :-------------------------- | :----------- | :----------- | :----- | :------- | | Total gross margin | $326 | $(307) | $633 | 206.2% | | Gross margin percentage | 6.9% | (5.8)% | 13% | 218.8% | - The increase in gross margin percentage was primarily due to the cancellation of certain unprofitable contracts and adjusted sales prices as of **March 1, 2025**, to achieve targeted margins[103](index=103&type=chunk) - Sales and marketing costs decreased significantly due to cost-cutting measures and a re-evaluation of marketing strategies[105](index=105&type=chunk) - General and administrative costs decreased primarily due to various cost-cutting measures[106](index=106&type=chunk) - Depreciation and amortization (exclusive of amounts in cost of sales) increased by **181.0%** due to investments in computer software and production equipment[108](index=108&type=chunk) [Non-GAAP Measures](index=26&type=section&id=Non-GAAP%20Measures) This section defines and presents non-GAAP financial measures, such as adjusted gross margin, used to supplement GAAP reporting - Adjusted gross margin is a non-GAAP measure, calculated as total gross margin plus depreciation and amortization, used to supplement GAAP gross margin for understanding operating performance and cash generation[102](index=102&type=chunk) | Adjusted Gross Margin (non-GAAP, in thousands) | May 31, 2025 | May 31, 2024 | Change | % Change | | :--------------------------------------------- | :----------- | :----------- | :----- | :------- | | Total Adjusted Gross Margin | $554 | $(111) | $665 | 599.1% | | Total Adjusted Gross Margin percentage | 11.7% | (2.1)% | 14% | 658.4% | [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term obligations, focusing on working capital, cash flows, and debt covenant compliance | Metric (in millions) | May 31, 2025 | February 28, 2025 | Change | | :------------------- | :----------- | :---------------- | :----- | | Working capital | $2.2 | $2.4 | $(0.2) | | Cash and cash equivalents | $0.9 | $0.7 | $0.2 | - Operating activities provided **$0.4 million** in cash for the three months ended May 31, 2025, a significant improvement from using **$2.2 million** in the prior year[112](index=112&type=chunk) - The company's net loss and non-compliance with a debt covenant (liabilities to tangible net worth) raise substantial doubt about its ability to continue as a going concern, although a waiver was received from the Lender[115](index=115&type=chunk)[118](index=118&type=chunk) - The company continues to explore additional means of strengthening its liquidity position and ensuring compliance with debt financing covenants, which may include obtaining waivers from lenders[119](index=119&type=chunk) [Significant Accounting Policies](index=31&type=section&id=Significant%20Accounting%20Policies) This section reiterates that the preparation of financial statements involves management judgments and estimates, with no material changes to policies - The preparation of consolidated financial statements requires management to make judgments, assumptions, and estimates in conformity with GAAP[120](index=120&type=chunk) - 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[120](index=120&type=chunk) [Off Balance Sheet Arrangements](index=31&type=section&id=Off%20Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet arrangements and outlines existing purchase obligations - As of May 31, 2025, the company had no material off-balance sheet arrangements or obligations[121](index=121&type=chunk) - The company had approximately **$2.6 million** in purchase obligations, primarily for future commodity purchases for manufacturing[121](index=121&type=chunk) [Impact of Inflation](index=31&type=section&id=Impact%20of%20Inflation) This section discusses how inflationary pressures on raw materials, labor, and lease expenses affect the company's operations and pricing strategies - Inflationary factors, such as increases in the costs of raw materials, labor, and lease-related expenses, directly affect the company's operations[122](index=122&type=chunk) - Most of the company's leases provide for cost-of-living adjustments and require payment of taxes, insurance, and maintenance expenses, all subject to inflation[122](index=122&type=chunk) - There is no assurance that the company will be able to pass on increased costs to its customers[122](index=122&type=chunk) [Seasonality](index=31&type=section&id=Seasonality) This section explains the seasonal nature of the company's sales and its impact on quarterly financial results - The company is subject to seasonal fluctuations in sales, with the strongest sales historically occurring during key holidays and the summer vacation season[124](index=124&type=chunk) - Quarterly results are affected by the timing of new store openings and sales of new franchise locations, meaning results for any quarter are not necessarily indicative of a full fiscal year[124](index=124&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=31&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 quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide the information regarding quantitative and qualitative disclosures about market risk[125](index=125&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%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 May 31, 2025. There were no material changes in internal control over financial reporting during the quarter - Management, under the supervision and with the participation of the Interim Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of **May 31, 2025**[128](index=128&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended May 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[129](index=129&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other disclosures [Item 1. Legal Proceedings](index=33&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 or operations. While it may be involved in disputes in the ordinary course of business, no material adverse effects are currently expected - The company is not aware of any pending legal actions that would, if determined adversely, have a material adverse effect on its business and operations[131](index=131&type=chunk) - The company may, from time to time, become involved in disputes and proceedings arising in the ordinary course of business, but no material adverse effect is currently expected[132](index=132&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the risk factors discussed in the company's Annual Report on Form 10-K for the fiscal year ended February 28, 2025, noting that there have been no material changes to these risk factors - Readers should carefully consider the factors discussed in Part 1, Item 1A. 'Risk Factors' in the Annual Report on Form 10-K for the fiscal year ended February 28, 2025[133](index=133&type=chunk) - There have been no material changes in the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended February 28, 2025[133](index=133&type=chunk) [Item 2. Unregistered Sale of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sale%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities and use of proceeds during the period[134](index=134&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities during the period[135](index=135&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable to the registrant[136](index=136&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) During the three months ended May 31, 2025, no directors or officers adopted or terminated Rule 10b5-1 trading arrangements. As of July 11, 2025, the company had approximately 431 record holders of its common stock - During the three months ended May 31, 2025, none of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement[137](index=137&type=chunk) - On **July 11, 2025**, the registrant had approximately **431 record holders** of its common stock[138](index=138&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report, including certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL documents - Exhibits include Certifications Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002, and Inline XBRL Instance Document, Taxonomy Extension Schema, and Cover Page Interactive Data File[140](index=140&type=chunk) - The certifications attached as Exhibits 32.1 and 32.2 are not deemed filed with the SEC and are not to be incorporated by reference into any other filing[140](index=140&type=chunk) [Signatures](index=35&type=section&id=Signatures) This section formally attests to the accuracy of the report, signed by the Interim Chief Executive Officer and Chief Financial Officer - The report is signed on **July 15, 2025**, by Jeffrey R. Geygan, Interim Chief Executive Officer, and Carrie E. Cass, Chief Financial Officer[146](index=146&type=chunk)

Core Insights - Rocky Mountain Chocolate Factory, Inc. is focused on rebuilding its business into a disciplined and profitable entity through various strategic initiatives aimed at enhancing operational efficiency and franchisee performance [2][3] Financial Performance - Total revenue for the first quarter of fiscal 2026 was $6.4 million, remaining essentially flat compared to the same quarter last year [5] - Gross profit from product and retail was $0.3 million, an improvement from a loss of $0.3 million in the year-ago quarter, attributed to better pricing and production efficiencies [5] - Total costs and expenses decreased to $6.5 million from $8.0 million in the previous year, primarily due to improved operating efficiencies and reduced general and administrative costs [5] - The net loss for the quarter was $0.3 million or $(0.04) per share, compared to a net loss of $1.7 million or $(0.26) per share in the same quarter last year [5] - EBITDA for the quarter was $0.2 million, a significant improvement from $(1.4) million in the year-ago quarter [5] Strategic Initiatives - The company has implemented a simplified freight program to enhance inventory freshness and realigned pricing to better reflect product value [2] - A new Point of Sale (POS) and Enterprise Resource Planning (ERP) system is being adopted to improve visibility and accountability across the franchise network [2] - A brand refresh, including new packaging and a redesigned e-commerce platform, is set to roll out systemwide this summer [3] Market Expansion - The Charleston location has shown promising performance in a previously untapped market, providing insights for future store openings [3] - A new store in Chicago is expected to open before the holiday season, with several leases currently under negotiation [3] Company Overview - Rocky Mountain Chocolate Factory, Inc. is a leading franchiser of premium chocolate and confectionery retail stores, operating nearly 260 locations across the United States and several international sites [7]

Core Insights - Rocky Mountain Chocolate Factory Inc. has appointed Luis Burgos as Vice President of Operations, bringing over 29 years of experience in manufacturing and distribution operations [1][2][4] Company Overview - Rocky Mountain Chocolate Factory is a leading franchiser of premium chocolate and confectionary retail stores, known as America's Chocolatier™ since 1981 [5] - The company operates nearly 260 stores across the United States and has several international locations, with its stock listed on the Nasdaq under the symbol "RMCF" [5] Leadership Background - Luis Burgos has held senior leadership roles at various companies, including U.S. Cotton and Kimberly-Clark, overseeing both single-site and multi-site operations [2][3] - His expertise includes applying Lean and Six Sigma tools to enhance process performance and productivity [3] - Burgos holds an MBA in International Business and a Bachelor of Science in Industrial and Systems Engineering, and is fluent in English and Spanish [4] Strategic Importance - The appointment of Burgos is seen as crucial for the company's operational performance and transformation, as stated by Interim CEO Jeff Geygan [4] - His experience in expanding manufacturing capabilities and improving product quality is expected to support the company's growth and operational efficiency [3][4]

Company Overview - Rocky Mountain Chocolate Factory Inc. is a leading franchiser of premium chocolate and confectionary retail stores, known as America's Chocolatier™ [4] - The company has been producing a wide range of premium chocolates and confectionery products since 1981, including gourmet caramel apples [4] - Headquartered in Durango, Colorado, the company operates nearly 260 stores across the United States and has several international locations [4] Upcoming Conference Call - The company will host a conference call on July 16, 2025, at 9:00 a.m. Eastern time to discuss its fiscal first quarter 2026 results [1] - Attendees can submit questions in advance via email to the investor relations team [2] - The conference call will be available for live broadcast and replay on the company's investor relations website [3] Recognition and Rankings - Rocky Mountain Chocolate Factory is ranked among Entrepreneur's Franchise 500 for 2025 and Franchise Times' Franchise 400 for 2024 [4] - The company's common stock is listed on the Nasdaq Global Market under the symbol "RMCF" [4]

Company Compliance - Rocky Mountain Chocolate Factory, Inc. has regained compliance with Nasdaq Listing Rule 5250(c)(1) after filing its Annual Report on Form 10-K for the fiscal year ended February 28, 2025 [1] - The company received a notice from Nasdaq on June 17, 2025, indicating non-compliance due to the delayed filing of its Form 10-K [2] - The Form 10-K was filed on June 20, 2025, and compliance was confirmed by Nasdaq on June 23, 2025 [2] Company Overview - Rocky Mountain Chocolate Factory, Inc. is a leading franchiser of premium chocolate and confectionary retail stores, producing a wide range of products since 1981 [3] - The company operates nearly 260 stores across the United States and has several international locations [3] - It is recognized in Entrepreneur's Franchise 500 for 2025 and Franchise Times' Franchise 400 for 2024 [3]

Core Insights - Rocky Mountain Chocolate Factory, Inc. (RMCF) shares have increased by 21.4% since the earnings report for the quarter ended February 28, 2025, outperforming the S&P 500 Index, which saw a 0.4% loss during the same period [1] - The company reported total revenues of $8.9 million for Q4 fiscal 2025, a 22.6% increase from $7.3 million in the same quarter last year, driven by a 27.5% rise in product sales [2] - Despite revenue growth, RMCF experienced a net loss from continuing operations of $2.9 million, widening from a loss of $1.6 million in the previous year [2] Financial Performance - For the full fiscal year 2025, RMCF's revenues increased by 5.8% to $29.6 million from $27.9 million, but annual gross profit fell to $0.1 million from $1.4 million due to higher cocoa prices and inflation [3] - The net loss from continuing operations for the full year widened to $6.1 million, or $(0.86) per share, compared to a loss of $4.9 million, or $(0.77) per share, in fiscal 2024 [3] Operational Changes - RMCF undertook a restructuring effort, ceasing co-packing operations in Salt Lake City, which is expected to eliminate $1.5 million in annual losses [4] - The company brought consumer packaging operations back in-house to Durango, enhancing workflow control and achieving cost savings [4] Technology and Efficiency Improvements - A new ERP system and modern point-of-sale platform were implemented, providing real-time data visibility for better decision-making across over 100 stores [5] - A dynamic pricing model was introduced, allowing for quarterly adjustments based on input costs, which management expects to generate several million dollars in additional gross profit during fiscal 2026 [6] Strategic Vision - Interim CEO Jeff Geygan described fiscal 2025 as a foundational year with significant operational corrections and cultural resets [7] - The leadership team is focusing on "fewer, stronger" franchise operators, with early results showing significant year-over-year sales growth in transferred units [8] Brand and Digital Modernization - RMCF is rolling out a brand refresh, including a new logo and modernized store designs, with positive early responses from franchisees and consumers [11] - Record e-commerce sales were reported during the holiday season, with expectations for profitable contributions in fiscal 2026 due to in-house packaging operations [12] Financial Guidance and Market Outlook - While specific financial guidance was not issued, management emphasized a focus on returning to profitability in fiscal 2026, citing improved gross margins and enhanced fulfillment capabilities as positive indicators [13] Capital and Debt Management - During fiscal 2025, RMCF raised $2.2 million in equity capital and refinanced a $4 million credit facility into a $6 million term loan to support system upgrades and brand overhaul [14] - As of February 28, 2025, RMCF had $6 million in outstanding debt and no balance on its line of credit [14]

Part I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Rocky Mountain Chocolate Factory is an international franchisor and confectionery producer, operating 260 stores and generating revenue from product sales, royalties, and company-owned stores - As of February 28, 2025, the company's network consisted of **2 Company-owned stores, 141 franchised stores, and 117 licensee-owned stores, totaling 260 locations** across 27 states and the Philippines[10](index=10&type=chunk)[240](index=240&type=chunk) - The company operates co-branding partnerships, with **107 locations operated by Cold Stone Creamery franchisees and 10 by U-Swirl (SWRL) franchisees** as of February 28, 2025[27](index=27&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - A revised franchise agreement effective after July 1, 2023, offers a tiered royalty rate from **6% down to 4%**, based on the sales mix of company-produced products, to incentivize franchisees to sell more Durango-made items[46](index=46&type=chunk) - The company's Durango production facility produced approximately **2.05 million pounds of chocolate products in FY 2025**, a **27% increase** from the **1.61 million pounds** produced in FY 2024[156](index=156&type=chunk) FY 2025 Revenue Sources | Revenue Source | Percentage of Total Revenue | | :--- | :--- | | Sales of confectionery products to franchisees/third parties | 76% | | Sales at Company-owned stores | 5% | | Franchise royalties and marketing fees | 19% | [Item 1A. Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial doubt about its going concern ability due to net losses, negative cash flow, and debt covenant violations, alongside various operational and market risks - The auditor's report for the fiscal year ended February 28, 2025, contains an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern due to a **net loss of $6.1 million** and **negative operating cash flow of $6.6 million**[122](index=122&type=chunk)[124](index=124&type=chunk) - As of February 28, 2025, the company was in violation of two covenants in its **$6.0 million Credit Agreement**: the ratio of total liabilities to tangible net worth was **2.21 to 1** (limit is **2.0 to 1**), and capital expenditures were **$3.7 million** (limit is **$3.5 million**)[126](index=126&type=chunk)[127](index=127&type=chunk)[204](index=204&type=chunk) - Sales to Specialty Market customers (outside the franchise system) are concentrated, representing approximately **$3.7 million or 12% of total revenue** in FY 2025[85](index=85&type=chunk) - The company's growth is highly dependent on its ability to attract and retain qualified franchisees and their ability to operate stores successfully[87](index=87&type=chunk)[88](index=88&type=chunk) - The business is subject to risks from macroeconomic factors, including public health outbreaks, economic weakness that reduces discretionary spending, and changes in trade policies or tariffs that could increase costs[131](index=131&type=chunk)[134](index=134&type=chunk)[138](index=138&type=chunk) [Item 1.B Unresolved Staff Comments](index=26&type=section&id=Item%201.B%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - None[149](index=149&type=chunk) [Item 1.C Cybersecurity](index=26&type=section&id=Item%201.C%20Cybersecurity) The company manages cybersecurity risks through integrated processes, including firewalls and consultants, with Board oversight, and has not experienced material incidents - The company's cybersecurity risk management is integrated into its overall risk management system and includes the use of firewalls, antivirus software, and third-party consultants[150](index=150&type=chunk) - The Board's Audit Committee is responsible for overseeing cybersecurity risks, and the interim CEO and CFO communicate daily with the IT department to monitor threats[152](index=152&type=chunk)[154](index=154&type=chunk) - To date, the company has not experienced any material cybersecurity incidents that have significantly affected its business, operations, or financial condition[151](index=151&type=chunk) [Item 2. Properties](index=27&type=section&id=Item%202.%20Properties) The company owns a 53,000 square foot manufacturing and headquarters facility in Durango, Colorado, and leases its two company-owned stores - The company owns its **53,000 square foot** manufacturing and headquarters facility in Durango, Colorado[156](index=156&type=chunk) - In July 2024, the company sold an unused parcel of land in Durango for approximately **$0.9 million**[156](index=156&type=chunk) - As of February 28, 2025, the company had lease obligations for its two Company-owned stores in Durango, CO and Corpus Christi, TX[157](index=157&type=chunk) [Item 3. Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings) The company is not aware of any pending legal actions expected to have a material adverse effect on its business - The company is not a party to any legal proceedings expected to have a material adverse effect on its business[159](index=159&type=chunk)[338](index=338&type=chunk) [Item 4. Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[161](index=161&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=28&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'RMCF', with no current intention to pay cash dividends - The company's common stock is listed on the Nasdaq Global Market under the symbol **"RMCF"**[162](index=162&type=chunk) - The company has no present intention of paying a cash dividend on its common stock[163](index=163&type=chunk) [Item 6. Reserved](index=28&type=section&id=Item%206.%20Reserved) This item is reserved [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a 5.8% revenue increase to $29.6 million in FY 2025, alongside increased operating losses, declining gross margin, and liquidity concerns raising going concern doubts - Gross margin significantly decreased to **0.4% in FY 2025 from 6.2% in FY 2024**, primarily due to a sharp increase in cocoa costs, other inflationary pressures, and a **$1.5 million** negative impact from an unsuccessful attempt to relocate consumer packaging operations[183](index=183&type=chunk)[186](index=186&type=chunk) - Royalty and marketing fees decreased by **6.7% in FY 2025**, mainly because of new, more favorable franchise agreements designed to encourage franchisees to sell more company-produced products[179](index=179&type=chunk)[182](index=182&type=chunk) - The company's financial condition raises substantial doubt about its ability to continue as a going concern. Working capital increased to **$2.4 million**, but cash and cash equivalents decreased from **$2.1 million to $0.7 million**[194](index=194&type=chunk)[195](index=195&type=chunk)[199](index=199&type=chunk) - In September 2024, the company secured a new **$6.0 million**, 3-year credit agreement at **12% interest**, using the proceeds to repay a **$3.5 million** Wells Fargo facility and for working capital[171](index=171&type=chunk)[200](index=200&type=chunk)[204](index=204&type=chunk) Fiscal Year 2025 vs 2024 Performance Summary | Metric | FY 2025 ($) | FY 2024 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $29.6M | $28.0M | +$1.6M | +5.8% | | Operating Loss | ($5.9M) | ($4.9M) | ($1.0M) | +20.4% | | Loss from Continuing Operations | ($6.1M) | ($4.9M) | ($1.2M) | +24.5% | | Basic Loss per Share | ($0.86) | ($0.77) | ($0.09) | +11.7% | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the company is not required to provide the information for this item - Not required for smaller reporting companies[212](index=212&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=36&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for FY2025 and FY2024, including an auditor's report expressing substantial doubt about going concern due to a $6.1 million net loss and declining equity - The Report of Independent Registered Public Accounting Firm includes a paragraph stating: "The Company has incurred recurring losses and negative cash flows from operations... all of which raise substantial doubt about the Company's ability to continue as a going concern"[219](index=219&type=chunk) - Note 15 details the divestiture of the U-Swirl business in FY 2024, which resulted in a gain on disposal of **$635,000** and total consideration of **$2.758 million** (**$1.75 million cash** and a **$1.0 million note**)[354](index=354&type=chunk)[357](index=357&type=chunk) Consolidated Statements of Operations (in thousands) | | FY 2025 ($) | FY 2024 ($) | | :--- | :--- | :--- | | Total Revenue | $29,579 | $27,951 | | Total costs and expenses | $35,521 | $32,853 | | Loss from Operations | ($5,942) | ($4,902) | | Loss from Continuing Operations | ($6,122) | ($4,876) | | Net Loss | ($6,122) | ($4,172) | | Basic & Diluted Loss per Share | ($0.86) | ($0.66) | Consolidated Balance Sheets (in thousands) | | Feb 28, 2025 ($) | Feb 29, 2024 ($) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $720 | $2,082 | | Total current assets | $9,223 | $9,602 | | Total Assets | $21,175 | $20,577 | | **Liabilities & Equity** | | | | Total current liabilities | $6,869 | $8,072 | | Note payable | $5,957 | $0 | | Total Liabilities | $14,200 | $9,941 | | Total stockholders' equity | $6,975 | $10,636 | Consolidated Statements of Cash Flows (in thousands) | | FY 2025 ($) | FY 2024 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,595) | ($2,435) | | Net cash used in investing activities | ($1,655) | ($1,450) | | Net cash provided by financing activities | $6,888 | $1,250 | [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=66&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[358](index=358&type=chunk) [Item 9A. Controls and Procedures](index=66&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of February 28, 2025 - Management concluded that the company's disclosure controls and procedures were effective as of February 28, 2025[360](index=360&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of February 28, 2025, based on the COSO 2013 framework[361](index=361&type=chunk) [Item 9B. Other Information](index=66&type=section&id=Item%209B.%20Other%20Information) The company reports that none of its directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fourth quarter of fiscal year 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement in the fourth quarter ended February 28, 2025[364](index=364&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=66&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not Applicable[365](index=365&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=67&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) The information required for this item, including details on directors, executive officers, and corporate governance, is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[366](index=366&type=chunk) [Item 11. Executive Compensation](index=67&type=section&id=Item%2011.%20Executive%20Compensation) The information required for this item regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[368](index=368&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=67&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the 2025 proxy statement, detailing equity compensation plan data as of February 28, 2025 Equity Compensation Plan Information as of February 28, 2025 | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights ($) | Number of securities remaining available for future issuance under equity compensation plans | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 235,664 | $ - | 656,465 | | Equity compensation plans not approved by stockholders | 0 | 0 | 0 | | **Total** | **235,664** | **$ -** | **656,465** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=67&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) The information required for this item, covering related party transactions and director independence, is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[371](index=371&type=chunk) [Item 14. Principal Accountant Fees and Services](index=68&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The information required for this item regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[372](index=372&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=69&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits, including the auditor's report and a valuation and qualifying accounts schedule Schedule II - Valuation and Qualifying Accounts (in thousands) | Description | Balance at Beginning of Period ($) | Additions Charged to Costs & Exp. ($) | Deductions ($) | Balance at End of Period ($) | | :--- | :--- | :--- | :--- | :--- | | **Year Ended Feb 28, 2025** | | | | | | Valuation Allowance for Accounts and Notes Receivable | $362 | $53 | $80 | $335 | | **Year Ended Feb 29, 2024** | | | | | | Valuation Allowance for Accounts and Notes Receivable | $764 | $113 | $515 | $362 | [Item 16. Form 10-K Summary](index=73&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[383](index=383&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q4 2025 was $8.9 million, up from $7.3 million in the same period last year, while product sales increased to $7.1 million from $5.6 million [24] - Net loss from continuing operations was $2.9 million, or a negative $0.37 per share, compared to a net loss of $1.6 million, or a negative $0.25 per share in the previous year [26] - For the full year 2025, revenue was $29.6 million compared to $28 million in 2024, with a net loss of $6.1 million, or negative $0.86 per share, compared to a net loss of $4.9 million, or negative $0.77 per share in the prior year [27][28] Business Line Data and Key Metrics Changes - Franchise and royalty fees remained flat at $1.8 million, while total product and retail gross profit was a negative $800,000 compared to a positive $100,000 last year, primarily due to higher raw material costs [24][27] - The company achieved nearly a 100% fulfillment rate for franchisee demand during Q4, marking a significant turnaround in operational performance [15] Market Data and Key Metrics Changes - The company is actively evaluating development opportunities in markets such as Atlanta, Sacramento, Park City, and Jersey Shore, with a focus on building a healthy franchise network [10] - The e-commerce business delivered record sales during the past holiday season, although profitability was challenged due to inefficient fulfillment and elevated advertising spend [18] Company Strategy and Development Direction - The company is focused on transforming its operations, systems, and culture to become more accountable and resilient, with significant investments in IT and manufacturing systems [5][22] - A new dynamic pricing model was introduced on March 1, allowing for more frequent price adjustments based on actual input costs, which is expected to capture several million dollars in additional gross profit in fiscal 2026 [12] - The company aims to build deeper regional density with fewer, stronger operators who have multi-unit development plans, moving away from a one-size-fits-all pricing model [11][37] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to profitability in fiscal 2026, highlighting the foundational changes made during fiscal 2025 [22][23] - The leadership team is focused on rebuilding the company from a long-term decline, with a strong emphasis on operational discipline and accountability [23] Other Important Information - The company raised $2.2 million in equity capital and refinanced its credit facility to support its transformation efforts [22] - A new ERP system was launched in January, providing enhanced visibility into sales and inventory, which is critical for data-driven decision-making [14] Q&A Session Summary Question: What is the process for determining quarterly price adjustments? - The company plans to adjust prices quarterly or more frequently as needed, ensuring alignment with costs while maintaining target margins [30] Question: What is the status of the rebranding process? - Feedback on the rebranding has been positive, with new store designs and packaging expected to roll out in mid to late July [32][34] Question: What is the strategy for new unit growth? - The focus will be on engaging fewer, well-capitalized franchisees who can operate multiple stores, rather than expanding through numerous single-store operators [36][37] Question: Why were the filings delayed this year? - Delays were primarily due to the ERP installation and additional testing required to ensure data accuracy, not indicative of any underlying issues [39]