Rocky Mountain Chocolate Factory(RMCF) - 2026 Q2 - Quarterly Report

FORM 10-Q Filing Information Filing Details 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] - The registrant is Rocky Mountain Chocolate Factory, Inc., incorporated in Delaware[2] Registrant Information 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] Filer Status 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] 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 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] - 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] - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[9] PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements (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 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 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 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 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 NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Rocky Mountain Chocolate Factory, Inc. (RMCF) is an international franchisor, confectionery producer, and retail operator, founded in 1981 and headquartered in Durango, Colorado[25] - 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] 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] - 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] - Management plans to reduce overhead, improve manufacturing efficiencies, increase profits and gross margins, and boost e-commerce sales to address liquidity concerns[31] NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION 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 - 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][42] 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] - Durango Product Sales, Retail Sales, and Royalty/Marketing Fees are recognized at the point of sale or when sales occur[45] NOTE 4 - DISAGGREGATION OF REVENUE 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 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 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] NOTE 7 - GOODWILL AND INTANGIBLE ASSETS 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] 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 - 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][57] - 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] - 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] - 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] - 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][63] NOTE 9 - COMMON STOCK - 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] - 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] - 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] 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 - Basic EPS is calculated using weighted-average common shares outstanding, while diluted EPS includes potential dilution from restricted stock units[70] - 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] NOTE 11 - LEASING ARRANGEMENTS - 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][75] - 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] - Lease expense recognized was $0.2 million for both the six months ended August 31, 2025 and 2024[77] 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] NOTE 12 - COMMITMENTS AND CONTINGENCIES - The Company enters into 6-12 month purchase contracts for chocolate and nuts at fixed prices, designated as normal under derivatives accounting standards[83] - 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] NOTE 13 - ACQUISITION - 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][87] - 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] NOTE 14 - OPERATING SEGMENTS - The Company operates in three reportable segments: Franchising, Manufacturing, and Retail Stores, with an 'Unallocated' category for corporate costs[91] 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 - 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] - A valuation allowance is established for deferred tax assets when realization is not more likely than not, and the Company evaluates this quarterly[100][102] - The Company does not have significant unrecognized tax benefits and does not anticipate a significant change in the next twelve months[103] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 - Rocky Mountain Chocolate Factory, Inc. is an international franchisor, confectionery producer, and retail operator, with revenues primarily from its franchised/licensed retail stores[107] - 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][107] - 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][109] - A new $1.2 million credit agreement was signed with RMCF2 Credit, LLC (affiliated with the Interim CEO) on August 28, 2025, both loans mature on September 30, 2027, with 12% interest[110][111] - Waivers were obtained for the maximum liabilities to total net worth covenant for Q3 and Q4 2025, as the Company was not in compliance as of August 31, 2025[109][113] Business and Outlook - The Company expects continued higher raw material, labor, and freight costs due to macroeconomic inflationary trends, impacting cost of goods sold[114] - Sales are subject to seasonal fluctuations, with strongest sales during key holidays and summer vacation seasons, and quarterly results are affected by new store openings and franchise sales[115] - Key growth factors include increasing sales of premium chocolate products from the Durango facility, increasing customer visits and transaction values at franchised stores, e-commerce growth, and new franchise store growth[116] Results of Continuing Operations Three Months Ended August 31, 2025 Compared To the Three Months Ended August 31, 2024 Three Months Ended August 31: Key Financial Highlights (in thousands, except per share) | Metric | 2025 | 2024 | Change ($) | 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] - Royalty and marketing fees increased by $0.2 million due to higher store sales subject to royalty fees[122] Three Months Ended August 31: Costs and Expenses (in thousands) | Expense Category | 2025 | 2024 | Change ($) | 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] - Franchise costs decreased by 42.0% due to operational efficiencies and cost-cutting measures[128] - General and administrative costs decreased by 39.8% due to cost-cutting measures[130] - Total other expense was $0.2 million in 2025, compared to other income of $0.2 million in 2024, driven by increased interest expense and the absence of a gain on asset disposal seen in 2024[133] Six Months Ended August 31, 2025 Compared To the Six Months Ended August 31, 2024 Six Months Ended August 31: Key Financial Highlights (in thousands, except per share) | Metric | 2025 | 2024 | Change ($) | 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] - Royalty and marketing fees increased by $0.7 million, driven by higher sales of store-made products by franchisees[137] Six Months Ended August 31: Costs and Expenses (in thousands) | Expense Category | 2025 | 2024 | Change ($) | 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] - Franchise costs decreased by 23.2% due to operational efficiencies and cost-cutting measures[142] - General and administrative costs decreased by 30.9% due to cost-cutting measures[144] - 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] Liquidity and Capital Resources - 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] - Cash and cash equivalents increased from $0.7 million to $2.0 million, mainly from $1.8 million in notes payable proceeds[148] - 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] - 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] - 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] - 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][158] Significant Accounting Policies - 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] Off Balance Sheet Arrangements - As of August 31, 2025, the Company had purchase obligations of approximately $2.4 million, primarily for future commodity purchases for manufacturing[160] Impact of Inflation - Inflationary factors, such as increases in ingredient and labor costs, directly affect the Company's operations and lease expenses[161] - There is no assurance that the Company will be able to pass on increased costs to its customers[161] 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] - 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] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 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] ITEM 4. Controls and Procedures 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 - 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] Changes in Internal Control over Financial Reporting - 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][168] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 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] - 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] ITEM 1A. Risk Factors 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 - 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][175] - The Company has a cure period until September 15, 2026, to regain compliance by appointing an additional independent director[173] - 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][176] Inability to Meet Financial Covenants - 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] - 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] - 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] ITEM 2. Unregistered Sale of Equity Securities and Use of Proceeds 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] ITEM 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[181] ITEM 4. Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the Company[182] ITEM 5. Other Information 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] - As of October 1, 2025, there were approximately 406 record holders of the Company's common stock[184] ITEM 6. Exhibits 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] - Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed herewith[185] Signatures Report Signatures 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]