Rocky Mountain Chocolate Factory(RMCF) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements for the nine months ended November 30, 2020, reflect a 35.7% revenue decline and a $3.1 million net loss due to COVID-19, despite increased cash from financing activities Consolidated Statements of Operations Highlights | Metric | Three Months Ended Nov 30, 2020 ($) | Three Months Ended Nov 30, 2019 ($) | Nine Months Ended Nov 30, 2020 ($) | Nine Months Ended Nov 30, 2019 ($) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $7,228,867 | $7,913,252 | $15,258,706 | $23,724,521 | | Income (Loss) from Operations | $398,564 | $(98,174) | $(4,311,042) | $2,093,072 | | Consolidated Net Income (Loss) | $523,695 | $(71,637) | $(3,067,570) | $1,558,060 | | Diluted Earnings (Loss) per Share | $0.08 | $(0.01) | $(0.51) | $0.25 | Consolidated Balance Sheets Highlights | Metric | November 30, 2020 ($) | February 29, 2020 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $7,270,921 | $4,822,071 | | Total current assets | $15,334,665 | $13,611,730 | | Total Assets | $28,281,014 | $27,817,388 | | Line of credit | $3,448,165 | $- | | Total current liabilities | $8,755,568 | $5,606,822 | | Total stockholders' equity | $16,687,577 | $19,355,511 | Consolidated Statements of Cash Flows Highlights (Nine Months Ended) | Metric | November 30, 2020 ($) | November 30, 2019 ($) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,012,609) | $4,031,992 | | Net cash used in investing activities | $198,438 | $(753,952) | | Net cash provided by (used in) financing activities | $4,263,021 | $(3,199,389) | | Net Increase (Decrease) in Cash | $2,448,850 | $78,651 | - The COVID-19 pandemic has caused significant business disruptions, including store closures and reduced operations, negatively impacting factory sales, retail sales, and royalty fees. As of November 30, 2020, approximately 43 stores had not re-opened[26] - In response to the pandemic's financial impact, the Board of Directors suspended quarterly cash dividends in May 2020 to preserve cash[27][59] - Due to the financial strain on its franchisees from COVID-19, the company significantly increased its allowance for potentially uncollectible accounts and notes receivable to $1.88 million at November 30, 2020, up from $0.64 million at February 29, 2020[134] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 35.7% nine-month revenue decline and $3.1 million net loss to COVID-19 disruptions, with liquidity managed through credit line draws, PPP loans, and a resolved covenant breach - The company experienced significant business disruptions from COVID-19, leading to reduced operations at nearly all Company-owned and franchise stores. As of November 30, 2020, about 43 stores remained closed[94] - To maximize liquidity during the pandemic, management took actions including drawing down its line of credit, obtaining PPP loans, reducing operating expenses, and eliminating non-essential spending[97] Revenue Comparison (Three Months Ended Nov 30) | Revenue Source | 2020 ($ thousands) | 2019 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Factory sales | $5,570.4 | $5,786.3 | (3.7)% | | Retail sales | $531.4 | $704.3 | (24.5)% | | Royalty and marketing fees | $1,081.0 | $1,340.4 | (19.4)% | | Total | $7,228.9 | $7,913.3 | (8.6)% | Revenue Comparison (Nine Months Ended Nov 30) | Revenue Source | 2020 ($ thousands) | 2019 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Factory sales | $11,203.7 | $15,874.7 | (29.4)% | | Retail sales | $1,214.4 | $2,460.5 | (50.6)% | | Royalty and marketing fees | $2,665.9 | $5,118.8 | (47.9)% | | Total | $15,258.7 | $23,724.5 | (35.7)% | - For the nine months ended Nov 30, 2020, the strategic alliance with Edible Arrangements contributed approximately $2.1 million in revenue, partially offsetting declines from franchisee sales and the loss of FTD as a customer[121] - The company drew the maximum available amount of $3.4 million from its credit line in March 2020. It was not in compliance with an EBITDA covenant as of November 30, 2020, but executed an amendment on December 22, 2020, to become compliant[146] - The company received $1.5 million in PPP loans under the CARES Act. In November 2020, a loan of $108,000 was fully forgiven[147] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the registrant is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide the information required by this Item[155] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of November 30, 2020, with no material changes to internal control over financial reporting during the quarter - Management's evaluation concluded that the company's disclosure controls and procedures were effective as of November 30, 2020[157] - No changes in internal control over financial reporting occurred during the quarter ended November 30, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls[158] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various ordinary course legal proceedings, which management does not expect to materially adversely affect its financial condition or operations - The Company is party to various legal proceedings arising in the ordinary course of business, which management believes will not have a material adverse effect on its financial position, operations, or cash flows[159] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended February 29, 2020 - There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended February 29, 2020[160] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no issuer purchases of equity securities during the period - There were no issuer purchases of equity securities during the reporting period[161] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[162] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[163] Other Information The company reported no other information for this item - None[164] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications pursuant to the Sarbanes-Oxley Act and XBRL data files - The report includes exhibits such as the Amended and Restated Certificate of Incorporation, the 2007 Equity Incentive Plan, Sarbanes-Oxley Act certifications, and XBRL data files[168] Signatures - The report was signed on January 13, 2021, by Bryan J. Merryman, serving as Chief Executive Officer, Chief Financial Officer, Treasurer, and Chairman of the Board of Directors[172]