Rocky Mountain Chocolate Factory Inc
For the period ended Feb 28, 2025. Filed Jun 20, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Jun 20, 2025
RMCF$0.83+7.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2024-02-29; filed 2024-06-13.
0000950170-24-072997
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2025-02-28; filed 2025-06-20.
0000950170-25-088556
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 67 previous paragraphs and 70 current paragraphs.
31 unchanged; 21 reworded; 18 added; 15 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 5 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (18)
Current report
On August 5, 2024, the Company entered into securities purchase agreements with Steven L. Craig, an existing director of the Company and American Heritage Railways, Inc. a company affiliated with Allen C. Harper who joined the board of directors in December 2024 (the “Investors”), pursuant to which, among other things, the Investors agreed to subscribe for and purchase, and the Company agreed to issue and sell to the Investors in a private placement, an aggregate of 1,250,000 of shares of the Company’s common stock at a price per share equal to $1.75, for total proceeds of approximately $2.2 million. On September 5, 2024, the Company filed a Form S-1 registering the shares sold in the private placement. The Form S-1 was declared effective by the SEC on October 9, 2024.
Current report
On September 30, 2024, the Company repaid the amount owed under its credit agreement with Wells Fargo Bank N.A. (the "Wells Fargo Credit Agreement") and entered into a new credit agreement (the “Credit Agreement”) with RMC Credit Facility, LLC (“RMC”). Pursuant to the Credit Agreement, the Company received an advance in the principal amount of $6.0 million, which advance is evidenced by a promissory note (the “Note”). The Note will mature on September 30, 2027 (the “Maturity Date”), and interest will accrue at a rate of 12% per annum and is payable monthly in arrears. All outstanding principal and interest will be due on the Maturity Date. RMC is a special purpose investment entity affiliated with Steven L. Craig, one of the members of the Company's board of directors.
Current report
The increase in total sales for FY 2025 compared to FY 2024 was primarily due to a 9%, or $2.0 million, increase in sales of products to our network of franchised and licensed retail stores, Specialty Markets customers, and e-commerce customers, and also reflective of price increases.
Current report
We continue to rationalize product offerings to improve production efficiencies, while adding new products we believe can generate high sales volumes and gross profit margins at or above our average level for bulk and packaged items. We continue to focus our marketing efforts to increase total pounds purchased by franchise locations.
Current report
Royalty and marketing fees decreased during FY 2025 compared to FY 2024 was primarily due to the Company offering more favorable royalty agreements within our updated franchise agreement designed to increase the amount of Durango product items sold in franchised stores. The change in franchise fee revenue during FY 2025 compared to FY 2024 was not material.
Current report
Cost of Sales and Expenses
Current report
The decrease in sales and marketing costs during FY 2025, compared to FY 2024, was due primarily to changes with the organization of the department under which fewer marketing executives were hired to address gaps in our historic marketing plan, and a more focused ad spend was undertaken to direct resources to achieve a higher return on investment. As a percentage of total revenues, sales and marketing expenses decreased to 6.7% during FY 2025, compared to 7.6% during FY 2024.
Current report
The decrease in general and administrative costs during FY 2025, compared to FY 2024, was due in part to headcount rationalization designed to improve efficiency and collaboration across departments. The Company continued to incur an elevated level of professional fees related to support our Board of Directors and costs associated with compensation obligations for our former Chief Executive Officer. The Company had additional legal and professional costs associated with an equity raise and the refinancing of our credit facility. We also had a variety of technology and corporate matters requiring outside consulting services. As a percentage of total revenues, general and administrative expenses decreased to 21.3% during FY 2025, compared to 23.9% during FY 2024.
Current report
Retail operating expenses increased 6.7% during FY 2025 compared to FY 2024. This increase is primarily the result of the mid-year FY 2024 addition of the Company's Corpus Christi, TX location. As a percentage of total revenues, retail operating expenses remained relatively unchanged at 2.4% during FY 2025 compared to 2.4% during FY 2024.
Current report
Income Tax Provision (Benefit)
Current report
As of February 28, 2025, working capital was $2.4 million compared with $1.5 million as of February 29, 2024. The increase in working capital was due primarily to an equity capital raise of $2.2 million, a refinancing of the Company's previous revolving credit facility into a 3-year note payable that generated an additional $2.5 million of balance sheet liquidity, and the sale of assets that generated $2.3 million, offset by $3.8 million of capital investment in the Durango production facility, plus net change in accounts receivable and accounts payable. Expected future cash requirements include supporting current operations and building inventory including capital expenditures to support our business.
Current report
During FY 2025, financing activities provided cash of $6.9 million, primarily due to proceeds from notes payable of $6.0 million, proceeds from the line of credit of $2.2 million, and issuance of common stock through the securities purchase agreement of $2.2 million, partially offset by the payment on the line of credit of $3.5 million and payment of debt issuance costs of $0.1 million. In comparison, financing activities provided cash of $1.3 million during FY 2024 resulting from the Company drawing down $1.3 million on its revolving line of credit.
Current report
Credit Agreement and Payment of Wells Fargo Credit Agreement
Current report
On September 30, 2024, the Company entered into a new credit agreement (the “Credit Agreement”) with RMC Credit Facility, LLC ("RMC"). Pursuant to the Credit Agreement, the Company received an advance in the principal amount of $6.0 million, which advance is evidenced by a promissory note (the “Note”). The Note will mature on September 30, 2027 (the “Maturity Date”), and interest will accrue at a rate of 12% per annum and is payable monthly in arrears. All outstanding principal and interest will be due on the Maturity Date. The Credit Agreement is collateralized by the Company’s Durango real estate property and the related inventory and property, plant and equipment located on that property, as well as the Company’s accounts receivable and cash accounts.
Current report
In connection with the Credit Agreement and the Note, the Company entered into a Deed of Trust with RMC and the Public Trustee of La Plata County, Colorado with respect to the Company’s property in Durango, Colorado. RMC is a special purpose investment entity affiliated with Steven L. Craig, one of the members of the Company's board of directors.
Current report
The proceeds of the Credit Agreement were used as follows: (i) $3.5 million was used to repay the Wells Fargo Credit Agreement and (ii) the remaining balance was used for continued capital investment and working capital needs. The Credit Agreement contains customary events of default, including nonpayment of principal and interest when due, failure to comply with covenants, and a change of control of the Company, as well as customary affirmative and negative covenants, including, without limitation, certain reporting obligations and certain limitations on liens, encumbrances, and indebtedness. The Credit Agreement also limits our capital expenditures to $3.5 million per year and contains two financial covenants measured quarterly: a maximum ratio of total liabilities to total net worth and a minimum current ratio.
Current report
The Company paid off the outstanding balance of $3.5 million of the Wells Fargo Credit Agreement upon maturity on September 30, 2024.
Current report
On August 5, 2024, the Company entered into securities purchase agreements with Steven L. Craig, an existing director of the Company and American Heritage Railways, Inc. a company affiliated with Allen C. Harper who joined the board of directors in December 2024 (the “Investors”), pursuant to which, among other things, the Investors agreed to subscribe for and purchase, and the Company agreed to issue and sell to the Investors in a private placement, an aggregate of 1,250,000 of shares of the Company’s common stock at a price per share equal to $1.75, for total proceeds of approximately $2.2 million. On September 5, 2024, the Company filed a Form S-1 registering the shares sold in the private placement. The Form S-1 was declared effective by the SEC on October 9, 2024.
Removed paragraphs (15)
Previous report
On November 10, 2023, our board of directors adopted stock ownership guidelines for our non-employee directors and executive officers. Under the guidelines, non-employee directors are required to own certain eligible securities (“Eligible Shares”) of the Company worth three (3) times the cash portion of their annual directors’ base fees paid in cash, not including any retainers for service as the Board Chair or as a Board Committee Chair. Our Chief Executive Officer is required to own Eligible Shares worth three (3) times their base salary. Other executive officers of the Company are required to own Eligible Shares worth one (1) times their base salary. Non-employee directors elected prior to November 16, 2021 will have five (5) years from November 16, 2021 to meet the holding requirements. Non-employee directors elected after November 16, 2021 and up to November 10, 2023, will have five (5) years from the date of his or her election to meet the holding requirements. Executive officers serving as of November 10, 2023 will have five (5) years from that date to meet the minimum ownership requirement. All directors and executive officers who are elected or appointed after November 10, 2023 will have five (5) years from the time they are elected or appointed to meet the minimum ownership requirement.
Previous report
The decrease in total sales for FY 2024 compared to FY 2023 was primarily due to a 10%, or $2.4 million, decrease in sales of product to our network of franchised and licensed retail stores resulting from disruptions in our consumer packaged product availability to our franchise system due to a relocation of our packaging line to Salt Lake City, Utah in October as part of our plan to address labor shortages in the Durango area
Previous report
In FY 2024, same store pounds purchased by franchisees and licensees declined slightly compared to the prior fiscal year. We continue to add new products and focus our existing product lines in an effort to increase same store pounds purchased by existing locations.
Previous report
Royalty and marketing fees were approximately unchanged during FY 2024 compared to FY 2023. The slight decrease in franchise fee revenue during FY 2024 compared to FY 2023 was primarily the result of store closures offset by the acceleration of unrecognized franchise fee revenue.
Previous report
Cost of Sales
Previous report
The increase in sales and marketing costs during FY 2024 compared to FY 2023 was due primarily to an increase in equity compensation costs and contract labor associated with the retirement of our former Senior Vice President of Sales and Marketing, and an increase in advertising costs.
Previous report
The decrease in general and administrative costs during FY 2024, compared to FY 2023, was due primarily to costs associated with a stockholder’s contested solicitation of proxies in connection with our 2023 annual meeting of stockholders. During FY 2024, the Company did not incur material costs associated with the contested solicitation of proxies, compared with $4.1 million of costs associated with a contested solicitation of proxies during FY 2023. The Company also incurred increased professional fees related to legal support for our Board of Directors and legal costs associated with compensation agreements for our former Chief Executive Officer and Chief Financial Officer and legal and professional costs associated with the search for, and appointment of, a new Chief Executive Officer and a new Chief Financial Officer. Additionally, due to a stockholder's contested solicitation of proxies in connection with our 2021 annual meeting of stockholders, the Company had become contingently liable for certain change in control severance payments to our former Senior Vice President of Sales and Marketing if a triggering termination was to occur. As a result of our former Senior Vice President of Sales and Marketing's retirement in September 2022, the Company incurred $1.1 million of associated severance costs. As a percentage of total revenues, general and administrative expenses decreased to 23.9% during FY 2024, compared to 33.9% during FY 2023.
Previous report
Retail operating expenses increased 24.9% during FY 2024 compared to FY 2023. This increase is primarily the result of the Company's new Corpus Christi, TX location. In November 2022 we sold a Company-owned store located in Peoria, Illinois, to a franchisee. The result is that as of February 29, 2024, we operated two Company-owned locations.
Previous report
Income Tax Expense
Previous report
As of February 29, 2024, working capital was $1.5 million compared with $6.2 million as of February 28, 2023. The decrease in working capital was due primarily to a strategic reduction of inventory on hand commensurate with the current product assortments actively marketed by us and our franchisees, and continued capital investment in the Durango production facility. We have historically generated excess operating cash flow.
Previous report
There were $1.25 million cash flows from financing activities during FY 2024 compared to no cash flows from financing activities during the prior year. The Company drew down $1.25 million on its revolving line of credit during FY 2024 as discussed further below.
Previous report
Revolving Line of Credit
Previous report
Pursuant to a credit agreement, as amended (the “Credit Agreement”), with Wells Fargo Bank N.A. (the “Lender”), we have a $4.0 million credit line for general corporate and working capital purposes, of which $2.75 million was available for borrowing (subject to certain borrowing-based limitations) as of February 29, 2024 (the “Credit Line”). The Credit Line is secured by substantially all of our assets, except retail store assets. Interest on borrowings is at the Secured Overnight Financing Rate plus 2.37% (7.69% at February 29, 2024 and 6.92% at February 28, 2023). Additionally, the Credit Line is subject to various financial ratio and leverage covenants. Per the Credit Agreement, the maturity date is September 30, 2024.
Previous report
As a result of our noncompliance, under the terms of the Credit Agreement, the Lender has the option, but not the obligation, to immediately demand repayment of all funds drawn down under the Credit Line. As of the date of this Annual Report, we do not have enough cash on hand to satisfy our obligations under the Credit Line if the Lender exercised its option to demand repayment. If the Lender exercises its option and demands repayment at some time in the future, however, we may not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, the Lender may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings under the Credit Agreement.
Previous report
In addition, the Lender retains the right to act on covenant violations that occur after the date of delivery of any waiver. If the Lender were to decline to grant us a waiver and instead demand repayment in the future, we may need to seek alternative financing to pay these obligations as the Company may not have sufficient facilities or sufficient cash on hand at that time to satisfy these obligations.
Reworded paragraphs (21)
Previous wording
Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, and its subsidiaries (including its operating subsidiary with the same name, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation (“RMCF”) (referred to as the “Company,” “we,” “us,” or “our”) is an international franchisor, confectionery producer and retail operator. Founded in 1981, we are headquartered in Durango, Colorado and produce an extensive line of premium chocolate products and other confectionery products (“Durango Products”). Our revenues and profitability are derived principally from our franchised/licensed system of retail stores that feature chocolate and other confectionary products including gourmet caramel apples. We also sell our confectionary products in select locations outside of our system of retail stores and license the use of our brand with certain consumer products. As of February 29, 2024, there was 2 Company-owned, 115 licensee-owned and 152 franchised Rocky Mountain Chocolate Factory stores operating in 36 states and the Philippines.
Current wording
Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, and its subsidiaries (including its operating subsidiary with the same name, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation) (“RMCF”) (referred to as the “Company,” “we,” “us,” or “our”) is an international franchisor, confectionery producer and retail operator. Founded in 1981, we are headquartered in Durango, Colorado and produce an extensive line of premium chocolate products and other confectionery products. Our revenues and profitability are derived principally from our franchised/licensed system of retail stores that feature chocolate and other confectionery products including gourmet caramel apples. We may also sell our confectionery products in select locations outside of our system of retail stores and license the use of our brand with certain consumer products. As of February 28, 2025, there were 2 Company-owned, 117 licensee-owned and 141 franchised Rocky Mountain Chocolate Factory stores operating in 27 states and the Philippines.
Previous wording
As a result of recent macroeconomic inflationary trends and disruptions to the global supply chain, we have experienced and expect to continue experiencing higher raw material, labor, and freight costs. We have seen labor and logistics challenges, which we believe have contributed to lower factory, retail and e-commerce sales of our products due to the availability of material, labor and freight. In addition, we could experience additional lost sale opportunities if our products are not available for purchase as a result of continued disruptions in our supply chain relating to an inability to obtain ingredients or packaging, labor challenges at our logistics providers or our production facility, or if we or our franchisees experience delays in stocking our products.
Current wording
As a result of recent macroeconomic inflationary trends and disruptions to the global supply chain, we have experienced and expect to continue experiencing higher raw material, labor, and freight costs. We have experienced labor and logistics challenges, which we believe have contributed to lower factory, retail and e-commerce sales. In addition, we could experience additional lost sale opportunities if our products are not available for purchase as a result of continued disruptions in our supply chain relating to an inability to obtain raw materials or packaging, or if we or our franchisees experience delays in stocking our products.
Previous wording
During FY 2023, the Company incurred substantial costs associated with a stockholder’s contested solicitation of proxies in connection with our 2022 annual meeting of stockholders. During FY 2023, the Company incurred approximately $4.1 million of costs associated with the contested solicitation of proxies, however there were no such comparable costs in FY 2024. The Company also incurred $1.2 million of severance and retirement related costs for certain of our executives in FY 2024, compared to $1.1 million in FY 2023.
Current wording
During FY 2023, the Company incurred substantial costs associated with a stockholder’s contested solicitation of proxies in connection with our 2022 annual meeting of stockholders. During FY 2023, the Company incurred approximately $4.1 million of costs associated with the contested solicitation of proxies, however, there were no such comparable costs in FY 2024 or FY 2025.
Previous wording
We are subject to seasonal fluctuations in sales because of key holidays and the location of our franchisees, which have traditionally been located in resort or tourist locations, and the nature of the products we sell, which are highly seasonal. Historically, the strongest sales of our products have occurred during key holidays and summer vacation seasons. Additionally, quarterly results have been, and in the future are likely to be, affected by the timing of new store openings and sales of franchises. Because of the seasonality of our business and the impact of new store openings and sales of franchises, results for any quarter are not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year.
Current wording
We are subject to seasonal fluctuations in sales because of key holidays and the location of our franchisees, which have traditionally been located in high traffic areas such as resorts or tourist locations, and the nature of the products we sell, which are seasonal. Historically, the strongest sales of our products have occurred during key holidays and summer vacation seasons. Additionally, quarterly results have been, and in the future are likely to be, affected by the timing of new store openings and the sales of new franchise locations. Because of the seasonality of our business and the impact of new store openings and sales of new franchises, results for any quarter are not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year.
Previous wording
The most important factors in continued growth in our earnings are our ability to increase the sales of premium chocolate products produced in our Durango production facility, the ability to produce more efficiently, supporting our franchisees in increasing the frequency and average value of customer transactions, ongoing online revenue growth, and franchise store growth.
Current wording
The most important factors for continued growth in our earnings are our ability to increase the sales of premium chocolate products produced in our Durango production facility, and the support of our franchisees in increasing the frequency of customer visits and the average value of each customer transaction, along with ongoing e-commerce revenue growth, and new franchised store growth.
Previous wording
Our ability to successfully achieve expansion of our franchise systems depends on many factors not within our control including the availability of suitable sites for new store establishment and the availability of qualified franchisees to support such expansion.
Current wording
Our ability to successfully achieve expansion of our franchise systems depends on many factors not within our control including the availability of suitable sites for new store locations and the availability of qualified franchisees to support our expansion plans.
Previous wording
Efforts to reverse the decline in same store pounds purchased from our production facility by franchised stores and to increase total Durango production depend on many factors, including new store openings, competition, the receptivity of our franchise system to our product introductions and promotional programs.
Current wording
Efforts to increase same store pounds purchased from our production facility by franchised stores and to increase total Durango production depend on many factors, including new store openings, effective e-commerce initiatives, industry competition, the receptivity of our franchise system to our product introductions and promotional programs.
Previous wording
Basic loss per share decreased from a loss from continuing operations of $(0.88) per share in FY 2023 to a loss from continuing operations of $(0.77) per share in FY 2024. Revenues decreased by 8.2% from $30.4 million for FY 2023 to $28.0 million for FY 2024. Operating loss was $4.9 million in FY 2023 compared to an operating loss of $4.9 million in FY 2024. Loss from continuing operations decreased from a loss of $5.5 million in FY 2023 to a loss of $4.9 million in FY 2024.
Current wording
Basic loss per share increased from a loss from continuing operations of $(0.77) per share in FY 2024 to a loss from continuing operations of $(0.86) per share in FY 2025. Revenues increased by 5.8% from $28.0 million for FY 2024 to $29.6 million for FY 2025. Operating loss and loss from continuing operations was $4.9 million in FY 2024 compared to an operating loss of $5.9 million in FY 2025.
Previous wording
In addition to the results provided in accordance with U.S. GAAP, we provide certain non-GAAP measures, which present results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP. Adjusted gross margin is a non-GAAP measure. Adjusted gross margin is equal to the sum of our total gross margin plus depreciation and amortization calculated in accordance with GAAP. We believe adjusted gross margin is helpful in understanding our past performance as a supplement to gross margin, and other performance measures calculated in conformity with GAAP. We believe that adjusted gross margin is useful to investors because they provide a measure of operating performance and our ability to generate cash that is unaffected by non-cash accounting measures. Additionally, we use adjusted gross margin rather than gross margin to make incremental pricing decisions. Adjusted gross margin has limitations as analytical tools because they exclude the impact of depreciation and amortization expense and you should not consider it in isolation or as a substitute for any measure reported under GAAP. Our use of capital assets makes depreciation and amortization expense a necessary element of our costs and our ability to generate income. Due to these limitations, we use adjusted gross margin as measures of performance only in conjunction with GAAP measures of performance such as gross margin.
Current wording
In addition to the results provided in accordance with GAAP, we provide certain non-GAAP measures, which present results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with GAAP. Adjusted gross margin is a non-GAAP measure. Adjusted gross margin is equal to the sum of our total gross margin plus depreciation and amortization calculated in accordance with GAAP. We believe adjusted gross margin is helpful in understanding our past performance as a supplement to gross margin, and other performance measures calculated in conformity with GAAP. We believe that adjusted gross margin is useful to investors because they provide a measure of operating performance and our ability to generate cash that is unaffected by non-cash accounting measures. Additionally, we use adjusted gross margin rather than gross margin to make incremental pricing decisions. Adjusted gross margin has limitations as analytical tools because they exclude the impact of depreciation and amortization expense and you should not consider it in isolation or as a substitute for any measure reported under GAAP. Our use of capital assets makes depreciation and amortization expense a necessary element of our costs and our ability to generate income. Due to these limitations, we use adjusted gross margin as measures of performance only in conjunction with GAAP measures of performance such as gross margin.
Previous wording
Total gross margin decreased to 6.2% in FY 2024 compared to a gross margin of 16.4% during FY 2023, due primarily to an increase in overhead costs, a sharp increase in the cost of cocoa as a raw material as well as other inflationary pressures we were unable to capture through price increases, and a reduction in production volume. Additionally, production volume decreased and expense incurred increased as a result of the Company undertaking actions to relocated its consumer packaging operations to Salt Lake City, Utah in response to limited labor ability in the Durango labor pool, which lead to delays in order fulfillment going into our busy holiday sales season.
Current wording
Total gross margin decreased to 0.4% in FY 2025 compared to a gross margin of 6.2% during FY 2024, due primarily to an increase in overhead costs, a sharp increase in the cost of cocoa as a raw material as well as other inflationary pressures we were unable to capture through appropriate and timely price increases, in addition to a reduction in production volume. Additionally, costs incurred increased as a result of the Company undertaking actions to relocate its consumer packaging operations to Salt Lake City, Utah, in response to limited labor availability in the Durango labor pool, which led to elevated production costs, decreased operating efficiencies, and a large write-off of inventory value recognized in cost of sales. This business arrangement was wound down between January 1, 2025 and February 28, 2025 after our peak holiday selling season. The Company estimates the impact of this contributed a negative $1.5 million. We now have all of our consumer packaging assets returned to our Durango production facility, which will have an immediate and positive impact on gross margin and profitability through efficiencies at that location.
Previous wording
The increase in franchise costs in FY 2024 compared to FY 2023 was due primarily to investments in human capital and the ongoing brand update and store redesign expense. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise costs increased to 43.6% in FY 2024 from 30.6% in FY 2023. This increase as a percentage of royalty, marketing and franchise fees is primarily a result of higher royalty fees partially offset by higher costs.
Current wording
The decrease in franchise costs in FY 2025 compared to FY 2024 was due primarily to prior year investments in human capital and the ongoing brand update and store redesign expense, an initiative that is now complete and spanned nearly two years. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise costs decreased to 43.4% in FY 2025 from 43.5% in FY 2024. This decrease as a percentage of royalty, marketing and franchise fees is primarily a result of higher royalty fees partially offset by higher costs associated with providing a high level of customer service to our entire franchise network which had been lacking in prior years. As a percentage of total revenue, franchise costs decreased to 8.2% during FY 2025, compared to 9.2% during FY 2024.
Previous wording
Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales was $0.1 million during FY 2024, relatively unchanged from $0.1 million during FY 2023. Depreciation and amortization included in cost of sales increased 16.0% from $0.6 million during FY 2023 to $0.7 million during FY 2024. This increase was the result of investment in production equipment.
Current wording
Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales, was $0.2 million during FY 2025, an increase from $0.1 million during FY 2024. Depreciation and amortization included in cost of sales increased 3.3% during FY 2024 to FY 2025. This increase was the result of ongoing investment in production equipment.
Previous wording
Other income was $26,400 during FY 2024, compared to other income of $16,500 during FY 2023. This represents interest income of $79,836 during FY 2024 compared to $26,921 during FY 2023, and interest expense of $53,397 during FY 2024 compared to $10,431 during FY 2023.
Current wording
Other expense was $0.2 million during FY 2025, compared to other income of $26 thousand during FY 2024. This represents interest expense of $0.5 million during FY 2025 compared to $0.1 million during FY 2024, a gain on disposal of assets of $0.2 million during FY 2025 with no such costs in FY 2024, and interest income of $27 thousand during FY 2025 compared to $0.1 million during FY 2024.
Previous wording
During FY 2024, we did not incur any income tax expense on a loss from continuing operations before income taxes of $4.9 million compared to an income tax expense of $0.6 million on a loss from continuing operations before income taxes of $4.9 million during FY 2023. The FY 2023 expense was the result of recording a full valuation allowance on our deferred income tax assets. See Note 13 to the financial statements for a description of income taxes, deferred tax assets, and associated reserves.
Current wording
We had no income tax expense during the years ended February 28, 2025 and or February 29, 2024 due to our loss from operations. See Note 12 to the financial statements for a description of income taxes, deferred tax assets, and associated reserves.
Previous wording
Cash and cash equivalent balances decreased from $4.7 million as of February 28, 2023 to $2.1 million as of February 29, 2024 primarily as a result of cash used by operating and investing activities. Our current ratio was 1.19 to 1.0 on February 29, 2024 compared to 2.24 to 1.0 on February 28, 2023. We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements.
Current wording
Cash and cash equivalent balances decreased from $2.1 million as of February 29, 2024 to $0.7 million as of February 28, 2025 primarily as a result of cash used by operating and investing activities. Our current ratio was 1.34 to 1.0 on February 28, 2025 compared to 1.19 to 1.0 on February 29, 2024. We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements.
Previous wording
During FY 2024, we had a consolidated net loss of $4.2 million, less net loss from discontinued operations of $0.7 million. Operating activities used cash of $2.4 million, with the principal adjustment to reconcile net income to net cash provided by operating activities being depreciation and amortization of $0.9 million, provision for obsolete inventory of $0.2 million and stock compensation expense of $0.4 million. During FY 2023, we had a consolidated net loss of $5.7 million. Operating activities used cash of $2.1 million, with the principal adjustment to reconcile net income to net cash provided by operating activities being expense associated with establishing a full reserve of deferred tax assets of $0.7 million, depreciation and amortization of $0.8 million, provision for obsolete inventory of $0.7 million and stock compensation expense of $0.7 million.
Current wording
During FY 2025, we had a consolidated net loss of $6.1 million. Operating activities used cash of $6.6 million, with the principal adjustments to reconcile net income to net cash used in operating activities being depreciation and amortization of $1.0 million, provision for obsolete inventory of $0.3 million, stock compensation expense of $0.3 million, and gain on the sale of assets of $0.2 million. During FY 2024, we had a consolidated net loss of $4.2 million, less net loss from discontinued operations of $0.7 million. Operating activities used cash of $2.4 million, with the principal adjustments to reconcile net income to net cash used in operating activities being depreciation and amortization of $0.9 million, provision for obsolete inventory of $0.2 million and stock compensation expense of $0.4 million.
Previous wording
During FY 2024, investing activities used cash of $1.45 million, primarily due to the purchases of property and equipment of $3.0 million, partially offset by investing cash flow from discontinued operations (the result of the sale of U-Swirl assets) of $1.4 million. In comparison, investing activities used cash of $0.8 million during FY 2023 primarily due to the purchases of property and equipment of $1.0 million, partially offset by investing cash flow from discontinued operations of $0.2 million.
Current wording
During FY 2025, investing activities used cash of $1.7 million, primarily due to the purchases of property and equipment of $3.8 million, partially offset by the proceeds from the sale of assets of $2.3 million. In comparison, investing activities used cash of $1.5 million during FY 2024 primarily due to the purchases of property and equipment of $3.0 million, partially offset by investing cash flow from discontinued operations of $1.4 million.
Previous wording
As of February 29, 2024 we were not in compliance with the requirement under the Credit Agreement to maintain a ratio of total current assets to total current liabilities of at least 1.5 to 1. Our current ratio as of February 29, 2024 was 1.19 to 1. We have requested a waiver from the Lender and received approval as of the date of this Annual Report. We were in compliance, however, with all other aspects of the Credit Agreement.
Current wording
The Company was not in compliance with the requirement under the Credit Agreement to limit annual capital expenditures to $3.5 million as of February 28, 2025, nor was the Company in compliance with the liabilities to tangible net worth of 2.0:1.0 as of February 28, 2025. The Company has received a waiver from the Lender as of the date of issuance of these financial statements and is in compliance with all other aspects of the Credit Agreement.
Previous wording
The Company is exploring various means of strengthening its liquidity position and ensuring compliance with its debt financing covenants, which may include the obtaining of waivers from the Lender and/or amending our Credit Line facility. We are also exploring supplemental debt facilities for other operational activities which could give us the ability to repay the Credit Line as needed.
Current wording
The Company will continue to explore additional means of strengthening its liquidity position and ensuring compliance with its debt financing covenants, which may include the obtaining of waivers from our lenders.
Previous wording
The Company made an average of $1.7 million per year in capital expenditures during FY 2022 to FY 2024. For FY 2025 the Company anticipates making similar levels of capital expenditures. The planned increase is the result of expected investment in an updated Enterprise Resource Planning (ERP) management system, and machinery and equipment to replace equipment that has reached the end of its useful life.
Current wording
The Company made an average of $3.4 million per year in capital expenditures during FY 2024 to FY 2025. For FY 2026 the Company anticipates incurring substantially lower levels of capital expenditures.
Previous wording
Inflationary factors such as increases in the costs of ingredients and labor directly affect the Company's operations. Most of the Company's leases provide for cost-of-living adjustments and require it to pay taxes, insurance and maintenance expenses, all of which are subject to inflation. Additionally, the Company’s future lease cost for new facilities may include potentially escalating costs of real estate and construction. There is no assurance that the Company will be able to pass on increased costs to its customers.
Current wording
Inflationary factors such as increases in the costs of raw materials and labor directly affect the Company's operations. Most of the Company's leases provide for cost-of-living adjustments and require it to pay taxes, insurance and maintenance expenses, all of which are subject to inflation. Additionally, the Company’s future lease cost for new facilities may include potentially escalating costs of real estate and construction. There is no assurance that the Company will be able to pass on increased costs to its customers.