Rocky Mountain Chocolate Factory, Inc.

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. 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 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 November 30, 2024, there were 2 Company-owned, 116 licensee-owned and 146 franchised Rocky Mountain Chocolate Factory stores operating in 35 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 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 May 31, 2025, there were 2 Company-owned, 114 licensee-owned and 139 franchised Rocky Mountain Chocolate Factory stores operating in 34 states and the Philippines.

Previous wording

On September 30, 2024, the Company repaid the amount owed under its credit agreement with Wells Fargo Bank N.A. (the "Credit Agreement") and entered into a new credit agreement (the “New Credit Agreement”) with RMC Credit Facility, LLC (“RMC”). Pursuant to the New 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 wording

In the fiscal year ended February 28, 2025, the Company entered into a 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.

Previous wording

As a result of recent macroeconomic inflationary trends and disruptions to the global supply chain, we have experienced elevated raw material, labor, and freight costs. We continue to experience, although at a decelerating pace, labor and logistics challenges, which 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 ingredients or packaging, 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 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

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.

Current 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, 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 franchise store growth.

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 $(0.12) per share for the three months ended November 30, 2023 to a loss from continuing operations of $(0.11) per share for the three months ended November 30, 2024. Revenues increased by 2.5% from $7.7 million for the three months ended November 30, 2023 to $7.9 million for the three months ended November 30, 2024. Operating loss was $0.8 million for the three months ended November 30, 2023 compared to an operating loss of $0.7 million for the three months ended November 30, 2024. Loss from continuing operations remained consistent from a loss of $0.8 million for the three months ended November 30, 2023 compared to a loss of $0.8 million for the three months ended November 30, 2024.

Current wording

Basic loss per share decreased from a loss of $(0.26) per share for the three months ended May 31, 2024 to a loss of $(0.04) per share for the three months ended May 31, 2025. Revenues decreased by 0.5% for the three months ended May 31, 2024 compared to the three months ended May 31, 2025. Operating loss was $1.6 million for the three months ended May 31, 2024 compared to an operating loss of $0.1 million for the three months ended May 31, 2025. Net loss decreased from a loss of $1.7 million for the three months ended May 31, 2024 to a net loss of $0.3 million for the three months ended May 31, 2025.

Previous wording

Total gross margin percentage decreased to 5.5% for the nine months ended November 30, 2024 compared to a gross margin of 7.9% during the nine months ended November 30, 2023, due primarily to increased raw material and labor costs.

Current wording

Total gross margin percentage increased to 6.9% for the three months ended May 31, 2025 compared to a gross margin of (5.8)% during the three months ended May 31, 2024, due primarily to the cancellation of certain unprofitable contracts. The Company also adjusted sales prices as of March 1, 2025 to achieve targeted margins.

Previous wording

The increase in franchise costs for the three months ended November 30, 2024 compared to the three months ended November 30, 2023 was due primarily to investments made in building a franchise development team to identify new sites and franchisees. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise costs increased to 52.5% for the three months ended November 30, 2024 from 45.2% for the three months ended November 30, 2023.

Current wording

The increase in franchise costs for the three months ended May 31, 2025 compared to the three months ended May 31, 2024 was due primarily to costs incurred to create a support framework for our franchise network. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise costs decreased to 36.0% for the three months ended May 31, 2025 from 48.0% for the three months ended May 31, 2024. This decrease as a percentage of royalty, marketing and franchise fees is primarily a result of the increase in royalty fees. As a percentage of total revenue, franchise costs increased to 9.3% during the three months ended May 31, 2025, compared to 8.4% during the three months ended May 31, 2024.

Previous wording

The increase in general and administrative costs during the three months ended November 30, 2024 compared to the three months ended November 30, 2023, was due primarily to additional compliance related legal and third-party consulting fees incurred. As a percentage of total revenues, general and administrative expenses increased to 18.1% during the three months ended November 30, 2024, compared to 17.3% during the three months ended November 30, 2023.

Current wording

The decrease in general and administrative costs during the three months ended May 31, 2025 compared to the three months ended May 31, 2024, was due primarily to various cost cutting measures. As a percentage of total revenues, general and administrative expenses decreased to 15.7% during the three months ended May 31, 2025, compared to 19.3% during the three months ended May 31, 2024.

Previous wording

Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales was $0.1 million during the three months ended November 30, 2024, an increase of 75.0% from $36 thousand during the three months ended November 30, 2023. Depreciation and amortization included in cost of sales increased 12.2% from $0.2 million during the three months ended November 30, 2023 to $0.2 million during the three months ended November 30, 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 $118 thousand during the three months ended May 31, 2025, an increase of 181.0% from $42 thousand during the three months ended May 31, 2024. Depreciation and amortization included in cost of sales increased 16.3% during the three months ended May 31, 2025 compared to the three months ended May 31, 2024. This increase was the result of investments in computer software and production equipment.

Previous wording

Cash and cash equivalent balances decreased from $2.1 million as of February 29, 2024 to $1.1 million as of November 30, 2024 primarily as a result of cash used by operating activities during our seasonally slow selling periods, and a time in our annual business cycle in which we build inventory to meet elevated demand during our subsequent seasonally high selling periods. Our current ratio was 2.60 to 1.0 on November 30, 2024 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 necessary to implement our long-term business plan.

Current wording

Cash and cash equivalent balances increased from $0.7 million as of February 28, 2025 to $0.9 million as of May 31, 2025 primarily as a result of cash provided by operating activities. Our current ratio was 1.36 to 1.0 on May 31, 2025 compared to 1.34 to 1.0 on February 28, 2025. We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements.

Previous wording

During the nine months ended November 30, 2024, we had a consolidated net loss of $3.2 million. Operating activities used cash of $7.8 million, with the principal adjustments to reconcile net income to net cash used in operating activities being depreciation and amortization of $0.7 million and a gain on sale of assets of $0.3 million. Changes in operating assets and liabilities resulted in a net cash outflow of $7.8 million from cash used in the normal course of business. During the nine months ended November 30, 2023, we had a consolidated net loss of $2.6 million. Operating activities used cash of $2.6 million, with the principal adjustments to reconcile net income to net cash used in operating activities being depreciation and amortization of $0.6 million, and stock compensation expense of $0.5 million.

Current wording

During the three months ended May 31, 2025, we had a consolidated net loss of $0.3 million. Operating activities provided cash of $0.4 million, with the principal adjustments to reconcile net income to net cash provided by operating activities being depreciation and amortization of $0.3 million and stock-based compensation of $0.1 million. During the three months ended May 31, 2024, we had a consolidated net loss of $1.7 million. Operating activities used cash of $2.2 million, with the principal adjustments to reconcile net income to net cash used in operating activities being depreciation and amortization of $0.2 million, loss on disposal of property and equipment of $0.1 million, and stock compensation expense of $40 thousand.

Previous wording

During the nine months ended November 30, 2024, cash flows used in investing activities was $0.1 million, primarily due to the purchases of property and equipment of $2.1 million, offset by proceeds from sale of assets of $1.9 million. In comparison, investing activities used cash of $1.1 million during the nine months ended November 30, 2023, primarily due cash flows from discontinued operations of $1.4 million, partially offset by purchases of property and equipment of $2.6 million.

Current wording

During the three months ended May 31, 2025, investing activities used cash of $177 thousand, primarily due to the purchase of property and equipment of $0.2 million. In comparison, investing activities used cash of $38 thousand during the three months ended May 31, 2024, primarily due to purchases of property and equipment of $0.4 million, offset by proceeds from the sale of assets of $0.4 million and proceeds received on notes receivable of $21 thousand.

Previous wording

There were $6.9 million cash flows from financing activities during the nine months ended November 30, 2024 compared to $1.0 million cash flows from financing activities during the nine months ended November 30, 2023. The Company received $6.0 million in proceeds from its New Credit Agreement in addition to $2.2 million on its revolving line of credit during the nine months ended November 30, 2024, offset by payment of the line of credit on maturity of $3.5 million, in addition to proceeds of $2.2 million from the issuance and sale of common stock.

Current wording

There were no cash flows from financing activities during the three months ended May 31, 2025 compared to $0.8 million cash flows from financing activities during the three months ended May 31, 2024. The Company drew down $0.8 million on its revolving line of credit during the three months ended May 31, 2024.

Previous wording

The conditions above raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these financial statements. In addition, our independent registered public accounting firm, in their report on the Company’s February 29, 2024 audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.

Current wording

The conditions above raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year after the date of issuance of these financial statements. In addition, our independent registered public accounting firm, in their report on the Company’s February 28, 2025, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.

Previous wording

On September 30, 2024, the Company entered into a new credit agreement (the “New Credit Agreement”) with RMC Credit Facility, LLC ("RMC"). Pursuant to the New 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 New 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 wording

On September 30, 2024, we entered into the Credit Agreement with RMC. Pursuant to the Credit Agreement, we received an advance in the principal amount of $6.0 million, which advance is evidenced by the Note. The Note will mature on 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 our Durango real estate property and the related inventory and property, plant and equipment located on that property, as well as our accounts receivable and cash accounts. As of May 31, 2025, $6.0 million was outstanding on the Credit Agreement.

Previous wording

The proceeds of the New Credit Agreement were and will be used as follows: (i) $3.5 million was used to repay the Credit Agreement and (ii) the remaining balance will be used for continued capital investment and working capital needs. The New 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 New 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. The Company was in compliance with these covenants as of November 30, 2024.

Current wording

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.

Previous 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.

Current wording

We will continue to explore additional means of strengthening our liquidity position and ensuring compliance with our debt financing covenants, which may include the obtaining of waivers from our lenders.

Previous wording

As of November 30, 2024, we had purchase obligations of approximately $3.2 million. These purchase obligations primarily consist of contractual obligations for future purchases of commodities for use in our manufacturing.

Current wording

As of May 31, 2025, we had purchase obligations of approximately $2.6 million. These purchase obligations primarily consist of contractual obligations for future purchases of commodities for use in our manufacturing.

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.

Previous wording

We are subject to seasonal fluctuations in sales, which cause fluctuations in quarterly results of operations. Historically, the strongest sales of our products have occurred during key holidays and the summer vacation season. In addition, 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, which cause fluctuations in quarterly results of operations. Historically, the strongest sales of our products have occurred during key holidays and the summer vacation season. In addition, 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.