Rocky Mountain Chocolate Factory, Inc.
For the period ended Aug 31, 2026. Filed Oct 19, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 31, 2026 · Filed Oct 19, 2026
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-Q
Period ended 2026-05-31; filed 2026-07-14.
0001193125-26-303159
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-08-31; filed 2026-10-19.
0001193125-26-425389
Item 2. 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 83 previous paragraphs and 116 current paragraphs.
30 unchanged; 35 reworded; 45 added; 17 removed; 1 previous and 6 current paragraphs rearranged.
Tables are not compared: 4 previous and 8 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 (45)
Current report
Repayment of the Credit Agreement and the RMCF2 Credit Agreement
Current report
The RMCF2 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 RMCF2 Credit Agreement also limits 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
As of August 31, 2026, the Company had $6.0 million outstanding on the Credit Agreement and $0.6 million outstanding on the RMCF2 Credit Agreement. Interest on the outstanding amounts was paid through August 31, 2026. The Credit Agreement and the RMCF2 Credit Agreement were repaid subsequent to August 31, 2026 (see Note 16).
Current report
Secured Loan Agreements
Current report
In June 2026, the Company entered into secured loan agreements with a total principal balance of approximately $0.3 million, maturing through July 2031. The notes bear interest at fixed rates of 6.25% and 10.27% per annum and are secured by equipment acquired. Under the terms of the agreements, the Company is required to make 19 monthly payments of approximately $17 thousand and 60 monthly payments of approximately $1 thousand. As of August 31, 2026, the outstanding principal balance was approximately $0.3 million.
Current report
On August 18, 2026, the Board of Directors approved the appointment of David Denker as Chief Operating Officer. Mr. Denker served as the Company’s Vice President of Franchise Development since September 2025 and subsequently assumed broader leadership responsibilities across the Company. Mr. Denker has experience in manufacturing and production operations, franchise operations and development, merchandising, marketing, and product innovation. Mr. Denker holds the Certified Franchise Executive (CFE) designation.
Current report
Business and Outlook
Current report
The basic loss per share was $(0.09) per share for the three months ended August 31, 2026. Revenues decreased by 2.5% from $6.8 million for the three months ended August 31, 2025 to $6.7 million for the three months ended August 31, 2026. Operating loss was $0.5 million for the three months ended August 31, 2025 compared to an operating loss of $1.1 million for the three months ended August 31, 2026.
Current report
Royalty and marketing fees decreased $0.3 million during the three months ended August 31, 2026 compared to the three months ended August 31, 2025, primarily due to the decrease in store sales subject to royalty fees.
Current report
Gross Margin
Current report
The increase in franchise costs for the three months ended August 31, 2026 compared to the three months ended August 31, 2025 was due to the initiation of new programs for franchises in an effort to boost store sales and in part due to the timing of expenses. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise and sales and marketing costs increased to 70.5% for the three months ended August 31, 2026 from 47.3% for the three months ended August 31, 2025.
Current report
The decrease in sales and marketing costs during the three months ended August 31, 2026 compared to the three months ended August 31, 2025 was due to a change in marketing strategy that emphasized targeted campaigns, increased reliance on lower-cost digital channels, a reduction in discretionary spending and in part due to timing of anticipated expenses.
Current report
Total Other Income (Expense)
Current report
Total other expense was $0.2 million during the three months ended August 31, 2026, compared to other expense of $0.2 million during the three months ended August 31, 2025. Interest expense increased to $0.21 million for the three months ended August 31, 2026 compared to $0.19 million for the three months ended August 31, 2025 due to an increase in our debt balance outstanding.
Current report
Six Months Ended August 31, 2026 Compared to the Six Months Ended August 31, 2025
Current report
Results Summary
Current report
REVENUES
Current report
Durango Product and Retail Sales
Current report
The increase in Durango product and retail sales of 2.9%, or $0.3 million for the six months ended August 31, 2026 compared to the six months ended August 31, 2025 was primarily due to sales price increases.
Current report
Royalty and marketing fees decreased $0.7 million during the six months ended August 31, 2026 compared to the six months ended August 31, 2025, primarily due to a decrease in store sales subject to royalty fees.
Current report
COSTS AND EXPENSES
Current report
Gross Margin
Current report
Total gross margin percentage increased to 5.9% for the six months ended August 31, 2026 compared to a gross margin of 2.9% during the six months ended August 31, 2025, due primarily to sales price increases.
Current report
Franchise Costs
Current report
The increase in franchise costs for the six months ended August 31, 2026 compared to the six months ended August 31, 2025 was due primarily to the initiation of new programs for franchisees in an effort to boost store sales and in part due to the timing of expenses. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise and sales and marketing costs increased to 63.2% for the six months ended August 31, 2026 from 47.8% for the six months ended August 31, 2025.
Current report
Sales and Marketing
Current report
The decrease in sales and marketing costs during the six months ended August 31, 2026 compared to the six months ended August 31, 2025 was due primarily to a change in marketing strategy that emphasized targeted campaigns, increased reliance on lower-cost digital channels, a reduction in discretionary promotional spending, and in part to timing of anticipated expenses.
Current report
General and Administrative
Current report
The increase in general and administrative costs during the six months ended August 31, 2026 compared to the six months ended August 31, 2025, was due primarily to increases in costs related to employee compensation, insurance, software licenses, professional fees, travel and board compensation. As a percentage of total revenues, general and administrative expenses increased to 20.4% during the six months ended August 31, 2026, compared to 15.0% during the six months ended August 31, 2025.
Current report
Retail Operating Expenses
Current report
Retail operating expenses increased 73.7% during the six months ended August 31, 2026 compared to the six months ended August 31, 2025. This increase is primarily the result of an increase in the number of corporate retail stores. The Company acquired a third corporate-owned store in August 2025 and has since acquired two additional stores.
Current report
Depreciation and Amortization
Current report
Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales was $280 thousand during the six months ended August 31, 2026, an increase of 23.9% from $226 thousand during the six months ended August 31, 2025. Depreciation and amortization included in cost of sales decreased 1.3% from $0.47 million during the six months ended August 31, 2025 to $0.46 million during the six months ended August 31, 2026. This decrease was the result of certain assets being fully depreciated.
Current report
Other expense was $0.4 million during the six months ended August 31, 2026, compared to other expense of $0.4 million during the six months ended August 31, 2025. Interest expense increased to $0.42 million, for the six months ended August 31, 2026 compared to $0.38 million during the six months ended August 31, 2025 due to an increase in our debt balance outstanding.
Current report
Six Months Ended August 31, 2026 Compared to the Six Months Ended August 31, 2025
Current report
During the six months ended August 31, 2026, cash flows used in investing activities were $0.3 million, primarily due to the purchases of property and equipment of $0.2 million, and the acquisition of the retail stores in Nashville, TN and Chino Hills, CA for $0.1 million. In comparison, cash flows used in investing activities were $0.4 million during the six months ended August 31, 2025, primarily due to the purchases of property and equipment of $0.2 million, and the acquisition of the retail store in Camarillo, CA for $0.2 million.
Current report
Cash flows used in financing activities during the six months ended August 31, 2026 were $31 thousand compared to $1.8 million in cash flows provided by financing activities during the six months ended August 31, 2025. The Company received $1.8 million in proceeds from notes payable during the six months ended August 31, 2025.
Current report
Credit Agreements
Current report
The Company was not in compliance with the covenants as of August 31, 2026, providing for a maximum ratio of total liabilities to tangible net worth of 2.0 to 1.0, which was computed as 8.96 to 1.0, and a minimum ratio of current assets to current liabilities of 1.25 to 1.0, which was computed as .52 to 1.0. The Company has not received a waiver from RMC through the quarter ended August 31, 2026, but is in compliance with all other aspects of the debt agreement. The debt has been classified as a current liability at August 31, 2026.
Current report
The RMCF2 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 RMCF2 Credit Agreement also limits 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.
Showing the first 40 of 45 passages. Open the source sections for the rest.
Removed paragraphs (17)
Previous report
Recent Developments
Previous report
Credit Agreements with RMC Credit Facility, LLC and RMCF2 Credit, LLC
Previous report
Securities Purchase Agreement with ARM-D Rocky Mountain Chocolate Holdings, LLC
Previous report
On December 18, 2025, the Company entered into a securities purchase agreement with ARM-D Rocky Mountain Chocolate Holdings, LLC ("ARM-D"), pursuant to which, among other things, ARM-D agreed to subscribe for and purchase, and the Company agreed to issue and sell to ARM-D, an aggregate of 1,500,000 shares of the Company's common stock at a price per share of $1.80, for total proceeds of approximately $2.7 million, less gross issuance costs of $0.2 million. On January 23, 2026, the shares were subsequently registered for resale by ARM-D on Form S-1 that was declared effective by the SEC on February 13, 2026.
Previous report
Secured Loan Agreement
Previous report
On June 15, 2026, the Company entered into a secured loan agreement in the principal amount of $312 thousand, maturing on December 15, 2027. The note bears interest at 6.25% per annum and is secured by the equipment purchased. The Company is required to make eighteen monthly payments of $17 thousand plus one final payment consisting of the remaining outstanding principal, accrued interest, and any other unpaid amounts due at maturity.
Previous report
Current Trends Affecting Our Business and Outlook
Previous report
Royalty and marketing fees decreased $0.4 million during the three months ended May 31, 2026 compared to the three months ended May 31, 2025. Under the older franchise agreements, franchisees pay 10% royalties on sales revenue generated from products made in the store, and no royalty on sales revenue generated from products purchased from the Company. When sales of store-made products increase, royalties increase. A significant percentage of franchisees have signed flat-rate amendments to their franchise agreements paying 5% royalty on all sales in the first twelve months, causing a decrease in royalty revenue.
Previous report
The decrease in franchise costs for the three months ended May 31, 2026 compared to the three months ended May 31, 2025 was due primarily to cost-cutting measures. As a percentage of total revenue, franchise costs decreased to 8.0% during the three months ended May 31, 2026, compared to 9.3% during the three months ended May 31, 2025.
Previous report
The decrease in sales and marketing costs during the three months ended May 31, 2026 compared to the three months ended May 31, 2025 was due primarily to cost-cutting measures as we re-evaluate our marketing strategies. As a percentage of total revenues, sales and marketing expenses decreased to 3.1% during the three months ended May 31, 2026, compared to 3.2% during the three months ended May 31, 2025.
Previous report
Other expense - net was $162 thousand during the three months ended May 31, 2026, compared to other expense of $179 thousand during the three months ended May 31, 2025. This difference represents interest income of $46 thousand for the three months ended May 31, 2026 compared to $9 thousand for the three months ended May 31, 2025, and interest expense of $208 thousand for the three months ended May 31, 2026 compared to $188 thousand for the three months ended May 31, 2025.
Previous report
During the three months ended May 31, 2026, investing activities used cash of $264 thousand, primarily due to the purchase of property and equipment. In comparison, investing activities used cash of $177 thousand during the three months ended May 31, 2025, primarily due to purchases of property and equipment.
Previous report
There were no cash flows from financing activities during the three months ended May 31, 2026 or during the three months ended May 31, 2025.
Previous report
Credit Agreement
Previous report
In connection with the Credit Agreement, 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.
Previous report
The proceeds of the RMCF2 Credit Agreement were used for working capital. The RMCF2 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 RMCF2 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 tangible net worth and a minimum current ratio. Loan origination fees were immaterial.
Previous report
In connection with the RMCF2 Credit Agreement, the Company entered into a Deed of Trust with RMCF2 and the Public Trustee of La Plata County, Colorado with respect to the Company's property in Durango, Colorado.
Reworded paragraphs (35)
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 May 31, 2026, there were 4 Company-owned, 108 licensee-owned and 138 franchised Rocky Mountain Chocolate Factory stores operating in 34 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 and 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 August 31, 2026, there were 5 Company-owned, 106 licensee-owned and 137 franchised Rocky Mountain Chocolate Factory stores operating in 34 states and the Philippines.
Previous wording
On August 28, 2025, the Company entered into the RMCF2 Credit Agreement with RMCF2, a special purpose investment entity affiliated with Jeffrey R. Geygan, the Company's former Interim Chief Executive Officer and one of the members of the Company's board of directors. Pursuant to the RMCF2 Credit Agreement, the Company received an advance in the principal amount of $1.2 million, which advance is evidenced by the RMCF2 Note. The RMCF2 Note matures on September 30, 2027 and interest accrues 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 RMCF2 Credit Agreement is collateralized by the Company's Durango real estate property and the related inventory and property, plant and equipment located on the property, as well as the Company's accounts receivable and cash accounts. On December 31, 2025, the Company repaid $0.6 million of the $1.2 million advance.
Current wording
On September 30, 2024, 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 matures on September 30, 2027 (the "Maturity Date"), and interest accrues 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. 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
The proceeds of the Credit Agreement were used to repay a $3.5 million expiring credit agreement and for capital investment and working capital. 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 tangible net worth and a minimum current ratio. The Company incurred $0.1 million of loan origination fees, included as a debt discount and reduction of the notes payable on the balance sheet.
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 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 incurred $0.1 million of loan origination fees, included as a debt discount and reduction of the notes payable on the balance sheet.
Previous wording
On August 28, 2025, the Company entered into a first amendment to the Credit Agreement. RMC agreed to make an additional advance to the Company in the principal amount of $0.6 million. There was no change to other terms of the agreement. On December 31, 2025, the Company repaid the additional $0.6 million advance.
Current wording
On August 28, 2025, the Company entered into a first amendment to the Credit Agreement. RMC agreed to make an additional advance to the Company in the principal amount of $0.6 million. There was no change to other terms of the agreement. The additional advance of $.6 million was repaid on December 31, 2025.
Previous wording
As of May 31, 2026, $6.0 million was outstanding on the Credit Agreement. The Company was not in compliance with the total liabilities to tangible net worth covenant of 2.0:1.0 as of May 31, 2026, which was computed at 5.3:1.0. We have received a waiver from RMC through the quarter ended August 31, 2026 as of the date of issuance of these financial statements and are in compliance with all other aspects of the Credit Agreement.
Current wording
The Company was not in compliance with the covenants as of August 31, 2026, providing for a maximum ratio of total liabilities to tangible net worth of 2.0 to 1.0, which was computed as 8.96 to 1.0, and a minimum ratio of current assets to current liabilities of 1.25 to 1.0, which was computed as .52 to 1.0. The Company has not received a waiver from RMC through the quarter ended August 31, 2026, but is in compliance with all other aspects of the debt agreement. The debt has been classified as a current liability at August 31, 2026.
Previous wording
Pursuant to the RMCF2 Credit Agreement, RMCF2 agreed to make an advance to the Company in the principal amount of $1.2 million, which advance is evidenced by a promissory note (the "RMCF2 Note"). The RMCF2 Note matures on September 30, 2027 and interest accrues 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 RMCF2 Credit Agreement is collateralized by the Company's Durango real estate property and the related inventory and property, plant and equipment located on the property, as well as the Company's accounts receivable and cash accounts. Of the $1.2 million advanced, $0.6 million was repaid on December 31, 2025. The Company was not in compliance with the covenant providing for a maximum ratio of total liabilities to tangible net worth of 2.0:1.0 at May 31, 2026. The Company received a waiver from RMCF2 and is in compliance with all other aspects of the debt agreement.
Current wording
Pursuant to the RMCF2 Credit Agreement, RMCF2 agreed to make an advance to the Company in the principal amount of $1.2 million, which advance is evidenced by a promissory note (the “RMCF2 Note”). The RMCF2 Note matures on September 30, 2027, and interest accrues 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 RMCF2 Credit Agreement is collateralized by the Company’s Durango real estate property and the related inventory and property, plant and equipment located on the property, as well as the Company’s account receivable and cash accounts. Of the $1.2 million advanced, $.6 million was repaid on December 31, 2025.
Previous wording
As of May 31, 2026, $0.6 million was outstanding on the RMCF2 Credit Agreement. The Company was not in compliance with the total liabilities to tangible net worth covenant of 2.0:1.0 as of May 31, 2026, which was computed at 5.3:1.0. We have received a waiver from RMCF2 through the quarter ended August 31, 2026 as of the date of issuance of these financial statements and are in compliance with all other aspects of the RMCF2 Credit Agreement.
Current wording
The Company was not in compliance with the covenants as of August 31, 2026, providing for a maximum ratio of total liabilities to tangible net worth of 2.0 to 1.0, which was computes as 8.96 to 1.0, and a minimum ratio of current assets to current liabilities of 1.25 to 1.0, which was computed as .52 to 1.0. The Company has not received a waiver from RMCF2 through the quarter ended August 31, 2026, but is in compliance with all other aspects of the debt agreement. The debt has been classified as a current liability at August 31, 2026.
Previous wording
Appointment of Interim Chief Executive Officer
Current wording
Appointment of Interim Chief Executive Officer and Chief Operating Officer
Previous wording
On June 21, 2026, Jeffrey R. Geygan notified the Board of Directors of his resignation as interim Chief Executive Officer, effective June 26, 2026. Mr. Geygan remains a member of the Board of Directors. On June 29, 2026, the Board of Directors appointed Allen C. Harper as interim Chief Executive Officer and Principal Executive Officer, effective immediately. Mr. Harper previously served as a member of the Board of Directors from November 2024 to September 2025, and is affiliated with American Heritage Railways, Inc., which may be deemed an affiliate of the Company by virtue of its beneficial ownership of the Company's common stock. In connection with Mr. Harper's appointment, the Board of Directors approved aggregate compensation of $200,000 for up to six months of service; $70,000 in cash and $130,000 in restricted stock units. The Board of Directors may extend the term of employment.
Current wording
On June 21, 2026, Jeffrey R. Geygan notified the Board of Directors of his resignation as interim Chief Executive Officer, effective June 26, 2026. Mr. Geygan remains a member of the Board of Directors. On June 29, 2026, the Board of Directors appointed Allen C. Harper as interim Chief Executive Officer and Principal Executive Officer, effective immediately. Mr. Harper previously served as a member of the Board of Directors from November 2024 to September 2025, and is affiliated with American Heritage Railways, which may be deemed an affiliate of the Company by virtue of its beneficial ownership of the Company’s common stock. In connection with Mr. Harper’s appointment, the Board of Directors approved aggregate compensation of $200,000 for up to six months of service; $70,000 in cash and $130,000 in restricted stock units. The Board of Directors may extend the term of employment.
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 experienced labor and logistics challenges, which have contributed to lower factory, retail and e-commerce sales. In addition, we could experience additional lost sales 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.
Current wording
As a result of recent macroeconomic inflationary trends, 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 higher cost of goods sold. 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 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. In fiscal years 2026 and 2027, the Company signed five area development agreements that include the addition of forty new franchise stores over the next three to five years.
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
Our ability to successfully achieve expansion of our franchise system 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.
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 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, and 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
The increase in Durango product and retail sales of 3.5%, or $0.2 million, for the three months ended May 31, 2026 compared to the three months ended May 31, 2025 was primarily due to price increases offset by a decline in packaged product sales. Declines in royalty and marketing fees relate to a change in the calculation of royalties under revised franchise agreements.
Current wording
The increase in Durango product and retail sales of 2.5%, or $0.1 million for the three months ended August 31, 2026 compared to the three months ended August 31, 2025 was primarily due to sales price increases.
Previous wording
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 on our marketing efforts to increase total pounds purchased by franchise locations.
Current wording
We continue to rationalize product offerings to improve production efficiencies, while adding new products. Our new box line will be available for the holidays. We believe we 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 on increasing total pounds purchased by franchise locations.
Previous wording
Total gross margin percentage decreased to 3.7% for the three months ended May 31, 2026 compared to a gross margin of 6.9% during the three months ended May 31, 2025, due primarily to the decline in packaged product sales. The Company is redesigning its packaged product offerings.
Current wording
Total gross margin percentage increased to 8.0% for the three months ended August 31, 2026 compared to a gross margin of (0.6)% during the three months ended August 31, 2025, due primarily to an increase in production efficiencies.
Previous wording
The increase in general and administrative costs during the three months ended May 31, 2026 compared to the three months ended May 31, 2025, was due primarily to an increase in labor costs related to the implementation of websites and third-party delivery platforms for franchisees across the franchise network and additional professional fees. As a percentage of total revenues, general and administrative expenses increased to 20.9% during the three months ended May 31, 2026, compared to 15.7% during the three months ended May 31, 2025.
Current wording
The increase in general and administrative costs during the three months ended August 31, 2026 compared to the three months ended August 31, 2025, was due primarily to increases in costs related to employee compensation, insurance, software licenses, professional fees, travel, and board compensation. As a percentage of total revenues, general and administrative expenses increased to 20.0% during the three months ended August 31, 2026, compared to 14.3% during the three months ended August 31, 2025.
Previous wording
Retail operating expenses increased 53.9% during the three months ended May 31, 2026 compared to the three months ended May 31, 2025. This increase is primarily the result of an increase from two company-owned stores to four company-owned stores. As a percentage of total revenues, retail operating expenses increased to 5.2% during the three months ended May 31, 2026 compared to 3.2% during the three months ended May 31, 2025.
Current wording
Retail operating expenses increased 91.6% during the three months ended August 31, 2026 compared to the three months ended August 31, 2025. This increase is primarily the result of an increase in the number of corporate stores. The Company acquired a third corporate store in August of 2025 and has since acquired two additional stores.
Previous wording
Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales, was $139 thousand during the three months ended May 31, 2026, an increase of 17.8% from $118 thousand for the three months ended May 31, 2025.
Current wording
Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales was $0.14 million during the three months ended August 31, 2026, an increase of 30.6% from $0.11 million during the three months ended August 31, 2025. Depreciation and amortization included in cost of sales decreased 2.5% from $0.24 million during the three months ended August 31, 2025 to $0.23 million during the three months ended August 31, 2026. This decrease was the result of certain assets being fully depreciated.
Previous wording
Basic loss per share increased from a loss of $(0.04) per share for the three months ended May 31, 2025 to a loss of $(0.12) per share for the three months ended May 31, 2026. Revenues decreased by 4.1% comparing the three months ended May 31, 2025 with to the three months ended May 31, 2026. The operating loss was $0.1 million for the three months ended May 31, 2025 compared to an operating loss of $1.0 million for the three months ended May 31, 2026. Net loss increased from a loss of $0.3 million for the three months ended May 31, 2025 to a net loss of $1.2 million for the three months ended May 31, 2026.
Current wording
The basic loss per share was $(0.13) per share for the six months ended August 31, 2025 compared with a loss of $(0.26) per share for the six months ended August 31, 2026. Revenues decreased by 3.3% from $13.2 million for the six months ended August 31, 2025 to $12.8 million for the six months ended August 31, 2026. Operating loss was $0.6 million for the six months ended August 31, 2025 compared to an operating loss of $2.1 million for the six months ended August 31, 2026.
Previous 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 it provides 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 an analytical tool because it excludes 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 a measures of performance only in conjunction with GAAP measure 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. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is useful to investors because it helps them to evaluate a company's core operating performance without the effects of financing decisions, tax jurisdictions, or certain non-cash accounting changes. Both EBITDA and 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
As of May 31, 2026, working capital was $0.9 million compared with $2.0 million as of February 28, 2026. The decrease in working capital was due primarily to the payment of accounts payable and current liabilities. In the short-term, cash will be used to meet operating obligations and purchase obligations, building inventory for the holiday season, and debt service. Retail stores generate sufficient cash to meet the associated lease obligations. Expected future cash requirements include lease liabilities, purchase obligations, and capital expenditures to support the future growth of the business. The Company was not in compliance with the total liabilities to tangible net worth covenant of 2.0:1.0 as of May 31, 2026, which was computed at 5.3:1.0. We have received waivers from our lenders through the quarter ended August 31, 2026. We expect to refinance our credit agreements prior to maturity in September 2027.
Current wording
As of August 31, 2026, the Company has a working capital deficit of $6.5 million compared with positive working capital of $2.2 million as of February 28, 2026. The decrease in working capital was primarily due to the reclassification of certain debt obligations from long-term liabilities to current liabilities for the six months ended August 31, 2026. The Company was not in compliance with the covenant obligations for either the current ratio of 1.25 to 1.0, computed as .52 to 1.0, or the total liabilities to tangible net worth covenant of 2.0 to 1.0, which was computed as 8.96 to 1.0 as of August 31, 2026. As a result, the current debt, which matures on September 30, 2027, has been classified as current as of August 31, 2026. Expected future cash requirements include lease liabilities, purchase obligations, and capital expenditures to support operations and the expected future growth of the business.
Previous wording
Cash and cash equivalent balances decreased from $1.2 million as of February 28, 2026 to $0.6 million as of May 31, 2026 primarily as a result of cash used in operating activities. Our current ratio was 1.13 to 1.0 on May 31, 2026 compared to 1.29 to 1.0 on February 28, 2026. 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 $1.2 million as of February 28, 2026 to $0.4 million as of August 31, 2026 primarily as a result of cash used in operating and investing activities. Our current ratio was 0.52 to 1.0 on August 31, 2026 compared to 1.33 to 1.0 on February 28, 2026. 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.
Previous wording
During the three months ended May 31, 2026, we had a consolidated net loss of $1.2 million. Operating activities used cash of $0.3 million, with the principal adjustments to reconcile net loss to net cash used by operating activities being depreciation and amortization of $0.4 million and stock-based compensation of $0.1 million. 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 loss to net cash provided by operating activities being depreciation and amortization of $0.3 million, and stock-based compensation of $0.1 million.
Current wording
During the six months ended August 31, 2026, we had a consolidated net loss of $2.4 million. Operating activities used cash of $0.5 million, with the principal adjustments to reconcile net loss to net cash used in operating activities being depreciation and amortization of $0.7 million and stock compensation expense of $0.2 million. The primary changes in operating assets and liabilities included an increase in accounts receivable of $0.4 million and a decrease in inventory of $1.5 million. During the six months ended August 31, 2025, we had a consolidated net loss of $1.0 million. Operating activities used cash of $0.1 million, with the principal adjustments to reconcile net loss to net cash used in operating activities being depreciation and amortization of $0.7 million and stock compensation expense of $0.1 million, partially offset by recovery of accounts and notes receivable of $0.1 million.
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 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, 2026, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.
Current wording
Despite improvements in the operating activities, the Company continues to rely on outside sources of financing to sustain its operations. As a result, 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 28, 2026 audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.
Previous wording
The Company's ability to continue as a going concern is dependent on its ability to continue to implement its business plan. The Company continues to explore supplemental liquidity resources and alternative sources of debt financing to reduce interest rates. The Company intends to further reduce overhead costs, improve manufacturing efficiencies, and increase profits and gross margins by better aligning its costs with the delivery and sale of products to its franchise system, current and new specialty market customers and e-commerce customers. The Company intends to benefit from its historically busy season of holiday product sales. The Company has recently developed and enhanced third-party delivery channels for current and new franchise locations, including introducing websites for each location which is expected to increase franchise sales. The Company has implemented a corporate sales strategy to add new stores and transfer existing stores to new owners when appropriate, while also requiring most existing stores to undergo a remodel which has historically resulted in increased store level sales after completion. There are no assurances that the Company will be successful in implementing its business plan.
Current wording
The Company's ability to continue as a going concern is dependent on its ability to continue to implement its business plan. The Company continues to explore supplemental liquidity resources and alternative sources of debt financing to reduce interest rates. The Company intends to reduce overhead costs, improve manufacturing efficiencies, and increase profit and gross margins by better aligning its costs with the delivery and sale of products to its franchise system, current and new specialty market customers, and e-commerce customers. The Company intends to benefit from its historically busy season of holiday product sales. The Company has recently developed and enhanced third-party delivery channels for current and new franchise locations, including websites for each location which is expected to increase franchise sales. The Company has implemented a corporate sales strategy to add new stores and transfer existing stores to new owners when appropriate, while also requiring most existing stores to undergo a remodel which has historically resulted in increased store-level sales after completion. There are no assurances the Company will be successful in implementing its business plan.
Previous wording
On September 30, 2024, we entered into a 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.
Current wording
On September 30, 2024, 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 matures on September 30, 2027 (the "Maturity Date"), and interest accrues 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. 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
On August 28, 2025, the Company entered into a first amendment to the Credit Agreement. RMC agreed to make an additional advance to the Company in the principal amount of $0.6 million. There was no change to other terms of the agreement. The additional advance of $0.6 million was repaid on December 31, 2025. The Company was not in compliance with the covenant providing for a maximum ratio of total liabilities to tangible net worth of 2.0:1.0 at May 31, 2026. The Company received a waiver from RMC and is in compliance with all other aspects of the debt agreement.
Current wording
On August 28, 2025, the Company entered into a first amendment to the Credit Agreement. RMC agreed to make an additional advance to the Company in the principal amount of $0.6 million. There was no change to other terms of the agreement. The additional advance of $.6 million was repaid on December 31, 2025.
Previous wording
We will continue to explore additional means of strengthening our liquidity position and ensuring compliance with our debt financing covenants, which may include obtaining waivers from our lenders.
Current wording
We continue to explore additional means of strengthening our liquidity position and ensuring compliance with the continued listing standards of NASDAQ.
Previous wording
Subsequent to May 31, 2026, the Company filed a registration statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") covering the offer and sale, from time to time, of up to $6.0 million in aggregate offering price of its securities. The Registration Statement provides for the issuance of one or more of the following classes of securities: common stock; preferred stock, or debt securities; and units consisting of one or more of the foregoing securities. The Registration Statement was declared effective by the SEC on July 1, 2026.
Current wording
On June 23, 2026, the Company filed a registration statement on Form S-3 (the "Registration Statement") with the SEC covering the offer and sale, from time to time, of up to $6.0 million in aggregate offering price of its securities. The Registration Statement provides for the issuance of one or more of the following classes of securities: common stock, preferred stock, debt securities, and units consisting of one or more of the foregoing securities. The Registration Statement was declared effective by the SEC on July 1, 2026.
Previous wording
The securities may be offered in one or more offerings, at prices and on terms to be determined at the time of sale, and may be issued directly by the Company or through underwriters, dealers, or agents. The Company intends to use net proceeds from any future offerings under the Registration Statement for general corporate purposes, which may include working capital, capital expenditures, repayment of indebtedness, acquisitions, or other strategic investments. The Company has not issued any securities or entered into any definitive agreements related to offerings under the Registration Statement, subsequent to its effectiveness.
Current wording
The securities may be offered in one or more offerings, at prices and on terms to be determined at the time of sale, and may be issued directly by the Company or through underwriters, dealers, or agents. The Company intends to use the net proceeds from any future offerings under the Registration Statement for general corporate purposes, which may include working capital, capital expenditures, repayment of indebtedness, acquisitions, or other strategic investments. As of the date of this Quarterly Report, the Company has not issued any securities or entered into any definitive agreements related to offerings under the Registration Statement.
Previous wording
The preparation of consolidated financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Nature of Operations and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report and in the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2026 describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s significant accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended February 28, 2026.
Current wording
The preparation of condensed consolidated financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Nature of Operations and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report and in the Notes to Consolidated Financial Statements in Part II, Item 8 in our Annual Report on Form 10-K for the fiscal year ended February 28, 2026 describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s significant accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended February 28, 2026.
Previous wording
As of May 31, 2026, we had purchase obligations of approximately $3.7 million. These purchase obligations primarily consist of contractual obligations of between five to twelve months for future purchases of commodities for use in our manufacturing.
Current wording
As of August 31, 2026, we had purchase obligations of approximately $2.7 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 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 costs 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 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.
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 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.
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 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.
Rearranged current paragraphs (6)
Current report — wording carried from elsewhere
Royalties, Marketing Fees and Franchise Fees
Current report — wording carried from elsewhere
Cost of Sales and Gross Margin
Current report — wording carried from elsewhere
Three Months Ended August 31, 2026 Compared to the Three Months Ended August 31, 2025
Current report — wording carried from elsewhere
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 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 incurred $0.1 million of loan origination fees, included as a debt discount and reduction of the notes payable on the balance sheet.
Current report — wording carried from elsewhere
On August 28, 2025, the Company entered into a credit agreement (the “RMCF2 Credit Agreement”) with RMCF2 Credit LLC (“RMCF2”), a special purpose investment entity affiliated with Jeffrey R. Geygan, the Company’s former interim CEO and one of the members of the board of directors.
Current report — wording carried from elsewhere
Pursuant to the RMCF2 Credit Agreement, RMCF2 agreed to make an advance to the Company in the principal amount of $1.2 million, which advance is evidenced by a promissory note (the “RMCF2 Note”). The RMCF2 Note matures on September 30, 2027, and interest accrues 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 RMCF2 Credit Agreement is collateralized by the Company’s Durango real estate property and the related inventory and property, plant and equipment located on the property, as well as the Company’s account receivable and cash accounts. Of the $1.2 million advanced, $.6 million was repaid on December 31, 2025.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Credit Agreement with RMCF2 Credit LLC