Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2026
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number: 001-36865
Rocky Mountain Chocolate Factory, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
47-1535633
( State or other jurisdiction of
incorporation or organization)
(I.R.S. EmployerIdentification No.)
265 Turner Drive, Durango, CO 81303
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (970) 259-0554
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
RMCF
The Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On July 7, 2026, the registrant had 9,439,587 shares of common stock, $0.001 par value per share, outstanding.
part I. financial information
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
3
Condensed Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
4
Condensed Consolidated Statements of Cash Flows
5
Condensed Consolidated Statements of Changes in Stockholders' Equity
6
Notes to Condensed Consolidated Financial Statements
8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
21
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
29
Item 4.
Controls and Procedures
part II. other information
30
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
31
Signatures
32
1
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to come within the safe harbor protection provided by those sections. These forward-looking statements involve various risks and uncertainties. These statements, other than statements of historical fact, included in this Quarterly Report are forward-looking statements. Many of the forward-looking statements contained in this document may be identified by the use of forward-looking words such as “will,” “intend,” “believe,” “expect,” “anticipate,” “should,” “plan,” “estimate,” “potential,” “may,” “would,” “could,” “continue,” “likely,” “might,” “seek,” “outlook,” “explore,” or the negative of these terms or other similar expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future including statements regarding future financial and operating results, our business strategy and plan, our strategic priorities, our store pipeline and our transformation, are forward-looking statements. Management believes these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date of this Quarterly Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to: inflationary impacts, the outcome of legal proceedings, changes in the confectionery business environment, seasonality, consumer interest in our products, consumer receptiveness of our products internationally, consumer and retail trends, costs and availability of raw materials, competition, the success of our co-branding strategy, the success of international expansion efforts, financial covenants in our credit agreements, our ability to maintain adequate working capital, and the effect of government regulations. For a detailed discussion of the risks and uncertainties that may cause our actual results to differ from the forward-looking statements contained herein, please see Part II, Item 1A. “Risk Factors” and the risks described elsewhere in this Quarterly Report and the section entitled “Risk Factors” contained in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended February 28, 2026, filed with the Securities and Exchange Commission (“SEC”) on May 29, 2026, as updated by this Quarterly Report.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Rocky Mountain Chocolate Factory, Inc. and Subsidiaries
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended May 31,
2026
2025
Revenues
Sales
$
4,881
4,718
Franchise and royalty fees
1,232
1,655
Total Revenue
6,113
6,373
Costs and Expenses
Cost of sales
4,702
4,392
Franchise costs
491
595
Sales and marketing
190
206
General and administrative
1,280
1,001
Retail operating
317
Depreciation and amortization, exclusive of depreciation and amortization expense of $227 and $228, respectively, included in cost of sales
139
118
Total costs and expenses
7,119
6,518
Loss from Operations
(1,006
)
(145
Other Income (Expense)
Interest expense
(208
(188
Interest income
46
9
Other income (expense), net
(162
(179
Loss Before Income Taxes
(1,168
(324
Income Tax Provision (Benefit)
-
Net Loss
Basic Loss per Common Share
(0.12
(0.04
Diluted Loss per Common Share
Weighted Average Common Shares Outstanding - Basic
9,390,389
7,742,317
Dilutive Effect of Employee Stock Awards
Weighted Average Common Shares Outstanding - Diluted
The accompanying notes are an integral part of these condensed consolidated financial statements.
May 31, 2026 (unaudited)
February 28, 2026
Assets
Current Assets
Cash and cash equivalents
609
1,218
Accounts receivable, less allowance for credit losses of $128 and $128, respectively
2,725
2,545
Notes receivable, current portion, less current portion of the allowance for credit losses of $28 and $28, respectively
47
59
Refundable income taxes
56
58
Inventories
3,228
4,057
Prepaid expenses
883
831
Total current assets
7,548
8,768
Property and Equipment, Net
8,709
8,775
Other Assets
Notes receivable, less current portion and allowance for credit losses of $0 and $0, respectively
33
36
Goodwill
576
Intangible assets, net
712
733
Lease right of use asset
1,671
1,310
Other
14
Total other assets
3,006
2,669
Total Assets
19,263
20,212
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
4,593
5,088
Accrued salaries and wages
587
406
Gift card liabilities
654
Other accrued expenses
162
64
Deferred Income Tax
187
Lease liability
394
282
Contract Liability
107
105
Total current liabilities
6,684
6,786
Notes Payable
6,574
6,568
Lease Liability, Less Current Portion
1,300
1,054
Contract Liabilities, Less Current Portion
561
575
Total Liabilities
15,119
14,983
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $.001 par value per share; 250,000 authorized; 0 shares issued and outstanding
Common stock, $.001 par value, 46,000,000 shares authorized, 9,395,817 shares and 7,764,484 shares issued and outstanding, respectively
Additional paid-in capital
15,251
15,168
Accumulated deficit
(11,116
(9,948
Total stockholders' equity
4,144
5,229
Total Liabilities and Stockholders' Equity
(In thousands)
Three Months EndedMay 31,
Cash Flows From Operating Activities
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
366
346
Provision for obsolete inventory
(39
—
Debt Issuance Costs
Expense recorded for stock compensation
83
81
Changes in operating assets and liabilities:
Accounts receivable
(180
966
868
216
Other current assets
(50
(495
(863
Accrued liabilities
276
(55
Contract liabilities
(12
(25
Net cash provided by (used in) operating activities
(345
350
Cash Flows from Investing Activities
Increase in other assets
(19
Proceeds from notes receivable
15
10
Purchases of property and equipment
(259
(168
Acquisition of company-owned store assets
(20
Net cash used in investing activities
(264
(177
Cash Flows from Financing Activities
Net cash provided by financing activities
Net Increase (Decrease) in Cash and Cash Equivalents
(609
173
Cash and Cash Equivalents, Beginning of Period
720
Cash and Cash Equivalents, End of Period
893
(In thousands, except share amounts)
Three Months Ended May 31, 2026
Preferred Stock
Common Stock
Additional Paid-In
Accumulated
Total Stockholders'
Shares
Amount
Capital
Deficit
Equity
Balances as of February 28, 2026
9,354,620
Equity compensation, restricted stock units, net of shares withheld
41,197
Net loss
Balances as of May 31, 2026
9,395,817
Condensed Consolidated Statements of Changes in Stockholders' Equity (Continued)
Three Months Ended May 31, 2025
Balances as of February 28, 2025
7,722,174
12,355
(5,388
6,975
42,310
Balances as of May 31, 2025
7,764,484
12,436
(5,712
6,732
7
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The accompanying condensed consolidated financial statements include the accounts of Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, its wholly-owned subsidiaries, Rocky Mountain Chocolate Factory, Inc. (a Colorado corporation) and U-Swirl, Inc. (SWRL), (collectively, the “Company”, “we”, “RMCF”).
The Company is an international franchisor, confectionery producer and retail operator. Founded in 1981, the Company is headquartered in Durango, Colorado and produces an extensive line of premium chocolate candies and other confectionery products. The Company's revenues and profitability are derived principally from its franchised and licensed system of retail stores that feature chocolate and other confectionery products including gourmet caramel apples.
The Company’s revenues are currently derived from three principal sources: (i) sales to franchisees and others of chocolates and other confectionery products manufactured by the Company; (ii) the collection of initial franchise fees, marketing fees, and royalties from franchisees’ sales; (iii) retail sales at Company-owned stores of chocolates and other confectionery products.
The carrying amounts of cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short-term maturities. The carrying value of long-term debt approximates fair value based on current borrowing rates available to the Company.
The following table summarizes the number of stores operating under the Rocky Mountain Chocolate Factory brand at May 31, 2026:
StoresOpen at2/28/2026
Opened
Closed
Transferred/Acquired
StoresOpen at5/31/2026
Rocky Mountain Chocolate Factory
Company-owned stores
Franchise stores - Domestic stores and kiosks
136
(1
135
International license stores
Cold Stone Creamery - co-branded
101
(3
98
U-Swirl - co-branded
Total
253
250
Liquidity and Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. In accordance with ASC 205-40, Going Concern, the Company’s management has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying financial statements were issued. During the three months ended May 31, 2026, the Company incurred a net loss of $1.2 million and $0.3 million of cash was used by operating activities. 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 as 5.3:1.0. The Company has received waivers from its lenders through the quarter ended August 31, 2026 and is in compliance with all other aspects of its credit agreements. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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, 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.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements, which include the accounts of the Company and its subsidiaries, have been prepared by the Company, without audit, and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The condensed consolidated financial statements have been prepared in conformity with GAAP for interim financial reporting and SEC regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the consolidated financial statements reflect all adjustments (of a normal and recurring nature) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the three months ended May 31, 2026 are not necessarily indicative of the results to be expected for the entire fiscal year ending February 28, 2027. All intercompany balances and transactions have been eliminated in consolidation.
These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2026, filed with the SEC on May 29, 2026. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the estimate of the reserve for uncollectible accounts, revenue recognition and the reserve to reduce inventory to net realizable value. The Company bases its estimates on historical experience and also on assumptions that the Company believes are reasonable. The Company assesses these estimates on a regular basis; however, actual results could materially differ from these estimates.
New Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued Accounting Standard Update 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation for Income Statement Expenses ("ASU 2024-03"), which requires disaggregated information about certain income statement expense line items on an annual and interim basis. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and can be applied prospectively or retrospectively. The Company is evaluating the impact of the adoption of this standard on the Company's financial statements and related disclosures.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The update clarifies the applicability, form and content requirements of interim financial reporting and establishes a disclosure principle requiring disclosure events and changes occurring after the end of the most recent annual reporting period that have material impact on the entity. The amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact that adoption of this standard will have on its condensed consolidated financial statements and related disclosures.
New Accounting Pronouncements Adopted
Effective March 1, 2026, the Company adopted ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, and elected the practical expedient available under the standard for qualifying current accounts receivable and contract assets. The adoption of the standard did not have a material impact on the Company's condensed consolidated financial statements.
NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION
($'s in thousands)
Cash paid (received) for:
Interest
202
188
Income taxes
(2
Supplemental disclosure of non-cash activities:
Non-cash additions to operating lease right of use assets and liabilities
476
Accounts receivable exchanged for notes receivable
112
NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company recognizes revenue from contracts with its customers in accordance with Accounting Standards Codification® (“ASC”) 606, which provides that revenues are recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration expected to be received for those goods or services. The Company generally receives a fee associated with the franchise agreement or license agreement (collectively “Customer Contracts”) at the time that the Customer Contract is entered. These Customer Contracts have a term of up to 20 years; however the majority of Customer Contracts have a term of 10 years. During the term of each Customer Contract, the Company is obligated to satisfy many performance obligations that the Company has determined are not distinct. The resulting treatment of revenue from Customer Contracts is that the revenue is recognized proportionately over the life of the Customer Contract.
Initial Franchise Fees, License Fees, Transfer Fees and Renewal Fees
The initial franchise services are not distinct from the continuing rights or services offered during the term of the franchise agreement and are treated as a single performance obligation. Initial franchise fees are being recognized as the Company satisfies the performance obligation over the term of the franchise agreement, which is generally 10 years.
The following table summarizes contract liabilities as of May 31, 2026 and February 28, 2026:
May 31,
February 28,
Contract liabilities at the beginning of the period:
680
743
Revenue recognized
(35
(204
Contract fees received
23
141
Contract liabilities at the end of the period:
668
At May 31, 2026, annual revenue expected to be recognized in the future, related to performance obligations that are not yet fully satisfied, is estimated to be the following (amounts in thousands):
2027
80
2028
104
2029
92
2030
82
2031
73
Thereafter
237
Gift Cards
The Company’s franchisees sell gift cards, which do not have expiration dates or non-usage fees. The proceeds from the sale of gift cards by the franchisees are accumulated by the Company and paid out to the franchisees upon customer redemption. ASC 606 requires the use of the “proportionate” method for recognizing breakage. The Company recognizes breakage from gift cards when the gift card is redeemed by the customer or the Company determines the likelihood of the gift card being redeemed by the customer is remote (“gift card breakage”). The determination of the gift card breakage rate is based upon Company-specific historical redemption patterns. The Company did not recognize any gift card breakage during the three months ended May 31, 2026 and 2025.
11
Durango Product Sales of Confectionery Items, Retail Sales and Royalty and Marketing Fees
Durango Product Sales are those sold from the Company's factory in Durango, Colorado. Retail sales include products sold in the retail store locations. Sales of confectionery items sold to the Company’s franchisees and others and sales at Company-owned stores are recognized at the time of the underlying sale, based on the terms of the sale and when ownership of the inventory is transferred, and are presented net of sales taxes and discounts. Royalties and marketing fees from franchised or licensed locations, which are based on a percentage of sales, are recognized at the time the sales occur.
NOTE 4 – DISAGGREGATION OF REVENUE
The following table presents disaggregated revenue by the method of recognition and segment:
Franchising
Manufacturing
Retail
Revenue recognized over time:
Franchise fees
35
Revenue recognized at a point in time:
Durango Product sales
4,320
Retail sales
Royalty and marketing fees
1,197
Total revenues recognized over time and point in time
4,399
319
1,619
NOTE 5 - INVENTORIES
Inventories consist of the following at May 31, 2026 and February 28, 2026:
May 31, 2026
Ingredients and supplies
1,783
2,156
Finished candy
1,562
2,057
Reserve for slow moving inventory
(117
(156
Total inventories
12
NOTE 6 – PROPERTY AND EQUIPMENT, NET
Property and equipment at May 31, 2026 and February 28, 2026 consisted of the following:
Land
124
Building
5,574
Machinery and equipment
15,537
15,278
Furniture and fixtures
740
Leasehold improvements
Transportation equipment
326
22,437
22,158
Less accumulated depreciation
(13,728
(13,383
Property and equipment, net
Depreciation expense related to property and equipment totaled $0.3 million and $0.3 million during the three months ended May 31, 2026 and 2025, respectively.
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following at May 31, 2026 and February 28, 2026:
Amortization Period (in Years)
GrossCarryingValue
AccumulatedAmortization
Accumulated Amortization
Intangible assets subject to amortization
Store design
954
(340
(321
Trademark/Non-competition agreements
20
(152
(150
1,204
(492
(471
Goodwill and intangible assets not subject to amortization
362
97
Trademark
Total Goodwill and Intangible Assets
1,780
Amortization expense related to intangible assets totaled approximately $21 thousand and $7 thousand during the three months ended May 31, 2026 and 2025, respectively.
13
At May 31, 2026, annual amortization of intangible assets, based upon the Company’s existing intangible assets and current useful lives, is estimated to be the following (amounts in thousands):
62
79
322
NOTE 8 – NOTES PAYABLE
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 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 the 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.
The Credit Agreement contains customary events of default, including nonpayment of principal and interest when due, failure to comply with covenants, and a change in 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 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.
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, which was computed as 5.3:1.0. The Company received a waiver from RMC through the quarter ended August 31, 2026 and is in compliance with all other aspects of the debt agreement.
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.
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 RMCF2 Credit Agreement contains customary events of default, including nonpayment of principal and interest when due, failure to comply with covenants, and a change in 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 tangible net worth and a minimum current ratio.
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, which was computed as 5.3:1.0. The Company received a waiver from RMCF2 through the quarter ended August 31, 2026 and is in compliance with all other aspects of the debt agreement.
As of May 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 May 31, 2026.
NOTE 9 – COMMON STOCK
Under the Company’s previous 2007 Equity Incentive Plan, the Company may authorize and grant stock awards to employees, non-employee directors and certain other eligible participants, including stock options, restricted stock and restricted stock units. Effective June 2024, the Board authorized 600,000 new shares, along with 300,851 unused and available shares and 131,089 shares granted and outstanding from the 2007 Equity Incentive Plan, to form the 2024 Equity Incentive Plan with a total of 1,031,940 shares. As of May 31, 2026, 470,961 shares were available for issuance.
The Company recognized $0.1 million and $0.1 million of stock-based compensation expense during the three months ended May 31, 2026 and 2025, respectively. Compensation costs related to stock-based compensation are generally amortized over the vesting period of the stock awards.
The following table summarizes non-vested restricted stock unit transactions for common stock during the three months ended May 31, 2026:
Outstanding non-vested restricted stock units at beginning of year:
194,189
Granted
165,697
Vested
(41,197
Cancelled/forfeited
(71,164
Outstanding non-vested restricted stock units as of May 31:
247,525
Weighted average grant date fair value
2.56
Weighted average remaining vesting period (in years)
1.21
Total unrecognized stock-based compensation expense for non-vested restricted stock units was approximately $0.4 million, and is expected to be recognized over the next 2 years.
During the three months ended May 31, 2026, the Company granted a total of 165,697 restricted stock unit awards which are subject to vesting over time. These awards were made to certain of the Company's executives and members of the board of directors. These restricted stock units have an aggregate grant date fair value of $0.4 million or $2.56 per share.
NOTE 10 - EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted-average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through the settlement of restricted stock units. Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock.
The weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include outstanding common shares issuable if their effect would be anti-dilutive. During the three months ended May 31, 2026, 247,525 shares of common stock that were issuable upon the vesting of restricted stock units were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.
NOTE 11 – LEASING ARRANGEMENTS
The Company conducts its retail operations in facilities leased under non-cancelable operating leases of up to ten years. Certain leases contain renewal options for between one and five additional years at increased monthly rentals. Some of the leases provide for contingent rentals based on sales in excess of predetermined base levels.
The Company has leased space for one Company-owned location that is now occupied by franchisees. When the Company-owned location was sold or transferred, the store was subleased to the franchisee who is responsible for the monthly rent and other obligations under the lease.
The Company also leases trucking equipment and warehouse space in support of its production operations. Expense associated with trucking and warehouse leases is included in cost of sales on the consolidated statements of operations.
The Company accounts for payments related to lease liabilities on a straight-line basis over the lease term. As of May 31, 2026 and 2025, lease expense recognized in the consolidated statements of operations was $0.1 million.
The lease liability reflects the present value of the Company’s estimated future minimum lease payments over the life of its leases. This includes known escalations and renewal option periods reasonably assured of being exercised. Typically, renewal options are considered reasonably assured of being exercised if the sales performance of the location remains strong. Therefore, the right-of-use asset and lease liability include an assumption on renewal options that have not yet been exercised by the Company and are not currently a future obligation. The Company has separated non-lease components from lease components in the recognition of the asset and liability except in instances where such costs were not practical to separate. To the extent that occupancy costs, such as site maintenance, are included in the asset and liability, the impact is immaterial. For franchised locations, the related occupancy costs including property taxes, insurance and site maintenance are generally required to be paid by the franchisees as part of the franchise arrangement. In addition, the Company is the lessee under non-store related leases such as storage facilities and trucking equipment. For leases where the implicit rate is not readily determinable, the Company uses an incremental borrowing rate to calculate the lease liability that represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease. The weighted average discount rate used for operating leases was 11.4% as of May 31, 2026. The total estimated future minimum lease payments are $2.9 million as of May 31, 2026. As of May 31, 2026, maturities of lease liabilities for the Company’s operating leases were as follows (amounts in thousands):
16
313
340
314
225
226
1,443
2,861
Less: Imputed interest
(1,167
Present value of lease liabilities:
1,694
The weighted average lease term was 9.0 years and 8.4 years at May 31, 2026 and February 28, 2026, respectively.
Effective May 1, 2026, the Company entered into a new lease for its Nashville, TN location for a period of ten years which increased future lease payments by $0.5 million. The Company did not enter into any new leases during the three months ended May 31, 2025.
The Company did not have any leases categorized as finance leases as of May 31, 2026 or February 28, 2026.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Purchase contracts
The Company frequently enters into purchase contracts of between six to twelve months for chocolate and certain nuts. These contracts permit the Company to purchase the specified commodity at a fixed price on an as-needed basis during the term of the contract. Because prices for these products may fluctuate, the Company may benefit if prices rise during the terms of these contracts, but it may be required to pay above-market prices if prices fall and it is unable to renegotiate the terms of the contract. The Company has designated these contracts as normal under the normal purchase and sale exception under the accounting standards for derivatives. These contracts are not entered into for speculative purposes.
Litigation
From time to time, the Company is involved in litigation relating to claims arising out of its operations. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. As of May 31, 2026, the Company is involved in the early stages of a legal dispute regarding fulfillment of the agreement to sell franchise rights and intangible assets in connection with the sale of U-Swirl, the Company's former subsidiary that has since been dissolved. The Company does not expect this to have a material impact on the business or financial condition. The Company is not a party to any other legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on its business, financial condition or operating results.
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NOTE 13 - OPERATING SEGMENTS
The Company classifies its business interests into three reportable segments: Rocky Mountain Chocolate Factory, Inc. Franchising, Manufacturing, and Retail Stores. These categories, along with unallocated expenses, are the basis upon which the Company’s Chief Operating Decision Maker (CODM), the interim chief executive officer, evaluates the Company’s performance. The CODM uses the segment information in the annual planning process and considers actual versus plan variances in evaluating the performance of the segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 to these condensed consolidated financial statements. The Company evaluates performance and allocates resources based on the segment operating profit or loss, which excludes unallocated corporate general and administrative costs and income tax expense or benefit. The Company’s reportable segments are strategic businesses that utilize common information systems and corporate administration. All inter-segment sales prices are market based. Each segment is managed separately because of the differences in required infrastructure and the differences in products and services:
Three Months Ended
Unallocated
Total revenues
4,523
6,316
Intersegment revenues
(203
Revenue from external customers
Cost of Sales
4,563
Labor costs
485
152
503
1,140
Operating expenses
115
165
91
371
Professional fees
42
493
535
Other general & administrative expenses
39
193
232
681
456
6,980
Depreciation and amortization, exclusive of depreciation and amortization expense of $227 included in cost of sales (manufacturing segment)
24
705
467
1,384
Segment profit (loss)
527
(243
94
(1,384
Other income (expense)
Income (loss) before income taxes
(1,546
Income tax provision
Consolidated net income (loss)
Other Segment Disclosures
Total assets
1,811
12,968
2,227
2,257
Capital expenditures
228
25
26
279
18
May 31, 2025
4,542
6,516
(143
4,307
85
496
84
446
1,026
93
122
236
296
390
238
356
801
291
6,400
Depreciation and amortization, exclusive of depreciation and amortization expense of $228 included in cost of sales (manufacturing segment)
100
816
294
1,101
839
(1,101
(1,280
1,936
13,947
776
3,437
20,096
70
168
NOTE 14 - INCOME TAXES
The Company provides for income taxes pursuant to the liability method. The liability method requires recognition of deferred income taxes based on temporary differences between financial reporting and income tax basis of assets and liabilities, using current enacted income tax rates and regulations. These differences will result in taxable income or deductions in future years when the reported amount of the asset or liability is recovered or settled, respectively. Considerable judgment is required in determining when these events may occur and whether recovery of an asset, including the utilization of a net operating loss or other carryforward prior to its expiration, is more likely than not.
Realization of the Company's deferred tax assets is dependent upon the Company generating sufficient taxable income, in the appropriate tax jurisdictions, in future years, to obtain benefit from the reversal of net deductible temporary differences. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed. A valuation allowance to reduce the carrying amount of deferred income tax assets is established when it is more likely than not that we will not realize some portion or all of the tax benefit of our deferred income tax assets. The Company evaluates, on a quarterly basis, whether it is more likely than not that its deferred income tax assets are realizable based upon recent past financial performance, tax reporting
19
positions, and expectations of future taxable income. The determination of deferred tax assets is subject to estimates and assumptions. The Company periodically evaluates its deferred tax assets to determine if its assumptions and estimates should change.
The Company does not have any significant unrecognized tax benefits and does not anticipate a significant increase or decrease in unrecognized tax benefits within the next twelve months. Amounts are recognized for income tax related interest and penalties as a component of general and administrative expense in the statement of income.
NOTE 15 - ACQUISITION OF COMPANY-OWNED STORE
On April 30, 2026, the Company entered into an Asset Purchase Agreement with Nashville Chocolate, Inc. to purchase substantially all assets related to the operation of a Rocky Mountain Chocolate Factory franchise location at the Opry Mills Mall in Nashville, Tennessee. The assets acquired include inventory, equipment, trade fixtures, leasehold improvements, intellectual property, domain names, customer lists, and other tangible and intangible assets specified in the agreement. The Company did not assume any pre-existing liabilities of the seller. As a result of the acquisition, this is the Company's fourth retail store.
NOTE 16 - SUBSEQUENT EVENTS
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.
On June 23, 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.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations is qualified by reference and should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K, filed with the SEC on May 29, 2026, for the fiscal year ended February 28, 2026.
In addition to historical information, the following discussion contains certain forward-looking information. See "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report for certain information concerning forward-looking statements.
Overview
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.
Recent Developments
Credit Agreements with RMC Credit Facility, LLC and RMCF2 Credit, LLC
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.
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.
Securities Purchase Agreement with ARM-D Rocky Mountain Chocolate Holdings, LLC
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.
Registration Statement on Form S-3
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.
Secured Loan Agreement
Appointment of Interim Chief Executive Officer
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 Trends Affecting Our Business and Outlook
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.
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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.
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.
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.
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.
Results of Continuing Operations
Three Months Ended May 31, 2026 Compared to the Three Months Ended May 31, 2025
Results Summary
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.
REVENUES
%
Change
Durango product and retail sales
163
3.5
(2.8
)%
(422
(26.1
(260
(4.1
Durango Product and Retail Sales
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.
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.
Royalties, Marketing Fees and Franchise Fees
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.
COSTS AND EXPENSES
Total cost of sales
310
7.1
(104
(17.5
(16
(7.8
27.9
111
53.9
17.8
601
9.2
Gross Margin
Total gross margin
179
(147
(45.1
Gross margin percentage
3.7
6.9
(46.9
Cost of Sales and Gross Margin
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.
Franchise Costs
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.
Sales and Marketing
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.
General and Administrative
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.
Retail Operating Expenses
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.
Depreciation and Amortization
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.
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.
Adjusted Gross Margin
(a non-GAAP measure)
(45.0
Plus: depreciation and amortization
227
(0.4
Total Adjusted Gross Margin (non-GAAP measure)
554
(148
(26.7
8.3
8.5
(0
(2.1
Non-GAAP Measures
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.
Liquidity and Capital Resources
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.
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.
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.
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.
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.
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.
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.
Credit Agreement
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.
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.
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.
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.
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.
Credit Agreement with RMCF2 Credit LLC
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.
27
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.
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.
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.
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.
Significant Accounting Policies
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.
Off Balance Sheet Arrangements
As of May 31, 2026, except for the purchase obligations as described below, we had no material off-balance sheet arrangements or obligations.
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.
Impact of Inflation
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.
Depreciation expense is based on the historical cost to the Company of its fixed assets and is therefore potentially less than it would be if it were based on the current replacement cost. While property and equipment acquired in prior years will ultimately have to be replaced at higher prices, it is expected that replacement will be a gradual process over many years.
28
Seasonality
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures and Changes in Internal Control Over Financial Reporting
Disclosure Controls and Procedures — The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that material information relating to the Company is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Company's board of directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management, under the supervision and with the participation of our Interim Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the Company’s disclosure controls and procedures. Based on that evaluation, our Interim Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of May 31, 2026.
Changes in Internal Control over Financial Reporting — There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that occurred during the quarter ended May 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not aware of any pending legal actions that would, if determined adversely to us, have a material adverse effect on our business and operations.
We may, from time to time, become involved in disputes and proceedings arising in the ordinary course of business. In addition, as a public company, we are also potentially susceptible to litigation, such as asserting violations of securities laws. Any such claims, with or without merit, if not resolved, could be time-consuming and result in costly litigation. There can be no assurance that an adverse result in any future proceeding would not have a potentially material adverse effect on our business, results of operations, and financial condition.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
During the three months ended May 31, 2026, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(a) of Regulation S-K).
On July 7, 2026, there were approximately 417 record holders of our common stock. This figure does not include an estimate of the number of beneficial holders whose shares are held of record by banks, brokers or other nominees.
Item 6. Exhibits
Exhibit Number
Description
Incorporated by Reference orFiled/Furnished Herewith
10.1
Offer Letter, dated July 8, 2026, by and between Rocky Mountain Chocolate Factory, Inc. and Allen C Harper
Exhibit 10.1 to the Current Report on Form 8-K filed July 14, 2026, (File No. 001-36865)
31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith.
31.2
32.1*
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
101.INS
Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) (1)
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)
* The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report are not deemed filed with the SEC and are not to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in such filing.
(1) These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
Date: July 14, 2026
/s/Allen C. Harper
ALLEN C. HARPER
Interim Chief Executive Officer
(Principal Executive Officer)
/s/ Carrie E. Cass
CARRIE E. CASS
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)