RMCF Narrows Losses, Boosts Revenue Amidst Debt Covenant Breach

TL;DR

**RMCF is still bleeding cash and breaching debt covenants, making it a risky bet despite a slight revenue bump.**

AI Summary

Rocky Mountain Chocolate Factory, Inc. (RMCF) reported a net loss of $662,000 for the three months ended August 31, 2025, a slight improvement from the $722,000 net loss in the prior-year period. Total revenue increased to $6.823 million for the quarter, up from $6.380 million, driven by a rise in sales to $5.183 million (from $4.918 million) and franchise and royalty fees to $1.640 million (from $1.462 million). However, for the six months ended August 31, 2025, the company posted a net loss of $986,000, significantly better than the $2.380 million loss in the same period last year. Total revenue for the six-month period was $13.196 million, an increase from $12.787 million. The company's cash and cash equivalents improved substantially to $2.017 million as of August 31, 2025, from $720,000 at February 28, 2025, largely due to $1.800 million in proceeds from notes payable. Despite these improvements, RMCF was not in compliance with its liabilities to tangible net worth covenant of 2.0:1.0 for both debt agreements as of August 31, 2025, though it received a waiver from its lenders. The company plans to reduce overhead, improve manufacturing efficiencies, and increase e-commerce sales to address its going concern risk.

Why It Matters

RMCF's ability to narrow its net loss and increase revenue, particularly in franchise fees, suggests potential operational improvements, which is crucial for investors. However, the breach of debt covenants, even with a waiver, signals underlying financial fragility and could impact future financing or investor confidence. For employees, continued losses and cost-cutting measures could lead to job insecurity, while customers might see changes in product availability or store footprint as the company optimizes operations. In the broader market, RMCF's struggles highlight the challenges faced by specialty retail and franchise models in a competitive and inflationary environment, potentially influencing sentiment for similar small-cap consumer discretionary stocks.

Risk Assessment

Risk Level: high — The company explicitly states it incurred a net loss of $1.0 million and used $0.1 million in cash from operations for the six months ended August 31, 2025, and was not in compliance with its liabilities to tangible net worth covenant of 2.0:1.0 for both debt agreements. These factors raise "substantial doubts about the Company's ability to continue as a going concern within one year."

Analyst Insight

Investors should exercise extreme caution and consider avoiding RMCF stock due to the explicit going concern warning and debt covenant breach. Monitor future filings closely for sustained profitability, successful debt restructuring, and evidence of effective cost reduction and sales growth strategies before considering any investment.

Financial Highlights

debt To Equity

N/A

revenue

$6.823M

operating Margin

N/A

total Assets

N/A

total Debt

N/A

net Income

($662K)

eps

N/A

gross Margin

N/A

cash Position

$2.017M

revenue Growth

+7.0%

Revenue Breakdown

Key Numbers

• $6.823M — Total Revenue (Up from $6.380M in prior-year quarter, indicating sales growth.)
• $5.183M — Sales Revenue (Increased from $4.918M in prior-year quarter, showing product sales improvement.)
• $1.640M — Franchise and Royalty Fees (Increased from $1.462M in prior-year quarter, reflecting stronger franchise performance.)
• ($662K) — Net Loss (3 months) (Narrows from ($722K) in prior-year quarter, indicating reduced losses.)
• ($986K) — Net Loss (6 months) (Significantly improved from ($2.380M) in prior-year period.)
• $2.017M — Cash and Cash Equivalents (Increased from $720K at February 28, 2025, improving liquidity.)
• 7,786,384 — Weighted Average Common Shares Outstanding - Basic (Increased from 6,686,537 in prior-year quarter, indicating share dilution.)
• 2.0:1.0 — Liabilities to Tangible Net Worth Covenant (Company was not in compliance as of August 31, 2025, but received a waiver.)
• 136 — Domestic Franchise Stores (Decreased from 138 at February 28, 2025, indicating store closures.)
• 104 — Cold Stone Creamery Co-branded Stores (Decreased from 107 at February 28, 2025, showing co-branded store closures.)

Key Players & Entities

• Rocky Mountain Chocolate Factory, Inc. (company) — international franchisor, confectionery producer and retail operator
• U-Swirl, Inc. (company) — wholly-owned subsidiary of RMCF
• SEC (regulator) — Securities and Exchange Commission
• $662,000 (dollar_amount) — Net Loss for three months ended August 31, 2025
• $722,000 (dollar_amount) — Net Loss for three months ended August 31, 2024
• $6.823 million (dollar_amount) — Total Revenue for three months ended August 31, 2025
• $1.0 million (dollar_amount) — Net Loss for six months ended August 31, 2025
• $0.1 million (dollar_amount) — Cash used in operating activities for six months ended August 31, 2025
• $2.017 million (dollar_amount) — Cash and cash equivalents as of August 31, 2025
• $1.800 million (dollar_amount) — Proceeds from notes payable for six months ended August 31, 2025

FAQ

Risk Factors

• Covenant Non-Compliance [high — financial]: RMCF was not in compliance with its liabilities to tangible net worth covenant of 2.0:1.0 for both debt agreements as of August 31, 2025. While a waiver was received from lenders, continued non-compliance could lead to default.
• Store Closures [medium — operational]: The company experienced a net decrease in domestic franchise stores from 138 to 136 and co-branded stores from 107 to 104 during the six-month period ended August 31, 2025. This trend could impact future revenue streams.
• Net Losses [medium — financial]: The company reported a net loss of $662,000 for the three months ended August 31, 2025, and $986,000 for the six months ended August 31, 2025. While losses have narrowed compared to the prior year, ongoing losses pose a going concern risk.
• Reliance on Franchisees [medium — operational]: A significant portion of revenue comes from franchise and royalty fees. The performance and number of franchised stores directly impact the company's financial results.
• Liquidity Improvement via Debt [medium — financial]: Cash and cash equivalents increased to $2.017 million from $720,000, largely due to $1.800 million in proceeds from notes payable. This reliance on debt for liquidity needs to be managed carefully.

Industry Context

The confectionery industry is competitive, with established players and emerging brands. RMCF operates within a niche focused on premium chocolate products and a franchise model. Trends include increasing demand for artisanal and custom chocolates, as well as a growing e-commerce presence for direct-to-consumer sales.

Regulatory Implications

RMCF must ensure compliance with all financial reporting regulations. The ongoing covenant non-compliance and subsequent waiver require careful monitoring and disclosure to investors and lenders.

What Investors Should Do

1. Monitor covenant compliance and lender relationships.
2. Evaluate the effectiveness of cost-reduction and efficiency initiatives.
3. Assess the growth trajectory of e-commerce sales.

Key Dates

• 2025-08-31: End of Second Quarter — Reporting period for the 10-Q, showing revenue growth but continued net losses and covenant non-compliance.
• 2025-02-28: End of First Quarter / Fiscal Year End — Prior period for cash and cash equivalents comparison, showing a significant increase in liquidity.

Glossary

Liabilities to Tangible Net Worth Covenant

A financial agreement that sets a maximum ratio of a company's total liabilities to its tangible net worth. A ratio of 2.0:1.0 means liabilities should not exceed twice the tangible net worth. (RMCF's non-compliance indicates potential financial distress and risk of default if waivers are not maintained.)

Tangible Net Worth

A company's net worth excluding intangible assets such as goodwill, patents, and trademarks. (Used in debt covenants to assess a company's financial stability and ability to repay debt.)

Going Concern Risk

The possibility that a company will not be able to continue its business operations for the foreseeable future. (RMCF is actively addressing this risk through operational improvements and cost reductions.)

Co-branded Stores

Retail locations that operate under the RMCF brand and another brand, in this case, Cold Stone Creamery. (The decrease in these stores suggests a potential shift in RMCF's strategic partnerships or franchisee viability.)

Year-Over-Year Comparison

Compared to the prior-year period, RMCF has shown revenue growth for both the three-month and six-month periods ended August 31, 2025. Net losses have also narrowed significantly, particularly for the six-month period. However, liquidity has improved substantially due to new debt, and the company remains non-compliant with its debt covenants, albeit with waivers in place. Store count has seen a slight decline.

Key Financial Figures

• $0.001 — nge on which registered Common Stock, $0.001 par value per share RMCF Nasdaq Glo

Filing Documents

• rmcf-20250831.htm (10-Q) — 3093KB
• rmcf-ex31_1.htm (EX-31.1) — 18KB
• rmcf-ex31_2.htm (EX-31.2) — 18KB
• rmcf-ex32_1.htm (EX-32.1) — 12KB
• rmcf-ex32_2.htm (EX-32.2) — 11KB
• img70368246_0.jpg (GRAPHIC) — 56KB
• 0001193125-25-239065.txt ( ) — 13293KB
• rmcf-20250831.xsd (EX-101.SCH) — 944KB
• rmcf-20250831_htm.xml (XML) — 3636KB

financial information

part I. financial information 3 Item 1. Condensed Consolidated Financial Statements (Unaudited) 3 Condensed Consolidated Statements of Operations 3 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

Management's Discussion and Analysis of Financial Condition and Results of Operations 25 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 33 Item 4.

Controls and Procedures

Controls and Procedures 33

other information

part II. other information 35 Item 1.

Legal Proceedings

Legal Proceedings 35 Item 1A.

Risk Factors

Risk Factors 35 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 36 Item 3. Defaults Upon Senior Securities 36 Item 4. Mine Safety Disclosures 36 Item 5. Other Information 36 Item 6. Exhibits 37

Signatures

Signatures 38 1 Table of Contents 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 requir

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

F INANCIAL STATEMENTS

ITEM 1. F INANCIAL STATEMENTS Rocky Mountain Chocolate Factory, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited) Three Months Ended Six Months Ended August 31, August 31, 2025 2024 2025 2024 Revenues Sales $ 5,183 $ 4,918 $ 9,900 $ 10,197 Franchise and royalty fees 1,640 1,462 3,296 2,590 Total Revenue 6,823 6,380 13,196 12,787 Costs and Expenses Cost of sales 5,216 4,350 9,608 9,936 Franchise costs 552 952 1,147 1,493 Sales and marketing 223 138 429 568 General and administrative 976 1,622 1,977 2,861 Retail operating 227 194 433 393 Depreciation and amortization, exclusive of depreciation and amortization expense of $ 238 , $ 190 , $ 465 and $ 386 , respectively, included in cost of sales 108 38 226 80 Total costs and expenses 7,302 7,294 13,820 15,331 Loss from Operations ( 479 ) ( 914 ) ( 624 ) ( 2,544 ) Other Income (Expense) Interest expense ( 190 ) ( 63 ) ( 378 ) ( 98 ) Interest income 7 7 16 14 Gain on disposal of assets - 248 - 248 Other (expense) income, net ( 183 ) 192 ( 362 ) 164 Loss Before Income Taxes ( 662 ) ( 722 ) ( 986 ) ( 2,380 ) Income Tax Provision (Benefit) - - - - Net Loss $ ( 662 ) $ ( 722 ) $ ( 986 ) $ ( 2,380 ) Basic Loss per Common Share $ ( 0.09 ) $ ( 0.11 ) $ ( 0.13 ) $ ( 0.37 ) Diluted Loss per Common Share $ ( 0.09 ) $ ( 0.11 ) $ ( 0.13 ) $ ( 0.37 ) Weighted Average Common Shares Outstanding - Basic 7,786,384 6,686,537 7,764,351 6,507,323 Dilutive Effect of Employee Stock Awards - - - - Weighted Average Common Shares Outstanding - Diluted 7,786,384 6,686,537 7,764,351 6,507,323 The accompanying notes are an integ

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