Financial Analysis

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.

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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 exp …

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The following table presents disaggregated revenue by the method of recognition and segment: Three Months Ended May 31, 2026 ($'s in thousands) Franchising Manufacturing Retail Total Revenue recognized over time: Franchise fees $ 35 $ - $ - $ 35 Revenue recognized at a point in time: Durango Product sales - 4,320 - 4,320 Retail sales - - 561 561 Royalty and marketing fees 1,197 - - 1,197 Total revenues recognized over time and point in time $ 1,232 $ 4,320 $ 561 $ 6,113 Three Months Ended May 31, 2025 ($'s in thousands) Franchising Manufacturing Retail Total Revenue recognized over time: Franchise fees $ 36 $ - $ - $ 36 Revenue recognized at a point in time: Durango Product sales - 4,399 - 4,399 Retail sales - - 319 319 Royalty and marketing fees 1,619 - - 1,619 Total revenues recognized over time and point in time $ 1,655 $ 4,399 $ 319 $ 6,373

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NOTE 7 GOODWILL AND INTANGIBLE ASSETS Goodwill and intangible assets consist of the following at May 31, 2026 and February 28, 2026: May 31, 2026 February 28, 2026 ($'s in thousands) Amortization Period (in Years) Gross Carrying Value Accumulated Amortization Gross Carrying Value Accumulated Amortization Intangible assets subject to amortization Store design 10 $ 954 $ ( 340 ) $ 954 $ ( 321 ) Trademark/Non-competition agreements 5 - 20 250 ( 152 ) 250 ( 150 ) Total 1,204 ( 492 ) 1,204 ( 471 ) Goodwill and intangible assets not subject to amortization Goodwill Retail $ 362 $ 362 Franchising 97 97 Manufacturing 97 97 Trademark 20 20 Total 576 576 Total Goodwill and Intangible Assets $ 1,780 $ ( 492 ) $ 1,780 $ ( 471 ) Amortization expense related to intangible assets totaled approximately $ 21 thousand and $ 7 thousand during the three months ended May 31, 2026 and 2025, respectively. At May 31, 2026, annual amortization of intangible assets, based upon the Companys existing intangible assets and current useful lives, is estimated to be the following (amounts in thousands): 2027 $ 62 2028 83 2029 83 2030 83 2031 79 Thereafter 322 Total $ 712 …

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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 recen …

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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 Companys 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 ass …

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"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 …

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"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 disc …

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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 a …

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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 Companys Chief Operating Decision Maker (CODM), the interim chief executive officer, evaluates the Companys 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 Companys 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 May 31, 2026 ($'s in thousands) Franchising Manufacturing Retail Unallocated Total Total revenues $ 1,232 $ 4,523 $ 561 $ - $ 6,316 Intersegment revenues - ( 203 ) - - ( 203 ) Revenue from external customers 1,232 4,320 …

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"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 st …

SubsequentEventsTextBlock · excerpt; the full note is in the filing