SECURITIES & EXCHANGE COMMISSION EDGAR FILING
Rocky Mountain Chocolate Factory, Inc.
Form: 10-K
Date Filed: 2015-05-27
Corporate Issuer CIK: 1616262
© Copyright 2015, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2015
OR
For the transition period from __________ to __________
Commission file number: 001-36865
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
47-1535633
(I.R.S. Employer Identification No.)
Rocky Mountain Chocolate Factory, Inc.
(Exact name of registrant as specified in its charter)
265 Turner Drive, Durango, CO 81303
(Address of principal executive offices, including ZIP code)
(970) 259-0554
(Registrant’s telephone number, including area code)
Securities Registered Pursuant To Section 12(b) Of The Act:
Title of each class
Common Stock $0.001 Par Value per Share
Preferred Stock Purchase Rights
Name of each exchange on which registered
NASDAQ Global Market
NASDAQ Global Market
Securities Registered Pursuant To Section 12(g) Of The Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
_____ No _ X__
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
_____ No _ X__
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 X No _____
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files). Yes X No
_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer ____
Non-accelerated filer ____
(Do not check if a smaller reporting company)
Accelerated filer ____
Smaller reporting company X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ____ No X
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The aggregate market value of our common stock (based on the closing price as quoted on the NASDAQ Global Market on August
29, 2014, the last business day of our most recently completed second fiscal quarter) held by non-affiliates was $61,083,824. For
purposes of this calculation, shares of common stock held by each executive officer and director and by holders of more than 5% of
our outstanding common stock have been excluded since those persons may under certain circumstances be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of May 18, 2015, there were 5,941,893 shares of our common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement furnished to shareholders in connection with the 2015 Annual Meeting of
Shareholders (the “Proxy Statement”) are incorporated by reference in Part III of this Annual Report on Form 10-K . The Proxy
Statement will be filed with the Securities and Exchange Commission within 120 days of the close of the registrant’s fiscal year ended
February 28, 2015.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
FORM 10-K
TABLE OF CONTENTS
PART I.
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K (“Annual Report”) includes 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 and Section 21E of the
Securities Exchange Act of 1934 and are intended to come within the safe harbor protection provided by those sections. These
forward-looking statements involve various risks and uncertainties. The nature of our operations and the environment in which we
operate subject us to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. The
statements, other than statements of historical fact, included in this Annual 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," or similar expressions. Factors which could cause results to
differ include, but are not limited to: changes in the confectionery business environment, seasonality, consumer interest in our
products, general economic conditions, the success of U-Swirl, Inc., 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 and the effect of government regulations. Government regulations which we and our franchisees either are or may
be subject to and which could cause results to differ from forward-looking statements include, but are not limited to: local, state and
federal laws regarding health, sanitation, safety, building and fire codes, franchising, employment, manufacturing, packaging and
distribution of food products and motor carriers. 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 the “Risk Factors” contained in this Annual Report
in Item 1A. These forward-looking statements apply only as of the date of this Annual Report. As such they should not be unduly
relied upon for more current circumstances. Except as required by law, we undertake no obligation to release publicly any revisions
to these forward-looking statements that might reflect events or circumstances occurring after the date of this Annual Report or those
that might reflect the occurrence of unanticipated events.
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PART I.
ITEM 1. BUSINESS
General
Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, and our subsidiaries (including our operating subsidiary with the
same name, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation) (collectively, the “Company,” “we,” “us,” or “our”) is an
international franchisor, confectionery manufacturer and retail operator. Founded in 1981, we are headquartered in Durango,
Colorado and manufacture an extensive line of premium chocolate candies and other confectionery products. Our subsidiary, U-
Swirl, Inc. (“U-Swirl”), franchises and operates soft-serve frozen yogurt stores. Our revenue and profitability are derived principally
from our franchised/license system of retail stores that feature chocolate, frozen yogurt and other confectionary products. We also sell
our candy in selected locations outside of our system of retail stores and license the use of our brand with certain consumer products.
As of March 31, 2015, there were 4 Company-owned, 88 licensee-owned and 276 franchised Rocky Mountain Chocolate Factory
stores operating in 40 states, Canada, Japan, South Korea, the Kingdom of Saudi Arabia and the United Arab Emirates. As of March
31, 2015, U-Swirl operated 10 Company-owned stores and 237 franchised stores located in 37 states, Canada, Turkey, the United
Arab Emirates and Pakistan. In FY 2014, U-Swirl acquired the franchise rights of frozen yogurt stores branded as “Cherryberry,”
“Yogli Mogli” and “Fuzzy Peach,” and U-Swirl operates self-serve frozen yogurt cafes under the names “U-Swirl,” “Yogurtini,”
“CherryBerry,” “Josie’s Frozen Yogurt,” “Yogli Mogli Frozen Yogurt,” “Fuzzy Peach Frozen Yogurt,” and “Aspen Leaf Yogurt”.
Effective March 1, 2015, we reorganized to create a holding company structure. Our operating subsidiary with the same name ,
Rocky Mountain Chocolate Factory, Inc., a Colorado corporation (“RMCF”), which was previously the public company, became a
wholly-owned subsidiary of a newly formed entity, Rocky Mountain Chocolate Factory, Inc., a Delaware corporation (“Newco”), and all
of the outstanding shares of common stock of RMCF was exchanged on a one-for-one basis for shares of common stock of Newco.
Our new holding company began trading on March 2, 2015 on the NASDAQ Global Market under the symbol “RMCF”, which was the
same symbol used by RMCF prior to the holding company reorganization.
In January 2013, through our wholly-owned subsidiaries, including Aspen Leaf Yogurt, LLC (“ALY”), we entered into two agreements
to sell all of the assets of our ALY frozen yogurt stores, along with our interest in the self-serve frozen yogurt franchises and retail
units branded as “Yogurtini” which we also acquired in January 2013, to U-Swirl, a publicly traded company (OTCQB: SWRL), in
exchange for a 60% controlling equity interest in U-Swirl. Upon completion of these transactions, we ceased to directly operate any
Company-owned Aspen Leaf Yogurt locations or sell and support frozen yogurt franchise locations, which is now being supported by
U-Swirl. As of February 28, 2015, we held a 39% interest in U-Swirl. Additionally, we have the right to acquire approximately
26,271,000 shares of common stock of U-Swirl through the conversion of convertible debt owed by U-Swirl to our company. If the
Company exercised this conversion right, we believe we would hold approximately 72% of U-Swirl’s common stock. The Company
entered into the promissory note used to finance the acquisitions of U-Swirl and entered into a loan and security agreement with U-
Swirl. The loan and security agreement between the Company and U-Swirl is subject to various financial and leverage covenants. U-
Swirl was not compliant with the covenants at February 28, 2015. The loan covenants required U-Swirl to maintain consolidated
adjusted EBITDA of $1,804,000 for the year ended February 28, 2015. At February 28, 2015 U-Swirl had reported $1,284,000 of
adjusted EBITDA. In the event of default, we may charge interest on all amounts due under the loan agreement with U-Swirl at the
default rate of 15% per annum, accelerate payment of all amounts due under the Loan Agreement, and foreclose on our security
interest. At February 28, 2015 we believe that the conversion of the loan into preferred stock as settlement of the obligation would
result in 70% more preferred shares issued when compared to the amount issuable if U-Swirl was compliant with the loan covenants.
Approximately 55% of the products sold at Rocky Mountain Chocolate Factory stores are prepared on the premises. We believe that
in-store preparation of products creates a special store ambiance, and the aroma and sight of products being made attracts foot traffic
and assures customers that products are fresh.
Our principal competitive strengths lie in our brand name recognition, our reputation for the quality, variety and taste of our products,
the special ambiance of our stores, our knowledge and experience in applying criteria for selection of new store locations, our
expertise in the manufacture of chocolate candy products and the merchandising and marketing of confectionary products, and the
control and training infrastructures we have implemented to assure consistent customer service and execution of successful practices
and techniques at our stores.
We believe our manufacturing expertise and reputation for quality has facilitated the sale of selected products through specialty
markets. We are currently selling our products in a select number of specialty markets including wholesale, fundraising, corporate
sales, mail order, private label and internet sales.
U-Swirl cafés and associated brands are designed to be attractive to customers by offering the following:
inside café-style seating for 50 people and outside patio seating, where feasible and appropriate;
spacious surroundings of 1,800 to 3,000 square feet;
16 to 20 flavors of frozen yogurt;
up to 70 toppings; and
self-serve format allowing guests to create their own favorite snack.
•
•
•
•
•
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We believe that these characteristics provide U-Swirl with the ability to compete successfully in the retail frozen yogurt industry. While
U-Swirl continues to pursue locations with the characteristics described above, we recognize that its acquisition strategy may lead U-
Swirl to purchase competitors with diverse layouts.
The trade dress of the Aspen Leaf Yogurt, CherryBerry, Yogli Mogli, Josie’s Frozen Yogurt, Fuzzy Peach and Yogurtini locations are
similar to that of U-Swirl, although their locations use different color schemes and are typically smaller than the U-Swirl cafés.
Our consolidated revenues are primarily derived from three principal sources: (i) sales to franchisees and other third parties of
chocolates and other confectionery products manufactured by us (62%-64%-68%); (ii) sales at Company-owned stores of chocolates,
other confectionery products and frozen yogurt (including products manufactured by us) (15%-17%-15%) and (iii) the collection of
initial franchise fees and royalties from franchisees (23%-19%-17%). Approximately 97% of our revenues are derived from domestic
sources, with 3% derived from international sources. The figures in parentheses above show the percentage of total revenues
attributable to each source for the fiscal years (“FY”) 2015, 2014 and 2013, respectively.
According to the National Confectioners Association, the total U.S. candy market approximated $33.6 billion of retail sales in 2013
with chocolate generating sales of approximately $20.6 billion and sales per capita of $106.19, an increase of 1.8% when compared
to 2012. According to the Department of Commerce, per capita consumption of chocolate in 2010 was approximately 14 pounds per
year nationally.
According to Ice Cream and Frozen Desserts in the U.S.: Markets and Opportunities in Retail and Foodservice, 6th Edition, published
in January 2010 by Packaged Facts (the “Packaged Facts Report”), the frozen dessert industry is a large and growing industry. In
2009, the U.S. market for ice cream and related frozen desserts, including frozen yogurt and frozen novelties, grew two percent to
$25 billion.
Business Strategy
Our objective is to build on our position as a leading international franchisor and manufacturer of high quality chocolate and other
confectionery products. We continually seek opportunities to profitably expand our business. To accomplish this objective, we employ
a business strategy that includes the following elements:
Product Quality and Variety
We maintain gourmet taste and quality of our chocolate candies by using only the finest chocolate and other wholesome ingredients.
We use our own proprietary recipes, primarily developed by our master candy makers. A typical Rocky Mountain Chocolate Factory
store offers up to 100 of our chocolate candies throughout the year and as many as 200, including many packaged candies, during
the holiday seasons. Individual stores also offer numerous varieties of premium fudge and gourmet caramel apples, as well as other
products prepared in the store from Company recipes.
Store Atmosphere and Ambiance
We seek to establish an enjoyable and inviting atmosphere in each of our stores. Each Rocky Mountain Chocolate Factory store
prepares numerous products, including fudge, barks and caramel apples, in the store. In-store preparation is designed to be both fun
and entertaining for customers and to convey an image of freshness and homemade quality. Our design staff has developed easily
replicable designs and specifications to ensure that the Rocky Mountain Chocolate Factory concept is consistently implemented at
each store.
Site Selection
Careful selection of a site is critical to the success of our stores. We consider many factors in identifying suitable sites, including
tenant mix, visibility, attractiveness, accessibility, level of foot traffic and occupancy costs. Final site selection occurs only after our
senior management has approved the site. We believe that the experience of our management team in evaluating a potential site is
one of our competitive strengths.
Customer Service Commitment
We emphasize excellence in customer service and seek to employ and to sell franchises to motivated and energetic people. We also
foster enthusiasm for our customer service philosophy and the Rocky Mountain Chocolate Factory concept through our biennial
franchisee convention, regional meetings and other frequent contacts with our franchisees.
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Increase Same Store Retail Sales at Existing Locations
We seek to increase profitability of our store system through increasing sales at existing store locations. Changes in system wide
domestic same store retail sales are as follows:
2011
2012
2013
2014
2015
0.6%
1.1%
0.2%
1.2%
3.1%
We have designed a contemporary and coordinated line of packaged products that we believe capture and convey the freshness, fun
and excitement of the Rocky Mountain Chocolate Factory retail store experience. We also believe that the successful launch of new
packaging has had a positive impact on same store sales.
Increase Same Store Pounds Purchased by Existing Locations
In FY 2015, same store pounds purchased by franchisees increased 0.3% compared to the prior fiscal year. We continue to add new
products and focus our existing product lines in an effort to increase same store pounds purchased by existing locations. We believe
historical decreases in same store pounds purchased were due, in part, to a product mix shift from factory-made products to products
made in the store such as caramel apples.
Enhanced Operating Efficiencies
We seek to improve our profitability by controlling costs and increasing the efficiency of our operations. Efforts in the last several
years include: the purchase of additional automated factory equipment, implementation of a comprehensive Advanced Planning and
Scheduling (APS) system for production scheduling, implementation of alternative manufacturing strategies and installation of
enhanced Point-of-Sale (POS) systems in all of our Company-owned and the majority of our franchised stores. These measures have
significantly improved our ability to deliver our products to our stores safely, quickly and cost-effectively and impact store operations.
Acquisition Opportunities
We plan to evaluate other business and opportunities that would be complementary to our business, including both our candy
products and the frozen yogurt business. Beginning in January 2013 with the acquisition of a controlling interest in U-Swirl, we began
an initiative to improve profitability through the acquisition of self-serve frozen yogurt franchise systems. We believe that the rapid
growth of the self-serve frozen yogurt market has created a highly fragmented franchise environment. We believe we can leverage
the strategies we’ve developed over time to improve our profitability and bring the benefits of scale to smaller franchisors. During FY
2013 and FY 2014, we acquired Yogurtini, Josie’s Frozen Yogurt, CherryBerry, Yogli Mogli and Fuzzy Peach frozen yogurt concepts.
These acquisitions have resulted in an additional 240 franchise and Company-owned frozen yogurt units in operation.
Expansion Strategy
We are continually exploring opportunities to grow our brand and expand our business. Key elements of our expansion strategy
include:
Unit Growth
We continue to pursue unit growth opportunities, despite the difficult financing environment for our concepts, in locations where we
have traditionally been successful, to pursue new and developing real estate environments for franchisees which appear promising
based on early sales results, and to improve and expand our retail store concepts, such that previously untapped and unfeasible
environments generate sufficient revenue to support a successful Rocky Mountain Chocolate Factory or U-Swirl location.
U-Swirl Acquisition Strategy
The growth strategy for self-serve retail frozen yogurt is to maximize U-Swirl’s market share and market penetration through the
acquisition of additional self-serve yogurt systems, as well as the acquisition of complementary businesses which may provide
economies of scale and vertical integration. Although we believe there are still many geographic opportunities for growth, we feel the
self-serve frozen yogurt market has reached a saturation point. In many parts of the country the consolidation of the industry has
begun. We believe this consolidation can prove beneficial to us in a number of ways, and we intend to concentrate a significant
amount of our efforts towards the acquisition of additional franchisors of self-serve frozen yogurt. In addition to the acquisition of self-
serve frozen yogurt franchisors, we see benefits in complementary businesses which provide us with the opportunity for vertical
integration. Those opportunities lie in owning specific products which may be sold in our cafés, as well as securing proprietary
technology for use by franchisees. We see this as a possibility of adding new revenue streams while expanding into other markets in
an efficient and lower risk model.
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High Traffic Environments
We currently establish franchised stores in the following environments: outlet centers, tourist environments, regional centers, street
fronts, airports, other entertainment-oriented environments and strip centers. We have established a business relationship with most
of the major developers in the United States and believe that these relationships provide us with the opportunity to take advantage of
attractive sites in new and existing real estate environments.
Name Recognition and New Market Penetration
We believe the visibility of our stores and the high foot traffic at many of our locations has generated strong name recognition of
Rocky Mountain Chocolate Factory and demand for our franchises. The Rocky Mountain Chocolate Factory system has historically
been concentrated in the western and Rocky Mountain region of the United States, but growth has generated a gradual easterly
momentum as new stores have been opened in the eastern half of the country. We believe this growth has further increased our
name recognition and demand for our franchises. Distribution of Rocky Mountain Chocolate Factory products through specialty
markets also increases name recognition and brand awareness in areas of the country in which we have not previously had a
significant presence. We believe that distributing selected Rocky Mountain Chocolate Factory products through specialty markets also
increases our name brand recognition and will improve and benefit our entire store system.
We seek to establish a fun and inviting atmosphere in our store locations. Unlike most other confectionery stores, each Rocky
Mountain Chocolate Factory store prepares certain products, including fudge and caramel apples, in the store. Customers can
observe store personnel making fudge from start to finish, including the mixing of ingredients in old-fashioned copper kettles and the
cooling of the fudge on large granite or marble tables, and are often invited to sample the store's products. An average of
approximately 50% of the revenues of franchised stores are generated by sales of products prepared on the premises. We believe the
in-store preparation and aroma of our products enhance the ambiance at Rocky Mountain Chocolate Factory stores, are fun and
entertaining for our customers and convey an image of freshness and homemade quality.
To ensure that all stores conform to the Rocky Mountain Chocolate Factory image, our design staff provides working drawings and
specifications and approves the construction plans for each new store. We also control the signage and building materials that may be
used in the stores.
The average store size is approximately 1,000 square feet, approximately 650 square feet of which is selling space. Most stores are
open seven days a week. Typical hours are 10 a.m. to 9 p.m., Monday through Saturday, and 12 noon to 6 p.m. on Sundays. Store
hours in tourist areas may vary depending upon the tourist season.
In January 2007, we began testing co-branded locations, such as the co-branded stores with Cold Stone Creamery. Co-branding a
location is a vehicle to exploit retail environments that would not typically support a stand-alone Rocky Mountain Chocolate Factory
store. Co-branding can also be used to more efficiently manage rent structure, payroll and other operating costs in environments that
have not historically supported stand-alone Rocky Mountain Chocolate Factory stores. As of March 31, 2015, our partner’s
franchisees operated 70 co-branded locations, our franchisees operated 15 locations and three Company-owned co-branded units
were in operation.
We have previously entered into franchise developments and licensing agreements for the expansion of our franchise stores in
Canada, the United Arab Emirates, the Kingdom of Saudi Arabia, South Korea and Japan. We believe that international opportunities
may create a favorable expansion strategy and reduce dependence on domestic franchise openings to achieve growth. As of March
31, 2015, there were 61, 5,3, 4, and 1 international stores operating in the countries of Canada, the United Arab Emirates, the
Kingdom of Saudi Arabia, South Korea and Japan, respectively.
Products and Packaging
We produce approximately 300 chocolate candies and other confectionery products, using proprietary recipes developed primarily by
our master candy makers. These products include many varieties of clusters, caramels, creams, mints and truffles. We continue to
engage in a major effort to expand our product line by developing additional exciting and attractive new products. During the
Christmas, Easter and Valentine's Day holiday seasons, we may make as many as 130 additional items, including many candies
offered in packages specially designed for the holidays. A typical Rocky Mountain Chocolate Factory store offers up to 100 of these
candies throughout the year and up to an additional 100 during holiday seasons. Individual stores also offer more than 15 premium
fudges and other products prepared in the store. On average, approximately 45% of the revenues of Rocky Mountain Chocolate
Factory stores are generated by products manufactured at our factory, 50% by products made in individual stores using our recipes
and ingredients purchased from us or approved suppliers and the remaining 5% by products such as ice cream, coffee and other
sundries, purchased from approved suppliers.
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Approximately 24% of our product sales result from the sale of products outside of our system of franchised and licensed locations
(specialty markets). The majority of sales outside our system of franchised and licensed locations are the result of a single customer.
In the twelve months ended February 28, 2015 this customer represented 68% of total shipments to specialty markets. These
products are produced using the same quality ingredients and manufacturing processes as the products sold in our network of retail
stores.
We use only the finest chocolates, nutmeats and other wholesome ingredients in our candies and continually strive to offer new
confectionery items in order to maintain the excitement and appeal of our products. We develop special packaging for the Christmas,
Valentine's Day and Easter holidays, and customers can have their purchases packaged in decorative boxes and fancy tins
throughout the year.
Chocolate candies that we manufacture are sold at prices ranging from $16.95 to $29.95 per pound, with an average price of $21.07
per pound. Franchisees set their own retail prices, though we do recommend prices for all of our products.
Operating Environment
We currently establish Rocky Mountain Chocolate Factory stores in six primary environments: regional centers, tourist areas, outlet
centers, street fronts, airports and other entertainment-oriented shopping centers. Each of these environments has a number of
attractive features, including high levels of foot traffic. Rocky Mountain Chocolate Factory domestic franchise locations in operation as
of February 28, 2015 include:
Regional Centers
Outlet Centers
Festival/Community Centers
Tourist Areas
Street Fronts
Airports
Other
Regional Centers
22.4%
22.4%
20.4%
17.4%
7.9%
4.5%
5.0%
As of February 28, 2015, there were Rocky Mountain Chocolate Factory stores in approximately 45 regional centers, including a
location in the Mall of America in Bloomington, Minnesota. Although often providing favorable levels of foot traffic, regional centers
typically involve more expensive rent structures and competing food and beverage concepts.
Outlet Centers
We have established business relationships with most of the major outlet center developers in the United States. Although not all
factory outlet centers provide desirable locations for our stores, we believe our relationships with these developers will provide us
with the opportunity to take advantage of attractive sites in new and existing outlet centers.
Tourist Areas, Street Fronts and Other Entertainment-Oriented Shopping Centers
As of February 28, 2015, there were approximately 35 Rocky Mountain Chocolate Factory stores in locations considered to be tourist
areas, including Fisherman's Wharf in San Francisco, California and the River Walk in San Antonio, Texas. Tourist areas are very
attractive locations because they offer high levels of foot traffic and favorable customer spending characteristics, and greatly increase
our visibility and name recognition. We believe significant opportunities exist to expand into additional tourist areas with high levels of
foot traffic.
Other Environments
We believe there are a number of other environments that have the characteristics necessary for the successful operation of Rocky
Mountain Chocolate Factory stores such as airports and sports arenas. Nine franchised Rocky Mountain Chocolate Factory stores
exist at airport locations.
Strip/Convenience Centers
Our self-serve frozen yogurt locations are primarily located in strip and convenience center locations. Such centers generally have
convenient parking and feature many retail entities without enclosed connecting walkways. Such centers generally offer favorable
rents and the ability to operate during hours when other operating environments are closed, such as late night.
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Franchising Program
General
Our franchising philosophy is one of service and commitment to our franchise system, and we continuously seek to improve our
franchise support services. Our concept has been rated as an outstanding franchise opportunity by publications and organizations
rating such opportunities. In January, 2011, Rocky Mountain Chocolate Factory was rated the number one franchise opportunity in
the candy category by Entrepreneur Magazine (the last publication of this category ranking). As of March 31, 2015, there were 276
franchised stores in the Rocky Mountain Chocolate Factory system.
Franchisee Sourcing and Selection
The majority of new franchises are awarded to persons referred by existing franchisees, to interested consumers who have visited
Rocky Mountain Chocolate Factory stores and to existing franchisees. We also advertise for new franchisees in national and regional
newspapers as suitable potential store locations come to our attention. Franchisees are approved by us on the basis of the
applicant's net worth and liquidity, together with an assessment of work ethic and personality compatibility with our operating
philosophy.
In FY 1992, we entered into a franchise development agreement covering Canada with Immaculate Confections, Ltd. of Vancouver,
British Columbia. Pursuant to this agreement, Immaculate Confections purchased the exclusive right to franchise and operate Rocky
Mountain Chocolate Factory stores in Canada. As of March 31, 2015, Immaculate Confections operated 61 stores under this
agreement.
In FY 2000, we entered into a franchise development agreement covering the Gulf Cooperation Council States of United Arab
Emirates, Qatar, Bahrain, Kuwait and Oman with Al Muhairy Group of United Arab Emirates. Pursuant to this agreement, Al Muhairy
Group purchased the exclusive right to franchise and operate Rocky Mountain Chocolate Factory stores in the Gulf Cooperation
Council States. As of March 31, 2015, Al Muhairy Group operated five stores under this agreement.
In August 2009, we entered into a Master License Agreement with Kahala Franchise Corp. Under the terms of the agreement, select
current and future Cold Stone Creamery franchise stores are co-branded with both the Rocky Mountain Chocolate Factory and the
Cold Stone Creamery brands. Locations developed or modified under the agreement are subject to the approval of both parties.
Locations developed or modified under the agreement will remain franchisees of Cold Stone Creamery and will be licensed to offer
the Rocky Mountain Chocolate Factory brand. As of March 31, 2015, Cold Stone Creamery franchisees operated 70 stores under this
agreement.
In April 2012, we entered into a Master Licensing Agreement covering the country of Japan with a strategic licensee based in Hong
Kong. Under the terms of the agreement, the Licensee will pay the Company a master license fee for the right to open Rocky
Mountain Chocolate Factory stores for its own account and for the account of franchisees throughout the country of Japan. The
master license fee is payable upon the execution of the agreement and annually thereafter or until 100 stores have been opened in
the Licensed Territory. The agreement requires at least 10 new stores to open each year for 10 years, for a total minimum of 100
stores in the Licensed Territory by the expiration of the initial term of the agreement. The Company will receive royalties on all retail
unit sales opened under the agreement and will generate factory sales as the exclusive provider of confectionary products to the
licensee. As of March 31, 2015, one unit was operating under this Agreement. The licensee has not developed Japan in accordance
with the development schedule and we are evaluating ways to retain licensee operations in Japan.
In March 2013, we entered into Licensing Agreements in the countries of South Korea and the Kingdom of Saudi Arabia. Under the
terms of the agreement for South Korea, the licensee agreed to open five Rocky Mountain Chocolate Factory stores within 30 months
following the execution of the agreement. The licensee has also been granted a 30-month option to convert its initial License
Agreement into a Master License Agreement covering the entire country of South Korea. If the licensee chooses to exercise the
option prior to its expiration date, the licensee will acquire the right to itself and/or through third-party franchisees to develop not less
than 30 Rocky Mountain Chocolate Factory stores, inclusive of the five stores developed under the terms of the initial License
Agreement. As of March 31, 2015, four units were operating under this agreement.
Under the terms of the agreement for the Kingdom of Saudi Arabia, the Licensee agreed to open and begin operating four Rocky
Mountain Chocolate Factory stores within 30 months following the execution of the agreement. The licensee has also been granted a
30-month option to convert its initial License Agreement into a Master License Agreement covering the entire country of Saudi Arabia.
If the licensee chooses to exercise the option prior to its expiration date, the licensee will acquire the right to itself and/or through
third-party franchisees to develop an additional six Rocky Mountain Chocolate Factory stores in the Kingdom of Saudi Arabia. As of
March 31, 2015, three units were in operation under the agreement.
In October 2014, we entered into Licensing Agreements in the country of the Philippines. Under the terms of the non-exclusive
Licensing Agreement for the Philippines, the Licensee will open four (4) stores within 30 months following the execution of the
agreement. The Licensee has also been granted a 30-month option to convert its initial License Agreement into an exclusive Master
License Agreement. If the Licensee chooses to exercise the option prior to its expiration date, the Licensee will acquire the right for
itself and/or through third-party franchisees to develop not less than 30 Rocky Mountain Chocolate Factory stores in the Philippines,
inclusive of the four stores developed under the terms of the initial License Agreement. No units have opened under the agreement.
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Training and Support
Each domestic franchisee owner/operator and each store manager for a domestic franchisee is required to complete a
comprehensive training program in store operations and management. We have established a training center at our Durango
headquarters in the form of a full-sized replica of a properly configured and merchandised Rocky Mountain Chocolate Factory store.
Topics covered in the training course include our philosophy of store operation and management, customer service, merchandising,
pricing, cooking, inventory and cost control, quality standards, record keeping, labor scheduling and personnel management. Training
is based on standard operating policies and procedures contained in an operations manual provided to all franchisees, which the
franchisee is required to follow by terms of the franchise agreement. Additionally, and importantly, trainees are provided with a
complete orientation to our operations by working in key factory operational areas and by meeting with members of our senior
management.
Our operating objectives include providing knowledge and expertise in merchandising, marketing and customer service to all front-line
store level employees to maximize their skills and ensure that they are fully versed in our proven techniques.
We provide ongoing support to franchisees through our field consultants, who maintain regular and frequent communication with the
stores by phone and by site visits. The field consultants also review and discuss with the franchisee store operating results and
provide advice and guidance in improving store profitability and in developing and executing store marketing and merchandising
programs.
Quality Standards and Control
The franchise agreement for Rocky Mountain Chocolate Factory franchisees requires compliance with our procedures of operation
and food quality specifications and permits audits and inspections by us.
Operating standards for Rocky Mountain Chocolate Factory stores are set forth in operating manuals. These manuals cover general
operations, factory ordering, merchandising, advertising and accounting procedures. Through their regular visits to franchised stores,
our field consultants audit performance and adherence to our standards. We have the right to terminate any franchise agreement for
non-compliance with our operating standards. Products sold at the stores and ingredients used in the preparation of products
approved for on-site preparation must be purchased from us or from approved suppliers.
The Franchise Agreement: Terms and Conditions
The domestic offer and sale of our franchise concepts are made pursuant to the respective Franchise Disclosure Document prepared
in accordance with federal and state laws and regulations. States that regulate the sale and operation of franchises require a
franchiser to register or file certain notices with the state authorities prior to offering and selling franchises in those states.
Under the current form of our domestic franchise agreements, franchisees pay us (i) an initial franchise fee for each store, (ii)
royalties based on monthly gross sales, and (iii) a marketing fee based on monthly gross sales. Franchisees are generally granted
exclusive territory with respect to the operation of their stores only in the immediate vicinity of their stores. Chocolate and yogurt
products not made on the premises by franchisees must be purchased from us or approved suppliers. The franchise agreements
require franchisees to comply with our procedures of operation and food quality specifications, to permit inspections and audits by us
and to remodel stores to conform with standards then in effect. We may terminate the franchise agreement upon the failure of the
franchisee to comply with the conditions of the agreement and upon the occurrence of certain events, such as insolvency or
bankruptcy of the franchisee or the commission by the franchisee of any unlawful or deceptive practice, which in our judgment is
likely to adversely affect the system. Our ability to terminate franchise agreements pursuant to such provisions is subject to applicable
bankruptcy and state laws and regulations. See "Business - Regulation."
The agreements prohibit the transfer or assignment of any interest in a franchise without our prior written consent. The agreements
also give us a right of first refusal to purchase any interest in a franchise if a proposed transfer would result in a change of control of
that franchise. The refusal right, if exercised, would allow us to purchase the interest proposed to be transferred under the same
terms and conditions and for the same price as offered by the proposed transferee.
The term of each franchise agreement is ten years, and franchisees have the right to renew for one additional ten-year term.
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Franchise Financing
We do not typically provide prospective franchisees with financing for their stores, but we have developed relationships with several
sources of franchisee financing to whom we will refer franchisees. Typically, franchisees have obtained their own sources of such
financing and have not required our assistance.
During FY 2014, we began an initiative to finance entrepreneurial graduates of the Missouri Western State University (“MWSU”)
entrepreneurial program. Beginning in FY 2010, recent graduates were awarded the opportunity to own a Rocky Mountain Chocolate
Factory franchise under favorable financing terms. Prior to FY 2014, the financing was provided by an independent benefactor of the
MWSU School of Business. Beginning in FY 2014, we began to finance the graduates directly, under similar terms as the previous
financing facility. This program has generally included financing for the purchase of formerly Company-owned locations or for the
purchase of underperforming franchise locations. As of February 28, 2015, approximately $541,000 was included in notes receivable
as a result of this program. As of March 31, 2015 there were 16 units in operation by graduates of the MWSU entrepreneurial
program.
Licensee Financing
During FY 2011, we began a program to finance the remodel costs of a select number of co-branded licensed Cold Stone Creamery
locations. The financing was provided to existing Cold Stone Creamery franchisees that were required to meet a number of financial
qualifications prior to approval. At February 28, 2015, approximately $101,000 was included in notes receivable as a result of this
program.
Company Store Program
As of March 31, 2015, there were four company-owned Rocky Mountain Chocolate Factory stores and ten company-owned U-Swirl
cafés. Company-owned stores provide a training ground for Company-owned store personnel and district managers and a
controllable testing ground for new products and promotions, operating and training methods and merchandising techniques, which
may then be incorporated into the franchise store operations.
Managers of company-owned stores are required to comply with all Company operating standards and undergo training and receive
support from us similar to the training and support provided to franchisees. See "Franchising Program-Training and Support" and
"Franchising Program-Quality Standards and Control."
Manufacturing Operations
General
We manufacture our chocolate candies at our factory in Durango, Colorado. All products are produced consistent with our philosophy
of using only the finest high quality ingredients to achieve our marketing motto of "The Peak of Perfection in Handmade
Chocolates®."
We have always believed that we should control the manufacturing of our own chocolate products. By controlling manufacturing, we
can better maintain our high product quality standards, offer unique, proprietary products, manage costs, control production and
shipment schedules and potentially pursue new or under-utilized distribution channels.
Manufacturing Processes
The manufacturing process primarily involves cooking or preparing candy centers, including nuts, caramel, peanut butter, creams and
jellies, and then coating them with chocolate or other toppings. All of these processes are conducted in carefully controlled
temperature ranges, and we employ strict quality control procedures at every stage of the manufacturing process. We use a
combination of manual and automated processes at our factory. Although we believe that it is currently preferable to perform certain
manufacturing processes, such as dipping of some large pieces by hand, automation increases the speed and efficiency of the
manufacturing process. We have from time to time automated processes formerly performed by hand where it has become cost-
effective for us to do so without compromising product quality or appearance.
We seek to ensure the freshness of products sold in Rocky Mountain Chocolate Factory stores with frequent shipments. Most Rocky
Mountain Chocolate Factory stores do not have significant space for the storage of inventory, and we encourage franchisees and
store managers to order only the quantities that they can reasonably expect to sell within approximately two to four weeks. For these
reasons, we generally do not have a significant backlog of orders.
Ingredients
The principal ingredients used in our products are chocolate, nuts, sugar, corn syrup, cream and butter. The factory receives
shipments of ingredients daily. To ensure the consistency of our products, we buy ingredients from a limited number of reliable
suppliers. In order to assure a continuous supply of chocolate and certain nuts, we frequently enter into purchase contracts of
between six to eighteen months for these products. Because prices for these products may fluctuate, we may benefit if prices rise
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during the terms of these contracts, but we may be required to pay above-market prices if prices fall. We have one or more alternative
sources for all essential ingredients and therefore believe that the loss of any supplier would not have a material adverse effect on our
business or results of operations. We currently purchase small amounts of finished candy from third parties on a private label basis for
sale in Rocky Mountain Chocolate Factory stores.
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Trucking Operations
We operate eight trucks and ship a substantial portion of our products from the factory on our own fleet. Our trucking operations
enable us to deliver our products to the stores quickly and cost-effectively. In addition, we back-haul our own ingredients and
supplies, as well as products from third parties, on return trips, which helps achieve even greater efficiencies and cost savings.
Marketing
General
We rely primarily on in-store promotion and point-of-purchase materials to promote the sale of our products. The monthly marketing
fees collected from franchisees are used by us to develop new packaging and in-store promotion and point-of-purchase materials,
and to create and update our local store marketing handbooks.
We focus on local store marketing efforts by providing customizable marketing materials, including advertisements, coupons, flyers
and mail order catalogs generated by our in-house Creative Services department. The department works directly with franchisees to
implement local store marketing programs.
We have not historically and do not intend to engage in national traditional media advertising in the near future. Consistent with our
commitment to community support, we aggressively seek opportunities to participate in local and regional events, sponsorships and
charitable causes. This support leverages low cost, high return publicity opportunities for mutual gain partnerships. Through programs
such as Fudge for Troops, and collaborations with Toys for Tots, and Sylvan Learning Centers, we have developed relationships that
define our principal platforms, and contribute to charitable causes that provide great benefits at a national level.
Internet and Social Media
Beginning in 2010, we initiated a program to leverage the marketing benefits of various social media outlets. These low cost
marketing opportunities seek to leverage the positive feedback of our customers to expand brand awareness through a customer’s
network of contacts. Complementary to local store marketing efforts, these networks also provide a medium for us to communicate
regularly and authentically with customers. When possible, we work to facilitate direct relationships between our franchisees and
their customers. We use social media as a powerful tool to build brand recognition, increase repeat exposure and enhance dialogue
with consumers about their preferences and needs. To date, 290 stores have location specific websites and 423 stores have location
specific Facebook® pages dedicated to help customers interact directly with their local store. Proceeds from the monthly marketing
fees collected from franchisees are used by us to facilitate and assist stores in managing their online presence consistent with our
brand and marketing efforts.
Licensing
We have forged a partnership with IMC Licensing for the purpose of building a consumer products licensing program to leverage the
equity of the Rocky Mountain Chocolate Factory brand. These licensed products place our brand and story in front of consumers in
environments where they regularly shop but may not be seeing our brand at present. We regularly review a list of product
opportunities and selectively pursues those we believe will have the greatest impact. The most recent example is the announcement
of our Rocky Mountain Chocolate Factory Chocolatey Almond breakfast cereal manufactured, marketed, and distributed by Kellogg’s
Company.
Competition
The retailing of confectionery and frozen dessert products is highly competitive. We and our franchisees compete with numerous
businesses that offer products similar to those our stores offer. Many of these competitors have greater name recognition and
financial, marketing and other resources than us. In addition, there is intense competition among retailers for real estate sites, store
personnel and qualified franchisees.
We believe that our principal competitive strengths lie in our name recognition and our reputation for the quality, value, variety and
taste of our products and the special ambiance of our stores; our knowledge and experience in applying criteria for selection of new
store locations; our expertise in merchandising and marketing of chocolate and other candy products; and the control and training
infrastructures we have implemented to assure execution of successful practices and techniques at our store locations. In addition, by
controlling the manufacturing of our own chocolate products, we can better maintain our high product quality standards for those
products, offer proprietary products, manage costs, control production and shipment schedules and pursue new or under-utilized
distribution channels.
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Trade Name and Trademarks
The trade name "Rocky Mountain Chocolate Factory®," the phrases, "The Peak of Perfection in Handmade Chocolates®",
"America's Chocolatier®”, “The World’s Chocolatier®” as well as all other trademarks, service marks, symbols, slogans, emblems,
logos and designs used in the Rocky Mountain Chocolate Factory system, are our proprietary rights. We believe that all of the
foregoing are of material importance to our business. The registration for the trademark “Rocky Mountain Chocolate Factory” is
registered in the United States and Canada. Applications have been filed to register the Rocky Mountain Chocolate Factory trademark
and/or obtained in certain foreign countries.
In connection with U-Swirl’s frozen yogurt café operations, the following marks are owned by U-Swirl and have been registered with
the U.S. Patent and Trademark Office: “U-Swirl Frozen Yogurt And Design”; “U-Swirl Frozen Yogurt”; “U-Swirl”; “U and Design”;
“Worth The Weight”; “Frequent Swirler”; “Yogurtini”; “CherryBerry Self-Serve Yogurt Bar”; “Yogli Mogli”; “Best on the Planet”; “Fuzzy
Peach”; and “Serve Yo Self”. The “U-Swirl Frozen Yogurt and Design” (a logo) is also registered in Mexico and U-Swirl has a pending
application for registration of “U-Swirl” in Canada.
We have not attempted to obtain patent protection for the proprietary recipes developed by our master candy-maker and instead rely
upon our ability to maintain the confidentiality of those recipes.
Employees
At February 28, 2015, we employed approximately 300 people. Most employees, with the exception of store management, factory
management and corporate management, are paid on an hourly basis. We also employ some people on a temporary basis during
peak periods of store and factory operations. We seek to assure that participatory management processes, mutual respect and
professionalism and high performance expectations for the employee exist throughout the organization. We believe that we provide
working conditions, wages and benefits that compare favorably with those of our competitors. Our employees are not covered by a
collective bargaining agreement. We consider our employee relations to be good.
Executive Officers
The executive officers of the Company and their ages at April 30, 2015 are as follows:
Name
Franklin E. Crail
Bryan J. Merryman
Gregory L. Pope
Edward L. Dudley
William K. Jobson
Jay B. Haws
Jeremy M. Kinney
Donna L. Coupe
Tracy D. Wojcik
Age
Position
73
54
49
51
59
65
38
49
52
Chairman of the Board, President and Chief Executive Officer
Chief Operating Officer, Chief Financial Officer, Treasurer and Director
Senior Vice President – Franchise Development and Operations
Senior Vice President - Sales and Marketing
Chief Information Officer
Vice President - Creative Services
Vice President - Finance
Vice President – Franchise Support and Training
Corporate Secretary
Mr. Crail co-founded the first Rocky Mountain Chocolate Factory store in May 1981. Since our incorporation in November 1982, he
has served as our President, Chief Executive Officer, and director. He was elected Chairman of the Board in March 1986. Prior to
founding the Company, Mr. Crail was co-founder and president of CNI Data Processing, Inc., a software firm which developed
automated billing systems for the cable television industry.
Mr. Merryman joined the Company in December 1997 as Vice President - Finance and Chief Financial Officer. Since April 1999, Mr.
Merryman has also served as our Chief Operating Officer and as a director, and since January 2000, as our Treasurer. Prior to
joining the Company, Mr. Merryman was a principal in Knightsbridge Holdings, Inc. (a leveraged buyout firm) from January 1997 to
December 1997. Mr. Merryman also served as Chief Financial Officer of Super Shops, Inc., a retailer and manufacturer of aftermarket
auto parts from July 1996 to November 1997, and was employed for more than eleven years by Deloitte and Touche LLP, an
independent public accounting firm.
Mr. Pope became Sr. Vice President of Franchise Development and Operations in May 2004. Since joining the Company in October
1990, he has served in various positions including store manager, new store opener and franchise field consultant. In March 1996, he
became Director of Franchise Development and Support. In June 2001, he became Vice President of Franchise Development, a
position he held until he was promoted to his present position.
Mr. Dudley joined the Company in January 1997 to spearhead the Company’s Product Sales Development function as Vice President
- Sales and Marketing. He was promoted to Senior Vice President in June 2001. During his 10 year career with Baxter Healthcare
Corporation, Mr. Dudley served in a number of senior marketing and sales management capacities, including most recently that of
Director, Distribution Services from March 1996 to January 1997.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Mr. Jobson joined the Company in July 1998 as Director of Information Technology. In June 2001, he was promoted to Chief
Information Officer. From July 1995 to July 1998, Mr. Jobson worked for ADAC Laboratories in Durango, Colorado, a leading provider
of diagnostic imaging and information systems solutions in the healthcare industry, as Manager of Technical Services and before that,
Regional Manager.
Mr. Haws joined the Company in August 1991 as Vice President of Creative Services. Since 1981, Mr. Haws had been closely
associated with us both as a franchisee and marketing/graphic design consultant. From 1986 to 1991, he operated two Rocky
Mountain Chocolate Factory franchises located in San Francisco, California. From 1983 to 1989, he served as Vice President of
Marketing for Image Group, Inc., a marketing communications firm based in Northern California. Concurrently, Mr. Haws was co-
owner of two other Rocky Mountain Chocolate Factory franchises located in Sacramento, and Walnut Creek, California. From 1973 to
1983, he was principal of Jay Haws and Associates, an advertising and graphic design agency.
Mr. Kinney became Vice President of Finance in May 2008. Since joining the Company in March 1999, he has served in various
operational and financial positions including Director of Retail Operations and Operational Analysis. In May 2007, he became
Corporate Controller, a position he held until he was promoted to his present position.
Ms. Coupe became Vice President of Franchise Support and Training in June 2008. From 1992 to 1997, she managed franchised
stores in Northern California for absentee owners. Since joining the Company in October 1997, she has served in various positions
including Field Consultant, Regional Manager and Director of Franchise Support.
Ms. Wojcik joined the Company in April 2011 as our Corporate Secretary. From 2007 until joining the Company, Ms. Wojcik was
employed by us on a contractual basis, performing an annual assessment of the Company’s internal controls over financial reporting
related to Sarbanes-Oxley compliance. From 2000 to 2006, Ms. Wojcik was employed by Ceridian as an Implementation Consultant
for Human Resources software applications. Throughout her career, Ms. Wojcik has held various administrative and technical
positions in Human Resources.
Seasonal Factors
Our sales and earnings are seasonal, with significantly higher sales and earnings occurring during key holidays and the summer
vacation season than at other times of the year, which may cause fluctuations in our quarterly results of operations. In addition,
quarterly results have been, and in the future are likely to be, affected by the timing of new store openings, the sale of franchises and
the timing of purchases by customers outside our network of franchised locations. Because of the seasonality of our business, results
for any quarter are not necessarily indicative of the results that may be achieved in other quarters or for a full fiscal year.
Regulation
Each of the Company-owned and franchised stores is subject to licensing and regulation by the health, sanitation, safety, building and
fire agencies in the state or municipality where located. Difficulties or failures in obtaining the required licensing or approvals could
delay or prevent the opening of new stores. New stores must also comply with landlord and developer criteria.
Many states have laws regulating franchise operations, including registration and disclosure requirements in the offer and sale of
franchises. We are also subject to the Federal Trade Commission regulations relating to disclosure requirements in the sale of
franchises and ongoing disclosure obligations.
Additionally, certain states have enacted and others may enact laws and regulations governing the termination or non-renewal of
franchises and other aspects of the franchise relationship that are intended to protect franchisees. Although these laws and
regulations, and related court decisions, may limit our ability to terminate franchises and alter franchise agreements, we do not
believe that such laws or decisions will have a material adverse effect on our franchise operations. However, the laws applicable to
franchise operations and relationships continue to develop, and we are unable to predict the effect on our intended operations of
additional requirements or restrictions that may be enacted or of court decisions that may be adverse to franchisers.
Federal and state environmental regulations have not had a material impact on our operations but more stringent and varied
requirements of local governmental bodies with respect to zoning, land use and environmental factors could delay construction of
new stores.
Companies engaged in the manufacturing, packaging and distribution of food products are subject to extensive regulation by various
governmental agencies. A finding of a failure to comply with one or more regulations could result in the imposition of sanctions,
including the closing of all or a portion of our facilities for an indeterminate period of time. Our product labeling is subject to and
complies with the Nutrition Labeling and Education Act of 1990 and the Food Allergen Labeling and Consumer Protection Act of
2004.
We provide a limited amount of trucking services to third parties, to fill available space on our trucks. Our trucking operations are
subject to various federal and state regulations, including regulations of the Federal Highway Administration and other federal and
state agencies applicable to motor carriers, safety requirements of the Department of Transportation relating to interstate
transportation and federal, state and Canadian provincial regulations governing matters such as vehicle weight and dimensions.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We believe that we are operating in substantial compliance with all applicable laws and regulations.
Financial Information About Segments
See Note 9 “Operating Segments” to our consolidated financial statements included in this Annual Report on Form 10-K in Part II.
Item 8. “Financial Statements and Supplementary Data” for financial information relating to our segments.
Available Information
The Internet address of our website is www.rmcf.com. Additional websites specific to our franchise opportunities and our non-wholly
owned subsidiary are www.sweetfranchise.com and www.u-swirl.com, respectively.
We make available free of charge, through our Internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act, as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (the
“SEC”). The public may also read and copy materials we file with the SEC at the SEC’s Public Reference Room, which is located at
100 F Street, NE, Room 1580, Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of our websites are not
incorporated into, and should not be considered a part of, this Annual Report.
Item 1A. RISK FACTORS
General Economic Conditions Could Have a Material Adverse Effect on our Business, Results of Operations and Liquidity
Consumer purchases of discretionary items, including our products, generally decline during weak economic periods and other
periods where disposable income is adversely affected. Our performance is subject to factors that affect worldwide economic
conditions including employment, consumer debt, reductions in net worth based on severe market declines, residential real estate
and mortgage markets, taxation, fuel and energy prices, interest rates, consumer confidence, value of the U.S. dollar versus foreign
currencies and other macroeconomic factors. Since the economic downturn of 2008-2009, these factors have caused consumer
spending to deteriorate significantly and may cause levels of spending to remain depressed for the foreseeable future. These factors
may cause consumers to purchase products from lower priced competitors or to defer purchases of products altogether.
Continued economic weakness could have a material effect on our results of operations, liquidity and capital resources. It could also
impact our ability to fund growth and/or result in us becoming more reliant on external financing, the availability and terms of which
may be uncertain. In addition, a weak economic environment may exacerbate the risks noted below.
Our Sales to Specialty Market Customers, Customers Outside Our System of Franchised Stores, Are Concentrated Among a
Small Number of Customers
Revenue from one customer of the Company’s manufacturing segment represented approximately $5.2 million or 13% of the
Company’s revenues during the year ended February 28, 2015. The Company’s future results may be adversely impacted by a
change in the purchases of this customer.
Our Growth is Dependent Upon Attracting and Retaining Qualified Franchisees and Their Ability to Operate Their
Franchised Stores Successfully
Our continued growth and success is dependent in part upon our ability to attract, retain and contract with qualified franchisees. Our
growth is dependent upon the ability of franchisees to operate their stores successfully, promote and develop our store concepts, and
maintain our reputation for an enjoyable in-store experience and high quality products. Although we have established criteria to
evaluate prospective franchisees and have been successful in attracting franchisees, there can be no assurance that franchisees will
be able to operate successfully in their franchise areas in a manner consistent with our concepts and standards.
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Our Expansion Plans Are Dependent on the Availability of Suitable Sites for Franchised Stores at Reasonable Occupancy
Costs
Our expansion plans are critically dependent on our ability to obtain suitable sites at reasonable occupancy costs for our franchised
stores in high foot traffic retail environments. There is no assurance that we will be able to obtain suitable locations for our franchised
stores and kiosks in this environment at a cost that will allow such stores to be economically viable.
A Significant Shift by Franchisees from Company-Manufactured Products to Products Produced By Third Parties Could
Adversely Affect Our Operations
We believe approximately 45% of franchised stores' revenues are generated by sales of products manufactured by and purchased
from us, 50% by sales of products made in the stores with ingredients purchased from us or approved suppliers and 5% by sales of
products purchased from approved suppliers for resale in the stores. Franchisees' sales of products manufactured by us generate
higher revenues to us than sales of store-made or other products. We have seen a significant increase in system-wide sales of store-
made and other products, which has led to a decrease in purchases from us and an adverse effect on our revenues. If this trend
continues, it could further adversely affect our total revenues and results of operations. Such a decrease could result from
franchisees' decisions to sell more store-made products or products purchased from approved third party suppliers.
Same Store Sales Have Been Negatively Affected by the Economy and Will Continue to Fluctuate on a Regular Basis
Our same store sales, defined as year-over-year sales for a store that has been open at least one year, have fluctuated significantly
in the past on an annual and quarterly basis and are expected to continue to fluctuate in the future. During the past five fiscal years,
same store sales results have fluctuated as follows: (a) from 0.2% to 3.1% for annual results; (b) from (1.9%) to 7.5% for quarterly
results. Sustained declines in same store sales or significant same store sales declines in any single period could have a material
adverse effect on our results of operations.
Increases in Costs of Ingredients and Labor Could Adversely Affect Our Operations
Inflationary factors such as increases in the costs of ingredients, energy and labor directly affect our operations. Most of our leases
provide for cost-of-living adjustments and require us to pay taxes, insurance and maintenance expenses, all of which are subject to
inflation. Additionally, our future lease costs for new facilities may reflect potentially escalating costs of real estate and construction.
There is no assurance that we will be able to pass on our increased costs to our customers.
The Availability and Price of Principal Ingredients Used in Our Products Are Subject to Factors Beyond Our Control
Several of the principal ingredients used in our products, including chocolate and nuts, are subject to significant price fluctuations.
Although cocoa beans, the primary raw material used in the production of chocolate, are grown commercially in Africa, Brazil and
several other countries around the world, cocoa beans are traded in the commodities market, and their supply and price are subject
to volatility. We believe our principal chocolate supplier purchases most of its beans at negotiated prices from African growers, often
at a premium to commodity prices. The supply and price of cocoa beans, and in turn of chocolate, are affected by many factors,
including monetary fluctuations and economic, political and weather conditions in countries in which cocoa beans are grown. We
purchase most of our nut meats from domestic suppliers who procure their products from growers around the world. The price and
supply of nuts are also affected by many factors, including weather conditions in the various regions in which the nuts we use are
grown. Although we often enter into purchase contracts for these products, significant or prolonged increases in the prices of
chocolate or of one or more types of nuts, or the unavailability of adequate supplies of chocolate or nuts of the quality sought by us,
could have a material adverse effect on us and our results of operations.
We Have a Controlling Ownership Interest in U-Swirl, Which Has a History of Losses and May Continue to Report Losses in
the Future
In January 2013, we obtained a controlling ownership interest in U-Swirl (OTCQB: SWRL). This interest was the result of a
transaction designed to create a self-serve frozen yogurt company through the combination of three formerly separate self-serve
frozen yogurt retailers (U-Swirl, Yogurtini and Aspen Leaf Yogurt). U-Swirl has historically reported net losses and may continue to
report losses in future periods.
We And Our Subsidiaries May Be Unable To Successfully Integrate The Operations Of Acquired Businesses And May Not
Achieve The Cost Savings And Increased Revenues Anticipated As A Result Of These Acquisitions.
Over the past two years, U-Swirl has acquired a number of other yogurt franchising businesses. Achieving the anticipated benefits of
acquisitions will depend in part upon our and our subsidiaries’ ability to integrate these businesses in an efficient and effective
manner. The integration of companies that have previously operated independently may result in significant challenges, and we and
our subsidiaries may be unable to accomplish the integration smoothly or successfully. The integration of acquired businesses may
also require the dedication of significant management resources, which may temporarily distract management’s attention from the
day-to-day operations of the Company. In addition, the process of integrating operations may cause an interruption of, or loss of
momentum in, the activities of one or more of our or our subsidiaries’ businesses and the loss of key personnel from us or the
acquired businesses. Our and our subsidiaries’ strategy is, in part, predicated on the ability to realize cost savings and to increase
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
revenues through the acquisition of businesses that add to the breadth and depth of our products and services. Achieving these cost
savings and revenue increases is dependent upon a number of factors, many of which are beyond our control.
15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Seasonality of Our Sales and New Store Openings Can Have a Significant Impact on Our Financial Results from
Quarter to Quarter
Our sales and earnings are seasonal, with significantly higher sales and earnings occurring during key holidays and summer vacation
season than at other times of the year, which causes fluctuations in our quarterly results of operations. In addition, quarterly results
have been, and in the future are likely to be, affected by the timing of new store openings and the sale of franchises. Because of the
seasonality of our business and the impact of new store openings and sales of franchises, results for any quarter are not necessarily
indicative of the results that may be achieved in other quarters or for a full fiscal year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We Are Subject to Federal, State and Local Regulation
We are subject to regulation by the Federal Trade Commission and must comply with certain state laws governing the offer, sale and
termination of franchises and the refusal to renew franchises. Many state laws also regulate substantive aspects of the franchisor-
franchisee relationship by, for example, requiring the franchisor to deal with its franchisees in good faith, prohibiting interference with
the right of free association among franchisees and regulating discrimination among franchisees in charges, royalties or fees.
Franchise laws continue to develop and change, and changes in such laws could impose additional costs and burdens on
franchisors. Our failure to obtain approvals to sell franchises and the adoption of new franchise laws, or changes in existing laws,
could have a material adverse effect on us and our results of operations.
Each of our Company-owned and franchised stores is subject to licensing and regulation by the health, sanitation, safety, building and
fire agencies in the state or municipality where located. Difficulties or failures in obtaining required licenses or approvals from such
agencies could delay or prevent the opening of a new store. We and our franchisees are also subject to laws governing our
relationships with employees, including minimum wage requirements, overtime, working and safety conditions and citizenship
requirements. Because a significant number of our employees are paid at rates related to the federal minimum wage, increases in the
minimum wage would increase our labor costs. The failure to obtain required licenses or approvals, or an increase in the minimum
wage rate, employee benefits costs (including costs associated with mandated health insurance coverage) or other costs associated
with employees, could have a material adverse effect on us and our results of operations.
Companies engaged in the manufacturing, packaging and distribution of food products are subject to extensive regulation by various
governmental agencies. A finding of a failure to comply with one or more regulations could result in the imposition of sanctions,
including the closing of all or a portion of our facilities for an indeterminate period of time, and could have a material adverse effect on
us and our results of operations.
The Retailing of Confectionery and Frozen Dessert Products is Highly Competitive and Many of Our Competitors Have
Competitive Advantages Over Us.
The retailing of confectionery and frozen dessert products is highly competitive. We and our franchisees compete with numerous
businesses that offer similar products. Many of these competitors have greater name recognition and financial, marketing and other
resources than we do. In addition, there is intense competition among retailers for real estate sites, store personnel and qualified
franchisees. Competitive market conditions could have a material adverse effect on us and our results of operations and our ability to
expand successfully.
Changes in Consumer Tastes and Trends Could Have a Material Adverse Effect on Our Operations
The sale of our products is affected by changes in consumer tastes and eating habits, including views regarding consumption of
chocolate. Numerous other factors that we cannot control, such as economic conditions, demographic trends, traffic patterns and
weather conditions, influence the sale of our products. Changes in any of these factors could have a material adverse effect on us
and our results of operations.
Changes in Health Benefit Claims and Healthcare Reform Legislation Could Have a Material Adverse Effect on Our
Operations
We accrue for costs to provide self-insured benefits for our employee health benefits program. We accrue for self-insured health
benefits based on historical claims experience and we maintain insurance coverage to prevent financial losses from catastrophic
health benefit claims. We monitor pending and enacted legislation in an effort to evaluate the effects of such legislation upon our
business. Our financial position or results of operations could be materially adversely impacted should we experience a material
increase in claims costs or a change in healthcare legislation that impacts our business. Our accrued liability for self-insured
employee health benefits at February 28, 2015 and February 28, 2014 was $67,400 and $74,000, respectively.
16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our Expansion Into New Markets May Present Increased Risks Due To Our Unfamiliarity With Those Areas And Our Target
Customers’ Unfamiliarity With The Our Brands.
Consumers in any new markets we enter will not be familiar with our brands, and we will need to build brand awareness in those
markets through significant investments in advertising and promotional activity. We may find it more difficult in our markets to secure
desirable locations and to hire, motivate and keep qualified employees.
We May Not Be Able To Successfully Execute A Franchising And Area Developer Strategy Or Attract Independent Franchise
Developers.
To achieve our expansion goals within our desired timeframe, we have adopted a franchising and area developer model into our
business strategy. We plan to open company-owned frozen yogurt locations and to solicit area developers for our U-Swirl
concept. We may not be successful in attracting franchisees and developers to the U-Swirl concept or identifying franchisees and
developers that have the business abilities or access to financial resources necessary to open our U-Swirl locations or to develop or
operate successfully our frozen yogurt locations in a manner consistent with our standards. Further, incorporating a franchising and
area developer model into our strategy has required us to devote significant management and financial resources to prepare for and
support the eventual sale of franchises. If we are not successful in incorporating a franchising or area developer model into our
strategy, or we are unsuccessful in attracting independent franchise developers, we may experience delays in our growth, or may not
be able to expand and grow our business.
Anti-takeover provisions in our certificate of incorporation and bylaws may delay or prevent a third party acquisition of the
Company, which could decrease the value of our common stock.
As described above, effective March 1, 2015, we reorganized to create a holding company structure and the new holding company is
organized in the State of Delaware. Our new certificate of incorporation and bylaws contain provisions that could make it more difficult
for a third party to acquire it without the consent of its Board of Directors. These provisions will:
•
•
•
•
limit the business at special meetings to the purpose stated in the notice of the meeting;
authorize the issuance of “blank check” preferred stock, which is preferred stock with voting or other rights or preferences that
could impede a takeover attempt and that the Board of Directors can create and issue without prior stockholder approval;
establish advance notice requirements for submitting nominations for election to the Board of Directors and for proposing
matters that can be acted upon by stockholders at a meeting;
require the affirmative vote of the “disinterested” holders of a majority of our common stock to approve certain business
combinations involving an “interested stockholder” or its affiliates, unless either minimum price criteria and procedural
requirements are met, or the transaction is approved by a majority of our “continuing directors” (known as “fair price
provisions”).
Although we believe all of these provisions will make a higher third-party bid more likely by requiring potential acquirers to negotiate
with the Board of Directors, these provisions will apply even if an initial offer may be considered beneficial by some stockholders and
therefore could delay and/or prevent a deemed beneficial offer from being considered. These provisions could also discourage proxy
contests and make it more difficult for our stockholders to elect directors and take other corporate actions, which may prevent a
change of control or changes in our management that a stockholder might consider favorable. In addition, Section 203 of the
Delaware General Corporation Law may discourage, delay, or prevent a change in control of us. Any delay or prevention of a change
of control or change in management that stockholders might otherwise consider to be favorable could cause the market price of our
common stock to decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our manufacturing operations and corporate headquarters are located at a 53,000 square foot manufacturing facility, which we own,
in Durango, Colorado. During FY 2015, our factory produced approximately 2.67 million pounds of chocolate candies, which was a
decrease of 1% from the approximately 2.70 million pounds produced in FY 2014. During FY 2008, we conducted a study of factory
capacity. As a result of this study, we believe the factory has the capacity to produce approximately 5.3 million pounds per year. In
January 1998, we acquired a two-acre parcel adjacent to our factory to ensure the availability of adequate space to expand the
factory as volume demands.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
17
U-Swirl’s principal offices are the same as the Company’s and located at 265 Turner Drive, Durango, Colorado 81303. U-Swirl also
has an office located at 1175 American Pacific, Suite C, Henderson, Nevada 89074, in approximately 5,200 square feet of space
leased for a term of five years expiring in July 2018. The rent is approximately $2,800 per month. As of May 1, 2015 we have a signed
sublease agreement for this location.
As of February 28, 2015, all four Rocky Mountain Chocolate Factory Company-owned stores were occupied pursuant to non-
cancelable leases of five to ten years having varying expiration dates from December 2015 to September 2021, some of which
contain optional five-year renewal rights. We do not deem any individual store lease to be significant in relation to our overall
operations.
The leases for our U-Swirl Company-owned cafés range from approximately 400 to 3,000 square feet. The leases are generally for
five-year terms with options to extend. We currently have 13 leases in place, which range between $1,000 and $7,500 per month,
exclusive of common area maintenance charges and taxes.
We act as primary lessee of some franchised store premises, which we then sublease to franchisees, but the majority of existing
locations are leased by the franchisee directly. Our current policy is not to act as primary lessee on any further franchised locations,
except in rare instances. At March 31, 2015, we were the primary lessee at 10 of our 433 franchised stores. The subleases for such
stores are on the same terms as the Company's leases of the premises. For information as to the amount of our rental obligations
under leases on both Company-owned and franchised stores, see Note 5 of the notes to our consolidated financial statements
included in Item 8 of this Annual Report.
We entered into lease agreements during the development stage of Aspen Leaf Yogurt for eight Company-owned locations. In
January 2013, we sold all of our Company-owned locations. Six of these locations were transferred to U-Swirl and two locations were
sold to franchise operators. In order to secure locations for the development of ALY, the Company guaranteed certain leases and
remains the primary lessee. As of February 28, 2015, we act as lessee on two former ALY Company-owned locations, these leases
have varying expiration dates from January 2016 to December 2016.
The Company is not currently involved in any material legal proceedings other than ordinary routine litigation incidental to its
business.
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
Part II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Market Information
Our common stock trades on the NASDAQ Global Market under the trading symbol “RMCF.”
The table below sets forth high and low sales price information and dividends declared for our common stock for each quarter of fiscal
years 2015 and 2014.
Fiscal Year Ended February 28, 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal Year Ended February 28, 201 4
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
HIGH
LOW
15.60 $
13.30 $
13.49 $
12.21 $
HIGH
LOW
13.45 $
13.67 $
13.98 $
13.45 $
Dividends
declared
12.26 $
11.89 $
11.33 $
11.40 $
0.1200
0.1100
0.1100
0.1100
Dividends
declared
11.31 $
11.36 $
11.90 $
11.09 $
0.1100
0.1100
0.1100
0.1100
$
$
$
$
$
$
$
$
18
Holders
On May 7, 2015, there were approximately 327 record holders of our common stock. We believe that there are more than 800
beneficial owners of our common stock.
Dividends
The Company paid a quarterly cash dividend of $0.12 per common share on March 13, 2015 to shareholders of record on February
27, 2015. The dividends paid by the Company for the past two fiscal years is outlined in the table above. Future declarations of
dividends will depend on, among other things, our results of operations, financial condition, capital requirements, and on such other
factors as the Board of Directors may in its discretion consider relevant and in the best long term interest of shareholders. We are
subject to various financial covenants related to our line of credit and other long-term debt, however, those covenants do not restrict
the Board of Director’s discretion of the future declaration of cash dividends.
Repurchases
On July 15, 2014, the Company publicly announced a plan to purchase up to $3.0 million of its common stock in the open market or
in private transactions, whenever deemed appropriate by management. On January 13, 2015, the Company announced a plan to
purchase up to an additional $2,058,000 of its common stock under the repurchase plan. Between July 15, 2014 and July 31, 2014,
the Company repurchased 55,000 shares under the plan at an average price of $12.58 per share. Between September 26, 2014 and
November 28, 2014, the Company repurchased 99,511 shares under the plan at an average price of $12.19 per share. Between
December 1, 2014 and February 9, 2015, the Company repurchased 91,595 shares under the plan at an average price of $13.35 per
share. As of February 28, 2015, approximately $1,930,000 remains available under the plan for further stock repurchases.
Issuer Purchases of Equity Securities
(a) Total Number of
Shares Purchased
(b) Average Price
Paid per Share
Period
December 2014
January 2015
February 2015
Total
11,768
76,527
3,300
91,595
$13.01
$13.38
$13.97
$13.35
(c) Total Number of
Shares Purchased as
Part
of Publicly Announced
Plans or Programs
11,768
76,527
3,300
91,595
(d) Approximate Dollar Value of
Shares that May Yet Be
Purchased
Under the Plans or Programs(1)
$942,107
$1,976,357
$1,930,269
$1,930,269
(1) On July 15, 2014,the Company publicly announced a plan to purchase up to $3.0 million of its common stock in the open
market or in private transactions, whenever deemed appropriate by management. On January 13, 2015, the Company
announced a plan to purchase up to an additional $2,058,000 of its common stock under the repurchase plan. The
Company plans to continue the repurchase plan until it has been completed. The number, price, structure and timing of
the repurchases, if any, will be at our sole discretion and future repurchases will be evaluated by us depending on
market conditions, liquidity needs and other factors. The repurchase authorization does not have an expiration date and
does not oblige us to acquire any particular amount of our common stock. The Board of Directors may suspend, modify
or terminate the repurchase program at any time without prior notice.
19
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for the fiscal years ended February 28 or 29, 2011 through 2015, are derived from the
financial statements of the Company, which have been audited by EKS&H LLLP, an independent registered public accounting firm.
The selected financial data should be read in conjunction with the financial statements and related Notes thereto included elsewhere
in this Annual Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations.”
All material inter-Company balances have been eliminated upon consolidation.
(Amounts in thousands, except per share data)
Selected Statement of Operations Data
Total revenues
Operating income
Net income
Basic Earnings per Common Share
Diluted Earnings per Common Share
Weighted average common shares
outstanding
Weighted average common shares
outstanding, assuming dilution
Selected Balance Sheet Data
Working capital*
Total assets*
Long-term debt
Stockholders’ equity*
Cash Dividend Declared per Common
Share
$
$
$
$
$
YEARS ENDED FEBRUARY 28 or 29,
2015
2014
2013
2012
2011
41,508 $
5,965
3,938 $
39,185 $
5,236
4,392 $
36,315 $
2,540
1,478 $
34,627 $
5,853
3,876 $
31,128
5,950
3,911
0.64 $
0.72 $
0.24 $
0.63 $
0.61 $
0.68 $
0.24 $
0.62 $
0.65
0.62
6,144
6,100
6,079
6,111
6,051
6,413
6,437
6,219
6,295
6,290
9,371 $
34,138
5,083
19,738
8,884 $
35,153
6,292
19,852
8,981 $
23,834
-
17,389
10,573 $
24,163
-
18,736
9,831
21,439
-
16,654
$
0.450 $
0.440 $
0.440 $
0.400 $
0.400
* February 28, 2014 balances have been revised as discussed in Note 18 to the financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, and our subsidiaries (including our operating subsidiary with the
same name, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation) (collectively, the “Company,” “we,” “us,” or “our”) is an
international franchisor, confectionery manufacturer and retail operator. Founded in 1981, we are headquartered in Durango,
Colorado and manufacture an extensive line of premium chocolate candies and other confectionery products. Our subsidiary, U-
Swirl, Inc. (“U-Swirl”), franchises and operates soft-serve frozen yogurt stores. Our revenue and profitability are derived principally
from our franchised/license system of retail stores that feature chocolate, frozen yogurt and other confectionary products. We also sell
our candy in selected locations outside of our system of retail stores and license the use of our brand with certain consumer products.
As of March 31, 2015, there were 4 Company-owned, 88 licensee-owned and 276 franchised Rocky Mountain Chocolate Factory
stores operating in 40 states, Canada, Japan, South Korea, the Kingdom of Saudi Arabia and the United Arab Emirates. As of March
31, 2015, U-Swirl operated 10 Company-owned stores and 237 franchised stores located in 37 states, Canada, Turkey, the United
Arab Emirates and Pakistan. In FY 2014, U-Swirl acquired the franchise rights of frozen yogurt stores branded as “Cherryberry”,
“Yogli Mogli” and “Fuzzy Peach”, and U-Swirl operates self-serve frozen yogurt cafes under the names “U-Swirl,” “Yogurtini,”
“CherryBerry,” “Josie’s Frozen Yogurt,” “Yogli Mogli Frozen Yogurt,” “Fuzzy Peach Frozen Yogurt,” and “Aspen Leaf Yogurt”.
Effective March 1, 2015, we reorganized to create a holding company structure. Our operating subsidiary with the same name ,
Rocky Mountain Chocolate Factory, Inc., a Colorado corporation (“RMCF”), which was previously the public company, became a
wholly-owned subsidiary of a newly formed entity, Rocky Mountain Chocolate Factory, Inc., a Delaware corporation (“Newco”), and all
of the outstanding shares of common stock of RMCF was exchanged on a one-for-one basis for shares of common stock of Newco.
Our new holding company began trading on March 2, 2015 on the NASDAQ Global Market under the symbol “RMCF”, which was the
same symbol used by RMCF prior to the holding company reorganization.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
20
In January 2013, through our wholly-owned subsidiaries, including Aspen Leaf Yogurt, LLC (“ALY”), we entered into two agreements
to sell all of the assets of our ALY frozen yogurt stores, along with our interest in the self-serve frozen yogurt franchises and retail
units branded as “Yogurtini” which we also acquired in January 2013, to U-Swirl, a publicly traded company (OTCQB: SWRL), in
exchange for a 60% controlling equity interest in U-Swirl. Upon completion of these transactions, we ceased to directly operate any
Company-owned Aspen Leaf Yogurt locations or sell and support frozen yogurt franchise locations, which is now being supported by
U-Swirl. As of February 28, 2015, we held a 39% interest in U-Swirl. Additionally, we have the right to acquire approximately
26,271,000 shares of common stock of U-Swirl through the conversion of convertible debt owed by U-Swirl to our company. If the
Company exercised this conversion right, we believe we would hold approximately 72% of U-Swirl’s common stock.
Current Trends and Outlook
Our business was significantly affected by the global recession during 2008-2009. We continued to experience this difficult
environment throughout FY 2010 and FY 2011. The environment somewhat improved from FY 2012 to FY 2015, though we do not
believe that the challenges have fully reversed. As a result, we intend to continue to focus on managing the business in a seasoned,
disciplined and controlled manner.
The financing that our franchisees have historically relied upon was substantially affected by the changes in banking and lending
requirements in the years after the global recession. Limited financing alternatives for domestic franchise growth have led us to
pursue a strategy of expansion through co-branding with complimentary concepts such as ice cream and frozen yogurt, international
development, sale of our products to specialty markets, licensing the Rocky Mountain Chocolate Factory brand for use with other
appropriate consumer products, and selected entry of Rocky Mountain Chocolate Factory branded products into other wholesale
channels, along with business acquisitions as primary drivers of growth. This is a trend that continued in FY 2015 and we expect to
continue into the foreseeable future.
Going forward in FY 2016, we are taking a conservative view of market conditions in the United States. We intend to continue to
focus on our long-term objectives while seeking to maintain flexibility to respond to market conditions, including the pursuit of
international growth opportunities to reduce our dependence on the domestic economy.
We are subject to seasonal fluctuations in sales because of key holidays and the location of our franchisees, which have traditionally
been located in resort or tourist locations, and the nature of the products we sell, which are highly seasonal. As we expanded our
geographical diversity to include regional centers and our franchise offerings to include frozen desserts, we have seen some
moderation to our seasonal sales mix. Seasonal fluctuation in sales causes fluctuations in quarterly results of operations. 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 sales of franchises. Because of the
seasonality of our business and the impact of new store openings and sales of franchises, results for any quarter are not necessarily
indicative of results that may be achieved in other quarters or for a full fiscal year.
The most important factors in continued growth in our earnings are ongoing unit growth, increased same store sales and increased
same store pounds purchased from the factory. Historically, unit growth has more than offset decreases in same store sales and
same store pounds purchased.
Our ability to successfully achieve expansion of our franchise systems depends on many factors not within our control including the
availability of suitable sites for new store establishment and the availability of qualified franchisees to support such expansion.
Efforts to reverse the decline in same store pounds purchased from the factory by franchised stores and to increase total factory sales
depend on many factors, including new store openings, competition, the receptivity of our franchise system to our product
introductions and promotional programs. In FY 2015, same store pounds purchased from the factory by franchised and co-branded
licensed stores declined approximately 4.5% in the first quarter, declined approximately 3.3% in the second quarter, increased
approximately 0.5% in the third quarter, increased approximately 3.7% in the fourth quarter, and was unchanged overall in FY 2015
as compared to the same periods in FY 2014.
In May 2009, we announced the expansion of the co-branding test relationship with Cold Stone Creamery. The Company and Cold
Stone Creamery, Inc. have agreed to expand the co-branding relationship to several hundred potential locations, based upon the
performance of several test locations, operating under the test agreement announced in October 2008. We have additionally agreed
to develop co-branded locations through U-Swirl and their associated brands. We believe that if this co-branding strategy continues to
prove financially viable it could represent a significant future growth opportunity. As of February 28, 2015, Cold Stone licensees
operated 68 co-branded locations, our U-Swirl franchisees operated 15 co-branded locations and we have co-branded 3 of our
Company-owned cafés.
In April 2012 we announced the execution of a Master Licensing Agreement covering the country of Japan. Under the terms of the
agreement, the licensee will pay the Company a Master License Fee for the right to open Rocky Mountain Chocolate Factory stores
for its own account and for the account of franchisees throughout the country of Japan. Since 2012, we have continued to develop
internationally through the execution of license agreements in the countries of South Korea, the Kingdom of Saudi Arabia and the
Republic of the Philippines. Through our U-Swirl subsidiary we have additional international development agreements covering the
countries of Turkey, Pakistan, Canada and the United Arab Emirates.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The
preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the related disclosures. Estimates and assumptions include, but are not limited to, the
carrying value of accounts and notes receivable from franchisees, inventories, the useful lives of fixed assets, goodwill, and other
intangible assets, income taxes, contingencies and litigation. We base our estimates on analyses, of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates.
We believe that the following represent our more critical estimates and assumptions used in the preparation of our consolidated
financial statements, although not all inclusive.
Accounts and Notes Receivable - In the normal course of business, we extend credit to customers, primarily franchisees, that satisfy
pre-defined credit criteria. We believe that we have a limited concentration of credit risk primarily because our receivables are
secured by the assets of the franchisees to which we ordinarily extend credit, including, but not limited to, their franchise rights and
inventories. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable, assessments of
collectability based on historical trends, and an evaluation of the impact of current and projected economic conditions. The process
by which we perform our analysis is conducted on a customer by customer, or franchisee by franchisee, basis and takes into
account, among other relevant factors, sales history, outstanding receivables, customer financial strength, as well as customer
specific and geographic market factors relevant to projected performance. The Company monitors the collectability of its accounts
receivable on an ongoing basis by assessing the credit worthiness of its customers and evaluating the impact of reasonably likely
changes in economic conditions that may impact credit risks. Estimates with regard to the collectability of accounts receivable are
reasonably likely to change in the future.
We recorded an average expense of approximately $253,500 per year for potential uncollectible accounts over the three-year period
ended February 28, 2015. Write-offs of uncollectible accounts net of recoveries averaged approximately $218,600 over the same
period. The provision for uncollectible accounts is recognized as general and administrative expense in the Statements of Income.
Over the past three years, the allowances for doubtful notes and accounts have ranged from 8.8% to 12.1% of gross receivables.
Revenue Recognition - We recognize revenue on sales of products to franchisees and other customers at the time of delivery.
Franchise fee revenue is recognized upon the opening of the store. International license fees are recognized upon the execution of
the license agreement and payment of the license fee. We recognize a marketing and promotion fee of one percent (1%) of the Rocky
Mountain Chocolate Factory and U-Swirl franchised stores’ gross retail sales and a royalty fee based on gross retail sales. Beginning
with franchise store openings in the third quarter of fiscal year 2004, we modified our royalty structure. Under the current structure,
we recognize no royalty on Rocky Mountain Chocolate Factory franchised stores’ retail sales of products purchased from us and
recognize a ten percent (10%) royalty on all other sales of product sold at franchise locations. For franchise stores opened prior to the
third quarter of FY 2004 we recognize a royalty fee of five percent (5%) of franchised stores’ gross retail sales. Rebates received from
purveyors that supply products to our franchisees are included in franchise royalties and fees. Product rebates are recognized in the
period in which they are earned. Rebates related to company-owned locations are offset against operating costs.
Inventories - Our inventories are stated at the lower of cost or market value and are reduced by an allowance for slow-moving,
excess, discontinued and shelf-life expired inventories. Our estimate for such allowance is based on our review of inventories on
hand compared to estimated future usage and demand for our products. Such review encompasses not only potentially perishable
inventories but also specialty packaging, much of it specific to certain holiday seasons. If actual future usage and demand for our
products are less favorable than those projected by our review, inventory reserve adjustments may be required. We closely monitor
our inventory, both perishable and non-perishable, and related shelf and product lives. Historically we have experienced low levels of
obsolete inventory or returns of products that have exceeded their shelf life. Over the three-year period ended February 28, 2015, the
Company recorded expense averaging $54,300 per year for potential inventory losses, or approximately 0.3% of total cost of sales
for that period.
Consolidation – The consolidated financial statements in this Annual Report include the accounts of the Company and its
subsidiaries. On January 14, 2013 we acquired a controlling interest in U-Swirl. Prior to January 14, 2013, our consolidated financial
statements exclude the financial information of U-Swirl. Beginning on January 14, 2013 and continuing through February 28, 2015,
the results of operations, assets and liabilities of U-Swirl have been included in our consolidated financial statements. All material
inter-Company balances have been eliminated upon consolidation.
Goodwill – Goodwill consists of the excess of purchase price over the fair market value of acquired assets and liabilities. Effective
March 1, 2002, under ASC Topic 350, all goodwill with indefinite lives is no longer subject to amortization. ASC Topic 350 requires
that an impairment test be conducted annually or in the event of an impairment indicator. Our test conducted in FY 2015 showed no
impairment of our goodwill.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
22
Franchise Rights – Franchise rights consists of the purchase price paid in consideration of certain rights associated with franchise
agreements. These franchise agreements provide for future payments to the franchisor of royalty and marketing fees. We consider
franchise rights to have a 20 year life.
Other accounting estimates inherent in the preparation of our consolidated financial statements include estimates associated with its
evaluation of the recoverability of deferred tax assets, as well as those used in the determination of liabilities related to litigation and
taxation. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining
significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic
conditions, and product mix. The Company constantly re-evaluates these significant factors and makes adjustments where facts and
circumstances dictate. Historically, actual results have not significantly deviated from those determined using the estimates described
above.
Business Combinations – The Company accounts for business combinations using the acquisition method. Under the acquisition
method, the purchase price of the acquisition is allocated to the underlying tangible and intangible assets acquired based on their
respective fair values. Fair values are derived from various observable and unobservable inputs and assumptions. The Company
utilizes third-party valuation specialists to assist in the allocation. Initial purchase price allocations are preliminary and are subject to
revision within the measurement period, not to exceed one year from the date of acquisition. The costs of the business acquisitions
are expensed as incurred. These costs may include fees for accounting, legal, professional consulting and valuation specialists.
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the
acquisition date, including our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-
acquisition contingencies and contingent consideration, where applicable. Although we believe the assumptions and estimates we
have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the
management of the acquired companies and are inherently uncertain. Moreover, unanticipated events and circumstances may occur
that may affect the accuracy or validity of such assumptions, estimates or actual results.
Results of Operations
Fiscal 2015 Compared To Fiscal 2014
Results Summary
Basic earnings per share declined 11.1% from $0.72 in FY 2014 to $0.64 in FY 2015. Revenues increased 5.9% from $39.2 million for
FY 2014 to $41.5 million for FY 2015. Operating income increased 13.9% from $5.2 million in FY 2014 to $6.0 million in FY 2015. Net
income decreased 10.3% from $4.4 million in FY 2014 to $3.9 million in FY 2015. The increase in operating income for FY 2015
compared to FY 2014 is due primarily to an increase in revenues, partially offset by increases in operating expenses.
Revenues
($’s in thousands)
Factory sales
Retail sales
Royalty and marketing fees
Franchise fees
Total
Factory Sales
For the Year Ended
February 28,
2015
25,894.6 $
6,206.0
8,821.0
586.8
41,508.4 $
2014
25,218.9 $
6,443.4
7,070.5
452.0
39,184.8 $
$
$
$
Change
675.7
(237.4)
1,750.5
134.8
2,323.6
%
Change
2.7%
(3.7%)
24.8%
29.8%
5.9%
The increase in factory sales for FY 2015 compared to FY 2014 was primarily due to a 16.0% increase in shipments of product to
customers outside our network of franchised retail stores. The increases were partially offset by a 6.3% decrease in the average
number of domestic Rocky Mountain Chocolate Factory franchised stores in operation. Same-store pounds purchased by franchise
and co-branded license locations was unchanged in FY 2015 compared with FY 2014.
Retail Sales
The decrease in retail sales was primarily due to increased performance of Company-owned locations acquired or commencing
operation during the prior fiscal year, offset by the closure or sale of certain under-performing locations. Additionally, same store sales
at all Company-owned stores and cafés increased 0.2% during FY 2015, compared with FY 2014.
23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Royalties, Marketing Fees and Franchise Fees
The increase in royalties and marketing fees during FY 2015, compared with FY 2014, resulted from a 43.8% increase in domestic
franchise stores in operation during FY 2015 compared to FY 2014, primarily as a result of U-Swirl’s acquisition of CherryBerry, Yogli
Mogli and Fuzzy Peach franchise systems in January 2014 and February 2014 and the associated increase in franchise revenues
due to such acquisitions. This increase was partially offset by a 6.3% decrease in the number of domestic Rocky Mountain Chocolate
Factory franchises in operation. The average number of domestic Rocky Mountain Chocolate Factory franchise stores in operation
decreased from 223 during FY 2014 to 209 during FY 2015. This decrease is the result of domestic store closures exceeding
domestic store openings. Franchise fee revenues increased primarily as a result of the license fees associated with the license
agreements for the development and franchising of Rocky Mountain Chocolate Factory stores in the Republic of the Philippines and
the license agreement for the development and franchising of CherryBerry cafés in the Canadian province of British Columbia. Same
store sales at domestic Rocky Mountain Chocolate Factory locations increased 3.1% during FY 2015, compared with FY 2014.
U-Swirl Café Sales, Royalties, Marketing Fees and Franchise Fees
During FY 2015, U-Swirl revenue increased 40.2% to $7,753,000 compared with $5,528,600 of U-Swirl revenue consolidated within
our results for FY 2014. The increase resulted from a 173% increase in average domestic U-Swirl franchise cafés in operation during
FY 2015 compared to FY 2014, primarily as a result of U-Swirl’s acquisition of CherryBerry, Yogli Mogli and Fuzzy Peach franchise
systems in January 2014 and February 2014 and the associated increase in franchise revenues due to such acquisitions.
Costs and Expenses
($’s in thousands)
Cost of sales – factory adjusted
Cost of sales – retail
Franchise costs
Sales and marketing
General and administrative
Retail operating
Total
Adjusted Gross Margin
($’s in thousands)
Factory adjusted gross margin
Retail
Total
Adjusted Gross Margin
(Percent)
Factory adjusted gross margin
Retail
Total
For the Year Ended
February 28,
$
2015
2014
Change
%
Change
$
$
18,038.5 $
2,177.3
2,264.1
2,474.0
4,831.9
3,509.6
33,295.4 $
17,303.1 $
2,310.3
2,062.5
2,153.8
5,003.3
3,303.5
32,136.5 $
735.4
( 133.0)
201.6
320.2
( 171.4)
206.1
1,158.9
4.3%
(5.8%)
9.8%
14.9%
(3.4%)
6.2%
3.6%
For the Year Ended
February 28,
2015
2014
$
Change
%
Change
$
$
7,856.1 $
4,028.7
11,884.8 $
7,915.8 $
4,133.1
12,048.9 $
( 59.7)
( 104.4)
( 164.1)
(0.8%)
(2.5%)
(1.4%)
For the Year Ended
February 28,
2015
2014
$
Change
%
Change
30.3%
64.9%
37.0%
31.4%
64.1%
38.1%
(1.1%)
0.8%
(1.1%)
(3.5%)
1.2%
(2.9%)
24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Adjusted gross margin, a non-GAAP measure, is equal to the sum of our factory adjusted gross margin plus our retail gross margin
calculated in accordance with GAAP. Factory adjusted gross margin is equal to factory gross margin minus depreciation and
amortization expense. We believe adjusted gross margin and factory adjusted gross margin are helpful in understanding our past
performance as a supplement to gross margin and other performance measures calculated in conformity with accounting principles
generally accepted in the United States ("GAAP"). We believe that adjusted gross margin and factory adjusted gross margin are
useful to investors because they provide a measure of operating performance and our ability to generate cash that is unaffected by
non-cash accounting measures. Additionally, we use adjusted gross margin and factory adjusted gross margin rather than gross
margin and factory gross margin to make incremental pricing decisions. Adjusted gross margin and factory adjusted gross margin
have limitations as an analytical tool because they exclude the impact of depreciation and amortization expense and you should not
consider them 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 and factory adjusted gross margin as measures of performance only in conjunction with GAAP measures of
performance such as gross margin and factory gross margin. The following table provides a reconciliation of factory adjusted gross
margin to factory gross margin, the most comparable performance measure under GAAP:
($’s in thousands)
Factory adjusted gross margin
Less: Depreciation and Amortization
Factory GAAP gross margin
Cost of Sales and Gross Margin
For the Year Ended
February 28,
2015
2014
$
$
7,856.1 $
393.8
7,462.3 $
7,915.8
292.9
7,622.9
Factory adjusted gross margin decreased 110 basis points during FY 2015 compared to FY 2014 due to an increase in the average
selling price of products to domestic franchise units being more than offset by increases in the costs of certain materials. The
increase in Company-owned store margin is due primarily to an increase in U-Swirl stores in operation and associated higher
margins.
Franchise Costs
The increase in franchise costs for FY 2015 compared to FY 2014 is due primarily to an increase in franchise costs associated with
supporting the additional U-Swirl franchise units acquired through business acquisitions. As a percentage of total royalty and
marketing fees and franchise fee revenue, franchise costs decreased to 24.1% during FY 2015 from 27.4% during FY 2014. This
decrease as a percentage of royalty, marketing and franchise fees is primarily a result of a 25.1% increase in royalty, marketing and
franchise fee revenue as a result of an increase in system-wide franchise stores during FY 2015 compared to FY 2014.
Sales and Marketing
The increase in sales and marketing expense during FY 2015 compared to FY 2014 is primarily due to an increase in marketing
costs associated with the increased U-Swirl franchise locations compared to the prior year.
General and Administrative
The decrease in general and administrative costs during FY 2015 compared with FY 2014 is due primarily to lower professional fees
incurred during FY 2015, compared with FY 2014, partially offset by increased general and administrative costs associated with U-
Swirl. During FY 2015, approximately $1,651,000 of U-Swirl general and administrative costs were consolidated within our results,
compared with approximately $1,453,000 during FY 2014. As a percentage of total revenues, general and administrative expenses
decreased to 11.6% in FY 2015 compared to 12.8% in FY 2014.
Retail Operating Expenses
The increase in retail operating expense was due primarily to changes in units in operation, resulting from the acquisition of six
Company-owned locations in the prior year. This increase was offset by the closure of five underperforming locations in the prior year
and the sale of three Company-owned locations in the current year. The average number of Company-owned stores in operation
decreased from 19 during FY 2014 to 16 units during FY 2015. Retail operating expenses, as a percentage of retail sales, increased
from 51.3% during FY 2014 to 56.6% in FY 2015. This increase is primarily the result of a change in units in operation.
Depreciation and Amortization
Depreciation and amortization of $1,440,000 in FY 2015 increased 40.3% from the $1,027,000 incurred in FY 2014 due to an
increase in amortization related to increased franchise rights, trademark and intangible assets resulting from business acquisitions
during FY 2014.
Other Income
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Net interest expense was $184,500 in FY 2015 compared to net interest income of $35,300 realized in FY 2014. This change was
the result of an increase in outstanding debt from a promissory note entered into in January 2014 to fund business acquisitions of U-
Swirl.
25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Income Tax Expense
Our effective income tax rate in FY 2015 was 35.3% which is a decrease of 5.4% compared to an effective rate of 40.7% during FY
2014. As described further in Note 6 to the consolidated financial statements, the decrease in the effective tax rate is primarily due to
the tax consequences of acquiring a controlling interest in U-Swirl.
Investment Gain
There was no amount recognized as investment gain in FY 2015 compared with an investment gain of $18,380 recognized during FY
2014. The gain recognized in FY 2014 was a result of us transferring 300,000 shares of U-Swirl common stock for services provided
in conjunction with business acquisitions during FY 2014. The gain represents the excess of the fair value of services, compared to
our basis in the shares transferred.
Fiscal 2014 Compared To Fiscal 2013
Results Summary
Basic earnings per share increased 200.0% from $0.24 in FY 2013 to $0.72 in FY 2014. Revenues increased 7.9% from $36.3 million
for FY 2013 to $39.2 million for FY 2014. Operating income increased 106.1% from $2.5 million in FY 2013 to $5.2 million in FY 2014.
Net income increased 197.2% from $1.5 million in FY 2013 to $4.4 million in FY 2014. The increase in operating income and net
income for FY 2014 compared to FY 2013 is due primarily to an impairment loss for ALY operations being recognized during FY
2013 in the amount of $2.01 million for long-lived assets related to eight underperforming Company-owned stores.
Revenues
($’s in thousands)
Factory sales
Retail sales
Royalty and marketing fees
Franchise fees
Total
Factory Sales
For the Year Ended
February 28,
2014
25,218.9 $
6,443.4
7,070.5
452.0
39,184.8 $
2013
24,651.5 $
5,492.6
5,876.9
294.2
36,315.2 $
$
$
$
Change
567.4
950.8
1,193.6
157.8
2,869.6
%
Change
2.3%
17.3%
20.3%
53.6%
7.9%
The increase in factory sales for FY 2014 compared to FY 2013 was primarily due to an increase in sales to international licensed
stores and an 8.9% increase in shipments of product to customers outside our network of franchised retail stores. These increases
were partially offset by a 0.1% decrease in same-store pounds purchased by franchise locations FY 2014 compared with FY 2013.
The increases were also partially offset by a 5.5% decrease in the average number of domestic Rocky Mountain Chocolate Factory
franchised stores in operation.
Retail Sales
The increase in retail sales was primarily due to changes in units in operation, resulting from the acquisition of a controlling
ownership in U-Swirl and the acquisition of CherryBerry and Yogli Mogli business assets, which included the acquisition of five
additional Company owned cafés. Additionally, same store sales at Company-owned stores and cafés decreased 0.7% during FY
2014, compared with FY 2013.
Royalties, Marketing Fees and Franchise Fees
The increase in royalties and marketing fees during FY 2014, compared with FY 2013, resulted from a 28.9% increase in domestic
franchise stores in operation during FY 2014 compared to FY 2013, primarily as a result of our acquisition of a controlling ownership
position in U-Swirl and accordingly, the U-Swirl franchise system. This increase was partially offset by a 5.5% decrease in the
number of domestic Rocky Mountain Chocolate Factory franchises in operation. The average number of domestic Rocky Mountain
Chocolate Factory franchise stores in operation decreased from 236 during FY 2013 to 223 during FY 2014. This decrease is the
result of domestic store closures exceeding domestic store openings. Franchise fee revenues increased primarily as a result of the
license fees associated with the license agreements for the development and franchising of Rocky Mountain Chocolate Factory
stores in South Korea and the Kingdom of Saudi Arabia. Same store sales at domestic Rocky Mountain Chocolate Factory locations
increased 1.2% during FY 2014, compared with FY 2013.
26
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
U-Swirl Café Sales, Royalties, Marketing Fees and Franchise Fees
During FY 2014, U-Swirl revenue totaled $5,528,600 compared with $506,000 of U-Swirl revenue consolidated within our results for
FY 2013. We began consolidation of U-Swirl results when we acquired a controlling ownership interest in January 2013.
Costs and Expenses
($’s in thousands)
Cost of sales – factory adjusted
Cost of sales – retail
Franchise costs
Sales and marketing
General and administrative
Retail operating
Total
Adjusted Gross Margin
($’s in thousands)
Factory adjusted gross margin
Retail
Total
Adjusted Gross Margin
(Percent)
Factory adjusted gross margin
Retail
Total
For the Year Ended
February 28,
$
2014
2013
Change
%
Change
$
$
17,303.1 $
2,310.3
2,062.5
2,153.8
5,003.3
3,303.5
32,136.5 $
16,803.9 $
2,151.2
2,080.1
1,939.0
3,846.9
3,371.7
30,192.8 $
499.2
159.1
(17.6)
214.8
1,156.4
(68.2)
1,943.7
3.0%
7.4%
(0.8%)
11.1%
30.1%
(2.0%)
6.4%
For the Year Ended
February 28,
2014
2013
$
Change
%
Change
$
$
7,915.8 $
4,133.1
12,048.9 $
7,847.6 $
3,341.4
11,189.0 $
68.2
791.7
859.9
0.9%
23.7%
7.7%
For the Year Ended
February 28,
2014
2013
%
Change
%
Change
31.4%
64.1%
38.1%
31.8%
60.8%
37.1%
(0.4%)
3.3%
1.0%
(1.3%)
5.4%
2.7%
Adjusted gross margin, a non-GAAP measure, is equal to the sum of our factory adjusted gross margin plus our retail gross margin
calculated in accordance with GAAP. Factory adjusted gross margin is equal to factory gross margin minus depreciation and
amortization expense. We believe adjusted gross margin and factory adjusted gross margin are helpful in understanding our past
performance as a supplement to gross margin and other performance measures calculated in conformity with accounting principles
generally accepted in the United States ("GAAP"). We believe that adjusted gross margin and factory adjusted gross margin are
useful to investors because they provide a measure of operating performance and our ability to generate cash that is unaffected by
non-cash accounting measures. Additionally, we use adjusted gross margin and factory adjusted gross margin rather than gross
margin and factory gross margin to make incremental pricing decisions. Adjusted gross margin and factory adjusted gross margin
have limitations as an analytical tool because they exclude the impact of depreciation and amortization expense and you should not
consider them 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 and factory adjusted gross margin as measures of performance only in conjunction with GAAP measures of
performance such as gross margin and factory gross margin. The following table provides a reconciliation of factory adjusted gross
margin to factory gross margin, the most comparable performance measure under GAAP:
($’s in thousands)
Factory adjusted gross margin
Less: Depreciation and Amortization
Factory GAAP gross margin
Cost of Sales and Gross Margin
For the Year Ended
February 28,
2014
2013
$
$
7,915.8 $
292.9
7,622.9 $
7,847.6
286.6
7,561.0
Factory adjusted gross margin decreased 40 basis points during FY 2014 compared to FY 2013 due to an increase in the average
selling price of products to domestic franchise units being more than offset by increases in the costs of certain materials. The
increase in Company-owned store margin is due primarily to an increase in U-Swirl stores in operation and associated higher
margins.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
27
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Franchise Costs
The decrease in franchise costs for FY 2014 compared to FY 2013 is due primarily to a decrease in franchise development costs
associated with Aspen Leaf Yogurt due to the sale of the Aspen Leaf Yogurt concept to U-Swirl in January 2013, partially offset by
increased franchise costs from the consolidation of U-Swirl As a percentage of total royalty and marketing fees and franchise fee
revenue, franchise costs decreased to 27.4% during FY 2014 from 33.7% during FY 2013. This decrease as a percentage of royalty,
marketing and franchise fees is primarily a result of a 21.9% increase in royalty, marketing and franchise fee revenue as a result of
an increase in system-wide franchise stores during FY 2014 compared to FY 2013.
Sales and Marketing
The increase in sales and marketing expense during FY 2014 compared to FY 2013 is due primarily to increased marketing-related
compensation costs and an increase in marketing costs associated with U-Swirl franchise locations.
General and Administrative
The increase in general and administrative costs during FY 2014 compared with FY 2013 is due primarily to the consolidation of U-
Swirl’s general and administrative costs and an increase in compensation related expenses. During FY 2014, approximately
$1,453,000 of U-Swirl general and administrative costs were consolidated within our results, compared with approximately $411,000
during FY 2013. As a percentage of total revenues, general and administrative expenses increased to 12.8% in FY 2014 compared to
10.6% in FY 2013.
Retail Operating Expenses
The decrease in retail operating expense was primarily due to a change in the mix of Company-owned stores in operation, resulting
from the acquisition of a controlling interest in U-Swirl in January 2013, the acquisition of CherryBerry in January 2014, the acquisition
of Yogli Mogli in January 2014, and the associated change in operating expenses during FY 2014 compared with FY 2013. The
average number of Company-owned stores in operation increased from 17 during FY 2013 to 19 units during FY 2014. Retail
operating expenses, as a percentage of retail sales, decreased from 61.4% during FY 2013 to 51.3% in FY 2014. This decrease is
primarily the result of a change in units in operation and the resulting increase in retail sales, resulting from the acquisition of a
controlling interest in U-Swirl in January 2013 and the acquisition of CherryBerry and Yogli Mogli in January 2014.
Depreciation and Amortization
Depreciation and amortization of $1,027,000 in FY 2014 increased 9.8% from the $935,000 incurred in FY 2013 due to an increase in
amortization related to increased franchise rights, trademark and intangible assets resulting from business acquisitions during FY
2014.
Interest Income
Interest income of approximately $85,000 realized in FY 2014 represents an increase of $41,000 from the $44,000 realized in FY
2013 due to higher balances of notes receivable.
Income Tax Expense
Our effective income tax rate in FY 2014 was 40.7% which is a decrease of 6.9% compared to an effective rate of 47.7% during FY
2013. As described further in Note 6 to the consolidated financial statements, the decrease in the effective tax rate is primarily due to
the tax consequences of acquiring a controlling interest in U-Swirl.
Investment Gain
An investment gain of $18,380 was recognized during FY 2014 compared with no amount recognized in FY 2013. This gain was
recognized as a result of us transferring 300,000 shares of U-Swirl common stock for services provided in conjunction with business
acquisitions during FY 2014. The gain represents the excess of the fair value of services, compared to our basis in the shares
transferred.
Liquidity and Capital Resources
As of February 28, 2015, working capital was $9.5 million compared with $9.0 million as of February 28, 2014. Working capital was
unchanged due primarily to our operating results less the payment of $2.7 million in cash dividends and the payment of $3.1 million to
repurchase common stock.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
28
Cash and cash equivalent balances increased from $5.9 million as of February 28, 2014 to $7.2 million as of February 28, 2015 as a
result of cash flows generated by operating activities being greater than cash flows used in financing and investing activities. The
Company’s current ratio was 2.1 to 1.0 at both February 28, 2015 and February 28, 2014. The Company monitors current and
anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements.
The Company has a $5 million credit line, of which $5 million was available (subject to certain borrowing base limitations) as of
February 28, 2015, secured by substantially all of the Company’s assets except retail store assets. Additionally, the line of credit is
subject to various financial ratio and leverage covenants. At February 28, 2015, the Company was in compliance with all such
covenants. The credit line is subject to renewal in July 2015.
The Company’s long-term debt is comprised of a promissory note used to finance business acquisitions of U-Swirl (unpaid balance as
of February 28, 2015, $6.3 million). The note allows the Company to borrow up to a maximum of $7.0 million to finance business
acquisitions and bears interest at a fixed annual rate of 3.75%. Additionally, the promissory note is subject to various financial ratio
and leverage covenants. As of February 28, 2015, we were in compliance with all such covenants.
The Company entered into the promissory note used to finance the acquisitions of U-Swirl and entered into a loan and security
agreement with U-Swirl. The loan and security agreement between the Company and U-Swirl is subject to various financial and
leverage covenants. U-Swirl was not compliant with the covenants at February 28, 2015. The loan covenants required U-Swirl to
maintain consolidated adjusted EBITDA of $1,804,000 for the year ended February 28, 2015. At February 28, 2015 U-Swirl had
reported $1,284,000 of adjusted EBITDA. In the event of default, we may charge interest on all amounts due under the loan
agreement with U-Swirl at the default rate of 15% per annum, accelerate payment of all amounts due under the Loan Agreement, and
foreclose on our security interest. At February 28, 2015 we believe that the conversion of the loan into preferred stock as settlement
of the obligation would result in 70% more preferred shares issued when compared to the amount issuable if U-Swirl was compliant
with the loan covenants.
The table below presents significant contractual obligations of the Company at February 28, 2015.
(Amounts in thousands)
Contractual Obligations
Total
Less than 1
year
Notes payable
Operating leases
Other long-term obligations
Total
6,292
3,859
645
10,796
1,209
1,141
374
2,724
2-3 Years
2,560
1,780
271
4,611
4-5 years
2,523
882
-
3,405
More Than 5
years
-
56
-
56
For FY 2016, the Company anticipates making capital expenditures of approximately $830,000, which will be used to maintain and
improve existing factory and administrative infrastructure and update certain Company-owned stores. The Company believes that
cash flow from operations will be sufficient to fund capital expenditures and working capital requirements for FY 2016. If necessary,
the Company has an available bank line of credit to help meet these requirements.
Off-Balance Sheet Arrangements
As of February 28, 2015, we had no off-balance sheet arrangements or obligations.
Impact of Inflation
Inflationary factors such as increases in the costs of ingredients and labor directly affect the Company's operations. Most of the
Company's leases provide for cost-of-living adjustments and require it to pay taxes, insurance and maintenance expenses, all of
which are subject to inflation. Additionally, the Company’s future lease cost for new facilities may include potentially escalating costs
of real estate and construction. There is no assurance that the Company will be able to pass on increased costs to its customers.
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 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.
Seasonality
The Company is subject to seasonal fluctuations in sales, which cause fluctuations in quarterly results of operations. Historically, the
strongest sales of the Company’s products have occurred during key holidays and the summer vacation season. In addition, quarterly
results have been, and in the future are likely to be, affected by the timing of new store openings and sales of franchises. Because of
the seasonality of the Company’s business and the impact of new store openings and sales of franchises, results for any quarter are
not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in commodity futures trading or hedging activities and does not enter into derivative financial
instrument transactions for trading or other speculative purposes. The Company also does not engage in transactions in foreign
currencies or in interest rate swap transactions that could expose the Company to market risk. However, the Company is exposed to
some commodity price and interest rate risks.
The Company frequently enters into purchase contracts of between six to eighteen 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. As of February
28, 2015, based on future contractual obligations for chocolate products, we estimate that a 10% increase or decrease in the prices
of contracted ingredients would result in a $80,000 favorable or unfavorable price benefit or cost resulting from our contracts.
The Company has a $5 million bank line of credit that bears interest at a variable rate. As of February 28, 2015, no amount was
outstanding under the line of credit. We do not believe that we are exposed to any material interest rate risk related to this credit
facility.
We have a $7.0 million promissory note with interest at a fixed rate of 3.75% annually. As of February 28, 2015, $6.3 million was
outstanding under the note. We do not believe that we are exposed to any material interest rate risk related to this promissory note.
30
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
31
Page
32
33
34
35
36
37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Rocky Mountain Chocolate Factory, Inc. and Subsidiaries
Durango, Colorado
We have audited the accompanying consolidated balance sheets of Rocky Mountain Chocolate Factory, Inc. and Subsidiaries (the
“Company”) as of February 28, 2015 and February 28, 2014, and the related consolidated statements of income, changes in
stockholders’ equity, and cash flows for each of the years in the three-year period ended February 28, 2015. Our audits also included
the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting (“Internal Control”). Our audits included consideration of Internal Control as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s Internal Control. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Rocky Mountain Chocolate Factory, Inc. and Subsidiaries as of February 28, 2015 and February 28, 2014, and the results of their
operations and their cash flows for each of the years in the three-year period ended February 28, 2015 in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
/s/ EKS&H LLLP
May 27, 2015
Denver, Colorado
32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 28,
2013
2014
2015
$
32,100,824 $
9,407,552
41,508,376
31,662,273 $
7,522,534
39,184,807
30,144,059
6,171,142
36,315,201
Revenues
Sales
Franchise and royalty fees
Total revenues
Costs and Expenses
Cost of sales, exclusive of depreciation and amortization expense of
$393,776, $292,914 and $286,541, respectively
Franchise costs
Sales & marketing
General and administrative
Retail operating
Depreciation and amortization
Loss on the sale of assets – Aspen Leaf Yogurt long-lived assets
Restructuring and acquisition related charges
20,215,833
2,264,138
2,474,027
4,831,903
3,509,584
1,440,448
-
807,476
19,613,411
2,062,548
2,153,766
5,003,337
3,303,436
1,026,775
-
786,013
18,955,136
2,080,128
1,939,006
3,846,940
3,371,702
935,377
2,011,917
635,168
Total costs and expenses
35,543,409
33,949,286
33,775,374
Operating Income
Other Income (Expense)
Interest expense
Interest income
Investment gain
Other, net
5,964,967
5,235,521
2,539,827
(243,188)
58,662
-
(184,526)
(49,333)
84,596
18,380
53,643
-
43,667
-
43,667
Income Before Income Taxes
5,780,441
5,289,164
2,583,494
Income Tax Expense
Consolidated Net Income
2,037,695
2,154,660
1,233,460
3,742,746
3,134,504
1,350,034
Less: Net loss attributable to non-controlling interest
(195,094)
(1,257,940)
(128,178)
Net Income attributable to RMCF
Basic Earnings per Common Share
Diluted Earnings per Common Share
$
$
$
3,937,840 $
4,392,444 $
1,478,212
0.64 $
0.61 $
0.72 $
0.68 $
0.24
0.24
Weighted Average Common Shares Outstanding
6,144,426
6,100,032
6,078,575
Dilutive Effect of Employee Stock Awards
Weighted Average Common Shares Outstanding, Assuming Dilution
268,913
6,413,339
336,879
6,436,911
140,426
6,219,001
The accompanying notes are an integral part of these consolidated financial statements.
33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 28,
2014
2015
Assets
Current Assets
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $696,798 and $543,683,
$
7,157,371 $
5,859,729
respectively*
Notes receivable, current portion, less current portion of the valuation allowance of $3,762
and $33,047, respectively
Refundable income taxes
Inventories, less reserve for slow moving inventory of $197,658 and $204,068, respectively
Deferred income taxes
Other
Total current assets
Property and Equipment, Net
Other Assets
Notes receivable, less current portion and allowance for doubtful accounts of $28,500 and
4,291,470
5,198,223
359,493
172,945
4,785,376
572,957
318,275
17,657,887
357,360
160,890
4,410,763
538,871
316,378
16,842,214
6,797,536
8,488,198
$24,200, respectively
Goodwill, net*
Franchise rights*
Intangible assets, net*
Other
Total other assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities
Current maturities of long term debt
Accounts payable
Accrued salaries and wages
Other accrued expenses
Dividend payable
Deferred income
Total current liabilities
Long-Term Debt, Less Current Maturities
Deferred Income Taxes
Commitments and Contingencies
Stockholders' Equity
668,302
2,977,473
5,439,460
440,428
157,127
9,682,790
509,784
3,063,473
5,613,248
468,183
167,939
9,822,627
$
34,138,213 $
35,153,039
$
1,208,888 $
1,675,746
819,184
2,910,777
721,536
951,241
8,287,372
108,023
1,971,530
776,567
2,627,872
675,422
1,798,781
7,958,195
5,083,479
1,029,507
6,291,977
1,050,489
Preferred stock, $.10 par value; 250,000 authorized; -0- shares issued and outstanding
Series A Junior Participating Preferred Stock, authorized 50,000 shares
Undesignated series, authorized 200,000 shares
Common stock, $.03 par value; 100,000,000 shares authorized; 6,012,799 and 6,140,200
shares issued and outstanding, respectively
Additional paid-in capital*
Retained earnings
Non-controlling interest in equity of subsidiary*
Total stockholders’ equity
-
-
-
-
180,384
7,163,092
11,524,708
869,671
19,737,855
184,206
8,921,723
10,344,794
401,655
19,852,378
Total liabilities and stockholders’ equity
$
34,138,213 $
35,153,039
* February 28, 2014 balances have been revised as discussed in Note 18 to the consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
34
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
Balance at beginning of year
Repurchase and retirement of common stock
Issuance of common stock
Exercise of stock options, vesting of restricted stock units and other
Balance at end of year
$
184,206 $
(7,383)
120
3,441
180,384
182,054 $
-
120
2,032
184,206
184,872
(4,899)
120
1,961
182,054
FOR THE YEARS ENDED FEBRUARY 28,
2013
2014
2015
Additional Paid-In Capital
Balance at beginning of year
Repurchase and retirement of common stock
Issuance of common stock
Exercise of stock options, vesting of restricted stock units and other
Transfers from non-controlling interest*
Tax benefit from employee stock transactions
Balance at end of year
Retained Earnings
Balance at beginning of year
Net income attributable to RMCF
Cash dividends declared
Balance at end of year
Non-controlling Interest in Equity of Subsidiary
Balance at beginning of year
Net loss
Non-controlling interest in acquired business
Contributions *
Balance at end of year
8,921,723
(3,120,241)
47,360
731,400
382,306
200,544
7,163,092
7,559,442
-
48,280
746,667
498,502
68,832
8,921,723
8,712,743
(1,710,453)
37,080
461,695
-
58,377
7,559,442
10,344,794
3,937,840
(2,757,926)
11,524,708
8,642,093
4,392,444
(2,689,743)
10,344,794
9,838,205
1,478,212
(2,674,324)
8,642,093
401,655
(195,094)
-
663,110
869,671
1,005,523
(1,257,940)
-
654,072
401,655
-
(128,178)
664,612
469,089
1,005,523
Total Stockholders’ Equity
$
19,737,855 $
19,852,378 $
17,389,112
Common Shares
Balance at beginning of year
Repurchase and retirement of common stock
Issuance of common stock
Exercise of stock options, vesting of restricted stock units and other
Balance at end of year
6,140,200
(246,106)
4,000
114,705
6,012,799
6,068,470
-
4,000
67,730
6,140,200
6,162,389
(163,300)
4,000
65,381
6,068,470
* February 28, 2014 balances have been revised as discussed in Note 18 to the consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Provision for loss on accounts and notes receivable
Provision for inventory loss
Asset impairment and store closure losses
(Gain) loss on sale of assets
Expense recorded for stock compensation
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Refundable income taxes
Inventories
Other assets
Accounts payable
Accrued liabilities
Deferred income
Net cash provided by operating activities
Cash Flows From Investing Activities:
Additions to notes receivable
Proceeds received on notes receivable
Proceeds from sale or distribution of assets
Acquisitions, net of cash acquired and franchise rights
Intangible assets
Increase in other assets
Purchase of property and equipment
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities:
Proceeds from long-term debt
Payments on long-term debt
Repurchase of common stock
Issuance of common stock
Proceeds from issuance of common stock in subsidiary
Tax benefit of stock option exercise
Dividends paid
Net cash provided by (used in) financing activities
FOR THE YEARS ENDED FEBRUARY 28,
2013
2014
2015
3,742,746
3,134,504
1,350,034
1,440,448
214,600
58,836
225,640
(46,857)
865,240
(55,068)
662,625
(12,055)
(202,333)
(16,087)
(451,080)
325,544
(880,684)
5,871,515
(179,569)
488,691
530,175
-
-
(2,395)
(626,744)
210,158
-
(107,633)
(3,127,624)
69,599
892,895
200,544
(2,711,812)
(4,784,031)
1,026,775
216,000
44,127
65,000
21,236
660,325
258,557
(1,408,048)
(160,890)
12,793
(63,958)
(439,014)
915,213
1,381,297
5,663,917
(784,098)
344,010
2,600
-
(5,677,034)
(582,752)
(2,518,317)
(9,215,591)
6,400,000
-
-
195,130
107,598
68,832
(2,681,853)
4,089,707
935,377
330,000
60,000
172,000
1,994,069
535,809
(1,144,622)
(235,345)
724,911
98,478
18,664
513,119
1,065,090
(58,516)
6,359,068
(285,191)
113,633
888,700
(1,688)
(800,000)
(137,616)
(742,871)
(965,033)
-
-
(1,715,352)
82,223
-
58,377
(2,623,031)
(4,197,783)
Net Increase (Decrease) In Cash And Cash Equivalents
1,297,642
538,033
1,196,252
Cash And Cash Equivalents At Beginning Of Year
5,859,729
5,321,696
4,125,444
Cash And Cash Equivalents At End Of Year
$
7,157,371 $
5,859,729 $
5,321,696
The accompanying notes are an integral part of these consolidated financial statements.
36
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ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The accompanying consolidated financial statements include the accounts of Rocky Mountain Chocolate Factory, Inc., its wholly-
owned subsidiary, Aspen Leaf Yogurt, LLC (“ALY”) and its 39%-owned subsidiary, U-Swirl, Inc. (“U-Swirl”) of which, Rocky Mountain
Chocolate Factory, Inc. has financial control (collectively, the “Company”). All intercompany balances and transactions have been
eliminated in consolidation.
The Company is an international franchisor, confectionery manufacturer and retail operator. Founded in 1981, the Company is
headquartered in Durango, Colorado and manufactures an extensive line of premium chocolate candies and other confectionery
products. U-Swirl franchises and operates soft-serve frozen yogurt stores. The Company also sells its candy in selected locations
outside of its system of retail stores and license the use of its brand with certain consumer products.
Effective March 1, 2015, the Company was reorganized to create a holding company structure. The operating subsidiary with the
same name , Rocky Mountain Chocolate Factory, Inc., a Colorado corporation (“RMCF”), which was previously the public company,
became a wholly-owned subsidiary of a newly formed entity, Rocky Mountain Chocolate Factory, Inc., a Delaware corporation
(“Newco”), and all of the outstanding shares of common stock of RMCF, par value $0.03 per share, was exchanged on a one-for-one
basis for shares of common stock, par value $0.001, of Newco. The new holding company began trading on March 2, 2015 on the
NASDAQ Global Market under the symbol “RMCF”, which was the same symbol used by RMCF prior to the holding company
reorganization.
In January 2013, through the Company’s wholly-owned subsidiaries, including Aspen Leaf Yogurt, LLC (“ALY”), the Company entered
into two agreements to sell all of the assets of its ALY frozen yogurt stores, along with its interest in the self-serve frozen yogurt
franchises and retail units branded as “Yogurtini” which the Company also acquired in January 2013, to U-Swirl, a publicly traded
company (OTCQB: SWRL), in exchange for a 60% controlling equity interest in U-Swirl. Upon completion of these transactions, the
Company ceased to directly operate any Company-owned ALY locations or sell and support frozen yogurt franchise locations, which
is now being supported by U-Swirl. As of February 28, 2015, the Company held a 39% interest in U-Swirl. Additionally, the Company
has the right to acquire approximately 26,271,000 shares of common stock of U-Swirl through the conversion of convertible debt owed
by U-Swirl to the Company. If the Company exercised this conversion right, the Company believes it would hold approximately 72%
of U-Swirl’s common stock. The U-Swirl Board of Directors is composed solely of Board members also serving the Rocky Mountain
Chocolate Factory, Inc. Board of Directors.
In fiscal year (“FY”) 2014, U-Swirl acquired the franchise rights of frozen yogurt stores branded as “Cherryberry”, “Yogli Mogli” and
“Fuzzy Peach” (see Note 18), and U-Swirl operates self-serve frozen yogurt cafes under the names “U-Swirl,” “Yogurtini,”
“CherryBerry,” “Josie’s Frozen Yogurt,” “Yogli Mogli Frozen Yogurt,” “Fuzzy Peach Frozen Yogurt,” and “Aspen Leaf Yogurt”.
The Company’s revenues are currently derived from three principal sources: sales to franchisees and others of chocolates and other
confectionery products manufactured by the Company; the collection of initial franchise fees and royalties from franchisees’ sales;
and sales at Company-owned stores of chocolates, frozen yogurt, and other confectionery products. The following table summarizes
the number of stores operating under the Rocky Mountain Chocolate Factory brand and its subsidiaries at February 28, 2015:
Rocky Mountain Chocolate Factory
Company-owned stores
Franchise stores – Domestic stores
Franchise stores – Domestic kiosks
International License Stores
Cold Stone Creamery – co-branded
U-Swirl Stores (Including all associated brands)
Company-owned stores
Company-owned stores – co-branded
Franchise stores – North American stores
Franchise stores – North American – co-branded
International License Stores
Total
Sold, Not Yet
Open
Open
Total
-
3
-
1
10
-
-
*
*
1
15
4
196
5
72
68
7
3
214
18
6
593
4
199
5
73
78
7
3
214
18
7
608
*U-Swirl cafés and the brands franchised by U-Swirl have historically utilized a development area sales model. The result is that many
areas are under development and the rights to open cafés within the development areas have been established, but there is no
assurance that any individual development area will result in a determinable number of café openings.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Consolidation
Management accounts for the activities of the Company and its subsidiaries, and the accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. As described above, on January 14, 2013, the Company acquired a
controlling interest in U-Swirl. Prior to January 14, 2013, the Company’s consolidated financial statements exclude the financial
information of U-Swirl. Beginning on January 14, 2013, the results of operations, assets and liabilities of U-Swirl have been included
in these consolidated financial statements.
Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of six months or less to be cash equivalents.
The Company classifies certain instruments with a maturity of between three and six months to be cash equivalents because these
instruments allow for early termination with minimal penalty and are readily convertible to known amounts of cash. As of February 28,
2015 and February 28, 2014, the Company held a Certificate of Deposit with an original maturity date of six-months totaling $108,000
and classified this amount as a cash equivalent. The Company continually monitors its positions with, and the credit quality of, the
financial institutions with which it invests. As of the balance sheet date, and periodically throughout the year, the Company has
maintained balances in various operating accounts in excess of federally insured limits. This amount was approximately $6.5 million
at February 28, 2015.
Accounts and Notes Receivable
In the normal course of business, we extend credit to customers, primarily franchisees that satisfy pre-defined credit criteria. The
Company believes that it has limited concentration of credit risk primarily because its receivables are secured by the assets of the
franchisees to which the Company ordinarily extends credit, including, but not limited to, their franchise rights and inventories. An
allowance for doubtful accounts is determined through analysis of the aging of accounts receivable, assessments of collectability
based on historical trends, and an evaluation of the impact of current and projected economic conditions. The process by which the
Company performs its analysis is conducted on a customer by customer, or franchisee by franchisee, basis and takes into account,
among other relevant factors, sales history, outstanding receivables, customer financial strength, as well as customer specific and
geographic market factors relevant to projected performance. The Company monitors the collectability of its accounts receivable on
an ongoing basis by assessing the credit worthiness of its customers and evaluating the impact of reasonably likely changes in
economic conditions that may impact credit risks. Estimates with regard to the collectability of accounts receivable are reasonably
likely to change in the future. At February 28, 2015, the Company has $1,060,057 of notes receivable outstanding and an allowance
for doubtful accounts of $32,262 associated with these notes. The notes require monthly payments and bear interest rates ranging
from 4.5% to 8%. The notes mature through July, 2019 and approximately $954,000 of notes receivable are secured by the assets
financed.
Inventories
Inventories are stated at the lower of cost or market. An inventory reserve is established to reduce the cost of obsolete, damaged and
excess inventories to the lower of cost or market based on actual differences. This inventory reserve is determined through analysis of
items held in inventory, and, if the recorded value is higher than the market value, the Company records an expense to reduce
inventory to its actual market value. The process by which the Company performs its analysis is conducted on an item by item basis
and takes into account, among other relevant factors, market value, sales history and future sales potential. Cost is determined using
the first-in, first-out method.
Property and Equipment and Other Assets
Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method based
upon the estimated useful life of the asset, which range from five to thirty-nine years. Leasehold improvements are amortized on the
straight-line method over the lives of the respective leases or the service lives of the improvements, whichever is shorter.
The Company reviews its long-lived assets through analysis of estimated fair value, including identifiable intangible assets, whenever
events or changes indicate the carrying amount of such assets may not be recoverable. The Company’s policy is to review the
recoverability of all assets, at a minimum, on an annual basis.
Income Taxes
We provide 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 bases 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. Due to historical losses, we established a full valuation allowance on our deferred tax assets. The Company's
temporary differences are listed in Note 6.
Gift card breakage
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company and our franchisees sell gift cards that are redeemable for product in our stores. The Company manages the gift card
program, and therefore collects all funds from the activation of gift cards and reimburses franchisees for the redemption of gift cards in
their stores. A liability for unredeemed gift cards is included in accounts payable and accrued liabilities in the balance sheets.
38
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
There are no expiration dates on our gift cards, and we do not charge any service fees. While our franchisees continue to honor all
gift cards presented for payment, we may determine the likelihood of redemption to be remote for certain cards due to long periods of
inactivity. The Company is in the process of accumulating sufficient historical redemption patterns to calculate breakage estimates
related to unredeemed gift cards. This breakage rate is based on a percentage of sales when the likelihood of the redemption of the
gift card becomes remote. Gift card breakage will be recognized over the same performance period, and in the same proportion, that
the Company’s data has demonstrated that gift cards are redeemed. As the Company is in the process of accumulating sufficient
historical redemption patterns to calculate breakage estimates, the Company did not recognize gift card breakage during the year
ended February 28, 2015 or 2014. Accrued gift card liability was $2,611,774 and $2,091,074 at February 28, 2015 and 2014,
respectively, and is included in accounts payable and accrued liabilities.
Goodwill
Goodwill arose from three transaction types. The first type was the result of the incorporation of the Company after its inception as a
partnership. The goodwill recorded was the excess of the purchase price of the Company over the fair value of its assets. The
Company has allocated this goodwill equally between its Franchising and Manufacturing operations. The second type was the
purchase of various retail stores, either individually or as a group, for which the purchase price was in excess of the fair value of the
assets acquired. Finally, goodwill arose from business acquisitions, where the fair value of the consideration given for acquisition
exceeded the fair value of the identified assets net of liabilities.
The Company performs a goodwill impairment test on an annual basis or more frequently when events or circumstances indicate that
the carrying value of a reporting unit more likely than not exceeds its fair value. Recoverability of goodwill is evaluated through
comparison of the fair value of each of our reporting units with its carrying value. To the extent that a reporting unit’s carrying value
exceeds the implied fair value of its goodwill, an impairment loss is recognized. The Company performed impairment testing with no
impact to its financial results for the years ended February 28, 2015 and 2014. See note 18 for additional discussion of goodwill and
intangible assets.
Franchise Rights
Franchise rights arose from the entry into agreements to acquire substantially all of the franchise rights of Yogurtini, CherryBerry,
Fuzzy Peach and Yogli Mogli (see Note 18). Franchise rights are amortized over a period of 20 years.
Insurance and Self-Insurance Reserves
The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers’
compensation, general liability, property insurance, director and officers’ liability insurance, vehicle liability and employee health care
benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims
experience, demographic factors, severity factors and other assumptions. While the Company believes that its assumptions are
appropriate, the estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these
assumptions and historical trends.
Business Combinations
The Company accounts for business combinations using the acquisition method. Under the acquisition method, the purchase price of
the acquisition is allocated to the underlying tangible and intangible assets acquired based on their respective fair values. Fair values
are derived from various observable and unobservable inputs and assumptions. The Company utilizes third-party valuation specialists
to assist in the allocation. Initial purchase price allocations are preliminary and are subject to revision within the measurement period,
not to exceed one year from the date of acquisition. The costs of the business acquisitions are expensed as incurred. These costs
may include fees for accounting, legal, professional consulting and valuation specialists.
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the
acquisition date, including our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-
acquisition contingencies and contingent consideration, where applicable. Although we believe the assumptions and estimates we
have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the
management of the acquired companies and are inherently uncertain. Moreover, unanticipated events and circumstances may occur
that may affect the accuracy or validity of such assumptions, estimates or actual results.
Sales
Sales of products to franchisees and other customers are recognized at the time of delivery. Sales of products to franchisees and
other customers are made at standard prices, without any bargain sales of equipment or supplies. Sales of products at retail stores
are recognized at the time of sale.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
39
Rebates
Rebates received from purveyors that supply products to our franchisees are included in franchise royalties and fees. Product rebates
are recognized in the period in which they are earned. Rebates related to company-owned locations are offset against operating
costs.
Shipping Fees
Shipping fees charged to customers by the Company’s trucking department are reported as sales. Shipping costs incurred by the
Company for inventory are reported as cost of sales or inventory.
Franchise and Royalty Fees
Franchise fee revenue is recognized upon opening of the franchise store. In addition to the initial franchise fee, the Company also
recognizes a marketing and promotion fee of one percent (1%) of franchised stores’ gross retail sales and a royalty fee based on
gross retail sales. Beginning with Rocky Mountain Chocolate Factory franchise store openings in the third quarter of FY 2004, the
Company modified its royalty structure. Under the current structure, the Company recognizes no royalty on franchised stores’ retail
sales of products purchased from the Company and recognizes a ten percent (10%) royalty on all other sales of product sold at
franchise locations. For franchise stores opened prior to the third quarter of FY 2004 the Company recognizes a royalty fee of five
percent (5%) of franchised stores’ gross retail sales. Royalty fees for U-Swirl cafés are based on the rate defined in the acquired
contracts for the franchise rights and range from 2.5% to 6% of gross retail sales.
In certain instances we are required to pay a portion of franchise fee revenue, or royalty fees to parties we’ve contracted with to assist
in developing and growing a brand. The agreements generally include Development Agents, or commissioned brokers who are paid a
portion of the initial franchise fee, a portion of the ongoing royalty fees, or both. When such agreements exist, we report franchise fee
and royalty fee revenues net of the amount paid, or due, to the agent/broker.
Use of Estimates
In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, the
disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, and revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Vulnerability Due to Certain Concentrations
Revenue from one customer of the Company’s Manufacturing segment represented approximately $5.2 million or 13% of the
Company’s revenues during the year ended February 28, 2015. The Company’s future results may be adversely impacted by a
change in the purchases of this customer.
Stock-Based Compensation
At February 28, 2015, the Company had stock-based compensation plans, which currently consists solely of the Company’s 2007
Equity Incentive plan, for employees and non-employee directors which authorized the granting of stock awards.
The Company recognized $865,240, $660,325, and $418,633 related equity-based compensation expense during the years ended
February 28, 2015, 2014 and 2013, respectively. Compensation costs related to share-based compensation are generally amortized
over the vesting period.
Tax benefits in excess of the compensation cost recognized for stock options are reported as financing cash flows in the
accompanying Statements of Cash Flows. The excess tax benefit included in net cash provided by financing activities for the years
ended February 28, 2015, 2014 and 2013 was $200,544, $68,832 and $58,377, respectively.
During FY 2015, the Company granted no restricted stock units. During FY 2014, the Company granted 280,900 restricted stock
units with a grant date fair value of $3,437,950. There were no stock options granted to employees during FY 2015 or FY 2014. The
restricted stock unit grants generally vest 17-20% annually over a period of five to six years. The Company recognized $740,261 of
consolidated stock-based compensation expense related to these grants during FY 2015 compared with $572,948 in FY 2014. Total
unrecognized stock-based compensation expense of non-vested, non-forfeited shares granted, as of February 28, 2015 was
$2,467,019, which is expected to be recognized over the weighted average period of 4 years.
During FY 2015, the Company issued 4,000 fully-vested, unrestricted shares to non-employee directors compared with 4,000 fully-
vested, unrestricted shares of stock to non-employee directors in FY 2014. In connection with these non-employee director stock
issuances, the Company recognized $47,480 and $48,400 of stock-based compensation expense during FY 2015 and FY 2014,
respectively.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
40
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Earnings per Share
Basic earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding during
each year. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through stock
options and restricted stock units. During FY 2015, FY 2014 and FY 2013, 12,936, 12,936, and 101,661, respectively, of stock options
were excluded from diluted shares as their effect was anti-dilutive.
Advertising and Promotional Expenses
The Company expenses advertising costs as incurred. Total advertising expense for RMCF amounted to $244,946, $250,739, and
$233,731 for the fiscal years ended February 28, 2015, 2014 and 2013, respectively. Total advertising expense for U-Swirl and its
brands amounted to $399,414, $134,192, and $192,088 for the fiscal years ended February 28, 2015, 2014 and 2013, respectively.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, trade receivables, payables, and notes receivable. The
fair value of all instruments approximates the carrying value, because of the relatively short maturity of these instruments.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2015-03, Simplifying the
Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs be presented in the balance
sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and
measurement guidance for debt issuance costs would not be affected by the amendments in ASU 2015-03. ASU 2015-03 will be
effective for fiscal years beginning after December 15, 2015. We are currently evaluating the impact that the adoption of ASU 2015-03
may have on our consolidated financial statements or disclosures.
In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition
requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in
exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company is currently
evaluating the new standard.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements—Going Concern.” This guidance requires
management to evaluate whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a
going concern. If such conditions or events exist, disclosures are required that enable users of the financial statements to understand
the nature of the conditions or events, management's evaluation of the circumstances and management's plans to mitigate the
conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. We will be required to
perform an annual assessment of our ability to continue as a going concern when this standard becomes effective for us in the first
quarter of our fiscal year ended February 28, 2017. The adoption of this guidance is not expected to impact our financial position,
results, operations or cash flows.
Reclassifications
Certain amounts previously presented for prior periods have been reclassified to conform to the current presentation. The
reclassifications had no effect on net income, working capital or equity previously reported.
NOTE 2 - INVENTORIES
Inventories consist of the following at February 28:
Ingredients and supplies
Finished candy
U-Swirl food and packaging
Reserve for slow moving inventory
Total inventories
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2015
2014
$
$
2,755,232 $
2,130,133
97,669
(197,658)
4,785,376 $
2,531,413
1,965,199
118,219
(204,068)
4,410,763
41
NOTE 3 - PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following at February 28:
Land
Building
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Transportation equipment
Capital work in progress
Asset impairment
Less accumulated depreciation
Property and equipment, net
NOTE 4 - LINE OF CREDIT AND LONG-TERM DEBT
Line of Credit
$
2015
513,618 $
4,774,825
10,120,865
1,224,433
2,056,244
427,727
-
(290,640)
18,827,072
2014
513,618
4,775,466
9,518,832
1,324,846
2,489,782
394,508
967,937
-
19,984,989
12,029,536
6,797,536 $
11,496,791
8,488,198
$
At February 28, 2015, the Company had a $5 million line of credit from Wells Fargo Bank, N.A., collateralized by substantially all of
the Company’s assets with the exception of the Company’s retail store assets. Draws may be made under the line at 75% of eligible
accounts receivable plus 50% of eligible inventories. Interest on borrowings is at prime (3.25% at February 28, 2015). At February 28,
2015, $5 million was available for borrowings under the line of credit, subject to borrowing base limitations. Terms of the line require
that the line be rested (that is, that there be no outstanding balance) for a period of 30 consecutive days during the term of the loan.
Additionally, the line of credit is subject to various financial ratio and leverage covenants. At February 28, 2015, the Company was in
compliance with all such covenants. The credit line is subject to renewal in July 2015 and we believe it is likely to be renewed on
terms similar to current terms.
Effective January 16, 2014, the Company entered into a business loan agreement with Wells Fargo Bank, N.A. (the “Wells Fargo
Loan Agreement”) for a $7.0 million line of credit to be used to loan money to U-Swirl to fund the purchase price of business
acquisitions by U-Swirl (the “Wells Fargo Loan”). The Company made its first draw of approximately $6.4 million on the Wells Fargo
Loan on January 16, 2014 and the first draw was the amount outstanding at February 28, 2014. Interest on the Wells Fargo Loan is at
a fixed rate of 3.75% and the maturity date is January 15, 2020. The Wells Fargo Loan may be prepaid without penalty at any time by
the Company. The Wells Fargo Loan is collateralized by substantially all of the Company’s assets, including the loan agreement
between RMCF and U-Swirl to finance U-Swirl’s acquisitions. Additionally, the Wells Fargo Loan is subject to various financial ratio
and leverage covenants. The Wells Fargo Loan Agreement also contains customary representations and warranties, covenants and
acceleration provisions in the event of a default by the Company.
Long-term debt consists of the following at February 28:
Note payable in monthly installments of principal and interest at 3.75% per
annum through December 2019 collateralized by substantially all business
assets.
Less current maturities
Long-term obligations
$
$
2015
2014
6,292,367 $
1,208,888
5,083,479 $
6,400,000
108,023
6,291,977
The following is a schedule by year of maturities of long-term debt for the years ending February 28 or 29:
2016
2017
2018
2019
2020
Total
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Operating Leases
$
$
1,208,900
1,255,700
1,304,200
1,354,700
1,168,867
6,292,367
The Company conducts its retail operations in facilities leased under five to ten-year non-cancelable operating leases. Certain leases
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
contain renewal options for between five and ten additional years at increased monthly rentals. The majority of the leases provide for
contingent rentals based on sales in excess of predetermined base levels.
42
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following is a schedule by year of future minimum rental payments required under such leases for the years ending February 28
or 29:
2016
2017
2018
2019
2020
Thereafter
Total
$
$
995,000
753,000
677,000
617,000
293,000
56,000
3,391,000
We act as primary lessee of some franchised store premises, which we then sublease to franchisees, but the majority of existing
locations are leased by the franchisee directly. Our current policy is not to act as primary lessee on any further franchised locations,
except in rare instances. At March 31, 2015, we were the primary lessee at 10 of our 433 franchised stores.
In some instances the Company has leased space for its Company-owned locations that are now occupied by franchisees, or
majority owned subsidiaries. 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's liability as primary lessee on sublet
franchise outlets, all of which is offset by sublease rentals, is as follows for the years ending February 28 or 29:
2016
2017
2018
Total
$
$
479,000
211,000
79,000
769,000
The following is a schedule of lease expense for all retail operating leases for the three years ended February 28:
Minimum rentals
Less sublease rentals
Contingent rentals
2015
2014
2013
$
$
1,282,363 $
(468,000)
22,200
836,563 $
1,658,710 $
(686,000)
22,626
995,336 $
862,866
(157,000)
20,399
726,265
In FY 2013, the Company renewed an operating lease for warehouse space in the immediate vicinity of its manufacturing operation.
The following is a schedule, by year, of future minimum rental payments required under such lease for the years ending February 28
or 29:
2016
2017
2018
Total
$
$
116,000
121,000
30,000
267,000
The Company also leases trucking equipment under operating leases. The following is a schedule by year of future minimum rental
payments required under such leases for the years ending February 28 or 29:
2016
2017
2018
2019
Total
$
172,100
172,100
123,600
22,200
$
490,000
The following is a schedule of lease expense for trucking equipment operating leases for the three years ended February 28:
2015
2014
2013
185,703
199,894
201,081
Purchase contracts
The Company frequently enters into purchase contracts of between six to eighteen 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. Currently the
Company has contracted for approximately $798,000 of raw materials under such agreements.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
43
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Contingencies
The Company is party to various legal proceedings arising in the ordinary course of business. Management believes that the
resolution of these matters will not have a significant adverse effect on the Company’s financial position, results of operations or cash
flows.
U-Swirl, as part of the business acquisition of CherryBerry (see Note 18), agreed to issue 4,000,000 shares of U-Swirl common stock
as a component of the consideration paid for the business assets. The CherryBerry selling parties entered into a one-year lock-up
agreement with respect to the 4,000,000 shares of the Company’s common stock (the “CB Shares”) payable at the closing of the
CherryBerry Acquisition. The CB Shares payable gave the selling parties voting rights and rights to dividends as of the acquisition
date and were therefore included in the calculation of net loss per common share. The CB Shares were issued to the selling parties in
February 2015. Following expiration of the lock-up period, if any of the CherryBerry selling parties desire to sell their CB Shares, they
must first offer such shares to the Company and then to RMCF, at a price equal to the average of the market prices at the time of
sale. If the proceeds from the sale of any of the CB Shares is less than $0.50 per share and the CherryBerry selling parties comply
with other terms of the agreement, the Company has agreed to pay a shortfall payment.
NOTE 6 - INCOME TAXES
Income tax expense is comprised of the following for the years ended February 28:
Current
Federal
State
Total Current
Deferred
Federal
State
Total Deferred
Total
2015
2014
2013
1,846,365 $
246,398
2,092,763
1,668,259 $
227,904
1,896,163
2,090,996
287,026
2,378,022
(50,603)
(4,465)
(55,068)
2,037,695 $
237,538
20,959
258,497
2,154,660 $
(1,107,287)
(37,275)
(1,144,562)
1,233,460
$
$
A reconciliation of the statutory federal income tax rate and the effective rate as a percentage of pretax income is as follows for the
years ended February 28:
Statutory rate
State income taxes, net of federal benefit
Domestic production deduction
Other
Acquisition related expenses
U-Swirl loss carryforward recognized
Valuation allowance, U-Swirl Consolidated loss
Effective Rate
2015
2014
2013
34.0%
2.8%
(1.6%)
0.1%
-
(3.0%)
3.0%
35.3%
34.0%
3.1%
(2.4%)
0.1%
-
-
5.9%
40.7%
34.0%
4.8%
(3.2%)
1.5%
6.4%
-
4.2%
47.7%
The decrease in the effective tax rate for the year ended February 28, 2015, compared to the prior year, is primarily due to the tax
consequences of a controlling interest in U-Swirl, and the associated increase in the effective rate for the years ended February 28,
2014 and 2013. In FY 2014 we did not realize a tax benefit from the U-Swirl taxable loss causing our effective rate to increase for the
year. During FY 2015 the taxable loss at U-Swirl was lower, resulting in a decrease to our effective rate. The acquisition of our
interest in U-Swirl resulted in non-deductible acquisition related expenses of approximately $268,000 for the fiscal year ended
February 28, 2013. The Company also recognized a gain of $222,000 during the year ended February 28, 2013 for purposes of
income tax reporting, the result of the transfer of ALY franchise rights to U-Swirl. U-Swirl and RMCF will continue to file separate
income tax returns for each entity. U-Swirl has a history of net losses and does not expect to realize the tax benefit of those losses.
The consolidation of U-Swirl net loss into the results of RMCF did not reduce the taxable income for RMCF in the current or prior
years.
44
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The components of deferred income taxes at February 28 are as follows:
Deferred Tax Assets
2015
2014
Allowance for doubtful accounts and notes
Inventories
Accrued compensation
Loss provisions and deferred income
Self-insurance accrual
Amortization, design costs
Restructuring charges
U-Swirl accumulated net loss
Valuation allowance, U-Swirl accumulated net loss
Net deferred tax assets
Deferred Tax Liabilities
Depreciation and amortization
Prepaid expenses
Net deferred tax liability
Current deferred tax assets
Non-current deferred tax liabilities
Net deferred tax liability
$
$
$
$
248,067 $
73,133
216,469
129,446
21,543
36,688
148,494
349,010
(349,010)
873,840
219,108
75,505
210,290
143,877
27,240
54,312
1,850
689,590
(689,590)
732,182
(1,234,110)
(96,280)
(1,330,390) $
572,957 $
(1,029,507)
(456,550) $
(1,133,467)
(110,333)
(1,243,800)
538,871
(1,050,489)
(511,618)
The Company files income tax returns in the U.S. federal and various state taxing jurisdictions. With few exceptions, the Company is
no longer subject to U.S. federal and state tax examinations in its major tax jurisdictions for periods before FY 2010.
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.
Management believes that it is more likely than not that RMCF will realize the benefits of its deferred tax assets as of February 28,
2015.
The Company accounts for uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The Company measures the tax benefits recognized in the consolidated financial statements from such a position based on
the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law
is inherently complex. As such, the Company is required to make judgments regarding income tax exposures. Interpretations of and
guidance surrounding income tax law and regulations change over time and may result in changes to the Company's judgments
which can materially affect amounts recognized in the balance sheets and statements of operations. The result of the assessment of
the Company's tax positions did not have an impact on the consolidated financial statements for the years ended February 28, 2015
or 2014. 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 and are immaterial for years ended
February 28, 2015 and 2014.
As of February 28, 2015, U-Swirl was not consolidated with us for purposes of filing federal income tax. U-Swirl files a separate
federal tax return and has its own federal loss carry forward. As of February 28, 2015, U-Swirl had recorded a full valuation allowance
related to the realization of its deferred income tax assets.
In accordance with Section 382 of the Internal Revenue Code, deductibility of U-Swirl’s U.S. net operating loss carryovers may be
subject to annual limitation in the event of a change in control. We have performed a preliminary evaluation as to whether a change in
control has taken place, and have concluded that there was a change of control with respect to the net operating losses of U-Swirl
when the Company acquired its controlling ownership interest in January 2013.
We estimate that the potential future tax deductions of U-Swirl accumulated net operating losses, limited by section 382, to be
approximately $970,000 with a resulting deferred tax asset of approximately $350,000. We have recorded a valuation allowance for
this amount to reflect the likelihood of realization of this deferred tax asset.
45
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 7 – STOCKHOLDERS’ EQUITY
Cash Dividend
The Company paid a quarterly cash dividend of $0.11 per common share on June 14, 2013, September 13, 2013, December 13,
2013 and March 14, 2014 to shareholders of record on June 4, 2013, September 3, 2013, November 29, 2013 and February 28,
2014, respectively. The Company paid a quarterly cash dividend of $0.11 per common share on June 13, 2014, September 12, 2014
and December 12, 2014 to shareholders of record on June 3, 2014, September 2, 2014 and November 28, 2014. The Company paid
a quarterly cash dividend of $0.12 per common share on March 13, 2015 to shareholders of record on February 27, 2015.
Future declarations of dividends will depend on, among other things, the Company's results of operations, financial condition, capital
requirements, and on such other factors as the Company's Board of Directors may in its discretion consider relevant and in the best
long term interest of the shareholders.
Stock Repurchases
On July 15, 2014, the Company announced a plan to purchase up to $3.0 million of its common stock in the open market or in private
transactions, whenever deemed appropriate by management. On January 13, 2015, the Company announced a plan to purchase up
to an additional $2,058,000 of its common stock under the repurchase plan. Between July 15, 2014 and July 31, 2014, the Company
repurchased 55,000 shares under the plan at an average price of $12.58 per share. Between September 26, 2014 and November 28,
2014, the Company repurchased 99,511 shares under the plan at an average price of $12.19 per share. Between December 1, 2014
and February 9, 2015, the Company repurchased 91,595 shares under the plan at an average price of $13.35 per share. As of
February 28, 2015, approximately $1,930,000 remains available under the plan for further stock repurchases.
NOTE 8 - STOCK COMPENSATION PLANS
In FY 2014, shareholders approved an amendment of the 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan allows awards
of stock options, stock appreciation rights, stock awards, restricted stock and stock units, performance shares and performance units,
and other stock- or cash-based awards. As of February 28, 2015, 500,140 restricted stock units, 12,936 stock options and 28,000
unrestricted shares have been awarded under the 2007 Plan and 315,653 shares of common stock are available for award under the
2007 Plan consisting of 300,000 shares originally authorized, 85,340 previously reserved for issuance under earlier plans, 300,000
shares authorized upon amendment and 171,389 shares forfeited under the 2007 Plan and suspended plans, less shares awarded
under the 2007 Plan.
Options granted may not have a term exceeding ten years under the 2007 Plan. Options representing the right to purchase 12,936
shares of the Company’s common stock were outstanding under the 2007 Plan, at February 28, 2015.
Information with respect to stock option awards outstanding under the 2007 Plan at February 28, 2015, and changes for the three
years then ended was as follows:
Twelve Months Ended
February 28:
2014
2015
2013
Outstanding stock options at beginning of year:
Granted
Exercised
Cancelled/forfeited
Outstanding stock options as of February 28 or 29:
155,880
-
(142,944)
-
12,936
270,945
-
(26,340)
(88,725)
155,880
Weighted average exercise price
Weighted average remaining contractual term (in years)
$
12.94 $
1.04
8.01 $
0.45
307,088
-
(21,191)
(14,952)
270,945
11.17
1.94
Information with respect to restricted stock unit awards outstanding under the 2007 Plan at February 28, 2015, and changes for the
three years then ended was as follows:
Outstanding non-vested restricted stock units at beginning of year:
Granted
Vested
Cancelled/forfeited
Outstanding non-vested restricted stock units as of February 28 or 29:
Twelve Months Ended
February 28:
2014
2015
295,040
-
(56,199)
(1,200)
237,641
57,030
280,900
(41,390)
(1,500)
295,040
2013
101,980
-
(44,190)
(760)
57,030
Weighted average grant date fair value
$
12.13 $
12.09 $
9.22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Weighted average remaining vesting period (in years)
4.08
4.99
1.14
46
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Additional information about stock options outstanding at February 28, 2015 is summarized as follows:
Exercise price
$14.695
NOTE 9 - OPERATING SEGMENTS
Options Outstanding
Weighted
average
remaining
contractual life
in years
Weighted
average
exercise price
Number
exercisable
12,936
1.04 $
14.70
The Company classifies its business interests into five reportable segments: Rocky Mountain Chocolate Factory, Inc. Franchising,
Manufacturing, Retail Stores, U-Swirl operations and Other. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies in Note 1 to these consolidated financial statements. The Company
evaluates performance and allocates resources based on operating contribution, 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 merchandising, distribution, and marketing functions, as well as 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:
FY 2015
Total revenues
Intersegment revenues
Revenue from external customers
Segment profit (loss)
Total assets
Capital expenditures
Total depreciation & amortization
U-Swirl
(342)
Franchising Manufacturing Retail
$ 5,976,964 $ 27,459,828 $ 2,134,976 $ 7,501,943 $
-
7,501,943
(245,546)
1,157,674 12,424,801
61,053
813,172
(1,564,993)
5,976,622 25,894,835
6,993,693
2,783,734
1,193,407 12,155,004
378,060
395,864
-
2,134,976
(51,803)
41,361
35,531
28,806
41,228
Other
Total
- $ 43,073,711
-
(1,565,335)
- 41,508,376
5,780,441
(3,699,637)
7,207,327 34,138,213
626,744
1,440,448
117,464
154,653
FY 2014
Total revenues
Intersegment revenues
Revenue from external customers
Segment profit (loss)
Total assets*
Capital expenditures
Total depreciation & amortization
* February 28, 2014 balances have been revised as discussed in Note 18 to the consolidated financial statements.
Franchising Manufacturing
$ 6,045,675 $ 27,101,515 $ 2,391,627 $ 5,528,649 $
-
5,528,649
(806,891)
1,278,862 13,245,175
1,295,105
487,073
(1,882,659)
6,045,675 25,218,856
7,189,181
2,798,934
1,223,605 11,966,991
931,102
294,986
-
2,391,627
(192,966)
- $ 41,067,466
-
(1,882,659)
- 39,184,807
5,289,164
(3,699,094)
7,438,406 35,153,039
2,518,317
1,026,775
144,955
145,588
98,115
62,039
49,040
37,089
U-Swirl
Retail
Other
Total
-
FY 2013
Total revenues
Intersegment revenues
Revenue from external customers
Segment profit (loss)
Total assets
Capital expenditures
Total depreciation & amortization
-
Retail
Franchising Manufacturing
$ 6,047,039 $ 26,451,612 $ 5,395,805 $
-
5,395,805
(2,251,581)
1,305,006
290,330
383,550
(2,085,211)
6,047,039 24,366,401
6,853,360
2,494,868
1,302,094 10,510,745
277,675
290,076
25,985
39,029
U-Swirl
Other
Total
505,956 $
-
505,956
(320,446)
3,446,319
2,719
70,146
- $ 38,400,412
-
(2,085,211)
- 36,315,201
2,583,494
(4,192,707)
7,269,781 23,833,945
742,871
935,378
146,162
152,577
During FY 2013, the information reported in our “U-Swirl” segment includes data from January 14, 2013 through February 28, 2013,
the period that was consolidated within our financial results.
47
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Revenue from one customer of the Company’s Manufacturing segment represents approximately $5.2 million of the Company’s
revenues from external customers during the year ended February 28, 2015.
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
For the three years ended February 28:
Cash paid (received) for:
Income taxes paid
Interest
Accrued Inventory
Non-Cash Financing Activities:
Dividend payable
Non-Cash Investing Activities:
$
2015
2014
2013
1,896,274 $
193,022
245,183
2,417,238 $
20,000
246,647
1,173,717
-
260,441
721,536
675,422
667,532
Sale or distribution of assets in exchange for notes receivable
Acquired interest in U-Swirl
Accrued capital expenditures
$
414,353
-
- $
-
-
175,000 $
-
800,000
-
NOTE 11 - EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan called the Rocky Mountain Chocolate Factory, Inc. 401(k) Plan. Eligible participants are permitted to
make contributions up to statutory limits. The Company makes a matching contribution, which vests ratably over a 3-year period, and
is 25% of the employee’s contribution up to a maximum of 1.5% of the employee’s compensation. During the years ended February
28, 2015, 2014 and 2013, the Company’s contribution was approximately $60,000, $60,000, and $50,000, respectively, to the plan.
NOTE 12 – SUMMARIZED QUARTERLY DATA (UNAUDITED)
Following is a summary of the quarterly results of operations for the fiscal years ended February 28, 2015 and 2014:
Fiscal Quarter
First
Second
Third
Fourth
Total
2015
Total revenue
Gross margin before depreciation
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
2014
Total revenue
Gross margin before depreciation
Net income
Basic earnings per share
Dilute earnings per share
$ 10,322,206 $ 9,457,448 $ 10,561,562 $ 11,167,160 $ 41,508,376
3,005,248 11,884,991
3,937,840
1,386,772
0.64
0.23
0.61
0.22
3,017,580
711,334
0.12
0.11
2,806,058
877,356
0.14
0.14
3,056,105
962,378
0.16
0.15
Fiscal Quarter
First
Second
Third
Fourth
Total
$ 10,177,862 $ 8,663,161 $ 9,279,994 $ 11,063,790 $ 39,184,807
3,172,433 12,048,862
4,392,444
1,486,179
0.72
0.24
0.68
0.23
3,151,525
1,179,307
0.19
0.19
2,985,223
1,027,784
0.17
0.16
2,739,681
699,174
0.11
0.11
48
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 13 – GOODWILL AND INTANGIBLE ASSETS
Intangible assets consist of the following at February 28:
Intangible assets subject to amortization
Store design
Packaging licenses
Packaging design
Trademark/Non-competition agreements*
Franchise Rights*
Total
Intangible assets not subject to amortization
Franchising segment-
Company stores goodwill
Franchising goodwill*
Manufacturing segment-Goodwill
Trademark-indefinite life
Total
2015
2014
Amortization
Period (in
years)
Gross
Carrying
Value
Accumulated
Amortization
Gross
Carrying
Value
Accumulated
Amortization
10 $
3-5
10
5-20
20
220,778 $
120,830
430,973
459,340
5,850,290
7,082,211
208,152 $
120,830
430,973
31,538
410,830
1,202,323
220,778 $
120,830
430,973
459,340
5,704,034
6,935,955
1,122,328
2,202,529
295,000
20,000
3,639,857
267,020
197,682
197,682
-
662,384
1,208,328
2,202,529
295,000
20,000
3,725,857
206,652
120,830
430,973
5,283
90,786
854,524
267,020
197,682
197,682
-
662,384
Total intangible assets
$ 10,722,068 $ 1,864,707 $ 10,661,812 $ 1,516,908
* February 28, 2014 balances have been revised as discussed in Note 18 to the consolidated financial statements.
Effective March 1, 2002, under ASC Topic 350, all goodwill with indefinite lives is no longer subject to amortization. Accumulated
amortization related to intangible assets not subject to amortization is a result of amortization expense related to indefinite life
goodwill incurred prior to March 1, 2002.
Amortization expense related to intangible assets totaled $361,723, $97,578, and $8,316 during the fiscal years ended February 28,
2015, 2014 and 2013, respectively.
At February 28, 2015, annual amortization of intangible assets, based upon our existing intangible assets and current useful lives, is
estimated to be the following:
2016
2017
2018
2019
2020
Thereafter
Total
$
$
369,864
401,872
417,972
424,402
411,245
3,854,533
5,879,888
NOTE 14 – RESTRUCTURING AND ACQUISITION RELATED CHARGES
On January 17, 2014, U-Swirl entered into an Asset Purchase Agreement with CherryBerry, which was the franchisor of self-serve
frozen yogurt retail stores branded as “CherryBerry.” Pursuant to the CherryBerry Purchase Agreement, U-Swirl purchased certain
assets of CherryBerry used in its business of franchising frozen yogurt stores, including all of its franchise rights and one company-
owned store. U-Swirl also entered into an Asset Purchase Agreement with Yogli Mogli, which was the franchisor of self-serve frozen
yogurt retail stores branded as “Yogli Mogli”. Pursuant to the Yogli Mogli Purchase Agreement, U-Swirl purchased certain assets of
Yogli Mogli used in its business of franchising frozen yogurt stores, including all of its franchise rights and four company-owned
stores. On February 20, 2014, U-Swirl entered into an Asset Purchase Agreement to acquire the business assets of Fuzzy Peach
Franchising, LLC. The acquisition of all intellectual property and worldwide franchise and license rights includes the rights associated
with 17 Fuzzy Peach Frozen Yogurt stores. Associated with these transactions, the Company recorded net restructuring charges of
$124,551 and $786,013 during the years ended February 28, 2015 and 2014, respectively.
49
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
On September 4, 2014, Ulderico Conte, Henry E. Cartwright and Terry A. Cartwright resigned as directors of U-Swirl. In addition,
Messrs. Conte, H. Cartwright and T. Cartwright resigned as officers of U-Swirl. Also on September 4, 2014, the U-Swirl Board of
Directors appointed Bryan J. Merryman as the Chairman of the Board, replacing Franklin E. Crail. Mr. Merryman currently serves as
the Chief Operating Officer and Chief Financial Officer of the Company.
In connection with these management changes, U-Swirl announced an operational restructuring designed to enhance U-Swirl’s
operating efficiencies, improve its franchise support capabilities, and rationalize its cost structure. This restructuring resulted in
expense associated with termination of the employment agreements with the named officers, severance payments for other
employees and expense associated with the impairment of certain long-lived leasehold improvement, property and equipment. The
Company recorded restructuring charges of $503,526 during year ended February 28, 2015 associated with this operational
restructuring.
As described in Note 1 above, effective March 1, 2015, the Company was reorganized to create a holding company structure
pursuant to the Agreement and Plan of Merger, dated as of November 10, 2014, among Rocky Mountain Chocolate Factory, Inc., a
Colorado corporation, Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, and RKB Merger Corp. In connection with
the holding company reorganization, the Company recorded restructuring fees of $179,399 during the year ended February 28, 2015.
Restructuring and acquisition charges incurred at February 28, 2015 and 2014 were comprised of the following:
Professional fees
Severance/transitional compensation
Leasehold improvements, property and equipment impairment of
long-lived assets
Provision for termination of contractual obligations
Acceleration of restricted stock unit vesting
Other
$
2015
2014
284,275 $
212,027
243,000
-
65,049
3,125
763,168
-
-
22,845
-
-
Total
$
807,476 $
786,013
NOTE 15 – RELATED PARTY TRANSACTIONS
Our President and Chief Executive Officer has members of his immediate family with ownership interests in retail marketing
businesses. These businesses have, on occasion, provided services to the Company and may provide services in the future. For the
year ended February 28, 2015, the Company paid $15,300 and no amount was recorded to accounts payable that related to these
businesses. Transactions with these businesses have been immaterial to our results of operations.
During the year ended February 28, 2015 we entered into stock purchase agreements with each of (i) Franklin Crail, the Company’s
Chief Executive Officer, President and Chairman of the Board, (ii) Bryan Merryman, the Company’s Chief Operating Officer, Chief
Financial Officer, Treasurer and a director, and (iii) Edward Dudley, the Company’s Senior Vice President - Sales and Marketing,
pursuant to which the Company purchased an aggregate of 80,000 shares of the Company’s common stock from Messrs. Crail,
Merryman and Dudley (the “Stock Purchase Agreements”) at an average price of $12.32 per share. The price the Company paid for
the shares was at a 3% discount to the closing price of the Company’s common stock on the transaction date.
NOTE 16 – SUBSEQUENT EVENTS
On May 21, 2015, the Company announced that its Board of Directors has authorized the repurchase of up to $3.0 million of the
Company’s outstanding common stock in the open market, or in private transactions, whenever deemed appropriate by management.
The Company also announced that its Board of Directors has declared a first quarter FY2016 cash dividend of $0.12 per common
share outstanding. The cash dividend will be payable June 12, 2015 to shareholders of record at the close of business June 2, 2015.
50
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 17 – NET INCOME AND TRANSFERS (TO) FROM NON-CONTROLLING INTEREST
The effect of changes in the Company’s ownership interest in U-Swirl was comprised of the following at February 28, 2015 and 2014:
Net Income (loss) attributable to RMCF shareholders
Transfers from non-controlling interest
U-Swirl expense recorded for equity based compensation
U-Swirl common stock issued, at fair value, for business
acquisitions*
U-Swirl, Inc common stock issued upon the exercise of
stock options and warrants
Change to ownership interest resulting from stock
issuances
Net transfers from non-controlling interest
Changes from net loss and transfers from non-controlling interest $
2015
2014
(117,140)
(868,543)
61,008
62,000
-
750,036
357,158
34,189
(35,860)
382,306
265,166 $
(347,723)
498,502
(370,041)
* February 28, 2014 balances have been revised as discussed in Note 18 to the consolidated financial statements.
NOTE 18– ACQUISITION OF CHERRYBERRY, YOGLI MOGLI AND FUZZY PEACH
On January 17, 2014, U-Swirl entered into an Asset Purchase Agreement with CherryBerry and its affiliates (the “Cherryberry
Purchase Agreement”), which was the franchisor of self-serve frozen yogurt cafés branded as “CherryBerry.” Pursuant to the
CherryBerry Purchase Agreement, U-Swirl purchased certain assets of CherryBerry used in its business of franchising frozen yogurt
cafés, including all of its franchise rights and one company-owned café. The assets were acquired for approximately $4.25 million in
cash and 4 million shares of U-Swirl common stock.
On January 17, 2014, U-Swirl also entered into an Asset Purchase Agreement with Yogli Mogli LLC and its affiliates (the “Yogli Mogli
Purchase Agreement”), which was the franchisor of self-serve frozen yogurt cafés branded as “Yogli Mogli.” Pursuant to the Yogli
Mogli Purchase Agreement, U-Swirl purchased certain assets of Yogli Mogli used in its business of franchising frozen yogurt cafés,
including all of its franchise rights and four company-owned cafés. The assets were acquired for approximately $2.15 million in cash
and $200,000 in shares of U-Swirl common stock. During the year ended February 28, 2015, U-Swirl assumed a net liability of
$149,529 for an un-funded gift card liability related to Yogli-Mogli franchise operations. The Company has withheld the issuance of
$200,000 in shares of U-Swirl common stock as a result of its realization of this unfunded liability. Management believes that is it
unlikely that the common stock issuance contemplated by the Yogli Mogli Purchase Agreement is issued, or that the gift card liability
is funded. These facts have caused Management to revise the valuation of the Yogli Mogli purchase as reflected within this note to
the consolidated financial statements.
On February 20, 2014, U-Swirl entered into an Asset Purchase Agreement to acquire the business assets of Fuzzy Peach
Franchising, LLC. The acquisition of all intellectual property and worldwide franchise and license rights includes the rights associated
with 17 Fuzzy Peach Frozen Yogurt stores. U-Swirl purchased the Fuzzy Peach Franchising, LLC assets for $481,000 in cash paid at
the time of closing, plus an earn-out that could increase the purchase price by up to another $349,000 based upon royalty income
generated by Fuzzy Peach stores over the next twelve months. During the year ended February 28, 2015, we recorded a liability of
$146,257 associated with this earn-out.
A preliminary purchase price allocation was completed at February 28, 2014 and a final measurement period was completed during
the quarter ended February 28, 2015 when the fair value of consideration paid and contingent consideration were finalized. The
foregoing resulted in a retrospective reallocation of these values reported at February 28, 2014. This reallocation did not result in any
changes to operating results for FY 2014 because the adjustment to amortization resulting from the retrospective reallocation was
immaterial. The final consideration value was allocated to assets acquired and liabilities assumed and a portion of the total purchase
consideration was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective
fair values at the acquisition date. Prior year amounts were revised to reflect these changes as of the date of the acquisition, resulting
in reductions to Trademarks, Franchise rights, Non-competition agreements and Goodwill as of February 28, 2014.
51
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following tables summarize the adjustments that were made to the preliminary purchase price allocation for the Yogli Mogli and
CherryBerry acquisitions.
Yogli Mogli
Café Store Assets
Trademarks
Franchise agreements
Non-Competition agreements
Goodwill
CherryBerry
Café store assets
Café store goodwill
Trademarks
Franchise rights
Non-compete agreements
Goodwill
Preliminary
Adjustment
Final
1,003,000 $
156,000
1,201,000
6,000
54,500
2,420,500 $
- $
(14,000)
(78,000)
-
29,029
(62,971) $
1,003,000
142,000
1,123,000
6,000
83,529
2,357,529
Preliminary
Adjustment
Final
238,000 $
23,000
405,000
3,615,000
23,000
3,006,000
7,310,000 $
- $
-
(118,000)
(798,000)
(2,000)
(1,182,000)
(2,100,000) $
238,000
23,000
287,000
2,817,000
21,000
1,824,000
5,210,000
$
$
$
$
The purchase price allocation, including the fair value consideration paid, contingent consideration, the assets acquired and liabilities
assumed and allocated a portion of the total purchase consideration to tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values at the acquisition date. The excess of the total purchase consideration over
the aggregate estimated fair values was recorded as goodwill. Goodwill represents the synergies that the Company believes will arise
from the acquisition transactions. All of the goodwill generated in this acquisition is deductible for tax purposes. The following table
summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed:
Assets acquired – Transaction date
Assets acquired – Earn out
Lease liabilities assumed
Gift card liabilities assumed
Fuzzy Peach
CherryBerry Yogli Mogli
$
5,210,000 $
-
-
-
2,357,529 $
-
(58,000)
(149,529)
481,497 $
146,257
-
-
Total
8,049,026
146,257
(58,000)
(149,529)
Total purchase price
$
5,210,000 $
2,150,000 $
627,754 $
7,987,754
Included in the purchase price allocation is an amount related to the fair value of the U-Swirl common stock issued as consideration
for the acquisitions. The fair value of the securities was based on Financial Accounting Standard Board’s Accounting Standards
Codification (“ASC”) 820-10-35-2, Fair Value Measurements and Disclosures as “the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
The assets acquired were made up of the following during the year ended February 28, 2015:
Café store assets
Café store goodwill
Trademarks
Franchise rights
Non-competition agreements
Goodwill
Fuzzy Peach
CherryBerry Yogli Mogli
$
238,000 $
23,000
287,000
2,817,000
21,000
1,824,000
1,003,000 $
-
142,000
1,123,000
6,000
83,529
- $
-
-
627,754
-
-
Total
1,241,000
23,000
429,000
4,567,754
27,000
1,907,529
Total assets acquired
$
5,210,000 $
2,357,529 $
627,754 $
8,195,283
52
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The consideration for the purchase price was made up the following assets during the year ended February 28, 2015:
Common stock – U-Swirl
Cash
CherryBerry Yogli Mogli
$
960,000 $
4,250,000
Fuzzy Peach
- $
2,150,000
- $
627,754
Total
960,000
7,027,754
Total consideration paid
$
5,210,000 $
2,150,000 $
627,754 $
7,987,754
As a part of these acquisitions, the Company recognized $124,551 and $786,475 as acquisition related costs in the line item
“Restructuring and acquisition related charges” on the Statements of Income for the years ended February 28, 2015 and February 28,
2014, respectively. The fair value of U-Swirl common stock was $0.24 and was determined by fair value measurement as defined by
ASC 820-10-35-2. Fair Value Measurements and Disclosure is “the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.” The valuation was performed on a minority,
marketable basis. The Company performed this valuation because it did not believe that the quoted market price was indicative of fair
value. Primarily the Company believed that the quoted market price did not accurately represent the present value of future cash
flows associated with the acquisitions, or the dilutive effect of stock and convertible debt issued to fund these acquisitions.
53
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures and Changes in Internal Control Over Financial Reporting
Limitations on Controls and Procedures — Because of their inherent limitations, disclosure controls and procedures and internal
control over financial reporting (collectively, “Control Systems”) may not prevent or detect all failures or misstatements of the type
sought to be avoided by Control Systems. Also, projections of any evaluation of the effectiveness of the Company’s Control Systems
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. Management, including the Company’s Chief Executive Officer (the
“CEO”) and Chief Financial Officer (the “CFO”), does not expect that the Company’s Control Systems will prevent all errors or all
fraud. A Control System, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the Control System are met. Further, the design of a Control System must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all Control
Systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company
have been detected. These reports by management, including the CEO and CFO, on the effectiveness of the Company’s Control
Systems express only reasonable assurance of the conclusions reached.
Disclosure Controls and Procedures — The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (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 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, are 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 by an
issuer in the reports that it files or submits under the Act is accumulated and communicated to our management, including our
principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Management, with the participation of the CEO and CFO, has evaluated the effectiveness, as of February 28, 2015, of the Company’s
disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure
controls and procedures were effective as of February 28, 2015.
Management’s Annual Report on Internal Control over Financial Reporting — Management is responsible for establishing and
maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act).
The Company’s internal control over financial reporting is a process designed under supervision of the Company’s principal executive
officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and preparation of
the Company’s consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Management, with the participation of the CEO and CFO, has evaluated the effectiveness, as of February 28, 2015, of the Company’s
internal control over financial reporting. In making this evaluation, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in its publication Internal Control-Integrated Framework (2013). Based on
that evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of February
28, 2015.
Changes in Internal Control over Financial Reporting —There were no changes in the Company’s internal control over financial
reporting that occurred during the quarter ended February 28, 2015 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
54
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III.
Certain information with respect to the executive officers of the Company is set forth in the section entitled "Executive Officers" in Part
I of this Annual Report.
The information required by this item is incorporated herein by reference from our Definitive Proxy Statement for our 2015 Annual
Meeting of Shareholders, to be filed no later than 120 days after February 28, 2015.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference from our Definitive Proxy Statement for our 2015 Annual
Meeting of Shareholders, to be filed no later than 120 days after February 28, 2015.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Except for the information below, the information required by this item is incorporated herein by reference from our Definitive Proxy
Statement for our 2015 Annual Meeting of Shareholders, to be filed no later than 120 days after February 28, 2015.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information with respect to the Company’s equity compensation plans as of February 28, 2015, which
consists solely of the Company’s 2007 Equity Incentive Plan.
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted-
average exercise
price of
outstanding
options, warrants
and rights
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in first
column) (1)
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
250,577 $
-0-
250,577 $
14.70
-0-
14.70
315,653
-0-
315,653
.
(1) Represents shares remaining available under the Company’s 2007 Equity Incentive Plan. Shares available for future issuances
under the 2007 Equity Incentive Plan may be issued in the form of stock options, stock appreciation rights, restricted stock and stock
units, performance shares and performance units, and other stock- and cash-based awards.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference from our Definitive Proxy Statement for our 2015 Annual
Meeting of Shareholders, to be filed no later than 120 days after February 28, 2015.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated herein by reference from our Definitive Proxy Statement for our 2015 Annual
Meeting of Shareholders, to be filed no later than 120 days after February 28, 2015.
55
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
SCHEDULE II - Valuation and Qualifying Accounts
Page
32
33
34
35
36
37
Year Ended February 28, 2015
Valuation Allowance for Accounts and Notes Receivable
Year Ended February 28, 2014
Valuation Allowance for Accounts and Notes Receivable
Year Ended February 28, 2013
Valuation Allowance for Accounts and Notes Receivable
Balance at
Beginning of
Period
Additions
Charged to
Costs & Exp. Deductions
Balance at
End of Period
600,930
214,600
86,470
729,060
595,588
216,000
210,658
600,930
584,151
330,000
318,563
595,588
56
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3. Exhibits
Exhibit Number
2.1#
2.2#
Description
Incorporated by Reference to
Asset Purchase Agreement, dated January 14,
2013, among Ulysses Asset Acquisition, LLC,
YHI Inc. and Yogurtini International, LLC
Exhibit 99.1 to the Current Report on Form 8-K filed
January 14, 2013 (File No. 000-14749)
Asset Purchase Agreement, dated January 14,
2013, between U-Swirl, Inc. and Aspen Leaf
Yogurt, LLC
Exhibit 99.2 to the Current Report on Form 8-K filed
January 14, 2013 (File No. 000-14749)
2.3#
Membership Interest Purchase Agreement,
Exhibit 99.3 to the Current Report on Form 8-K filed
dated January 14, 2013, between U-Swirl, Inc.
and Rocky Mountain Chocolate Factory, a
Colorado corporation
January 14, 2013 (File No. 000-14749)
2.4
Agreement and Plan of Merger, dated
Exhibit 2.1 to the Registration Statement on Form S-4
November 10, 2014, among Rocky Mountain
Chocolate Factory, Inc., a Colorado
corporation, Rocky Mountain Chocolate
Factory, Inc., a Delaware corporation, and RKB
Merger Corp.
(File No. 333-200063) filed on November 10, 2014 (File
No. 333-200063)
3.1
3.2
3.3
4.1
Amended and Restated Certificate of
Exhibit 3.1 to the Current Report on Form 8-K filed on
Incorporation of Rocky Mountain Chocolate
Factory, Inc., a Delaware corporation
March 2, 2015
Certificate of Designations of Series A Junior
Exhibit 3.2 to the Current Report on Form 8-K filed on
Participating Preferred Stock, Par Value $0.001
Per Share, of Rocky Mountain Chocolate
Factory, Inc., a Delaware corporation
March 2, 2015
Amended and Restated Bylaws of Rocky
Exhibit 3.3 to the Current Report on Form 8-K filed on
Mountain Chocolate Factory, Inc., a Delaware
corporation
March 2, 2015
Rights Agreement, dated March 1, 2015,
Exhibit 4.1 to the Registration Statement on Form 8-A
between Rocky Mountain Chocolate Factory,
Inc., a Delaware corporation, and
Computershare Trust Company, N.A., as
Rights Agent
filed on March 2, 2015 (File No. 001-36865)
10.1**
Form of Employment Agreement (Officers)
Exhibit 10.1 to the Annual Report on Form 10-K for the
fiscal year ended February 28, 2007 (File No. 000-
14749)
10.2
Form of Franchise Agreement for Rocky
Mountain Chocolate Factory
Exhibit 10.1 to the Quarterly Report on Form 10-Q for
the quarter ended May 31, 2010 (File No. 000-14749)
10.3**
10.4**
2007 Equity Incentive Plan (As Amended and
Restated)
Exhibit 10.1 to the Current Report on Form 8-Kfiled on
August 9, 2013 (File No. 000-14749)
Form of Indemnification Agreement (Directors) Exhibit 10.7 to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended February 28, 2007
(File No. 000-14749)
10.5**
Form of Indemnification Agreement (Officers)
Exhibit 10.8 to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended February 28, 2007
(File No. 000-14749)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
57
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit Number
Description
Incorporated by Reference to
10.6*
10.7
10.8
10.9
10.10*
Master License Agreement, dated August 17,
2009, between Kahala Franchise Corp. and
Rocky Mountain Chocolate Factory, Inc., a
Colorado corporation
Exhibit 10.3 to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended August 31, 2009 (File
No. 000-14749)
Promissory Note, dated August 13, 2014 in the
amount of $5,000,000, between Wells Fargo
Bank and Rocky Mountain Chocolate Factory,
Inc., a Colorado corporation
Exhibit 10.1 to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended August 31, 2014 (File
No. 000-14749)
Business Loan Agreement, dated August 2,
2013, between Wells Fargo Bank and Rocky
Mountain Chocolate Factory, Inc., a Colorado
corporation
Exhibit 10.2 to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended August 31, 2013 (File
No. 000-14749)
Business Loan Agreement, dated December
27, 2013, between Wells Fargo Bank and
Rocky Mountain Chocolate Factory, Inc., a
Colorado corporation
Exhibit 99.3 to the Current Report on Form 8-K of the
Registrant filed on January 22, 2014 (File No. 000-
14749)
Master License Agreement, dated April 27,
2012, between RMCF Asia, Ltd. Rocky
Mountain Chocolate Factory, Inc., a Colorado
corporation
Exhibit 10.1 to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended May 31, 2012 (File No.
000-14749)
10.11
Voting Agreement, dated January 14, 2013,
Exhibit 99.4 to the Current Report on Form 8-K of the
10.12
10.13
10.14
10.15
10.16
10.17
among U-Swirl, Inc., Henry Cartwright, Ulderico
Conte, Terry Cartwright, Rocky Mountain
Chocolate Factory, Inc., a Colorado
corporation, and Aspen Leaf Yogurt, LLC
Investor Rights Agreement, dated January 14,
2013, between U-Swirl, Inc. and Rocky
Mountain Chocolate Factory, Inc., a Colorado
corporation
Registrant filed January 14, 2013 (File No. 000-14749)
Exhibit 99.5 to the Current Report on Form 8-K of the
Registrant filed January 14, 2013 (File No. 000-14749)
Investor Rights Agreement, dated January 14,
2013 between U-Swirl, Inc. and Aspen Leaf
Yogurt, LLC
Exhibit 99.6 to the Current Report on Form 8-K of the
Registrant filed January 14, 2013 (File No. 000-14749)
Loan and Security Agreement, dated January
16, 2014, between U-Swirl, Inc. and Rocky
Mountain Chocolate Factory, Inc., a Colorado
corporation
Exhibit 99.4 to the Current Report on Form 8-K of the
Registrant filed on January 22, 2014 (File No. 000-
14749)
Stock Purchase Agreement, dated July 16,
2014, between Rocky Mountain Chocolate
Factory, Inc., a Colorado corporation, and
Franklin E. Crail
Stock Purchase Agreement, dated July 16,
2014, between Rocky Mountain Chocolate
Factory, Inc., a Colorado corporation, and
Bryan J. Merryman
Stock Purchase Agreement, dated July 16,
2014, between Rocky Mountain Chocolate
Factory, Inc., a Colorado corporation, and
Edward L. Dudley
Exhibit 99.1 to the Current Report on Form 8-K filed on
July 21, 2014 (File No. 000-14749)
Exhibit 99.2 to the Current Report on Form 8-K filed on
July 21, 2014 (File No. 000-14749)
Exhibit 99.3 to the Current Report on Form 8-K filed on
July 21, 2014 (File No. 000-14749)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
58
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit Number
10.18
Description
Incorporated by Reference to
Stock Purchase Agreement, dated July 16,
2014, between Rocky Mountain Chocolate
Factory, Inc., a Colorado corporation, and
Franklin E. Crail
Exhibit 99.1 to the Current Report on Form 8-K filed on
October 28, 2014 (File No. 000-14749)
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of the Registrant
Filed herewith
Consent of Independent Registered Public
Filed herewith
Accounting Firm
Certification Pursuant To Section 302 of the
Filed herewith
Sarbanes-Oxley Act of 2002, Chief Executive
Officer
Certification Pursuant To Section 302 of the
Sarbanes-Oxley Act of 2002, Chief Financial
Officer
Filed herewith
Certification Pursuant To Section 906 Of The
Sarbanes-Oxley Act of 2002, Chief Executive
Officer
Furnished herewith
Certification Pursuant To Section 906 Of The
Sarbanes-Oxley Act of 2002, Chief Financial
Officer
Furnished herewith
101.INS
XBRL Instance Document
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema Document Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation
Filed herewith
Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Filed herewith
Document
101.LAB
XBRL Taxonomy Extension Label Linkbase
Filed herewith
Document
101.PRE
XBRL Taxonomy Extension Presentation
Filed herewith
Linkbase Document
* Contains material that has been omitted pursuant to a request for confidential treatment and such material has
been filed separately with the U.S. Securities and Exchange Commission.
** Management contract or compensatory plan
# Schedules and similar attachments have been omitted pursuant to Item 601(b) (2) of Regulation S-K under the
Securities Act of 1934, as amended. We hereby undertake to supplementally furnish copies of any omitted
schedules to the SEC upon request
59
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
SIGNATURES
Date: May 27, 2015
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
/S/ Bryan J. Merryman
BRYAN J. MERRYMAN
Chief Operating Officer, Chief
Financial Officer, Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Date: May 27, 2015
Date: May 27, 2015
Date: May 27, 2015
Date: May 27, 2015
Date: May 27, 2015
Date: May 27, 2015
/S/ Franklin E. Crai l
FRANKLIN E. CRAIL
Chairman of the Board of
Directors, President and Chief
Executive Officer
(Principal Executive Officer)
/S/ Bryan J. Merryman
BRYAN J. MERRYMAN
Chief Operating Officer, Chief
Financial Officer, Treasurer and
Director
(Principal Financial and
Accounting Officer)
/S/ Gerald A. Kien
GERALD A. KIEN, Director
/S/ Lee N. Mortenson
LEE N. MORTENSON, Director
/S/ Clyde Wm. Engle
CLYDE Wm. ENGLE, Director
/S/ Scott G. Capdevielle
SCOTT G. CAPDEVIELLE, Director
60
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit Number
EXHIBIT INDEX
2.1#
2.2#
Description
Incorporated by Reference to
Asset Purchase Agreement, dated January 14,
2013, among Ulysses Asset Acquisition, LLC,
YHI Inc. and Yogurtini International, LLC
Exhibit 99.1 to the Current Report on Form 8-K filed
January 14, 2013 (File No. 000-14749)
Asset Purchase Agreement, dated January 14,
2013, between U-Swirl, Inc. and Aspen Leaf
Yogurt, LLC
Exhibit 99.2 to the Current Report on Form 8-K filed
January 14, 2013 (File No. 000-14749)
2.3#
Membership Interest Purchase Agreement,
Exhibit 99.3 to the Current Report on Form 8-K filed
dated January 14, 2013, between U-Swirl, Inc.
and Rocky Mountain Chocolate Factory, a
Colorado corporation
January 14, 2013 (File No. 000-14749)
2.4
Agreement and Plan of Merger, dated
Exhibit 2.1 to the Registration Statement on Form S-4
November 10, 2014, among Rocky Mountain
Chocolate Factory, Inc., a Colorado
corporation, Rocky Mountain Chocolate
Factory, Inc., a Delaware corporation, and RKB
Merger Corp.
(File No. 333-200063) filed on November 10, 2014 (File
No. 333-200063)
3.1
3.2
3.3
4.1
Amended and Restated Certificate of
Exhibit 3.1 to the Current Report on Form 8-K filed on
Incorporation of Rocky Mountain Chocolate
Factory, Inc., a Delaware corporation
March 2, 2015
Certificate of Designations of Series A Junior
Exhibit 3.2 to the Current Report on Form 8-K filed on
Participating Preferred Stock, Par Value $0.001
Per Share, of Rocky Mountain Chocolate
Factory, Inc., a Delaware corporation
March 2, 2015
Amended and Restated Bylaws of Rocky
Exhibit 3.3 to the Current Report on Form 8-K filed on
Mountain Chocolate Factory, Inc., a Delaware
corporation
March 2, 2015
Rights Agreement, dated March 1, 2015,
Exhibit 4.1 to the Registration Statement on Form 8-A
between Rocky Mountain Chocolate Factory,
Inc., a Delaware corporation, and
Computershare Trust Company, N.A., as
Rights Agent
filed on March 2, 2015 (File No. 001-36865)
10.1**
Form of Employment Agreement (Officers)
Exhibit 10.1 to the Annual Report on Form 10-K for the
fiscal year ended February 28, 2007 (File No. 000-
14749)
10.2
Form of Franchise Agreement for Rocky
Mountain Chocolate Factory
Exhibit 10.1 to the Quarterly Report on Form 10-Q for
the quarter ended May 31, 2010 (File No. 000-14749)
10.3**
10.4**
2007 Equity Incentive Plan (As Amended and
Restated)
Exhibit 10.1 to the Current Report on Form 8-Kfiled on
August 9, 2013 (File No. 000-14749)
Form of Indemnification Agreement (Directors) Exhibit 10.7 to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended February 28, 2007
(File No. 000-14749)
10.5**
Form of Indemnification Agreement (Officers)
Exhibit 10.8 to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended February 28, 2007
(File No. 000-14749)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
61
Exhibit Number
10.6*
10.7
10.8
10.9
10.10*
Description
Incorporated by Reference to
Master License Agreement, dated August 17,
2009, between Kahala Franchise Corp. and
Rocky Mountain Chocolate Factory, Inc., a
Colorado corporation
Exhibit 10.3 to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended August 31, 2009 (File
No. 000-14749)
Promissory Note, dated August 13, 2014 in the
amount of $5,000,000, between Wells Fargo
Bank and Rocky Mountain Chocolate Factory,
Inc., a Colorado corporation
Exhibit 10.1 to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended August 31, 2014 (File
No. 000-14749)
Business Loan Agreement, dated August 2,
2013, between Wells Fargo Bank and Rocky
Mountain Chocolate Factory, Inc., a Colorado
corporation
Exhibit 10.2 to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended August 31, 2013 (File
No. 000-14749)
Business Loan Agreement, dated December
27, 2013, between Wells Fargo Bank and
Rocky Mountain Chocolate Factory, Inc., a
Colorado corporation
Exhibit 99.3 to the Current Report on Form 8-K of the
Registrant filed on January 22, 2014 (File No. 000-
14749)
Master License Agreement, dated April 27,
2012, between RMCF Asia, Ltd. Rocky
Mountain Chocolate Factory, Inc., a Colorado
corporation
Exhibit 10.1 to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended May 31, 2012 (File No.
000-14749)
10.11
Voting Agreement, dated January 14, 2013,
Exhibit 99.4 to the Current Report on Form 8-K of the
10.12
10.13
10.14
10.15
10.16
10.17
among U-Swirl, Inc., Henry Cartwright, Ulderico
Conte, Terry Cartwright, Rocky Mountain
Chocolate Factory, Inc., a Colorado
corporation, and Aspen Leaf Yogurt, LLC
Investor Rights Agreement, dated January 14,
2013, between U-Swirl, Inc. and Rocky
Mountain Chocolate Factory, Inc., a Colorado
corporation
Registrant filed January 14, 2013 (File No. 000-14749)
Exhibit 99.5 to the Current Report on Form 8-K of the
Registrant filed January 14, 2013 (File No. 000-14749)
Investor Rights Agreement, dated January 14,
2013 between U-Swirl, Inc. and Aspen Leaf
Yogurt, LLC
Exhibit 99.6 to the Current Report on Form 8-K of the
Registrant filed January 14, 2013 (File No. 000-14749)
Loan and Security Agreement, dated January
16, 2014, between U-Swirl, Inc. and Rocky
Mountain Chocolate Factory, Inc., a Colorado
corporation
Exhibit 99.4 to the Current Report on Form 8-K of the
Registrant filed on January 22, 2014 (File No. 000-
14749)
Stock Purchase Agreement, dated July 16,
2014, between Rocky Mountain Chocolate
Factory, Inc., a Colorado corporation, and
Franklin E. Crail
Stock Purchase Agreement, dated July 16,
2014, between Rocky Mountain Chocolate
Factory, Inc., a Colorado corporation, and
Bryan J. Merryman
Stock Purchase Agreement, dated July 16,
2014, between Rocky Mountain Chocolate
Factory, Inc., a Colorado corporation, and
Edward L. Dudley
Exhibit 99.1 to the Current Report on Form 8-K filed on
July 21, 2014 (File No. 000-14749)
Exhibit 99.2 to the Current Report on Form 8-K filed on
July 21, 2014 (File No. 000-14749)
Exhibit 99.3 to the Current Report on Form 8-K filed on
July 21, 2014 (File No. 000-14749)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
62
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit Number
10.18
Description
Incorporated by Reference to
Exhibit 99.1 to the Current Report on Form 8-K filed on
October 28, 2014 (File No. 000-14749)
Stock Purchase Agreement, dated July 16,
2014, between Rocky Mountain Chocolate
Factory, Inc., a Colorado corporation, and
Franklin E. Crail
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of the Registrant
Filed herewith
Consent of Independent Registered Public
Filed herewith
Accounting Firm
Certification Pursuant To Section 302 of the
Filed herewith
Sarbanes-Oxley Act of 2002, Chief Executive
Officer
Certification Pursuant To Section 302 of the
Sarbanes-Oxley Act of 2002, Chief Financial
Officer
Filed herewith
Certification Pursuant To Section 906 Of The
Sarbanes-Oxley Act of 2002, Chief Executive
Officer
Furnished herewith
Certification Pursuant To Section 906 Of The
Sarbanes-Oxley Act of 2002, Chief Financial
Officer
Furnished herewith
101.INS
XBRL Instance Document
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema Document Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation
Filed herewith
Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Filed herewith
Document
101.LAB
XBRL Taxonomy Extension Label Linkbase
Filed herewith
Document
101.PRE
XBRL Taxonomy Extension Presentation
Filed herewith
Linkbase Document
* Contains material that has been omitted pursuant to a request for confidential treatment and such material has
been filed separately with the U.S. Securities and Exchange Commission.
**Management contract or compensatory plan
# Schedules and similar attachments have been omitted pursuant to Item 601(b) (2) of Regulation S-K under the
Securities Act of 1934, as amended. We hereby undertake to supplementally furnish copies of any omitted
schedules to the SEC upon request
63
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 21.1
Subsidiary
Rocky Mountain Chocolate Factory, Inc.
Jurisdiction of Incorporation
Colorado
SUBSIDIARIES OF THE REGISTRANT
Aspen Leaf Yogurt, LLC
U-Swirl, Inc. (1)
U-Swirl International, Inc. (2)
Colorado
Nevada
Nevada
(1) As of February 28, 2015, Rocky Mountain Chocolate Factory, Inc. holds a 39% interest in U-Swirl, Inc.. Additionally,
Rocky Mountain Chocolate Factory, Inc. has the right to acquire approximately 26,271,000 shares of common stock of
U-Swirl, Inc. through the conversion of convertible debt owed by U-Swirl, Inc. to our company. If Rocky Mountain
Chocolate Factory, Inc. exercised this conversion right, it believes it would hold approximately 72% of U-Swirl, Inc.’s
common stock.
(2) U-Swirl International, Inc. is a wholly-owned subsidiary of U-Swirl, Inc.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated May 27, 2015 accompanying the consolidated financial statements and schedule in the Annual
Report on Form 10-K of Rocky Mountain Chocolate Factory, Inc. and Subsidiaries for the year ended February 28, 2015, and we
hereby consent to the incorporation by reference of such report in the Registration Statements of Rocky Mountain Chocolate Factory,
Inc. on Forms S-8 (File Nos. 333-145986 and 333-191729).
Exhibit 23.1
/s/ EKS&H LLLP
May 27, 2015
Denver, Colorado
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002, CHIEF EXECUTIVE OFFICER
I, Franklin E. Crail, certify that:
1. I have reviewed this Annual Report on Form 10-K of Rocky Mountain Chocolate Factory, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: May 27, 2015
/s/ Franklin E. Crail
Franklin E. Crail, President, Chief Executive Officer and Chairman of the
Board of Directors
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 , CHIEF FINANCIAL OFFICER
I, Bryan J. Merryman, certify that:
1. I have reviewed this Annual Report on Form 10-K of Rocky Mountain Chocolate Factory, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: May 27, 2015
/s/ Bryan J. Merryman
Bryan J. Merryman, Chief Operating Officer, Chief Financial Officer,
Treasurer and Director
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350), CHIEF EXECUTIVE OFFICER
Exhibit 32.1
In connection with the Annual Report of Rocky Mountain Chocolate Factory, Inc. (the "Company") on Form 10-K for the fiscal
year ended February 28, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned certifies pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: May 27, 2015
/s/ Franklin E. Crail
Franklin E. Crail, President, Chief Executive Officer and Chairman
of the Board of Directors
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350), CHIEF FINANCIAL OFFICER
Exhibit 32.2
In connection with the Annual Report of Rocky Mountain Chocolate Factory, Inc. (the "Company") on Form 10-K for the fiscal
year ended February 28, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned certifies pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: May 27, 2015
/s/ Bryan J. Merryman
Bryan J. Merryman, Chief Operating Officer, Chief Financial
Officer, Treasurer and Director
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.