10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to________

Commission file number: 001-36865

Rocky Mountain Chocolate Factory, Inc.

(Exact name of registrant as specified in its charter)

Delaware	47-1535633
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

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	Trading symbol	Name of each exchange on which registered
Common Stock, $0.001 par value per share	RMCF	Nasdaq Global Market
Preferred Stock Purchase Rights	RMCF	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On January 1, 2020, the registrant had outstanding 5,999,932 shares of its common stock, $0.001 par value per share.

1

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION 3

Item 1.	Financial Statements	3
CONSOLIDATED STATEMENTS OF OPERATIONS		3
CONSOLIDATED BALANCE SHEETS		4
CONSOLIDATED STATEMENTS OF CASH FLOWS		5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY		6
NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION 27

Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28

SIGNATURES 29

2

PART I.     FINANCIAL INFORMATION

Item 1.     Financial Statements

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended November 30,						Nine Months Ended November 30,
	2019			2018			2019			2018
Revenues
Sales	$	6,490,601		$	7,583,327		$	18,335,252		$	19,901,695
Franchise and royalty fees		1,422,651			1,366,420			5,389,269			5,214,225
Total Revenue		7,913,252			8,949,747			23,724,521			25,115,920
Costs and Expenses
Cost of sales		4,956,177			5,700,352			13,309,356			14,249,478
Franchise costs		428,236			463,056			1,352,887			1,539,104
Sales and marketing		434,989			519,176			1,426,422			1,672,638
General and administrative		1,529,271			860,916			3,504,453			2,588,751
Retail operating		445,899			446,058			1,364,105			1,507,386
Depreciation and amortization, exclusive of depreciation and amortization expense of $147,338, $139,971, $440,452 and $414,689, respectively, included in cost of sales		216,854			281,815			674,226			879,552
Costs associated with Company-owned store closures		-			-			-			176,981
Total costs and expenses		8,011,426			8,271,373			21,631,449			22,613,890
Income (Loss) from Operations		(98,174	)		678,374			2,093,072			2,502,030
Other Income (Expense)
Interest Expense		(2,890	)		(16,032	)		(18,775	)		(58,089	)
Interest Income		7,205			4,758			23,391			13,962
Other income (expense), net		4,315			(11,274	)		4,616			(44,127	)
Income (Loss) Before Income Taxes		(93,859	)		667,100			2,097,688			2,457,903
Income Tax Provision		(22,222	)		141,739			539,628			604,783
Consolidated Net Income (Loss)	$	(71,637	)	$	525,361		$	1,558,060		$	1,853,120
Basic Earnings (Loss) per Common Share	$	(0.01	)	$	0.09		$	0.26		$	0.31
Diluted Earnings (Loss) per Common Share	$	(0.01	)	$	0.09		$	0.25		$	0.31
Weighted Average Common Shares
Outstanding - Basic		5,994,955			5,948,660			5,978,270			5,925,725
Dilutive Effect of Employee
Stock Awards		-			34,170			271,667			57,165
Weighted Average Common Shares
Outstanding - Diluted		5,994,955			5,982,830			6,249,937			5,982,890

The accompanying notes are an integral part of these consolidated financial statements.

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ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	November 30,		February 28,
	2019		2019
	(unaudited)
Assets
Current Assets
Cash and cash equivalents	$	5,462,678	$	5,384,027
Accounts receivable, less allowance for doubtful accounts of $599,292 and $489,502, respectively		4,642,027		3,993,262
Notes receivable, current portion		158,825		110,162
Refundable income taxes		322,241		190,201
Inventories, less reserve for slow moving inventory of $355,078 and $371,147, respectively		3,680,730		4,270,357
Other		363,946		318,126
Total current assets		14,630,447		14,266,135
Property and Equipment, Net		6,040,845		5,786,139
Other Assets
Notes receivable, less current portion		328,503		281,669
Goodwill, net		1,046,944		1,046,944
Franchise rights, net		3,205,497		3,678,920
Intangible assets, net		442,128		498,337
Deferred income taxes		549,628		607,421
Lease right of use asset		2,877,280		-
Other		56,263		56,576
Total other assets		8,506,243		6,169,867
Total Assets	$	29,177,535	$	26,222,141
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long term debt	$	127,576	$	1,176,488
Accounts payable		2,115,998		897,074
Accrued salaries and wages		842,698		655,853
Gift card liabilities		645,054		742,289
Other accrued expenses		386,109		293,094
Dividend payable		719,400		714,939
Contract liabilities		199,454		256,094
Lease liability		601,508		-
Total current liabilities		5,637,797		4,735,831
Lease Liability, Less Current Portion		2,275,772		-
Contract Liabilities, Less Current Portion		967,802		1,096,478
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $.001 par value per share; 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, $.001 par value, 46,000,000 shares authorized, 5,994,997 shares and 5,957,827 shares issued and outstanding, respectively		5,995		5,958
Additional paid-in capital		7,154,037		6,650,864
Retained earnings		13,136,132		13,733,010
Total stockholders' equity		20,296,164		20,389,832
Total Liabilities and Stockholders' Equity	$	29,177,535	$	26,222,141

The accompanying notes are an integral part of these consolidated financial statements.

4

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended
	November 30,
	2019			2018
Cash Flows From Operating Activities
Net Income	$	1,558,060		$	1,853,120
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,114,678			1,294,241
Provision for obsolete inventory		307,836			85,207
Provision for loss on accounts and notes receivable		134,783			88,200
Asset impairment and store closure losses		-			67,822
Loss on sale or disposal of property and equipment		8,307			28,813
Expense recorded for stock compensation		503,210			383,655
Deferred income taxes		57,793			(94,328	)
Changes in operating assets and liabilities:
Accounts receivable		(982,237	)		(1,136,471	)
Refundable income taxes		(132,040	)		317,793
Inventories		294,361			(1,471,361	)
Other current assets		(45,820	)		(110,645	)
Accounts payable		1,206,354			407,012
Accrued liabilities		182,625			58,079
Contract liabilities		(175,918	)		(72,084	)
Net cash provided by operating activities		4,031,992			1,699,053
Cash Flows from Investing Activities
Proceeds received on notes receivable		109,342			73,880
Proceeds from sale or distribution of assets		763			13,498
Purchases of property and equipment		(864,370	)		(498,252	)
(Increase) decrease in other assets		313			(8,140	)
Net cash used in investing activities		(753,952	)		(419,014	)
Cash Flows from Financing Activities
Payments on long-term debt		(1,048,912	)		(1,009,940	)
Dividends paid		(2,150,477	)		(2,131,144	)
Net cash used in financing activities		(3,199,389	)		(3,141,084	)
Net Decrease in Cash and Cash Equivalents		78,651			(1,861,045	)
Cash and Cash Equivalents, Beginning of Period		5,384,027			6,072,984
Cash and Cash Equivalents, End of Period	$	5,462,678		$	4,211,939

The accompanying notes are an integral part of these consolidated financial statements.

5

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

					Additional
	Common Stock				Paid-in			Retained
	Shares		Amount		Capital			Earnings			Total
Balance as of August 31, 2018		5,948,660	$	5,949	$	6,411,829		$	14,250,749		$	20,668,527
Net income									525,361			525,361
Issuance of common stock, vesting of restricted stock units and other												-
Share-based compensation expense						102,927						102,927
Common stock dividends									(713,839	)		(713,839	)
Balance as of November 30, 2018		5,948,660	$	5,949	$	6,514,756		$	14,062,271		$	20,582,976
Balance as of February 28, 2018		5,903,436	$	5,903	$	6,131,147		$	13,419,553		$	19,556,603
Net income									1,853,120			1,853,120
Issuance of common stock, vesting of restricted stock units and other		45,224		46		(46	)					-
Share-based compensation expense						383,655						383,655
Common stock dividends									(2,136,331	)		(2,136,331	)
Adoption of ASC 606									925,929			925,929
Balance as of November 30, 2018		5,948,660	$	5,949	$	6,514,756		$	14,062,271		$	20,582,976
Balance as of August 31, 2019		5,991,162	$	5,991	$	7,037,501		$	13,927,209		$	20,970,701
Net income (loss)									(71,637	)		(71,637	)
Issuance of common stock, vesting of restricted stock units and other		3,835		4		(4	)					-
Share-based compensation expense						116,540						116,540
Common stock dividends									(719,440	)		(719,440	)
Balance as of November 30, 2019		5,994,997	$	5,995	$	7,154,037		$	13,136,132		$	20,296,164
Balance as of February 28, 2019		5,957,827		5,958	$	6,650,864		$	13,733,010		$	20,389,832
Net income									1,558,060			1,558,060
Issuance of common stock, vesting of restricted stock units and other		37,170		37		(37	)					-
Share-based compensation expense						503,210						503,210
Common stock dividends									(2,154,938	)		(2,154,938	)
Balance as of November 30, 2019		5,994,997	$	5,995	$	7,154,037		$	13,136,132		$	20,296,164

The accompanying notes are an integral part of these consolidated financial statements.

6

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

The accompanying consolidated financial statements include the accounts of Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, its wholly-owned subsidiaries, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation (“RMCF”), Aspen Leaf Yogurt, LLC, a Colorado limited liability company (“ALY”), U-Swirl International, Inc., a Nevada corporation (“U-Swirl”), and its 46%-owned subsidiary, U-Swirl, Inc., a Nevada corporation (“SWRL”) of which, RMCF had financial control until February 29, 2016 (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 cafés. The Company also sells its candy outside of its system of retail stores and licenses the use of its brand with certain consumer products.

The Company’s revenues are currently derived from three principal sources, which are similar for its wholly owned subsidiaries RMCF and U-Swirl: (i) sales to franchisees and others of chocolates and other confectionery products manufactured by the Company; (ii) sales at Company-owned stores of chocolates, frozen yogurt, and other confectionery products (including products manufactured by the Company); (iii) the collection of initial franchise fees and royalties from franchisees’ sales of both confectionary products and frozen yogurt.

The following table summarizes the number of stores operating under the Rocky Mountain Chocolate Factory brand and frozen yogurt cafés as of November 30, 2019:

	Sold, Not Yet Open		Open		Total
Rocky Mountain Chocolate Factory
Company-owned stores		-		2		2
Franchise stores - Domestic stores and kiosks		1		179		180
International license stores		1		63		64
Cold Stone Creamery - co-branded		5		97		102
U-Swirl (Including all associated brands)						-
Company-owned stores		-		1		1
Company-owned stores - co-branded		-		3		3
Franchise stores - Domestic stores		1		79		80
Franchise stores - Domestic - co-branded		-		7		7
International license stores		-		2		2
Total		8		433		441

Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and Securities and Exchange Commission (the “SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Certain amounts previously presented for prior periods have been reclassified to conform to the current presentation. In the opinion of management, the consolidated financial statements reflect all adjustments (of a normal and recurring nature) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the three and nine months ended November 30, 2019 are not necessarily indicative of the results to be expected for the entire fiscal year, or any other future period.

These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2019.

7

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Events

On December 3, 2019, the Company entered into a cooperation agreement (the “Agreement”) with AB Value Management LLC (“AB Value”) related to AB Value’s contested solicitation of proxies. As part of the Agreement, the Company agreed to reimburse AB Value for all reasonable, documented out-of-pocket fees and expenses in the preparation and execution of the Agreement and the related matters preceding or reasonably following its execution, provided that such reimbursement shall not exceed two hundred and ninety thousand dollars ($290,000.00) in the aggregate.  As of November 30, 2019 the Company had recorded a liability of $290,000 in consideration of this Agreement.

On December 20, 2019, the Company entered into a strategic alliance (the “Strategic Alliance”) with Edible Arrangements, LLC (“EA”) and Farids & Co. LLC (“Farids,” and together with EA and any permitted transferees, “Edible Arrangements”), pursuant to which, among other things, the Company will become the exclusive provider of certain branded chocolate products to EA, its affiliates and its franchisees. In connection with the Strategic Alliance, the Company entered into a strategic alliance agreement, an exclusive supplier operating agreement and a warrant agreement with EA and Farids.

Exclusive Supplier Agreement

On December 20, 2019, the Company entered into an Exclusive Supplier Operating Agreement (the “Exclusive Supplier Agreement”) with EA, pursuant to which the Company will be EA’s exclusive supplier for chocolates, candies and/or other confectionery products. In addition, the Company granted to EA a non-exclusive, worldwide right to market, offer for sale, sell and distribute such products, including through (i) retail stores and (ii) on-line distribution channels such as Internet websites and applications for personal computing devices, as an authorized and independent distributor of such products.

Strategic Alliance Agreement

On December 20, 2019, the Company entered into a Strategic Alliance Agreement (the “Strategic Alliance Agreement”) with EA and Farids, pursuant to which, among other things, the Company will issue and sell 126,839 shares (the “Purchased Shares”) of the Company’s common stock to Farids at a price of $7.884 per share. The issuance and sale of the Purchased Shares is required to close within 90 days, subject to the satisfaction of certain customary closing conditions. The Purchased Shares may not be transferred within the first two years following the date of the Strategic Alliance Agreement, subject to certain limited exceptions. In addition, the Company has certain rights of first offer and rights of first refusal with respect to the Purchased Shares or the Warrants Shares (as defined below), and the Company also granted certain registration rights to Edible Arrangements with respect to the Purchased Shares and the Warrants Shares. Subject to certain limited exceptions, Edible Arrangements is also prohibited from beneficially owning 19.99% or more of the fully diluted number of shares of Common Stock outstanding at any time.

Warrant

In consideration of EA entering into the Exclusive Supplier Agreement and the performance of its obligations therein, on December 20, 2019, the Company issued EA a warrant (the “Warrant”) to purchase up to 960,677 shares of Common Stock (the “Warrant Shares”) at an exercise price of $8.76 per share. The Warrant Shares vest in annual tranches in varying amounts following each contract year under the Exclusive Supplier Agreement, subject to, and only upon, EA’s achievement of certain revenue thresholds on an annual or cumulative five-year basis in connection with its performance under the Exclusive Supplier Agreement. The Warrant expires six months after the final and conclusive determination of revenue thresholds for the fifth contract year and the cumulative revenue determination in accordance with the terms of the Warrant. The vesting of the Warrant Shares will accelerate under certain circumstances upon a change of control of the Company.

Recent Accounting Pronouncements

In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in Quarterly Reports on Form 10-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018. The Company adopted these amendments in its Quarterly Report on Form 10-Q for the quarter ended May 31, 2019.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU 2016-13 is effective for the Company's fiscal year beginning March 1, 2020 and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on the Company's consolidated financial statements.

8

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC 840 “Leases.” These amendments also require qualitative disclosures along with specific quantitative disclosures. The Company adopted ASU 2016-02 as of March 1, 2019, using the modified retrospective method. This method allows the new standard to be applied retrospectively through a cumulative catch-up adjustment recognized upon adoption. As a result, comparative information in the Company’s financial statements has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company recorded a Right of Use Asset and Lease Liability on the Consolidated Balance Sheet of $3.3 million upon adoption. The impact of the new standard did not affect the Company’s cash flows or results of operations. The lease liability reflects the present value of the Company’s estimated future minimum lease payments over the lease term, which includes options that are likely to be exercised, discounted using an incremental borrowing rate or implicit rate. See Note 11 - Leasing Arrangements for additional information.

NOTE 2 – EARNINGS PER SHARE

Basic earnings per share is calculated using the weighted-average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through the settlement of restricted stock units. Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock.

The weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include outstanding common shares issuable if their effect would be anti-dilutive. During the three months ended November 30, 2019 263,038 shares of issuable common stock were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

NOTE 3 – INVENTORIES

Inventories consist of the following:

	November 30, 2019			February 28, 2019
Ingredients and supplies	$	2,328,446		$	2,612,954
Finished candy		1,652,919			1,983,854
U-Swirl food and packaging		54,443			44,696
Reserve for slow moving inventory		(355,078	)		(371,147	)
Total inventories	$	3,680,730		$	4,270,357

NOTE 4 – PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following:

	November 30, 2019			February 28, 2019
Land	$	513,618		$	513,618
Building		5,031,395			5,031,395
Machinery and equipment		10,565,626			10,233,119
Furniture and fixtures		852,557			864,944
Leasehold improvements		1,154,395			1,131,659
Transportation equipment		440,989			422,458
		18,558,580			18,197,193
Less accumulated depreciation		(12,517,735	)		(12,411,054	)
Property and equipment, net	$	6,040,845		$	5,786,139

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ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – STOCKHOLDERS’ EQUITY

Cash Dividend

The Company paid a quarterly cash dividend of $0.12 per common share on March 15, 2019 to stockholders of record on March 5, 2019. The Company paid a quarterly cash dividend of $0.12 per share of common stock on June 14, 2019 to stockholders of record on June 4, 2019. The Company paid a quarterly cash dividend of $0.12 per share of common stock on September 13, 2019 to stockholders of record on September 4, 2019. The Company declared a quarterly cash dividend of $0.12 per share of common stock on November 14, 2019, which was paid on December 6, 2019 to stockholders of record on November 22, 2019.

Future declaration of dividends will depend on, among other things, the Company's results of operations, capital requirements, financial condition and on such other factors as the Board of Directors may in its discretion consider relevant and in the best long-term interest of the Company’s stockholders.

Stock Repurchases

On July 15, 2014, the Company publicly announced a plan to repurchase 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, and on May 21, 2015, the Company announced a further increase to the repurchase plan by authorizing the purchase of up to an additional $2,090,000 of its common stock under the repurchase plan. The Company did not repurchase any shares during the three and nine months ended November 30, 2019. As of November 30, 2019, approximately $638,000 remained available under the repurchase plan for further stock repurchases.

Stock-Based Compensation

The Company’s 2007 Equity Incentive Plan (as amended and restated on August 8, 2013) authorizes the granting of stock awards to employees, non-employee directors, consultants and other participants, including stock options, restricted stock and restricted stock units.

The Company recognized $116,540 and $503,210 of stock-based compensation expense during the three- and nine-month periods ended November 30, 2019, respectively, compared to $102,927 and $383,655 during the three- and nine-month periods ended November 30, 2018, respectively. Compensation costs related to stock-based compensation are generally amortized over the vesting period of the stock awards.

The following table summarizes restricted stock unit activity during the six months ended November 30, 2019 and 2018:

	Nine Months Ended
	November 30,
	2019			2018
Outstanding non-vested restricted stock units as of February 28:		25,002			77,594
Granted		270,000			-
Vested		(32,002	)		(43,224	)
Cancelled/forfeited		-			(200	)
Outstanding non-vested restricted stock units as of November 30:		263,000			34,170
Weighted average grant date fair value	$	9.40		$	12.05
Weighted average remaining vesting period (in years)		4.9			0.6

The Company issued an aggregate of 5,168 fully vested, unrestricted shares of common stock to non-employee directors during the nine months ended November 30, 2019 compared to an aggregate of 2,000 shares issued during the nine months ended November 30, 2018. In connection with these non-employee director stock issuances, the Company recognized $48,774 and $24,480 of stock-based compensation expense during the nine months ended November 30, 2019 and 2018, respectively.

During the three- and nine-month periods ended November 30, 2019, the Company recognized $113,418 and $454,436, respectively, of stock-based compensation expense related to restricted stock unit grants. The restricted stock unit grants generally vest in equal annual or quarterly installments over a period of five to six years. During the nine-month periods ended November 30, 2019 and 2018, 32,002 and 43,224 restricted stock units vested and were issued as common stock, respectively. Total unrecognized compensation expense of non-vested, non-forfeited restricted stock units granted as of November 30, 2019 was $2,195,848, which is expected to be recognized over the weighted-average period of 4.9 years.

The Company has no outstanding stock options as of November 30, 2019.

10

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – SUPPLEMENTAL CASH FLOW INFORMATION

	Nine Months Ended
	November 30,
	2019		2018
Cash paid for:
Interest	$	20,169	$	59,140
Income taxes		613,876		381,318
Non-cash Operating Activities
Accrued Inventory		65,488		292,435
Non-cash Financing Activities
Dividend payable	$	719,400	$	713,839

NOTE 7 – OPERATING SEGMENTS

The Company classifies its business interests into five reportable segments: 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 and Note 1 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2019. 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 difference in products and services:

Three Months Ended November 30, 2019	Franchising			Manufacturing			Retail			U-Swirl		Other			Total
Total revenues	$	1,110,143		$	6,100,755		$	260,002		$	757,475	$	-		$	8,228,375
Intersegment revenues		(671	)		(314,452	)		-			-		-			(315,123	)
Revenue from external customers		1,109,472			5,786,303			260,002			757,475		-			7,913,252
Segment profit (loss)		427,705			1,001,264			(4,649	)		455		(1,518,634	)		(93,859	)
Total assets		1,189,288			12,346,000			1,046,795			5,540,055		9,055,397			29,177,535
Capital expenditures		16,223			347,310			(7,837	)		2,324		25,330			383,350
Total depreciation & amortization	$	11,909		$	151,771		$	2,572		$	175,359	$	22,581		$	364,192

Three Months Ended November 30, 2018	Franchising			Manufacturing			Retail			U-Swirl			Other			Total
Total revenues	$	1,062,942		$	7,193,761		$	282,023		$	743,647		$	-		$	9,282,373
Intersegment revenues		(865	)		(331,761	)		-			-			-			(332,626	)
Revenue from external customers		1,062,077			6,862,000			282,023			743,647			-			8,949,747
Segment profit (loss)		344,945			1,324,220			(13,732	)		(174,089	)		(814,244	)		667,100
Total assets		1,067,265			14,713,087			1,029,203			5,463,340			5,294,264			27,567,159
Capital expenditures		-			243,043			3,796			1,631			3,327			251,797
Total depreciation & amortization	$	11,617		$	144,436		$	5,631		$	235,446		$	24,656		$	421,786

11

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended November 30, 2019	Franchising			Manufacturing			Retail			U-Swirl		Other			Total
Total revenues	$	4,054,989		$	16,681,908		$	758,083		$	3,040,031	$	-		$	24,535,011
Intersegment revenues		(3,278	)		(807,212	)		-			-		-			(810,490	)
Revenue from external customers		4,051,711			15,874,696			758,083			3,040,031		-			23,724,521
Segment profit (loss)		1,874,593			3,125,311			(11,683	)		576,499		(3,467,032	)		2,097,688
Total assets		1,189,288			12,346,000			1,046,795			5,540,055		9,055,397			29,177,535
Capital expenditures		24,723			732,989			24,787			3,997		77,874			864,370
Total depreciation & amortization	$	33,093		$	453,751		$	7,715		$	551,336	$	68,783		$	1,114,678

Nine Months Ended November 30, 2018	Franchising			Manufacturing			Retail			U-Swirl		Other			Total
Total revenues	$	3,846,633		$	18,097,063		$	941,817		$	3,127,806	$	-		$	26,013,319
Intersegment revenues		(3,632	)		(893,767	)		-			-		-			(897,399	)
Revenue from external customers		3,843,001			17,203,296			941,817			3,127,806		-			25,115,920
Segment profit (loss)		1,527,599			3,564,168			(117,488	)		190,884		(2,707,260	)		2,457,903
Total assets		1,067,265			14,713,087			1,029,203			5,463,340		5,294,264			27,567,159
Capital expenditures		3,535			415,960			7,601			14,935		56,221			498,252
Total depreciation & amortization	$	35,173		$	428,161		$	29,485		$	720,530	$	80,892		$	1,294,241

Revenue from one customer of the Company’s Manufacturing segment represented approximately $1.5 million, or 6.3 percent, of the Company’s revenues from external customers during the nine months ended November 30, 2019, compared to $1.8 million, or 7.1 percent, of the Company’s revenues from external customers during the nine months ended November 30, 2018.

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

Intangible assets consist of the following:

				November 30, 2019				February 28, 2019
	Amortization Period (in years)			Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Intangible assets subject to amortization
Store design		10		$	220,778	$	215,278	$	220,778	$	214,152
Packaging licenses	3	-	5		120,830		120,830		120,830		120,830
Packaging design		10			430,973		430,973		430,973		430,973
Trademark/Non-competition agreements	5	-	20		715,339		278,711		715,339		223,628
Franchise rights		20			5,979,637		2,774,140		5,979,637		2,300,717
Total					7,467,557		3,819,932	$	7,467,557	$	3,290,300
Intangible assets not subject to amortization
Franchising segment-
Company stores goodwill				$	832,308			$	832,308
Franchising goodwill					97,318				97,318
Manufacturing segment-goodwill					97,318				97,318
Trademark					20,000				20,000
Total goodwill					1,046,944				1,046,944
Total Intangible Assets				$	8,514,501	$	3,819,932	$	8,514,501	$	3,290,300

Amortization expense related to intangible assets totaled $529,632 and $634,131 during the nine months ended November 30, 2019 and 2018, respectively.

12

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

At November 30, 2019, annual amortization of intangible assets, based upon the Company’s existing intangible assets and current useful lives, is estimated to be the following:

2020	$	176,544
2021		594,229
2022		490,060
2023		411,607
2024		345,642
Thereafter		1,629,543
Total	$	3,647,625

NOTE 9 – COSTS ASSOCIATED WITH COMPANY-OWNED STORE CLOSURES

Costs associated with Company-owned store closures were the result of closing certain underperforming Company-owned locations during the nine months ended November 30, 2018. Costs associated with Company-owned store closures of $0 and $176,981 were incurred during the three and the nine months ended November 30, 2018, respectively.

There were no comparable costs incurred during the three and nine months ended November 30, 2019.

NOTE 10 – NOTE PAYABLE

The Company’s long-term debt is comprised of a promissory note, the proceeds of which were loaned to SWRL and used to finance SWRL’s business acquisitions. The promissory note matures on January 15, 2020.

As of November 30, 2019 and February 28, 2019, notes payable consisted of the following:

	November 30, 2019			February 28, 2019
Promissory note	$	127,576		$	1,176,488
Less: current maturities		(127,576	)		(1,176,488	)
Long-term obligations	$	-		$	-

NOTE 11 – LEASING ARRANGEMENTS

The Company conducts its retail operations in facilities leased under non-cancelable operating leases of up to ten years. Certain leases contain renewal options for between five and ten additional years at increased monthly rentals. Some of the leases provide for contingent rentals based on sales in excess of predetermined base levels. 

The Company acts as primary lessee of some franchised store premises, which the Company then subleases to franchisees, but the majority of existing franchised locations are leased by the franchisee directly.

In some instances, the Company has leased space for its Company-owned locations that are now occupied by franchisees. When the Company-owned location was sold or transferred, the store was subleased to the franchisee who is responsible for the monthly rent and other obligations under the lease.

The Company also leases trucking equipment and warehouse space in support of its manufacturing operations. Expense associated with trucking and warehouse leases is included in cost of sales on the consolidated statements of income.

ASU 2016-02 allows, as a practical expedient, the retention of the classification of existing leases as operating or financing. All of the Company’s leases are classified as operating leases and that classification has been retained upon adoption. The Company does not believe the utilization of this practical expedient has a material impact on lease classifications.

The Company accounts for payments related to lease liabilities on a straight-line basis over the lease term. Lease expense recognized for the nine months ended November 30, 2019 and 2018 in the Consolidated Statements of Income was $702,872 and $757,885, respectively.

13

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

The amount of the ‘Right of Use Asset’ and ‘Lease Liability’ recorded in the Consolidated Balance Sheets upon the adoption of ASU 2016-02 was $3.3 million. The lease liability reflects the present value of the Company’s estimated future minimum lease payments over the life of its leases. This includes known escalations and renewal option periods reasonably assured of being exercised. Typically, renewal options are considered reasonably assured of being exercised if the sales performance of the location remains strong. Therefore, the ‘Right of Use Asset’ and ‘Lease Liability’ include an assumption on renewal options that have not yet been exercised by the Company, and are not currently a future obligation. The Company has separated non-lease components from lease components in the recognition of the ‘Right of Use Asset’ and ‘Lease Liability’ except in instances where such costs were not practical to separate. To the extent that occupancy costs, such as site maintenance, are included in the ‘Right of Use Asset’ and ‘Lease Liability,’ the impact is immaterial. For franchised locations, the related occupancy costs including property taxes, insurance and site maintenance are generally required to be paid by the franchisees as part of the franchise arrangement. In addition, the Company is the lessee under non-store related leases such as storage facilities and trucking equipment. For leases where the implicit rate is not readily determinable, the Company uses an incremental borrowing rate to calculate the lease liability that represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease. The weighted average discount rate used for operating leases was 3.4% as of November 30, 2019. The total estimated future minimum lease payments is $3.2 million.

As of November 30, 2019, maturities of lease liabilities for the Company’s operating leases were as follows:

FY 20	$	202,645
FY 21		819,005
FY 22		694,755
FY 23		437,445
FY 24		315,962
Thereafter		717,040
Total	$	3,186,852
Less: imputed interest		(309,572	)
Present value of lease liabilities:	$	2,877,280
Weighted average lease term (in years)		6.7

During the nine months ended November 30, 2019 the Company entered into a lease amendment to extend the term of a lease for a Company-owned location. This lease amendment resulted in the Company recognizing a present value of future lease liability of $476,611 based upon a total lease liability of $532,811.

NOTE 12 –REVENUE FROM CONTRACTS WITH CUSTOMERS

Effective March 1, 2018, the Company adopted ASC 606. ASC 606 provides that revenues are to be recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration expected to be received for those goods or services. This new standard does not impact the Company's recognition of revenue from sales of confectionary items to the Company’s franchisees and others, or in its Company-owned stores as those sales are recognized at the time of the underlying sale and are presented net of sales taxes and discounts. The standard also does not change the recognition of royalties and marketing fees from franchised or licensed locations, which are based on a percent of sales and recognized at the time the sales occur. The standard does change the timing in which the Company recognizes initial fees from franchisees and licensees for new franchise locations and renewals that affect the term of the franchise agreement.

Initial Franchise Fees, License Fees, Transfer Fees and Renewal Fees

The Company's policy for recognizing initial franchise and renewal fees through February 28, 2018 was to recognize initial franchise fees upon new store openings and renewals that impact the term of the franchise agreement upon renewal. In accordance with the new guidance, the initial franchise services are not distinct from the continuing rights or services offered during the term of the franchise agreement, and will be treated as a single performance obligation. Beginning March 1, 2018, initial franchise fees are being recognized as the Company satisfies the performance obligation over the term of the franchise agreement, which is generally 10-15 years.

14

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

At November 30, 2019, annual revenue expected to be recognized in the future, related to performance obligations that are not yet fully satisfied, are estimated to be the following:

FY 20	$	57,066
FY 21		190,218
FY 22		177,019
FY 23		164,050
FY 24		133,507
Thereafter		445,396
Total	$	1,167,256

Gift Cards

The Company’s franchisees sell gift cards, which do not have expiration dates or non-usage fees. The proceeds from the sale of gift cards by the franchisees are accumulated by the Company and paid out to the franchisees upon customer redemption. The Company has historically accumulated gift card liabilities and has not recognized breakage associated with the gift card liability. The adoption of ASC 606 requires the use of the “proportionate” method for recognizing breakage, which the Company has not historically utilized. Upon adoption of ASC 606 the Company began recognizing breakage from gift cards when the gift card is redeemed by the customer or the Company determines the likelihood of the gift card being redeemed by the customer is remote (“gift card breakage”). The determination of the gift card breakage rate is based upon Company-specific historical redemption patterns.

NOTE 13 – DISAGGREGATION OF REVENUE

The following table presents disaggregated revenue by method of recognition and segment:

Three Months Ended November 30, 2019

Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	43,331	$	-	$	-	$	38,961	$	82,292

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		5,786,303		-		-		5,786,303
Retail sales		-		-		260,002		444,296		704,298
Royalty and marketing fees		1,066,141		-		-		274,218		1,340,359
Total	$	1,109,472	$	5,786,303	$	260,002	$	757,475	$	7,913,252

Three Months Ended November 30, 2018
Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	44,172	$	-	$	-	$	17,490	$	61,662

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		6,862,000		-		-		6,862,000
Retail sales		-		-		282,023		439,304		721,327
Royalty and marketing fees		1,017,905		-		-		286,853		1,304,758
Total	$	1,062,077	$	6,862,000	$	282,023	$	743,647	$	8,949,747

15

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended November 30, 2019
Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	188,677	$	-	$	-	$	81,824	$	270,501

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		15,874,696		-		-		15,874,696
Retail sales		-		-		758,083		1,702,473		2,460,556
Royalty and marketing fees		3,863,034		-		-		1,255,734		5,118,768
Total	$	4,051,711	$	15,874,696	$	758,083	$	3,040,031	$	23,724,521

Nine Months Ended November 30, 2018
Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	154,693	$	-	$	-	$	107,642	$	262,335

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		17,203,296		-		-		17,203,296
Retail sales		-		-		941,817		1,756,582		2,698,399
Royalty and marketing fees		3,688,308		-		-		1,263,582		4,951,890
Total	$	3,843,001	$	17,203,296	$	941,817	$	3,127,806	$	25,115,920

16

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – LOSS CONTINGENCY

In June 2019, the Company’s largest customer, FTD Companies, Inc. and its domestic subsidiaries (“FTD”), filed for Chapter 11 bankruptcy proceedings. As a part of such bankruptcy proceedings, divisions of FTD’s business and certain related assets, including the divisions that the Company has historically sold product to, were sold through an auction to multiple buyers.

The Company has historically conducted business with FTD under a Gourmet Foods Supplier Agreement (the “Supplier Agreement”), that among other provisions, provided assurance that custom inventory purchased by the Company and developed specifically for FTD would be purchased by FTD upon termination of the Supplier Agreement. On September 23, 2019, the Company received notice that the bankruptcy court had approved FTD to reject and not enforce the Supplier Agreement as part of the proceedings.

As a result of FTD’s bankruptcy, the sale of certain assets, and the court’s approval to reject and not enforce the terms of the Supplier Agreement, the Company is uncertain if accounts receivable and inventory balances associated with FTD at November 30, 2019 will be realized at their full value, or if any revenue will be received from FTD in the future. During the three months ended November 30, 2019, the Company recognized an estimated loss of $230,384 associated with inventory specific to FTD as the Company determined that it was probable that a loss on certain inventory would be realized. A potential loss associated with the remaining balances is not probable and/or is not able to be estimated as of the date of these consolidated financial statements.

As of November 30, 2019, balances associated with FTD consist of the following:

	November 30, 2019
Ingredients and supplies	$	377,044
Finished candy		75,070
Accounts receivable		79,744
Reserve for estimated losses		(230,384	)
Total potential loss, contingent upon the bankruptcy proceedings	$	301,474

FTD represented approximately $1.5 million, or 6.3%, of the Company’s revenues during the nine months ended November 30, 2019, compared to $1.8 million, or 7.1%, of the Company’s revenues during the nine months ended November 30, 2018. FTD represented approximately $3.1 million or 9% of the Company’s total revenues during the year ended February 28, 2019 compared to revenue of approximately $5.1 million or 13% of our total revenues during the year ended February 28, 2018. The Company’s future results may be adversely impacted by decreases in the purchases of this customer or the loss of this customer entirely.

17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Quarterly 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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to come within the safe harbor protection provided by those sections. These forward-looking statements involve various risks and uncertainties. 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 Quarterly Report are forward-looking statements. Many of the forward-looking statements contained in this document may be identified by the use of forward-looking words such as "will," "intend," "believe," "expect," "anticipate," "should," "plan," "estimate," "potential," or similar expressions. Factors which could cause results to differ include, but are not limited to: achievement of the anticipated potential benefits of the strategic alliance with Edible Arrangements (as defined below), the Company's ability to provide products to EA (as defined below) under the strategic alliance, relationships and changes in our customers, changes in the confectionery business environment, seasonality, consumer interest in our products, general economic conditions, the success of our frozen yogurt business, 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 Item 1A. of our Annual Report on Form 10-K for the fiscal year ended February 28, 2019. These forward-looking statements apply only as of the date of this Quarterly 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 Quarterly Report or those that might reflect the occurrence of unanticipated events.

Unless otherwise specified, the “Company,” “we,” “us” or “our” refers to Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, and its consolidated subsidiaries.

Overview

We are 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 International, Inc. (“U-Swirl”), franchises and operates soft-serve frozen yogurt cafés. Our revenues 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 outside of our system of retail stores and license the use of our brand with certain consumer products. As of November 30, 2019, there were two Company-owned, 97 licensee-owned and 242 franchised Rocky Mountain Chocolate Factory stores operating in 37 states, Canada, South Korea, Panama, and the Philippines. As of November 30, 2019, U-Swirl operated four Company-owned cafés and 88 franchised cafés located in 24 states and Qatar. U-Swirl operates self-serve frozen yogurt cafés under the names “U-Swirl,” “Yogurtini,” “CherryBerry,” “Yogli Mogli Frozen Yogurt,” “Fuzzy Peach Frozen Yogurt,” “Let’s Yo!” and “Aspen Leaf Yogurt”.

Strategic Alliance with Edible Arrangements

On December 20, 2019, the Company entered into a strategic alliance (the “Strategic Alliance”) with Edible Arrangements, LLC (“EA”) and Farids & Co. LLC (“Farids,” and together with EA and any permitted transferees, “Edible Arrangements”), pursuant to which, among other things, the Company will become the exclusive provider of certain branded chocolate products to EA, its affiliates and its franchisees. In connection with the Strategic Alliance, the Company entered into a strategic alliance agreement, an exclusive supplier operating agreement and a warrant agreement with EA and Farids. For more information, please see Note 1 to the financial statements for a summary of the strategic alliance agreement, the exclusive supplier operating agreement and the warrant agreement.

Bankruptcy of FTD Companies

In June 2019, the Company’s largest customer, FTD Companies, Inc. and its domestic subsidiaries (“FTD”), filed for Chapter 11 bankruptcy proceedings. As a part of such bankruptcy proceedings, divisions of FTD’s business and certain related assets, including the divisions that the Company has historically sold product to, were sold through the auction to multiple buyers. The Company is uncertain if accounts receivable and inventory balances associated with FTD at November 30, 2019 will be realized at their full value, or if any revenue will be received from FTD in the future. See Note 7 and Note 14 to the financial statements contained herein for additional information about the FTD bankruptcy.

18

Results of Operations

Three Months Ended November 30, 2019 Compared to the Three Months Ended November 30, 2018

Results Summary

Basic earnings per share decreased from $0.09 in the three months ended November 30, 2018 to a loss of $(0.01) in the three months ended November 30, 2019. Revenues decreased 11.6% from $8.9 million in the three months ended November 30, 2018 to $7.9 million in the three months ended November 30, 2019. Operating income decreased from $678,000 in the three months ended November 30, 2018 to an operating loss of $(98,000) in the three months ended November 30, 2019. Net income decreased from $525,000 in the three months ended November 30, 2018 to a net loss of $(72,000) in the three months ended November 30, 2019. The decreases in operating income and net income were due primarily to costs associated with the Company’s previously announced review of strategic alternatives, which formally concluded upon the Company’s entry into the Strategic Alliance, costs associated with a stockholder’s contested solicitation of proxies, which was terminated in December 2019, and costs associated with the bankruptcy of the Company’s largest customer.

Revenues

	Three Months Ended
($'s in thousands)	November 30,				$			%
	2019		2018		Change			Change
Factory sales	$	5,786.3	$	6,862.0	$	(1,075.7	)		(15.7	)%
Retail sales		704.3		721.3		(17.0	)		(2.4	)%
Franchise fees		82.3		61.7		20.6			33.4	%
Royalty and marketing fees		1,340.4		1,304.8		35.6			2.7	%
Total	$	7,913.3	$	8,949.8	$	(1,036.5	)		(11.6	)%

Factory Sales

The decrease in factory sales for the three months ended November 30, 2019 versus the three months ended November 30, 2018 was primarily due to a 58.0% decrease in shipments of product to customers outside our network of franchise and licensed retail locations, partially offset by a 3.8% increase in purchases by our network of franchised and licensed stores. The decrease in shipments of product to customers outside our network of franchise and licensed retail stores was primarily the result of product rationalization and a decline in revenue associated with products no longer offered for sale. Purchases by the Company’s largest customer, FTD, decreased during the three months ended November 30, 2019, with no revenue from such customer during the three months ended November 30, 2019, compared to $374,000, or 4.2% of the Company’s revenues during the three months ended November 30, 2018. As discussed above, FTD declared Chapter 11 bankruptcy in June 2019. Until the bankruptcy proceedings are complete, it is unclear whether the Company will realize any revenue from FTD in the future, and if so, whether such revenues will return to historic levels.

Same store pounds purchased by domestic Rocky Mountain Chocolate Factory franchise and license locations decreased 3.6% in the three months ended November 30, 2019, compared with the three months ended November 30, 2018.

Retail Sales

The decrease in retail sales for the three months ended November 30, 2019 compared to the three months ended November 30, 2018 was primarily due to a decrease in same-store sales at Company-owned locations. Same store sales at all Company-owned stores and cafés decreased 1.6% in the three months ended November 30, 2019 compared to the three months ended November 30, 2018.

Royalties, Marketing Fees and Franchise Fees

The increase in royalties and marketing fees from the three months ended November 30, 2018 to the three months ended November 30, 2019 was primarily due to an increase in royalty revenue associated with the Company’s purchase-based royalty structure, partially offset by a 6.3% decrease in domestic franchise units in operation. The average number of total domestic franchise stores in operation decreased from 285 in the three months ended November 30, 2018 to 267 during the three months ended November 30, 2019. This decrease is the result of domestic store closures exceeding domestic store openings. Same store sales at total franchise stores and cafés in operation decreased 1.1% during the three months ended November 30, 2019 compared to the three months ended November 30, 2018.

The increase in franchise fee revenue for the three months ended November 30, 2019 compared to the three months ended November 30, 2018 was the result of an increase in revenue resulting from store closures and the reversal of the remaining contract liabilities and corresponding recognition of revenue.

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Costs and Expenses

Cost of Sales

	Three Months Ended
	November 30,				$			%
($'s in thousands)	2019		2018		Change			Change
Cost of sales - factory	$	4,689.9	$	5,419.8	$	(729.9	)		(13.5	)%
Cost of sales - retail		266.3		280.5		(14.2	)		(5.1	)%
Franchise costs		428.2		463.1		(34.9	)		(7.5	)%
Sales and marketing		435.0		519.2		(84.2	)		(16.2	)%
General and administrative		1,529.3		860.9		668.4			77.6	%
Retail operating		445.9		446.1		(0.2	)		(0.0	)%
Total	$	7,794.6	$	7,989.6	$	(195.0	)		(2.4	)%

Gross Margin

	Three Months Ended
	November 30,				$			%
($'s in thousands)	2019		2018		Change			Change
Factory gross margin	$	1,096.4	$	1,442.2	$	(345.8	)		(24.0	)%
Retail gross margin		438.0		440.8		(2.8	)		(0.6	)%
Total	$	1,534.4	$	1,883.0	$	(348.6	)		(18.5	)%

	Three Months Ended
	November 30,						%			%
	2019			2018			Change			Change
(Percent)
Factory gross margin		18.9	%		21.0	%		(2.1	)%		(9.8	)%
Retail gross margin		62.2	%		61.1	%		1.1	%		1.8	%
Total		23.6	%		24.8	%		(1.2	)%		(4.8	)%

Adjusted Gross Margin

	Three Months Ended
	November 30,						$			%
($'s in thousands)	2019			2018			Change			Change
Factory gross margin	$	1,096.4		$	1,442.2		$	(345.8	)		(24.0	)%
Plus: depreciation and amortization		147.3			140.0			7.3			5.2	%
Factory adjusted gross margin		1,243.7			1,582.2			(338.5	)		(21.4	)%
Retail gross margin		438.0			440.8			(2.8	)		(0.6	)%
Total Adjusted Gross Margin	$	1,681.7		$	2,023.0		$	(341.3	)		(16.9	)%
Factory adjusted gross margin		21.5	%		23.1	%		(1.6	)%		(6.8	)%
Retail gross margin		62.2	%		61.1	%		1.1	%		1.8	%
Total Adjusted Gross Margin		25.9	%		26.7	%		(0.8	)%		(2.9	)%

Adjusted gross margin and factory adjusted gross margin are non-GAAP financial measures. Adjusted gross margin 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 plus 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, factory gross margin and other performance measures calculated in conformity with 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 analytical tools because they exclude the impact of depreciation and amortization expense and you should not consider it in isolation or as a substitute for any measure reported under GAAP. Our use of capital assets makes depreciation and amortization expense a necessary element of our costs and our ability to generate income. Due to these limitations, we use adjusted gross margin 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.

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Cost of Sales and Gross Margin

Factory margins decreased 210 basis points in the three months ended November 30, 2019 compared to the three months ended November 30, 2018, primarily because of charges associated with costs of excess capacity and an estimated loss on inventory associated with the bankruptcy of FTD, the Company’s largest customer. These costs were partially offset by improvements in margins resulting from product rationalization. Excess capacity was the result of a 25.6% decrease in production for the three months ended November 30, 2019 compared to the three months ended November 30, 2018. The increase in retail gross margins was primarily the result of the closure of underperforming Company-owned locations during the prior fiscal year.

Franchise Costs

The decrease in franchise costs in the three months ended November 30, 2019 versus the three months ended November 30, 2018 is due primarily to a decrease in legal and professional expense in the three months ended November 30, 2019 compared to the three months ended November 30, 2018. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise costs decreased to 30.1% in the three months ended November 30, 2019 from 33.9% in the three months ended November 30, 2018.

Sales and Marketing

The decrease in sales and marketing costs for the three months ended November 30, 2019 compared to the three months ended November 30, 2018 is primarily due to planned cost reductions as a result of fewer domestic franchise units in operation and lower revenue associated with sales to customers outside of our network of franchised and licensed Rocky Mountain Chocolate Factory locations.     

General and Administrative

The increase in general and administrative costs for the three months ended November 30, 2019 compared to the three months ended November 30, 2018 is primarily due to higher professional fees associated with the Company’s previously announced process to explore and review strategic alternatives, which formally concluded upon the Company’s entry into the Strategic Alliance, and costs associated with a stockholder’s contested solicitation of proxies, which was terminated in December 2019. During the three months ended November 30, 2019, the Company incurred approximately $771,000 of costs associated with the review of strategic alternatives and the contested solicitation of proxies, compared with no comparable costs incurred in the three months ended November 30, 2018. As a percentage of total revenues, general and administrative expenses increased to 19.3% in the three months ended November 30, 2019 compared to 9.6% in the three months ended November 30, 2018.

Retail Operating Expenses

The decrease in retail operating expenses for the three months ended November 30, 2019 compared to the three months ended November 30, 2018 was due primarily to changes in units in operation as a result of the closure of certain underperforming Company-owned units in the prior fiscal year. Retail operating expenses, as a percentage of retail sales, increased from 61.8% in the three months ended November 30, 2018 to 63.3% in the three months ended November 30, 2019. This increase is primarily the result of the change in units in operation from the prior fiscal year.

Depreciation and Amortization

Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales, was $217,000 in the three months ended November 30, 2019, a decrease of 23.0% from $282,000 in the three months ended November 30, 2018. This decrease was the result of a decrease in frozen yogurt cafés in operation and lower amortization of the associated franchise rights. See Note 8 to the financial statements for a summary of annual amortization of intangible assets based upon existing intangible assets and current useful lives. Depreciation and amortization included in cost of sales increased 5.3% from $140,000 in the three months ended November 30, 2018 to $147,000 in the three months ended November 30, 2019. This increase was the result of an increase in production assets in service primarily resulting from the replacement of obsolete equipment or equipment at the end of its operating life.

Other Income (Expense)

Net interest income was $4,000 in the three months ended November 30, 2019 compared to net interest expense of $11,000 incurred in the three months ended November 30, 2018. This change in interest from net interest expense to net interest income is due to lower average outstanding promissory note balances for the three months ended November 30, 2019 compared to the three months ended November 30, 2018.

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Income Tax Expense

Our effective income tax rate for the three months ended November 30, 2019 was 23.7%, compared to 21.2% for the three months ended November 30, 2018. This change was primarily the result of higher deductions realized during the three months ended November 30, 2018, compared to the three months ended November 30, 2019.

Nine Months Ended November 30, 2019 Compared to the Nine Months Ended November 30, 2018

Results Summary

Basic earnings per share decreased 16.1% to $0.26 for the nine months ended November 30, 2019 compared to $0.31 for the nine months ended November 30, 2018. Revenues decreased (5.5)% to $23.7 million for the nine months ended November 30, 2019 compared to $25.1 million in the nine months ended November 30, 2018. Operating income decreased 16.3% from $2.5 million in the nine months ended November 30, 2018 to $2.1 million in the nine months ended November 30, 2019. Net income decreased 15.9% from $1.9 million in the nine months ended November 30, 2018 to $1.6 million in the nine months ended November 30, 2019. The decrease in operating income and net income was due primarily to costs associated with the Company’s previously announced review of strategic alternatives, which formally concluded upon the Company’s entry into the Strategic Alliance, costs associated with a stockholder’s contested solicitation of proxies, which was terminated in December 2019, and costs associated with the bankruptcy of the Company’s largest customer.

Revenues

	Nine Months Ended
($'s in thousands)	November 30,				$			%
	2019		2018		Change			Change
Factory sales	$	15,874.7	$	17,203.3	$	(1,328.6	)		(7.7	)%
Retail sales		2,460.5		2,698.4		(237.9	)		(8.8	)%
Franchise fees		270.5		262.3		8.2			3.1	%
Royalty and marketing fees		5,118.8		4,951.9		166.9			3.4	%
Total	$	23,724.5	$	25,115.9		(1,391.4	)		(5.5	)%

Factory Sales

The decrease in factory sales for the nine months ended November 30, 2019 versus the nine months ended November 30, 2018 was primarily due to a 34.3% decrease in shipments of product to customers outside our network of franchise and licensed retail locations. The decrease in shipments of product to customers outside our network of franchise and licensed retail stores was primarily the result of product rationalization and a decline in revenue associated with products no longer offered for sale. Purchases by the Company’s largest customer, FTD, were approximately $1.5 million, or 6.3%, of the Company’s revenues during the nine months ended November 30, 2019, compared to $1.8 million, or 7.1% of the Company’s revenues during the nine months ended November 30, 2018. As discussed above, FTD declared Chapter 11 bankruptcy in June 2019. Until the bankruptcy proceedings are complete, it is unclear whether the Company will realize any revenue from FTD in the future, and if so, whether such revenues will return to historic levels.

Same store pounds purchased by domestic Rocky Mountain Chocolate Factory franchise and license locations decreased 4.6% in the nine months ended November 30, 2019, compared with the nine months ended November 30, 2018.

Retail Sales

The decrease in retail sales for the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018 was primarily due to fewer Company-owned units in operation because of the closure of certain underperforming Company-owned locations during the prior fiscal year. Same store sales at all Company-owned stores and cafés decreased 0.3% in the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018.

Royalties, Marketing Fees and Franchise Fees

The increase in royalties and marketing fees from the nine months ended November 30, 2018 to the nine months ended November 30, 2019 was primarily due to an increase in royalty revenue associated with the Company’s purchase-based royalty structure, partially offset by a 6.2% decrease in domestic franchise units in operation. The average number of total domestic franchise stores in operation decreased from 290 in the nine months ended November 30, 2018 to 272 during the nine months ended November 30, 2019. This decrease is the result of domestic store closures exceeding domestic store openings. Same store sales at total franchise stores and cafés in operation decreased 0.1% during the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018.

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The increase in franchise fee revenue for the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018 was the result of an increase in revenue resulting from store closures and the reversal of the remaining contract liabilities and corresponding recognition of revenue.

Costs and Expenses

Cost of Sales

	Nine Months Ended
	November 30,				$			%
($'s in thousands)	2019		2018		Change			Change
Cost of sales - factory	$	12,451.8	$	13,266.0	$	(814.2	)		(6.1	)%
Cost of sales - retail		857.6		983.5		(125.9	)		(12.8	)%
Franchise costs		1,352.9		1,539.1		(186.2	)		(12.1	)%
Sales and marketing		1,426.4		1,672.6		(246.2	)		(14.7	)%
General and administrative		3,504.4		2,588.8		915.6			35.4	%
Retail operating		1,364.1		1,507.4		(143.3	)		(9.5	)%
Total	$	20,957.2	$	21,557.4	$	(600.2	)		(2.8	)%

Gross Margin

	Nine Months Ended
	November 30,				$			%
($'s in thousands)	2019		2018		Change			Change
Factory gross margin	$	3,422.9	$	3,937.3	$	(514.4	)		(13.1	)%
Retail gross margin		1,602.9		1,714.9		(112.0	)		(6.5	)%
Total	$	5,025.8	$	5,652.2	$	(626.4	)		(11.1	)%

	Nine Months Ended
	November 30,						%			%
	2019			2018			Change			Change
Factory gross margin		21.6	%		22.9	%		(1.3	)%		(5.8	)%
Retail gross margin		65.1	%		63.6	%		1.6	%		2.5	%
Total		27.4	%		28.4	%		(1.0	)%		(3.5	)%

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Adjusted Gross Margin

	Nine Months Ended
	November 30,						$			%
($'s in thousands)	2019			2018			Change			Change
Factory gross margin	$	3,422.9		$	3,937.3		$	(514.4	)		(13.1	)%
Plus: depreciation and amortization		440.5			414.7			25.8			6.2	%
Factory adjusted gross margin		3,863.4			4,352.0			(488.6	)		(11.2	)%
Retail gross margin		1,602.9			1,714.9			(112.0	)		(6.5	)%
Total Adjusted Gross Margin	$	5,466.3		$	6,066.9		$	(600.6	)		(9.9	)%
Factory adjusted gross margin		24.3	%		25.3	%		(1.0	)%		(3.8	)%
Retail gross margin		65.1	%		63.6	%		1.6	%		2.5	%
Total Adjusted Gross Margin		29.8	%		30.5	%		(0.7	)%		(2.2	)%

Adjusted gross margin and factory adjusted gross margin are non-GAAP financial measures. Adjusted gross margin 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 plus 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, factory gross margin and other performance measures calculated in conformity with 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 analytical tools because they exclude the impact of depreciation and amortization expense and you should not consider it in isolation or as a substitute for any measure reported under GAAP. Our use of capital assets makes depreciation and amortization expense a necessary element of our costs and our ability to generate income. Due to these limitations, we use adjusted gross margin 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.

Cost of Sales and Gross Margin

Factory margins decreased 130 basis points in the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018, primarily because of charges associated with costs of excess capacity and an estimated loss on inventory associated with the bankruptcy of FTD, the Company’s largest customer. These costs were partially offset by improvements to margins resulting from product rationalization. Excess capacity was the result of a 15.9% decrease in production for the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018. The increase in retail gross margins was primarily the result of the closure of underperforming Company-owned locations during the prior fiscal year.

Franchise Costs

The decrease in franchise costs in the nine months ended November 30, 2019 versus the nine months ended November 30, 2018 is due primarily to a decrease in legal and professional expenses. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise costs decreased to 25.1% in the nine months ended November 30, 2019 from 29.5% in the nine months ended November 30, 2018. This decrease as a percentage of royalty, marketing and franchise fees is primarily a result of lower franchise costs.

Sales and Marketing

The decrease in sales and marketing costs for the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018 is primarily due to planned cost reductions as a result of fewer domestic franchise units in operation.     

General and Administrative

The increase in general and administrative costs for the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018 is primarily due to higher professional fees associated with the Company’s previously announced process to explore and review strategic alternatives, which formally concluded upon the Company’s entry into the Strategic Alliance, and costs associated with a stockholder’s contested solicitation of proxies, which was terminated in December 2019. During the nine months ended November 30, 2019, the Company incurred approximately $1,119,000 of costs associated with the review of strategic alternatives and the contested solicitation of proxies, compared with no comparable costs incurred in the nine months ended November 30, 2018. As a percentage of total revenues, general and administrative expenses increased to 14.8% in the nine months ended November 30, 2019 compared to 10.3% in the nine months ended November 30, 2018.

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Retail Operating Expenses

The decrease in retail operating expenses for the nine months ended November 30, 2019 compared to the nine months ended November 30, 2018 was due primarily to changes in units in operation, as a result of the closure of certain underperforming Company-owned units in the prior fiscal year. Retail operating expenses, as a percentage of retail sales, decreased from 55.9% in the nine months ended November 30, 2018 to 55.4% in the nine months ended November 30, 2019. This decrease is primarily the result of the change in units in operation from the prior year.

Depreciation and Amortization

Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales, was $674,000 in the nine months ended November 30, 2019, a decrease of 23.3% from $880,000 in the nine months ended November 30, 2018. This decrease was the result of a decrease in frozen yogurt cafés in operation and lower amortization of the associated franchise rights. See Note 8 to the financial statements for a summary of annual amortization of intangible assets based upon existing intangible assets and current useful lives. Depreciation and amortization included in cost of sales increased 6.2% from $415,000 in the nine months ended November 30, 2018 to $440,000 in the six months ended November 30, 2019. This increase was the result of an increase in production assets in service primarily resulting from the replacement of obsolete equipment or equipment at the end of its operating life.

Costs Associated with Company-Owned Store Closures

There was $177,000 in costs associated with Company-owned store closures incurred during the nine months ended November 30, 2018 and no costs associated with Company-owned store closures incurred during the nine months ended November 30, 2019. The costs incurred during the nine months ended November 30, 2018 were the result of charges related to closing certain underperforming Company-owned locations.

Other Income (Expense)

Interest income was approximately $5,000 in the nine months ended November 30, 2019, compared to net interest expense of $44,000 in the nine months ended November 30, 2018. This change in interest from net interest expense to net interest income is due to lower average outstanding promissory note balances for the nine months ended November 30, 2019.

Income Tax Expense

Our effective income tax rate for the nine months ended November 30, 2019 was 25.7%, compared to 24.6% for the nine months ended November 30, 2018. This change was primarily the result of higher deductions realized during the three months ended November 30, 2018, compared to the three months ended November 30, 2019.

Liquidity and Capital Resources

As of November 30, 2019 working capital was $9.0 million compared to $9.5 million at February 28, 2019.

Cash and cash equivalent balances increased approximately $100,000 to $5.5 million as of November 30, 2019 compared to $5.4 million as of February 28, 2019, primarily as a result of cash flow generated by operating activities exceeding cash flow used by financing activities, including repayment of debt and payment of dividends. Our current ratio was 2.6 to 1 at November 30, 2019 compared to 3.0 to 1 at February 28, 2019. We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements.

During the nine months ended November 30, 2019, we had net income of $1,558,060. Operating activities provided cash of $4,031,992, with the principal adjustments to reconcile the net income to net cash provided by operating activities being depreciation and amortization of $1,114,678, an increase in accounts payable of $1,206,354 and the expense recorded for stock compensation of $503,210. During the comparable 2018 period, we had net income of $1,853,120, and operating activities provided cash of $1,699,053. The principal adjustment to reconcile the net income to net cash provided by operating activities was depreciation and amortization of $1,294,241 and the increase in inventory of $1,471,361.

During the nine months ended November 30, 2019, investing activities used cash of $753,952, primarily due to the purchases of property, equipment of $864,370. In comparison, investing activities used cash of $419,014 during the nine months ended November 30, 2018 primarily due to the purchase of property and equipment of $498,252.

Financing activities used cash of $3,199,389 for the nine months ended November 30, 2019 and used cash of $3,141,084 during the prior year period. The Company’s financing activities consist primarily of payments on long-term debt and declared dividends.

25

We have a $5.0 million ($5.0 million available as of November 30, 2019) working capital line of credit collateralized by substantially all of our assets with the exception of our retail store assets. Additionally, the line of credit is subject to various financial ratio and leverage covenants. As of November 30, 2019, we were in compliance with all such covenants. The line of credit was renewed in September 2019 and is subject to renewal again in September 2021. As of November 30, 2019, no amount was outstanding under this line of credit.

Our outstanding long-term debt is comprised of a promissory note used to finance business acquisitions of SWRL (unpaid balance as of November 30, 2019 of approximately $128,000). The promissory note allowed us 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%. The promissory note matures on January 15, 2020. Additionally, the promissory note is subject to various financial ratio and leverage covenants. As of November 30, 2019, we were in compliance with all such covenants. We expect to pay off the remaining balance of this promissory note at maturity.

On July 15, 2014, we publicly announced a plan to repurchase up to $3.0 million of our common stock in the open market or in private transactions, whenever deemed appropriate by management. On January 13, 2015, we announced a plan to purchase up to an additional $2,058,000 of our common stock under the repurchase plan, and on May 21, 2015, we announced a further increase to the repurchase plan by authorizing the purchase of up to an additional $2,090,000 of our common stock under the repurchase plan. We did not repurchase any shares during the three and nine months ended November 30, 2019. As of November 30, 2019, approximately $638,000 remained available under the repurchase plan for further stock repurchases.

We believe cash flows generated by operating activities and available financing will be sufficient to fund our operations for at least the next twelve months. If necessary, the Company has an available bank line of credit to help meet these requirements.

Off-Balance Sheet Arrangements

As of November 30, 2019, except for the purchase obligations as described below, we had no material off-balance sheet arrangements or obligations.

Purchase obligations: As of November 30, 2019, we had purchase obligations of approximately $90,000. These purchase obligations primarily consist of contractual obligations for future purchases of commodities for use in our manufacturing.

Impact of Inflation

Inflationary factors such as increases in the costs of ingredients 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 include potentially escalating costs of real estate and construction. There is no assurance that we will be able to pass on increased costs to our customers.

Depreciation expense is based on the historical cost to us of our 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

We are subject to seasonal fluctuations in sales, which cause fluctuations in quarterly results of operations. Historically, the strongest sales of our products have occurred during key holidays and the summer vacation season. In addition, quarterly results have been, and in the future are likely to be, affected by the timing of new store openings and sales of franchises. Because of the seasonality of our business and the impact of new store openings and sales of franchises, results for any quarter are not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

We do not engage in commodity futures trading or hedging activities and do not enter into derivative financial instrument transactions for trading or other speculative purposes. We also do not engage in transactions in foreign currencies or in interest rate swap transactions that could expose us to market risk. However, we are exposed to some commodity price and interest rate risks.

We frequently enter into purchase contracts of between six to eighteen months for chocolate and certain nuts. These contracts permit us 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, we may benefit if prices rise during the terms of these contracts, but we may be required to pay above-market prices if prices fall and we are unable to renegotiate the terms of the contract. As of November 30, 2019, based on future contractual obligations for ingredients, we estimate that a 10.0% change in the prices of contracted ingredients would result in a $9,000 favorable or unfavorable price benefit or cost, respectively, resulting from our contracts.

26

We have a $5 million bank line of credit that bears interest at a variable rate. As of November 30, 2019, 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 line of credit.

We also entered into a $7.0 million promissory note with interest at a fixed rate of 3.75% annually that was used to finance the previous acquisitions by SWRL. As of November 30, 2019, approximately $128,000 was outstanding under this promissory note. We do not believe that we are exposed to any material interest rate risk related to this promissory note.

Item 4.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that material information relating to us is made known to the officers who certify as to our 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 our reports that are filed or submitted under the Exchange Act, are recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’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 Exchange 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 our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of November 30, 2019.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2019 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II.     OTHER INFORMATION

Item 1.     Legal Proceedings

The Company is party to various legal proceedings arising in the ordinary course of business from time to time. Management believes that the resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Item 1A.   Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part 1, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 28, 2019. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 28, 2019.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

None.

Item 3.     Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not Applicable.

Item 5.     Other Information

None.

27

Item 6.     Exhibits

3.1 Amended and Restated Certificate of Incorporation of Rocky Mountain Chocolate Factory, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on March 2, 2015).

3.2 Certificate of Designations of Series A Junior Participating Preferred Stock, par value $0.001 per share, of Rocky Mountain Chocolate Factory, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on March 2, 2015).

3.3 Amended and Restated Bylaws of Rocky Mountain Chocolate Factory, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 6, 2019).

10.1* Revolving Line of Credit Note, dated September 30, 2019, between Rocky Mountain Chocolate Factory, Inc. and Wells Fargo Bank, National Association.

31.1* Certification Filed Pursuant To Section 302 of The Sarbanes-Oxley Act of 2002.

32.1** Certification Furnished Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002.

101.INS *XBRL Instance Document.

101.SCH *XBRL Taxonomy Extension Schema Document.

101.CAL *XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF *XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB *XBRL Taxonomy Extension Label Linkbase Document.

101.PRE *XBRL Taxonomy Extension Presentation Linkbase Document.

* Filed herewith.

** Furnished herewith.   

28

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.

(Registrant)

Date: January 14, 2020	/s/ Bryan J. Merryman
	Bryan J. Merryman, Chief Executive Officer,
	Chief Financial Officer, and Chairman of the Board of Directors

29

EX-10.1

EXHIBIT 10.1

REVOLVING LINE OF CREDIT NOTE

$5,000,000.00     Denver, Colorado

September 30, 2019

FOR VALUE RECEIVED, the undersigned ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at MAC C7300-081, 1700 Lincoln Street, Suite 800, Denver, CO 80203, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Five Million Dollars ($5,000,000.00), or so much thereof as may be advanced and be outstanding pursuant to the terms of the Credit Agreement, as defined herein, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein.

DEFINITIONS:

As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined:

(a)     "Daily One Month LIBOR" means, for any day, the rate of interest equal to LIBOR then in effect for delivery for a one (1) month period.

(b)     "LIBOR" means the rate of interest per annum determined by Bank based on the rate for United States dollar deposits for delivery of funds for one (1) month as published by the ICE Benchmark Administration Limited, a United Kingdom company, at approximately 11:00 a.m., London time, or, for any day not a London Business Day, the immediately preceding London Business Day (or if not so published, then as determined by Bank from another recognized source or interbank quotation); provided, however, that if LIBOR determined as provided above would be less than zero percent (0.0%), then LIBOR shall be deemed to be zero percent (0.0%).

(c)     "London Business Day" means any day that is a day for trading by and between banks in dollar deposits in the London interbank market.

INTEREST:

(a)     Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at a fluctuating rate per annum determined by Bank to be two and one quarter percent (2.25%) above Daily One Month LIBOR in effect from time to time. Bank is hereby authorized to note the date and interest rate applicable to this Note and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted.

(b)     Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii) costs, expenses and liabilities arising from or in connection with

1

reserve percentages prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.

(c)     Default Interest. The Bank shall have the option in its sole and absolute discretion to have the outstanding principal balance of this Note bear interest at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note (i) from and after the maturity date of this Note; (ii) from and after the date prior to the maturity date of this Note when all principal owing hereunder becomes due and payable by acceleration or otherwise; and/or (iii) upon the occurrence and during the continuance of any Event of Default.

BORROWING AND REPAYMENT:

(a)     Borrowing and Repayment of Principal. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on September 30, 2021.

(b)     Payment of Interest. Interest accrued on this Note shall be payable on the last day of each month, commencing October 30, 2019, and on the maturity date set forth above.

(c)     Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) BRYAN MERRYMAN or JEREMY KINNEY, any one acting alone (subject to any of Bank’s applicable authentication policies or procedures, which may require that a particular individual—including another specific individual listed above—provide verification of the identity of the requestor), who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by Borrower.

(d)     Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof.

2

PREPAYMENT:

Borrower may prepay principal on this Note at any time, in any amount and without penalty. If principal under this Note is payable in more than one installment, then any prepayments of principal shall be applied to the most remote principal installment or installments then unpaid.

EVENTS OF DEFAULT:

This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated October 30, 2015, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note.

MISCELLANEOUS:

(a)     Remedies. Upon the sale, transfer, hypothecation, assignment or other encumbrance, whether voluntary, involuntary or by operation of law, of all or any interest in any real property securing this Note, if any, or upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note whether or not suit is brought, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity.

(b)     Collateral Exclusion. No lien or security interest created by or arising under any deed of trust, mortgage, security deed, or similar real estate collateral agreement (“Lien Document”) shall secure the Note Obligations unless such Lien Document specifically describes the promissory note(s), instrument(s) or agreement(s) evidencing Note Obligations as a part of the indebtedness secured thereby. This exclusion shall apply notwithstanding (i) the fact that such Lien Document may appear to secure the Note Obligations by virtue of a cross- collateralization provision or other provisions expanding the scope of the secured obligations, and (ii) whether such Lien Document was entered into prior to, concurrently with, or after the date hereof. As used herein, “Note Obligations” means any obligations under this Note, as amended, extended, renewed, refinanced, supplemented or otherwise modified from time to time, or under any other evidence of indebtedness that has been modified, renewed or extended in whole or in part by this Note, as amended, extended, renewed, refinanced, supplemented or otherwise modified from time to time.

3

(c)     Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several.

(d)     Governing Law. This Note shall be governed by and construed in accordance with the laws of Colorado, but giving effect to federal laws applicable to national banks, without reference to the conflicts of law or choice of law principles thereof.

(e)     Effective Date. The effective date of this Note shall be the date that Bank has accepted this Note and all conditions to the effectiveness of the Credit Agreement have been fulfilled to Bank’s satisfaction. Notwithstanding the occurrence of the effective date of this Note, Bank shall not be obligated to extend credit under this Note until all conditions to each extension of credit set forth in the Credit Agreement have been fulfilled to Bank's satisfaction.

IN WITNESS WHEREOF, the undersigned has executed this Note to be effective as of the effective date set forth herein.

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.

By:    /s/ Bryan Merryman 

BRYAN MERRYMAN, CEO, CFO

4

EX-31.1

Exhibit 31.1

Certification Pursuant To Section 302 Of The Sarbanes-Oxley Act of 2002

I, Bryan J. Merryman, certify that:

1.     I have reviewed this quarterly report on Form 10-Q 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) 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;

b) 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;

c) 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

d) 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) 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

b) 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: January 14, 2020	/s/ Bryan J. Merryman
	Bryan J. Merryman, Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors (Principal Executive and Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Rocky Mountain Chocolate Factory, Inc. (the "Company") on Form 10-Q for the quarterly period ended November 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned officer of the Company certifies, in his capacity as such, 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: January 14, 2020	By	/s/ Bryan J. Merryman
		Bryan J. Merryman, Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors (Principal Executive and Financial Officer)

XML

Note 1 - Nature of Operations and Basis of Presentation - Number of Stores (Details)	Nov. 30, 2019
Number of stores	441
Sold Not Yet Open [Member]
Number of stores	8
Open [Member]
Number of stores	433
Company Owned Stores [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	2
Company Owned Stores [Member] | USwirl Inc [Member]
Number of stores	1
Company Owned Stores [Member] | Sold Not Yet Open [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	0
Company Owned Stores [Member] | Sold Not Yet Open [Member] | USwirl Inc [Member]
Number of stores	0
Company Owned Stores [Member] | Open [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	2
Company Owned Stores [Member] | Open [Member] | USwirl Inc [Member]
Number of stores	1
Franchise Stores - Domestic Stores and Kiosks [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	180
Franchise Stores - Domestic Stores and Kiosks [Member] | Sold Not Yet Open [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	1
Franchise Stores - Domestic Stores and Kiosks [Member] | Open [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	179
International License Stores [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	64
International License Stores [Member] | USwirl Inc [Member]
Number of stores	2
International License Stores [Member] | Sold Not Yet Open [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	1
International License Stores [Member] | Sold Not Yet Open [Member] | USwirl Inc [Member]
Number of stores	0
International License Stores [Member] | Open [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	63
International License Stores [Member] | Open [Member] | USwirl Inc [Member]
Number of stores	2
Cold Stone Creamery - Co-Branded [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	102
Cold Stone Creamery - Co-Branded [Member] | Sold Not Yet Open [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	5
Cold Stone Creamery - Co-Branded [Member] | Open [Member] | Rocky Mountain Chocolate Factory [Member]
Number of stores	97
Company Owned Stores Co-branded [Member] | USwirl Inc [Member]
Number of stores	3
Company Owned Stores Co-branded [Member] | Sold Not Yet Open [Member] | USwirl Inc [Member]
Number of stores	0
Company Owned Stores Co-branded [Member] | Open [Member] | USwirl Inc [Member]
Number of stores	3
Franchise Stores - Domestic Stores [Member] | USwirl Inc [Member]
Number of stores	80
Franchise Stores - Domestic Stores [Member] | Sold Not Yet Open [Member] | USwirl Inc [Member]
Number of stores	1
Franchise Stores - Domestic Stores [Member] | Open [Member] | USwirl Inc [Member]
Number of stores	79
Franchise Stores - Domestic Stores - Co-Branded [Member] | USwirl Inc [Member]
Number of stores	7
Franchise Stores - Domestic Stores - Co-Branded [Member] | Sold Not Yet Open [Member] | USwirl Inc [Member]
Number of stores
Franchise Stores - Domestic Stores - Co-Branded [Member] | Open [Member] | USwirl Inc [Member]
Number of stores	7

XML

Note 12 - Revenue from Contracts with Customers (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Table Text Block]

FY 20	$	57,066
FY 21		190,218
FY 22		177,019
FY 23		164,050
FY 24		133,507
Thereafter		445,396
Total	$	1,167,256

XML

Note 12 - Revenue from Contracts with Customers

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE

12

–REVENUE FROM CONTRACTS WITH CUSTOMERS

Effective

March 1, 2018,

the Company adopted ASC

606.

ASC

606

provides that revenues are to be recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration expected to be received for those goods or services. This new standard does

not

impact the Company's recognition of revenue from sales of confectionary items to the Company’s franchisees and others, or in its Company-owned stores as those sales are recognized at the time of the underlying sale and are presented net of sales taxes and discounts. The standard also does

not

change the recognition of royalties and marketing fees from franchised or licensed locations, which are based on a percent of sales and recognized at the time the sales occur. The standard does change the timing in which the Company recognizes initial fees from franchisees and licensees for new franchise locations and renewals that affect the term of the franchise agreement.

Initial Franchise Fees, License Fees, Transfer Fees and Renewal Fees

The Company's policy for recognizing initial franchise and renewal fees through

February 28, 2018

was to recognize initial franchise fees upon new store openings and renewals that impact the term of the franchise agreement upon renewal. In accordance with the new guidance, the initial franchise services are

not

distinct from the continuing rights or services offered during the term of the franchise agreement, and will be treated as a single performance obligation. Beginning

March 1, 2018,

initial franchise fees are being recognized as the Company satisfies the performance obligation over the term of the franchise agreement, which is generally

10

-

15

years.

At

November 30, 2019,

annual revenue expected to be recognized in the future, related to performance obligations that are

not

yet fully satisfied, are estimated to be the following:

FY 20	$	57,066
FY 21		190,218
FY 22		177,019
FY 23		164,050
FY 24		133,507
Thereafter		445,396
Total	$	1,167,256

Gift Cards

The Company’s franchisees sell gift cards, which do

not

have expiration dates or non-usage fees. The proceeds from the sale of gift cards by the franchisees are accumulated by the Company and paid out to the franchisees upon customer redemption. The Company has historically accumulated gift card liabilities and has

not

recognized breakage associated with the gift card liability. The adoption of ASC

606

requires the use of the “proportionate” method for recognizing breakage, which the Company has

not

historically utilized. Upon adoption of ASC

606

the Company began recognizing breakage from gift cards when the gift card is redeemed by the customer or the Company determines the likelihood of the gift card being redeemed by the customer is remote (“gift card breakage”). The determination of the gift card breakage rate is based upon Company-specific historical redemption patterns.

XML

Note 4 - Property and Equipment, Net

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

NOTE

4

– PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following:

	November 30, 2019			February 28, 2019
Land	$	513,618		$	513,618
Building		5,031,395			5,031,395
Machinery and equipment		10,565,626			10,233,119
Furniture and fixtures		852,557			864,944
Leasehold improvements		1,154,395			1,131,659
Transportation equipment		440,989			422,458
		18,558,580			18,197,193
Less accumulated depreciation		(12,517,735	)		(12,411,054	)
Property and equipment, net	$	6,040,845		$	5,786,139

XML

Note 8 - Goodwill and Intangible Assets

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

NOTE

8

– GOODWILL AND INTANGIBLE ASSETS

Intangible assets consist of the following:

				November 30, 2019				February 28, 2019
	Amortization Period (in years)			Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Intangible assets subject to amortization
Store design		10		$	220,778	$	215,278	$	220,778	$	214,152
Packaging licenses	3	-	5		120,830		120,830		120,830		120,830
Packaging design		10			430,973		430,973		430,973		430,973
Trademark/Non-competition agreements	5	-	20		715,339		278,711		715,339		223,628
Franchise rights		20			5,979,637		2,774,140		5,979,637		2,300,717
Total					7,467,557		3,819,932	$	7,467,557	$	3,290,300
Intangible assets not subject to amortization
Franchising segment-
Company stores goodwill				$	832,308			$	832,308
Franchising goodwill					97,318				97,318
Manufacturing segment-goodwill					97,318				97,318
Trademark					20,000				20,000
Total goodwill					1,046,944				1,046,944
Total Intangible Assets				$	8,514,501	$	3,819,932	$	8,514,501	$	3,290,300

Amortization expense related to intangible assets totaled

$529,632

and

$634,131

during the

nine

months ended

November 30, 2019

and

2018,

respectively.

At

November 30, 2019,

annual amortization of intangible assets, based upon the Company’s existing intangible assets and current useful lives, is estimated to be the following:

2020	$	176,544
2021		594,229
2022		490,060
2023		411,607
2024		345,642
Thereafter		1,629,543
Total	$	3,647,625

XML

Note 12 - Revenue from Contracts with Customers - Remaining Performance Obligation (Details)	Nov. 30, 2019 USD ($)
Revenue, remaining performance obligation, amount	$ 1,167,256

XML

Note 14 - Loss Contingency - Balances (Details) - FTD's Bankruptcy [Member]	Nov. 30, 2019 USD ($)
Possible loss, contingent upon the bankruptcy proceedings	$ 301,474
Reserve for estimated losses	(230,384)
Accounts Receivable [Member]
Possible loss, contingent upon the bankruptcy proceedings	79,744
Ingredients and Supplies [Member] | Inventories [Member]
Possible loss, contingent upon the bankruptcy proceedings	377,044
Finished Candy [Member] | Inventories [Member]
Possible loss, contingent upon the bankruptcy proceedings	$ 75,070

XML

Note 8 - Goodwill and Intangible Assets - Indefinite-lived Intangible Assets (Details) - USD ($)	9 Months Ended
	Nov. 30, 2019	Feb. 28, 2019
Intangible assets subject to amortization, gross carrying value	$ 7,467,557	$ 7,467,557
Intangible assets subject to amortization, accumulated amortization	3,819,932	3,290,300
Intangible assets not subject to amortization, gross carrying value	1,046,944	1,046,944
Total Intangible Assets	8,514,501	8,514,501
Intangible assets not subject to amortization, accumulated goodwill impairment	3,819,932	3,290,300
Company Stores Goodwill [Member]
Intangible assets not subject to amortization, gross carrying value	832,308	832,308
Franchising Goodwill [Member]
Intangible assets not subject to amortization, gross carrying value	97,318	97,318
Manufacturing Segment Goodwill [Member]
Intangible assets not subject to amortization, gross carrying value	97,318	97,318
Trademarks [Member]
Intangible assets not subject to amortization, gross carrying value	$ 20,000	20,000
Store Design [Member]
Amortization Period (Year)	10 years
Intangible assets subject to amortization, gross carrying value	$ 220,778	220,778
Intangible assets subject to amortization, accumulated amortization	215,278	214,152
Packaging Licenses [Member]
Intangible assets subject to amortization, gross carrying value	120,830	120,830
Intangible assets subject to amortization, accumulated amortization	$ 120,830	120,830
Packaging Licenses [Member] | Minimum [Member]
Amortization Period (Year)	3 years
Packaging Licenses [Member] | Maximum [Member]
Amortization Period (Year)	5 years
Packaging Design [Member]
Amortization Period (Year)	10 years
Intangible assets subject to amortization, gross carrying value	$ 430,973	430,973
Intangible assets subject to amortization, accumulated amortization	430,973	430,973
Trademarks and Non Competition Agreement [Member]
Intangible assets subject to amortization, gross carrying value	715,339	715,339
Intangible assets subject to amortization, accumulated amortization	$ 278,711	223,628
Trademarks and Non Competition Agreement [Member] | Minimum [Member]
Amortization Period (Year)	5 years
Trademarks and Non Competition Agreement [Member] | Maximum [Member]
Amortization Period (Year)	20 years
Franchise Rights [Member]
Amortization Period (Year)	20 years
Intangible assets subject to amortization, gross carrying value	$ 5,979,637	5,979,637
Intangible assets subject to amortization, accumulated amortization	$ 2,774,140	$ 2,300,717

XML

Note 6 - Supplemental Cash Flow Information - Supplemental Cash Flow Information (Details) - USD ($)	9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018
Interest	$ 20,169	$ 59,140
Income taxes	613,876	381,318
Accrued Inventory	65,488	292,435
Dividend payable	$ 719,400	$ 713,839

XML

Consolidated Statements of Income (Unaudited) (Parentheticals) - USD ($)	3 Months Ended		9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018	Nov. 30, 2019	Nov. 30, 2018
Depreciation and amortization expense, cost of sales	$ 147,338	$ 139,971	$ 440,452	$ 414,689

XML

Note 1 - Nature of Operations and Basis of Presentation (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Number of Stores [Table Text Block]

	Sold, Not Yet Open		Open		Total
Rocky Mountain Chocolate Factory
Company-owned stores		-		2		2
Franchise stores - Domestic stores and kiosks		1		179		180
International license stores		1		63		64
Cold Stone Creamery - co-branded		5		97		102
U-Swirl (Including all associated brands)						-
Company-owned stores		-		1		1
Company-owned stores - co-branded		-		3		3
Franchise stores - Domestic stores		1		79		80
Franchise stores - Domestic - co-branded		-		7		7
International license stores		-		2		2
Total		8		433		441

XML

Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Feb. 28, 2018	5,903,436
Balance at Feb. 28, 2018	$ 5,903	$ 6,131,147	$ 13,419,553	$ 19,556,603
Net Income			1,853,120	1,853,120
Issuance of common stock, vesting of restricted stock units and other	46	(46)
Share-based compensation expense		383,655		383,655
Common stock dividends			(2,136,331)	(2,136,331)
Balance (in shares) at Nov. 30, 2018	5,948,660
Issuance of common stock, vesting of restricted stock units and other (in shares)	45,224
Adoption of ASC 606			925,929	925,929
Balance at Nov. 30, 2018	$ 5,949	6,514,756	14,062,271	20,582,976
Balance (in shares) at Aug. 31, 2018	5,948,660
Balance at Aug. 31, 2018	$ 5,949	6,411,829	14,250,749	20,668,527
Net Income			525,361	525,361
Issuance of common stock, vesting of restricted stock units and other
Share-based compensation expense		102,927		102,927
Common stock dividends			(713,839)	(713,839)
Balance (in shares) at Nov. 30, 2018	5,948,660
Balance at Nov. 30, 2018	$ 5,949	6,514,756	14,062,271	$ 20,582,976
Balance (in shares) at Feb. 28, 2019	5,957,827			5,957,827
Balance at Feb. 28, 2019	$ 5,958	6,650,864	13,733,010	$ 20,389,832
Net Income			1,558,060	1,558,060
Issuance of common stock, vesting of restricted stock units and other	37	(37)
Share-based compensation expense		503,210		503,210
Common stock dividends			(2,154,938)	$ (2,154,938)
Balance (in shares) at Nov. 30, 2019	5,994,997			5,994,997
Issuance of common stock, vesting of restricted stock units and other (in shares)	37,170
Balance at Nov. 30, 2019	$ 5,995	7,154,037	13,136,132	$ 20,296,164
Balance (in shares) at Aug. 31, 2019	5,991,162
Balance at Aug. 31, 2019	$ 5,991	7,037,501	13,927,209	20,970,701
Net Income			(71,637)	(71,637)
Issuance of common stock, vesting of restricted stock units and other	4	(4)
Share-based compensation expense		116,540		116,540
Common stock dividends			(719,440)	$ (719,440)
Balance (in shares) at Nov. 30, 2019	5,994,997			5,994,997
Issuance of common stock, vesting of restricted stock units and other (in shares)	3,835
Balance at Nov. 30, 2019	$ 5,995	$ 7,154,037	$ 13,136,132	$ 20,296,164

XML

Note 6 - Supplemental Cash Flow Information (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

	Nine Months Ended
	November 30,
	2019		2018
Cash paid for:
Interest	$	20,169	$	59,140
Income taxes		613,876		381,318
Non-cash Operating Activities
Accrued Inventory		65,488		292,435
Non-cash Financing Activities
Dividend payable	$	719,400	$	713,839

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Note 8 - Goodwill and Intangible Assets - Estimated Future Amortization Expense (Details)	Nov. 30, 2019 USD ($)
2020	$ 176,544
2021	594,229
2022	490,060
2023	411,607
2024	345,642
Thereafter	1,629,543
Total	$ 3,647,625

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Note 7 - Operating Segments (Details Textual) $ in Millions	6 Months Ended	9 Months Ended
	Aug. 31, 2019	Nov. 30, 2019 USD ($)	Nov. 30, 2018 USD ($)
Number of Reportable Segments	5
Revenue Benchmark [Member] | Customer Concentration Risk [Member] | Manufacturing [Member]
Number of Major Customers		1	1
Revenues, Total		$ 1.5	$ 1.8
Concentration Risk, Percentage		6.30%	7.10%

XML

Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018	Nov. 30, 2019	Nov. 30, 2018
Revenues
Total revenues	$ 7,913,252	$ 8,949,747	$ 23,724,521	$ 25,115,920
Costs and Expenses
Cost of sales	4,956,177	5,700,352	13,309,356	14,249,478
Sales and marketing	434,989	519,176	1,426,422	1,672,638
General and administrative	1,529,271	860,916	3,504,453	2,588,751
Depreciation and amortization, exclusive of depreciation and amortization expense of $147,338, $139,971, $440,452 and $414,689, respectively, included in cost of sales	216,854	281,815	674,226	879,552
Costs associated with Company-owned store closures				176,981
Total costs and expenses	8,011,426	8,271,373	21,631,449	22,613,890
Income (Loss) from Operations	(98,174)	678,374	2,093,072	2,502,030
Other Income (Expense)
Interest Expense	(2,890)	(16,032)	(18,775)	(58,089)
Interest Income	7,205	4,758	23,391	13,962
Other income (expense), net	4,315	(11,274)	4,616	(44,127)
Income (Loss) Before Income Taxes	(93,859)	667,100	2,097,688	2,457,903
Income Tax Provision	(22,222)	141,739	539,628	604,783
Consolidated Net Income (Loss)	$ (71,637)	$ 525,361	$ 1,558,060	$ 1,853,120
Basic Earnings (Loss) per Common Share (in dollars per share)	$ (0.01)	$ 0.09	$ 0.26	$ 0.31
Diluted Earnings (Loss) per Common Share (in dollars per share)	$ (0.01)	$ 0.09	$ 0.25	$ 0.31
Outstanding - Basic (in shares)	5,994,955	5,948,660	5,978,270	5,925,725
Stock Awards (in shares)		34,170	271,667	57,165
Outstanding - Diluted (in shares)	5,994,955	5,982,830	6,249,937	5,982,890
Product [Member]
Revenues
Total revenues	$ 6,490,601	$ 7,583,327	$ 18,335,252	$ 19,901,695
Franchise and Royalty Fees [Member]
Revenues
Total revenues	1,422,651	1,366,420	5,389,269	5,214,225
Franchise [Member]
Costs and Expenses
Costs	428,236	463,056	1,352,887	1,539,104
Retail [Member]
Costs and Expenses
Costs	$ 445,899	$ 446,058	$ 1,364,105	$ 1,507,386

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Significant Accounting Policies (Policies)

9 Months Ended

Nov. 30, 2019

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and Securities and Exchange Commission (the “SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Certain amounts previously presented for prior periods have been reclassified to conform to the current presentation. In the opinion of management, the consolidated financial statements reflect all adjustments (of a normal and recurring nature) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the

three

and

nine

months ended

November 30, 2019

are

not

necessarily indicative of the results to be expected for the entire fiscal year, or any other future period.

These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form

10

-K for the fiscal year ended

February 28, 2019.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

On

December 20, 2019,

the Company entered into a strategic alliance (the “Strategic Alliance”) with Edible Arrangements, LLC (“EA”) and Farids & Co. LLC (“Farids,” and together with EA and any permitted transferees, “Edible Arrangements”), pursuant to which, among other things, the Company will become the exclusive provider of certain branded chocolate products to EA, its affiliates and its franchisees. In connection with the Strategic Alliance, the Company entered into a strategic alliance agreement, an exclusive supplier operating agreement and a warrant agreement with EA and Farids.

Exclusive Supplier Agreement, Policy [Policy Text Block]

Exclusive Supplier Agreement

On

December 20, 2019,

the Company entered into an Exclusive Supplier Operating Agreement (the “Exclusive Supplier Agreement”) with EA, pursuant to which the Company will be EA’s exclusive supplier for chocolates, candies and/or other confectionery products. In addition, the Company granted to EA a non-exclusive, worldwide right to market, offer for sale, sell and distribute such products, including through (i) retail stores and (ii) on-line distribution channels such as Internet websites and applications for personal computing devices, as an authorized and independent distributor of such products.

Strategic Alliance Agreement, Policy [Policy Text Block]

Strategic Alliance Agreement

On

December 20, 2019,

the Company entered into a Strategic Alliance Agreement (the “Strategic Alliance Agreement”) with EA and Farids, pursuant to which, among other things, the Company will issue and sell

126,839

shares (the “Purchased Shares”) of the Company’s common stock to Farids at a price of

$7.884

per share. The issuance and sale of the Purchased Shares is required to close within

90

days, subject to the satisfaction of certain customary closing conditions. The Purchased Shares

may

not

be transferred within the

first

two

years following the date of the Strategic Alliance Agreement, subject to certain limited exceptions. In addition, the Company has certain rights of

first

offer and rights of

first

refusal with respect to the Purchased Shares or the Warrants Shares (as defined below), and the Company also granted certain registration rights to Edible Arrangements with respect to the Purchased Shares and the Warrants Shares. Subject to certain limited exceptions, Edible Arrangements is also prohibited from beneficially owning

19.99%

or more of the fully diluted number of shares of Common Stock outstanding at any time.

Warrant, Policy [Policy Text Block]

Warrant

In consideration of EA entering into the Exclusive Supplier Agreement and the performance of its obligations therein, on

December 20, 2019,

the Company issued EA a warrant (the “Warrant”) to purchase up to

960,677

shares of Common Stock (the “Warrant Shares”) at an exercise price of

$8.76

per share. The Warrant Shares vest in annual tranches in varying amounts following each contract year under the Exclusive Supplier Agreement, subject to, and only upon, EA’s achievement of certain revenue thresholds on an annual or cumulative

five

-year basis in connection with its performance under the Exclusive Supplier Agreement. The Warrant expires

six

months after the final and conclusive determination of revenue thresholds for the

fifth

contract year and the cumulative revenue determination in accordance with the terms of the Warrant. The vesting of the Warrant Shares will accelerate under certain circumstances upon a change of control of the Company.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

August 2018,

the SEC adopted amendments to certain disclosure requirements in Securities Act Release

No.

33

-

10532,

Disclosure Update and Simplification. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in Quarterly Reports on Form

10

-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after

November 5, 2018.

The Company adopted these amendments in its Quarterly Report on Form

10

-Q for the quarter ended

May 31, 2019.

In

June 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016

-

13,

Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. ASU

2016

-

13

significantly changes the impairment model for most financial assets and certain other instruments. ASU

2016

-

13

will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU

2016

-

13

is effective for the Company's fiscal year beginning

March 1, 2020

and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU

2016

-

13

will have on the Company's consolidated financial statements.

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

), which requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC

840

“Leases.” These amendments also require qualitative disclosures along with specific quantitative disclosures. The Company adopted ASU

2016

-

02

as of

March 1, 2019,

using the modified retrospective method. This method allows the new standard to be applied retrospectively through a cumulative catch-up adjustment recognized upon adoption. As a result, comparative information in the Company’s financial statements has

not

been restated and continues to be reported under the accounting standards in effect for those periods. The Company recorded a Right of Use Asset and Lease Liability on the Consolidated Balance Sheet of

$3.3

million upon adoption. The impact of the new standard did

not

affect the Company’s cash flows or results of operations. The lease liability reflects the present value of the Company’s estimated future minimum lease payments over the lease term, which includes options that are likely to be exercised, discounted using an incremental borrowing rate or implicit rate. See Note

11

- Leasing Arrangements for additional information.

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018
Cash Flows From Operating Activities
Net Income	$ 1,558,060	$ 1,853,120
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,114,678	1,294,241
Provision for obsolete inventory	307,836	85,207
Provision for loss on accounts and notes receivable	134,783	88,200
Asset impairment and store closure losses		67,822
Loss on sale or disposal of property and equipment	8,307	28,813
Expense recorded for stock compensation	503,210	383,655
Deferred income taxes	57,793	(94,328)
Changes in operating assets and liabilities:
Accounts receivable	(982,237)	(1,136,471)
Refundable income taxes	(132,040)	317,793
Inventories	294,361	(1,471,361)
Other current assets	(45,820)	(110,645)
Accounts payable	1,206,354	407,012
Accrued liabilities	182,625	58,079
Contract liabilities	(175,918)	(72,084)
Net cash provided by operating activities	4,031,992	1,699,053
Cash Flows from Investing Activities
Proceeds received on notes receivable	109,342	73,880
Proceeds from sale or distribution of assets	763	13,498
Purchases of property and equipment	(864,370)	(498,252)
(Increase) decrease in other assets	313	(8,140)
Net cash used in investing activities	(753,952)	(419,014)
Cash Flows from Financing Activities
Payments on long-term debt	(1,048,912)	(1,009,940)
Dividends paid	(2,150,477)	(2,131,144)
Net cash used in financing activities	(3,199,389)	(3,141,084)
Net Decrease in Cash and Cash Equivalents	78,651	(1,861,045)
Cash and Cash Equivalents, Beginning of Period	5,384,027	6,072,984
Cash and Cash Equivalents, End of Period	$ 5,462,678	$ 4,211,939

XML

Note 5 - Stockholders' Equity (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Share-based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block]

	Nine Months Ended
	November 30,
	2019			2018
Outstanding non-vested restricted stock units as of February 28:		25,002			77,594
Granted		270,000			-
Vested		(32,002	)		(43,224	)
Cancelled/forfeited		-			(200	)
Outstanding non-vested restricted stock units as of November 30:		263,000			34,170
Weighted average grant date fair value	$	9.40		$	12.05
Weighted average remaining vesting period (in years)		4.9			0.6

XML

Note 2 - Earnings Per Share (Details Textual)	3 Months Ended
	Nov. 30, 2019 shares
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	263,038

XML

Note 13 - Disaggregation of Revenue (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	43,331	$	-	$	-	$	38,961	$	82,292

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		5,786,303		-		-		5,786,303
Retail sales		-		-		260,002		444,296		704,298
Royalty and marketing fees		1,066,141		-		-		274,218		1,340,359
Total	$	1,109,472	$	5,786,303	$	260,002	$	757,475	$	7,913,252

Three Months Ended November 30, 2018
Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	44,172	$	-	$	-	$	17,490	$	61,662

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		6,862,000		-		-		6,862,000
Retail sales		-		-		282,023		439,304		721,327
Royalty and marketing fees		1,017,905		-		-		286,853		1,304,758
Total	$	1,062,077	$	6,862,000	$	282,023	$	743,647	$	8,949,747

Nine Months Ended November 30, 2019
Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	188,677	$	-	$	-	$	81,824	$	270,501

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		15,874,696		-		-		15,874,696
Retail sales		-		-		758,083		1,702,473		2,460,556
Royalty and marketing fees		3,863,034		-		-		1,255,734		5,118,768
Total	$	4,051,711	$	15,874,696	$	758,083	$	3,040,031	$	23,724,521

Nine Months Ended November 30, 2018
Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	154,693	$	-	$	-	$	107,642	$	262,335

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		17,203,296		-		-		17,203,296
Retail sales		-		-		941,817		1,756,582		2,698,399
Royalty and marketing fees		3,688,308		-		-		1,263,582		4,951,890
Total	$	3,843,001	$	17,203,296	$	941,817	$	3,127,806	$	25,115,920

XML

Note 3 - Inventories

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE

3

– INVENTORIES

Inventories consist of the following:

	November 30, 2019			February 28, 2019
Ingredients and supplies	$	2,328,446		$	2,612,954
Finished candy		1,652,919			1,983,854
U-Swirl food and packaging		54,443			44,696
Reserve for slow moving inventory		(355,078	)		(371,147	)
Total inventories	$	3,680,730		$	4,270,357

XML

Note 7 - Operating Segments

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

NOTE

7

– OPERATING SEGMENTS

The Company classifies its business interests into

five

reportable segments: 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 and Note

1

to the Company’s consolidated financial statements included in the Company’s Annual Report on Form

10

-K for the fiscal year ended

February 28, 2019.

The Company evaluates performance and allocates resources based on operating contribution, which excludes unallocatedcorporate 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 difference in products and services:

Three Months Ended November 30, 2019	Franchising			Manufacturing			Retail			U-Swirl		Other			Total
Total revenues	$	1,110,143		$	6,100,755		$	260,002		$	757,475	$	-		$	8,228,375
Intersegment revenues		(671	)		(314,452	)		-			-		-			(315,123	)
Revenue from external customers		1,109,472			5,786,303			260,002			757,475		-			7,913,252
Segment profit (loss)		427,705			1,001,264			(4,649	)		455		(1,518,634	)		(93,859	)
Total assets		1,189,288			12,346,000			1,046,795			5,540,055		9,055,397			29,177,535
Capital expenditures		16,223			347,310			(7,837	)		2,324		25,330			383,350
Total depreciation & amortization	$	11,909		$	151,771		$	2,572		$	175,359	$	22,581		$	364,192

Three Months Ended November 30, 2018	Franchising			Manufacturing			Retail			U-Swirl			Other			Total
Total revenues	$	1,062,942		$	7,193,761		$	282,023		$	743,647		$	-		$	9,282,373
Intersegment revenues		(865	)		(331,761	)		-			-			-			(332,626	)
Revenue from external customers		1,062,077			6,862,000			282,023			743,647			-			8,949,747
Segment profit (loss)		344,945			1,324,220			(13,732	)		(174,089	)		(814,244	)		667,100
Total assets		1,067,265			14,713,087			1,029,203			5,463,340			5,294,264			27,567,159
Capital expenditures		-			243,043			3,796			1,631			3,327			251,797
Total depreciation & amortization	$	11,617		$	144,436		$	5,631		$	235,446		$	24,656		$	421,786

Nine Months Ended November 30, 2019	Franchising			Manufacturing			Retail			U-Swirl		Other			Total
Total revenues	$	4,054,989		$	16,681,908		$	758,083		$	3,040,031	$	-		$	24,535,011
Intersegment revenues		(3,278	)		(807,212	)		-			-		-			(810,490	)
Revenue from external customers		4,051,711			15,874,696			758,083			3,040,031		-			23,724,521
Segment profit (loss)		1,874,593			3,125,311			(11,683	)		576,499		(3,467,032	)		2,097,688
Total assets		1,189,288			12,346,000			1,046,795			5,540,055		9,055,397			29,177,535
Capital expenditures		24,723			732,989			24,787			3,997		77,874			864,370
Total depreciation & amortization	$	33,093		$	453,751		$	7,715		$	551,336	$	68,783		$	1,114,678

Nine Months Ended November 30, 2018	Franchising			Manufacturing			Retail			U-Swirl		Other			Total
Total revenues	$	3,846,633		$	18,097,063		$	941,817		$	3,127,806	$	-		$	26,013,319
Intersegment revenues		(3,632	)		(893,767	)		-			-		-			(897,399	)
Revenue from external customers		3,843,001			17,203,296			941,817			3,127,806		-			25,115,920
Segment profit (loss)		1,527,599			3,564,168			(117,488	)		190,884		(2,707,260	)		2,457,903
Total assets		1,067,265			14,713,087			1,029,203			5,463,340		5,294,264			27,567,159
Capital expenditures		3,535			415,960			7,601			14,935		56,221			498,252
Total depreciation & amortization	$	35,173		$	428,161		$	29,485		$	720,530	$	80,892		$	1,294,241

Revenue from

one

customer of the Company’s Manufacturing segment represented approximately

$1.5

million, or

6.3

percent, of the Company’s revenues from external customers during the

nine

months ended

November 30, 2019,

compared to

$1.8

million, or

7.1

percent, of the Company’s revenues from external customers during the

nine

months ended

November 30, 2018.

XML

Note 11 - Leasing Arrangements

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

NOTE

11

– LEASING ARRANGEMENTS

The Company conducts its retail operations in facilities leased under non-cancelable operating leases of up to

ten

years. Certain leases contain renewal options for between

five

and

ten

additional years at increased monthly rentals. Some of the leases provide for contingent rentals based on sales in excess of predetermined base levels. 

The Company acts as primary lessee of some franchised store premises, which the Company then subleases to franchisees, but the majority of existing franchised locations are leased by the franchisee directly.

In some instances, the Company has leased space for its Company-owned locations that are now occupied by franchisees. When the Company-owned location was sold or transferred, the store was subleased to the franchisee who is responsible for the monthly rent and other obligations under the lease.

The Company also leases trucking equipment and warehouse space in support of its manufacturing operations. Expense associated with trucking and warehouse leases is included in cost of sales on the consolidated statements of income.

ASU

2016

-

02

allows, as a practical expedient, the retention of the classification of existing leases as operating or financing. All of the Company’s leases are classified as operating leases and that classification has been retained upon adoption. The Company does

not

believe the utilization of this practical expedient has a material impact on lease classifications.

The Company accounts for payments related to lease liabilities on a straight-line basis over the lease term. Lease expense recognized for the

nine

months ended

November 30, 2019

and

2018

in the Consolidated Statements of Income was

$702,872

and

$757,885,

respectively.

The amount of the ‘Right of Use Asset’ and ‘Lease Liability’ recorded in the Consolidated Balance Sheets upon the adoption of ASU

2016

-

02

was

$3.3

million. The lease liability reflects the present value of the Company’s estimated future minimum lease payments over the life of its leases. This includes known escalations and renewal option periods reasonably assured of being exercised. Typically, renewal options are considered reasonably assured of being exercised if the sales performance of the location remains strong. Therefore, the ‘Right of Use Asset’ and ‘Lease Liability’ include an assumption on renewal options that have

not

yet been exercised by the Company, and are

not

currently a future obligation. The Company has separated non-lease components from lease components in the recognition of the ‘Right of Use Asset’ and ‘Lease Liability’ except in instances where such costs were

not

practical to separate. To the extent that occupancy costs, such as site maintenance, are included in the ‘Right of Use Asset’ and ‘Lease Liability,’ the impact is immaterial. For franchised locations, the related occupancy costs including property taxes, insurance and site maintenance are generally required to be paid by the franchisees as part of the franchise arrangement. In addition, the Company is the lessee under non-store related leases such as storage facilities and trucking equipment. For leases where the implicit rate is

not

readily determinable, the Company uses an incremental borrowing rate to calculate the lease liability that represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease. The weighted average discount rate used for operating leases was

3.4%

as of

November 30, 2019.

The total estimated future minimum lease payments is

$3.2

million.

As of

November 30, 2019,

maturities of lease liabilities for the Company’s operating leases were as follows:

FY 20	$	202,645
FY 21		819,005
FY 22		694,755
FY 23		437,445
FY 24		315,962
Thereafter		717,040
Total	$	3,186,852
Less: imputed interest		(309,572	)
Present value of lease liabilities:	$	2,877,280
Weighted average lease term (in years)		6.7

During the

nine

months ended

November 30, 2019

the Company entered into a lease amendment to extend the term of a lease for a Company-owned location. This lease amendment resulted in the Company recognizing a present value of future lease liability of

$476,611

based upon a total lease liability of

$532,811.

XML

Note 12 - Revenue from Contracts with Customers (Details Textual)	Nov. 30, 2019	Mar. 01, 2018
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-12-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	91 days
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-03-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-03-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-03-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-03-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-03-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	1 year
Minimum [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-03-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period		10 years
Maximum [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-03-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period		15 years

XML

Note 14 - Loss Contingency (Details Textual) - USD ($)	9 Months Ended		12 Months Ended
	Nov. 30, 2019	Nov. 30, 2018	Feb. 28, 2019	Feb. 28, 2018
Revenue Benchmark [Member] | Customer Concentration Risk [Member] | FTD [Member]
Revenues, Total	$ 1,500,000	$ 1,800,000	$ 3,100,000	$ 5,100,000
Concentration Risk, Percentage	6.30%	7.10%	9.00%	13.00%
FTD's Bankruptcy [Member]
Loss Contingency, Reserve for Estimated Losses	$ 230,384

XML

Note 8 - Goodwill and Intangible Assets (Details Textual) - USD ($)	9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018
Amortization of Intangible Assets, Total	$ 529,632	$ 634,131

XML

Note 5 - Stockholders' Equity - Restricted Stock Unit Awards Outstanding Under the Plans (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares	9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018
Outstanding non-vested restricted stock units as of February 28: (in shares)	25,002	77,594
Granted (in shares)	270,000	0
Vested (in shares)	(32,002)	(43,224)
Cancelled/forfeited (in shares)		(200)
Outstanding non-vested restricted stock units as of November 30: (in shares)	263,000	34,170
Weighted average grant date fair value (in dollars per share)	$ 9.40	$ 12.05
Weighted average remaining vesting period (Year)	4 years 328 days	219 days

XML

Note 10 - Note Payable - Long-term Note Payable (Details) - USD ($)	Nov. 30, 2019	Feb. 28, 2019
Promissory note	$ 127,576	$ 1,176,488
Less: current maturities	(127,576)	(1,176,488)
Long-term obligations

XML

Note 1 - Nature of Operations and Basis of Presentation

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Business Description and Accounting Policies [Text Block]

NOTE

1

– NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

The accompanying consolidated financial statements include the accounts of Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, its wholly-owned subsidiaries, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation (“RMCF”), Aspen Leaf Yogurt, LLC, a Colorado limited liability company (“ALY”), U-Swirl International, Inc., a Nevada corporation (“U-Swirl”), and its

46%

-owned subsidiary, U-Swirl, Inc., a Nevada corporation (“SWRL”) of which, RMCF had financial control until

February

29,

2016

(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 cafés. The Company also sells its candy outside of its system of retail stores and licenses the use of its brand with certain consumer products.

The Company’s revenues are currently derived from

three

principal sources, which are similar for its wholly owned subsidiaries RMCF and U-Swirl: (i) sales to franchisees and others of chocolates and other confectionery products manufactured by the Company; (ii) sales at Company-owned stores of chocolates, frozen yogurt, and other confectionery products (including products manufactured by the Company); (iii) the collection of initial franchise fees and royalties from franchisees’ sales of both confectionary products and frozen yogurt.

The following table summarizes the number of stores operating under the Rocky Mountain Chocolate Factory brand and frozen yogurt cafés as of

November 30, 2019:

	Sold, Not Yet Open		Open		Total
Rocky Mountain Chocolate Factory
Company-owned stores		-		2		2
Franchise stores - Domestic stores and kiosks		1		179		180
International license stores		1		63		64
Cold Stone Creamery - co-branded		5		97		102
U-Swirl (Including all associated brands)						-
Company-owned stores		-		1		1
Company-owned stores - co-branded		-		3		3
Franchise stores - Domestic stores		1		79		80
Franchise stores - Domestic - co-branded		-		7		7
International license stores		-		2		2
Total		8		433		441

Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and Securities and Exchange Commission (the “SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Certain amounts previously presented for prior periods have been reclassified to conform to the current presentation. In the opinion of management, the consolidated financial statements reflect all adjustments (of a normal and recurring nature) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the

three

and

nine

months ended

November 30, 2019

are

not

necessarily indicative of the results to be expected for the entire fiscal year, or any other future period.

These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form

10

-K for the fiscal year ended

February 28, 2019.

Subsequent Events

On

December 3, 2019,

the Company entered into a cooperation agreement (the “Agreement”) with AB Value Management LLC (“AB Value”) related to AB Value’s contested solicitation of proxies. As part of the Agreement, the Company agreed to reimburse AB Value for all reasonable, documented out-of-pocket fees and expenses in the preparation and execution of the Agreement and the related matters preceding or reasonably following its execution, provided that such reimbursement shall

not

exceed

two hundred

and

ninety thousand

dollars (

$290,000.00

) in the aggregate.  As of

November 30, 2019

the Company had recorded a liability of

$290,000

in consideration of this Agreement.

On

December 20, 2019,

the Company entered into a strategic alliance (the “Strategic Alliance”) with Edible Arrangements, LLC (“EA”) and Farids & Co. LLC (“Farids,” and together with EA and any permitted transferees, “Edible Arrangements”), pursuant to which, among other things, the Company will become the exclusive provider of certain branded chocolate products to EA, its affiliates and its franchisees. In connection with the Strategic Alliance, the Company entered into a strategic alliance agreement, an exclusive supplier operating agreement and a warrant agreement with EA and Farids.

Exclusive Supplier Agreement

On

December 20, 2019,

the Company entered into an Exclusive Supplier Operating Agreement (the “Exclusive Supplier Agreement”) with EA, pursuant to which the Company will be EA’s exclusive supplier for chocolates, candies and/or other confectionery products. In addition, the Company granted to EA a non-exclusive, worldwide right to market, offer for sale, sell and distribute such products, including through (i) retail stores and (ii) on-line distribution channels such as Internet websites and applications for personal computing devices, as an authorized and independent distributor of such products.

Strategic Alliance Agreement

On

December 20, 2019,

the Company entered into a Strategic Alliance Agreement (the “Strategic Alliance Agreement”) with EA and Farids, pursuant to which, among other things, the Company will issue and sell

126,839

shares (the “Purchased Shares”) of the Company’s common stock to Farids at a price of

$7.884

per share. The issuance and sale of the Purchased Shares is required to close within

90

days, subject to the satisfaction of certain customary closing conditions. The Purchased Shares

may

not

be transferred within the

first

two

years following the date of the Strategic Alliance Agreement, subject to certain limited exceptions. In addition, the Company has certain rights of

first

offer and rights of

first

refusal with respect to the Purchased Shares or the Warrants Shares (as defined below), and the Company also granted certain registration rights to Edible Arrangements with respect to the Purchased Shares and the Warrants Shares. Subject to certain limited exceptions, Edible Arrangements is also prohibited from beneficially owning

19.99%

or more of the fully diluted number of shares of Common Stock outstanding at any time.

Warrant

In consideration of EA entering into the Exclusive Supplier Agreement and the performance of its obligations therein, on

December 20, 2019,

the Company issued EA a warrant (the “Warrant”) to purchase up to

960,677

shares of Common Stock (the “Warrant Shares”) at an exercise price of

$8.76

per share. The Warrant Shares vest in annual tranches in varying amounts following each contract year under the Exclusive Supplier Agreement, subject to, and only upon, EA’s achievement of certain revenue thresholds on an annual or cumulative

five

-year basis in connection with its performance under the Exclusive Supplier Agreement. The Warrant expires

six

months after the final and conclusive determination of revenue thresholds for the

fifth

contract year and the cumulative revenue determination in accordance with the terms of the Warrant. The vesting of the Warrant Shares will accelerate under certain circumstances upon a change of control of the Company.

Recent Accounting Pronouncements

In

August 2018,

the SEC adopted amendments to certain disclosure requirements in Securities Act Release

No.

33

-

10532,

Disclosure Update and Simplification. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in Quarterly Reports on Form

10

-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after

November 5, 2018.

The Company adopted these amendments in its Quarterly Report on Form

10

-Q for the quarter ended

May 31, 2019.

In

June 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016

-

13,

Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. ASU

2016

-

13

significantly changes the impairment model for most financial assets and certain other instruments. ASU

2016

-

13

will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU

2016

-

13

is effective for the Company's fiscal year beginning

March 1, 2020

and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU

2016

-

13

will have on the Company's consolidated financial statements.

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

), which requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC

840

“Leases.” These amendments also require qualitative disclosures along with specific quantitative disclosures. The Company adopted ASU

2016

-

02

as of

March 1, 2019,

using the modified retrospective method. This method allows the new standard to be applied retrospectively through a cumulative catch-up adjustment recognized upon adoption. As a result, comparative information in the Company’s financial statements has

not

been restated and continues to be reported under the accounting standards in effect for those periods. The Company recorded a Right of Use Asset and Lease Liability on the Consolidated Balance Sheet of

$3.3

million upon adoption. The impact of the new standard did

not

affect the Company’s cash flows or results of operations. The lease liability reflects the present value of the Company’s estimated future minimum lease payments over the lease term, which includes options that are likely to be exercised, discounted using an incremental borrowing rate or implicit rate. See Note

11

- Leasing Arrangements for additional information.

XML

Note 7 - Operating Segments (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Three Months Ended November 30, 2019	Franchising			Manufacturing			Retail			U-Swirl		Other			Total
Total revenues	$	1,110,143		$	6,100,755		$	260,002		$	757,475	$	-		$	8,228,375
Intersegment revenues		(671	)		(314,452	)		-			-		-			(315,123	)
Revenue from external customers		1,109,472			5,786,303			260,002			757,475		-			7,913,252
Segment profit (loss)		427,705			1,001,264			(4,649	)		455		(1,518,634	)		(93,859	)
Total assets		1,189,288			12,346,000			1,046,795			5,540,055		9,055,397			29,177,535
Capital expenditures		16,223			347,310			(7,837	)		2,324		25,330			383,350
Total depreciation & amortization	$	11,909		$	151,771		$	2,572		$	175,359	$	22,581		$	364,192

Three Months Ended November 30, 2018	Franchising			Manufacturing			Retail			U-Swirl			Other			Total
Total revenues	$	1,062,942		$	7,193,761		$	282,023		$	743,647		$	-		$	9,282,373
Intersegment revenues		(865	)		(331,761	)		-			-			-			(332,626	)
Revenue from external customers		1,062,077			6,862,000			282,023			743,647			-			8,949,747
Segment profit (loss)		344,945			1,324,220			(13,732	)		(174,089	)		(814,244	)		667,100
Total assets		1,067,265			14,713,087			1,029,203			5,463,340			5,294,264			27,567,159
Capital expenditures		-			243,043			3,796			1,631			3,327			251,797
Total depreciation & amortization	$	11,617		$	144,436		$	5,631		$	235,446		$	24,656		$	421,786

Nine Months Ended November 30, 2019	Franchising			Manufacturing			Retail			U-Swirl		Other			Total
Total revenues	$	4,054,989		$	16,681,908		$	758,083		$	3,040,031	$	-		$	24,535,011
Intersegment revenues		(3,278	)		(807,212	)		-			-		-			(810,490	)
Revenue from external customers		4,051,711			15,874,696			758,083			3,040,031		-			23,724,521
Segment profit (loss)		1,874,593			3,125,311			(11,683	)		576,499		(3,467,032	)		2,097,688
Total assets		1,189,288			12,346,000			1,046,795			5,540,055		9,055,397			29,177,535
Capital expenditures		24,723			732,989			24,787			3,997		77,874			864,370
Total depreciation & amortization	$	33,093		$	453,751		$	7,715		$	551,336	$	68,783		$	1,114,678

Nine Months Ended November 30, 2018	Franchising			Manufacturing			Retail			U-Swirl		Other			Total
Total revenues	$	3,846,633		$	18,097,063		$	941,817		$	3,127,806	$	-		$	26,013,319
Intersegment revenues		(3,632	)		(893,767	)		-			-		-			(897,399	)
Revenue from external customers		3,843,001			17,203,296			941,817			3,127,806		-			25,115,920
Segment profit (loss)		1,527,599			3,564,168			(117,488	)		190,884		(2,707,260	)		2,457,903
Total assets		1,067,265			14,713,087			1,029,203			5,463,340		5,294,264			27,567,159
Capital expenditures		3,535			415,960			7,601			14,935		56,221			498,252
Total depreciation & amortization	$	35,173		$	428,161		$	29,485		$	720,530	$	80,892		$	1,294,241

XML

Note 13 - Disaggregation of Revenue

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Disaggregation of Revenue [Text Block]

NOTE

13

– DISAGGREGATION OF REVENUE

The following table presents disaggregated revenue by method of recognition and segment:

Three Months Ended

November 30, 2019

Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	43,331	$	-	$	-	$	38,961	$	82,292

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		5,786,303		-		-		5,786,303
Retail sales		-		-		260,002		444,296		704,298
Royalty and marketing fees		1,066,141		-		-		274,218		1,340,359
Total	$	1,109,472	$	5,786,303	$	260,002	$	757,475	$	7,913,252

Three Months Ended November 30, 2018
Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	44,172	$	-	$	-	$	17,490	$	61,662

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		6,862,000		-		-		6,862,000
Retail sales		-		-		282,023		439,304		721,327
Royalty and marketing fees		1,017,905		-		-		286,853		1,304,758
Total	$	1,062,077	$	6,862,000	$	282,023	$	743,647	$	8,949,747

Nine Months Ended November 30, 2019
Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	188,677	$	-	$	-	$	81,824	$	270,501

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		15,874,696		-		-		15,874,696
Retail sales		-		-		758,083		1,702,473		2,460,556
Royalty and marketing fees		3,863,034		-		-		1,255,734		5,118,768
Total	$	4,051,711	$	15,874,696	$	758,083	$	3,040,031	$	23,724,521

Nine Months Ended November 30, 2018
Revenues recognized over time under ASC 606:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Franchise fees	$	154,693	$	-	$	-	$	107,642	$	262,335

Revenues recognized at a point in time:
	Franchising		Manufacturing		Retail		U-Swirl		Total
Factory sales		-		17,203,296		-		-		17,203,296
Retail sales		-		-		941,817		1,756,582		2,698,399
Royalty and marketing fees		3,688,308		-		-		1,263,582		4,951,890
Total	$	3,843,001	$	17,203,296	$	941,817	$	3,127,806	$	25,115,920

XML

Note 3 - Inventories (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	November 30, 2019			February 28, 2019
Ingredients and supplies	$	2,328,446		$	2,612,954
Finished candy		1,652,919			1,983,854
U-Swirl food and packaging		54,443			44,696
Reserve for slow moving inventory		(355,078	)		(371,147	)
Total inventories	$	3,680,730		$	4,270,357

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Nov. 30, 2019	Feb. 28, 2019
Current Assets
Cash and cash equivalents	$ 5,462,678	$ 5,384,027
Accounts receivable, less allowance for doubtful accounts of $599,292 and $489,502, respectively	4,642,027	3,993,262
Notes receivable, current portion	158,825	110,162
Refundable income taxes	322,241	190,201
Inventories, less reserve for slow moving inventory of $355,078 and $371,147, respectively	3,680,730	4,270,357
Other	363,946	318,126
Total current assets	14,630,447	14,266,135
Property and Equipment, Net	6,040,845	5,786,139
Other Assets
Notes receivable, less current portion	328,503	281,669
Goodwill, net	1,046,944	1,046,944
Franchise rights, net	3,205,497	3,678,920
Intangible assets, net	442,128	498,337
Deferred income taxes	549,628	607,421
Lease right of use asset	2,877,280
Other	56,263	56,576
Total other assets	8,506,243	6,169,867
Total Assets	29,177,535	26,222,141
Current Liabilities
Current maturities of long term debt	127,576	1,176,488
Accounts payable	2,115,998	897,074
Accrued salaries and wages	842,698	655,853
Gift card liabilities	645,054	742,289
Other accrued expenses	386,109	293,094
Dividend payable	719,400	714,939
Contract liabilities	199,454	256,094
Lease liability	601,508
Total current liabilities	5,637,797	4,735,831
Lease Liability, Less Current Portion	2,275,772
Contract Liabilities, Less Current Portion	967,802	1,096,478
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $.001 par value per share; 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, $.001 par value, 46,000,000 shares authorized, 5,994,997 shares and 5,957,827 shares issued and outstanding, respectively	5,995	5,958
Additional paid-in capital	7,154,037	6,650,864
Retained earnings	13,136,132	13,733,010
Total stockholders' equity	20,296,164	20,389,832
Total Liabilities and Stockholders' Equity	$ 29,177,535	$ 26,222,141

XML

Note 5 - Stockholders' Equity

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE

5

– STOCKHOLDERS’ EQUITY

Cash Dividend

The Company paid a quarterly cash dividend of

$0.12

per common share on

March 15, 2019

to stockholders of record on

March 5, 2019.

The Company paid a quarterly cash dividend of

$0.12

per share of common stock on

June 14, 2019

to stockholders of record on

June 4, 2019.

The Company paid a quarterly cash dividend of

$0.12

per share of common stock on

September 13, 2019

to stockholders of record on

September 4, 2019.

The Company declared a quarterly cash dividend of

$0.12

per share of common stock on

November 14, 2019,

which was paid on

December 6, 2019

to stockholders of record on

November 22, 2019.

Future declaration of dividends will depend on, among other things, the Company's results of operations, capital requirements, financial condition and on such other factors as the Board of Directors

may

in its discretion consider relevant and in the best long-term interest of the Company’s stockholders.

Stock Repurchases

On

July 15, 2014,

the Company publicly announced a plan to repurchase 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, and on

May 21, 2015,

the Company announced a further increase to the repurchase plan by authorizing the purchase of up to an additional

$2,090,000

of its common stock under the repurchase plan. The Company did

not

repurchase any shares during the

three

and

nine

months ended

November 30, 2019.

As of

November 30, 2019,

approximately

$638,000

remained available under the repurchase plan for further stock repurchases.

Stock-Based Compensation

The Company’s

2007

Equity Incentive Plan (as amended and restated on

August 8, 2013)

authorizes the granting of stock awards to employees, non-employee directors, consultants and other participants, including stock options, restricted stock and restricted stock units.

The Company recognized

$116,540

and

$503,210

of stock-based compensation expense during the

three

- and

nine

-month periods ended

November 30, 2019,

respectively, compared to

$102,927

and

$383,655

during the

three

- and

nine

-month periods ended

November 30, 2018,

respectively. Compensation costs related to stock-based compensation are generally amortized over the vesting period of the stock awards.

The following table summarizes restricted stock unit activity during the

six

months ended

November 30, 2019

and

2018:

	Nine Months Ended
	November 30,
	2019			2018
Outstanding non-vested restricted stock units as of February 28:		25,002			77,594
Granted		270,000			-
Vested		(32,002	)		(43,224	)
Cancelled/forfeited		-			(200	)
Outstanding non-vested restricted stock units as of November 30:		263,000			34,170
Weighted average grant date fair value	$	9.40		$	12.05
Weighted average remaining vesting period (in years)		4.9			0.6

The Company issued an aggregate of

5,168

fully vested, unrestricted shares of common stock to non-employee directors during the

nine

months ended

November 30, 2019

compared to an aggregate of

2,000

shares issued during the

nine

months ended

November 30, 2018.

In connection with these non-employee director stock issuances, the Company recognized

$48,774

and

$24,480

of stock-based compensation expense during the

nine

months ended

November 30, 2019

and

2018,

respectively.

During the

three

- and

nine

-month periods ended

November 30, 2019,

the Company recognized

$113,418

and

$454,436,

respectively, of stock-based compensation expense related to restricted stock unit grants. The restricted stock unit grants generally vest in equal annual or quarterly installments over a period of

five

to

six

years. During the

nine

-month periods ended

November 30, 2019

and

2018,

32,002

and

43,224

restricted stock units vested and were issued as common stock, respectively. Total unrecognized compensation expense of non-vested, non-forfeited restricted stock units granted as of

November 30, 2019

was

$2,195,848,

which is expected to be recognized over the weighted-average period of

4.9

years.

The Company has

no

outstanding stock options as of

November 30, 2019.

XML

Note 9 - Costs Associated With Company-owned Store Closures

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Restructuring, Impairment, and Other Activities Disclosure [Text Block]

NOTE

9

– COSTS ASSOCIATED WITH COMPANY-OWNED STORE CLOSURES

Costs associated with Company-owned store closures were the result of closing certain underperforming Company-owned locations during the

nine

months ended

November 30, 2018.

Costs associated with Company-owned store closures of

$0

and

$176,981

were incurred during the

three

and the

nine

months ended

November 30, 2018,

respectively.

There were

no

comparable costs incurred during the

three

and

nine

months ended

November 30, 2019.

XML

Note 1 - Nature of Operations and Basis of Presentation (Details Textual) - USD ($)	Dec. 20, 2019	Dec. 03, 2019	Nov. 30, 2019	Mar. 01, 2019	Feb. 28, 2019
Operating Lease, Right-of-Use Asset			$ 2,877,280
Operating Lease, Liability, Total			2,877,280
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset				$ 3,300,000
Operating Lease, Liability, Total				$ 3,300,000
Agreement with AB Value [Member]
Loss Contingency Accrual, Ending Balance			$ 290,000
Subsequent Event [Member] | Warrant Issued For EA [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	960,677
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 8.76
Subsequent Event [Member] | Common Stock In Connection With Strategic Alliance Agreement [Member]
Shares to be Issued upon Agreement	126,839
Shares to be Issued upon Agreement, Price Per Share	$ 7.884
Percentage of Fully Diluted Number of Shares of Common Stock Outstanding	19.99%
Subsequent Event [Member] | Agreement with AB Value [Member]
Maximum Reimbursement Under Agreement		$ 290,000
USwirl Inc [Member]
Noncontrolling Interest, Ownership Percentage by Parent			46.00%

XML

Note 11 - Leasing Arrangements (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

FY 20	$	202,645
FY 21		819,005
FY 22		694,755
FY 23		437,445
FY 24		315,962
Thereafter		717,040
Total	$	3,186,852
Less: imputed interest		(309,572	)
Present value of lease liabilities:	$	2,877,280
Weighted average lease term (in years)		6.7

XML

Note 4 - Property and Equipment, Net - Property and Equipment (Details) - USD ($)	Nov. 30, 2019	Feb. 28, 2019
Property, plant and equipment, gross	$ 18,558,580	$ 18,197,193
Less accumulated depreciation	(12,517,735)	(12,411,054)
Property and equipment, net	6,040,845	5,786,139
Land [Member]
Property, plant and equipment, gross	513,618	513,618
Building [Member]
Property, plant and equipment, gross	5,031,395	5,031,395
Machinery and Equipment [Member]
Property, plant and equipment, gross	10,565,626	10,233,119
Furniture and Fixtures [Member]
Property, plant and equipment, gross	852,557	864,944
Leasehold Improvements [Member]
Property, plant and equipment, gross	1,154,395	1,131,659
Transportation Equipment [Member]
Property, plant and equipment, gross	$ 440,989	$ 422,458

XML

Note 11 - Leasing Arrangements (Details Textual) - USD ($)	9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018	Mar. 01, 2019	Feb. 28, 2019
Operating Lease, Expense	$ 702,872	$ 757,885
Operating Lease, Liability, Total	$ 2,877,280
Operating Lease, Weighted Average Discount Rate, Percent	3.40%
Lessee, Operating Lease, Liability, Payments, Due, Total	$ 3,186,852
Operating Lease, Right-of-Use Asset	2,877,280
Company-owned Location [Member]
Operating Lease, Liability, Total	476,611
Lessee, Operating Lease, Liability, Payments, Due, Total	$ 532,811
Accounting Standards Update 2016-02 [Member]
Operating Lease, Liability, Total			$ 3,300,000
Operating Lease, Right-of-Use Asset			$ 3,300,000
Maximum [Member]
Lessee, Operating Lease, Term of Contract	10 years
Lessee, Operating Lease, Renewal Term	10 years
Minimum [Member]
Lessee, Operating Lease, Renewal Term	5 years

XML

Note 12 - Revenue from Contracts with Customers - Remaining Performance Obligation 2 (Details)	Nov. 30, 2019 USD ($)
Revenue, remaining performance obligation, amount	$ 1,167,256
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-12-01
Revenue, remaining performance obligation, period (Year)	91 days
Revenue, remaining performance obligation, amount	$ 57,066
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-03-01
Revenue, remaining performance obligation, period (Year)	1 year
Revenue, remaining performance obligation, amount	$ 190,218
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-03-01
Revenue, remaining performance obligation, period (Year)	1 year
Revenue, remaining performance obligation, amount	$ 177,019
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-03-01
Revenue, remaining performance obligation, period (Year)	1 year
Revenue, remaining performance obligation, amount	$ 164,050
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-03-01
Revenue, remaining performance obligation, period (Year)	1 year
Revenue, remaining performance obligation, amount	$ 133,507
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-03-01
Revenue, remaining performance obligation, period (Year)	1 year
Revenue, remaining performance obligation, amount	$ 445,396

XML

Note 6 - Supplemental Cash Flow Information

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

NOTE

6

– SUPPLEMENTAL CASH FLOW INFORMATION

	Nine Months Ended
	November 30,
	2019		2018
Cash paid for:
Interest	$	20,169	$	59,140
Income taxes		613,876		381,318
Non-cash Operating Activities
Accrued Inventory		65,488		292,435
Non-cash Financing Activities
Dividend payable	$	719,400	$	713,839

XML

Note 10 - Note Payable

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Long-term Debt [Text Block]

NOTE

10

– NOTE PAYABLE

The Company’s long-term debt is comprised of a promissory note, the proceeds of which were loaned to SWRL and used to finance SWRL’s business acquisitions. The promissory note matures on

January 15, 2020.

As of

November 30, 2019

and

February 28, 2019,

notes payable consisted of the following:

	November 30, 2019			February 28, 2019
Promissory note	$	127,576		$	1,176,488
Less: current maturities		(127,576	)		(1,176,488	)
Long-term obligations	$	-		$	-

XML

Note 3 - Inventories - Inventories (Details) - USD ($)	Nov. 30, 2019	Feb. 28, 2019
Ingredients and supplies	$ 2,328,446	$ 2,612,954
Finished candy	1,652,919	1,983,854
U-Swirl food and packaging	54,443	44,696
Reserve for slow moving inventory	(355,078)	(371,147)
Total inventories	$ 3,680,730	$ 4,270,357

XML

Note 14 - Loss Contingency (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Schedule of Loss Contingencies by Contingency [Table Text Block]

	November 30, 2019
Ingredients and supplies	$	377,044
Finished candy		75,070
Accounts receivable		79,744
Reserve for estimated losses		(230,384	)
Total potential loss, contingent upon the bankruptcy proceedings	$	301,474

XML

Note 10 - Note Payable (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	November 30, 2019			February 28, 2019
Promissory note	$	127,576		$	1,176,488
Less: current maturities		(127,576	)		(1,176,488	)
Long-term obligations	$	-		$	-

XML

Note 11 - Leasing Arrangements - Maturities of Lease Liabilities for Operating Leases (Details)	Nov. 30, 2019 USD ($)
FY 20	$ 202,645
FY 21	819,005
FY 22	694,755
FY 23	437,445
FY 24	315,962
Thereafter	717,040
Total	3,186,852
Less: imputed interest	(309,572)
Operating Lease, Liability, Total	$ 2,877,280
Weighted average lease term (in years) (Year)	6 years 255 days

XML

Note 13 - Disaggregation of Revenue - Disaggregation of Revenue (Details) - USD ($)	3 Months Ended		9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018	Nov. 30, 2019	Nov. 30, 2018
Revenues	$ 7,913,252	$ 8,949,747	$ 23,724,521	$ 25,115,920
Franchising [Member]
Revenues	1,109,472	1,062,077	4,051,711	3,843,001
Manufacturing [Member]
Revenues	5,786,303	6,862,000	15,874,696	17,203,296
Retail Segment [Member]
Revenues	260,002	282,023	758,083	941,817
USwirl Inc [Member]
Revenues	757,475	743,647	3,040,031	3,127,806
Franchise Fees [Member] | Transferred over Time [Member]
Revenues	82,292	61,662	270,501	262,335
Franchise Fees [Member] | Transferred over Time [Member] | Franchising [Member]
Revenues	43,331	44,172	188,677	154,693
Franchise Fees [Member] | Transferred over Time [Member] | Manufacturing [Member]
Revenues
Franchise Fees [Member] | Transferred over Time [Member] | Retail Segment [Member]
Revenues
Franchise Fees [Member] | Transferred over Time [Member] | USwirl Inc [Member]
Revenues	38,961	17,490	81,824	107,642
Factory Sales [Member] | Transferred at Point in Time [Member]
Revenues	5,786,303	6,862,000	15,874,696	17,203,296
Factory Sales [Member] | Transferred at Point in Time [Member] | Franchising [Member]
Revenues
Factory Sales [Member] | Transferred at Point in Time [Member] | Manufacturing [Member]
Revenues	5,786,303	6,862,000	15,874,696	17,203,296
Factory Sales [Member] | Transferred at Point in Time [Member] | Retail Segment [Member]
Revenues
Factory Sales [Member] | Transferred at Point in Time [Member] | USwirl Inc [Member]
Revenues
Retail [Member] | Transferred at Point in Time [Member]
Revenues	704,298	721,327	2,460,556	2,698,399
Retail [Member] | Transferred at Point in Time [Member] | Franchising [Member]
Revenues
Retail [Member] | Transferred at Point in Time [Member] | Manufacturing [Member]
Revenues
Retail [Member] | Transferred at Point in Time [Member] | Retail Segment [Member]
Revenues	260,002	282,023	758,083	941,817
Retail [Member] | Transferred at Point in Time [Member] | USwirl Inc [Member]
Revenues	444,296	439,304	1,702,473	1,756,582
Royalty and Marketing Fees [Member] | Transferred at Point in Time [Member]
Revenues	1,340,359	1,304,758	5,118,768	4,951,890
Royalty and Marketing Fees [Member] | Transferred at Point in Time [Member] | Franchising [Member]
Revenues	1,066,141	1,017,905	3,863,034	3,688,308
Royalty and Marketing Fees [Member] | Transferred at Point in Time [Member] | Manufacturing [Member]
Revenues
Royalty and Marketing Fees [Member] | Transferred at Point in Time [Member] | Retail Segment [Member]
Revenues
Royalty and Marketing Fees [Member] | Transferred at Point in Time [Member] | USwirl Inc [Member]
Revenues	$ 274,218	$ 286,853	$ 1,255,734	$ 1,263,582

XML

Note 9 - Costs Associated With Company-owned Store Closures (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018	Nov. 30, 2019	Nov. 30, 2018
Restructuring Costs and Asset Impairment Charges, Total	$ 0	$ 0	$ 0	$ 176,981

XML

Note 7 - Operating Segments - Segment Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018	Nov. 30, 2019	Nov. 30, 2018	Feb. 28, 2019
Revenues	$ 7,913,252	$ 8,949,747	$ 23,724,521	$ 25,115,920
Segment profit (loss)	(93,859)	667,100	2,097,688	2,457,903
Total assets	29,177,535	27,567,159	29,177,535	27,567,159	$ 26,222,141
Capital expenditures	383,350	251,797	864,370	498,252
Total depreciation and amortization	364,192	421,786	1,114,678	1,294,241
Franchising [Member]
Revenues	1,109,472	1,062,077	4,051,711	3,843,001
Segment profit (loss)	427,705	344,945	1,874,593	1,527,599
Total assets	1,189,288	1,067,265	1,189,288	1,067,265
Capital expenditures	16,223		24,723	3,535
Total depreciation and amortization	11,909	11,617	33,093	35,173
Manufacturing [Member]
Revenues	5,786,303	6,862,000	15,874,696	17,203,296
Segment profit (loss)	1,001,264	1,324,220	3,125,311	3,564,168
Total assets	12,346,000	14,713,087	12,346,000	14,713,087
Capital expenditures	347,310	243,043	732,989	415,960
Total depreciation and amortization	151,771	144,436	453,751	428,161
Retail Segment [Member]
Revenues	260,002	282,023	758,083	941,817
Segment profit (loss)	(4,649)	(13,732)	(11,683)	(117,488)
Total assets	1,046,795	1,029,203	1,046,795	1,029,203
Capital expenditures	(7,837)	3,796	24,787	7,601
Total depreciation and amortization	2,572	5,631	7,715	29,485
U-Swirl Segment [Member]
Revenues	757,475	743,647	3,040,031	3,127,806
Segment profit (loss)	455	(174,089)	576,499	190,884
Total assets	5,540,055	5,463,340	5,540,055	5,463,340
Capital expenditures	2,324	1,631	3,997	14,935
Total depreciation and amortization	175,359	235,446	551,336	720,530
Other Segments [Member]
Revenues		0		0
Segment profit (loss)	(1,518,634)	(814,244)	(3,467,032)	(2,707,260)
Total assets	9,055,397	5,294,264	9,055,397	5,294,264
Capital expenditures	25,330	3,327	77,874	56,221
Total depreciation and amortization	22,581	24,656	68,783	80,892
Operating Segments [Member]
Revenues	8,228,375	9,282,373	24,535,011	26,013,319
Operating Segments [Member] | Franchising [Member]
Revenues	1,110,143	1,062,942	4,054,989	3,846,633
Operating Segments [Member] | Manufacturing [Member]
Revenues	6,100,755	7,193,761	16,681,908	18,097,063
Operating Segments [Member] | Retail Segment [Member]
Revenues	260,002	282,023	758,083	941,817
Operating Segments [Member] | U-Swirl Segment [Member]
Revenues	757,475	743,647	3,040,031	3,127,806
Operating Segments [Member] | Other Segments [Member]
Revenues		0		0
Intersegment Eliminations [Member]
Revenues	(315,123)	(332,626)	(810,490)	(897,399)
Intersegment Eliminations [Member] | Franchising [Member]
Revenues	(671)	(865)	(3,278)	(3,632)
Intersegment Eliminations [Member] | Manufacturing [Member]
Revenues	(314,452)	(331,761)	(807,212)	(893,767)
Intersegment Eliminations [Member] | Retail Segment [Member]
Revenues	0	0	0	0
Intersegment Eliminations [Member] | U-Swirl Segment [Member]
Revenues	0	0	0	0
Intersegment Eliminations [Member] | Other Segments [Member]
Revenues	$ 0	$ 0	$ 0	$ 0

XML

Note 5 - Stockholders' Equity (Details Textual) - USD ($)					3 Months Ended		9 Months Ended
	Nov. 14, 2019	Sep. 13, 2019	Jun. 14, 2019	Mar. 15, 2019	Nov. 30, 2019	Nov. 30, 2018	Nov. 30, 2019	Nov. 30, 2018	May 21, 2015	Jan. 13, 2015	Jul. 15, 2014
Common Stock, Dividends, Per Share, Cash Paid	$ 0.12	$ 0.12	$ 0.12	$ 0.12
Stock Repurchase Program, Authorized Amount										$ 2,058,000	$ 3,000,000
Stock Repurchase Program, Additional Authorized Amount									$ 2,090,000
Treasury Stock, Shares, Acquired					0		0
Stock Repurchase Program, Remaining Authorized Repurchase Amount					$ 638,000		$ 638,000
Share-based Payment Arrangement, Expense					$ 116,540	$ 102,927	$ 503,210	$ 383,655
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance					0		0
Unrestricted Shares of Stock [Member]
Share-based Payment Arrangement, Expense							$ 48,774	$ 24,480
Shares Issued, Shares, Share-based Payment Arrangement, before Forfeiture							5,168	2,000
Restricted Stock Units (RSUs) [Member]
Share-based Payment Arrangement, Expense					$ 113,418		$ 454,436
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period							32,002	43,224
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total					$ 2,195,848		$ 2,195,848
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition							4 years 328 days
Restricted Stock Units (RSUs) [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period							5 years
Restricted Stock Units (RSUs) [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period							6 years

XML

Note 14 - Loss Contingency

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Contingencies Disclosure [Text Block]

NOTE

14

– LOSS CONTINGENCY

In

June 2019,

the Company’s largest customer, FTD Companies, Inc. and its domestic subsidiaries (“FTD”), filed for Chapter

11

bankruptcy proceedings. As a part of such bankruptcy proceedings, divisions of FTD’s business and certain related assets, including the divisions that the Company has historically sold product to, were sold through an auction to multiple buyers.

The Company has historically conducted business with FTD under a Gourmet Foods Supplier Agreement (the “Supplier Agreement”), that among other provisions, provided assurance that custom inventory purchased by the Company and developed specifically for FTD would be purchased by FTD upon termination of the Supplier Agreement. On

September 23, 2019,

the Company received notice that the bankruptcy court had approved FTD to reject and

not

enforce the Supplier Agreement as part of the proceedings.

As a result of FTD’s bankruptcy, the sale of certain assets, and the court’s approval to reject and

not

enforce the terms of the Supplier Agreement, the Company is uncertain if accounts receivable and inventory balances associated with FTD at

November 30, 2019

will be realized at their full value, or if any revenue will be received from FTD in the future. During the

three

months ended

November 30, 2019,

the Company recognized an estimated loss of

$230,384

associated with inventory specific to FTD as the Company determined that it was probable that a loss on certain inventory would be realized. A potential loss associated with the remaining balances is

not

probable and/or is

not

able to be estimated as of the date of these consolidated financial statements.

As of

November 30, 2019,

balances associated with FTD consist of the following:

	November 30, 2019
Ingredients and supplies	$	377,044
Finished candy		75,070
Accounts receivable		79,744
Reserve for estimated losses		(230,384	)
Total potential loss, contingent upon the bankruptcy proceedings	$	301,474

FTD represented approximately

$1.5

million, or

6.3%,

of the Company’s revenues during the

nine

months ended

November 30, 2019,

compared to

$1.8

million, or

7.1%,

of the Company’s revenues during the

nine

months ended

November 30, 2018.

FTD represented approximately

$3.1

million or

9%

of the Company’s total revenues during the year ended

February 28, 2019

compared to revenue of approximately

$5.1

million or

13%

of our total revenues during the year ended

February 28, 2018.

The Company’s future results

may

be adversely impacted by decreases in the purchases of this customer or the loss of this customer entirely.

XML

Document And Entity Information - shares	9 Months Ended
	Nov. 30, 2019	Jan. 01, 2020
Document Information [Line Items]
Entity Registrant Name	Rocky Mountain Chocolate Factory, Inc.
Entity Central Index Key	0001616262
Trading Symbol	rmcf
Current Fiscal Year End Date	--02-29
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		5,999,932
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Nov. 30, 2019
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Amendment Flag	false
Title of 12(b) Security	Common Stock, $0.001 par value per share Preferred Stock Purchase Rights

XML

Note 4 - Property and Equipment, Net (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Property, Plant and Equipment [Table Text Block]

	November 30, 2019			February 28, 2019
Land	$	513,618		$	513,618
Building		5,031,395			5,031,395
Machinery and equipment		10,565,626			10,233,119
Furniture and fixtures		852,557			864,944
Leasehold improvements		1,154,395			1,131,659
Transportation equipment		440,989			422,458
		18,558,580			18,197,193
Less accumulated depreciation		(12,517,735	)		(12,411,054	)
Property and equipment, net	$	6,040,845		$	5,786,139

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Nov. 30, 2019	Feb. 28, 2019
Accounts receivable, allowance for doubtful accounts	$ 599,292	$ 489,502
Inventories, reserve	$ 355,078	$ 371,147
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	250,000	250,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	46,000,000	46,000,000
Common stock, shares issued (in shares)	5,994,997	5,957,827
Common stock, shares outstanding (in shares)	5,994,997	5,957,827
Series A Preferred Stock [Member]
Preferred stock, shares authorized (in shares)	50,000	50,000
Undesignated Series [Member]
Preferred stock, shares authorized (in shares)	200,000	200,000

XML

Note 2 - Earnings Per Share

9 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE

2

– EARNINGS PER SHARE

Basic earnings per share is calculated using the weighted-average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through the settlement of restricted stock units. Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock.

The weighted-average number of shares outstanding used in the computation of diluted earnings per share does

not

include outstanding common shares issuable if their effect would be anti-dilutive. During the

three

months ended

November 30, 2019

263,038

shares of issuable common stock were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

XML

Note 8 - Goodwill and Intangible Assets (Tables)

9 Months Ended

Nov. 30, 2019

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

				November 30, 2019				February 28, 2019
	Amortization Period (in years)			Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Intangible assets subject to amortization
Store design		10		$	220,778	$	215,278	$	220,778	$	214,152
Packaging licenses	3	-	5		120,830		120,830		120,830		120,830
Packaging design		10			430,973		430,973		430,973		430,973
Trademark/Non-competition agreements	5	-	20		715,339		278,711		715,339		223,628
Franchise rights		20			5,979,637		2,774,140		5,979,637		2,300,717
Total					7,467,557		3,819,932	$	7,467,557	$	3,290,300
Intangible assets not subject to amortization
Franchising segment-
Company stores goodwill				$	832,308			$	832,308
Franchising goodwill					97,318				97,318
Manufacturing segment-goodwill					97,318				97,318
Trademark					20,000				20,000
Total goodwill					1,046,944				1,046,944
Total Intangible Assets				$	8,514,501	$	3,819,932	$	8,514,501	$	3,290,300

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2020	$	176,544
2021		594,229
2022		490,060
2023		411,607
2024		345,642
Thereafter		1,629,543
Total	$	3,647,625