- Item 6 of the 10-K report provides comparative financial highlights of RMCF for the years 2016-2020. Describe the revenue trend for RMCF over this five-year period.
- Has RMCF been profitable (see net income) over this five-year period? Support your answer.
- Open Item 7. Managements discussion and Analysis of Financial Condition and Results of Operations. Review the section within Item 7 titled Current Trends and Outlook. State your opinion with regards to the companys outlook for the future year. A minimum of three complete sentences is required.
ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below for the fiscal years ended February 28 or 29, 2016 through 2020, are derived from the consolidated financial statements of the Company, which have been audited by Plante & Moran, PLLC, our independent registered public accounting firm during the fiscal year ended February 28, 2019 and February 29, 2020, or EKS&H LLLP, our independent registered public accounting firm for the fiscal years ended February 28 or 29, 2016 through 2018. The selected financial data should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report and in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations below. All material inter-Company balances have been eliminated upon consolidation. (Amounts in thousands, except per share data) Fiscal Years Ended February 28 or 29, 2019 2018 2017 2020 2016 Selected Statement of Operations Data Total revenues Operating income Net income $ 31,850 $ 1,392 1,034 $ 34,545 $ 38,075 $ 3,006 5,221 2,239 $ 2,964 $ 38,296 $ 40,457 5,524 3,713 3,450 $ 4,426 $ 0.17 $ 0.38 $ 0.50 $ 0.59 $ 0.75 0.17 $ 0.37 $ 0.50 $ 0.58 $ 0.73 5,986 5,931 5,884 5,843 5,894 Basic Earnings per Common Share $ Diluted Earnings per Common Share $ Weighted average common shares outstanding Weighted average common shares outstanding, assuming dilution Selected Balance Sheet Data Working capital $ Total Assets Long-term debt Stockholders' equity 6,255 5,983 5,980 5,994 6,095 8,005 $ 27,817 9,530 $ 26,222 7,364 $ 28,941 1,176 19,557 7,091 $ 29,418 2,529 18,829 7,433 30,316 3,831 18,479 19,356 20,390 Cash Dividend Declared per Common Share $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.48 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto, included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements." Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors." Overview Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, and its subsidiaries (including its operating subsidiary with the same name, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation ("RMCF") (collectively, the "Company," swe," "us," or "our") is an international franchisor, confectionery manufacturer and retail operator. Founded in 1981, we are headquartered in Durango, Colorado and manufacture an extensive line of premium chocolate candies and other confectionery products. Our wholly-owned subsidiary, U- Swirl International, Inc. (U-Swirl'), franchises and operates self-serve frozen yogurt stores. 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 in selected locations outside of our system of retail stores and license the use of our brand with certain consumer products. As of March 31, 2020, there were two Company-owned, 98 licensee-owned and 237 franchised Rocky Mountain Chocolate Factory stores operating in 37 states, Canada, South Korea, Panama, and the Philippines. As of March 31, 2020, -Swirl operated three Company-owned stores and 59 franchised and 25 licensed stores located in 25 states and Qatar. U-Swirl operates self-serve frozen yogurt cafes under the names "U-Swirl," "Yogurtini," "CherryBerry," "Yogli Mogli Frozen Yogurt," "Fuzzy Peach Frozen Yogurt," "Let's Yo!" and "Aspen Leaf Yogurt". In FY 2020, we entered into a long-term strategic alliance with Edible Arrangements, LLC and its affiliates ("Edible") whereby we became the exclusive provider of certain branded chocolate products to Edible, its affiliates and its franchisees. Rocky Mountain Chocolate Factory branded products are available purchase both on Edible's website as well as through over 1,000 franchised Edible locations nationwide. In addition, due to Edible's significant e-commerce expertise and scale, we have also executed an ecommerce licensing agreement with Edible, whereby Edible sells a wide variety of chocolates, candies and other confectionery products produced by the Company or its franchisees through Edible's websites. Edible will also be responsible for all ecommerce marketing and sales from the Rocky Mountain corporate website and the broader Rocky Mountain ecommerce ecosystem. Current Trends and Outlook As discussed in more detail throughout this Annual Report, we have experienced business disruptions resulting from efforts to contain the rapid spread of the novel coronavirus (COVID-19), including the vast mandated self-quarantines and closures of non-essential business throughout the United States and internationally. Nearly all stores have been directly and negatively impacted by public health measures taken in response to COVID-19, with nearly all locations experiencing reduced operations a result of, among other things, modified business hours and store and mall closures. As a result, franchisees and licensees are not ordering products for their stores in line with forecasted amounts. This trend has negatively impacted, and is expected to continue to negatively impact, among other things, factory sales, retail sales and royalty and marketing fees. In addition, the Board of Directors has decided to suspend our first quarter cash dividend payment to preserve cash and provide additional flexibility in the current environment. Furthermore, the Board of Directors has suspended future quarterly dividends until the significant uncertainty of the current public health crisis and economic climate has passed and the Board of Directors determines that resumption of dividend payments is in the best interest of us and our stockholders. During this challenging time, our foremost priority is the safety and well-being of our employees, customers, franchisees and communities. In addition to our already stringent practices for the quality and safety of our confections, we are diligently following health and safety guidance issued by the World Health Organization, the Centers for Disease Control and state and local governmental agencies. COVID-19 has had an unprecedented impact on our industry as containment measures continue to escalate. Numerous countries, states and local governments have effected ordinances to protect the public through social distancing, which has caused, and we expect will continue to cause, a significant decrease in, among other things, retail traffic and as a result, factory sales, retail sales and royalty and marketing fees. With that said, Rocky Mountain Chocolate Factory products remain available for sale online. Our current focus is on supporting our franchisees and licensees during this challenging time and driving growth in our online sales, especially in light of our ecommerce licensing agreement with Edible, as discussed below, while also sensibly managing costs. The number of our and our franchisee's stores remaining open may change frequently and significantly due to the ever-changing nature of the outbreak. In these challenging and unprecedented times, management is taking all necessary and appropriate action to maximize our liquidity as we navigate the current landscape. These actions include significantly reducing our operating expenses and production volume to reflect reduced sales volumes as well as the elimination of all non-essential spending and capital expenditures. Further, in an abundance of caution and to maintain ample financial flexibility, we have drawn down the full amount under our line of credit and we have received a loan under the Paycheck Protection Program (the "PPP"). The receipt of funds under the PPP has allowed us to temporarily avoid workforce reduction measures amidst a steep decline in revenue and production volume. While we believe we have sufficient liquidity with our current cash position, we will continue to monitor and evaluate all financing alternatives as necessary as these unprecedented events evolve. For more information, please see Item 1A "Risk FactorsThe Novel Coronavirus (COVID-19) Pandemic Has, and May Continue to, Materially and Adversely Affect our Sales, Earnings, Financial Condition and Liquidity." ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below for the fiscal years ended February 28 or 29, 2016 through 2020, are derived from the consolidated financial statements of the Company, which have been audited by Plante & Moran, PLLC, our independent registered public accounting firm during the fiscal year ended February 28, 2019 and February 29, 2020, or EKS&H LLLP, our independent registered public accounting firm for the fiscal years ended February 28 or 29, 2016 through 2018. The selected financial data should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report and in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations below. All material inter-Company balances have been eliminated upon consolidation. (Amounts in thousands, except per share data) Fiscal Years Ended February 28 or 29, 2019 2018 2017 2020 2016 Selected Statement of Operations Data Total revenues Operating income Net income $ 31,850 $ 1,392 1,034 $ 34,545 $ 38,075 $ 3,006 5,221 2,239 $ 2,964 $ 38,296 $ 40,457 5,524 3,713 3,450 $ 4,426 $ 0.17 $ 0.38 $ 0.50 $ 0.59 $ 0.75 0.17 $ 0.37 $ 0.50 $ 0.58 $ 0.73 5,986 5,931 5,884 5,843 5,894 Basic Earnings per Common Share $ Diluted Earnings per Common Share $ Weighted average common shares outstanding Weighted average common shares outstanding, assuming dilution Selected Balance Sheet Data Working capital $ Total Assets Long-term debt Stockholders' equity 6,255 5,983 5,980 5,994 6,095 8,005 $ 27,817 9,530 $ 26,222 7,364 $ 28,941 1,176 19,557 7,091 $ 29,418 2,529 18,829 7,433 30,316 3,831 18,479 19,356 20,390 Cash Dividend Declared per Common Share $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.48 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto, included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements." Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors." Overview Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, and its subsidiaries (including its operating subsidiary with the same name, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation ("RMCF") (collectively, the "Company," swe," "us," or "our") is an international franchisor, confectionery manufacturer and retail operator. Founded in 1981, we are headquartered in Durango, Colorado and manufacture an extensive line of premium chocolate candies and other confectionery products. Our wholly-owned subsidiary, U- Swirl International, Inc. (U-Swirl'), franchises and operates self-serve frozen yogurt stores. 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 in selected locations outside of our system of retail stores and license the use of our brand with certain consumer products. As of March 31, 2020, there were two Company-owned, 98 licensee-owned and 237 franchised Rocky Mountain Chocolate Factory stores operating in 37 states, Canada, South Korea, Panama, and the Philippines. As of March 31, 2020, -Swirl operated three Company-owned stores and 59 franchised and 25 licensed stores located in 25 states and Qatar. U-Swirl operates self-serve frozen yogurt cafes under the names "U-Swirl," "Yogurtini," "CherryBerry," "Yogli Mogli Frozen Yogurt," "Fuzzy Peach Frozen Yogurt," "Let's Yo!" and "Aspen Leaf Yogurt". In FY 2020, we entered into a long-term strategic alliance with Edible Arrangements, LLC and its affiliates ("Edible") whereby we became the exclusive provider of certain branded chocolate products to Edible, its affiliates and its franchisees. Rocky Mountain Chocolate Factory branded products are available purchase both on Edible's website as well as through over 1,000 franchised Edible locations nationwide. In addition, due to Edible's significant e-commerce expertise and scale, we have also executed an ecommerce licensing agreement with Edible, whereby Edible sells a wide variety of chocolates, candies and other confectionery products produced by the Company or its franchisees through Edible's websites. Edible will also be responsible for all ecommerce marketing and sales from the Rocky Mountain corporate website and the broader Rocky Mountain ecommerce ecosystem. Current Trends and Outlook As discussed in more detail throughout this Annual Report, we have experienced business disruptions resulting from efforts to contain the rapid spread of the novel coronavirus (COVID-19), including the vast mandated self-quarantines and closures of non-essential business throughout the United States and internationally. Nearly all stores have been directly and negatively impacted by public health measures taken in response to COVID-19, with nearly all locations experiencing reduced operations a result of, among other things, modified business hours and store and mall closures. As a result, franchisees and licensees are not ordering products for their stores in line with forecasted amounts. This trend has negatively impacted, and is expected to continue to negatively impact, among other things, factory sales, retail sales and royalty and marketing fees. In addition, the Board of Directors has decided to suspend our first quarter cash dividend payment to preserve cash and provide additional flexibility in the current environment. Furthermore, the Board of Directors has suspended future quarterly dividends until the significant uncertainty of the current public health crisis and economic climate has passed and the Board of Directors determines that resumption of dividend payments is in the best interest of us and our stockholders. During this challenging time, our foremost priority is the safety and well-being of our employees, customers, franchisees and communities. In addition to our already stringent practices for the quality and safety of our confections, we are diligently following health and safety guidance issued by the World Health Organization, the Centers for Disease Control and state and local governmental agencies. COVID-19 has had an unprecedented impact on our industry as containment measures continue to escalate. Numerous countries, states and local governments have effected ordinances to protect the public through social distancing, which has caused, and we expect will continue to cause, a significant decrease in, among other things, retail traffic and as a result, factory sales, retail sales and royalty and marketing fees. With that said, Rocky Mountain Chocolate Factory products remain available for sale online. Our current focus is on supporting our franchisees and licensees during this challenging time and driving growth in our online sales, especially in light of our ecommerce licensing agreement with Edible, as discussed below, while also sensibly managing costs. The number of our and our franchisee's stores remaining open may change frequently and significantly due to the ever-changing nature of the outbreak. In these challenging and unprecedented times, management is taking all necessary and appropriate action to maximize our liquidity as we navigate the current landscape. These actions include significantly reducing our operating expenses and production volume to reflect reduced sales volumes as well as the elimination of all non-essential spending and capital expenditures. Further, in an abundance of caution and to maintain ample financial flexibility, we have drawn down the full amount under our line of credit and we have received a loan under the Paycheck Protection Program (the "PPP"). The receipt of funds under the PPP has allowed us to temporarily avoid workforce reduction measures amidst a steep decline in revenue and production volume. While we believe we have sufficient liquidity with our current cash position, we will continue to monitor and evaluate all financing alternatives as necessary as these unprecedented events evolve. For more information, please see Item 1A "Risk FactorsThe Novel Coronavirus (COVID-19) Pandemic Has, and May Continue to, Materially and Adversely Affect our Sales, Earnings, Financial Condition and Liquidity
