Rocky Mountain Chocolate Factory, Inc.: Form 10-Q for the period ended Aug 31, 2025

The following discussion and analysis of financial condition and results of operations is qualified by reference and should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on 10-K, filed with the SEC on June 20, 2025, for the fiscal year ended February 28, 2025.

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, the following discussion contains certain forward-looking information. See "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report for certain information concerning forward-looking statements.

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”) (referred to as the “Company,” “we,” “us,” or “our”) is an international franchisor, confectionery producer and retail operator. Founded in 1981, we are headquartered in Durango, Colorado and produce an extensive line of premium chocolate products and other confectionery products. Our revenues and profitability are derived principally from our franchised/licensed system of retail stores that feature chocolate and other confectionery products including gourmet caramel apples. We also sell our confectionery products in select locations outside of our system of retail stores and license the use of our brand with certain consumer products. As of August 31, 2025, there was 3 Company-owned, 114 licensee-owned and 139 franchised Rocky Mountain Chocolate Factory stores operating in 36 states and the Philippines.

In the fiscal year ended February 28, 2025, the Company entered into a credit agreement (the “Credit Agreement”) with RMC Credit Facility, LLC (“RMC”). Pursuant to the Credit Agreement, the Company received an advance in the principal amount of $6.0 million, which advance is evidenced by a promissory note (the “Note”). The Note will mature on September 30, 2027 (the “Maturity Date”), and interest accrues at a rate of 12% per annum and is payable monthly in arrears. All outstanding principal and interest will be due on the Maturity Date. RMC is a special purpose investment entity affiliated with Steven L. Craig, one of the members of the Company's board of directors.

On August 28, 2025, the Company entered into a first amendment to the Credit Agreement. RMC agreed to make an additional advance to the Company in the principal amount of $0.6 million, There was no change to other terms of the agreement. In connection with the amendment, the Company and RMC agreed to waive the financial covenant providing for a maximum ratio of total liabilities to total net worth for each of the fiscal quarters ending August 31, 2025 and November 30, 2025. The Company was not in compliance with the covenant as of August 31, 2025. All other covenants were met.

On August 28, 2025, the Company entered into a new credit agreement ("RMCF2 Credit Agreement") with RMCF2 Credit, LLC (“RMCF2”), a special purpose investment entity affiliated with Jeffrey R. Geygan, the Company's Interim Chief Executive Officer and one of the members of the Company's board of directors.

Pursuant to the new credit agreement, RMCF2 agreed to make an advance to the Company in the principal amount of $1.2 million, which advance is evidenced by a promissory note (the “RMCF2 Note”). The RMCF2 Note matures on September 30, 2027 and interest accrues at a rate of 12% per annum and is payable monthly in arrears. All outstanding principal and interest will be due on the maturity date.

The RMCF2 Credit Agreement contains customary events of default as well as customary affirmative and negative covenants, including, without limitation, certain reporting obligations and certain limitations on liens, encumbrances, and indebtedness. The RMCF2 Credit Agreement also limits capital expenditures to $3.5 million per year and contains two financial covenants measured quarterly: a maximum ratio of total liabilities to total net worth and a minimum current ratio. Pursuant to the RMCF2 Credit Agreement, RMCF2 agreed to waive the financial covenant providing for a maximum ratio of total liabilities to total net worth for each of the fiscal quarters ending August 31, 2025 and

November 30, 2025. At August 31, 2025, all covenants were met with the exception of the covenant for the maximum ratio of total liabilities to total net worth.

Business and Outlook

As a result of recent macroeconomic inflationary trends, we have experienced and expect to continue experiencing higher raw material, labor, and freight costs. We have experienced labor and logistics challenges, which have contributed to higher cost of goods sold. In addition, we could experience additional lost sale opportunities if our products are not available for purchase as a result of continued disruptions in our supply chain relating to an inability to obtain raw materials or packaging, or if we or our franchisees experience delays in stocking our products.

We are subject to seasonal fluctuations in sales because of key holidays and the location of our franchisees, which have traditionally been located in high traffic areas such as resorts or tourist locations, and the nature of the products we sell, which are seasonal. Historically, the strongest sales of our products have occurred during key holidays and summer vacation seasons. Additionally, quarterly results have been, and in the future are likely to be, affected by the timing of new store openings and the sales of new franchise locations. Because of the seasonality of our business and the impact of new store openings and sales of new franchises, results for any quarter are not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year.

The most important factors in continued growth in our earnings are our ability to increase the sales of premium chocolate products produced in our Durango production facility, and the support of our franchisees in increasing the frequency of customer visits and the average value of each customer transaction, along with ongoing e-commerce revenue growth, and new franchise store growth.

Our ability to successfully achieve expansion of our franchise systems depends on many factors not within our control including the availability of suitable sites for new store locations and the availability of qualified franchisees to support our expansion plans.

Efforts to increase same store pounds purchased from our production facility by franchised stores and to increase total Durango production depend on many factors, including new store openings, effective e-commerce initiatives, industry competition, the receptivity of our franchise system to our product introductions and promotional programs.

Results of Continuing Operations

Three Months Ended August 31, 2025 Compared To the Three Months Ended August 31, 2024

Results Summary

Basic loss per share decreased from a loss of $(0.11) per share for the three months ended August 31, 2024 to a loss of $(0.09) per share for the three months ended August 31, 2025. Revenues increased by 6.9% from $6.4 million for the three months ended August 31, 2024 to $6.8 million for the three months ended August 31, 2025. Operating loss was $0.9 million for the three months ended August 31, 2024 compared to an operating loss of $0.5 million for the three months ended August 31, 2025.

REVENUES

($'s in thousands)

Durango Product and Retail Sales

The increase in Durango product and retail sales of 5.4%, or $0.3 million for the three months ended August 31, 2025 compared to the three months ended August 31, 2024 was primarily due to sales price increases.

Royalties, Marketing Fees and Franchise Fees

Royalty and marketing fees increased $0.2 million during the three months ended August 31, 2025 compared to the three months ended August 31, 2024, primarily due to the increase in store sales subject to royalty fees. The decrease in franchise fee revenue of $6 thousand during the three months ended August 31, 2025 compared to the three months ended August 31, 2024 was not material.

COSTS AND EXPENSES

($'s in thousands)

Gross Margin

($'s in thousands)

Adjusted Gross Margin

($'s in thousands)

Non-GAAP Measures

In addition to the results provided in accordance with GAAP, we provide certain non-GAAP measures, which present results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with GAAP. Adjusted gross margin is a non-GAAP measure. Adjusted gross margin is equal to the sum of our total gross margin plus depreciation and amortization calculated in accordance with GAAP. We believe adjusted gross margin is helpful in understanding our past performance as a supplement to gross margin, and other performance measures calculated in conformity with GAAP. We believe that adjusted gross margin is 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 rather than gross margin to make incremental pricing decisions. Adjusted gross margin has 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 as measures of performance only in conjunction with GAAP measures of performance such as gross margin.

Cost of Sales and Gross Margin

Total gross margin percentage decreased to (0.6)% for the three months ended August 31, 2025 compared to a gross margin of 11.5% during the three months ended August 31, 2024, due primarily to an increase in the cost of raw materials, such as cocoa, and transportation.

Franchise Costs

The decrease in franchise costs for the three months ended August 31, 2025 compared to the three months ended August 31, 2024 was due to operational efficiencies and cost cutting measures and in part due to the timing of expenses. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise costs decreased to 33.7% for the three months ended August 31, 2025 from 65.1% for the three months ended August 31, 2024.

Sales and Marketing

The increase in sales and marketing costs during the three months ended August 31, 2025 compared to the three months ended August 31, 2024 was due to an increase in activity related to new packaging designs and branding activities and in part due to timing of anticipated expenses.

General and Administrative

The decrease in general and administrative costs during the three months ended August 31, 2025 compared to the three months ended August 31, 2024, was due primarily to cost cutting measures. As a percentage of total revenues, general and administrative expenses decreased to 14.3% during the three months ended August 31, 2025, compared to 25.4% during the three months ended August 31, 2024.

Retail Operating Expenses

Retail operating expenses increased 17.0% during the three months ended August 31, 2025 compared to the three months ended August 31, 2024. This increase is primarily the result of increases in operating costs and in part due to the timing of expenses.

Depreciation and Amortization

Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales was $0.1 million during the three months ended August 31, 2025, an increase of 184.2% from $38 thousand during the three months ended August 31, 2024. Depreciation and amortization included in cost of sales increased 25.3% from $0.19 million during the three months ended August 31, 2024 to $0.24 million during the three months ended August 31, 2025. This increase was the result of prior year investments in equipment.

Total Other Income (Expense)

Total other expense was $0.2 million during the three months ended August 31, 2025, compared to other income of $0.2 million during for the three months ended August 31, 2024. Interest expense increased to $0.2 million for the three months ended August 31, 2025 compared to $0.1 million for the three months ended August 31, 2024 due to an increase in our debt balance outstanding. In addition, a net gain on the disposal of assets for $0.2 million relating to gain on sale of equipment of $0.5 million was offset by loss on the factoring of the U-Swirl promissory note of $0.3 million during the three months ended August 31, 2024.

Six Months Ended August 31, 2025 Compared To the Six Months Ended August 31, 2024

Results Summary

Basic loss per share decreased from a loss of $(0.37) per share for the six months ended August 31, 2024 to a loss of $(0.13) per share for the six months ended August 31, 2025. Revenues increased by 3.2% from $12.8 million for the six months ended August 31, 2024 to $13.2 million for the six months ended August 31, 2025. Operating loss was $2.5 million for the six months ended August 31, 2024 compared to an operating loss of $0.6 million for the six months ended August 31, 2025.

REVENUES

($'s in thousands)

Durango Product and Retail Sales

The decrease in Durango product and retail sales of 2.9%, or $0.3 million for the six months ended August 31, 2025 compared to the six months ended August 31, 2024 was primarily due to the non-renewal of an unprofitable contract with a specialty market customer.

Royalties, Marketing Fees and Franchise Fees

Royalty and marketing fees increased $0.7 million during the six months ended August 31, 2025 compared to the six months ended August 31, 2024, Franchisees pay higher royalties on sales revenue generated from products made in the store than products purchased from the Company. Sales of store made product increased in the current period. The decrease in franchise fee revenue of $40 thousand during the six months ended August 31, 2025 compared to the six months ended August 31, 2024 was primarily the result of fewer store openings over time.

COSTS AND EXPENSES

($'s in thousands)

Gross Margin

($'s in thousands)

29

Adjusted Gross Margin

($'s in thousands)

Non-GAAP Measures

In addition to the results provided in accordance with GAAP, we provide certain non-GAAP measures, which present results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with GAAP. Adjusted gross margin is a non-GAAP measure. Adjusted gross margin is equal to the sum of our total gross margin plus depreciation and amortization calculated in accordance with GAAP. We believe adjusted gross margin is helpful in understanding our past performance as a supplement to gross margin, and other performance measures calculated in conformity with GAAP. We believe that adjusted gross margin is 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 rather than gross margin to make incremental pricing decisions. Adjusted gross margin has 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 as measures of performance only in conjunction with GAAP measures of performance such as gross margin.

Cost of Sales and Gross Margin

Total gross margin percentage increased to 2.9% for the six months ended August 31, 2025 compared to a gross margin of 2.6% during the six months ended August 31, 2024, due primarily to sales price increases.

Franchise Costs

The decrease in franchise costs for the six months ended August 31, 2025 compared to the six months ended August 31, 2024 was due primarily to operational efficiencies and cost cutting measures and in part due to the timing of expenses. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise costs decreased to 34.8% for the six months ended August 31, 2025 from 57.6% for the six months ended August 31, 2024.

Sales and Marketing

The decrease in sales and marketing costs during the six months ended August 31, 2025 compared to the six months ended August 31, 2024 was due primarily to operational efficiencies and in part to timing of anticipated expenses.

General and Administrative

The decrease in general and administrative costs during the six months ended August 31, 2025 compared to the six months ended August 31, 2024, was due primarily to cost cutting measures. As a percentage of total revenues, general and administrative expenses decreased to 15.0% during the six months ended August 31, 2025, compared to 22.4% during the six months ended August 31, 2024.

Retail Operating Expenses

Retail operating expenses increased 10.2% during the six months ended August 31, 2025 compared to the six months ended August 31, 2024. This increase is primarily the result of increases in operating costs and in part due to the timing of expenses.

Depreciation and Amortization

Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales was $226 thousand during the six months ended August 31, 2025, an increase of 182.5% from $80 thousand during the six months ended August 31, 2024. Depreciation and amortization included in cost of sales increased 182.5% from $0.1 million during the six months ended August 31, 2024 to $0.2 million during the six months ended August 31, 2025. This increase was the result of prior year investments in production equipment.

Other Income (Expense)

Other expense was $0.4 million during the six months ended August 31, 2025, compared to other income of $0.2 million during for the six months ended August 31, 2024. Interest expense increased to $0.4 million, for the six months ended August 31, 2025 compared to $0.1 million during the six months ended August 31, 2024 due to an increase in our debt balance outstanding. In addition, a net gain on the disposal of assets for $0.2 million relating to gain on sale of equipment of $0.5 million was offset by loss on the factoring of the U-Swirl promissory note of $0.3 million during the six months ended August 31, 2024.

Liquidity and Capital Resources

As of August 31, 2025, working capital was $3.5 million compared with $2.4 million as of February 28, 2025. The increase in working capital was due primarily to the increase in cash and cash equivalents, increase in notes receivable, and decrease in accrued salaries and wages during the six months ended August 31, 2025. Expected future cash requirements include lease liabilities, purchase obligations, and capital expenditures to support the expected future growth of the business. Our credit agreements do not require repayment until maturity in September 2027

Cash and cash equivalent balances increased from $0.7 million as of February 28, 2025 to $2.0 million as of August 31, 2025 primarily as a result of proceeds of $1.8 million from notes payable. Our current ratio was 1.53 to 1.0 on August 31, 2025 compared to 1.34 to 1.0 on February 28, 2025. We monitor current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements necessary to implement our long-term business plan.

During the six months ended August 31, 2025, we had a consolidated net loss of $1.0 million. Operating activities used cash of $0.1 million, with the principal adjustment to reconcile net income to net cash used in operating activities being depreciation and amortization of $0.7 million and stock compensation expense of $0.1 million, partially offset by recovery on accounts and notes receivable of $0.1 million. Changes in operating assets and liabilities resulted in a net cash outflow of $0.1 million from cash used in the normal course of business. During the six months ended August 31, 2024, we had a consolidated net loss of $2.4 million. Operating activities used cash of $5.7 million, with the principal adjustment to reconcile net income to net cash used in operating activities being depreciation and amortization of $0.5 million and a gain on the sale of assets of $0.2 million.

During the six months ended August 31, 2025, cash flows used in investing activities was $0.4 million, primarily due to the purchases of property and equipment of $0.2 million, and the acquisition of the retail store in Camarillo, CA for $0.2 million. In comparison, investing activities provided for cash of $0.2 million during the six months ended August 31, 2024, primarily due to the purchases of property and equipment of $1.5 million, offset by proceeds from the sale of assets of $1.6 million.

There were $1.8 million cash flows from financing activities during the six months ended August 31, 2025 compared to $4.4 million cash flows from financing activities during the six months ended August 31, 2024. During the six months ended August 31, 2025, the Company received $1.8 million in proceeds from notes payable. The Company received $2.2 million on its revolving line of credit, in addition to proceeds of $2.2 million from the issuance and sale of common stock during the six months ended August 31, 2024.

Despite improvements in the operating activities, the Company continues to rely on outside sources of financing to sustain its operations. As a result, the conditions above raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these financial statements. In addition, our independent registered public accounting firm, in their report on the Company’s February 28, 2025 audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.

Credit Agreement

On September 30, 2024, we entered into the Credit Agreement with RMC. Proceeds from the Credit Agreement were used to repay a $3.5 million line of credit and for capital investments. Pursuant to the Credit Agreement, we received an advance in the principal amount of $6.0 million, which advance is evidenced by the Note. The Note will mature on the maturity date, and interest accrues at a rate of 12% per annum and is payable monthly in arrears. All outstanding principal and interest will be due on the maturity date. The Credit Agreement is collateralized by our Durango real estate property and the related inventory and property, plant and equipment located on that property, as well as our accounts receivable and cash accounts. On August 28, 2025, we amended the agreement and received an additional $0.6 million. As of August 31, 2025, $6.6 million was outstanding on the Credit Agreement.

The Credit Agreement contains customary events of default, including nonpayment of principal and interest when due, failure to comply with covenants, and a change of control of the Company, as well as customary affirmative and negative covenants, including, without limitation, certain reporting obligations and certain limitations on liens, encumbrances, and indebtedness. The Credit Agreement also limits our capital expenditures to $3.5 million per year and contains two financial covenants measured quarterly: a maximum ratio of total liabilities to total net worth and a minimum current ratio. In connection with the amendment, the Company and RMC agreed to waive the financial covenant providing for a maximum ratio of total liabilities to total net worth for each of the fiscal quarters ending August 31, 2025 and November 30, 2025. The Company was not in compliance with the liabilities to tangible net worth covenant of 2.0:1.0 but was in compliance with all other covenants as of August 31, 2025.

New Credit Agreement

On August 28, 2025, we entered into the RMCF2 Credit Agreement with RMCF2, a special purpose investment entity affiliated with Jeffrey R. Geygan, the Company's Interim Chief Executive Officer and one of the members of Company's board of directors.

Pursuant to the new credit agreement, RMCF2 agreed to make an advance to the Company in the principal amount of $1.2 million, which advance is evidenced by the RMCF2 Note. The RMCF2 Note matures on September 30, 2027 and interest accrues at a rate of 12% per annum and is payable monthly in arrears. All outstanding principal and interest will be due on the maturity date. The RMCF2 Credit Agreement is collateralized by the Company's Durango real estate property and the related inventory and property, plant and equipment located on that property, as well as the Company's accounts receivable and cash accounts.

The RMCF2 Credit Agreement contains customary events of default as well as customary affirmative and negative covenants, including, without limitation, certain reporting obligations and certain limitations on liens, encumbrances, and indebtedness. The RMCF2 Credit Agreement limits capital expenditures to $3.5 million per year and also contains two financial covenants measured quarterly: a maximum ratio of total liabilities to total net worth and a minimum current ratio. Pursuant to the RMCF2 Credit Agreement, the Company and RMCF2 agreed to waive the financial covenant providing for a maximum ratio of total liabilities to total net worth for each of the fiscal quarters ending August 31, 2025 and November 30, 2025. The Company was not in compliance with the liabilities to tangible net worth covenant of 2.0:1.0 but was in compliance with all other covenants as of August 31, 2025.

We will continue to explore additional means of strengthening our liquidity position and ensuring compliance with our debt financing covenants, which may include the obtaining of waivers from our lenders.

Significant Accounting Policies

The preparation of condensed consolidated financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Nature of Operations and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report and in the Notes to Consolidated Financial Statements in Part II, Item 8 in our Annual Report on Form 10-K for the fiscal year ended February 28, 2025 describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s significant accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended February 28, 2025.

Off Balance Sheet Arrangements

As of August 31, 2025, except for the purchase obligations as described below, we had no material off-balance sheet arrangements or obligations.

As of August 31, 2025, we had purchase obligations of approximately $2.4 million. 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 the Company's operations. Most of the Company's leases provide for cost-of-living adjustments and require it to pay taxes, insurance and maintenance expenses, all of which are subject to inflation. Additionally, the Company’s future lease cost for new facilities may include potentially escalating costs of real estate and construction. There is no assurance that the Company will be able to pass on increased costs to its customers.

Depreciation expense is based on the historical cost to the Company of its fixed assets and is therefore potentially less than it would be if it were based on the 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.

Disclosure Controls and Procedures and Changes in Internal Control Over Financial Reporting

Disclosure Controls and Procedures — The Company maintains 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 the Company is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s reports that are filed or submitted under the Exchange Act, are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management, under the supervision and with the participation of our Interim Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the Company’s disclosure controls and procedures. Based on that evaluation, our Interim Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of August 31, 2025.

Changes in Internal Control over Financial Reporting — There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that occurred during the quarter ended

August 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report, 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, 2025, filed with the SEC on June 20, 2025. Except as set forth below, 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, 2025.

There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq.

On September 15, 2025, Allen C. Harper notified our board of directors of his resignation from our board of directors and all committees thereof, effective immediately (the “Resignation”). On September 17, 2025, we received a notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”), notifying us that, as a result of the Resignation, we are not in compliance with the requirements under Nasdaq Listing Rule 5605 (the “Corporate Governance Requirements”), specifically:

• Nasdaq Listing Rule 5605(b), which requires, among other things, that a majority of our board of directors be comprised of Independent Directors (as defined in Nasdaq Listing Rule 5605(a)(2)); and
• Nasdaq Listing Rule 5605(c), which requires, among other things, that we have an audit committee that has at least three members, each of whom must (i) be an Independent Director, (ii) meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended, (iii) not have participated in the preparation of our financial statements or any of our current subsidiaries at any time during the past three years, and (iv) be able to read and understand fundamental financial statements.

In accordance with the Corporate Governance Requirements, we are entitled to a cure period to regain compliance, which cure period will expire at the earlier of its next annual meeting of stockholders or September 15, 2026. We intend to appoint an additional independent director to our board of directors and its audit committee prior to the end of the cure period.

There can be no assurances that we will be able to regain compliance with Nasdaq’s listing standards or if we do later regain compliance with Nasdaq’s listing standards, will be able to continue to comply with the applicable listing standards. If we are unable to maintain compliance with these Nasdaq requirements, our common stock will be delisted from Nasdaq. If Nasdaq delists our common stock, we could face significant material adverse consequences, including:

• a limited availability of market quotations for our securities;
• a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;
• a limited amount of news and analyst coverage for our company; and

a decreased ability to issue additional securities or obtain additional financing in the future.

Our Inability to Meet a Financial Covenant Contained in our Credit Agreements May Adversely Affect our Liquidity, Financial Condition and Results of Operations.

Pursuant to a credit agreement (as amended, the “2024 Credit Agreement”), with RMC Credit Facility LLC, a Colorado limited liability company (the “Lender”), dated September 30, 2024, we have a $6.0 million promissory note, made by the Company to the Lender, for general corporate and working capital purposes (the “2024 Note”). On August 28, 2025, we entered into an amendment to the 2024 Credit Agreement pursuant to which, among other things, the Lender made an additional loan to us in the amount of $600,000. In addition, on August 28, 2025, the Company entered into a credit agreement (the “2025 Credit Agreement” and together with the 2024 Credit Agreement, the “Credit Agreements”) pursuant to which the Company borrowed $1.2 million from RMCF2 Credit, LLC, a special purpose investment entity affiliated with Jeffery R. Geygan, our interim chief executive officer and a member of our board of directors. Each Credit Agreement is secured by substantially all of our assets, except retail store assets. Interest on borrowings is set at 12.0% and the loans mature on September 30, 2027. Additionally, each Credit Agreement is subject to various financial ratios and leverage covenants. The Company is not required to comply under Credit Agreements with the covenants related to the ratio of total liabilities to total net worth for the fiscal quarters ending August 31, 2025 and November 30, 2025.

If we are not in compliance with the requirements under the Credit Agreements, under the terms of the Credit Agreements, the lenders have the option, but not the obligation, to immediately demand repayment of the full of the obligations under the applicable Credit Agreement. As of the date of this Quarterly Report, we do not have enough cash on hand to satisfy our obligations under either Credit Agreement if the lender thereunder exercised its option to demand repayment. If any lender exercises its option and demands repayment at some time in the future, however, we may not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, the lenders may be entitled to foreclose on and sell substantially all of our assets, which secure our borrowings under the Credit Agreements, which would have an adverse effect on our liquidity, financial condition and results of operations.

In addition, each lender retains the right to act on covenant violations that occur after the date of delivery of any waiver. In the future, if either lender were to decline to grant us a waiver and instead demand repayment, we may need to seek alternative financing to pay these obligations as we may not have sufficient facilities or sufficient cash on hand at that time to satisfy these obligations.