ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (type 10-Okay)

The next dialogue and evaluation of our monetary situation and outcomes of
operations must be learn along with our consolidated monetary
statements and associated notes thereto, included elsewhere on this Annual Report
on Kind 10-Okay. Along with historic consolidated monetary data, the
following dialogue accommodates forward-looking statements that mirror our plans,
estimates and beliefs. Our precise outcomes might differ materially from these
contained in or implied by any forward-looking statements. See "Cautionary Notice
Concerning Ahead-Wanting Statements." Elements that would trigger or contribute to
these variations embrace these mentioned under and elsewhere on this Annual
Report on Kind 10-Okay, notably in Merchandise 1A. "Threat Elements."



Overview



Rocky Mountain Chocolate Manufacturing unit, Inc., a Delaware company, and its
subsidiaries (together with its working subsidiary with the identical identify, Rocky
Mountain Chocolate Manufacturing unit, Inc., a Colorado company ("RMCF") (collectively,
the "Firm," "we," "us," or "our") is a world franchisor,
confectionery producer and retail operator. Based in 1981, we're
headquartered in Durango, Colorado and manufacture an intensive line of premium
chocolate candies and different confectionery merchandise. Our wholly-owned subsidiary,
U-Swirl Worldwide, Inc. ("U-Swirl"), franchises and operates self-serve
frozen yogurt shops. Our revenues and profitability are derived principally
from our franchised/license system of retail shops that function chocolate,
frozen yogurt and different confectionary merchandise. We additionally promote our sweet in choose
places outdoors of our system of retail shops and license the usage of our
model with sure client merchandise. We're additionally social gathering to strategic alliance
and ecommerce agreements with Edible Preparations®, LLC and its associates
("Edible"), whereby we promote our sweet of their retailer places and thru their
ecommerce platform. As of March 31, 2022, there have been two Firm-owned, 99
licensee-owned and 159 franchised Rocky Mountain Chocolate Manufacturing unit shops
working in 37 states, South Korea, Panama, and the Philippines. As of March
31, 2022, U-Swirl operated three Firm-owned shops and 63 franchised and
licensed shops situated in 22 states and Qatar. U-Swirl operates self-serve
frozen yogurt cafes beneath the names "U-Swirl," "Yogurtini," "CherryBerry,"
"Yogli Mogli Frozen Yogurt," "Fuzzy Peach Frozen Yogurt," "Let's Yo!" and "Aspen
Leaf Yogurt".



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In FY 2020 and early FY 2021, we entered right into a long-term strategic alliance and
ecommerce agreements, respectively, with Edible Preparations®, LLC and its
associates ("Edible"), whereby it's meant that we might change into the unique
supplier of sure branded chocolate merchandise to Edible, its associates and its
franchisees. Beneath the strategic alliance, Rocky Mountain Chocolate Manufacturing unit
branded merchandise are meant to be out there for buy each on Edible's
web site in addition to via over 1,000 franchised Edible places nationwide. In
addition, resulting from Edible's important e-commerce experience and scale, we now have
additionally executed an ecommerce licensing settlement with Edible, whereby Edible is
anticipated to promote all kinds of goodies, candies and different confectionery
merchandise produced by the Firm or its franchisees via Edible's web sites.
There is no such thing as a assurance that the strategic alliance and ecommerce agreements will
be deployed into our operations and to our satisfaction, or that we'll obtain
the anticipated full advantages from these agreements. Throughout FY 2022, sure
disagreements arose between RMCF and Edible associated to the strategic alliance
and ecommerce agreements leading to persevering with discussions, the results of
which aren't at the moment determinable.  Purchases by Edible throughout FY 2022 and FY
2021 have been roughly $1.7 million and $3.5 million, or 5.3% and 15.1% of the
Firm's revenues, respectively. There might be no assurance historic income
ranges will likely be indicative of future revenues.



Present Tendencies and Outlook



As mentioned in additional element all through this Annual Report on Kind 10-Okay for FY
2022 (this "Annual Report"), we now have skilled important enterprise
disruptions ensuing from efforts to include the fast unfold of the novel
coronavirus ("COVID-19"), together with the huge mandated self-quarantines of
clients all through the USA and internationally. Throughout FY 2021,
practically all the Firm-owned and franchise shops have been instantly and
negatively impacted by public well being measures taken in response to COVID-19,
with practically all places experiencing diminished operations because of, amongst
different issues, modified enterprise hours and retailer and mall closures. Because of this,
franchisees and licensees weren't ordering merchandise for his or her shops in line
with historic quantities. This pattern has negatively impacted, and will proceed to
negatively influence, amongst different issues, manufacturing facility gross sales, retail gross sales and royalty
and advertising and marketing charges. Though most shops that beforehand quickly closed in
early 2020 in response to the COVID-19 pandemic have re-opened, throughout FY 2021,
roughly 53 shops closed and haven't re-opened and the way forward for these
places is unsure. This closure fee is considerably increased than
historic ranges. As of the date of this report, most shops have met or
exceeded pre-COVID-19 gross sales ranges; nevertheless, many retail environments have
continued to be adversely impacted by modifications to client conduct because of this
of COVID-19. Most shops re-opened topic to varied native well being restrictions
and sometimes with diminished operations. Robust client spending and different
macro-economic developments in addition to the roll out of vaccines and stress-free of most
native well being restrictions have resulted in important will increase in gross sales at our
franchise shops throughout FY 2022. Our skill to satisfy the rise in franchise
retailer demand has been partially constrained by labor and provide chain
constraints. We're uncertain how the emergence of COVID-19 variants, akin to Delta
and Omicron, will influence the optimistic restoration developments.



As well as, as beforehand introduced on Might 11, 2020, the Board of Administrators
suspended future quarterly dividends till the Board of Administrators determines
that resumption of dividend funds is in the perfect curiosity of the Firm and
our stockholders.



Because of macro-economic inflationary developments and disruptions to the worldwide
provide chain, we now have skilled and count on to proceed experiencing increased uncooked
materials, labor, and freight prices. We've got seen labor and logistics challenges,
which we consider have contributed to decrease manufacturing facility, retail and e-commerce gross sales
of our merchandise as a result of availability of fabric, labor and freight. In
addition, we might expertise further misplaced sale alternatives if our merchandise
aren't out there for buy because of continued disruptions in our
provide chain referring to an incapability to acquire substances or packaging, labor
challenges at our logistics suppliers or our manufacturing facility, or if we or
our franchisees expertise delays in stocking our merchandise.



Throughout FY 2022, the Firm incurred substantial prices related to a
stockholder's contested solicitation of proxies in reference to our 2021
annual assembly of stockholders. Throughout FY 2022, the Firm incurred
roughly $1.7 million of prices related to the contested solicitation
of proxies, in contrast with no comparable prices incurred in FY 2021. These prices
are acknowledged as basic and administrative expense within the Consolidated
Assertion of Operations. Moreover, because of the contested solicitation
of proxies and the ensuing modifications to the composition of the Firm's Board
of Administrators, the Firm incurred $2.0 million of accrued severance prices and
accelerated restricted inventory unit expense throughout FY 2022. As beforehand
introduced, Bryan J. Merryman agreed to voluntarily step down as President and
Chief Govt Officer ("CEO") of the Firm upon the hiring of a brand new
President and CEO for the Firm. On Might 5, 2022 the Firm concluded its
seek for a brand new CEO with the announcement that Robert Sarlls will succeed Mr.
Merryman because the Firm's CEO starting on Might 9, 2022.



Restricted financing alternate options for home franchise development has led us to
pursue a method of enlargement via co-branding with complimentary ideas
akin to ice cream and frozen yogurt, worldwide growth, sale of our
merchandise to specialty markets, licensing the Rocky Mountain Chocolate Manufacturing unit
model to be used with different acceptable client merchandise, and chosen entry of
Rocky Mountain Chocolate Manufacturing unit branded merchandise into different wholesale channels,
together with enterprise acquisitions as major drivers of development. It is a pattern
that continued in FY 2021 and we count on to proceed into the foreseeable future.



Going ahead in FY 2023, we're taking a conservative view of market situations
in the USA. We intend to proceed to give attention to our long-term aims
whereas looking for to take care of flexibility to reply to market situations.



We're topic to seasonal fluctuations in gross sales due to key holidays and the
location of our franchisees, which have historically been situated in resort or
vacationer places, and the character of the merchandise we promote, that are extremely
seasonal. As we expanded our geographical range to incorporate regional facilities
and our franchise choices to incorporate frozen desserts, we now have seen some
moderation to our seasonal gross sales combine. Seasonal fluctuation in gross sales causes
fluctuations in quarterly outcomes of operations. Traditionally, the strongest
gross sales of our merchandise have occurred throughout key holidays and summer season trip
seasons. Moreover, quarterly outcomes have been, and sooner or later are probably
to be, affected by the timing of latest retailer openings and gross sales of franchises.
Due to the seasonality of our enterprise and the influence of latest retailer openings
and gross sales of franchises, outcomes for any quarter aren't essentially indicative
of outcomes that could be achieved in different quarters or for a full fiscal 12 months.



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Crucial components in continued development in our earnings are macroeconomic
and retail sector post-COVID 19 restoration, ongoing on-line income development, a shift
in client conduct because of the COVID-19 pandemic, unit development,
elevated similar retailer gross sales and elevated similar retailer kilos bought from the
manufacturing facility.



Our skill to efficiently obtain development because of our strategic alliance
with Edible relies on many components not inside our management, together with buyer
receptiveness to our merchandise, Edible franchisee's receptiveness to our
merchandise, logistical concerns and technological integration. Our skill
to efficiently obtain enlargement of our franchise methods relies on many
components not inside our management together with the supply of appropriate websites for
new retailer institution and the supply of certified franchisees to assist
such enlargement.



Efforts to reverse the decline in similar retailer kilos bought from the manufacturing facility
by franchised shops and to extend complete manufacturing facility gross sales rely upon many components,
together with new retailer openings, competitors, the receptivity of our franchise
system to our product introductions and promotional packages. In FY 2021, similar
retailer kilos bought from the manufacturing facility by franchised and co-branded licensed
shops was considerably impacted by COVID-19 and the influence it had on retailer
operations. Throughout FY 2022, similar retailer kilos bought from the manufacturing facility by
franchised and co-branded licensed shops elevated roughly 325.5% within the
first quarter, elevated roughly 63.8% within the second quarter, elevated
roughly 20.9% within the third quarter, elevated roughly 21.1% within the
fourth quarter, and elevated 58.9% total in FY 2022 as in comparison with the identical
durations in FY 2021.



We've got expanded co-branding as a solution to offset low franchise development via a
relationship with Chilly Stone Creamery. We've got moreover developed co-branded
places via U-Swirl manufacturers. We consider that if this co-branding technique
continues to show financially viable it might signify a major future
development alternative. As of February 28, 2022, Chilly Stone licensees operated 97
co-branded places, our U-Swirl franchisees operated 6 co-branded places
and we now have co-branded 3 of our Firm-owned cafés.



Outcomes of Operations


Fiscal 2022 In contrast To Fiscal 2021


Outcomes Abstract



Primary earnings per share elevated from a internet lack of $(0.15) per share in FY
2021 to a internet lack of $(0.06) per share in FY 2022. Revenues elevated 37.7%
from $23.5 million for FY 2021 to $32.3 million for FY 2022. Working loss
decreased from an working lack of $(3.5) million in FY 2021 to an working
lack of $(484,000) in FY 2022. Internet loss decreased from a internet lack of $(900,000)
in FY 2021 to a internet lack of $(342,000) in FY 2022. The rise in income was
due primarily to the impacts from the COVID-19 pandemic throughout FY 2021,
together with its influence on our operation and the operations of our franchised,
licensed and Firm-owned places. Throughout FY 2022, most of the disruptions
skilled because of the COVID-19 pandemic have been now not impacting our
community of franchised and licensed retail shops and plenty of of our places had
returned to, or exceeded, pre-pandemic ranges. These will increase have been partially
offset by the prices related to the contested solicitation of proxies
incurred throughout FY 2022 with no comparable prices in FY 2021. The lower in
loss from operations and internet loss was due primarily to restoration from the
COVID-19 pandemic and the related influence on income FY 2021 partially offset
by the prices related to the contested solicitation of proxies and the
related accrued severance and inventory compensation prices throughout FY 2022.



REVENUES



                                For the 12 months Ended
($'s in hundreds)                 February 28,                $            %
                                2022           2021         Change       Change
Manufacturing unit gross sales                $ 22,374.2     $ 17,321.0     $ 5,053.2        29.2 %
Retail gross sales                    2,853.3        1,858.5         994.8        53.5 %
Franchise charges                    213.9          226.7         (12.8 )      (5.6 )%
Royalty and advertising and marketing charges      6,901.2        4,074.5       2,826.7        69.4 %
Complete                        $ 32,342.6     $ 23,480.7     $ 8,861.9        37.7 %




Manufacturing unit Gross sales



The rise in manufacturing facility gross sales for FY 2022 in contrast FY 2021 was primarily resulting from
an 70.0% enhance in gross sales of product to our community of franchised and licensed
retail shops partially offset by a 40.7% lower in shipments of product to
clients outdoors our community of franchised retail shops. Purchases by the
Firm's largest buyer, Edible, throughout FY 2022 have been roughly $1.7
million, or 5.3% of the Firm's revenues, in comparison with $3.5 million, or 15.1%
of the Firm's revenues throughout FY 2021. The rise in gross sales of product to
our community of franchised and licensed retail shops was primarily the results of
the COVID-19 pandemic and the related public well being measures in place throughout
FY 2021, which considerably diminished visitors in our shops. Throughout FY 2022 most
of the disruptions skilled because of the COVID-19 pandemic have been no
longer impacting our community of franchised and licensed retail shops and plenty of
of our places had returned to, or exceeded, pre-pandemic ranges. Throughout FY
2022, sure disagreements arose between RMCF and Edible associated to the
strategic alliance and ecommerce agreements leading to persevering with discussions,
the results of which aren't at the moment determinable.  There might be no assurance
historic income ranges will likely be indicative of future revenues. Similar retailer
kilos bought by home franchise and licensed places elevated 11.7%
throughout FY 2022 when in comparison with FY 2020 (the latest comparable interval prior
to the enterprise disruptions of COVID-19).



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Retail Gross sales



The rise in retail gross sales for FY 2022 in comparison with FY 2021 was primarily due
to all of our Firm-owned shops being open throughout FY 2022 in comparison with the
closure or restricted operations of all of our Firm-owned shops for a lot of FY
2021. The closure or restricted operations of our Firm-owned shops within the prior
12 months interval was the results of the COVID-19 pandemic and the related public
well being measures in place throughout FY 2021. As of February 28, 2022 most
Firm-owned shops had resumed full operations following COVID-19 associated
closure.



Royalties, Advertising Charges and Franchise Charges



The rise in royalty and advertising and marketing charges throughout FY 2022 in comparison with FY 2021
was primarily as a result of majority of our franchise places having resumed
regular operations throughout FY 2022, as a result of stress-free of restrictions associated to
the COVID-19 pandemic and the related public well being measures in place throughout
FY 2021 in addition to the rollout of vaccines in the beginning of FY 2022. Practically
all of our franchised places skilled diminished operations and durations of
full closure throughout FY 2021. Similar retailer gross sales at home franchise places
elevated 18.9% in FY 2022 when in comparison with FY 2020 (the latest comparable
interval previous to the enterprise disruptions of COVID-19).



The lower in franchise price income throughout FY 2022 in comparison with FY 2021 was the
results of a lower in income ensuing from the closure of franchise
places and the related recognition of income in FY 2021, with fewer
comparable closures throughout FY 2022 and fewer franchise shops in operation and
the related recognition of income over the time period of the varied franchise
agreements.



COSTS AND EXPENSES



Value of Gross sales



                                For the 12 months Ended
                                   February 28,                $            %
($'s in hundreds)              2022           2021         Change       Change

Value of gross sales - manufacturing facility      $ 18,153.8     $ 15,473.8     $ 2,680.0        17.3 %
Value of gross sales - retail          1,013.9          644.8         369.1        57.2 %
Franchise prices                 2,183.7        1,715.6         468.1        27.3 %
Gross sales and advertising and marketing             1,610.7        1,712.8        (102.1 )      (6.0 )%
Normal and administrative      7,551.0        5,258.0       2,293.0        43.6 %
Retail working                1,727.7        1,381.8         345.9        25.0 %
Complete                        $ 32,240.8     $ 26,186.8     $ 6,054.0        23.1 %






Gross Margin             For the 12 months Ended
                            February 28,               $            %
($'s in hundreds)       2022          2021         Change       Change

Manufacturing unit gross margin   $ 4,220.4     $ 1,847.2     $ 2,373.2       128.5 %
Retail gross margin      1,839.4       1,213.7         625.7        51.6 %
Complete                  $ 6,059.8     $ 3,060.9     $ 2,998.9        98.0 %




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Gross Margin             For the 12 months Ended
                            February 28,              %            %
                         2022           2021       Change       Change
(P.c)
Manufacturing unit gross margin        18.9 %        10.7 %       8.2 %       76.6 %
Retail gross margin         64.5 %        65.3 %      (0.8 )%      (1.2 )%
Complete                       24.0 %        16.0 %       8.0 %       50.0 %






Adjusted Gross Margin                   For the 12 months Ended
(a non-GAAP measure)                       February 28,               $             %
($'s in hundreds)                      2022          2021         Change        Change

Manufacturing unit gross margin                  $ 4,220.4     $ 1,847.2     $ 2,373.2        128.5 %
Plus: depreciation and amortization       620.8         625.5          (4.7 )       (0.8 )%
Manufacturing unit adjusted gross margin           4,841.2       2,472.7       2,368.5         95.8 %
Retail gross margin                     1,839.4       1,213.7         625.7         51.6 %
Complete Adjusted Gross Margin           $ 6,680.6     $ 3,686.4     $ 2,994.2         81.2 %

Manufacturing unit adjusted gross margin              21.6 %        14.3 %         7.3 %       51.0 %
Retail gross margin                        64.5 %        65.3 %        (0.8 )%      (1.2 )%
Complete Adjusted Gross Margin                26.5 %        19.2 %         7.3 %       38.0 %




Adjusted gross margin and manufacturing facility adjusted gross margin are non-GAAP measures.
Adjusted gross margin is the same as the sum of our manufacturing facility adjusted gross margin
plus our retail gross margin calculated in accordance with GAAP. Manufacturing unit
adjusted gross margin is the same as manufacturing facility gross margin plus depreciation and
amortization expense. We consider adjusted gross margin and manufacturing facility adjusted
gross margin are useful in understanding our previous efficiency as a complement
to gross margin, manufacturing facility gross margin and different efficiency measures calculated
in conformity with GAAP. We consider that adjusted gross margin and manufacturing facility
adjusted gross margin are helpful to traders as a result of they supply a measure of
working efficiency and our skill to generate money that's unaffected by
non-cash accounting measures. Moreover, we use adjusted gross margin and
manufacturing facility adjusted gross margin somewhat than gross margin and manufacturing facility gross margin
to make incremental pricing selections. Adjusted gross margin and manufacturing facility
adjusted gross margin have limitations as analytical instruments as a result of they exclude
the influence of depreciation and amortization expense and you shouldn't think about
it in isolation or as an alternative choice to any measure reported beneath GAAP. Our use
of capital property makes depreciation and amortization expense a needed
ingredient of our prices and our skill to generate earnings. As a consequence of these
limitations, we use adjusted gross margin and manufacturing facility adjusted gross margin as
measures of efficiency solely along with GAAP measures of efficiency
akin to gross margin and manufacturing facility gross margin.



Value of Gross sales and Gross Margin



Manufacturing unit gross margins elevated to 18.9% in FY 2022 in comparison with a gross margin
of 10.7% throughout FY 2021, due primarily to a 27.4% enhance in manufacturing quantity,
increased common promote costs, and the impacts of Worker Retention Credit in FY
2022 in comparison with FY 2021, partially offset by elevated prices of supplies and
labor. The rise in manufacturing quantity was in response to a 29.2% enhance in
manufacturing facility gross sales, primarily resulting from a resumption of regular manufacturing facility operations throughout
FY 2022 in comparison with considerably diminished operations throughout FY 2021. Operations
throughout FY 2021 have been decrease than historic ranges because of the impacts of
the COVID-19 pandemic. Because of the lower in manufacturing quantity, manufacturing facility
fastened prices, together with idle labor, didn't lower proportionate to manufacturing facility
income throughout FY 2021. Throughout FY 2021 the Firm incurred roughly
$280,000 of manufacturing labor prices related to paying staff who abided
by native keep at dwelling orders associated to COVID-19 public well being measures. This
extra capability value, within the type of idle labor, was included in value of gross sales.



Retail gross margins decreased from 65.3% throughout FY 2021 to 64.5% throughout FY
2022. The lower in retail gross margins was primarily the results of increased
prices.



Franchise Prices



The rise in franchise prices in FY 2022 in comparison with FY 2021 was due primarily
to a rise in skilled charges, the results of litigation with IC, our
licensee in Canada. As a share of complete royalty and advertising and marketing charges and
franchise price income, franchise prices decreased to 30.7% in FY 2022 from 39.9%
in FY 2021. This lower as a share of royalty, advertising and marketing and franchise
charges is primarily a results of increased royalty charges partially offset by increased
prices.



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Gross sales and Advertising


The lower in gross sales and advertising and marketing prices throughout FY 2022 in comparison with FY 2021 was
primarily resulting from a lower in internet marketing prices.


Normal and Administrative



The rise on the whole and administrative prices throughout FY 2022 in comparison with FY
2021 is primarily resulting from prices related to a stockholder's contested
solicitation of proxies in reference to our 2021 annual assembly of
stockholders and the compensation prices related to the letter settlement
between the Firm and Mr. Merryman. These will increase have been partially offset by a
lower in dangerous debt expense throughout FY 2022 in comparison with FY 2021 and an absence
of impairment expense associated to sure intangible property throughout FY 2022
in contrast with impairment expense of $533,000 incurred throughout FY 2021. Throughout FY
2022, the Firm incurred roughly $1.7 million of prices related to
the contested solicitation of proxies and $2.0 million in change in management
severance expense, in contrast with no comparable prices incurred in FY 2021. As a
share of complete revenues, basic and administrative bills elevated to
23.3% in FY 2022 in comparison with 22.4% in FY 2021.



Retail Working Bills



The rise in retail working bills throughout FY 2022 in comparison with FY 2021 was
a results of the re-opening of all of our Firm-owned shops so that each one shops
have been open throughout FY 2022 in comparison with the closure or restricted operation of all of
our Firm-owned shops for a lot of FY 2021. The closure or restricted operation
of our Firm-owned shops was the results of COVID-19 and the related public
well being measures in place through the FY 2021. Retail working bills, as a
share of retail gross sales, decreased from 74.4% throughout FY 2021 to 60.6% in FY
2022. This lower is primarily the results of increased retail gross sales partially
offset by increased retail working bills.



Depreciation and Amortization



Depreciation and amortization, unique of depreciation and amortization
included in value of gross sales, was $586,000 throughout FY 2022, a lower of 17.5% from
$711,000 incurred throughout FY 2021. This lower was the results of a lower in
frozen yogurt cafés in operation and decrease amortization of the related
franchise rights. See Notice 7 to the monetary statements for a abstract of annual
amortization of intangible property based mostly upon present intangible property and
present helpful lives. Depreciation and amortization included in value of gross sales
decreased 0.8% from $626,000 throughout FY 2021 to $621,000 throughout FY 2022. This
lower was the results of sure property changing into totally depreciated, partially
offset by depreciation associated to new property acquired.



Different Revenue (Expense)



Different earnings decreased to $178,000 throughout FY 2022 in comparison with different earnings of
$1.7 million throughout FY 2021. This alteration was primarily the results of debt
forgiveness earnings throughout FY 2021 with no comparable quantities realized throughout FY
2022. Internet curiosity earnings was $11,000 in FY 2022 in comparison with internet curiosity
expense of $77,000 throughout FY 2021. This alteration was primarily the results of the
Firm's elevated debt because of measures taken through the three months
ended Might 31, 2020 to make sure sufficient liquidity through the COVID-19 pandemic.
Throughout FY 2021, the Firm borrowed $3.4 million from its line of credit score and
borrowed $1.5 million of loans beneath the Paycheck Safety Program. The road
of credit score was paid in full and Paycheck Safety Program loans have been totally
forgiven throughout FY 2021.



The Firm acknowledged a achieve on insurance coverage restoration of $167,100 throughout FY 2022,
in contrast with $210,500 acknowledged throughout FY 2021. The Firm acknowledged
forgiveness of debt of $1.5 million throughout FY 2021, with no comparable quantity
acknowledged throughout FY 2022.



Revenue Tax Expense



We incurred $35,400 of earnings tax expense in FY 2022 on a loss earlier than earnings
taxes of $306,000, in comparison with an earnings tax good thing about $891,900 realized in FY
2021 on a loss earlier than earnings taxes of $1.8 million. The earnings tax profit in FY
2021 was primarily the results of debt forgiveness earnings being realized in FY
2021 with no related earnings tax expense and the revaluation of a portion of
deferred tax property because of the Firm realizing a taxable loss throughout
FY 2021 that may be carried again to prior durations with the next efficient earnings
tax fee. The earnings tax expense in FY 2022 was primarily the results of
variations within the valuation of restricted inventory awards and the belief of
$155,000 of worker retention credit that diminished the loss that might be
carried again to prior durations.



Fiscal 2021 In contrast To Fiscal 2020

A dialogue of our outcomes of operations for FY 2021 compared to FY 2020
has been omitted from this Annual Report, however might be present in Merchandise 7.
“Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations” in our Annual Report on Kind 10-Okay for the fiscal 12 months ended
February 28, 2021 , filed with the SEC on June 1, 2021, as amended by our

  Annual Report on Kind 10-Okay/A for the fiscal 12 months ended February 28, 2021  ,
filed with the SEC on June 28, 2021, which can be found freed from cost on the
SEC's web site at www.sec.gov and our company web site (www.rmcf.com).



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Liquidity and Capital Sources



As mentioned under, we now have taken a number of defensive measures to maximise
liquidity in response to the COVID-19 pandemic, together with the suspension of our
money dividend, lowering bills, extending cost phrases with distributors, lowering
manufacturing quantity and deferring discretionary capital expenditures. Based mostly on
these actions, we consider that money flows from operations and our money and money
equivalents available, will likely be ample to satisfy our ongoing liquidity wants and
capital expenditure necessities for a minimum of the subsequent twelve months. Extra
future financing could also be essential to fund our operations, and there might be no
assurance that, if wanted, we will safe further debt or fairness
financing on phrases acceptable to us or in any respect, particularly in mild of the market
volatility and uncertainty because of the COVID-19 pandemic. Though we
consider we now have sufficient sources of liquidity over the long run, the success of
our operations, the worldwide financial outlook, and the tempo of sustainable development
in our markets, in every case, in mild of the market volatility and uncertainty
because of the COVID-19 pandemic, amongst different components, might influence our
enterprise and liquidity.



As of February 28, 2022, working capital was $9.7 million in contrast with $9.0
million as of February 28, 2021. The rise in working capital was due
primarily to our efforts to protect liquidity through the COVID-19 pandemic,
together with the receipt of PPP funds and the suspension of our quarterly dividend.
We've got traditionally generated extra working money movement. We overview our working
capital wants and projections and once we consider that we now have better working
capital than needed we now have traditionally utilized that extra working capital
to repurchase frequent inventory and pay dividends to our stockholders.



Money and money equal balances elevated from $5.6 million as of February 28,
2021 to $7.6 million as of February 28, 2022 because of money flows generated
by financing actions. Our present ratio was 2.8 to 1.0 at February 28, 2022
in comparison with 3.4 to 1.0 at February 28, 2021. We monitor present and anticipated
future ranges of money and money equivalents in relation to anticipated working,
financing and investing necessities.



Throughout FY 2022, we had a internet lack of $342,000. Working actions supplied
money of $2.9 million, with the principal adjustment to reconcile internet earnings to
internet money supplied by working actions being a rise in accrued
liabilities of $1.3 million, depreciation and amortization of $1.2 million and
inventory compensation expense of $1.1 million. Throughout FY 2021, we had a internet lack of
$900,000. Working actions supplied money of $67,000, with the principal
adjustment to reconcile internet earnings to internet money supplied by working actions
being depreciation and amortization of $1.3 million and inventory compensation
expense of $512,000.



Throughout FY 2022, investing actions used money of $605,000, primarily as a result of
purchases of property and gear of $950,000, partially offset by proceeds
obtained from an insurance coverage restoration of $206,000. As compared, investing
actions used money of $71,000 throughout FY 2021 primarily as a result of purchases of
property and gear, intangible property and deposits on future asset purchases
of $461,000 partially offset by proceeds obtained from an insurance coverage restoration of
$305,000.



Financing actions used money of $299,000 throughout FY 2022 and supplied money of
$815,000 through the prior 12 months. The change in money utilized in financing actions
was primarily as a result of receipt of PPP proceeds in FY 2021.



Revolving Credit score Line



The Firm has a $5.0 million credit score line for basic company and dealing
capital functions, of which $5.0 million was out there for borrowing (topic to
sure borrowing base limitations) as of February 28, 2022. In March 2020, as a
precautionary measure in mild of the COVID-19 pandemic and the associated financial
impacts, the Firm drew the utmost quantity out there on the credit score line in an
quantity equal to $3.4 million (the complete quantity of $5.0 million beneath the credit score
line, topic to the borrowing base of fifty% of eligible accounts receivable plus
50% of eligible inventories). In February 2021, the Firm repaid the credit score
line in full because of bettering financial situations and the complete
forgiveness of PPP loans. The credit score line is secured by considerably all the
Firm's property, besides retail retailer property. Curiosity on borrowings is at SOFR
plus 2.37% (2.42% at February 28, 2022). Moreover, the road of credit score is
topic to varied monetary ratio and leverage covenants. At February 28, 2022,
the Firm was in compliance with all such covenants. The credit score line is
topic to renewal in September 2022 and the Firm believes it's prone to be
renewed on phrases just like the present phrases.



PPP Mortgage



In April 2020, the Firm entered right into a Mortgage Agreements and Promissory Notes
(collectively the "SBA Loans") with 1st SOURCE BANK pursuant to the Paycheck
Safety Program (the "PPP") beneath the not too long ago enacted Coronavirus Assist,
Reduction, and Financial Safety Act ("CARES Act") administered by the U.S. Small
Enterprise Administration. The Firm obtained complete proceeds of $1.5 million
from the SBA Loans. These loans have been forgiven throughout FY 2021.



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Contractual Obligations



The desk under presents important contractual obligations of the Firm at
February 28, 2022.

(Quantities in hundreds)



                                              Lower than 1                                         Extra Than
  Contractual Obligations       Complete            12 months           2-3 Years        4-5 years         5 years
Working leases              $    1,859     $         579     $        630     $        211     $        439
Buy contracts                    45                45                -                -                -
Different long-term obligations          127                28               57               42                -
Complete                         $    2,031     $         652     $        687     $        253     $        439




The Firm made a mean of $695,000 per 12 months in capital expenditures throughout
FY 2020 to FY 2022. For FY 2023 the Firm anticipates making roughly
$1.7 million of capital expenditures. The deliberate enhance is the results of
anticipated funding in equipment and gear to exchange gear that has
reached the tip of its helpful life.



Impression of Inflation



Inflationary components akin to will increase within the prices of substances and labor
instantly have an effect on the Firm's operations. Many of the Firm's leases present
for cost-of-living changes and require it to pay taxes, insurance coverage and
upkeep bills, all of that are topic to inflation. Moreover, the
Firm's future lease value for brand new services might embrace doubtlessly
escalating prices of actual property and development. There is no such thing as a assurance that the
Firm will be capable to go on elevated prices to its clients.



Depreciation expense relies on the historic value to the Firm of its fastened
property, and is subsequently doubtlessly lower than it will be if it have been based mostly on
present alternative value. Whereas property and gear acquired in prior years
will in the end have to get replaced at increased costs, it's anticipated that
alternative will likely be a gradual course of over a few years.



Essential Accounting Estimates



Our dialogue and evaluation of our monetary situation and outcomes of operations
relies upon our consolidated monetary statements, which have been ready in
accordance with accounting ideas typically accepted in the USA of
America. The preparation of our consolidated monetary statements requires us to
make estimates and judgments that have an effect on the reported quantities of property,
liabilities, revenues and bills and the associated disclosures. Estimates and
assumptions embrace, however aren't restricted to, the carrying worth of accounts and
notes receivable from franchisees, inventories, the helpful lives of fastened
property, goodwill, and different intangible property, earnings taxes, contingencies and
litigation. We base our estimates on analyses, of which type the idea for
making judgments concerning the carrying values of property and liabilities which are
not readily obvious from different sources. Precise outcomes might differ from these
estimates.


We consider that the next signify our extra crucial estimates and
assumptions used within the preparation of our consolidated monetary statements,
though not all inclusive.



Accounts and Notes Receivable - Within the regular course of enterprise, we prolong
credit score to clients, primarily franchisees, that fulfill pre-defined credit score
standards. We consider that we now have a restricted focus of credit score threat
primarily as a result of our receivables are secured by the property of the franchisees
to which we ordinarily prolong credit score, together with, however not restricted to, their
franchise rights and inventories. An allowance for uncertain accounts is
decided via evaluation of the ageing of accounts receivable, assessments of
collectability based mostly on historic developments, and an analysis of the influence of
present and projected financial situations. The method by which we carry out our
evaluation is performed on a buyer by buyer, or franchisee by franchisee,
foundation and takes into consideration, amongst different related components, gross sales historical past,
excellent receivables, buyer monetary power, in addition to buyer
particular and geographic market components related to projected efficiency. The
Firm screens the collectability of its accounts receivable on an ongoing
foundation by assessing the credit score worthiness of its clients and evaluating the
influence of moderately probably modifications in financial situations that will influence
credit score dangers. Estimates with regard to the collectability of accounts receivable
are moderately prone to change sooner or later. We might expertise the failure of
our wholesale clients, together with our franchisees, to whom we prolong credit score to
pay quantities owed to us on time, or in any respect, notably if such clients are
considerably impacted by COVID-19.



We recorded a mean expense of roughly $485,000 per 12 months for potential
uncollectible accounts over the three fiscal years ended February 28, 2022.
Write-offs of uncollectible accounts internet of recoveries averaged roughly
$358,000 over the identical interval. The supply for uncollectible accounts is
acknowledged as basic and administrative expense within the Statements of Revenue.
Over the previous three fiscal years, the allowances for uncertain notes and accounts
have ranged from 13.6% to 44.25% of gross receivables. Because of COVID-19
and the related influence on the liquidity of our clients, we recorded increased
expense for doubtlessly uncollectable accounts and the next allowance as a
share of gross receivables throughout FY 2021.



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Income Recognition - We acknowledge income on gross sales of merchandise to franchisees
and different clients on the time of supply. Starting in FY 2019, upon adoption
of ASC 606, the Firm started recognizing franchise charges and license charges over
the time period of the related settlement, which is mostly a interval of 10-15
years. Previous to FY 2019, franchise price income was acknowledged upon opening of
the franchise retailer, or upon execution of a world license settlement. We
acknowledge a advertising and marketing and promotion price of 1 p.c (1%) of the Rocky
Mountain Chocolate Manufacturing unit and U-Swirl franchised shops' gross retail gross sales and
a royalty price based mostly on gross retail gross sales. The Firm acknowledges no royalty on
franchised shops' retail gross sales of merchandise bought from the Firm and
acknowledges a ten p.c (10%) royalty on all different gross sales of product offered at
franchise places. Royalty charges for U-Swirl cafés are based mostly on the speed
outlined within the acquired contracts for the franchise rights and vary from 2.5%
to six% of gross retail gross sales. Rebates obtained from purveyors that provide
merchandise to our franchisees are included in franchise royalties and charges.
Product rebates are acknowledged within the interval through which they're earned. Rebates
associated to Firm-owned places are offset in opposition to working prices.



Inventories - Our inventories are acknowledged on the decrease of value or internet realizable
worth and are diminished for slow-moving, extra, discontinued and shelf-life
expired inventories. Our estimate for such discount relies on our overview of
inventories available in comparison with estimated future utilization and demand for our
merchandise. Such overview encompasses not solely doubtlessly perishable inventories
but in addition specialty packaging, a lot of it particular to sure vacation seasons. If
precise future utilization and demand for our merchandise are much less favorable than these
projected by our overview, additional stock changes could also be required. We
intently monitor our stock, each perishable and non-perishable, and associated
shelf and product lives. Traditionally we now have skilled low ranges of out of date
stock or returns of merchandise which have exceeded their shelf life. Over the
three fiscal years ended February 28, 2022, the Firm recorded expense
averaging $313,000 per 12 months for potential stock losses, or roughly
1.8% of complete value of gross sales for that interval.



Goodwill - Goodwill consists of the surplus of buy worth over the honest
market worth of acquired property and liabilities. Efficient March 1, 2002, beneath
ASC Subject 350, all goodwill with indefinite lives is now not topic to
amortization. ASC Subject 350 requires that an impairment take a look at be performed
yearly or within the occasion of an impairment indicator. Our testing and impairment
is described in Notice 7 to the monetary statements. We could also be required to revise
sure accounting estimates and judgments associated to Goodwill because of
the COVID-19 pandemic and its influence on financial situations.



Franchise Rights – Franchise rights consists of the acquisition worth paid in
consideration of sure rights related to franchise agreements. These
franchise agreements present for future funds to the franchisor of royalty
and advertising and marketing charges. We think about franchise rights to have a 20 12 months life.



Different accounting estimates inherent within the preparation of our consolidated
monetary statements embrace estimates related to its analysis of the
recoverability of deferred tax property, in addition to these used within the
dedication of liabilities associated to litigation and taxation. Varied
assumptions and different components underlie the dedication of those important
estimates. The method of figuring out important estimates is truth particular and
takes into consideration components akin to historic expertise, present and anticipated
financial situations, and product combine. The Firm consistently re-evaluates these
important components and makes changes the place details and circumstances dictate.
Traditionally, precise outcomes haven't considerably deviated from these
decided utilizing the estimates described above.

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