Quarterly Report for Quarter Ending August 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

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 Form 10-K, filed with the SEC on May 29, 2026, for the fiscal year ended February 28, 2026.

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 and 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, 2026, there were 5 Company-owned, 106 licensee-owned and 137 franchised Rocky Mountain Chocolate Factory stores operating in 34 states and the Philippines.

Repayment of the Credit Agreement and the RMCF2 Credit Agreement

On September 30, 2024, 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 matures 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. The 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. RMC is a special purpose investment entity affiliated with Steven L. Craig, one of the members of the Company's board of directors.

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 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. The Company incurred $0.1 million of loan origination fees, included as a debt discount and reduction of the notes payable on the balance sheet.

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. The additional advance of $.6 million was repaid on December 31, 2025.

The Company was not in compliance with the covenants as of August 31, 2026, providing for a maximum ratio of total liabilities to tangible net worth of 2.0 to 1.0, which was computed as 8.96 to 1.0, and a minimum ratio of current assets to current liabilities of 1.25 to 1.0, which was computed as .52 to 1.0. The Company has not received a waiver from RMC through the quarter ended August 31, 2026, but is in compliance with all other aspects of the debt agreement. The debt has been classified as a current liability at August 31, 2026.

On August 28, 2025, the Company entered into a credit agreement (the "RMCF2 Credit Agreement") with RMCF2 Credit LLC ("RMCF2"), a special purpose investment entity affiliated with Jeffrey R. Geygan, the Company's former interim CEO and one of the members of the board of directors.

Pursuant to the RMCF2 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 is collateralized by the Company's Durango real estate property and the related inventory and property, plant and equipment located on the property, as well as the Company's account receivable and cash accounts. Of the $1.2 million advanced, $.6 million was repaid on December 31, 2025.

The RMCF2 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 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.

The Company was not in compliance with the covenants as of August 31, 2026, providing for a maximum ratio of total liabilities to tangible net worth of 2.0 to 1.0, which was computes as 8.96 to 1.0, and a minimum ratio of current assets to current liabilities of 1.25 to 1.0, which was computed as .52 to 1.0. The Company has not received a waiver from RMCF2 through the quarter ended August 31, 2026, but is in compliance with all other aspects of the debt agreement. The debt has been classified as a current liability at August 31, 2026.

As of August 31, 2026, the Company had $6.0 million outstanding on the Credit Agreement and $0.6 million outstanding on the RMCF2 Credit Agreement. Interest on the outstanding amounts was paid through August 31, 2026. The Credit Agreement and the RMCF2 Credit Agreement were repaid subsequent to August 31, 2026 (see Note 16).

Secured Loan Agreements

In June 2026, the Company entered into secured loan agreements with a total principal balance of approximately $0.3 million, maturing through July 2031. The notes bear interest at fixed rates of 6.25% and 10.27% per annum and are secured by equipment acquired. Under the terms of the agreements, the Company is required to make 19 monthly payments of approximately $17 thousand and 60 monthly payments of approximately $1 thousand. As of August 31, 2026, the outstanding principal balance was approximately $0.3 million.

Appointment of Interim Chief Executive Officer and Chief Operating Officer

On June 21, 2026, Jeffrey R. Geygan notified the Board of Directors of his resignation as interim Chief Executive Officer, effective June 26, 2026. Mr. Geygan remains a member of the Board of Directors. On June 29, 2026, the Board of Directors appointed Allen C. Harper as interim Chief Executive Officer and Principal Executive Officer, effective immediately. Mr. Harper previously served as a member of the Board of Directors from November 2024 to September 2025, and is affiliated with American Heritage Railways, which may be deemed an affiliate of the Company by virtue of its beneficial ownership of the Company's common stock. In connection with Mr. Harper's appointment, the Board of Directors approved aggregate compensation of $200,000 for up to six months of service; $70,000 in cash and $130,000 in restricted stock units. The Board of Directors may extend the term of employment.

On August 18, 2026, the Board of Directors approved the appointment of David Denker as Chief Operating Officer. Mr. Denker served as the Company's Vice President of Franchise Development since September 2025 and subsequently assumed broader leadership responsibilities across the Company. Mr. Denker has experience in manufacturing and production operations, franchise operations and development, merchandising, marketing, and product innovation. Mr. Denker holds the Certified Franchise Executive (CFE) designation.

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, 2026 Compared to the Three Months Ended August 31, 2025

Results Summary

The basic loss per share was $(0.09) per share for the three months ended August 31, 2026. Revenues decreased by 2.5% from $6.8 million for the three months ended August 31, 2025 to $6.7 million for the three months ended August 31, 2026. Operating loss was $0.5 million for the three months ended August 31, 2025 compared to an operating loss of $1.1 million for the three months ended August 31, 2026.

REVENUES

Durango Product and Retail Sales

The increase in Durango product and retail sales of 2.5%, or $0.1 million for the three months ended August 31, 2026 compared to the three months ended August 31, 2025 was primarily due to sales price increases.

We continue to rationalize product offerings to improve production efficiencies, while adding new products. Our new box line will be available for the holidays. We believe we can generate high sales volumes and gross profit margins

at or above our average level for bulk and packaged items. We continue to focus our marketing efforts on increasing total pounds purchased by franchise locations.

Royalties, Marketing Fees and Franchise Fees

Royalty and marketing fees decreased $0.3 million during the three months ended August 31, 2026 compared to the three months ended August 31, 2025, primarily due to the decrease in store sales subject to royalty fees.

COSTS AND EXPENSES

Gross Margin

Cost of Sales and Gross Margin

Total gross margin percentage increased to 8.0% for the three months ended August 31, 2026 compared to a gross margin of (0.6)% during the three months ended August 31, 2025, due primarily to an increase in production efficiencies.

Franchise Costs

The increase in franchise costs for the three months ended August 31, 2026 compared to the three months ended August 31, 2025 was due to the initiation of new programs for franchises in an effort to boost store sales and in part due to the timing of expenses. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise and sales and marketing costs increased to 70.5% for the three months ended August 31, 2026 from 47.3% for the three months ended August 31, 2025.

Sales and Marketing

The decrease in sales and marketing costs during the three months ended August 31, 2026 compared to the three months ended August 31, 2025 was due to a change in marketing strategy that emphasized targeted campaigns, increased reliance on lower-cost digital channels, a reduction in discretionary spending and in part due to timing of anticipated expenses.

General and Administrative

The increase in general and administrative costs during the three months ended August 31, 2026 compared to the three months ended August 31, 2025, was due primarily to increases in costs related to employee compensation, insurance,

software licenses, professional fees, travel, and board compensation. As a percentage of total revenues, general and administrative expenses increased to 20.0% during the three months ended August 31, 2026, compared to 14.3% during the three months ended August 31, 2025.

Retail Operating Expenses

Retail operating expenses increased 91.6% during the three months ended August 31, 2026 compared to the three months ended August 31, 2025. This increase is primarily the result of an increase in the number of corporate stores. The Company acquired a third corporate store in August of 2025 and has since acquired two additional stores.

Depreciation and Amortization

Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales was $0.14 million during the three months ended August 31, 2026, an increase of 30.6% from $0.11 million during the three months ended August 31, 2025. Depreciation and amortization included in cost of sales decreased 2.5% from $0.24 million during the three months ended August 31, 2025 to $0.23 million during the three months ended August 31, 2026. This decrease was the result of certain assets being fully depreciated.

Total Other Income (Expense)

Total other expense was $0.2 million during the three months ended August 31, 2026, compared to other expense of $0.2 million during the three months ended August 31, 2025. Interest expense increased to $0.21 million for the three months ended August 31, 2026 compared to $0.19 million for the three months ended August 31, 2025 due to an increase in our debt balance outstanding.

Six Months Ended August 31, 2026 Compared to the Six Months Ended August 31, 2025

Results Summary

The basic loss per share was $(0.13) per share for the six months ended August 31, 2025 compared with a loss of $(0.26) per share for the six months ended August 31, 2026. Revenues decreased by 3.3% from $13.2 million for the six months ended August 31, 2025 to $12.8 million for the six months ended August 31, 2026. Operating loss was $0.6 million for the six months ended August 31, 2025 compared to an operating loss of $2.1 million for the six months ended August 31, 2026.

REVENUES

Durango Product and Retail Sales

The increase in Durango product and retail sales of 2.9%, or $0.3 million for the six months ended August 31, 2026 compared to the six months ended August 31, 2025 was primarily due to sales price increases.

Royalties, Marketing Fees and Franchise Fees

Royalty and marketing fees decreased $0.7 million during the six months ended August 31, 2026 compared to the six months ended August 31, 2025, primarily due to a decrease in store sales subject to royalty fees.

COSTS AND EXPENSES

Gross Margin

Cost of Sales and Gross Margin

Total gross margin percentage increased to 5.9% for the six months ended August 31, 2026 compared to a gross margin of 2.9% during the six months ended August 31, 2025, due primarily to sales price increases.

Franchise Costs

The increase in franchise costs for the six months ended August 31, 2026 compared to the six months ended August 31, 2025 was due primarily to the initiation of new programs for franchisees in an effort to boost store sales and in part due to the timing of expenses. As a percentage of total royalty and marketing fees and franchise fee revenue, franchise and sales and marketing costs increased to 63.2% for the six months ended August 31, 2026 from 47.8% for the six months ended August 31, 2025.

Sales and Marketing

The decrease in sales and marketing costs during the six months ended August 31, 2026 compared to the six months ended August 31, 2025 was due primarily to a change in marketing strategy that emphasized targeted campaigns, increased reliance on lower-cost digital channels, a reduction in discretionary promotional spending, and in part to timing of anticipated expenses.

General and Administrative

The increase in general and administrative costs during the six months ended August 31, 2026 compared to the six months ended August 31, 2025, was due primarily to increases in costs related to employee compensation, insurance, software licenses, professional fees, travel and board compensation. As a percentage of total revenues, general and administrative expenses increased to 20.4% during the six months ended August 31, 2026, compared to 15.0% during the six months ended August 31, 2025.

Retail Operating Expenses

Retail operating expenses increased 73.7% during the six months ended August 31, 2026 compared to the six months ended August 31, 2025. This increase is primarily the result of an increase in the number of corporate retail stores. The Company acquired a third corporate-owned store in August 2025 and has since acquired two additional stores.

Depreciation and Amortization

Depreciation and amortization, exclusive of depreciation and amortization included in cost of sales was $280 thousand during the six months ended August 31, 2026, an increase of 23.9% from $226 thousand during the six months ended August 31, 2025. Depreciation and amortization included in cost of sales decreased 1.3% from $0.47 million during the six months ended August 31, 2025 to $0.46 million during the six months ended August 31, 2026. This decrease was the result of certain assets being fully depreciated.

Other Income (Expense)

Other expense was $0.4 million during the six months ended August 31, 2026, compared to other expense of $0.4 million during the six months ended August 31, 2025. Interest expense increased to $0.42 million, for the six months ended August 31, 2026 compared to $0.38 million during the six months ended August 31, 2025 due to an increase in our debt balance outstanding.

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. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is useful to investors because it helps them to evaluate a company's core operating performance without the effects of financing decisions, tax jurisdictions, or certain non-cash accounting changes. Both EBITDA and 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.

Three Months Ended August 31, 2026 Compared to the Three Months Ended August 31, 2025

Six Months Ended August 31, 2026 Compared to the Six Months Ended August 31, 2025

Liquidity and Capital Resources

As of August 31, 2026, the Company has a working capital deficit of $6.5 million compared with positive working capital of $2.2 million as of February 28, 2026. The decrease in working capital was primarily due to the reclassification of certain debt obligations from long-term liabilities to current liabilities for the six months ended August 31, 2026. The Company was not in compliance with the covenant obligations for either the current ratio of 1.25 to 1.0, computed as .52 to 1.0, or the total liabilities to tangible net worth covenant of 2.0 to 1.0, which was computed as 8.96 to 1.0 as of August 31, 2026. As a result, the current debt, which matures on September 30, 2027, has been classified as current as of August 31, 2026. Expected future cash requirements include lease liabilities, purchase obligations, and capital expenditures to support operations and the expected future growth of the business.

Cash and cash equivalent balances decreased from $1.2 million as of February 28, 2026 to $0.4 million as of August 31, 2026 primarily as a result of cash used in operating and investing activities. Our current ratio was 0.52 to 1.0 on August 31, 2026 compared to 1.33 to 1.0 on February 28, 2026. 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, 2026, we had a consolidated net loss of $2.4 million. Operating activities used cash of $0.5 million, with the principal adjustments to reconcile net loss to net cash used in operating activities being depreciation and amortization of $0.7 million and stock compensation expense of $0.2 million. The primary changes in operating assets and liabilities included an increase in accounts receivable of $0.4 million and a decrease in inventory of $1.5 million. 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 adjustments to reconcile net loss 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 of accounts and notes receivable of $0.1 million.

During the six months ended August 31, 2026, cash flows used in investing activities were $0.3 million, primarily due to the purchases of property and equipment of $0.2 million, and the acquisition of the retail stores in Nashville, TN and Chino Hills, CA for $0.1 million. In comparison, cash flows used in investing activities were $0.4 million during the six months ended August 31, 2025, 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.

Cash flows used in financing activities during the six months ended August 31, 2026 were $31 thousand compared to $1.8 million in cash flows provided by financing activities during the six months ended August 31, 2025. The Company received $1.8 million in proceeds from notes payable during the six months ended August 31, 2025.

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, 2026 audited financial statements, raised substantial doubt about the Company's ability to continue as a going concern.

The Company's ability to continue as a going concern is dependent on its ability to continue to implement its business plan. The Company continues to explore supplemental liquidity resources and alternative sources of debt financing to reduce interest rates. The Company intends to reduce overhead costs, improve manufacturing efficiencies, and increase profit and gross margins by better aligning its costs with the delivery and sale of products to its franchise system, current and new specialty market customers, and e-commerce customers. The Company intends to benefit from its historically busy season of holiday product sales. The Company has recently developed and enhanced third-party delivery channels for current and new franchise locations, including websites for each location which is expected to increase franchise sales. The Company has implemented a corporate sales strategy to add new stores and transfer existing stores to new owners when appropriate, while also requiring most existing stores to undergo a remodel which has historically resulted in increased store-level sales after completion. There are no assurances the Company will be successful in implementing its business plan.

Credit Agreements

On September 30, 2024, 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 matures 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. The 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. RMC is a special purpose investment entity affiliated with Steven L. Craig, one of the members of the Company's board of directors.

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 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. The Company incurred $0.1 million of loan origination fees, included as a debt discount and reduction of the notes payable on the balance sheet.

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. The additional advance of $.6 million was repaid on December 31, 2025.

The Company was not in compliance with the covenants as of August 31, 2026, providing for a maximum ratio of total liabilities to tangible net worth of 2.0 to 1.0, which was computed as 8.96 to 1.0, and a minimum ratio of current assets to current liabilities of 1.25 to 1.0, which was computed as .52 to 1.0. The Company has not received a waiver from RMC through the quarter ended August 31, 2026, but is in compliance with all other aspects of the debt agreement. The debt has been classified as a current liability at August 31, 2026.

On August 28, 2025, the Company entered into a credit agreement (the "RMCF2 Credit Agreement") with RMCF2 Credit LLC ("RMCF2"), a special purpose investment entity affiliated with Jeffrey R. Geygan, the Company's former interim CEO and one of the members of the board of directors.

Pursuant to the RMCF2 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 is collateralized by the Company's Durango real estate property and the related inventory and property, plant and equipment located on the property, as well as the Company's account receivable and cash accounts. Of the $1.2 million advanced, $.6 million was repaid on December 31, 2025.

The RMCF2 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 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.

The Company was not in compliance with the covenants as of August 31, 2026, providing for a maximum ratio of total liabilities to tangible net worth of 2.0 to 1.0, which was computed as 8.96 to 1.0, and a minimum ratio of current assets to current liabilities of 1.25 to 1.0, which was computed as .52 to 1.0. The Company has not received a waiver from RMCF2 through the quarter ended August 31, 2026, but is in compliance with all other aspects of the debt agreement. The debt has been classified as a current liability at August 31, 2026.

As of August 31, 2026, the Company had $6.0 million outstanding on the Credit Agreement and $0.6 million outstanding on the RMCF2 Credit Agreement. Interest on the outstanding amounts was paid through August 31,

2026. The Credit Agreement and the RMCF2 Credit Agreement were repaid subsequent to August 31, 2026. (see Note 16).

Subsequent to August 31, 2026, the Company signed agreements to sell and leaseback its manufacturing facility located in Durango, Colorado. Proceeds from the sale of $6.6 million were used to repay $6.6 million in debt bearing interest at 12% per annum. Additionally, the Company entered into a loan agreement with Alpine Bank and received an advance of $2.0 million to provide working capital. Monthly payments of interest at Prime plus 1% are due in arrears, and all outstanding principal and interest amounts are due on the October 15, 2028 maturity date. The loan agreement is collateralized by all assets (see Note 16).

In June 2026, the Company entered into secured loan agreements with a total principal balance of approximately $0.3 million, maturing through July 2031. The notes bear interest at fixed rates of 6.25% and 10.27% per annum and are secured by equipment acquired. Under the terms of the agreements, the Company is required to make 19 monthly payments of approximately $17 thousand and 60 monthly payments of approximately $1 thousand. As of August 31, 2026, the outstanding principal balance was approximately $0.3 million.

We continue to explore additional means of strengthening our liquidity position and ensuring compliance with the continued listing standards of NASDAQ.

Registration Statement on Form S-3

On June 23, 2026, the Company filed a registration statement on Form S-3 (the "Registration Statement") with the SEC covering the offer and sale, from time to time, of up to $6.0 million in aggregate offering price of its securities. The Registration Statement provides for the issuance of one or more of the following classes of securities: common stock, preferred stock, debt securities, and units consisting of one or more of the foregoing securities. The Registration Statement was declared effective by the SEC on July 1, 2026.

The securities may be offered in one or more offerings, at prices and on terms to be determined at the time of sale, and may be issued directly by the Company or through underwriters, dealers, or agents. The Company intends to use the net proceeds from any future offerings under the Registration Statement for general corporate purposes, which may include working capital, capital expenditures, repayment of indebtedness, acquisitions, or other strategic investments. As of the date of this Quarterly Report, the Company has not issued any securities or entered into any definitive agreements related to offerings under the Registration Statement.

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, 2026 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, 2026.

Off Balance Sheet Arrangements

As of August 31, 2026, except for the purchase obligations as described below, we had no material off-balance sheet arrangements or obligations.

As of August 31, 2026, we had purchase obligations of approximately $2.7 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.