• Filing Date: 2018-07-13
  • Form Type: 10-Q
  • Description: Quarterly report
v3.10.0.1
Document And Entity Information - shares
3 Months Ended
May 31, 2018
Jun. 29, 2018
Document Information [Line Items]    
Entity Registrant Name Rocky Mountain Chocolate Factory, Inc.  
Entity Central Index Key 0001616262  
Trading Symbol rmcf  
Current Fiscal Year End Date --02-28  
Entity Filer Category Smaller Reporting Company  
Entity Current Reporting Status Yes  
Entity Voluntary Filers No  
Entity Well-known Seasoned Issuer No  
Entity Common Stock, Shares Outstanding (in shares)   5,905,436
Document Type 10-Q  
Document Period End Date May 31, 2018  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Amendment Flag false  
v3.10.0.1
Consolidated Statements of Income (Unaudited) - USD ($)
3 Months Ended
May 31, 2018
May 31, 2017
Revenues    
Total revenues $ 8,366,085 $ 9,346,447
Costs and Expenses    
Cost of sales 4,665,242 5,014,965
Sales and marketing 588,250 626,352
General and administrative 914,447 1,128,706
Depreciation and amortization, exclusive of depreciation and amortization expense of $136,505 and $125,616, respectively, included in cost of sales 301,000 194,934
Restructuring charges 58,188 0
Total costs and expenses 7,582,849 8,052,573
Income from Operations 783,236 1,293,874
Other Income (Expense)    
Interest expense (22,639) (35,189)
Interest income 4,577 7,218
Other, net (18,062) (27,971)
Income Before Income Taxes 765,174 1,265,903
Income Tax Provision 188,230 452,231
Consolidated Net Income $ 576,944 $ 813,672
Basic Earnings per Common Share (in dollars per share) $ 0.10 $ 0.14
Diluted Earnings per Common Share (in dollars per share) $ 0.10 $ 0.14
Weighted Average Common Shares Outstanding - Basic (in shares) 5,905,414 5,854,372
Dilutive Effect of Restricted Stock Units (in shares) 77,594 123,366
Weighted Average Common Shares Outstanding - Diluted (in shares) 5,983,008 5,977,738
Product [Member]    
Revenues    
Total revenues $ 6,582,049 $ 7,206,939
Franchise and Royalty Fees [Member]    
Revenues    
Total revenues 1,784,036 2,139,508
Franchise [Member]    
Costs and Expenses    
Costs 493,250 514,792
Retail [Member]    
Costs and Expenses    
Costs $ 562,472 $ 572,824
v3.10.0.1
Consolidated Statements of Income (Unaudited) (Parentheticals) - USD ($)
3 Months Ended
May 31, 2018
May 31, 2017
Depreciation and amortization expense $ 136,505 $ 125,616
v3.10.0.1
Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
May 31, 2018
Feb. 28, 2018
Current Assets    
Cash and cash equivalents $ 6,302,887 $ 6,072,984
Accounts receivable, less allowance for doubtful accounts of $502,962 and $479,472, respectively 3,201,929 3,897,334
Notes receivable, current portion, less current portion of the valuation allowance of $10,600 and $9,000, respectively 90,658 105,540
Refundable income taxes 107,417 342,863
Inventories, less reserve for obsolete inventory of $381,649 and $357,706, respectively 5,219,447 4,842,474
Other 479,046 310,173
Total current assets 15,401,384 15,571,368
Property and Equipment, Net 6,003,097 6,166,240
Other Assets    
Notes receivable, less current portion and valuation allowance of $15,900 and $17,500, respectively 217,167 235,983
Goodwill, net 1,046,944 1,046,944
Franchise rights, net 4,245,175 4,433,927
Intangible assets, net 564,842 587,377
Adjustment to deferred income tax assets 587,862 835,463
Other 71,624 63,333
Total other assets 6,733,614 7,203,027
Total Assets 28,138,095 28,940,635
Current Liabilities    
Current maturities of long-term debt 1,365,473 1,352,893
Accounts payable 1,424,877 1,647,991
Accrued salaries and wages 778,879 644,005
Reduction in gift card liabilities 763,072 3,057,131
Other accrued expenses 348,017 325,034
Dividend payable 708,652 708,652
Deferred revenue 291,036 471,910
Total current liabilities 5,680,006 8,207,616
Long-Term Debt, Less Current Maturities 829,881 1,176,416
Deferred Revenue, Less Current Portion 1,121,578
Commitments and Contingencies
Stockholders' Equity    
Preferred stock, $.001 par value per share; 250,000 authorized; -0- shares issued and outstanding; Series A Junior Participating Preferred Stock, authorized 50,000 shares; undesignated series, authorized 200,000 shares
Common stock, $0.001 par value, 46,000,000 shares authorized, 5,905,436 shares and 5,903,436 shares issued and outstanding, respectively 5,905 5,903
Additional paid-in capital 6,286,952 6,131,147
Retained earnings 14,213,773 13,419,553
Total stockholders’ equity 20,506,630 19,556,603
Total Liabilities and Stockholders’ Equity $ 28,138,095 $ 28,940,635
v3.10.0.1
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)
May 31, 2018
Feb. 28, 2018
Accounts receivable, allowance for doubtful accounts $ 502,962 $ 479,472
Notes receivable, current portion of valuation allowance 10,600 9,000
Inventories, reserve 381,649 357,706
Notes receivable, valuation allowance $ 15,900 $ 17,500
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized (in shares) 250,000 250,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares) 46,000,000 46,000,000
Common stock, shares issued (in shares) 5,905,436 5,903,436
Common stock, shares outstanding (in shares) 5,905,436 5,903,436
Series A Preferred Stock [Member]    
Preferred stock, shares authorized (in shares) 50,000 50,000
Undesignated Series [Member]    
Preferred stock, shares authorized (in shares) 200,000 200,000
v3.10.0.1
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
May 31, 2018
May 31, 2017
Cash Flows From Operating Activities    
Net income $ 576,944 $ 813,672
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 437,505 320,550
Provision for loss on accounts and notes receivable 23,400 29,400
Provision for obsolete inventory 24,185 16,896
Asset impairment and store closure losses 44,000
Loss on sale of property and equipment 17,056 15,617
Expense recorded for stock based compensation 155,807 134,415
Deferred income 66,770
Contract liabilities (78,883)
Deferred income taxes (54,493) (100,640)
Changes in operating assets and liabilities:    
Accounts receivable 672,005 1,089,011
Inventories (916,261) (92,691)
Other current assets (168,990) (68,236)
Accounts payable 291,989 278,380
Accrued liabilities 349,987 406,164
Net cash provided by operating activities 1,374,251 2,909,308
Cash Flows From Investing Activities    
Proceeds received on notes receivable 33,698 66,196
Proceeds from (Costs of) sale or distribution of assets 500 (11,950)
Purchase of intangible assets (8,508)
Purchases of property and equipment (130,572) (76,726)
Other (5,366) 8,297
Net cash used in investing activities (101,740) (22,691)
Cash Flows From Financing Activities    
Payments on long-term debt (333,955) (321,831)
Dividends paid (708,653) (702,524)
Net cash used in financing activities (1,042,608) (1,024,355)
Net Increase in Cash and Cash Equivalents 229,903 1,862,262
Cash and Cash Equivalents, Beginning of Period 6,072,984 5,779,195
Cash and Cash Equivalents, End of Period $ 6,302,887 $ 7,641,457
v3.10.0.1
Note 1 - Nature of Operations and Basis of Presentation
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Business Description and Accounting Policies [Text Block]
NOTE
1
– NATURE OF OPERATIONS AND BASIS OF PRESENTATION
 
Nature of Operations
 
The accompanying consolidated financial statements include the accounts of Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, its wholly-owned subsidiaries, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation (“RMCF”), Aspen Leaf Yogurt, LLC, a Colorado limited liability company (“ALY”), and U-Swirl International, Inc., a Nevada corporation (“U-Swirl”), and its
46%
-owned subsidiary, U-Swirl, Inc. (“SWRL”), of which RMCF had financial control until
February
29,
2016
(collectively, the “Company”). All intercompany balances and transactions have been eliminated in consolidation.
 
The Company is an international franchisor, confectionery manufacturer and retail operator. Founded in
1981,
the Company is headquartered in Durango, Colorado and manufactures an extensive line of premium chocolate candies and other confectionery products. U-Swirl franchises and operates soft-serve frozen yogurt cafés. The Company also sells its candy in selected locations outside of its system of retail stores and licenses the use of its brand with certain consumer products.
 
In
January 2013,
through its wholly-owned subsidiaries, including ALY, the Company entered into
two
agreements to sell all of the assets of its ALY frozen yogurt stores, along with its interest in the self-serve frozen yogurt franchises and retail units branded as “Yogurtini,” which the Company also acquired in
January 2013,
to SWRL, in exchange for a
60%
controlling equity interest in SWRL (
46%
equity interest as of
May 31, 2018).
Upon completion of these transactions, the Company ceased to directly operate any Company-owned ALY locations or sell and support frozen yogurt franchise locations, which was being supported by SWRL. The SWRL board of directors is composed solely of board members also serving on the Company’s board of directors (the “Board of Directors”).
 
In fiscal year (“FY”)
2014,
SWRL acquired the franchise rights and certain other assets of self-serve frozen yogurt concepts under the names “CherryBerry,” “Yogli Mogli Frozen Yogurt” and “Fuzzy Peach Frozen Yogurt.” In connection with these acquisitions, we entered into a credit facility with Wells Fargo Bank, N.A. used to finance the acquisitions by SWRL, and in turn, we entered into a loan and security agreement with SWRL to cover the purchase price and other costs associated with the acquisitions (the “SWRL Loan Agreement”). Borrowings under the SWRL Loan Agreement were secured by all of the assets of SWRL, including all of the outstanding stock of its wholly-owned subsidiary, U-Swirl. As a result of certain defaults under the SWRL Loan Agreement, we issued a demand for payment of all obligations under the SWRL Loan Agreement. SWRL was unable to repay the obligations under the SWRL Loan Agreement, and as a result, we foreclosed on all of the outstanding stock of U-Swirl on
February
29,
2016
in full satisfaction of the amounts owed under the SWRL Loan Agreement. This resulted in U-Swirl becoming our wholly-owned subsidiary as of
February
29,
2016,
and concurrently we ceased to have financial control of SWRL as of
February
29,
2016.
As of
May 31, 2018,
SWRL had
no
operating assets.
 
U-Swirl operates self-serve frozen yogurt cafés under the names “U-Swirl,” “Yogurtini,” “CherryBerry,” “Yogli Mogli Frozen Yogurt,” “Fuzzy Peach Frozen Yogurt,” “Let’s Yo!” and “Aspen Leaf Yogurt”.
 
The Company’s revenues are currently derived from
three
principal sources: sales to franchisees and others of chocolates and other confectionery products manufactured by the Company; the collection of initial franchise fees and royalties from franchisees’ sales; and sales at Company-owned stores of chocolates, frozen yogurt, and other confectionery products.
 
The following table summarizes the number of stores operating under the Rocky Mountain Chocolate Factory brand and frozen yogurt cafés at
May 31, 2018:
 
   
Sold, Not Yet
Open
   
 
Open
   
 
Total
 
Rocky Mountain Chocolate Factory
                       
Company-owned stores
   
-
     
3
     
3
 
Franchise stores – Domestic stores and kiosks
   
7
     
181
     
188
 
International License Stores
   
1
     
66
     
67
 
Cold Stone Creamery – co-branded
   
8
     
89
     
97
 
U-Swirl Stores (Including all associated brands)
                       
Company-owned stores
   
-
     
2
     
2
 
Company-owned stores – co-branded
   
-
     
3
     
3
 
Franchise stores – Domestic stores
   
*
     
99
     
99
 
Franchise stores – Domestic – co-branded
   
*
     
15
     
15
 
International License Stores
   
-
     
1
     
1
 
Total
   
16
     
459
     
475
 
 
*U-Swirl cafés and the brands franchised by U-Swirl have historically utilized a development area sales model. The result is that many areas are under development and the rights to open cafés within the development areas have been established, but there is
no
assurance that any individual development area will result in a determinable number of café openings.
 
Basis of Presentation
 
The accompanying consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Certain amounts previously presented for prior periods have been reclassified to conform to the current presentation. The reclassifications had
no
effect on net income, working capital or equity previously reported. In the opinion of management, the consolidated financial statements reflect all adjustments (of a normal and recurring nature) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the
three
months ended
May 31, 2018
are
not
necessarily indicative of the results to be expected for the entire fiscal year.
 
These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form
10
-K for the fiscal year ended
February 28, 2018.
 
Subsequent Events
 
Management evaluated all activity of the Company through the issue date of the financial statements and concluded that
no
subsequent events have occurred that would require recognition or disclosure in the financial statements.
 
Recent Accounting Pronouncements
 
In
June 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016
-
13,
Financial Instruments - Credit Losses (Topic
326
): Measurement of Credit Losses on Financial Instruments. ASU
2016
-
13
significantly changes the impairment model for most financial assets and certain other instruments. ASU
2016
-
13
will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU
2016
-
13
is effective for the Company's fiscal year beginning
March 1, 2020
and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU
2016
-
13
will have on the Company's consolidated financial statements.
  
In
February 2016,
the FASB issued ASU
2016
-
02,
Leases (Topic
842
), which requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC
840
“Leases.” These amendments also require qualitative disclosures along with specific quantitative disclosures. These amendments are effective for fiscal years beginning after
December 15, 2018,
including interim periods within those fiscal years. Early application is permitted. Entities are required to apply the amendments at the beginning of the earliest period presented using a modified retrospective approach. The Company expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and right-of-use assets upon adoption. The Company anticipates ASU
2016
-
02
will have a material impact on the consolidated balance sheet. The impact of ASU
2016
-
02
is non-cash in nature, as such, it will
not
affect the Company’s cash flows. The Company is currently evaluating the impact of ASU
2016
-
02
on the consolidated statements of income.
 
In
January 2016,
the FASB issued ASU
2016
-
01,
Financial Instruments - Overall (Subtopic
825
-
10
), Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted this guidance effective
March 1, 2018
and there was
no
impact to the Company’s consolidated financial statements resulting from adoption of this standard.
 
In
May 2014,
the FASB issued ASU
No.
2014
-
09,
Revenue from Contracts with Customers (“ASC
606”
). This guidance, as amended by subsequent ASUs on the topic, supersedes current guidance on revenue recognition in Topic
605,
Revenue Recognition. This guidance is effective for annual reporting periods beginning after
December 15, 2017,
including interim reporting periods. ASC
606
provides that revenues are to be recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration expected to be received for those goods or services. This new standard does
not
impact the Company's recognition of revenue from sales of confectionary items to our franchised and licensed locations, or in Company-owned stores as those sales are recognized at the time of the underlying sale and are presented net of sales taxes and discounts. The standard also does
not
change the recognition of royalties and marketing fees from franchised or licensed locations, which are based on a percent of sales and recognized at the time the sales occur. The standard does change the timing in which the Company recognizes initial fees from franchisees and licensees for new franchise locations and renewals that impact the term of the franchise agreement. The Company's policy for recognizing initial franchise and renewal fees through
February 28, 2018,
was to recognize initial franchise fees upon new store opening and renewals that impact the term of the franchise agreement upon renewal. In accordance with the new guidance, the initial franchise services are
not
distinct from the continuing rights or services offered during the term of the franchise agreement, and will be treated as a single performance obligation. Beginning
March 1, 2018,
initial franchise fees are being recognized as the Company satisfies the performance obligation over the term of the franchise agreement, which is generally
10
-
15
years.
 
The Company adopted ASC
606
as of
March 1, 2018,
using the modified retrospective method. This method allows the new standard to be applied retrospectively through a cumulative catch up adjustment recognized upon adoption. As a result, comparative information in the Company’s financial statements has
not
been restated and continues to be reported under the accounting standards in effect for those periods. See Note
11
to these financial statements for additional details regarding the adjustments recorded upon adoption of this standard.
v3.10.0.1
Note 2 - Earnings Per Share
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Earnings Per Share [Text Block]
NOTE
2
- EARNINGS PER SHARE
 
Basic earnings per share is calculated using the weighted-average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through stock options and restricted stock units. Following the expiration of all outstanding options, during FY
2018
and FY
2017,
no
stock options were excluded from diluted shares. Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock.
v3.10.0.1
Note 3 - Inventories
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Inventory Disclosure [Text Block]
NOTE
3
– INVENTORIES
 
The Company held the following inventory at
May 31, 2018
and
February 28, 2018:
   
May 31, 2018
   
February 28, 2018
 
Ingredients and supplies
  $
3,026,485
    $
2,764,727
 
Finished candy
   
2,519,373
     
2,371,610
 
U-Swirl food and packaging
   
55,238
     
63,843
 
Reserve for slow moving inventory
   
(381,649
)    
(357,706
)
Total inventories
  $
5,219,447
    $
4,842,474
 
v3.10.0.1
Note 4 - Property and Equipment, Net
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Property, Plant and Equipment Disclosure [Text Block]
NOTE
4
- PROPERTY AND EQUIPMENT, NET
 
Property and equipment at
May 31, 2018
and
February 28, 2018
consisted of the following:
   
May 31, 2018
   
February 28, 2018
 
Land
  $
513,618
    $
513,618
 
Building
   
4,905,103
     
4,905,103
 
Machinery and equipment
   
10,679,222
     
10,686,631
 
Furniture and fixtures
   
960,836
     
1,067,788
 
Leasehold improvements
   
1,354,550
     
1,568,260
 
Transportation equipment
   
434,091
     
434,091
 
Asset impairment
   
(91,891
)    
(62,891
)
     
18,755,529
     
19,112,600
 
                 
Less accumulated depreciation
   
(12,752,432
)    
(12,946,360
)
Property and equipment, net
  $
6,003,097
    $
6,166,240
 
v3.10.0.1
Note 5 - Stockholders' Equity
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
NOTE
5
- STOCKHOLDERS’ EQUITY
 
Cash Dividend
 
The Company paid a quarterly cash dividend of
$0.12
per common share on
March 16, 2018
to stockholders of record on
March 6, 2018.
The Company declared a quarterly cash dividend of
$0.12
per share of common stock on
May 10, 2018
payable on
June 15, 2018
to stockholders of record on
June 5, 2018.
 
Future declaration of dividends will depend on, among other things, the Company's results of operations, capital requirements, financial condition and on such other factors as the Board of Directors
may
in its discretion consider relevant and in the best long-term interest of the Company’s stockholders. The Company is subject to various financial covenants related to its line of credit and other long-term debt, however, those covenants do
not
restrict the Board of Director’s discretion on the future declaration of cash dividends.
 
Stock Repurchases
 
On
July 15, 2014,
the Company publicly announced a plan to repurchase up to
$3.0
million of its common stock in the open market or in private transactions, whenever deemed appropriate by management. On
January 13, 2015,
the Company announced a plan to purchase up to an additional
$2,058,000
of its common stock under the repurchase plan, and on
May 21, 2015,
the Company announced a further increase to the repurchase plan by authorizing the purchase of up to an additional
$2,090,000
of its common stock under the repurchase plan. The Company did
not
repurchase any shares during the
three
months ended
May 31, 2018.
As of
May 31, 2018,
approximately
$638,000
remains available under the repurchase plan for further stock repurchases.
 
Stock-Based Compensation
 
At
May 31, 2018,
the Company had stock-based compensation plans for employees and non-employee directors that authorized the granting of stock awards, including stock options and restricted stock units.
 
The Company recognized
$155,807
of stock-based compensation expense during the
three
months ended
May 31, 2018
compared with
$134,415
during the
three
months ended
May 31, 2017.
Compensation costs related to stock-based compensation are generally amortized over the vesting period of the stock awards.
 
The following table summarizes non-vested restricted stock unit transactions for common stock during the
three
months ended
May 31, 2018
and
2017:
 
   
Three Months Ended
 
   
May 31,
 
   
2018
   
2017
 
Outstanding non-vested restricted stock units as of February 28:
   
77,594
     
123,658
 
Granted
   
-
     
-
 
Vested
   
-
     
-
 
Cancelled/forfeited
   
-
     
(560
)
Outstanding non-vested restricted stock units as of May 31:
   
77,594
     
123,098
 
                 
Weighted average grant date fair value
  $
12.16
    $
12.21
 
Weighted average remaining vesting period (in years)
   
1.02
     
1.98
 
 
The Company issued
2,000
fully vested, unrestricted shares of stock to non-employee directors during the
three
months ended
May 31, 2018
compared to
no
shares issued during the
three
months ended
May 31, 2017.
In connection with these non-employee director stock issuances, the Company recognized
$24,480
and
$0
of stock-based compensation expense during the
three
months ended
May 31, 2018
and
2017,
respectively.
 
During the
three
months ended
May 31, 2018,
the Company recognized
$131,327
of stock-based compensation expense related to non-vested, non-forfeited restricted stock unit grants. The restricted stock units generally vest between
17%
and
20%
annually over a period of
five
to
six
years. Total unrecognized stock-based compensation expense of non-vested, non-forfeited restricted stock units, as of
May 31, 2018,
was
$489,426,
which is expected to be recognized over the weighted average period of
1.02
years.
 
The Company has
no
outstanding stock options as of
May 31, 2018.
v3.10.0.1
Note 6 - Supplemental Cash Flow Information
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Cash Flow, Supplemental Disclosures [Text Block]
NOTE
6
– SUPPLEMENTAL CASH FLOW INFORMATION
 
   
Three Months Ended
 
   
May 31,
 
Cash paid for:
 
2018
   
2017
 
Interest, net
  $
17,774
    $
26,929
 
Income taxes
   
7,277
     
349,250
 
Non-Cash Operating Activities                
Accrued Inventory
   
256,856
     
315,407
 
Non-Cash Financing Activities                
Dividend payable
  $
708,652
    $
702,525
 
 
v3.10.0.1
Note 7 - Operating Segments
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]
NOTE
7
- OPERATING SEGMENTS
 
The Company classifies its business interests into
five
reportable segments: Franchising, Manufacturing, Retail Stores, U-Swirl operations and Other. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note
1
to the Company’s consolidated financial statements included in the Company’s Annual Report on Form
10
-K for the year ended
February 28, 2018.
The Company evaluates performance and allocates resources based on operating contribution, which excludes unallocated
corporate general and administrative costs and income tax expense or benefit. The Company’s reportable segments are strategic businesses that utilize common merchandising, distribution, and marketing functions, as well as common information systems and corporate administration. All inter-segment sales prices are market based. Each segment is managed separately because of the differences in required infrastructure and the differences in products and services:
 
Three Months Ended May 31, 2018
 
Franchising
   
Manufacturing
   
Retail
   
U-Swirl
   
Other
   
Total
 
Total revenues
  $
1,313,206
    $
5,870,514
    $
361,435
    $
1,133,254
    $
-
    $
8,678,409
 
Intersegment revenues
   
(1,035
)    
(311,289
)    
-
     
-
     
-
     
(312,324
)
Revenue from external customers
   
1,312,171
     
5,559,225
     
361,435
     
1,133,254
     
-
     
8,366,085
 
Segment profit (loss)
   
489,271
     
1,169,335
     
(78,494
)    
135,155
     
(950,093
)    
765,174
 
Total assets
   
1,058,006
     
12,533,723
     
1,054,367
     
7,594,185
     
5,897,814
     
28,138,095
 
Capital expenditures
   
3,529
     
111,765
     
2,071
     
3,338
     
9,869
     
130,572
 
Total depreciation & amortization
  $
11,924
    $
141,028
    $
12,675
    $
244,051
    $
27,827
    $
437,505
 
 
Three Months Ended May 31, 2017
 
Franchising
   
Manufacturing
   
Retail
   
U-Swirl
   
Other
   
Total
 
Total revenues
  $
1,606,485
    $
6,498,210
    $
362,027
    $
1,195,310
    $
-
    $
9,662,032
 
Intersegment revenues
   
(1,306
)    
(314,279
)    
-
     
-
     
-
     
(315,585
)
Revenue from external customers
   
1,605,179
     
6,183,931
     
362,027
     
1,195,310
     
-
     
9,346,447
 
Segment profit (loss)
   
762,689
     
1,387,039
     
(36,431
)    
240,196
     
(1,087,590
)    
1,265,903
 
Total assets
   
1,192,859
     
11,490,941
     
1,087,541
     
9,508,948
     
6,550,307
     
29,830,596
 
Capital expenditures
   
-
     
49,060
     
3,600
     
2,616
     
21,450
     
76,726
 
Total depreciation & amortization
  $
11,392
    $
129,863
    $
3,827
    $
143,090
    $
32,378
    $
320,550
 
 
Revenue from
one
customer of the Company’s Manufacturing segment represented approximately
$1.3
million, or
15.2
percent of the Company’s revenues from external customers during the
three
months ended
May 31, 2018
compared to
$1.9
million, or
20.3
percent of the Company’s revenues from external customers during the
three
months ended
May 31, 2017.
v3.10.0.1
Note 8 - Goodwill and Intangible Assets
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Goodwill and Intangible Assets Disclosure [Text Block]
NOTE
8
– GOODWILL AND INTANGIBLE ASSETS
 
Intangible assets at
May 31, 2018
and
February 28, 2018
consist of the following:
 
               
May 31, 2018
   
February 28, 2018
 
   
Amortization
Period (in years)
   
Gross Carrying
Value
   
Accumulated
Amortization
   
Gross Carrying
Value
   
Accumulated
Amortization
 
Intangible assets subject to amortization
                                           
Store design
   
 
10
 
    $
220,778
    $
213,028
    $
220,778
    $
212,653
 
Packaging licenses
   
3
-
5
     
120,830
     
120,830
     
120,830
     
120,830
 
Packaging design
   
 
10
 
     
430,973
     
430,973
     
430,973
     
430,973
 
Trademark/Non-competition agreements
   
5
-
20
     
715,339
     
158,248
     
715,339
     
136,087
 
Franchise Rights
   
 
20
 
     
5,979,637
     
1,734,461
     
5,979,637
     
1,545,710
 
Total
   
 
 
 
    $
7,467,557
    $
2,657,540
    $
7,467,557
    $
2,446,253
 
Intangible assets not subject to amortization
                                           
Franchising segment-
                                           
Company stores goodwill
   
 
 
 
    $
1,099,328
    $
267,020
    $
1,099,328
    $
267,020
 
Franchising goodwill
   
 
 
 
     
295,000
     
197,682
     
295,000
     
197,682
 
Manufacturing segment-Goodwill
   
 
 
 
     
295,000
     
197,682
     
295,000
     
197,682
 
Trademark
   
 
 
 
     
20,000
     
-
     
20,000
     
-
 
Total
   
 
 
 
    $
1,709,328
    $
662,384
    $
1,709,328
    $
662,384
 
                                             
Total intangible assets
   
 
 
 
    $
9,176,885
    $
3,319,924
    $
9,176,885
    $
3,108,637
 
 
Effective
March 1, 2002,
under Accounting Standards Codification Topic
350,
all goodwill with indefinite lives is
no
longer subject to amortization. Accumulated amortization related to intangible assets
not
subject to amortization is a result of amortization expense related to indefinite life goodwill incurred prior to
March 1, 2002.
 
Amortization expense related to intangible assets totaled
$211,287
and
$110,546
during the
three
months ended
May 31, 2018
and
2017,
respectively.
 
During the
three
months ended
May 31, 2018
the Company reviewed its estimates of the future economic life of certain intangible assets. As a result of this review, the Company accelerated the rate of amortization of certain intangible assets to better reflect their expected future value. Consistent with the treatment of a change in estimate, the new rate of amortization of intangible assets will be applied to future periods.
 
At
May 31, 2018,
annual amortization of intangible assets, based upon the Company’s existing intangible assets and current useful lives, is estimated to be the following:
 
2019
  $
632,761
 
2020
   
706,177
 
2021
   
594,229
 
2022
   
490,060
 
2023
   
411,607
 
Thereafter
   
1,975,183
 
Total
  $
4,810,017
 
v3.10.0.1
Note 9 - Restructuring Charges
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Restructuring and Related Activities Disclosure [Text Block]
NOTE
9
– RESTRUCTURING CHARGES
 
Restructuring and acquisition charges incurred were comprised of asset disposal and impairment costs of
$58,188
for the
three
months ended
May 31, 2018,
relating to the closure and planned closing of certain underperforming Company-owned locations.
 
The Company did
not
record any restructuring charges in the
three
months ended
May 31, 2017.
v3.10.0.1
Note 10 - Note Payable
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Long-term Debt [Text Block]
NOTE
10
– NOTE PAYABLE
 
The Company’s long-term debt is comprised of a promissory note, the proceeds of which were loaned to SWRL and used to finance SWRL’s business acquisitions. As of
May 31, 2018,
$2.2
million was outstanding under this promissory note.
 
As of
May 31, 2018
and
February 28, 2018,
notes payable consisted of the following:
 
   
May 31, 2018
   
February 28, 2018
 
                 
Promissory note
  $
2,195,354
    $
2,529,309
 
Less: current maturities
   
(1,365,473
)    
(1,352,893
)
Long-term obligations
  $
829,881
    $
1,176,416
 
 
The following table summarizes annual maturities of our notes payable as of
May 31, 2018:
 
   
Amount
 
2019
  $
1,018,926
 
2020
   
1,176,428
 
Total minimum payments
   
2,195,354
 
Less: current maturities
   
(1,365,473
)
         
Long-term obligations
  $
829,881
 
 
v3.10.0.1
Note 11 - Adoption of ASU 2014-09, "Revenue from Contracts with Customers" ("ASC 606")
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]
NOTE
11
– ADOPTION OF ASU
2014
-
09,
“REVENUE FROM CONTRACTS WITH CUSTOMERS” (“ASC
606”
)
 
As described in Note
1,
effective
March 1, 2018,
the Company adopted ASC
606.
ASC
606
provides that revenues are to be recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration expected to be received for those goods or services. This new standard does
not
impact the Company's recognition of revenue from sales of confectionary items to our franchised and licensed locations, or in our Company-owned stores as those sales are recognized at the time of the underlying sale and are presented net of sales taxes and discounts. The standard also does
not
change the recognition of royalties and marketing fees from franchised or licensed locations, which are based on a percent of sales and recognized at the time the sales occur. The standard does change the timing in which the Company recognizes initial fees from franchisees and licensees for new franchise locations and renewals that affect the term of the franchise agreement.
 
Initial Franchise Fees, License Fees, Transfer Fees and Renewal Fees
 
The Company's policy for recognizing initial franchise and renewal fees through
February 28, 2018,
was to recognize initial franchise fees upon new store openings and renewals that impact the term of the franchise agreement upon renewal. In accordance with the new guidance, the initial franchise services are
not
distinct from the continuing rights or services offered during the term of the franchise agreement, and will be treated as a single performance obligation. Beginning
March 1, 2018,
initial franchise fees are being recognized as the Company satisfies the performance obligation over the term of the franchise agreement, which is generally
10
-
15
years.
 
Gift Cards
 
The Company’s franchisees sell gift cards which do
not
have either expiration dates, or non-usage fees. The proceeds from the sale of gift cards by the franchisees are accumulated by the Company and paid out to the franchisees upon customer redemption. The Company has historically accumulated gift card liabilities and has
not
recognized breakage associated with the gift card liability. The adoption of ASC
606
requires the use of the “proportionate” method for recognizing breakage, which the Company has
not
historically utilized. Upon adoption of ASC
606
the Company began recognizing breakage from gift cards when the gift card is redeemed by the customer or the Company determines the likelihood of the gift card being redeemed by the customer is remote (“gift card breakage”). The determination of the gift card breakage rate is based upon Company-specific historical redemption patterns.
 
Impact to Prior Periods
 
The cumulative adjustment recorded upon adoption of ASC
606
consisted of net contract liabilities of approximately
$1,022,720,
a reduction in gift card liability of
$2,250,743
and approximately
$302,094
of associated adjustments to the deferred tax balances which are recorded in deferred income taxes. The Company did
not
record any contract assets. The following table outlines the adjustments to the consolidated financial statements made upon adoption of ASC
606
on
March 1, 2018:
 
   
Amount
 
Increase in deferred revenue
  $
1,022,720
 
Reduction in gift card liabilities
   
(2,250,743
)
Adjustment to deferred income tax assets
   
302,094
 
         
Cumulative increase to retained earnings
  $
925,929
 
 
The Company adopted ASC
606
as of
March 1, 2018,
using the modified retrospective method. This method allows the new standard to be applied retrospectively through a cumulative catch up adjustment recognized upon adoption. As a result, comparative information in the Company’s financial statements has
not
been restated and continues to be reported under the accounting standards in effect for those periods.
 
The adoption of ASC
606
impacted the Company’s previously reported financial statements as follows:
 
   
CONSOLIDATED BALANCE SHEET
   
AS OF FEBRUARY 28, 2018
   
Previously Reported
   
Adjustments
   
Restated
   
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
  $
6,072,984
    $
-
    $
6,072,984
   
Accounts receivable, net
   
3,897,334
     
-
     
3,897,334
   
Notes receivable, current portion, net
   
105,540
     
-
     
105,540
   
Refundable income taxes
   
342,863
     
-
     
342,863
   
Inventories, net
   
4,842,474
     
-
     
4,842,474
   
Other
   
310,173
     
-
     
310,173
   
Total current assets
   
15,571,368
     
-
     
15,571,368
   
                           
Property and Equipment, Net
   
6,166,240
     
-
     
6,166,240
   
                           
Other Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes receivable, less current portion, net
   
235,983
     
-
     
235,983
   
Goodwill, net
   
1,046,944
     
-
     
1,046,944
   
Franchise rights, net
   
4,433,927
     
-
     
4,433,927
   
Intangible assets, net
   
587,377
     
-
     
587,377
   
Deferred income taxes
   
835,463
     
(302,094
)    
533,369
   
Other
   
63,333
     
-
     
63,333
   
Total other assets
   
7,203,027
     
(302,094
)    
6,900,933
   
Total Assets
  $
28,940,635
    $
(302,094
)   $
28,638,541
   
                           
Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
  $
1,352,893
    $
-
    $
1,352,893
   
Accounts payable
   
1,647,991
     
-
     
1,647,991
   
Accrued salaries and wages
   
644,005
     
-
     
644,005
   
Gift card liabilities
   
3,057,131
     
(2,250,743
)    
806,388
   
Other accrued expenses
   
325,034
     
-
     
325,034
   
Dividend payable
   
708,652
     
-
     
708,652
   
Deferred revenue
   
471,910
     
(143,445
)    
328,465
   
Total current liabilities
   
8,207,616
     
(2,394,188
)    
5,813,428
   
                           
Long-Term Debt, Less Current Maturities
   
1,176,416
     
-
     
1,176,416
   
Deferred Revenue, Less Current Portion
   
-
     
1,166,165
     
1,166,165
   
                           
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
                           
Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
                         
Common stock
   
5,903
     
-
     
5,903
   
Additional paid-in capital
   
6,131,147
     
-
     
6,131,147
   
Retained earnings
   
13,419,553
     
925,929
     
14,345,482
   
Total stockholders’ equity
   
19,556,603
     
925,929
     
20,482,532
   
                           
Total Liabilities and Stockholders’ Equity
  $
28,940,635
    $
(302,094
)   $
28,638,541
   
 
The following table contains a reconciliation of revenue reported for the current period and revenue had the Company reported under the prior method for revenue recognition:
   
Three Months Ended May 31,
 
   
2018
   
2017
 
Franchise fees contained within the Statement of Income:   $
93,135
    $
249,125
 
Adjustment required to conform revenue to prior period method:    
8,365
     
-
 
Comparable franchise fees:
  $
101,500
    $
249,125
 
 
At
May 31, 2018,
annual revenue expected to be recognized in the future, related to performance obligations that are
not
yet fully satisfied, are estimated to be the following:
 
2019
  $
187,950
 
2020
   
238,572
 
2021
   
190,950
 
2022
   
178,099
 
2023
   
163,123
 
Thereafter
   
453,920
 
Total
  $
1,412,614
 
v3.10.0.1
Note 12 - Disaggregation of Revenue
3 Months Ended
May 31, 2018
Notes to Financial Statements  
Disaggregation of Revenue [Text Block]
NOTE
12
– DISAGGREGATION OF REVENUE
 
The following table presents disaggregated revenue by method of recognition and segment:
 
Three Months Ended
May 31, 2018
 
Franchising
   
Manufacturing
   
Retail
   
U-Swirl
   
Total
 
Revenues recognized over time under ASC 606:
 
Franchise fees
  $
74,516
    $
-
    $
-
    $
18,619
    $
93,135
 
Revenues recognized at a point in time:
 
Factory sales
   
-
     
5,559,225
     
-
     
-
     
5,559,225
 
Retail sales
   
-
     
-
     
361,435
     
661,389
     
1,022,824
 
Royalty and marketing fees
   
1,237,655
     
-
     
-
     
453,246
     
1,690,901
 
Total
  $
1,312,171
    $
5,559,225
    $
361,435
    $
1,133,254
    $
8,366,085
 
 
v3.10.0.1
Significant Accounting Policies (Policies)
3 Months Ended
May 31, 2018
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]
Nature of Operations
 
The accompanying consolidated financial statements include the accounts of Rocky Mountain Chocolate Factory, Inc., a Delaware corporation, its wholly-owned subsidiaries, Rocky Mountain Chocolate Factory, Inc., a Colorado corporation (“RMCF”), Aspen Leaf Yogurt, LLC, a Colorado limited liability company (“ALY”), and U-Swirl International, Inc., a Nevada corporation (“U-Swirl”), and its
46%
-owned subsidiary, U-Swirl, Inc. (“SWRL”), of which RMCF had financial control until
February
29,
2016
(collectively, the “Company”). All intercompany balances and transactions have been eliminated in consolidation.
 
The Company is an international franchisor, confectionery manufacturer and retail operator. Founded in
1981,
the Company is headquartered in Durango, Colorado and manufactures an extensive line of premium chocolate candies and other confectionery products. U-Swirl franchises and operates soft-serve frozen yogurt cafés. The Company also sells its candy in selected locations outside of its system of retail stores and licenses the use of its brand with certain consumer products.
 
In
January 2013,
through its wholly-owned subsidiaries, including ALY, the Company entered into
two
agreements to sell all of the assets of its ALY frozen yogurt stores, along with its interest in the self-serve frozen yogurt franchises and retail units branded as “Yogurtini,” which the Company also acquired in
January 2013,
to SWRL, in exchange for a
60%
controlling equity interest in SWRL (
46%
equity interest as of
May 31, 2018).
Upon completion of these transactions, the Company ceased to directly operate any Company-owned ALY locations or sell and support frozen yogurt franchise locations, which was being supported by SWRL. The SWRL board of directors is composed solely of board members also serving on the Company’s board of directors (the “Board of Directors”).
 
In fiscal year (“FY”)
2014,
SWRL acquired the franchise rights and certain other assets of self-serve frozen yogurt concepts under the names “CherryBerry,” “Yogli Mogli Frozen Yogurt” and “Fuzzy Peach Frozen Yogurt.” In connection with these acquisitions, we entered into a credit facility with Wells Fargo Bank, N.A. used to finance the acquisitions by SWRL, and in turn, we entered into a loan and security agreement with SWRL to cover the purchase price and other costs associated with the acquisitions (the “SWRL Loan Agreement”). Borrowings under the SWRL Loan Agreement were secured by all of the assets of SWRL, including all of the outstanding stock of its wholly-owned subsidiary, U-Swirl. As a result of certain defaults under the SWRL Loan Agreement, we issued a demand for payment of all obligations under the SWRL Loan Agreement. SWRL was unable to repay the obligations under the SWRL Loan Agreement, and as a result, we foreclosed on all of the outstanding stock of U-Swirl on
February
29,
2016
in full satisfaction of the amounts owed under the SWRL Loan Agreement. This resulted in U-Swirl becoming our wholly-owned subsidiary as of
February
29,
2016,
and concurrently we ceased to have financial control of SWRL as of
February
29,
2016.
As of
May 31, 2018,
SWRL had
no
operating assets.
 
U-Swirl operates self-serve frozen yogurt cafés under the names “U-Swirl,” “Yogurtini,” “CherryBerry,” “Yogli Mogli Frozen Yogurt,” “Fuzzy Peach Frozen Yogurt,” “Let’s Yo!” and “Aspen Leaf Yogurt”.
 
The Company’s revenues are currently derived from
three
principal sources: sales to franchisees and others of chocolates and other confectionery products manufactured by the Company; the collection of initial franchise fees and royalties from franchisees’ sales; and sales at Company-owned stores of chocolates, frozen yogurt, and other confectionery products.
 
The following table summarizes the number of stores operating under the Rocky Mountain Chocolate Factory brand and frozen yogurt cafés at
May 31, 2018:
 
   
Sold, Not Yet
Open
   
 
Open
   
 
Total
 
Rocky Mountain Chocolate Factory
                       
Company-owned stores
   
-
     
3
     
3
 
Franchise stores – Domestic stores and kiosks
   
7
     
181
     
188
 
International License Stores
   
1
     
66
     
67
 
Cold Stone Creamery – co-branded
   
8
     
89
     
97
 
U-Swirl Stores (Including all associated brands)
                       
Company-owned stores
   
-
     
2
     
2
 
Company-owned stores – co-branded
   
-
     
3
     
3
 
Franchise stores – Domestic stores
   
*
     
99
     
99
 
Franchise stores – Domestic – co-branded
   
*
     
15
     
15
 
International License Stores
   
-
     
1
     
1
 
Total
   
16
     
459
     
475
 
 
*U-Swirl cafés and the brands franchised by U-Swirl have historically utilized a development area sales model. The result is that many areas are under development and the rights to open cafés within the development areas have been established, but there is
no
assurance that any individual development area will result in a determinable number of café openings.
 
Basis of Presentation
 
The accompanying consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Certain amounts previously presented for prior periods have been reclassified to conform to the current presentation. The reclassifications had
no
effect on net income, working capital or equity previously reported. In the opinion of management, the consolidated financial statements reflect all adjustments (of a normal and recurring nature) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the
three
months ended
May 31, 2018
are
not
necessarily indicative of the results to be expected for the entire fiscal year.
 
These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form
10
-K for the fiscal year ended
February 28, 2018.
Subsequent Events, Policy [Policy Text Block]
Subsequent Events
 
Management evaluated all activity of the Company through the issue date of the financial statements and concluded that
no
subsequent events have occurred that would require recognition or disclosure in the financial statements.
New Accounting Pronouncements, Policy [Policy Text Block]
Recent Accounting Pronouncements
 
In
June 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016
-
13,
Financial Instruments - Credit Losses (Topic
326
): Measurement of Credit Losses on Financial Instruments. ASU
2016
-
13
significantly changes the impairment model for most financial assets and certain other instruments. ASU
2016
-
13
will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU
2016
-
13
is effective for the Company's fiscal year beginning
March 1, 2020
and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU
2016
-
13
will have on the Company's consolidated financial statements.
  
In
February 2016,
the FASB issued ASU
2016
-
02,
Leases (Topic
842
), which requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC
840
“Leases.” These amendments also require qualitative disclosures along with specific quantitative disclosures. These amendments are effective for fiscal years beginning after
December 15, 2018,
including interim periods within those fiscal years. Early application is permitted. Entities are required to apply the amendments at the beginning of the earliest period presented using a modified retrospective approach. The Company expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and right-of-use assets upon adoption. The Company anticipates ASU
2016
-
02
will have a material impact on the consolidated balance sheet. The impact of ASU
2016
-
02
is non-cash in nature, as such, it will
not
affect the Company’s cash flows. The Company is currently evaluating the impact of ASU
2016
-
02
on the consolidated statements of income.
 
In
January 2016,
the FASB issued ASU
2016
-
01,
Financial Instruments - Overall (Subtopic
825
-
10
), Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted this guidance effective
March 1, 2018
and there was
no
impact to the Company’s consolidated financial statements resulting from adoption of this standard.
 
In
May 2014,
the FASB issued ASU
No.
2014
-
09,
Revenue from Contracts with Customers (“ASC
606”
). This guidance, as amended by subsequent ASUs on the topic, supersedes current guidance on revenue recognition in Topic
605,
Revenue Recognition. This guidance is effective for annual reporting periods beginning after
December 15, 2017,
including interim reporting periods. ASC
606
provides that revenues are to be recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration expected to be received for those goods or services. This new standard does
not
impact the Company's recognition of revenue from sales of confectionary items to our franchised and licensed locations, or in Company-owned stores as those sales are recognized at the time of the underlying sale and are presented net of sales taxes and discounts. The standard also does
not
change the recognition of royalties and marketing fees from franchised or licensed locations, which are based on a percent of sales and recognized at the time the sales occur. The standard does change the timing in which the Company recognizes initial fees from franchisees and licensees for new franchise locations and renewals that impact the term of the franchise agreement. The Company's policy for recognizing initial franchise and renewal fees through
February 28, 2018,
was to recognize initial franchise fees upon new store opening and renewals that impact the term of the franchise agreement upon renewal. In accordance with the new guidance, the initial franchise services are
not
distinct from the continuing rights or services offered during the term of the franchise agreement, and will be treated as a single performance obligation. Beginning
March 1, 2018,
initial franchise fees are being recognized as the Company satisfies the performance obligation over the term of the franchise agreement, which is generally
10
-
15
years.
 
The Company adopted ASC
606
as of
March 1, 2018,
using the modified retrospective method. This method allows the new standard to be applied retrospectively through a cumulative catch up adjustment recognized upon adoption. As a result, comparative information in the Company’s financial statements has
not
been restated and continues to be reported under the accounting standards in effect for those periods. See Note
11
to these financial statements for additional details regarding the adjustments recorded upon adoption of this standard.
v3.10.0.1
Note 1 - Nature of Operations and Basis of Presentation (Tables)
3 Months Ended
May 31, 2018
Notes Tables  
Number of Stores [Table Text Block]
   
Sold, Not Yet
Open
   
 
Open
   
 
Total
 
Rocky Mountain Chocolate Factory
                       
Company-owned stores
   
-
     
3
     
3
 
Franchise stores – Domestic stores and kiosks
   
7
     
181
     
188
 
International License Stores
   
1
     
66
     
67
 
Cold Stone Creamery – co-branded
   
8
     
89
     
97
 
U-Swirl Stores (Including all associated brands)
                       
Company-owned stores
   
-
     
2
     
2
 
Company-owned stores – co-branded
   
-
     
3
     
3
 
Franchise stores – Domestic stores
   
*
     
99
     
99
 
Franchise stores – Domestic – co-branded
   
*
     
15
     
15
 
International License Stores
   
-
     
1
     
1
 
Total
   
16
     
459
     
475
 
v3.10.0.1
Note 3 - Inventories (Tables)
3 Months Ended
May 31, 2018
Notes Tables  
Schedule of Inventory, Current [Table Text Block]
   
May 31, 2018
   
February 28, 2018
 
Ingredients and supplies
  $
3,026,485
    $
2,764,727
 
Finished candy
   
2,519,373
     
2,371,610
 
U-Swirl food and packaging
   
55,238
     
63,843
 
Reserve for slow moving inventory
   
(381,649
)    
(357,706
)
Total inventories
  $
5,219,447
    $
4,842,474
 
v3.10.0.1
Note 4 - Property and Equipment, Net (Tables)
3 Months Ended
May 31, 2018
Notes Tables  
Property, Plant and Equipment [Table Text Block]
   
May 31, 2018
   
February 28, 2018
 
Land
  $
513,618
    $
513,618
 
Building
   
4,905,103
     
4,905,103
 
Machinery and equipment
   
10,679,222
     
10,686,631
 
Furniture and fixtures
   
960,836
     
1,067,788
 
Leasehold improvements
   
1,354,550
     
1,568,260
 
Transportation equipment
   
434,091
     
434,091
 
Asset impairment
   
(91,891
)    
(62,891
)
     
18,755,529
     
19,112,600
 
                 
Less accumulated depreciation
   
(12,752,432
)    
(12,946,360
)
Property and equipment, net
  $
6,003,097
    $
6,166,240
 
v3.10.0.1
Note 5 - Stockholders' Equity (Tables)
3 Months Ended
May 31, 2018
Notes Tables  
Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]
   
Three Months Ended
 
   
May 31,
 
   
2018
   
2017
 
Outstanding non-vested restricted stock units as of February 28:
   
77,594
     
123,658
 
Granted
   
-
     
-
 
Vested
   
-
     
-
 
Cancelled/forfeited
   
-
     
(560
)
Outstanding non-vested restricted stock units as of May 31:
   
77,594
     
123,098
 
                 
Weighted average grant date fair value
  $
12.16
    $
12.21
 
Weighted average remaining vesting period (in years)
   
1.02
     
1.98
 
v3.10.0.1
Note 6 - Supplemental Cash Flow Information (Tables)
3 Months Ended
May 31, 2018
Notes Tables  
Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]
   
Three Months Ended
 
   
May 31,
 
Cash paid for:
 
2018
   
2017
 
Interest, net
  $
17,774
    $
26,929
 
Income taxes
   
7,277
     
349,250
 
Non-Cash Operating Activities                
Accrued Inventory
   
256,856
     
315,407
 
Non-Cash Financing Activities                
Dividend payable
  $
708,652
    $
702,525
 
v3.10.0.1
Note 7 - Operating Segments (Tables)
3 Months Ended
May 31, 2018
Notes Tables  
Schedule of Segment Reporting Information, by Segment [Table Text Block]
Three Months Ended May 31, 2018
 
Franchising
   
Manufacturing
   
Retail
   
U-Swirl
   
Other
   
Total
 
Total revenues
  $
1,313,206
    $
5,870,514
    $
361,435
    $
1,133,254
    $
-
    $
8,678,409
 
Intersegment revenues
   
(1,035
)    
(311,289
)    
-
     
-
     
-
     
(312,324
)
Revenue from external customers
   
1,312,171
     
5,559,225
     
361,435
     
1,133,254
     
-
     
8,366,085
 
Segment profit (loss)
   
489,271
     
1,169,335
     
(78,494
)    
135,155
     
(950,093
)    
765,174
 
Total assets
   
1,058,006
     
12,533,723
     
1,054,367
     
7,594,185
     
5,897,814
     
28,138,095
 
Capital expenditures
   
3,529
     
111,765
     
2,071
     
3,338
     
9,869
     
130,572
 
Total depreciation & amortization
  $
11,924
    $
141,028
    $
12,675
    $
244,051
    $
27,827
    $
437,505
 
Three Months Ended May 31, 2017
 
Franchising
   
Manufacturing
   
Retail
   
U-Swirl
   
Other
   
Total
 
Total revenues
  $
1,606,485
    $
6,498,210
    $
362,027
    $
1,195,310
    $
-
    $
9,662,032
 
Intersegment revenues
   
(1,306
)    
(314,279
)    
-
     
-
     
-
     
(315,585
)
Revenue from external customers
   
1,605,179
     
6,183,931
     
362,027
     
1,195,310
     
-
     
9,346,447
 
Segment profit (loss)
   
762,689
     
1,387,039
     
(36,431
)    
240,196
     
(1,087,590
)    
1,265,903
 
Total assets
   
1,192,859
     
11,490,941
     
1,087,541
     
9,508,948
     
6,550,307
     
29,830,596
 
Capital expenditures
   
-
     
49,060
     
3,600
     
2,616
     
21,450
     
76,726
 
Total depreciation & amortization
  $
11,392
    $
129,863
    $
3,827
    $
143,090
    $
32,378
    $
320,550
 
v3.10.0.1
Note 8 - Goodwill and Intangible Assets (Tables)
3 Months Ended
May 31, 2018
Notes Tables  
Schedule of Intangible Assets and Goodwill [Table Text Block]
               
May 31, 2018
   
February 28, 2018
 
   
Amortization
Period (in years)
   
Gross Carrying
Value
   
Accumulated
Amortization
   
Gross Carrying
Value
   
Accumulated
Amortization
 
Intangible assets subject to amortization
                                           
Store design
   
 
10
 
    $
220,778
    $
213,028
    $
220,778
    $
212,653
 
Packaging licenses
   
3
-
5
     
120,830
     
120,830
     
120,830
     
120,830
 
Packaging design
   
 
10
 
     
430,973
     
430,973
     
430,973
     
430,973
 
Trademark/Non-competition agreements
   
5
-
20
     
715,339
     
158,248
     
715,339
     
136,087
 
Franchise Rights
   
 
20
 
     
5,979,637
     
1,734,461
     
5,979,637
     
1,545,710
 
Total
   
 
 
 
    $
7,467,557
    $
2,657,540
    $
7,467,557
    $
2,446,253
 
Intangible assets not subject to amortization
                                           
Franchising segment-
                                           
Company stores goodwill
   
 
 
 
    $
1,099,328
    $
267,020
    $
1,099,328
    $
267,020
 
Franchising goodwill
   
 
 
 
     
295,000
     
197,682
     
295,000
     
197,682
 
Manufacturing segment-Goodwill
   
 
 
 
     
295,000
     
197,682
     
295,000
     
197,682
 
Trademark
   
 
 
 
     
20,000
     
-
     
20,000
     
-
 
Total
   
 
 
 
    $
1,709,328
    $
662,384
    $
1,709,328
    $
662,384
 
                                             
Total intangible assets