Rocky Mountain Chocolate Factory, Inc. Stock

Good morning, and welcome to the Rocky Mountain Chocolate Factory, Inc. 2026 Annual Meeting of Stockholders. Please note that today's meeting is being webcast. Instructions for submitting written questions and voting during the meeting are available through the vital meeting platform.

I will now turn the meeting over to Mel Keating, Chair of the Board of Directors.

Good morning, ladies and gentlemen. Welcome to the 2026 Annual Meeting of Stockholders of Rocky Mountain Chocolate Factory. We are pleased that you could join us today. As the operator indicated, my name is Mel Keating, and I am Chair of the Board of Directors of Rocky Mountain Chocolate Factory.

Before we proceed to the business of the meeting, I would like to introduce some individuals who are important to the company and who are here today.

Joining us are the executive officers of Rocky Mountain, Al Harper, Interim Chief Executive Officer; and Carrie Cass, Chief Financial Officer and Corporate Secretary.

I would also like to introduce the other Board members who are attending today's meeting in alphabetical order. They are: Steve Craig; Jeff Geygan; Alberto Pérez-Jácome; and Brian Quinn. We also welcome Howard Condo, representing our independent audit firm, Rosenberg Rich Baker Berman, P.A.

It is 10:02 a.m. Mountain Time, and I am now calling this meeting to order.

As Chair of the Board, I will preside over the meeting as the chairperson, and Ms. Cass will act as Secretary.

Carrie, would you please report on the presence of a quorum?

Thank you, Mel. The record date for determining stockholders eligible to vote at the meeting was June 22, 2026. Copies of the notice of meeting and the company's proxy statement and form of proxy were mailed to stockholders on or about June 29, 2026. I've been given affidavits of mailing by the company's proxy solicitor, which will be filed with the minutes of the meeting.

As of the close of business on the record date, there were 9,439,589 shares of the company's common stock outstanding and entitled to be voted at this meeting. The presence virtually or by proxy of the holders of a majority of the issued and outstanding shares of common stock entitled to vote at the meeting constitutes a quorum. I've been advised by the inspector of elections that based on the preliminary count, a quorum is present at this meeting. Accordingly, it may proceed.

Thank you, Carrie. So that stockholders attending this meeting have sufficient time to vote, we are opening the polls now. It is 10:03 a.m. Mountain Time on August 3, 2026, and the polls are now open.

You can vote your shares by clicking on the Vote button on the meeting website and following the instructions. As a reminder, if you have previously submitted a proxy and do not wish to change your voting instructions, you do not need to vote at this meeting. Repeat, you do not need to vote at this meeting. Voting at this meeting will revoke your prior proxy. We will provide another reminder to vote your shares before we close the polls.

[Voting]

A copy of the meeting procedures is accessible on the meeting website. We appreciate your observing the meeting procedures.

Carolyn Beer of Computershare Trust Company has been appointed as the inspector of elections to supervise the vote at this meeting. The inspector of elections has taken the oath of office, which I direct to be filed with the minutes of this meeting.

There are 5 items of business to be voted on today. After I introduce them, there will be an opportunity to submit questions related to the matters covered today by clicking on the Q&A button. To ensure we address the formal business of the meeting, questions will be limited to those items and there will not be a general question-and-answer session.

The first item of business at this meeting is the election of 5 director nominees to serve for a 1-year term until the company's 2027 Annual Meeting of Stockholders and until their respective successors are elected and qualified. The nominees for election are: Steve Craig, Jeff Geygan, Mel Keating, Brian Quinn and Alberto Pérez-Jácome. The Board of Directors recommends a vote for each nominee.

The second item of business at this meeting is the ratification of the appointment of Rosenberg Rich Baker Berman, P.A. as the company's independent registered public accounting firm for the fiscal year ending February 28, 2027. The Board of Directors recommends a vote for this proposal.

The third item of business at this meeting is to approve, on an advisory basis, the compensation of the company's named executive officers. The Board of Directors recommends a vote for this proposal.

The fourth item of business at this meeting is to approve, on an advisory basis, the frequency of future advisory votes to approve the compensation of the company's named executive officers. The Board of Directors recommends a vote of 1 year for this proposal.

The fifth and last item of business at this meeting is to approve an amendment to the company's 2024 Omnibus Incentive Compensation Plan, as amended, to increase the number of shares of common stock authorized for issuance under the 2024 Omnibus Incentive Compensation Plan. The Board of Directors recommends a vote for this proposal.

The polls are open for stockholders to vote. You can vote your shares by clicking on the Vote button on the meeting website and following the instructions. As a reminder, if you have previously submitted a proxy and do not wish to change your voting instructions, you do not need to vote at this meeting. Voting at this meeting will revoke your prior proxy.

We will now address any questions concerning meeting matters. Sean, have we received any relevant stockholder questions?

No. We have not received any relevant stockholder questions.

Thank you. We will pause now to give stockholders a final opportunity to vote. The polls will close shortly.

It is 10:10 a.m. Mountain Time on August 3, 2026, and the polls are now closed.

Based upon the votes received prior to commencement of the meeting, and subject to final adjustment for any votes submitted at the meeting today, I can report that all 5 nominees were elected and the 4 other items of business were approved.

The final results of voting will be reported on a Form 8-K to be filed with the SEC within 4 business days of this meeting.

This concludes the formal portion of the meeting, and the meeting is now adjourned.

We express our sincere appreciation to those stockholders who attended the meeting as well as to those who submitted their proxies, but were unable to be present at the meeting. We are grateful for your continued interest in, and support of Rocky Mountain Chocolate Factory.

Thank you. This concludes the Rocky Mountain Chocolate Factory, Inc. 2026 Annual Meeting of Stockholders. You may now disconnect. We wish you a pleasant day.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Mountain Chocolate Factory's Financial Results for the Fiscal Fourth Quarter and Full Year 2026. [Operator Instructions] As a reminder, this conference is being recorded. Joining us on the call today are the company's Interim CEO, Jeff Geygan; and CFO, Carrie Cass.

Please be advised this conference call will contain statements that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements.

And now I'll turn the call over to the company's Interim CEO, Jeff Geygan. Jeff, please go ahead.

Thank you, and good morning, everyone. Before I get into our broader business discussion, I want to address our fiscal fourth quarter. The results fell short of what we set out to achieve and accountability for that rests with me. The primary issue driving this shortfall was our packaged product assortment decision that did not align with our guest expectations, particularly with our boxed offerings. we leaned too heavily into larger format boxes and a mix of large and mountain-sized pieces of candy that retrospectively did not align with guest preferences. That impacted revenue, having an outsized effect on profitability. For reference, our lowest margin sales are ingredients, followed by supplies, then bulk candy.

And finally, our best margin item is a packaged product. Packaged sales for the quarter were roughly $1.5 million below expectations, affecting store sales and disproportionately impacting our e-commerce business, which is largely made up of packaged product. Since year-end, we've conducted extensive consumer research involving more than 1,000 participants which has provided us with a clearer understanding of where our packaged assortment strategy missed the mark. Current feedback points to demand for greater assortment variety, more small piece format offerings and a mix of items, including caramels, nuts, creams, coffee, solid molded chocolates and meltaways.

We're addressing this situation now and expect to have a full lineup of reconfigured packaged items on store shelves by Labor Day. Our offerings will include 28, 14, 6 and 4-piece sized assortments. Boxes will be slimmed down and use paper cups instead of plastic trays, allowing greater product flexibility and speed of change. We believe our updated box configuration and related content selection are better aligned with how stores and online guests want to be served with this item. We'll be using cup style packaging, which we believe will improve presentation, reduce production and packaging costs and lower our price points to improve competitive positioning while driving greater sales volumes.

The quarter was also impacted by several other factors, most of which were temporary or onetime in nature. For example, we deliberately exited from a specialty markets customer relationship with a negative margin offering. This impacted revenue by nearly $1.5 million. To round it out, we also experienced temporary disruptions related to our e-commerce transition. incurred costs associated with disposing of supplies of outdated packaging and faced an elevated level of professional service fees, all of which impacted fourth quarter results. While these items created near-term pressure, they don't change our long-term strategic view.

Our business transformation remains intact and on track. What this does reinforce is the importance of disciplined execution as we remain adaptive in response to incoming data. What gives us confidence today is what we see across the balance of the business. Over the past year, we have implemented multiple price adjustments, influenced product mix and launched operational changes that materially improve the underlying economics of RMCF, both at the sales and production levels. Based on our margin analysis of the products we sold in Q4 and continuing through our just concluded Q1, we achieved the highest gross margin mix in over two years.

Our gross margin is now close to our long-term target, allowing us to shift more of our efforts towards revenue growth. The work we've done around price adjustments, production process review, SKU rationalization and other operational changes is producing measurable results. The fourth quarter results don't fully reflect that progress, but the underlying data is clear and gives us conviction as we move forward. We're also working on the economics around e-commerce shipping, which has continued to be a pressure point for online sales. Historically, shipping costs on certain box products were too high relative to order value. We've negotiated corporate shipping rates that will materially improve our e-commerce cost structure. This is exactly how we've approached our transformational process since the beginning. We identify what isn't working, address it directly and move forward with improved processes.

The results from this quarter and full year weren't what we wanted, but that doesn't change the fact that our business is in much better off structurally than it was when the transformation began. Stronger data and analytics, better margin on revenue, improved production throughput, higher product quality and reduced scrap and waste levels. Looking at more recent developments, reviewing the franchise and retail store operations of our business, we continue to see encouraging performance trends in our newly designed and remodeled stores. Our Chicago State Street store is currently running at approximately $1.1 million in annualized sales, and we believe this location has meaningful upside yet to be realized.

We're also encouraged by the performance of our Charleston, South Carolina location, which is currently operating at an approximate $600,000 annualized run rate, consistent with our expectations for a brand-new store in a brand-new market, unlike Chicago, where we entered an existing market in which Rocky Mountain Chocolate Factory is already well known. This is important to realize when setting expectations for building in new versus existing markets. We believe Charleston will reach its run rate revenue within its first three years of operations, while we continue building brand awareness and local market familiarity. On the other hand, our company-owned store in Corpus Christi, Texas was remodeled and has since generated an approximate 10% to 15% sales increase following its reopening. We're also seeing encouraging trends at the Concord Mills, North Carolina store, which just recently completed its remodel.

These are important proof points because they demonstrate our refreshed brand, stronger in-store presentation and new operating models are resonating with guests. RMCF recently acquired the franchise store in Nashville, Tennessee, providing another opportunity to test merchandising and guest engagement initiatives in a company-controlled environment. Company store acquisitions are typically accretive to earnings and provide a valuable learning and testing platform as we launch new products and product lines and develop new guest engagement concepts designed to drive store level sales and improve profitability.

More broadly, we continue to believe there is a role for selective company-owned stores within the system. Today, we have four company-owned locations representing 3% of our domestic store census. It's reasonable to think company stores will represent between 5% and 10% of our store base in future years. We believe to be good franchisors, we must understand how to run an excellent store so we can train our current and prospective operators with that knowledge. We measure franchisee success by store sales growth, average ticket dollar value, items per transaction and overall profitability. We think an ideal franchisee should aspire to own and operate a local area complex of multiple sites to maximize their franchise business value.

We continue to measure stores owned per operator, and the number is creeping higher now at 1.4 units. We're attracting and developing just these type of entrepreneurial operators as evidenced by our increasing area development agreements or ADAs, which span both geographic and vertical markets, an exciting development and one that gives us great confidence our transformation is still in its early stages. Over time, we'll work to identify a handful of strategic locations to convert to company stores as we develop our long-term strategy that improves system economics, strengthens our operating visibility and creates additional testing capabilities.

Our Nashville presence, for instance, could serve us strategically over time as we think about how we need to provide regional support and the distribution necessary to serve the Eastern Seaboard and parts of the Midwest. To date, we have no presence in Boston, New York City, Philadelphia, Washington, D.C. or Atlanta, markets we intend to target through our franchise development initiatives. We have and are developing an ADA to build nine locations in Miami with two already underway and a third in the planning phases.

As we grow our East Coast presence, efficient and timely distribution and store service will be of paramount importance. We opened our newest location in Tinton Falls, New Jersey last Friday. It's located just minutes away from our Long Branch store, both of which are owned by a financially sophisticated and well-capitalized operator. We're well underway in developing more expansive plans to support East Coast growth. We're also advancing opportunities in existing markets, including Chicago, where we have an additional franchise store lease under a letter of intent.

On the new development front for franchisee expansion, we recently added a new 6-store ADA, bringing committed future development to 40 locations over the next three to five years. This one is our first vertical market development agreement, which includes Rocky Mountain winter and summer resort locations. The operator currently owns our Vail and Breckenridge locations and is now focused on other high-end resorts in the Rocky Mountains. He has a proven and exceptional operational record with Rocky Mountain Chocolate Factory.

In parallel, we are continuing to strengthen the operating platform that underpins the RMCF brand with a clear focus on helping franchisees increase sales and improve store level profitability. We've expanded the rollout of our upgraded POS platform across the system. That data and feedback have improved how we evaluate product mix, store performance and guest behavior. The analytics have created game-changing insights and opportunities for our business. This POS data provides measurable insights into average basket size, transaction counts and items per transaction. The visibility is valuable not only for our corporate team, but also for our franchisees, giving us fact-based foundation for coaching and making merchandising and assortment decisions. Ultimately, we're creating an environment that helps store level personnel evolve from simply taking orders to actively driving sales and engagement with guests.

We continue to reinforce merchandising standards across the system, so the guest experience is more consistent and the Rocky Mountain Five Senses experience becomes more pronounced across all locations. This includes the smell of Caramel, the site of beautifully crafted apples and colorful premium candies, the sounds of spatulas as they shape our handmade fudge, taste and feel that first bite of a delicious piece of chocolate or a caramel apple, all taken together create the Rocky Mountain moment that we've been delivering for over 45 years to each guest as they experience our local chocolate theatrics. We're more focused than ever on delivering the Five Senses and Rocky Mountain Moments experience as we work with franchisees to enrich each guest engagement and improve the overall in-store experience.

Moving on. Our third-party delivery initiative is another area where we see encouraging data and financial results. Average basket size through these platforms are running roughly 2x in-store transaction values. And surprisingly, roughly half these transactions are fulfilled through in-store pickup rather than direct delivery. This reinforces our view that third-party delivery is not simply a delivery channel, but also a guest acquisition channel, a convenience channel, an incremental order generation tool with higher average transaction values. With commissions remaining at or below 20% on negotiated agreements, we believe the economics will remain attractive as penetration increases. We also have a white label version of order online that is without commission expense, yet fulfills in the same way as traditional third-party delivery. We have made this available to all of our locations through newly developed store websites, which are branded RMCF but curated to each local store's market and operator. This represents a meaningful shift in how we're supporting franchisees at the store level.

On guest engagement, we're continuing to develop our loyalty and mobile app platform with our new app expected to launch late summer. We're also positioning for the rollout of our planned collaboration with Miraculous, the popular animated children's series, which will be centered on a limited time Caramel Apple promotion and in-store merchandising, which is planned to launch on September 15 and run through October 31. We're really excited by this partnership. Taken together, these initiatives are intended to create more moments of discovery around the brand, drive repeat engagement and extend the Rocky Mountain experience beyond the four walls of our stores. We're placing greater emphasis on merchandising and assortment standards across the franchise system to create a consistent and repeatable guest experience. While many of these standards have historically existed within our franchise agreements, execution and enforcement have not always been uniform across locations.

As part of this effort, we're working towards dedicating 60% of store selling space to products that define the Rocky Mountain Chocolate Factory brand.

Our next phase of store-level SKU alignment is designed to ensure store guests can consistently find our most popular and highly demanded signature products, whether visiting a store in Long Branch, New Jersey or Los Angeles, California. Greater consistency across the system will strengthen brand presentation, improve the guest experience and support stronger store level sales and profitability. The foundation is in place. We're focused on disciplined execution across the system, converting operational improvements into sustainable growth and positive earnings.

As we enter our new fiscal year, our priorities are clear. First, execute with precision in the package and e-commerce categories; second, build on the meaningful margin improvements we've already achieved; and third, convert the progress we're seeing in the retail performance, franchise development, digital engagement and cost disciplines into consistent positive financial results. We know what we need to do. We're executing to achieve it. Transformation is never linear, and we've not represented it to be. Where we encounter obstacles, we adapt and move forward stronger and with better information. That's exactly what we're doing. We remain committed to long-term strategic thinking that transcends any single quarter's results. To borrow from Warren Buffett, games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.

With that, I'll turn the call over to Carrie to walk you through our fourth quarter and fiscal year financial results.

Thank you, Jeff. Please note that unless stated otherwise, all comparisons are on a year-over-year basis. Total revenue for the fourth fiscal quarter was $6.8 million compared to $8.9 million in the same period last year. Product sales were $5.1 million compared to $7.1 million last year, and franchise and royalty fees were $1.6 million compared to $1.8 million in the same period last year. Total product and retail gross profit was a negative $0.9 million compared to a negative $0.8 million in the same period last year.

The decrease in revenue and gross profit primarily reflects the underperformance of our packaged assortment business, the deliberate reduction of certain low or negative margin specialty market business and select temporary items during the quarter that Jeff outlined earlier, partially offset by continued factory efficiency gains. Total costs and expenses were $9.8 million compared to $11.6 million in the same period last year. The decrease was primarily attributed to efficiencies obtained by relocating our consumer packaging operations back to our Durango production facility. Net loss was $3.4 million or a negative $0.38 per share compared to a net loss of $2.9 million or negative $0.37 per share in the same period last year.

Turning to the balance sheet. We ended our fiscal year with a cash balance of $1.2 million compared to $0.7 million at the end of the fiscal year '25. We also ended our fiscal year with total inventory of $4.1 million compared to $4.6 million last year. As of February 28, 2026, we have total debt outstanding of $6.6 million.

This concludes our prepared remarks. We'll now open up for Q&A. Operator, back to you.

[Operator Instructions] And our next question -- our first question will come from Andrew Rem of Odinson. Partners.

I'm not sure exactly how to ask this question, but you mentioned changing the product assortment or product mix in your package assortment because that was what was disappointing in the quarter. How did you arrive at that original assortment?

Andrew, good question. We use the data from the store level sales that we had at the time, which indicated that large-sized pieces and truffles were the most popularly demanded items and followed suit to build boxes around that.

Okay. So the change is that the -- now you're doing a consumer survey and that will kind of drive the assortment on a go-forward basis?

That's correct. We didn't have the same level of survey when we initially started. And in fact, the 1,000 survey receipts we received included a number from our franchisees themselves as we service -- we surveyed both existing customers, prospective customers and added franchisees to that as we wanted to get feedback from them untarnished or separate from that of guests.

So prior -- and going back further on the -- again, just focusing on the items that are in these package assortment boxes historically, previously, you hadn't or it hadn't been done based on data, and it sounds like it also wouldn't have been done based on consumer survey. But that -- what was the -- prior to using data, how has that arrived at?

Well, the -- to be clear, the concepts of the previous boxes were determined from the data we had from store level sales, which included -- was really long on truffles. And it turned out that our consumer or guest is most interested in buying a large truffle in store behind the candy case, but not necessarily in the package.

Got it. Okay. You mentioned that you exited business with a specialty customer and you mentioned what the impact was in the quarter. Can you say what the impact is on an annualized basis since you'll need the next 3 quarters to kind of fully annualize that impact?

The vast majority of the sales from that specialty market customer occurred in Q4.

Okay. So is that a seasonal customer? Is that way?

Yes, it was. And frankly, most of our specialty market customers are seasonal, where shipments occur generally in the fourth quarter around either the Christmas or Valentine's holiday, some to a lesser extent around Mother's Day. But our busiest single day of the year is Valentine's Day. Our busiest season, of course, is the Christmas holiday.

And then you mentioned the remodel in Corpus Christi. Can you just give us a sense of when you do a remodel, is same-store sales, the bump, is that the primary way that you evaluate the effectiveness of a remodel? Or what are the other metrics that you guys focus on to help you determine the effectiveness of a remodel?

Yes, Andrew, it's a good question, and it's like a quadratic equation. There are a lot of variables in here. Obviously, the one that we measure most acutely is store sales, followed by profitability or mix, followed by basket size, average transaction value. But a lot -- once you start drilling down, a lot of that is your local operator. We happen to have an excellent store manager in our company-owned Corpus Christi store, which is why throughout my comments today, we've talked about qualitatively, how do we work with franchisees to help them develop stronger engagement with guests. We think that's critically important. However, we also get the qualitative information through various types of reviews, think Google, Yelp and so on. And we hear consistently with remodels, our guests love the new store design. And if you haven't been in one, it's self-evident when you walk in and you think, wow, this is really nice. Welcome to the 21st century.

And our next question will be coming from the line of Peter Sidoti with Sidoti & Company.

Two quick questions. One, how far along are you in terms of the turnaround at this point? In other words, when do you think you'll be in a position to start selling new -- aggressively marketing new franchises?

Peter, we're already done that. Thank you for your question, by the way. Yes, we're already done that. In fact, our franchise development department is quite busy. evidence, we've got 40 area development agreements that are ADAs, but we're also working with existing franchisees on one-offs. And there are a number of area development agreements that are in process right now that we hope to be able to communicate to you in the near future. But we've got 40 queued up here. We have expectations to have more than that in the future. But bear in mind, on a base of 140 stores, it's 30%. So we got to build those out.

Right. What's limiting your ability to sell more franchises at this point in time?

That's a good question. I think just having the right qualified prospective developer operator. And we're working very diligently. We're out at trade shows and soliciting and clearly, we need to do more with SEO, but I'm pretty satisfied with what we've done with that development. And bear in mind, we have to make sure we get it right, which means we have to make sure that we can get the store opened inside of our target is six months, and we're trying to drive costs down. Our franchise development team has done an excellent job on that. In my last talked, they've taken a meaningful percentage out of -- from the first to the most recent store, and there's further room for cost reduction in building stores, which to an operator is really important if they're looking at ROI, which the financially sophisticated operator will be.

Right. So in general, what percentage of new franchises are being sold to existing franchisees?

Well, of the 40, there are nine that are a brand-new guy and the 31 are with existing. And Peter, of course, our strategy was let's go to our existing customer, the guy that already knows and loves the brand. So that was the easy one. Then the next leg of the trip is let's go to outside guys and see if we can get interest there. But I've been very clear, we want new franchisees that are multi-unit, have multi-unit capabilities. And I've said, and I'm not sure if I've said it on a public call, but I've said it many times, if a prospective franchisee doesn't want to open 10, 12 stores, probably not the right guy for us. We wanted to put someone up, for example, in New York City or Manhattan, Long Island and say, "Hey, you want to build 10, 20, 30 stores here. Now you're talking. I'm very disinterested in a guy that wants to open one store somewhere on Long Island. It just doesn't make sense.

All right. So I'll give up my franchise on Fire Island.

I know we talked about it, but if we build 30 now, we'll squeeze you in out there.

Just my other question is in terms of -- is there a target on when you think you'll be in a position to be positive cash flow generating?

We haven't disclosed that. But between everyone and me on this call, it's as soon as possible. That's absolutely our goal.

To turn the call back over for closing remarks.

I think we just want to thank everybody for your patience as we work through this transformation. We really have aspirational plans. It's frustrating for us, and I suspect for many investors that this quarter wasn't better, but it's not for lack of effort here, and we do have a high level of confidence in our plan of execution.

With that, I thank you. We will report Q1, which just ended on May 31. We'll report out 10-Q on July 14. We'll have a conference call shortly after that. So that's in the short six weeks, and I hope to be able to give you a lot more updates on how we're going to Peter's point with area developments and so on.

Until then, thank you all, and feel free to reach out to Carrie and me if you have any other questions.

And this concludes today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Mountain Chocolate Factory's financial results for the third quarter of 2026. [Operator Instructions]. As a reminder, this conference is being recorded.

Joining us on the call today is the company's interim Chairman, Jeff Geygan and CFO, Carrie Cass. Please be advised that this conference will contain statements that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.

These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements. which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements.

And now I'll turn the call over to the company's Interim CEO, Jeff Geygan. Jeff, please go ahead.

Good morning, and thank you for joining us. During the third quarter, we continued to execute our margin first transformation strategy, making deliberate decisions to prioritize profitability and long-term value creation over lower quality revenue. While these actions resulted in a near-term revenue pressure and a modest net loss for the quarter, they're foundational to restoring long-term sustainable growth and shareholder value creation.

The results from this quarter reflect important progress in our efforts as we delivered meaningful improvement in gross profit and margin. We continue to believe there's a clear path to maintain and further expand margins as we strengthen the foundation of our business.

Our business transformation is focused on disciplined execution, improving product mix, implementing thoughtful price actions, simplifying our SKU portfolio and building the operational and technology capabilities required to support long-term growth. While we're still navigating some persistently higher input cost and near-term inefficiencies related to our production transition, the actions we've taken are now showing in our financial results.

We are also very encouraged by the momentum we're seeing with our franchise development pipeline. We currently have 2 new stores under construction and 34 stores under recently negotiated area development agreements, demonstrating interest from well-capitalized, financially sophisticated new and existing operators. Our franchise development team is working on building additional backlog of new franchise opportunities supported by our clear messaging with a refreshed brand direction and targeted digital marketing efforts to identify the right partners to grow and succeed with our brand.

I'll now step through several highlights from the quarter, including our operational progress, franchise development momentum and continued execution across technology and e-commerce initiatives. During the quarter and past year, we continue to make intentional decisions to exit lower-margin specialty and wholesale revenue streams. While this resulted in a modest year-over-year decline in total revenue that predictably contributed to a significant improvement in gross profit dollars and margin. We reported a 21.4% gross manufacturing margin for the quarter ended November 30, 2025 compared to 10% for the same quarter of the prior year at a negative 0.6% for the previous quarter ended August 31.

We are pleased with this progress while recognizing there is room for further improvement. We've implemented a series of targeted price adjustments over the past year and as recently as January 2, all designed to achieve a specific margin objective across our 4 core franchise categories, including bulk candies, packaged goods, supplies and ingredients. These adjustments were not uniformly upward. In fact, some prices remained unchanged while others were reduced as we attempt to optimize our sales mix and throughput across our network of over 250 franchised and licensed locations.

Collectively, these adjustments are expected to support margin expansion over time in a balanced way that enables strong economic results for our franchise and license partners as well as the company. In addition to price adjustments, we're beginning to realize the benefits from SKU rationalization and production labor efficiencies. This includes the elimination of hundreds of well contributing SKUs, the elimination of temporary labor and a large reduction in overtime hours and improved production scheduling.

We also added a second production shift at the chocolate factory to provide greater flexibility and efficiencies in scheduling and maintenance. We believe there's an additional $500,000 to $1 million of savings that can be realized in our current cost structure. This disciplined rationalization highlights the cornerstone of the new company culture, simplify production, reduce operational complexity, and improve manufacturing throughput.

Looking ahead, we expect to recognize the benefit from lower input costs, including the recent elimination of an approximate 10% tariff on cocoa. As cocoa prices have come down in recent months, we have executed a thoughtful and timely purchasing strategy that directly impacts our cost of chocolate and have locked in nearly 20% of our expected annual consumption volume at recent favorable prices.

Franchise development remains a key strategic revenue pillar of our long-term business plan as momentum continued to build during the quarter and beyond. We currently have 2 new stores under construction and 34 stores under area development agreements, reflecting growing interest from experienced multiunit operators aligned with our refreshed strategy and brand direction. These agreements generally contemplate a 4- to 5-year build-out period with the initial store construction required within the first year and sequenced annually thereafter. We'll provide ongoing details as leases are signed and construction is initiated.

Our focus remains on quality over quantity as we partner with operators who are well capitalized operationally sophisticated and committed to building long-term value within the Rocky Mountain Chocolate Factory network. At the same time, we are rationalizing our current store base by allowing the closing of underperforming locations that contribute minimal revenue and can negatively impact our premium brand image.

While new store openings are conducted in a measured pace, our team is working to reduce overall development costs and shorten the time line from lease signing to opening, which currently stands at about 6 months. We believe this disciplined approach positions us well to expand thoughtfully into both existing and new markets over time while improving average unit performance across our network.

We hired a new VP of Franchise Development in August. He attended our September national franchise convention and engaged with well over a dozen current franchisees to lay out a vision for future growth and area development agreements. Our franchise development team is working actively through a sizable backlog of new franchise opportunities, supported by improved digital marketing capabilities and a rigorous selection process with prospective partners.

We're entering a new era of growth, but not growth for growth's sake. We will be very intentional with every move we make in every franchisee partner we add. We remain focused on increasing store ownership per franchisee, which improved from 1.34 to 1.39 stores when we first cited this number. We expect our disciplined approach to area development and franchisee recruitment will drive meaningful long-term results for our network performance.

Turning to our rebrand. All stores have fully transitioned to our new packaging with legacy copper packaging phased out on November 30. For the new store layout and designs, full remodels are scheduled to begin after March 1, with the goal of completing the majority of the models by October 2026, ahead of the holiday season and virtually all stores aligned with our new brand identity within 24 months.

Remodels will include new exterior signage, updated interior layouts, enhanced merchandising designed to create a more consistent and engaging customer experience across all stores, whether new or remodeled. Our newer stores in Chicago, Illinois and Charleston, South Carolina continue to meet our expectations. Chicago opened on December 11 and was well received in a community where we have good existing brand awareness, due to our multiple locations in the metro area. Daily sales trends are encouraging.

Our Charleston location opened on June 3 and has developed nicely despite it being the first Rocky Mount Chocolate Factory store in the state of South Carolina. Sales are continuing to trend higher. Our company-owned store in Corpus Christi, Texas, was remodeled in August and has since experienced consistent growth and on several occasions recognized daily sales results of over $4,000.

As a reference point, we target $2,800 per day in sales as a benchmark for $1 million location. We've successfully experimented in both our Durango, Colorado and Camarillo, California company stores with new merchandising strategies to improve store sell-through. The early results have been encouraging. As we learn more, the feedback will allow us to create a template for stores across the network, as we work to deploy best practices in all locations as well as with each new store opening.

Our goals continue to be increasing store sales and improving store level profitability. We expect our average unit volume to increase again this year. We're also advancing our digital initiatives. DoorDash storefronts are now live, the white-label 0 commission model that enhances unit level economics for franchisees. Each store now maintains its own branded online presence, supported by improved social media and digital integration.

We recently created a unique store website for 100% of our domestic locations. Those can be easily assessed from rmcf.com store locator or directly through a web search. This development allows customers to buy online for local pickup or delivery while routing the customer to the store's own white-label DoorDash site.

We plan to add additional customer functionality to Store's websites as we continue to develop this important revenue channel. In addition, our loyalty program remains under active development with vendor engagement underway and an expected rollout in the first half of this calendar year.

Additional technology initiatives are designed to modernize the way we use technology as enabler of our transformation. Over 120 stores are now live on our new POS system, providing significantly richer data flows that we've historically had access to, including customer transaction activity average ticket size, basket composition and cross-selling activity.

As POS penetration increases, we expect to have increased visibility into and a near real-time awareness of customer behavior and store level performance, creating opportunity to benefit from more informed, data-driven decisions that enhance franchisee performance over time.

Our ERP system implementation continues to evolve as we're realizing more efficient operational execution. There's more process improvement under development that we believe will reduce production costs. While we have seen some benefit to date, we continue to refine and customize the platform to better align with our operating model and internal reporting needs.

These multiple technological initiatives are strengthening how customers experience our brand and how efficient we are at the Chocolate Factory. They represent the next stage of our development, a consistent, elevated engagement that supports the long-term franchisee success and a memorable customer experience.

Subsequent to quarter end, we completed a $2.7 million equity capital raise, allowing us to pay down $1.2 million of debt and retain $1.5 million in additional working capital. Well, this is not reflected in our financial statements as of November 30. It's important to note that our strengthened balance sheet provides greater flexibility for us to invest in our operations, franchise development and technology initiatives moving forward.

As we step back and look at the big picture, this quarter represents an important inflection point in our transformation. The decisions we've made over the past 18 months, including exiting low-margin revenue sources, simplifying our business strategy, focusing on growing our franchise network, reset our cost structure and strengthening our balance sheet are beginning to materialize with improved gross profit and margin and a more resilient operating model.

There's still work ahead. However, we believe these actions have materially improved our positioning for sustainable long-term growth and a return to profitability. We believe we have a stronger balance sheet in place to better manage our working capital and return to positive cash flow generation over the coming quarters.

We continue to invest in our people as we add strategically important resources to both our team in and away from our Durango headquarters. People are our greatest asset and responsible for the ultimate realization of our long-term results. We are developing a culture of continuous improvement, which is foundational to our success.

In addition to ongoing executive team professional development, we're also committed to professional development and career advancement for a larger group, our leadership team, who provide essential strategic support and execution alongside our executive team.

Our focus remains on returning to profitability through disciplined execution, supporting franchisees and scaling our network thoughtfully with the right partners as we continue to innovate and expand our premium confectionary franchise business model.

Thank you for your attention. I'll now turn the call over to our Chief Financial Officer, Carrie Cass, to walk you through our fiscal third quarter financial results. Carrie?

Thank you, Jeff. Please note that unless otherwise stated, all comparisons are on a year-over-year basis. For the fiscal third quarter of '26, total revenue was $7.5 million compared to $7.9 million in the prior year. Discipline reflects our intentional exit from low or negative margin revenue streams as part of our margin first strategy.

Total product and retail gross profit increased to $1.4 million in the third quarter of fiscal '26 compared to $0.7 million in the same quarter last year, driven by pricing actions, improved product mix and labor efficiencies. While these gains were partially offset by short-term operational inefficiencies related to higher material costs and freight costs, we're continuing to optimize our manufacturing and cost structure and expect to maintain these margins moving forward.

Total costs and expenses improved to $7.5 million down from $8.6 million in the same quarter last year with savings realized across nearly all areas of operations. Net loss for the quarter was $0.2 million or a negative $0.02 per share compared to the net loss of $0.8 million or negative $0.11 per share in the prior year.

EBITDA was $0.4 million in the third quarter of fiscal '26 compared to a negative $0.4 million in the same quarter last year, with improvement driven by aforementioned increases in gross profit, lower costs and expenses. This concludes our prepared remarks. Operator, back to you.

[Operator Instructions]. Our first question comes from Doug Garber with Westport Alpha.

Congrats on the good quarter. Jeff, can you talk a little bit about the 34 new stores, the agreement there and the pace of deployment and what else you have in the pipeline for other areas and what you're targeting for store growth in the future?

Thank you, Doug. The 34 current area development agreements are across 4 unique franchisees, 3 of whom are existing franchisees, 1 of whom is new to the system. Our [indiscernible] frame department has other prospective area development agreements in Q, we expect to add to the total over time. The rollout of these will be on a measured basis but accelerating into the later years. All of the agreements are designed to either have stores started within 3 or 4 years and the total completed within 4 or 5 years.

How have you lined up the financing for these stores? Do the existing owners have liquidity or debt facilities or equity lined up to execute this plan?

They do. And as you have noted in our recent comments, we're focused on partnering with well-capitalized and financially sophisticated individuals necessarily meaning that their need to put significant debt on to build a store is minimal.

Great. And on the profitability, it looks like your initiatives over the last year started to show in the P&L. I'm trying to understand the cocoa price impact as that has come down? And how much more of a margin tailwind that will be as the prices normalize from what's happened in the current market into your P&L over the next couple of quarters, how much more margin expansion do you expect?

Well, as we speak, the cocoa futures are trading at just over $5,100. Keep in mind that for many years, cocoa traded between $1,500 and $2,000 a metric ton in a relatively short period of time, they spiked to close to 12,000. And then for the subsequent probably 18 to 24 months, they hover between $8,000 and $12,000, when we began initiating a strategy to lock in future pricing, we really used $8,000 as a ceiling, and we've been successful with that.

Recently, we were able to lock it in at closer to $5,000 for roughly 20% of our expected production this year. Bear in mind, we consume chocolate, not cocoa, but directionally our chocolate price moves with the cocoa price.

I don't think we've rendered a view publicly in terms of the potential impact other than to say as cocoa prices come down, the -- chocolate represents a substantial part of our raw material cost. So I think you can expect we will have a margin tailwind here.

And have you disclosed maybe Carrie what percent of your raw materials are chocolate or cocoa if you're able to break it down to the actual raw ingredient?

That's something we have not disclosed.

Okay. Last one, Jeff, on the balance sheet. You've added equity now twice, where are we in that journey of, call it, recap in the balance sheet since you've been the interim CEO? And where are you trying to take that in the future?

Yes. Of course, all these decisions our Board decisions, but we think the next leg of our capital allocation plan will be reducing debt investing in the company, all of which we presume will be coming from free cash flow as opposed to additional equity issuance.

Great. Well, it's good to see all your hard work in the P&L now. So congratulations to both of you. I know you've been working very hard. I'll turn it back.

And there's more work to be done for sure, but we think directionally, this indicates that we're making progress.

Our next question comes from Peter Sidoti with Sidoti & Company.

Could you just talk about when do you expect the accelerated franchise effort to begin affecting the top line?

And I'm sorry, Peter, you broke up a little bit. Do you -- would you repeat that please?

When do you expect the accelerated franchising effort to begin showing up on the top line?

Yes, it's a great question. From opening to maturity, we assume a store will take roughly 3 years from lease signing to the store opening, that takes roughly 6 months from the lease process takes anywhere from 2 to 4 months. So there's somewhat of a lag in terms of a store being announced to it actually fully productive.

At this point, I think we've been fairly public. We would have very little interest in supporting the opening of a store that we don't think can generate at least $1 million in annual sales at retail over 3 years, in a 3-year period. So I think you can back into any type of modeling you're doing based upon the flow of stores, knowing that it's critical for us to have new stores, not just to improve the quality of our network, but to drive long-term profitability.

So is it fair to say you don't expect any dramatic revenue growth in 2026 at this point and really expect the efforts to start showing up next year?

If you're talking exclusively about additional revenue growth from new stores, I would say yes. But we have a network of 140 stores where there is substantial opportunity for us to have more chocolate factory product being represented and sold through those stores. So we're hyper focused on local store mix and increasing same-store sales.

In addition, we do have an e-commerce channel, and we also have specialty markets and intend to try to penetrate that further with the caveat being only where we make an appropriate margin.

Okay. And you've been there for a while and really have done an excellent job. What's the biggest obstacles you now feel that you're facing when looking at growing the business? Is it financial? Is it market? Is it just people execution.

We just -- we need to do a better job at executing profitably. As I cited in our call here, we think there's still more cost to come out. But this isn't a cost-saving story. This is a top line story. So we have to be able to execute efficiently, but we need to grow our top line, and that's going to come primarily through our franchise system principally from our existing franchise base supplementally from the new stores.

Okay. And congratulations on the financing. It was spectacular in terms of what you accomplished.

And I'm not showing any further questions at this time. I would like to turn the call back over to Jeff and Carrie to see if you have any closing remarks.

Thank you, operator. That's all we have for you today. I appreciate your dialing in. I look forward to updating you in the next 3 months.

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Mountain Chocolate Factory's Financial Results for the Fiscal Second Quarter 2026. [Operator Instructions]. As a reminder, this conference call is being recorded. Joining us on the call today is the company's interim CEO, Jeff Geygan; and CFO, Carrie Cass.

Please be advised, this conference call will contain statements that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements.

And now, I will turn the call over to the company's Interim CEO, Jeff Geygan. Jeff, please go ahead.

Thank you, and good morning, everyone. Over the past 16 months, we've taken meaningful steps to modernize our business, strengthen operations and lay the groundwork for stable growth, progress that's now becoming evident across the enterprise. These foundational steps are largely complete, and our focus is shifting towards disciplined execution.

We're moving from transformational planning to transformational performance. The results of that shift are reflected in how we operate our business, how we support our franchisees and how we present our brand to customers. The changes we're making today and in the past are intended to create value for investors over the long run.

In the short run, we've made many difficult personnel and operating decisions that had to be put in place despite the immediate cost. We believe those changes were necessary and are prerequisite to allowing the company to achieve its long-run potential. There's more work to be done with sales, production and franchise development, but we believe we put the right people and processes in place to execute in ways that will allow us to return to historic levels of profitability over the coming quarters and years.

Today, I'll walk you through several developments that highlight our progress, including franchise growth, brand development and operational improvements as we move into the holiday season.

Our ongoing operational challenges evidenced in our Q2 report are being met through a combination of improvements initiated by our new VP of Operations, who took over midway through the quarter. Within weeks of his onboarding, he laid out new money-saving strategies, including ways to eliminate overtime compensation, reduce scrap and waste and improve in-stock items to fulfill incoming franchisee orders as a first step to increasing the ratio of Durango products sold in every store, a significant financial opportunity for the company. In addition, we're continuing to overhaul our warehouse and logistics operations to ensure lean inventory levels and more frequent delivery to franchise locations as we expand our geographic footprint.

Continued improvement with operations is necessary as we enter our busy Q3 and Q4 holiday seasons, including both Christmas and Valentine's Day. We're well positioned to meet franchisee demand and that of our remaining specialty markets customers. We're deploying more technology and automation in our production facility today without compromising our beloved handcrafted legacy that accounts for much of the nostalgia from nearly 45 years of customer engagement and satisfaction.

Our franchise development momentum continues to build. We're seeing renewed enthusiasm from both existing and prospective operators who recognize the opportunity within the Rocky Mountain Chocolate Factory system. We hired a new VP of Franchise Development in August. He attended our September National Franchisee Convention and engaged with well over a dozen current franchisees to lay out a vision for future store growth and area development agreements.

We're continuing to canvass the U.S. and designate where we want to locate new stores in a very thoughtful and strategic array. The first wave of new store builds will come from our existing franchisees, followed by a group of new to the system operators. We're in discussions with several now with a focus on developing new markets where we've historically had little or no presence, including both north and south of the border, where we think there is significant development opportunity. This is a renaissance for Rocky Mountain Chocolate Factory. We're entering a new era of growth, but not growth for growth's sake. We'll be very intentional with every move we make, always looking for ways to create and enhance shareholder value.

We remain focused on increasing store ownership per franchisee, as I cited in our prior investor call. We recently opened a Charleston, South Carolina store, the first location to feature our refreshed branding and new store design, and the fourth store for this current franchisee. This location had its soft opening this summer, and we're planning a grand opening next month. The Chicago State Street store remains on track to open around the holidays. Construction is underway. This location will also serve as a showcase for the new Rocky Mountain Chocolate Factory, from design and layout, to product presentation and customer experience.

We continue to build a healthy pipeline of new locations. We recently signed franchise agreements for the Palladio in Folsom, California, and the Jersey Shore Premium Outlets in Tinton Falls, New Jersey. We're also in the final stages of negotiation for a Houston Hobby Airport location. We recently completed our first remodel at the Corpus Christi, Texas company-owned store. As expected, store sales experienced an immediate pickup. And shortly afterwards, we had our busiest day in store history. As we have more empirical data related to remodels, we'll share that with investors.

The combination of openings, remodels and multiunit franchise interest gives us strong development pipeline, strongest we've had in years. More importantly, we're focused on quality over quantity, partnering with well-capitalized, experienced operators in attractive, high-traffic markets. Our disciplined approach to development and franchise recruitment is expected to drive meaningful long-term potential for our systems performance.

Turning to our rebrand. We've continued to make strong progress evolving the Rocky Mountain Chocolate Factory brand. Over the past year, we've modernized nearly every customer touch point, from our new logo, contemporary store design, updated packaging, refreshed website, makeover of our longtime mascot, Truffles the Bear, and the overall in-store experience. The refreshed look elevates the brand while maintaining the warmth, quality and authenticity customers have always associated with the Rocky Mountain Chocolate Factory.

We expect most of our remodel work across the system to begin in early calendar 2026, with the goal of having nearly all stores aligned with the new brand identity in 24 months. These remodels will include new exterior signage, updated interior layouts and enhanced merchandising designed to create a more cohesive and engaging customer experience across all stores, both new and remodeled.

We're making meaningful progress improving product presentation and packaging. Our new packaging has rolled out to most stores, and feedback from franchisees and customers has been positive. The updated design conveys the premium nature of our products and complements the in-store brand aesthetic. Our package is modular in design. So when franchisees asked for a new sampler package during our recent national convention, we were able to develop and roll that out in about 6 weeks, a feat never before even considered, but now a reality due to the -- our unique design, which allows us to take in customer data and respond rapidly as we adjust to real-time feedback.

In addition, we recently hired a new world-class R&D executive who has experience in the confectionery business. His addition to our team will accelerate the introduction of many new and exciting products to offer our franchisees and customers. Altogether, these initiatives are strengthening how customers experience our brand. They represent the next stage of our development, a consistent, elevated experience that supports the long-term franchisee success and a deeper customer connection.

We've been modernizing the way customers interact with Rocky Mountain Chocolate Factory brand online. Earlier this quarter, we launched our refreshed website, which reflects our contemporary identity and provides a cleaner premium look. This refresh is an important step in aligning our digital presence with the in-store experience, and features our updated package offerings just in time for the holidays.

As originally conceived, our website will be an on-ramp for consumers to experience a small sampling of our delicious products, with all signs leading to a nearby store for the full selection of premium offerings. This will lead to our next iteration of store level SKU reorientation, in which every store will carry all of the items that Rocky Mountain Chocolate Factory offers, from Long Branch, New Jersey, to Huntington Beach, California.

To strengthen customer retention and engagement, we're preparing to roll out a new loyalty program. This loyalty program will deliver a personalized and mobile-friendly experience, allowing us to better understand purchasing behavior and reward purchase frequency. We plan to launch new programs shortly after the first of the year.

We're also expanding third-party delivery to meet customers where they are. Our partnership with DoorDash and other third-party delivery services continues to progress as we standardize store listings, locations and menu data across the system. We're encouraging franchisees to transition to DoorDash's storefront model, which provides broader reach with stronger unit economics compared to the traditional delivery structure. In addition, this creates an operating structure to expand across all major third-party delivery platforms, which will be an ongoing initiative for every location. The economics of these platforms are expected to be accretive to store level sales and profitability.

Taken together, our digital initiatives represent the next phase of customer engagement for the brand. They extend the Rocky Mountain Chocolate Factory experience beyond the store walls as we take our premium offerings to mobile, third-party delivery and corporate customers, deepening relationships and supporting incremental profitable growth for our franchisees.

In August, we acquired a long-standing store in Camarillo, California for $165,000. Last year, that store generated $700,000 in sales. Under our management, it will shift to a more traditional mix of Durango and store-made products, creating a pickup in Durango production demand and improving store level profitability.

If you reference our segment analysis in the current 10-Q, you will see our retail operations have generated a pretax margin of between 15% and 20%. The acquisition of this store is expected to be accretive to our overall earnings. In addition, it gives us physical presence in the important Southern California marketplace, while also creating a third company-owned store that we'll use as a test bed to explore new ways to engage with customers. Over time, we expect to have more company-owned stores located in strategic markets where we can use those to test and develop best practices.

For too many years, we've often simply taken orders, not selling. The unique attributes of Rocky Mountain Chocolate Factory brand and experience need to be sold. A shift to selling represents a fundamental change in how we approach our customer engagement, and is the single most exciting opportunity on the horizon, pivoting to an in-store customer experience unlike anything the company has executed in decades.

We're in the early stages of developing a clear articulation of our message for both franchisees and customers. We're developing a message that ties together our new logo, store design, packaging, website and Truffles the Bear. The next leg of our journey will show our transformation in its full color with all the possibilities this brand has previously been unable to capture.

Of course, operational execution remains the center of our attention. The team in Durango continues to work on driving efficiency gains as we prepare for the holiday season. We now have the flexibility to extend production hours and add shifts as needed to meet upcoming seasonal demands, thanks to the insight and experience of our new VP of Operations.

Inventory levels are healthy heading into the holidays, and our production plan is focused on maintaining freshness and product availability across the system. To support that, we've increased staffing to extend production run times, which improves efficiency and minimizes downtime between changeovers without incurring expense of overtime pay. Our raw materials and key ingredients are flowing well. We're positioned to meet demand for the season ahead.

We've improved logistics by moving consumer packaging back to Durango, and added warehouse capacity in Albuquerque, taking it from Salt Lake City. And in the process, reducing transit time to the factory from 7 hours to 3 hours. This change has improved responsiveness and reduced transportation cost. Combined with disciplined pricing, freight optimization and ongoing process improvements, these initiatives are improving our cost structure and profitability.

Culturally, this is a very different company than it was 16 months ago. We've built a leadership team, an organization that is aligned, accountable and focused on results. Across every function, from Durango to the field, there's a growing sense of purpose, collaboration and execution discipline. We've made tough decisions necessary to stabilize the business and have been deliberate in how we build for the future. The progress we're seeing now is a direct result of that approach.

Our transformation is continuing as planned. The foundation we've laid is solid. The factory is running more efficiently, franchisees have better tools and support, and our brand continues to evolve in ways that resonate with customers today. As we enter the holiday season, the organization is aligned around one simple objective: executional excellence. That means keeping product flowing, supporting franchisees and delivering a consistent premium customer experience.

As I began the call today, I reiterate, we are focused on creating value for our equity owners over time. We will invariably experience unforeseen challenges in the short run, be those operational, personnel or resource driven, that we will have to navigate, but we'll never lose sight of where we're headed over the long run. Our goals are lofty. Our team is focused. Our mission is clear.

Thank you for your attention. With that, I'll turn the call over to our CFO, Carrie Cass, to step you through our fiscal Q2 financial results. Carrie?

Thank you, Jeff. Please note that unless otherwise stated, all comparisons are on a year-over-year basis. Total revenue for the quarter was $6.8 million compared to $6.4 million in the same period last year. Product sales were $5.2 million compared to $4.9 million last year, and franchise and royalty fees were $1.6 million, up from $1.5 million in the same period last year.

The total product and retail gross profit was negative $33,000 compared to $0.6 million. The decrease reflects year-over-year comparability factors, the timing of inventory adjustments, and it's partially offset by continued factory efficiency gains. Total costs and expenses were $7.3 million, which were essentially flat compared to the same period last year. The net loss of $0.7 million or a negative $0.09 per share compared to the net loss of $0.7 million or a negative $0.11 per share in the second fiscal quarter of '25.

Turning to the balance sheet. As of August 31, 2025, we had cash of $2 million compared to $0.7 million at February 28 of '25. During the quarter, we added $1.8 million in new borrowings to support working capital and seasonal needs. This included a $1.2 million term loan and $0.6 million incremental loan under our existing credit facility. Both loans carry the same 12% interest rate, interest-only payments and the same September 30 '27 maturity as the original $6 million facility established last year. As a result, total debt outstanding was $7.8 million as of August 31, '25.

This concludes our prepared remarks. We'll now open it up to Q&A. Operator, back to you.

[Operator Instructions] And our first question will be coming from Peter Sidoti of Sidoti & Company.

Just a couple of quick questions. One, can you discuss the background of the new Chief Operating Officer?

Yes, of course. This is Luis Burgos. He has 30-plus years in manufacturing and operations. He has worked for start-ups with as few as 150 people, and manage operations with over 3,000 people. He's operated in the U.S. and internationally. And notably, he was employed by Kimberly-Clark on 2 separate occasions, but he has a fantastic experience and background, and he's fluent with the FDA rules and regulations.

Okay. Great. As you open new stores, do you have targets for number of openings you expect for '26 and '27?

Peter, not that we've disclosed yet, but our stated goal is to be net positive in store growth on an annual basis, which means whatever the stores that are closed, we exceed that with new openings.

And can you just discuss the -- thinking about between owned and franchised?

Yes, sure. Historically, the company has had relatively few owned stores. Philosophically, we think if we're going to be a good franchisor, we need to be able to talk the talk, run the businesses and have proof positive that we know what we're doing as an operator, not just as a franchisor.

We had, until recently, 2 stores, one in Durango, which we've owned for many, many years; and the second in Corpus Christi, which was acquired roughly 3 years ago, which has gone through a very nice turnaround. Camarillo, Texas -- or Camarillo, California, which I cited in our numbers here, was able to be purchased at a very attractive rate, put us in a strategic market where we have boots on the ground, which we think is relevant.

My expectation is in the not-too-distant future, we'll have a handful of additional stores that strategically put us into markets where we can develop and potentially turn around and sell a cluster of stores to a prospective franchisee, while we're developing those stores in those markets. And with each store, we'll have an opportunity to test new products, new practices.

Okay. And just one last question. You seem to be burning a little cash at this point. Can you just talk to me, how long you think that will continue? And will there be a need for equity financing?

Yes. Well, of course, our fiscal Q1 and Q2 are historically our slow periods; our 3 and 4 are historically our better periods. We're performing to budget this year. And we -- the discussion about any type of capital raise would be one that would have to be considered with the Board of Directors.

I'm sorry, could you just repeat it so I understand it.

Yes, sure. Any type of capital raise would be at the discretion of the Board of Directors.

Right. But you're burning cash at this point in time. Do you expect to continue to burn cash for the next 12 months?

We do not.

You do not. All right. Great.

And I'm showing no further questions in the queue. I would now like to pass the call to Sean Mansouri for e-mail questions.

Thank you, Latonya. To address a few questions that have come in via e-mail over the past week, Jeff, Carrie, first here, can you expand on what's driving the increase in franchise demand beyond the visual aspects of the brand? In other words, what tangible changes in the business are making RMCF a more investable system for operators today?

Yes. Thanks, Sean. It's a good question. For starters, I think one aspect of our offering that differentiates us from a lot of our competitive offerings is our relatively low labor model in a world where labor costs, among other things are rising, that's attractive.

Number two, with the new store design, we've been able to move more closely to a defined number in terms of what it would cost to build. And once we have that defined number, we've been able to reduce those costs. So I think our ability to articulate the ROI to a prospective franchisee in terms of cost to build and expected cash flow, those numbers are very attractive.

And again, we've worked with existing franchisees to try to get our store growth kick started. And frankly, it was -- in most cases, it was just simply a matter of asking our franchisees if they had an interest, to which most of them said, "Yes, I was waiting for someone at the corporate to ask." So that was an easy answer.

We've also hired a new VP of Franchise Development, as I mentioned during my prepared remarks, who started in August, who has 20-plus years of franchise development and has a proven track record of building small systems into larger systems. So we feel very optimistic about not just the design, the economics, but we're putting the mechanics in place to do this on a repeated basis.

And as I've said on several occasions, we're looking for financially sophisticated, well-capitalized entrepreneurial franchisees to join our system, and we've had conversations with a number of those type of investors recently.

That's great. Moving on to the next one. Can you walk through what's changed in your factory operations that's most meaningfully impacting cost per unit or fulfillment reliability?

Sure. Carrie, do you want to take that?

Sure. As Jeff mentioned, we just recently hired a new VP of Operations. He has made a number of changes in the factory, most of which have happened after the end of the quarter. So we're still testing best practices downstairs. We've made a lot of progress in a lot of areas in the business. That's one we're still working on.

And with cocoa prices easing from historic highs, how are you thinking about the potential margin benefit and timing, including your hedging strategy and supplier costs?

Yes, it's a great question. Good observation, too. As we speak, the price of metric ton of cocoa is $5,806. 16 months ago, for perspective, if we could lock into cocoa pricing at $8,000 per metric ton, I felt pretty lucky. $8,000 for many months was as low as it traded and then had bumped up a couple of times to $10,000 or $11,000.

But recently, for a variety of reasons that are mostly geopolitical and some weather-related, the price dipped below $8,000 into the $7,000 and $6,000 range. We took full advantage of that, locking in some amount of production. But bear in mind, it's not an all or none, and we're not in the spot market. So every time we lock at today's lower price, we still have the long tail backwards that our prices that we locked previously.

But the highest price we've locked since I've been here is $8,000. So we expect that we'll pick up some margin and lower raw material costs. And this cocoa, of course, becomes chocolate for us. Chocolate represents 40% of our raw material costs. So this will be meaningful for us, and we expect to see improved margins over time as a result.

Excellent. That concludes the e-mail portion of the Q&A session.

Latonya, over to you to close the call.

Certainly. And this concludes today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.