<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission file number 0-14749
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-0910696
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
265 Turner Drive, Durango, CO 81301
- ------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code)
(303) 259-0554
(Registrants telephone number, including area code)
Indicate by checkmark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
---- ----
At October 9, 1995 there were 2,957,499 shares of common stock outstanding.
This document contains 21 pages including exhibits.
The exhibit index is located on page 19.
1
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
FORM 10-Q FOR THE QUARTER ENDED August 31, 1995
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Financial Statements
Balance Sheets - August 31, 1995(unaudited)
and February 28, 1995..........................................4
Statements of Income - Six-month
periods ended August 31, 1995 (unaudited)
and August 31, 1994 (unaudited)................................6
Statements of Income - Three-month
periods ended August 31, 1995 (unaudited)
and August 31, 1994 (unaudited)................................7
Statements of Cash Flows
Six-month periods ended
August 31, 1995 (unaudited)
and August 31, 1994 (unaudited)................................8
Statements of Cash Flows
Three-month periods ended
August 31, 1995 (unaudited)
and August 31, 1994 (unaudited)................................9
3
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
August 31,
1995 February 28,
(unaudited) 1995
ASSETS ----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 88,681 $ 382,905
Accounts and notes receivable -
trade, less allowance for doubtful
accounts of $72,279 at August 31 and
$48,366 at February 28 1,248,036 1,179,019
Inventories 2,015,235 1,687,016
Deferred tax asset 68,586 68,586
Other 420,860 110,105
---------- ----------
Total current assets 3,841,398 3,427,631
PROPERTY AND EQUIPMENT - AT COST
Land 122,558 122,558
Building 3,537,488 2,453,069
Leasehold improvements 1,030,952 803,160
Machinery and equipment 3,588,511 2,917,148
Furniture and fixtures 1,476,847 1,086,282
Transportation equipment 226,569 197,346
---------- ----------
9,982,925 7,579,563
Less accumulated depreciation
and amortization 2,014,587 1,690,118
---------- ----------
7,968,338 5,889,445
OTHER ASSETS
Notes and accounts receivable due
after one year 121,227 136,132
Goodwill, net of accumulated
amortization of $241,938 at
August 31 and $230,136 at February 28 348,062 359,864
Other 375,948 368,098
----------- -----------
845,237 864,094
----------- -----------
$12,654,973 $10,181,170
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
August 31,
1995 February 28,
(Unaudited) 1995
LIABILITIES and EQUITY ----------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt 324,395 182,852
Accounts payable - trade 1,291,549 839,117
Accrued compensation 355,069 222,713
Accrued liabilities 305,604 283,330
Income taxes payable 101,616 272,593
---------- ----------
Total current liabilities 2,378,233 1,800,605
LONG-TERM DEBT, less current maturities 3,547,814 2,313,895
DEFERRED INCOME TAXES 159,863 159,863
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
$1.00 cumulative convertible preferred
stock authorized 250,000 shares, $.10
par value; issued and outstanding,
-0- shares at August 31 and 14,610
at February 28 -- 1,462
Common stock - authorized 7,250,000
shares, $.03 par value; issued
2,661,802 shares at August 31 and
2,634,289 at February 28 79,855 79,029
Additional paid-in capital 4,715,763 4,700,527
Retained earnings 1,778,178 1,130,522
---------- ----------
6,573,796 5,911,540
Less common stock held in treasury,
at cost - 4,303 shares at August 31,
and at February 28 4,733 4,733
----------- -----------
6,569,063 5,906,807
----------- -----------
$12,654,973 $10,181,170
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Six-month periods ended
-----------------------
August 31,
1995 1994
---- ----
<S> <C> <C>
REVENUES
Sales of chocolate $6,803,640 $4,460,320
Franchise and royalty fees 1,325,954 1,121,813
---------- ---------
8,129,594 5,582,133
---------- ---------
COSTS AND EXPENSES
Cost of chocolate sales 3,488,943 2,154,673
Franchise costs 914,614 690,719
General and administrative 700,442 591,289
Retail operating expenses 1,841,878 1,199,683
---------- ---------
6,945,877 4,636,364
---------- ---------
Operating income 1,183,717 945,769
OTHER INCOME (EXPENSE)
Interest expense (157,202) (49,612)
Interest income 9,734 9,532
---------- ---------
(147,468) (40,080)
INCOME BEFORE INCOME TAX EXPENSE 1,036,249 905,689
INCOME TAX EXPENSE
Provision for income taxes 388,594 360,913
---------- ---------
388,594 360,913
NET INCOME 647,655 544,776
Dividend requirements on
preferred stock -- 7,305
---------- ---------
INCOME ALLOCABLE TO
COMMON STOCKHOLDERS $ 647,655 $ 537,471
========== ==========
PRIMARY INCOME
PER COMMON AND EQUIVALENT SHARE $ .24 $ .22
========== ==========
Weighted average and equivalent shares 2,742,254 2,500,663
========== ==========
FULLY DILUTED INCOME
PER COMMON AND EQUIVALENT SHARE $ .24 $ .20
========== ==========
Weighted average and equivalent shares 2,747,204 2,714,691
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three-month periods ended
-------------------------
August 31,
1995 1994
---- ----
<S> <C> <C>
REVENUES
Sales of chocolate $3,779,843 $2,659,979
Franchise and royalty fees 629,972 536,954
---------- ----------
4,409,815 3,196,933
---------- ----------
COSTS AND EXPENSES
Cost of chocolate sales 1,877,413 1,207,766
Franchise costs 465,081 372,741
General and administrative 352,982 297,364
Retail operating expenses 1,013,712 677,326
---------- ----------
3,709,188 2,555,197
---------- ----------
Operating income 700,627 641,736
OTHER INCOME (EXPENSE)
Interest expense (95,364) (28,466)
Interest income 2,712 4,767
---------- ----------
(92,652) (23,699)
INCOME BEFORE INCOME TAX EXPENSE 607,975 618,037
INCOME TAX EXPENSE
Provision for income taxes 227,991 241,034
---------- ----------
227,991 241,034
NET INCOME 379,984 377,003
Dividend requirements on
preferred stock -- 3,653
---------- ----------
INCOME ALLOCABLE TO
COMMON STOCKHOLDERS $ 379,984 $ 373,350
========== ==========
PRIMARY INCOME
PER COMMON AND EQUIVALENT SHARE $ .14 $ .14
========== ==========
Weighted average and equivalent shares 2,759,770 2,716,412
========== ==========
FULLY DILUTED INCOME
PER COMMON AND EQUIVALENT SHARE $ .14 $ .14
========== ==========
Weighted average and equivalent shares 2,760,694 2,716,412
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six-month periods ended
-----------------------
August 31,
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 647,655 $ 544,776
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 336,270 214,266
(Increase) in notes and
accounts receivable (54,112) (363,629)
(Increase) in inventories (328,219) (438,878)
(Increase) in deferred tax asset - (835)
(Increase) in other assets (310,755) (70,774)
Increase in accounts payable 452,434 328,916
(Decrease) in income tax payable (181,714) (79,389)
Increase in deferred income taxes - 8,768
Increase in accrued liabilities 165,367 121,439
---------- ----------
Net adjustments 79,271 (280,116)
Net cash provided by
operating activities 726,926 264,660
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to other long-term assets (7,850) (33,951)
Purchase of property and equipment (2,403,362) (2,328,246)
---------- ----------
Net cash (used in)investing activities (2,411,212) (2,362,197)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends - (95,265)
Proceeds from exercise of
stock options 40,625 52,876
Proceeds from issuance of
treasury stock - 1,500
Principal payments on line of credit 250,000 -
Principal payments on long-term debt (124,538) (164,731)
Proceeds from line of credit (250,000) 345,825
Proceeds from issuance of long-term debt 1,500,000 1,346,134
Purchase and retirement of preferred stock (26,025) -
---------- ----------
Net cash provided by
financing activities 1,390,062 1,486,339
---------- ----------
NET (DECREASE) IN CASH: $ (294,224) $ (611,198)
Cash and cash equivalents
at beginning of period $ 382,905 $ 996,746
---------- ----------
Cash and cash equivalents
at end of period $ 88,681 $ 385,548
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest $ 142,973 $ 54,340
========== ==========
Income taxes $ 570,308 $ 432,712
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three-month periods ended
------------------------------
August 31,
1995 1994
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 379,984 $ 377,003
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 176,882 114,895
(Increase) in notes and
accounts receivable (134,151) (276,741)
(Increase) in inventories (396,882) (392,312)
(Increase) in other assets (266,933) (13,109)
Increase in accounts payable 439,682 346,678
(Decrease) increase in income tax payable (75,332) 64,204
Increase in accrued liabilities 48,248 112,538
---------- -----------
Net adjustments (208,486) (43,847)
Net cash provided by operating
activities 171,498 333,156
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to other long-term assets 9,891 (80,384)
Purchase of property and equipment (943,656) (1,643,021)
---------- -----------
Net cash (used in)investing activities (933,765) (1,723,405)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends - (7,305)
Proceeds from exercise of
stock options 40,625 42,139
Proceeds from issuance of
treasury stock - 1,363
Principal payments on line of credit (100,000) -
Principal payments on long-term debt (71,697) (171,724)
Proceeds from line of credit 100,000 195,825
Proceeds from issuance of long-term debt 745,367 1,346,134
---------- -----------
Net cash provided by
financing activities 714,295 1,406,432
---------- -----------
NET (DECREASE) INCREASE IN CASH: $ (47,972) $ 16,183
Cash and cash equivalents
at beginning of period $ 136,653 $ 369,365
---------- -----------
Cash and cash equivalents
at end of period $ 88,681 $ 385,548
========== ===========
CASH PAID DURING THE PERIOD FOR:
Interest $ 87,211 $ 31,114
========== ===========
Income taxes $ 298,323 $ 195,481
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1995
1. The interim financial statements included herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It
is suggested that these financial statements be read in conjunction with the
financial statements and notes included in the Company's Annual Report on
Form 10-K for the year ended February 28, 1995.
2. These statements reflect all adjustments which, in the opinion of
Management, are necessary for a fair presentation of the information
contained therein. Results of operations for interim periods are not
necessarily indicative of annual results.
3. Inventories consist of the following:
<TABLE>
<CAPTION>
August 31, 1995 February 28, 1995
--------------- -----------------
<S> <C> <C>
Ingredients and supplies $ 892,348 $ 712,727
Finished Candy 1,117,886 974,289
---------- ----------
$2,010,234 $1,687,016
========== ==========
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED AUGUST 31, 1995 COMPARED TO QUARTER ENDED AUGUST 31, 1994
REVENUES
FACTORY SALES. Factory sales increased $503,000 or 36.0% to $1,900,000
in the second quarter of 1996, compared to $1,397,000 in the second quarter
of 1995. This increase resulted from the larger number of franchised
stores in existence throughout the quarter (142 at August 31, 1995 in
comparison with 114 at August 31, 1994) and, to a lesser extent, a modest
price increase effected in April of 1995. Same store pounds purchased from
the factory increased by 7.6% in the second quarter of 1996 compared to the
second quarter of 1995, which also contributed to this increase. When
computing same store pounds purchased from the factory, purchases by
franchised stores open for 12 months in each period are compared.
RETAIL SALES. Retail sales increased $623,000 or 49.3% to $1,886,000 in
the second quarter of 1996, compared to $1,263,000 in the second quarter of
1995. This increase resulted primarily from a larger number of Company-owned
stores in existence throughout the quarter (27 at August 31, 1995 in
comparison with 20 at August 31, 1994). The impact of a modest price increase
was offset by the effect of a 5.3% same store sales decline at Company-owned
stores partially counter-balancing the effect of the increased number of
stores. The Company believes the decline in same store retail sales at
Company-owned stores resulted from the effect of extreme heat in July and
August in geographical areas where Company stores are concentrated.
ROYALTIES AND MARKETING FEES AND FRANCHISE FEES. Royalties and
marketing fees increased $127,000 or 30.8% to $539,000 in the second
quarter of 1996, compared to $412,000 in the second quarter of 1995. This
increase resulted from increased royalty income from a larger number of
franchised stores operating in the second quarter of 1996 compared to the
second quarter of 1995 (142 at August 31, 1995 in comparison with 114 at
August 31, 1994), abetted by increased same store sales at franchised
stores of 2.9%. Franchise fee revenues in the second quarter of 1996 of
$91,000 declined from the $125,000 in the second quarter of 1995. Franchise
signings declined to 7 in the second quarter of 1996 from 9 in the second
quarter of 1995. The Company's increased emphasis on the establishment of
Company-owned stores is the primary cause of this reduction.
COSTS AND EXPENSES
COST OF CHOCOLATE SALES. Cost of chocolate sales, which includes costs
incurred by the Company to manufacture candy sold by its Company-owned
stores and to its franchised stores, increased 55.4% to $1,877,000 in the
second quarter of 1996 from $1,208,000 in the second quarter of 1995. Cost
of chocolate sales as a percentage of total chocolate sales (defined as the
total of factory sales and retail sales) increased to 50.0% in the second
quarter of 1996 from 45.4% in the second quarter of 1995. This increase in
cost of chocolate sales as a percentage of total
11
<PAGE>
chocolate sales resulted from unusual cumulative adjustments in the second
quarter of fiscal 1995 reflecting: (1) unbooked (due to uncertainty at the
time of their discovery as to the likelihood of their realization) positive
physical inventory adjustments from the first quarter of fiscal 1995; (2)
increased manufacturing overhead absorption resulting from higher than plan
actual (and anticipated for the balance of the fiscal year 1995) production
volumes. Cost of chocolate sales as a percentage of chocolate sales has
improved from that existing in the first quarter of fiscal year 1996 (53.3%)
as a result of an increase in higher margin retail sales as a percentage of
total chocolate sales, the full quarter impact of an approximate 2% retail
and factory price increase and improved manufacturing efficiencies and
manufacturing overhead absorption. Company margins are expected to continue
to improve as a result of these factors.
FRANCHISE COSTS. Franchise costs increased 24.7% to $465,000 in the
second quarter of 1996 from $373,000 in the second quarter of 1995. As a
percentage of the total of royalties and marketing fees and franchise fees,
franchise costs increased to 73.8% of such fees in the second quarter of
1996 from 69.4% in the second quarter of 1995. The hiring of additional
field support and associated administrative personnel to support the
Company's accelerated pace of store opening activities and the larger base
of stores is the partial cause of this increase. Additionally, the Company
incurred increased expenses for promotional programs and marketing
materials to support the larger base of stores.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 18.9% to $353,000 in the second quarter of 1996 from
$297,000 in the second quarter of 1995, as a result of increased
professional fees incurred to support the Company's accelerated pace of
lease negotiating activities, increased expense for administrative support
personnel and increased depreciation expense for additional investment in
computer hardware and software. As a percentage of total revenues, general
and administrative expense declined to 8.0% in the second quarter of 1996
from 9.3% in the second quarter of 1995, primarily due to a significant
increase in total revenues, without a proportionate increase in general and
administrative expenses.
RETAIL OPERATING EXPENSES. Retail operating expenses increased 49.8% to
$1,014,000 in the second quarter of 1996 from $677,000 in the second
quarter of 1995. This increase resulted from the effect of the larger
number of Company-owned stores in existence throughout the second quarter
as discussed above. As a percentage of retail sales, retail operating
expenses remained constant at 53.7% in the second quarter of 1996 in
comparison with 53.6% in the second quarter of 1995.
OTHER EXPENSE
Other expense of approximately $93,000 incurred in the second quarter of
1996 increased 287.5% from the $24,000 incurred in the second quarter of
1995. This increase resulted from increased interest expense caused by
borrowings in support of the Company's factory expansion and Company-owned
store expansion.
12
<PAGE>
INCOME TAX EXPENSE
The Company's effective income tax rate in the second quarter of 1996
was 37.5% compared to 39.0% in the second quarter of 1995. The absolute
1.5% decrease in effective tax rates resulted from utilization of lower,
more representative, full year 1995 historical experience as a basis for
estimating the effective tax rate for the full year 1996.
RESULTS OF OPERATIONS
FIRST HALF FISCAL 1996 IN COMPARISON WITH FIRST HALF FISCAL 1995
REVENUES
FACTORY SALES. Factory sales increased $1,071,000 or 45.1% to
$3,446,000 in the first half 1996, compared to $2,375,000 in the first half
of 1995. This increase resulted from the larger number of franchised
stores in existence throughout the half and, to a lesser extent, a modest
price increase effected in April of 1995. Same store pounds purchased from
the factory increased by 6% in the first half of 1996 compared to the first
half of 1995, which also contributed to this increase. When computing same
store pounds purchased from the factory, purchases by franchised stores
open for 12 months in each period are compared.
RETAIL SALES. Retail sales increased $1,273,000 or 61.1% to $3,358,000
in the first half of 1996, compared to $2,085,000 in the first half of
1995. This increase resulted primarily from a larger number of Company-
owned stores in existence throughout the quarter. The impact of the modest
price increase was abetted by the effect of a 2.8% same store sales
increase at Company-owned stores.
ROYALTIES AND MARKETING FEES AND FRANCHISE FEES. Royalties and marketing
fees increased $243,000 or 32.6% to $989,000 in the first half of 1996,
compared to $746,000 in the first half of 1995. This increase resulted from
increased royalty income from a larger number of franchised stores operating
in the first half of 1996 compared to the first half of 1995, abetted by
increased same store sales at franchised stores of 3.9%. Franchise signings
increased to 20 in the first half of 1996 from 18 in the first half of 1995.
Franchise fee revenues in the first half of 1996 of $337,000 declined from
the $376,000 in the first half of 1995 due to differences in the timing of
revenue recognition.
COSTS AND EXPENSES
COST OF CHOCOLATE SALES. Cost of chocolate sales increased 61.9% to
$3,489,000 in the first half of 1996 from $2,155,000 in the first half of
1995. Cost of chocolate sales as a percentage of total chocolate sales
(defined as the total of factory sales and retail sales) increased to 51.3%
in the first half of 1996 from 48.4% in the first half of 1995. This increase
in cost of chocolate sales as a percentage of total chocolate sales resulted
from unusual cumulative adjustments in the second quarter of fiscal 1995
reflecting: (1) unbooked (due to uncertainty at the time of their discovery
as to the likelihood of their realization) positive physical inventory
adjustments from the first quarter of fiscal 1995; (2) increased
manufacturing overhead absorption resulting from higher than plan actual (and
13
<PAGE>
anticipated for the balance of the fiscal year 1995) production volumes.
Cost of chocolate sales as a percentage of chocolate sales has improved from
that existing in the first quarter of fiscal year 1996 (53.3%) as a result of
an increase in higher margin retail sales as a percentage of total chocolate
sales, the full half impact of an approximate 2% retail and factory price
increase and improved manufacturing efficiencies and manufacturing overhead
absorption. Company margins are expected to continue to improve as a result
of these factors.
FRANCHISE COSTS. Franchise costs increased 32.4% to $915,000 in the
first half of 1996 from $691,000 in the first half of 1995. As a percentage
of the total of royalties and marketing fees and franchise fees, franchise
costs increased to 69.0% of such fees in the first half of 1996 from 61.6%
in the first half of 1995. The hiring of additional field support and
associated administrative personnel to support the Company's accelerated
pace of store opening activities and the larger base of stores is the
partial cause of this increase. Additionally, the Company incurred
increased expenses for promotional programs and marketing materials to
support the larger base of stores.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 18.4% to $700,000 in the first half of 1996 from
$591,000 in the first half of 1995, as a result of increased professional
fees incurred to support the Company's accelerated pace of lease
negotiating activities, increased expense for administrative support
personnel and increased depreciation expense representing additional
investment in computer hardware and software. As a percentage of total
revenues, general and administrative expense declined to 8.6% in the first
half of 1996 from 10.6% in the first half of 1995, primarily due to a
significant increase in total revenues, without a proportionate increase in
general and administrative expenses.
RETAIL OPERATING EXPENSES. Retail operating expenses increased 53.5% to
$1,842,000 in the first half of 1996 from $1,200,000 in the first half of
1995. This increase resulted from the effect of the larger number of
Company-owned stores in existence throughout the first half. As a
percentage of retail sales, retail operating expenses declined to 54.8% in
the first half of 1996 from 57.5% in the first half of 1995 as a result of
higher retail sales without a proportionate increase in expenses due to
improved expense control at Company-owned stores.
OTHER EXPENSE
Other expense of $147,000 incurred in the first half of 1996 increased
267.5% from the $40,000 incurred in the first half of 1995. This increase
resulted from increased interest expense associated with borrowings to
finance the Company's factory expansion and Company-owned store expansion.
INCOME TAX EXPENSE
The Company's effective income tax rate in the first half of 1996 was
37.5% compared to 39.9% in the first half of 1995. The absolute 2.4%
decrease in effective tax rates resulted from utilization of lower, more
representative, full fiscal year 1995 historical experience as a basis for
estimating the effective tax rate for the full fiscal year 1996.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In the first half of fiscal 1996 the Company generated $726,926 in
operating cash flow. The Company used this operating cash flow in
combination with $1,500,000 in draws under its newly-acquired chattel
mortgage financing and utilization of existing cash balances to fund
$2,400,000 in capital expenditures primarily for completion of its plant
expansion ($1,258,546) and new Company-owned store construction ($773,420).
At August 31, 1995, working capital was $1,463,165 in comparison with
$1,627,026 at February 28, 1995, a $163,861 decrease. This decrease resulted
from use of the Company's improved operating cash flows and cash balances to
fund elements of the Company's facility expansion and Company-owned store
expansion.
Cash and cash equivalent balances decreased from $382,905 at February
28, 1995 to $88,681 at August 31, 1995 as a result of this use of cash flows
and balances.
The Company's long-term debt includes a 20-year real estate mortgage
loan obtained in June 1994 ($1.6 million principal outstanding at August 31,
1995). In addition, the Company had a $1.5 million chattel mortgage facility
(the "Facility"), the entire amount of which was outstanding at August 31,
1995. The Company also has outstanding a $700,000 chattel mortgage term loan
obtained in June 1994 under a prior facility. The aggregate $2.2 million
outstanding at August 31, 1995 under the facility and the chattel mortgage
term loan was incurred to support the Company's financing needs for
completion of the factory expansion and for Company-owned store openings and
is secured by the Company's inventory, equipment, furniture and fixtures.
The Company on September 20, 1995 retired the $1.5 million outstanding under
the Facility with a portion of the proceeds of its recently completed public
offering of common stock (see below).
The Company has a $1.0 million working capital line of credit, secured
by accounts receivable. The line had a zero balance at August 31, 1995.
Terms of the loan require that the line be rested (that is, that there be no
outstanding balance) for two periods of 30 consecutive days during the term
of the loan, which expires in July 1996. Interest on the line is at prime.
In 1996, the Company anticipates making $4.1 million in capital
expenditures in comparison with $4.5 million in 1995. As of August 31, 1995,
the Company had made approximately $2.4 million in capital expenditures,
primarily for completion of its factory expansion and the opening of new
Company-owned stores. The remaining $2.1 million expected to be expended in
1996 will be used primarily for the opening of new Company-owned stores.
On September 20, 1995, the Company completed a public offering of common
stock which provided it with net proceeds after payment of offering expenses
of approximately $4.4 million. As discussed above, approximately $1.5
million of these net proceeds was utilized to retire existing debt. The
balance of approximately $2.9 million has augmented the Company's working
capital reserves and has been invested in institutional money market funds
oriented to conservation of principal through investment primarily in
short-term U.S. Government instruments and may be used for future
Company-owned store expansion.
15
<PAGE>
The Company in September, 1995, opened, at an approximate cost of
$250,000 a first store utilizing a new store concept. This initial store
utilizing the new store concept was funded from operating cash flows. This
new concept uses creative lighting, music, animation and movement to
entertain customers. The new store concept utilizes a different name and
sells a different line of candies than the Company's current concept and the
Company does not believe it will compete with existing Rocky Mountain
Chocolate Factory stores. The Company expects to test one or more additional
prototype stores in the current fiscal year or early in fiscal 1997. These
prototype stores will be Company-owned and the Company estimates that it will
cost approximately $200,000 each to establish the stores. The Company will
fund the prototype stores from operating cash flows. Should test results
justify further expansion of the new concept, a potentially significant
portion of working capital reserves would be likely to be used to establish
additional stores under the new concept.
The Company believes that cash balances, cash flow from operating
activities and available bank lines of credit will be sufficient to service
debt, fund anticipated capital expenditures and provide necessary working
capital. There can be no guarantee, however, that unforeseen events will not
require the Company to secure additional sources of financing. The Company
may also seek additional financing from time to time, through borrowings or
public or private offerings of equity or debt securities, to fund its future
expansion plans.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11.1 Statement regarding computation of earnings per common share
(filed herewith at page 20).
(b) REPORTS ON FORM 8-K
No reports on form 8-K were filed during the three months ended August
31, 1995.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
Date: October 11, 1995 /s/
-------------------- -------------------------------------
Franklin E. Crail
(Chairman of the Board, President and
Treasurer)
Date: October 11, 1995 /s/
-------------------- -------------------------------------
Lawrence C. Rezentes
(Vice President - Finance)
18
<PAGE>
EXHIBIT 11.1
<PAGE>
EXHIBIT 11.1
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
COMPUTATION OF INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Six-month periods ended
-----------------------
August 31,
1995 1994
---- ----
<C> <S> <S>
PRIMARY INCOME PER SHARE
Net income $ 647,655 $ 544,776
Dividend requirements
on preferred stock - ( 7,305)
---------- ----------
Net income allocable to common and
common equivalent shares $ 647,655 $ 537,471
========== ==========
Weighted average number of
common shares outstanding 2,639,011 2,404,912
Net effect of dilutive stock options
and warrants based on the Treasury
Stock Method using average market
price 103,243 95,751
---------- ----------
Weighted average number of common
and common equivalent shares
outstanding 2,742,254 2,500,663
========== ==========
Primary income per common
and common equivalent share $ .24 $ .22
========== ==========
FULLY DILUTED INCOME PER SHARE
Net income $ 647,655 $ 544,776
Less dividend requirements on
preferred stock - ( 7,305)
Add interest expense and loan costs
amortized on convertible debt - 12,339
---------- ----------
Net income allocable to common and
equivalent shares $ 647,655 $ 549,810
========== ==========
Weighted average number of common
shares outstanding 2,639,011 2,404,912
Assuming conversion of
convertible debt - 213,838
Net effect of dilutive stock options
based on the Treasury Stock Method
using the greater of the average
or ending market price 108,193 95,941
---------- ----------
Weighted average number of common
shares outstanding as adjusted 2,747,204 2,714,691
========== ==========
Income per common and common
equivalent share assuming
full dilution $ .24 $ .20
========== ==========
</TABLE>
<PAGE>
EXHIBIT 11.1
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
COMPUTATION OF INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Three-month periods ended
-------------------------
August 31,
1995 1994
---- ----
<C> <S> <S>
PRIMARY INCOME PER SHARE
Net income $ 379,984 $ 377,003
Dividend requirements
on preferred stock - ( 3,653)
---------- ----------
Net income allocable to common and
common equivalent shares $ 379,984 $ 373,350
========== ==========
Weighted average number of
common shares outstanding 2,650,716 2,622,508
Net effect of dilutive stock options
and warrants based on the Treasury
Stock Method using average market
price 109,054 93,904
---------- ----------
Weighted average number of common
and common equivalent shares
outstanding 2,759,770 2,716,412
========== ==========
Primary income per common
and common equivalent share $ .14 $ .14
========== ==========
FULLY DILUTED INCOME PER SHARE
Net income $ 379,984 $ 377,003
Less dividend requirements on
preferred stock - ( 3,653)
Add interest expense and loan costs
amortized on convertible debt - -
---------- ----------
Net income allocable to common and
equivalent shares $ 379,984 $ 373,350
========== ==========
Weighted average number of common
shares outstanding 2,650,716 2,622,508
Assuming conversion of
convertible debt - -
Net effect of dilutive stock options
based on the Treasury Stock Method
using the greater of the average
or ending market price 109,978 93,904
---------- ----------
Weighted average number of common
shares outstanding as adjusted 2,760,694 2,716,412
========== ==========
Income per common and common
equivalent share assuming
full dilution $ .14 $ .14
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> AUG-31-1995
<CASH> 88,681
<SECURITIES> 0
<RECEIVABLES> 1,248,036
<ALLOWANCES> 0
<INVENTORY> 2,015,235
<CURRENT-ASSETS> 3,841,398
<PP&E> 9,982,925
<DEPRECIATION> 2,014,587
<TOTAL-ASSETS> 12,654,973
<CURRENT-LIABILITIES> 2,378,233
<BONDS> 3,547,814
<COMMON> 79,855
0
0
<OTHER-SE> 6,489,208
<TOTAL-LIABILITY-AND-EQUITY> 12,654,973
<SALES> 6,803,640
<TOTAL-REVENUES> 8,129,594
<CGS> 3,488,943
<TOTAL-COSTS> 6,945,877
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,468
<INCOME-PRETAX> 1,036,249
<INCOME-TAX> 388,594
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 647,655
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
