Rocky Mountain Chocolate Factory, Inc.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part 1, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024, filed with the SEC on June 13, 2024. Except as set forth below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024.

Pursuant to a credit agreement, as amended (the COur ability to use our net operating loss carryforwards and certain other tax attributes may be limited. 

As of February 29, 2024, we had U.S. federal net operating loss (NOL) carryforwards of $14.5 million and various state NOLs, which we may use to redit Agreement), with Wells Fargo Bank N.A. (uce future taxable income. We have established a valuation allowance against the carrying value of these deferred tax assets. There is also a risk that due to regulatory changes, such as suspensions on the Lender), we have a $4.0 milluse of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future taxable income. 

In addition credit line for general, under Section 382 of the Internal Revenue Code of 1986, as amended (the Code) a corporate and working capital purposes, of which $2.0 million was available for borrowing (ion that undergoes an ownership change (i.e., a more-than 50% ownership change by one or more stockholders or groups of stockholders who own at least 5% of a companys stock over a three-year testing period) is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to certain borrowing-based lilimitations. Changes in our stock ownership, some of which are outside of our control, could also result in limitations) as of May 31, 2024 ( under Section 382 of the Credit Line). The Credit Line is secuode. Our NOLs may also be limited under similar provisions of state law. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs.

The sale of shares of our common stock acquired by substantially all purchasers in private placement transactions could cause the price of our assets, except retail common stock to decline.

We have registered for sale by investore assets. Interest on borrows in a private placement transaction (the Selling Stockholders) up to 1,250,000 shares of our common stock. Dependings is at t on a variety of factors, including market liquidity of our common stock, the Secured Overnight Finsale of shares by the Selling Stockholders may cause the trading price of our common stock to decline.

Our need for future financing may result in the issuancing Rate plus 2.37% (7.71% at Me of additional securities, which will cause investors to experience dilution.

Our cash requirements may 31, 2024 and 7.69% at February 29, 2024)vary from those now planned, depending upon numerous factors. Additionallccordingly, the Credit Line is subject to variouswe may need to obtain additional funding in connection with our continuing operations. There are no other commitments by any person for future financial ratio and leverage covenants. 

Asng. Our securities may be offered to other investors at a price lower than the price per share of May 31, 2024, we wefered to current stockholders, or upon terms which may be deemed more not in complifavorable than those offered to current stockholders. In addition, the issuance with the rof securities in any future financing may dilute an investors equirement underty ownership and have the effect of depressing the Credit Agreement to maintain a ratiomarket price for our securities. Moreover, we may issue securities from time to time to procure qualified personnel or for other business reasons. The issuance of any such securities, which is at the discretion of total current assets to toour board of directors, may further dilute the equity ownership of our stockholders.

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We have additional securrent liabilities of at least 1.5 to 1. Oities available for issuance, which, if issued, could adversely affect the rights of the holders of our current ratio as ommon stock.

Our Amended and Restated Certificate of Incorporation authorizes the issuance of May 31, 2024 was 1.10 to 146,000,000 shares of common stock and 250,000 shares of preferred stock. In the past, we have requested, and the Lender has granted, waivercertain circumstances, our common stock, as well as the awards available for issuance under our equity incentive plans, can be issued by our board of directors without stockholder approval. Any future issuances of our compliance with this requirement. There can be no assurance that the Lender will grant us a waisuch stock would further dilute the percentage ownership of us held by holders of preferred stock and common stock. In addition, the issuance of certain securities, including pursuant to the terms of our stockholder rights plan, may be used as an anti-takeover device without further action on the part of our stockholders, and may adver for our current nonsely affect the holders of the common stock.

Future sales of shares of common stock could cause the market price for our common stock to decline.

We cannot predict the effect, if any, that market sales of shares of our compliance mon stock or the availability of shares of common stock for waivers for future nonsale will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of shares of compliance.

As a result mon stock in the public market, or the perception that those sales will occur, could cause the market price of our noncompliance, under the terms of tcommon stock to decline or be depressed.

Our Credit Agreement imposes operating and financial restrictions on us.

On September 30, 2024, we entered into a credit agreement with RMC Credit Facility, LLC (the Credit Agreement, the Lender has t), which is secured by certain personal property and real property of the option, but noCompany. The Credit Agreement contains covenants that limit the obligation,ability of the Company to immediately: 

incur and guarantee additional demand repaybt;

incur liens;

make acquisitions and other investments;

dispose of all funds drawn down underssets; or

make capital expenditures in any fiscal year in excess of $3.5 million.

Further, the Credit Line. As oAgreement contains financial covenants that require compliance with a maximum ratio of the date otal liabilities to total net worth and a minimum current ratio, in each case tested at the end of this Qeach fiscal quarter. These covenants may adversely Report, we do not have enough cash on hand to satisfy our obligations uaffect our ability to finance our operations, meet or otherwise address our capital needs, pursue business opportunities or react to market conditions, or otherwise restrict our activities or business plans. We cannot assure you that we will be able to comply with any such restrictive covenants. A breach of any of these covenants could result in an event of default under the Credit Line ifAgreement. In the Lender exercised ievent that we are unable to comply with these covenants option to demand repayin the future, we would seek an amendment or waiver of the covenants. We cannot assure you that any such waiver or amentdment would be granted. If tan event of default occurs, the Llender exercises its opmay elect to accelerate our obligation and demands s under the Credit Agreement. We might not be able to repayment at some tim our debt or borrow sufficient funds to refinance it on the future, however, erms that are acceptable to us or at all. 

Servicing our debt under Credit Agreement may require a significant amount of cash, and we may not have sufficient funds available tcash flow from our business to pay all of our indebtedness.

As of September 30, 2024, we had $6.0 million principal amount outstanding under our Credit Agreement. Our ability to make thescheduled payments required. If we are unable of the principal of, to pay interest on or to repay amounts owed,finance our indebtedness under the Lender may be enCredit Agreement depends on our future performance, which is subject to economic, financial, competitled to foreclose on and sell substantially all of our assets, whiive, and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such secure our borrowings under the Credit Agreement which would havcash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance an adverse y future indebtedness will 

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deffect onpend on the capital markets and our liquifinancial condity, financial condition and rion at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could results of oper in a default on our debt obligations.

In a Additionally, the Lender retains the right to act on Credit Agreement contains, and any of our future debt agreements may also contain, restrictive covenants that may prohibit us from adopting some or any of these alternatives. For example, the Credit Agreement contains negative covenant violations that occs that restrict the Companys ability to incur after the date of deliveryindebtedness, create liens, make investments, dispose of assets and make certain capital expenditures. Our failure to comply with these covenants could result in an event of any wdefault under our indebtedness which, if not cured or waiver. Ifd, could result in the Lender were to declacceleration of our debt under the Credit Agreement.

In addition, our indebtedness, combine to grant ud with our other financial obligations a waiver and insteadnd contractual commitments, could have other important consequences. For example, it could:

require a portion of our cash flows to be demand redicated to debt service payments in stead of othe future, we may need to seek alternativr purposes, thereby reducing the amount of cash flows available financing to pay or working capital and capital expenditures, and for othese obligations as we may not have sufficient facilities or sufficient cash on hr general corporate purposes;

make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulations;

limit our flexibility in planning for, or reacting to, changes in our business and at that timeindustry; and

place us at a disadvantage compared to satisfy our competitors who have less debt.

Any of these obligations. 

Item 2. Unregistered Sales of Equity Sefactors could harm our business, results of operations, and financial condition. In addition, if we incur addities and Use of Proceeds

Noneonal indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.