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Note 1 - Nature of Operations and Basis of Presentation
6 Months Ended
Aug. 31, 2011
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

The accompanying consolidated financial statements include the accounts of Rocky Mountain Chocolate Factory, Inc. and its wholly-owned subsidiary, Aspen Leaf  Yogurt, LLC (collectively, the “Company”).  All intercompany balances and transactions have been eliminated in consolidation.

Rocky Mountain Chocolate Factory, Inc. (“RMCF”) is an international franchisor, confectionery manufacturer and retail operator in the United States, Canada and the United Arab Emirates. RMCF manufactures an extensive line of premium chocolate candies and other confectionery products.

Aspen Leaf Yogurt, LLC (“ALY”) was incorporated in the state of Colorado as Aspen Leaf Yogurt, Inc. on September 30, 2010 and organized through conversion as Aspen Leaf Yogurt, LLC on October 14, 2010.  ALY is a franchisor and retail operator of self-serve frozen yogurt retail units.

The Company’s revenues are currently derived from three principal sources: sales to franchisees and others of chocolates and other confectionery products manufactured by the Company; the collection of initial franchise fees and royalties from franchisees’ sales; and sales at Company-owned stores of chocolates, frozen yogurt, and other confectionery products.  The following table summarizes the number of stores operating under RMCF and ALY at August 31, 2011:

 
Sold, Not Yet Open
       Open
       Total
Rocky Mountain Chocolate Factory
     
Company-owned stores
-
8
8
Franchise stores – Domestic stores
5
240
245
Franchise stores – Domestic kiosks
-
8
8
Franchise units – International
-
58
58
Cold Stone Creamery – co-branded
2
45
47
Aspen Leaf Yogurt Stores
     
Company-owned stores
3
4
7
Franchise stores – Domestic stores
1
3
4
Total
11
366
377

Basis of Presentation

The accompanying unaudited financial statements have been prepared by the Company and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (of a normal and recurring nature) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the six months ended August 31, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year.

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2011.

Stock-Based Compensation

At August 31, 2011, the Company had stock-based compensation plans for employees and non-employee directors that authorized the granting of stock awards.

The Company recognized $97,997 and $254,230 of stock-based compensation expense during the three and six-month periods ended August 31, 2011, respectively, compared to $100,107 and $218,286 during the three and six-month periods ended August 31, 2010, respectively. Compensation costs related to stock-based compensation are generally amortized over the vesting period.

The following table summarizes stock option transactions for common stock during the six months ended August 31, 2011 and August 31, 2010:

   
Six Months Ended
 
   
August 31,
 
 
 
2011
   
2010
 
Outstanding stock options as of February 28:
    341,890       367,762  
Granted
    12,936       -  
Exercised
    (8,731 )     -  
Cancelled/forfeited
    (1,575 )     (9,702 )
Outstanding stock options as of August 31:
    344,520       358,060  
                 
Weighted average exercise price
  $ 10.11     $ 9.81  
Weighted average remaining contractual term (in years)
    2.97       3.70  

The following table summarizes non-vested restricted stock unit transactions for common stock during the six months ended August 31, 2011 and August 31, 2010:

   
Six Months Ended
 
   
August 31,
 
 
 
2011
   
2010
 
Outstanding non-vested restricted stock units as of February 28:
    141,260       129,280  
Granted
    4,540       44,300  
Vested
    (43,300 )     (32,320 )
Cancelled/forfeited
    -       -  
Outstanding non-vested restricted stock units as of August 31:
    102,500       141,260  
                 
Weighted average grant date fair value
  $ 9.19     $ 9.17  
Weighted average remaining vesting period (in years)
    2.49       3.46  

During the six months ended August 31, 2011, the Company issued 4,000 fully-vested, unrestricted shares of stock and awarded 12,936 shares stock options to non-employee directors compared with 4,000 fully-vested, unrestricted shares of stock and -0- shares of stock options issued to non-employee directors in the six months ended August 31, 2010. There were no unrestricted shares or stock options issued during the three-month periods ended August 31, 2011 or August 31, 2010. In connection with these non-employee director stock issuances, the Company recognized $52,886 and $38,000 of stock-based compensation expense during the six-month periods ended August 31, 2011 and 2010, respectively.

During the three and six month periods ended August 31, 2011, the Company recognized $97,997 and $201,344, respectively, of stock-based compensation expense related to non-vested, non-forfeited restricted stock unit grants. The restricted stock unit grants generally vest 20% annually over a period of five years.  During the three and six month periods ended August 31, 2011, 32,320 and 43,300 restricted stock units vested and were issued as common stock, respectively.  Total unrecognized compensation expense of non-vested, non-forfeited shares granted as of August 31, 2011 was $879,368, which is expected to be recognized over the weighted-average period of 2.5 years.

The weighted-average fair value of stock options granted during the six months ended August 31, 2011 was $0.89 per share and there were no options granted during the six months ended August 31, 2010.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model utilizing the following weighted-average assumptions:

   
Six Months Ended
 
   
August 31,
 
   
2011
   
2010
 
Expected dividend yield
    3.87%       n/a  
Expected stock price volatility
    27%       n/a  
Risk-free interest rate
    2.0%       n/a  
Expected life of options
 
5 years
      n/a