Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended November 30, 2017May 31, 2023

For the transition period from ________to________

Commission file number: 001-36865

Rocky Mountain Chocolate Factory, Inc.

(Exact name of registrant as specified in its charter)

265 Turner Drive, Durango, CO 81303

(Address of principal executive offices, including zip code)

(970) 259-0554

(Registrant’sRegistrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):Act

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On December 31, 2017,July 10, 2023, the registrant had outstanding 5,903,4366,293,110 shares of its common stock, $.001$0.001 par value per share.

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

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.Inc., a Delaware corporation, its wholly-ownedwholly owned subsidiaries, Rocky Mountain Chocolate Factory, Inc., a (a Colorado corporation (“RMCF”)corporation), Aspen Leaf Yogurt, LLC a Colorado limited liability company (“ALY”), U-Swirl International, Inc. (“U-Swirl”), a Nevada corporation, and its 46%-owned subsidiary, U-Swirl, Inc., a Nevada corporation (“SWRL”) of which, RMCF had financial control until February 29, 2016 (collectively, the “Company”“Company,” “we,” “us” or “our”). All intercompany balances and transactions have been eliminated in consolidation.

The Company is an international franchisor, confectionery manufacturerproducer and retail operator. Founded in 1981, the Company is headquartered in Durango, Colorado and manufacturesproduces an extensive line of premium chocolate candies and other confectionery products. U-Swirl franchises and operates self-serve frozen yogurt cafés.products ("Durango Products"). The Company also sells its candy in selectedselect locations outside of its systemfranchised/licensed network of retail stores and licenses the use of its brand with certain consumer products.stores.

In January 2013, through our wholly-owned subsidiaries, including ALY, On February 24, 2023 the Company entered into two agreementsan agreement to sell all ofits three Company-owned U-Swirl locations. Separately, on May 1, 2023, subsequent to the assets of its ALY frozen yogurt stores, along with its interest in the self-serve frozen yogurt franchises and retail units branded as “Yogurtini” which the Company also acquired in January 2013, to SWRL, in exchange for a 60% controlling equity interest in SWRL (46% interest as of November 30, 2017). At that time, U-Swirl was a wholly-owned subsidiary of SWRL, and was the operating subsidiary for all of SWRL’s operations. Upon completion of these transactions, we ceased to directly operate any Company-owned ALY locations or sell and support frozen yogurt franchise locations, which were being supported by SWRL. The SWRL Board of Directors is composed solely of Board members also serving on the Company’s Board of Directors.

In2023 fiscal year (“FY”) 2014, SWRL acquired the franchise rights and certain other assets of self-serve frozen yogurt concepts under the names “CherryBerry,” “Yogli Mogli Frozen Yogurt” and “Fuzzy Peach Frozen Yogurt.” In connection with these acquisitions,end, the Company entered into a credit facility with Wells Fargo, N.A. usedan agreement to finance the acquisitions by SWRL,sell its franchise rights and in turn, the Company entered into a loanintangible assets related to U-Swirl and security agreement with SWRL to cover the purchase price and other costs associated with the acquisitions (the “SWRL Loan Agreement”). Borrowings under the SWRL Loan Agreement were secured by all of the assets of SWRL, including all of the outstanding stock of its wholly-owned subsidiary, U-Swirl.brands. As a result, of certain defaults under the SWRL Loan Agreement, the Company issued a demand for payment of all obligations under the SWRL Loan Agreement. SWRL was unable to repay the obligations under the SWRL Loan Agreement, and as a result, the Company foreclosed on allactivities of the outstanding stock ofCompany’s U-Swirl on February 29, 2016subsidiary that have historically been reported in full satisfaction of the amounts owed underU-Swirl segment have been reported as discontinued operations. See Note 16 –Discontinued Operations in the SWRL Loan Agreement. This resulted in U-Swirl becoming a wholly-owned subsidiary ofNotes to Consolidated Financial Statements for additional information regarding the Company as of February 29, 2016Company's discontinued operations, including net sales, operating earnings and concurrently the Company ceased to havetotal assets by segment. The Company’s financial control of SWRL as of February 29, 2016. As of February 29, 2016 and November 30, 2017, SWRL had no operating assets.

U-Swirl operates self-serve frozen yogurt cafés under the names “U-Swirl,” “Yogurtini,” “CherryBerry,” “Yogli Mogli Frozen Yogurt,” “Fuzzy Peach Frozen Yogurt,” “Let’s Yo!” and “Aspen Leaf Yogurt”.statements reflect continuing operations only, unless otherwise noted.

The Company’sCompany’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 of both confectionery products and frozen yogurt;sales; and sales at Company-owned stores of chocolates frozen yogurt, and other confectionery products.

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the number of stores operatedoperating under the Rocky Mountain Chocolate Factory brand and frozen yogurt cafés as of November 30, 2017:at May 31, 2023:

*U-Swirl cafés and the brands franchised by U-Swirl have historically utilized a development area sales model. The result is that many areas are under development, and the rights to open cafés within the development areas have been established, but there is no assurance that any individual development area will result in a determinable number of café openings.

Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company, without audit, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“(“GAAP”) for interim financial reporting and Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the consolidated financial statements reflect all adjustments (of a normal and recurring nature) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the ninethree months ended November 30, 2017 May 31, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year.

Theseunaudited consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K10-K for the fiscal year ended February 28, 2017.2023, filed with the SEC on May 30, 2023. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Subsequent Events

On December 22, 2017, H.R.1 - An Act to provide for reconciliation pursuant to titles II and VManagement evaluated all activity of the concurrent resolution onCompany through the budget for fiscal year 2018, known as the Tax Cuts and Jobs Act, (“TCJA”) was enacted into law. The Company is currently reviewing the componentsissue date of the TCJA and evaluating its impact, which could be material on the Company’s fiscal year 2018these consolidated financial statements and related disclosures, including a one-time, non-cash expense related to a decreaseconcluded that no subsequent events have occurred that would require recognition or disclosure in the value of the Company’s net deferred tax assets.financial statements.

Recent Accounting Pronouncements

Except for the recent accounting pronouncements described below, other recent accounting pronouncements are not expected to have a material impact on our condensed consolidated financial statements.

In January 2017, June 2016, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 requires only a single-step quantitative test to identify and measure impairment and record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The option to perform a qualitative assessment first for a reporting unit to determine if a quantitative impairment test is necessary does not change under the new guidance. This guidance is effective for the Company beginning in fiscal year 2020 with early adoption permitted. The Company adopted this guidance in fiscal year 2017. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

In June Accounting Standards Update (“ASU”) 2016 the FASB issued ASU 2016-13,-13, Financial Instruments - Credit Losses (Topic 326)326): Measurement of Credit Losses on Financial Instruments. ASU 2016-132016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-132016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. The Company adopted ASU 2016-13 is2016-13 effective for the Company's fiscal year beginning March 1, 2020 and subsequent interim periods. 2023. The Company is currently evaluating the impact the adoption of ASU 2016-13 will2016-13 did not have a material impact on the Company's consolidated financial statements.

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTSAccounts and Notes Receivable, Net

In February 2016,Accounts receivable represent amounts due from customers in the FASB issued ASU 2016-02, Leases (Topic 842),ordinary course of business and are recorded at the invoiced amount and do not bear interest. Notes receivable generally reflect the sale of assets. Accounts and notes receivables are stated at the net amount expected to be collected, using an estimate of current expected credit losses to determine the allowance for expected credit losses. The Company evaluates the collectability of its accounts and notes receivable and determines the appropriate allowance for expected credit losses based on a combination of factors, including the aging of the receivables and historical collection trends. When the Company is aware of a customer’s inability to meet its financial obligation, the Company may individually evaluate the related receivable to determine the allowance for expected credit losses. The Company uses specific criteria to determine uncollectible receivables to be written off, including bankruptcy filings, the referral of customer accounts to outside parties for collection, and the length that accounts remain past due.

NOTE 2 – SUPPLEMENTAL CASH FLOW INFORMATION

NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company recognizes revenue from contracts with its customers in accordance with Accounting Standards Codification® (“ASC”) 606, which requiresprovides that revenues are recognized when control of promised goods or services is transferred to a customer in an amount that reflects the recognition of lease assets and lease liabilities on the balance sheet by lesseesconsideration expected to be received for those leases currently classified as operating leases under ASC 840 “Leases.” These amendments also require qualitative disclosures alonggoods or services. The Company generally receives a fee associated with specific quantitative disclosures. These amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Entities are required to apply the amendmentsits Franchise Agreement or License Agreement (collectively, “Customer Contracts”) at the beginning of the earliest period presented usingtime that a modified retrospective approach. The Company expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and right-of-use assets upon adoption. The Company anticipates ASU 2016-02 willCustomer Contract becomes effective. These Customer Contracts have a material impact onterm of up to 20 years, however the consolidated balance sheet. The impactmajority of ASU 2016-02 is non-cash in nature, as such, it will not affect the Company’s cash flows. The Company is currently evaluating the impactCustomer Contracts have a term of ASU 2016-02 on the consolidated statements of income.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 will be effective for us in the first quarter of our fiscal year 2019, and early adoption is not permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance, as amended by subsequent ASUs on the topic, supersedes current guidance on revenue recognition in Topic 605, Revenue Recognition. This guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods. Early application of the guidance is permitted for annual reporting periods beginning after December 31, 2016. This guidance is applicable to the Company's fiscal year beginning March 1, 2018. The Company expects the adoption of the new guidance to change the timing of recognition of initial franchise fees, including master license and territory fees for our international business, and renewal fees. Currently, these fees are generally recognized upfront upon either opening of the respective franchise store or entry into a license agreement. The new guidance will generally require these fees to be recognized over10 years. During the term of the related agreement, which we expect will result in a material impact to revenue recognized for franchise fees, license fees and renewal fees; we are still inCustomer Contract, the process of quantifying the material impact. The Company does not expect this new guidance to materially impact the recognition of royalty income or sales of products. The Company is continuingobligated to evaluateseveral performance obligations that the impactCompany has not determined are distinct. The resulting treatment of revenue from Customer Contracts is that the adoptionrevenue is recognized proportionately over the life of this new guidance will have on thesethe Customer Contract.

Initial Franchise Fees, License Fees, Transfer Fees and other revenue transactions, as well as the presentation of marketing and advertising fee revenues and expenses, in addition to the impact on accounting policies and related disclosures.  The Company anticipates that contract fulfillment costs under ASC Topic 606 will have no material impact to the Company's consolidated statements of income and statements of cash flows. The Company's current policy is to recognize initial franchise fees when a franchise location opens or at the start of a new agreement term. In accordance with the new guidance, the initialRenewal Fees

Initial franchise services are not distinct from the continuing rights or services offered during the term of the franchise agreement,a Customer Contract, and will beare treated as a single performance obligation. As a result, initialInitial franchise fees received will most likely beare recognized as the Company satisfies performance obligations over the franchise term. term of a Customer Contract, which is generally 10 years.

The cumulative adjustment to be recorded asfollowing table summarizes contract liabilities upon adoption, isas of May 31, 2023 and May 31, 2022:

Confectionary items sold to the Company's consolidated statements of cash flows is expected asCompany’s franchisees, others and its Company-owned stores sales are recognized at the initial fees will continue to be collected upon the signingtime of the franchise agreementunderlying sale, based on the terms of the sale and when ownership of the inventory is transferred, and are presented net of sales taxes and discounts. Royalties and marketing fees from franchised or licensed locations, which are based on a percentage of sales, are recognized at the beginning of a new franchise term.

NOTE 2 - EARNINGS PER SHARE4 – DISAGGREGATION OF REVENUE         

Basic earnings per share is calculated using the weighted-average numberThe following table presents disaggregated revenue by method of shares of common stock outstanding. Diluted earnings per share reflects the potential dilution that could occur from common stock issuable through stock optionsrecognition and restricted stock units. For the three months ended November 30, 2017 and 2016, there were no stock options excluded from the computation of earnings per share, because their effect would have been anti-dilutive. For the nine months ended November 30, 2017 and 2016, no stock options were excluded from the computation of earnings per share, because their effect would have been anti-dilutive. Restricted stock units become dilutive within the period granted and remain dilutive until the restricted stock units vest and are issued as common stock.segment:

NOTE 46 - PROPERTY AND EQUIPMENT, NET

Property and equipment consistsat May 31, 2023 and February 28, 2023 consisted of the following:

NOTE 5 - STOCKHOLDERS’ EQUITY7 – GOODWILL AND INTANGIBLE ASSETS

Cash DividendIntangible assets at May 31, 2023 and February 28, 2023 consist of the following:

Amortization expense related to intangible assets totaled $7,226 and $7,226 during the three months ended May 31, 2023 and 2022, respectively.

At May 31, 2023, annual amortization of placed in service intangible assets, based upon the Company’s existing intangible assets and current useful lives, is estimated to be the following:

NOTE 8 – LINE OF CREDIT

Revolving Credit Line

The Company paidhas a quarterly cash dividend$5.0 million credit line for general corporate and working capital purposes, of $0.12 per sharewhich $5.0 million was available for borrowing (subject to certain borrowing-based limitations) as of per shareMay 31, 2023 (the “Credit Line”). The Credit Line is secured by substantially all of common stockthe Company’s assets, except retail store assets. Interest on March 10, 2017borrowings is at the Secured Overnight Financing Rate plus 2.37% (7.45% at May 31, 2023 and 6.92% at February 28, 2023). Additionally, the Credit Line is subject to stockholders of recordvarious financial ratio and leverage covenants. At May 31, 2023, the Company was in compliance with all such covenants. The Credit Line is subject to renewal in September 2023 and the Company believes it is likely to be renewed on February 24, 2017. The Company paid a quarterly cash dividend of $0.12 per share of common stock on June 16, 2017terms similar to stockholders of record on June 6, 2017. The Company paid a quarterly cash dividend of $0.12 per share of common stock on September 15, 2017 to stockholders of record on September 5, 2017. The Company declared a quarterly cash dividend of $0.12 per share of common stock on November 14, 2017, which was paid on December 8, 2017 to stockholders of record on November 24, 2017.the current terms.

NOTE 9 - STOCKHOLDERS’ EQUITY

Future declaration of dividends will depend on, among other things, the Company's results of operations, capital requirements, financial condition and on such other factors as the Company's Board of Directors may in its discretion consider relevant and in the best long term interestWarrants

In connection with a terminated supplier agreement with a former customer of the Company,’s stockholders.

Stock Repurchases

On July 15, 2014, the Company publicly announcedissued a plan to repurchase up to $3.0 million of its common stock in the open market or in private transactions, whenever deemed appropriate by management. On January 13, 2015, the Company announced a planwarrant (the “Warrant”) to purchase up to an additional $2,058,000960,677 shares of itsthe Company’s common stock (the “Warrant Shares”) at an exercise price of $8.76 per share. The Warrant Shares vest in annual tranches in varying amounts following each contract year under the repurchase plan,terminated supplier agreement, and was subject to, and only upon, achievement of certain revenue thresholds on May 21, 2015, an annual or cumulative five-year basis in connection with its performance under the terminated supplier agreement. The Warrant expires six months after the final and conclusive determination of revenue thresholds for the fifth contract year and the cumulative revenue determination in accordance with the terms of the Warrant.

On November 1, 2022, the Company announcedsent a further increaseformal notice to the repurchase plan by authorizingcustomer terminating the purchaseagreement. As of up to an additional $2,090,000 of its common stock under the repurchase plan. The Company did not repurchase anyMay 31, 2023, no shares of common stock underlying the Warrant had vested and subsequent to the termination by the Company of supplier agreement, the Company has no remaining material obligations under the repurchase plan during the three and nine months ended November 30, 2017. As of November 30, 2017, approximately $638,000 remains available under the repurchase plan for further stock repurchases.

Stock-Based Compensation

At November 30, 2017, the Company had stock-based compensation plans for employees and non-employee directors that authorized the granting of stock awards, including stock options and restricted stock units.Warrant.

The Company determined that the grant date fair value of the Warrant was de minimis and did not record any amount in consideration of the warrants. The Company utilized a Monte Carlo model for purposes of determining the grant date fair value.

Stock-Based Compensation

Under the Company’s 2007 Equity Incentive Plan (as amended and restated) (the “2007 Plan”), the Company may authorize and grant stock awards to employees, non-employee directors and certain other eligible participants, including stock options, restricted stock and restricted stock units.

The Company recognized $133,795 and $458,275$201,634 of stock-based compensation expense during the three and nine month periods months ended November 30, 2017, respectively, May 31, 2023 compared to $132,453 and $447,581with $131,597 during the three and nine month periods months ended November 30, 2016, respectively. May 31, 2022. Compensation costs related to stock-based compensation are generally amortized over the vesting period of the stock awards.

As

The following table summarizes non-vested restricted stock unit transactions for common stock during the Company does not have any stock options outstanding. three months ended May 31, 2023 and 2022:

The following table summarizes stock option activity during the ninethree months ended November 30, 2017 May 31, 2023 and 2016:2022:

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizesDuring the three months ended May 31, 2023, the Company issued 6,338 restricted stock units to Starlette Johnson, a non-employee director, with a grant date fair value of $32,070. This restricted stock unit activity duringaward vests 25% on the nine months ended grant date and 25% each quarter thereafter until November 30, 2017 and 2016:

The Company did not issue any fully vested, unrestricted shares of stock to non-employee directors during the nine months ended November 30, 2017 compared to 2,000 shares issued during the nine months ended November 30, 2016. In connection with these non-employee director stock issuances, the Company recognized $0 and $20,420 of stock-based compensation expense during the nine months ended November 30, 2017 and 2016, respectively.2023.

During the ninethree months ended November 30, 2017, May 31, 2022, the Company issued 5,000 shares27,668 stock options and 55,336 performance-based restricted stock units, subject to vesting based on the achievement of common stock underperformance goals. These issuances were made to Robert J. Sarlls, the Company’s equity incentive plan to an independent contractor providing information technology consulting services to the Company. These shares were issuedCompany’s Chief Executive Officer, as a part of his incentive compensation package. The stock options were issued with an aggregate grant date fair value of $58,213, or $2.10 per share. The performance-based restricted stock units were issued with an aggregate grant date fair value of $168,304, or $6.08 per share. The stock options vested with respect to one-third of the compensation for services renderedshares on the last day of the Company’s fiscal year ending February 28, 2023, and will vest as to remaining shares in equal quarterly increments on the last day of each quarter thereafter. The performance-based restricted stock units will vest following the end of the Company’s fiscal year ending February 28, 2025 if the Company by the contractor. Associated with this unrestricted stock award, the Company recognized $59,100 in stock-based compensation expenseachieves an annualized total shareholder return of 12.5% during the nine months ended November 30, 2017.performance period, subject to continued service through the end of the performance period. The Compensation Committee of the Company’s Board of Directors has discretion to determine the number of performance-based restricted stock units that will vest based on performance below or above the target performance goal (0-200%).

During the three and nine month periods months ended November 30, 2017, May 31, 2023, the Company recognized $133,795 and $399,175, respectively,$201,634 of stock-based compensation expense related to non-vested, non-forfeitedoutstanding restricted stock unit grants. Theunits and stock options, compared to $131,597 during the three months ended May 31, 2022. Except as noted above, restricted stock unit grantsunits generally vest between 17% and 20% annuallyin equal annual installments over a period of five to six years. During the nine-month periods ended November 30, 2017 and 2016, 44,064 and 48,084 restricted stock units vested and were issued as common stock, respectively. Total unrecognized stock-based compensation expense of non-vested, non-forfeited restricted stock units, granted as of November 30, 2017 May 31, 2023, was $758,217,$450,173, which is expected to be recognized over the weighted-averageweighted average period of 1.51.53 years.

NOTE 6 – SUPPLEMENTAL CASH FLOW INFORMATION10 - EARNINGS PER SHARE

Basic earnings per share is calculated using the weighted-average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through the settlement of restricted stock units. Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock.

The weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include outstanding common shares issuable if their effect would be anti-dilutive. During the three months ended May 31, 2023, 960,677 shares of common stock reserved for issuance under warrants and 137,232 shares underlying unvested restricted stock units and stock options were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. During the three months ended May 31, 2022, 960,677 shares of common stock reserved for issuance under warrants and 137,082 shares underlying unvested restricted stock units and stock options were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.