WASHINGTON, D.C. 20549
Rocky Mountain Chocolate Factory, Inc. 401(k) Plan
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF PLAN
General
Rocky Mountain Chocolate Factory, Inc. 401(k) Plan (the “Plan”) became effective June 1, 1994. The following description provides only general information and participants should refer to the Plan document for more complete information.
The Plan is a defined contribution plan and is subject to the provisions of the Employee Retirement Income Security Act of 1974
(“ERISA”). The Plan covers all eligible employees of Rocky Mountain Chocolate Factory, Inc., its wholly-owned subsidiaries, Aspen Leaf Yogurt, LLC and U-Swirl International, Inc. (the “Company”).
The Board of Directors of the Company administers the Plan. Wells Fargo Retirement Plan Services, Inc. ("
Trustee") serves as trustee, manages Plan assets, and maintains the Plan's records. The Plan offers participants a variety of investment options, including mutual funds, a common/collective trusts and Company stock. Individual accounts are invested in the various investment options at the direction of the participants.
Eligibility
An employee becomes eligible to participate in the Plan as of March 1, June 1, September 1
, or December 1 subsequent to the employee completing 1,000 hours of service during a twelve consecutive month period beginning on the date of hire.
Contributions
Participants may elect to contribute a portion of compensation up to the Plan limits. A participant
’s contribution made by salary deferral, which results in a reduction of taxable income to the participant, was limited by the IRS to $18,000 for the year ended February 28, 2017 in accordance with the Internal Revenue Code. If an eligible participant is 50 years of age or older, they may contribute up to $24,000. Participants may also add rollover contributions from other qualified plans.
During the plan year ended
February 28, 2017 and February 29, 2016 a total of $26,188 and $21,377 in employee contributions, in excess of amounts allowed by IRS nondiscrimination rules were made to the Plan by Plan participants. Excess contributions are returned to participants subsequent to year end.
The Plan provides for Company matching contributions equal to 25% of the participant contributions up to 6% of each employee
’s annual compensation for those employees employed as of the last day of the plan year. The Company made matching contributions of $69,096 for the year ended February 28, 2017. Also, the Company may make discretionary contributions to the Plan. During the year ended February 28, 2017, the Company did not make a discretionary contribution to the Plan. The Company makes its matching contributions in a lump sum payment subsequent to the fiscal year end. These contributions are allocated directly to participants’ accounts.
Participants' Accounts
Each participant's account is credited
or charged with the participant's contribution and an allocation of the Company's contribution, forfeitures, Plan expenses and Plan earnings or losses thereon. Allocations are based upon Plan earnings or losses thereon and account balances, as defined. The benefit to which a participant is entitled is the vested portion of the participant's account.
Vesting
Participants are 100% vested in their salary deferrals at all times and can withdraw their voluntary contributions from the Plan upon termination of employment. A participant becomes 100% vested in employer contributions after three years of continued service or upon the participant
’s death, disability or attaining normal retirement age, and becomes 33% vested after year one, 67% vested after year two, and 100% vested after year three.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Forfeitures
Forfeitures of non
-vested balances for terminated employees are used to reduce future Company contributions. No forfeitures were used to reduce the Company’s contribution during the year ended February 28, 2017. At February 28, 2017 and February 29, 2016, $2,733 and $2,008, respectively, were available to reduce future Company contributions.
Payment of Benefits
In the case of death, disability or retirement,
a participant’s benefits become payable as soon as administratively feasible. The Plan provides three payment options associated with the distribution of benefits: 1) lump-sum, 2) transfer of benefits to another qualified retirement plan and 3) periodic installments as defined in the Plan agreement. Upon termination for causes other than death, disability or retirement, participants may receive payment of their vested account in a lump sum payment or by rolling over the account. The Plan also allows for payment of benefits for financial hardship. A hardship distribution may be made to satisfy certain immediate and heavy financial needs that a participant may have. Benefit payments are recorded by the Plan when paid.
Administrative Expenses
The Company provides, at no cost to the Plan, certain administrative, accounting and legal services to the Plan and also pays the cost of certain outside services for the Plan. All transaction costs and certain
Plan administrative expenses are paid for by the Plan.
Participant Loans
Participants may obtain loans in amounts up to the lesser of 50% of their vested balance or $50,000 for a period not to exceed 5 years unless the proceeds are used to acquire the participant
’s principal residence. Loans used to acquire real estate that serves as the participant’s primary residence may, subject to the Administrator’s determination, be repaid over a period longer than five years. The loans are collateralized by the participant accounts. The loans bear interest at a rate determined at the inception of the loan. The interest rate ranged from 5.25% and 5.75% on outstanding loans at February 28, 2017. Loan principal and interest are repaid bi-weekly through payroll deductions and mature between April 2017 and November 2021.
NOTE 2
- SUMMARY OF ACCOUNTING POLICIES
The financial statements of the Plan have been prepared in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) and in accordance with the Plan agreement. A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.
Use of Estimates
The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan
’s investments in mutual funds and common stock are stated at fair value as determined by quoted market prices. Investments are recorded at net asset value (“NAV”) for common collective trust fund as reported to the Plan by the trustee as a practical expedient for fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 7 for discussion of fair value measurements. There were no changes to the valuation techniques used during the period.
The net realized and unrealized investments gain or loss (net appreciation or depreciation in fair value of investments) is reflected in the accomp
anying Statement of Changes in Net Assets Available for Benefits, and is determined as the difference between fair value at the beginning of the year (or date purchased if during the year) and selling price (if sold during the year) or the year-end fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest is recognized on the accrual method and dividends are recorded on the ex-dividend date.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Risk and Uncertainties
The Plan provides for various investments. Investments, in general, are exposed to various risks, such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the value of investments will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the
Statements of Net Assets Available for Benefits.
Additionally, some investments held by the Plan are invested in the securities of foreign companies, which involve special risks and considerations not typically associated with investing in securities of U.S. companies. These risks include devaluation of currencies, less reliable information about issuers, different securities transaction clearance and settlement practices and possible adverse political and economic developments. Moreover, securities of many foreign companies and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies.
NOTE
3 - PLAN AMENDMENT AND INCOME TAX STATUS
The IRS has issued an opinion letter indicating that the prototype plan document adopted by the Plan, as then designated, qualifies under section 401(a) of the Internal Revenue Code. The Plan has not received a determination letter specific to the Plan itself; however, the Plan administrator believes that the Plan was designed and is being operated in compliance with the applicable requirements of the IRS. Therefore, no provision for income taxes has been included in the Plan
’s financial statements.
GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of
February 28, 2017 and February 29, 2016, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
NOTE
4 – CONCENTRATION OF INVESTMENTS
During the year ended February 28, 2017, five investments accounted for 47% of the investment gain.
As of February 28, 2017, two investments within the plan each represented greater than 10% of the net assets available for benefit and together represented 33% of net assets available for benefit. As of February 29, 2016, three investments within the plan each represented greater than 10% of the net assets available for benefit and together represented 51% of net assets available for benefit.
NOTE
5 - RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of the Company and funds managed by the Trustee. As the Company is the sponsoring entity of the Plan, these transactions, as well as all
transactions related to the Trustee, and participant loans, qualify as party-in-interest transactions, which are exempt from the prohibited transaction rules.
NOTE
6 - TERMINATION OF THE PLAN
While the Company has not expressed any intent to discontinue the Plan,
it may, by action of its Board of Directors, terminate the Plan subject to the provisions of ERISA. In the event the Plan is terminated, the participants become fully vested in their accounts, and the Plan administrator is to distribute each participant’s interest to the participant or their beneficiaries.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 7 -
FAIR VALUE ACCOUNTING
The
Plan applies Accounting Standards Codification 820,
Fair Value Measurements
and Disclosures
(ASC 820) which establishes a framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below:
|
Level 1:
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
|
|
Level 2:
|
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
Level 3:
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
A financial instrument
’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Wells Fargo/BlackRock S&P MidCap Index Fund, Wells Fargo/BlackRock Russell 2000 Index Fund, and Wells Fargo/BlackRock S&P 500 Index Fund are held in common collective trust funds, which consist of investments in mutual funds, collective trusts and pooled separate accounts. The Wells Fargo Collective Stable Return Fund, held in a common collective trust fund, invests in fully benefit-responsive guaranteed investment contracts. These investments are valued at their net asset values (“NAV”) per share as of the close of business on the valuation date. The NAV is quoted on a private market that is not active; however, the unit price is based on the value of the underlying investment assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding.
There are no unfunded commitments, and the units may be redeemed on a daily basis. These investments are valued at the NAV of the units held by the Plan. This practical expedient would not be used if it is determined to be probable that the fund will sell the investment for an amount different from the reported net asset value.
T
he Plan’s investment assets at fair value, within the fair value hierarchy, as of February 28, 2017 and February 29, 2016 are as follows:
Assets Measured at Fair Values as of
February 28, 2017
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual funds
|
|
$
|
3,551,449
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,551,449
|
|
Common stock
|
|
|
1,198,254
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,198,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,749,703
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,749,703
|
|
Investments in common/collective
trusts – measured at net asset value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,533,142
|
|
Total
investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,282,845
|
|
Assets Measured at Fair Values as of
February 29, 2016
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual funds
|
|
|
2,998,004
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
2,998,004
|
|
Common stock
|
|
|
1,594,396
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,594,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,592,400
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
4,592,400
|
|
Investments in common/collective
trusts – measured at net asset value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,579,364
|
|
Total
investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,171,764
|
|
NOTE 8
– RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
Total net assets available for benefits and investment
gain for financial reporting purposes differ from the amounts shown on the Plan's Form 5500 for the year ended February 28, 2017, as the investments in common/collective investment trusts are reported at net asset value for financial reporting purposes and the fair value on the Plan's Form 5500. The adjustment from net asset value to fair value is de minimis.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE
9 – SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through the auditor
’s report date, which is the date the financial statements were available for issuance and determined that all subsequent events have been appropriately recognized and disclosed in the accompanying financial statements.
SUPPLEMENTAL SCHEDULE
SCHEDULE H,
PART IV, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
February
28, 2017
EIN: 84-0910696
Plan No. 001
(a)
|
|
(b)
Identity of issue, borrower, lessor, or similar party
|
(c)
Description of investment including maturity date, rate of interest, collateral, par, or maturity value
|
|
(e)
Current value
|
|
|
|
|
|
|
|
|
|
*
|
|
Wells Fargo Stable Return Fund N
|
Common/collective trust
|
|
$
|
891,704
|
|
*
|
|
Wells Fargo/BlackRock S&P Mid Cap Index Fund
|
Common/collective trust
|
|
|
108,518
|
|
*
|
|
Wells Fargo/BlackRock RU 2000 Index Fund
|
Common/collective trust
|
|
|
42,126
|
|
*
|
|
Wells Fargo/BlackRock S&P 500 Index Fund
|
Common/collective trust
|
|
|
490,794
|
|
*
|
|
Wells Fargo Advantage Small Cap Opportunities Fund
|
Mutual Fund
|
|
|
323,101
|
|
*
|
|
Wells Fargo Core Bond Fund
|
Mutual Fund
|
|
|
270,713
|
|
*
|
|
Wells Fargo Advantage Dow Jones Target Today Fund
|
Mutual Fund
|
|
|
27,940
|
|
*
|
|
Wells Fargo Advantage Dow Jones Target 2010 Fund
|
Mutual Fund
|
|
|
22,575
|
|
*
|
|
Wells Fargo Advantage Dow Jones Target 2020 Fund
|
Mutual Fund
|
|
|
184,500
|
|
*
|
|
Wells Fargo Advantage Dow Jones Target 2030 Fund
|
Mutual Fund
|
|
|
146,745
|
|
*
|
|
Wells Fargo Advantage Dow Jones Target 2040 Fund
|
Mutual Fund
|
|
|
45,881
|
|
*
|
|
Wells Fargo Advantage Dow Jones Target 2050 Fund
|
Mutual Fund
|
|
|
201,929
|
|
*
|
|
Wells Fargo Advantage Dow Jones Target 2050 Fund
|
Mutual Fund
|
|
|
23,098
|
|
|
|
American Funds Europacific Growth Fund
|
Mutual Fund
|
|
|
328,830
|
|
|
|
T. Rowe Price Mid Cap Value Fund
|
Mutual Fund
|
|
|
316,742
|
|
|
|
Artisan Mid Cap Fund
|
Mutual Fund
|
|
|
180,809
|
|
|
|
JP Morgan Large Cap Growth
|
Mutual Fund
|
|
|
636,825
|
|
|
|
American Beacon Large Cap Value Fund
|
Mutual Fund
|
|
|
389,240
|
|
|
|
T. Rowe Price International Equity Index Fund
|
Mutual Fund
|
|
|
116,665
|
|
|
|
T. Rowe Price Emerging Markets Stock Fund
|
Mutual Fund
|
|
|
207,111
|
|
|
|
Pimco Income Fund
|
Mutual Fund
|
|
|
128,745
|
|
*
|
|
Rocky Mountain Chocolate Factory, Inc.
|
Common Stock
|
|
|
1,198,254
|
|
*
|
|
Participant loans
|
Participant loans
– interest at rates ranging from 5.25% to 5.75%, maturing from April 2017 to November 2021, collateralized by participant account balances
|
|
|
83,122
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,365,967
|
|
*
|
Indicates a party-in-interest.
|