Note 8 - Impairment of Long-lived and Intangible Assets

6 Months Ended

Aug. 31, 2021

Notes to Financial Statements

Asset Impairment Charges [Text Block]

NOTE 8 – IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS

We assess the potential impairment of our long-lived assets on an annual basis or whenever events or changes in circumstances indicate the carrying value of the assets or asset group may not be recoverable. Due to the significant impact of the COVID-19 pandemic on our operations, we determined it was necessary to perform an interim test of our long-lived assets during the three months ended May 31, 2020. Based on the results of these assessments, we recorded $545,000 of expense. This expense is presented within general and administrative expense on the Consolidated Statements of Operations.

The assessment of our goodwill, trademark and long-lived asset fair values includes many assumptions that are subject to risk and uncertainties. The primary assumptions, which are all Level 3 inputs of the fair value hierarchy (inputs to the valuation methodology that are unobservable and significant to the fair value measurement), used in our impairment testing consist of:

● Expected future cash flows from operation of our Company-owned units.

● Forecasted future royalty revenue, marketing revenue and associated expenses.

● Projected rate of royalty savings on trademarks.

● Our cost of capital.

At May 31, 2020 costs associated with the impairment of long-lived and intangible assets consisted of the following:

Company store goodwill impairment	$	317,243
Trademark intangible asset impairment		159,000
Company-owned store impairment of long-lived assets and inventory		68,558
Total	$	544,801

Certain interim tests did not indicate a need for impairment during the three months ended May 31, 2020. Franchise rights, store design, manufacturing segment goodwill and franchising goodwill tests succeeded during the interim period. We believe we have made reasonable estimates and judgements, however, further COVID-19 related impacts could cause interim testing to be performed in future periods and further impairments recorded if testing of impairment is not successful in future periods.

During the six months ended August 31, 2021 the Company did not identify any triggering events and there were no costs associated with the impairment of long-lived assets during the six months ended August 31, 2021.