NOTE

– 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-

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 goodwill impairment expense. This expense is presented within general and administrative expense on the Consolidated Statements of Operations.

additional tests for impairment were determined to be necessary during the

three

months ended

August 31, 2020.

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

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.

ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. AND SUBSIDIARIES

NOTES TO INTERIM (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

As of

August 31, 2020,

costs associated with the impairment of long-lived and intangible assets consist 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. 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-

-related impacts could cause interim testing to be performed in future periods and further impairments recorded if testing of impairments are

not

successful in future periods.