| NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature
of Business Unique
Logistics International, Inc. (the “Company” or “Unique”) is a global logistics and freight forwarding company.
The Company currently operates via its wholly owned subsidiaries, Unique Logistics International (NYC), LLC, a Delaware limited liability
company (“UL NYC”) and Unique Logistics International (BOS) Inc, a Massachusetts corporation (“UL BOS”) and (collectively
the “UL US Entities”). The Company provides a range of international logistics services that enable its customers to outsource
sections of their supply chain process. This range of services can be categorized as follows:
● Air
Freight services
● Ocean
Freight services
● Customs
Brokerage and Compliance services
● Warehousing
and Distribution services
● Order
Management On
May 29, 2020, Unique Logistics Holdings, Inc., a privately held Delaware corporation headquartered in New York (“ULHI”),
entered into a Securities Purchase Agreement with Unique Logistics Holdings Ltd, (“UL HK”), a Hong Kong company, (the “UL
HK Transaction”). On
October 8, 2020, Unique Logistics Holdings, Inc., Innocap, Inc., and Inno Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Innocap Inc. (“Merger Sub”), entered into an Acquisition Agreement and Plan of Merger pursuant to which the
Merger Sub was merged with and into ULHI, with ULHI surviving as a wholly owned subsidiary of Innocap, Inc. (the “Merger”).
The transaction took place on October 8, 2020 (the “Closing”). Innocap, Inc. was incorporated under the laws of the State
of Nevada on January 23, 2004. Effective
January 11, 2021, the Company amended and restated its articles of incorporation with the office of the Secretary of State of Nevada
to, among other things, change the Company’s name to Unique Logistics International, Inc. and increase the number of shares of
common stock that the Company is authorized to issue from 500,000,000 800,000,000 On
January 13, 2021, the Company received notice from the Financial Industry Regulation Authority (“FINRA”) that the above name
change had been approved and took effect at the opening of trading on January 14, 2021. In connection with the name change, the Company
changed its ticker symbol from “INNO” to “UNQL”. Liquidity The
accompanying consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s
ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that
the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are
issued. As
of May 31, 2022, the Company reported working capital of approximately $ 4.2
million compared with negative $ 3.5
million working capital as of May 31, 2021. The
Company took the following steps to improve liquidity year over year:
● Strong
operational performance resulted in increase in EBITDA from $ 8.9 17.3
● The
Company entered into Fourth Amendment to the TBK Loan Agreement to increase its credit facility from $ 47.5 57.5
● The
Company exchanged all of its Convertible Notes and associated Warrants into shares of Convertible Preferred Shares Series C and D Since
its inception, the Company has experienced significant business growth. To fund such growth operating capital was initially provided
by third party investors through Convertible Notes and on December 10, 2021 exchanged into Convertible Preferred Shares Series A, C and
D with fixed ownership percentage of the company. Preferred shares are more beneficial to the company because they don’t require
cash repayments. Due to the antidilution provision imbedded in the Convertible Preferred Shares, these provisions resulted in an embedded
derivative and the company recorded a current liability during the quarter ended on February 28, 2022 in the amount of $ 12.7 The
Company is also in process of potentially raising additional capital through the planned underwritten offering of securities that would
provide funds for planned acquisitions and operating capital. While we continue to execute our strategic plan, we will be tightly managing
our cash and monitoring our liquidity position. We have implemented a number of initiatives to conserve our liquidity position including
activities such as raising additional capital, increasing credit facilities, reducing cost of debt, controlling general and administrative
expenditures and improving collection processes. Many of the aspects of the plan involve management’s judgments and estimates that
include factors that could be beyond our control and actual results could differ from our estimates. These and other factors could cause
the strategic plan to be unsuccessful which could have a material adverse effect on our operating results, financial condition, and liquidity. Use of operating cash is an indicator that there could be a going concern issue, but based on our evaluation of the Company’s
projected cash flows and business performance subsequent to the balance sheet date, management has concluded that the Company’s
current cash and cash availability under the line of credit as of May 31, 2022, would be sufficient to alleviate a going concern issue
for at least one year from the date these consolidated financial statements are issued. COVID-19 Covid-19
remains a threat and certain countries, such as China, are still subject to restrictions related to Covid-19. While the threat level
has declined to a significant extent in the USA and globally, any resurgence could have a material adverse effect on our business operations,
results of operations, cash flows and financial position. While
we continue to execute our strategic plan, the Company is also in a process of evaluating several other liquidity-oriented options such
as raising additional capital, increasing credit limits of the revolving credit facilities, reducing cost of debt, controlling expenditures,
and improving its cash collection processes. While many of the aspects of the Company’s plan involve management’s judgments
and estimates that include factors that could be beyond our control and actual results could differ from our estimates. These and other
factors could cause the strategic plan to be unsuccessful which could have a material adverse effect on our operating results, financial
condition, and liquidity. Basis
of Presentation The
accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with the accounting
principles generally accepted in the United States of America (“GAAP”). Principles
of Consolidation The
consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries stated in U.S.
dollars, the Company’s functional currency. All intercompany transactions and balances have been eliminated in the consolidated
financial statements. Use
of Estimates The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Significant
estimates inherent in the preparation of the consolidated financial statements include determinations of the useful lives and expected
future cash flows of long-lived assets, including intangibles, valuation of assets and liabilities acquired in business combinations,
and estimates and assumptions in valuation of debt and equity instruments, including derivative liabilities. In addition, the Company makes significant judgments to recognize
revenue – see policy note “ Revenue Recognition Fair
Value Measurement The
Company follows the authoritative guidance that establishes a formal framework for measuring fair values of assets and liabilities in
the consolidated financial statements that are already required by generally accepted accounting principles to be measured at fair value.
The guidance defines fair value as 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 (exit price). The transaction is based on a hypothetical transaction in the principal
or most advantageous market considered from the perspective of the market participant that holds the asset or owes the liability. The
Company utilizes market data or assumptions that market participants who are independent, knowledgeable, and willing and able to transact
would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.
These inputs can be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable inputs. The
Company is able to classify fair value balances based on the observability of those inputs. The guidance establishes a formal fair value
hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority to Level 1 measurements and the lowest
priority to level 3 measurements, and accordingly, Level 1 measurement should be used whenever possible. The
hierarchy is broken down into three levels based on the reliability of inputs as follows: Level
1 – Quoted prices in active markets for identical assets or liabilities or published net asset value for alternative investments
with characteristics similar to a mutual fund. Level
2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly. Level
3 – Unobservable inputs for the asset or liability. The
methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.
Furthermore, while management believes its valuation methods are appropriate, the fair value of certain financial instruments could result
in a difference fair value measurement at the reporting date. There were no changes in the Company’s valuation methodologies from
the prior year. For
purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts for financial assets and liabilities
such as cash and cash equivalents, accounts receivable - trade, contract assets, factoring reserve, other prepaid expenses and current
assets, accounts payable – trade and other current liabilities, including contract liabilities,
convertible notes, promissory notes, all approximate fair value due to their short-term nature as of May 31, 2022 and 2021. The carrying
amount of the long-term debt approximates fair value because the interest rates on these instruments approximate the interest rate on
debt with similar terms available to the Company. Lease liabilities approximate fair value based on the incremental borrowing rate used
to discount future cash flows. The Company had Level 3 liabilities (See Derivative Liabilities note) as of May 31, 2022. On May 31, 2021
Level 3 derivative liability balances were insignificant. There were no transfers between levels during the reporting period. Cash
and Cash Equivalents The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. No loss had been experienced,
and management believes it is not exposed to any significant risk on credit. Accounts
Receivable – Trade Accounts
receivable - trade from revenue transactions are based on invoiced prices which the Company expects to collect. In the normal course
of business, the Company extends credit to customers that satisfy pre-defined credit criteria. The Company generally does not require
collateral to support customer receivables. Accounts receivable - trade, as shown on the consolidated balance sheets, is net of allowances
when applicable. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of
the consolidated financial statements, assessments of collectability based on an evaluation of historic and anticipated trends, the financial
condition of the Company’s customers, and an evaluation of the impact of economic conditions. The maximum accounting loss from
the credit risk associated with accounts receivable is the amount of the receivable recorded, net of allowance for doubtful accounts.
As of May 31, 2022 and 2021, the Company recorded an allowance for doubtful accounts of approximately $ 2.7 0.2 Concentrations Revenue
by three customers as a percentage of the Company’s total revenue was 48 35 7 6 21 Two
customers accounted for 44 25 19 Off
Balance Sheet Arrangements On
August 30, 2021, the Company terminated its agreement with an unrelated third party (the “Factor”) for factoring of specific
accounts receivable. The factoring under this agreement was treated as a sale in accordance with FASB ASC 860, Transfers and Servicing 31.7 31.6 1.4 During
the factoring agreement in place, the Company acted as the agent on behalf of the Factor for the arrangements and had no significant
retained interests or servicing liabilities related to the accounts receivable sold. The agreement provided the Factor with security
interests in purchased accounts until the accounts have been repurchased by the Company or paid by the customer. In order to mitigate
credit risk related to the Company’s factoring of accounts receivable, the Company may purchase credit insurance, from time to
time, for certain factored accounts receivable, resulting in risk of loss being limited to the factored accounts receivable not covered
by credit insurance, which the Company does not believe to be significant. During
the years ended May 31, 2022 and 2021, the Company factored accounts receivable invoices totaling approximately Nil 233.4 4.5 27,000 Factoring
Reserve When
an invoice is sold to Factor, the amount received from the Factor is credited to accounts receivable – trade and a reserve is retained,
less a fee, by Factor which is debited to “factoring reserve” on the consolidated balance sheets. Factor
Recovery In
certain instances, the Company receives payment for a factored reserve directly from the customer. In these cases, until the funds are
paid to the factor, the Company records the payment as “factor recovery” which is in accrued expenses and other current liabilities
on the consolidated balance sheets. Recourse
Liability Company
policy is to do a collectability review of uncollected factored receivables in conjunction with the Factor at each reporting date and
assess the need to provide for risk of potential non-collection and resulting recourse. Property
and Equipment Property
and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is provided for by the straight-line
method over the estimated useful lives of the related assets. Estimated
useful lives of property and equipment are as follows: SCHEDULE
OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
Software 3
Computer
equipment 3 5
Furniture
and fixtures 5 7
Leasehold
improvements Shorter
of estimated useful life or remaining term of the lease Both
the useful life of an asset and its residual value, if any, are reviewed annually. Expenditures
for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any related gain or loss is reflected in income for the period. The Company did not record
any impairment for the year ended May 21, 2022 or May 31, 2021. Goodwill
and Other Intangibles The
Company accounts for business acquisitions in accordance with GAAP. Goodwill in such acquisitions is determined as the excess of fair
value over amounts attributable to specific tangible and intangible assets. GAAP specifies criteria to be used in determining whether
intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill
and other identifiable intangible assets are based on independent appraisals or internal estimates. In
accordance with GAAP, the Company does not amortize goodwill or indefinite-lived intangible assets. Management evaluates the remaining
useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue
to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite
useful life, it is amortized prospectively over its estimated remaining useful life. Amortizable intangible assets, including tradenames
and non-compete agreements, are amortized on a straight-line basis over 3 10 12 15 The
Company tests goodwill for impairment annually as of May 31 or if an event occurs or circumstances change that indicate that the fair
value of the entity, or the reporting unit, may be below its carrying amount (a “triggering event”). Whenever events or circumstances
change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. If impairment is
deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step impairment test
is not required. In assessing the qualitative factors, the Company assessed relevant events and circumstances that may impact the fair
value and the carrying amount of the reporting unit. The identification of the relevant events and circumstances and how these may impact
a reporting unit’s fair value or carrying amount involve significant judgements and assumptions. The judgement and assumptions
include the identification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific
events and share price trends, an assessment of whether each relevant factor will impact the impairment test positively or negatively,
and the magnitude of such impact. If
a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s
fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected
future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair
value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that
reporting unit. We test goodwill for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value
may not be recoverable. For
the year ended May 31, 2022 and 2021 the Company conducted its annual review of impairment of goodwill and intangible assets and no impairment
was identified. Impairment
of Long-Lived Assets Long-lived
assets are comprised of intangible assets and property and equipment. Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An estimate of undiscounted future cash
flows produced by the asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment
exists, pursuant to the provisions of FASB ASC 360-10 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of”. Derivative
Liability On
December 10, 2021, the Company entered into an amended securities exchange agreement with the holders of convertible notes to exchange
all Convertible Notes of the Company into shares of the newly created Convertible Preferred Stock Series C and D. For additional information
on the exchange agreement see Note 5, Financing Arrangements. Similar
to the existing Convertible Preferred Stock Series A, these preferred stocks featured anti-dilution provision that expire on a certain
date. Management has determined the anti-dilution provision embedded in preferred stock Series A, C and D is required to be accounted
for separately from the preferred stock as a derivative liability and recorded at fair value. Separation of the anti-dilution option
as a derivative liability is required because its economic characteristics are considered more akin to an equity instrument and therefore
the anti-dilution option is not considered to be clearly and closely related to the economic characteristics of the preferred stock. The
Company has identified and recorded derivative instruments arising from an anti-dilution provision in the Company’s Series A,
Series C, and Series D Preferred Stock during the quarter ended February 28, 2022. The Company recorded $ 12.4 An
embedded derivative liability is representing the rights of holders of Convertible Preferred Stock Series A, C and D to receive
additional common stock of the Company upon issuance of any additional common stock by the Company prior to qualified financing
event as defined in the agreement. Each reporting period, the embedded derivative liability, if material, would be adjusted to
reflect fair value at each period end with changes in fair value recorded in the “Change in fair value of embedded derivative
liability” financial statement line item of the company’s statements of operations. The Company recorded change in fair
value of $ 4,020,698 SCHEDULE OF DERIVATIVE LIABILITIES
Level 1 Level 2 Level 3
Derivative liabilities as June 1, 2021 $ - $ - $ -
Addition - - 8,417,296
Changes in fair value - - 4,020,698
Derivative liabilities as May 31, 2022 $ - $ - $ 12,437,994 The
underlying value of the anti-dilution provision is calculated from estimating the probability and value of a potential raise. The model
used estimates the potential that the company completes a capital raise prior to the expiration of the anti-dilution feature and determines
the value of the anti-dilution feature given these assumptions. The model requires the use of certain assumptions. These assumptions
include probability a raise is completed, probability certain anti-dilution features are extended, estimated raise amount, term to a
raise, and an appropriate risk-free interest rate. The key inputs into the model were as follows: SCHEDULE OF FAIR VALUE ASSUMPTION
May
31, 2022 May
31, 2021
Risk-free
interest rate 1.6 % 0.7 %
Probability
of capital raise 53.9 % 10 %
Estimated
capital raise amount $ 39,000,000 $ 2,400,000
Estimated
time to capital raise 0.5 1.0 Income
Taxes The
Company files a consolidated income tax return for federal and most state purposes. Management
has determined that there are no uncertain tax positions that would require recognition in the consolidated financial statements. If
the Company were to incur an income tax liability in the future, interest and penalties on any income tax liability would be reported
as interest expense. Management’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later
date based on ongoing analysis of tax laws, regulations, and interpretations thereof as well as other factors. The
Company uses the assets and liability method of accounting for deferred income taxes. Deferred income tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the balance sheet carrying amounts of existing
assets and liabilities and their respective tax basis. The Company regularly evaluates the need for a valuation allowance related to
the deferred tax asset. Revenue
Recognition The
Company adopted ASC 606, Revenue from Contracts with Customers To
determine revenue recognition, the Company applies the following five steps:
1. Identify
the contract(s) with a customer;
2. Identify
the performance obligations in the contract;
3. Determine
the transaction price;
4. Allocate
the transaction price to the performance obligations in the contract; and
5. Recognize
revenue as or when the performance obligation is satisfied. Revenue
is recognized as follows:
i. Freight
income - export sales
Freight
income from the provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit
time basis thru the sail or departure from origin port. The Company is the principal in these transactions and recognizes revenue
on a gross basis.
ii. Freight
income - import sales
Freight
income from the provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit
time basis thru the delivery to the customer’s designated location. The Company is the principal in these transactions and
recognizes revenue on a gross basis.
iii. Customs
brokerage and other service income
Customs
brokerage and other service income from the provision of other services are recognized at the point in time the performance obligation
is met. The
Company’s business practices require, for accurate and meaningful disclosure, that it recognizes revenue over time. The “over
time” policy is the period from point of origin to arrival of the shipment at US Port of entry (or in the case when the customer
requires delivery to a designated point, the arrival at that delivery point). This over time policy requires the Company to make significant
judgements to recognize revenue over the estimated duration of time from port of origin to arrival at port of entry. The point in the
process when the Company meets its obligation in the port of entry and the subsequent transfer of the goods to the customer is when the
customer has the obligation to pay, has taken physical possession, has legal title, risk and awards (ownership) and has accepted the
goods. The Company has elected to not disclose the aggregate amount of the transaction price allocated to performance obligations that
are unsatisfied as of the end of the period as the Company’s contracts with its customers have an expected duration of one year
or less. The
Company uses independent contractors and third-party carriers in the performance of its transportation services. The Company evaluates
who controls the transportation services to determine whether its performance obligation is to transfer services to the customer or to
arrange for services to be provided by another party. The Company determined it acts as the principal for its transportation services
performance obligation since it is in control of establishing the prices for the specified services, managing all aspects of the shipments
process and assuming the risk of loss for delivery and collection. Revenue
billed prior to realization is recorded as contract liabilities on the consolidated balance sheets and contract costs incurred prior
to revenue recognition are recorded as contract assets on the consolidated balance sheets. Contract
Assets Contract
assets represent amounts for which the Company has the right to consideration for the services provided while a shipment is still in-transit
but for which it has not yet completed the performance obligation and has not yet invoiced the customer. Upon completion of the performance
obligations, which can vary in duration based upon the method of transport and billing the customer, these amounts become classified
within accounts receivable - trade. Contract
Liabilities Contract
liabilities represent the amount of obligation to transfer goods or services to a customer for which consideration has been received. Significant
Changes in Contract Asset and Contract Liability Balances for the year ended May 31, 2022: SCHEDULE OF CHANGES IN CONTRACT ASSET AND CONTRACT LIABILITY
Contract Assets Increase Contract (Increase)
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligation satisfied $ - $ -
Cash Received in advance and not recognized as revenue - 468,209
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional (10,491,045 ) -
Contract assets recognized 18,038,312 -
Net Change $ 7,547,267 $ 468,209 There
were no changes in contract assets or liabilities as of May 31, 2021. Disaggregation
of Revenue from Contracts with Customers The
following table disaggregates gross revenue from our clients (all US based) by significant geographic area for the years ended May 31,
2022 and 2021, based on origin of shipment (imports) or destination of shipment (exports): SCHEDULE OF DISAGGREGATION OF REVENUE
For the For the Year Ended
China, Hong Kong & Taiwan $ 343,370,279 $ 186,932,382
Southeast Asia 422,869,068 104,475,697
United States 39,362,326 31,452,041
India Sub-continent 161,841,791 28,164,102
Other 47,043,216 20,863,050
Total revenue $ 1,014,486,680 $ 371,887,272 Segment
Reporting Based
on the guidance provided by ASC Topic 280, Segment Reporting Earnings
per Share The
Company adopted ASC 260, Earnings per share, The
following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income attributable
to common stockholders per common share. The
following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income attributable
to common stockholders per common share. SCHEDULE OF EARNING PER SHARE
For the Year Ended
May 31, 2022 May 31, 2021
Numerator:
Net income (loss) available for common shareholders $ (1,031,171 ) 1,725,497
Effect of dilutive securities: - 1,350,389
Diluted net (loss) income available for common shareholders $ (1,031,171 ) $ 3,075,886
Denominator:
Weighted average common shares outstanding – basic 605,817,180 1,408,941,722
Dilutive securities:
Series A Preferred - 1,316,157,000
Series B Preferred - 5,499,034,800
Convertible notes - 1,806,230,539
Warrants - -
Series C Preferred - -
Series D Preferred - -
Weighted average common shares outstanding and assumed conversion – diluted 605,817,180 10,030,364,061
Basic net (loss) income available for common shareholders per common share $ (0.00 ) $ 0.00
-
Diluted net (loss)income available for common shareholders per common share $ (0.00 ) $ 0.00 The Company has excluded the following shares as of May 31, 2022, because
they are antidilutive: SCHEDULE OF ANTI-DILUTIVE SHARES
May 31, 2022
Weighted average common shares outstanding – basic 605,817,180
Series A Preferred 1,233,209,295
Series B Preferred 5,373,342,576
Series C Preferred 1,206,351,359
Series D Preferred 1,174,935,959
Weighted average common shares outstanding and assumed conversion – diluted 9,593,656,369 Leases In
February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02 “Leases” During
the period ended May 31, 2020, the Company adopted ASC 842 upon inception and recognized a right of use (“ROU”) asset and
liability in the consolidated balance sheet in the amount of $ 4,770,280 For
leases in which the acquiree is a lessee, the Company shall measure the lease liability at the present value of the remaining lease payments,
as if the acquired lease were a new lease of the Company at the acquisition date. The Company shall measure the right-of-use asset at
the same amount as the lease liability as adjusted to reflect favorable and unfavorable terms of the lease when compared with market
terms. The values of the leases acquired in the business acquisition discussed in Note 2 were representative of fair value at the acquisition
date and no favorable or unfavorable terms were noted. The
Company adopted the package of practical expedients that allows it to (i) not reassess whether an arrangement contains a lease, (ii)
carry forward its lease classification as operating or capital leases, (iii) not to apply the recognition requirements in ASC 842 to
short-term leases, (iv) not record a right of use asset or right of use liability for leases with an asset or liability balance that
would be considered immaterial. and (v) not reassess its previously recorded initial direct cost |
