UNIQUE LOGISTICS INTERNATIONAL, INC. – 10-K/A operations.

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The following management's discussion and analysis of financial condition and
results of operations describes the principal factors affecting the results of
our operations, financial condition, and changes in financial condition for the
year ended May 31, 2021 and for the period from May 29, 2020 through May 31,
2020 as "Successor" and as "Predecessor" for period from June 1, 2019 through
May 28, 2020. This discussion should be read in conjunction with the
accompanying Consolidated Financial Statements, and the notes thereto set forth
in Part I, Item 8 of this Annual Report on Form 10-K.



Note Regarding Forward-Looking Statements



This Annual Report on Form 10-K includes  a number of forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") that reflect management's current views with
respect to future events and financial performance. These statements are based
upon beliefs of, and information currently available to, the Company's
management as well as estimates and assumptions made by the Company's
management. Readers are cautioned not to place undue reliance on these
forward-looking statements, which are only predictions and speak only as of the
date hereof. When used herein, the words "anticipate," "believe," "estimate,"
"expect," "forecast," "future," "intend," "plan," "predict," "project,"
"target," "potential," "will," "would," "could," "should," "continue" or the
negative of these terms and similar expressions as they relate to the Company or
the Company's management identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are
subject to risks, uncertainties, assumptions, and other factors, including the
risks relating to the Company's business, industry, and the Company's operations
and results of operations. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may differ significantly from those anticipated, believed, estimated,
expected, intended, or planned.



Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by
applicable law, including the securities laws of the United States, the Company
does not intend to update any of the forward-looking statements to conform these
statements to actual results.



Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States ("GAAP"). These accounting
principles require us to make certain estimates, judgments and assumptions. We
believe that the estimates, judgments and assumptions upon which we rely are
reasonable based upon information available to us at the time that these
estimates, judgments and assumptions are made. These estimates, judgments and
assumptions can affect the reported amounts of assets and liabilities as of the
date of the consolidated financial statements as well as the reported amounts of
revenues and expenses during the periods presented. Our financial statements
would be affected to the extent there are material differences between these
estimates and actual results. The following discussion should be read in
conjunction with our consolidated financial statements and notes thereto
appearing elsewhere in this report.



The forward-looking statements made in this report are based only on events or
information as of the date on which the statements are made in this report.
Except as required by law, we undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise, after the date on which the statements are made or
to reflect the occurrence of unanticipated events. You should read this report
and the documents we refer to in this report and have filed as exhibits to this
report completely and with the understanding that our actual future results may
be materially different from what we expect. These risks include, by way of
example and without limitation:



? The company provides services to customers engaged in international trade.

Anything that affects international trade has the potential to grow or

    contract our primary market and adversely impact our operating results.

  ? We depend on operators of aircrafts, ships, trucks, ports and airports.

? We derive a significant portion of our total revenue and net revenue from

our biggest customers.

? Due to our reliance on a limited number of customers, we are subject to a

    concentration of credit risk.

  ? Our earnings may be affected by seasonal changes in the transportation
    industry.




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? Our business is affected by increasing regulations from a number of

sources in United States and in foreign countries where we operate.

? As a multinational company, we are subject to formal or informal obligations

investigations by governmental or other authorities in the countries

which we are dealing with.

? The global economy and capital and credit markets continue to experience

uncertainty and volatility.

? Our business is subject to significant market-induced seasonal fluctuations

demands and each quarter is affected by seasonal trends.

? Our revenues and direct costs are subject to significant fluctuations depending on

    on supply and demand for freight capacity.



Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, or performance. Readers are urged to carefully review and consider the
various disclosures made by us in this report and in our other reports filed
with the Securities and Exchange Commission ("SEC"). We undertake no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes in the future operating
results over time except as required by law. We believe that our assumptions are
based upon reasonable data derived from and known about our business and
operations. No assurances are made that actual results of operations or the
results of our future activities will not differ materially from our
assumptions.



As used here and unless otherwise indicated, the terms "Company," "we," "us,"
and "our" refer to Unique Logistics International, Inc . and our wholly
subsidiaries, Unique Logistics International (BOS) Inc, a Massachusetts
corporation ("UL BOS") and Unique Logistics International (NYC) LLC, a Delaware
limited liability company ("UL NYC")."). Unless otherwise specified, all dollar
amounts are expressed in United States dollars.



Business Overview



We are a global logistics and freight forwarding company. We operated via our
wholly owned subsidiaries, Unique Logistics Holdings, Inc., a Delaware
corporation ("UL HI"), Unique Logistics International (BOS) Inc, a Massachusetts
corporation ("UL BOS") and Unique Logistics International (NYC) LLC, a Delaware
limited liability company ("UL NYC").



The Company provides a range of international logistics services that enable its
customers to outsource to the Company sections of their supply chain process.
The services provided by the Company are seamlessly managed by its network of
trained employees and integrated information systems. We enable our customers to
share data regarding their international vendors and purchase orders with us,
execute the flow of goods and information under their operating instructions,
provide visibility to the flow of goods from factory to distribution center or
store and when required, update their inventory records.



Our 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




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On May 29, 2020, Unique Logistics Holdings, Inc., a privately held Delaware
corporation incorporated on October 28, 2019 (date of inception) headquartered
in New York ("ULHI"), entered into a Securities Purchase Agreement with Unique
Logistics Holdings Ltd, ("UL HK"), pursuant to which the Company purchased from
UL HK (i) sixty percent (60%) of the membership interests of ("UL ATL Membership
Interests") of Unique Logistics International (ATL) LLC, a Georgia limited
liability company ("UL ATL"); (ii) eighty percent (80%) of the common stock of
Unique Logistics International (BOS) Inc., a Massachusetts corporation ("UL
BOS"); and (iii) sixty-five percent (65%) of the Unique Logistics International
(USA) Inc., a New York corporation ("UL NYC"). UL ATL, UL BOS, and UL NYC are
collectively referred to as "UL US Entities".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").



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 shares to 800,000,000 shares.



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".



COVID-19


In January 2020, the World Health Organization has declared the outbreak of a
novel coronavirus (COVID-19) as a "Public Health Emergency of International
Concern," which continues to have an impact throughout the world and has
adversely impacted global commercial activity and contributed to significant
declines and volatility in financial markets. The coronavirus outbreak and
government responses are creating disruption in global supply chains and
adversely impacting many industries.



The outbreak could have a continued material adverse impact on economic and
market conditions and trigger a period of global economic slowdown. The extent
of the impact of COVID-19 on our operational and financial performance will
depend on the effect on our shippers and carriers, all of which are uncertain
and cannot be predicted. The rapid development and fluidity of this situation
precludes any prediction as to the ultimate material adverse impact of the
coronavirus outbreak. Nevertheless, the outbreak presents uncertainty and risk
with respect to the Company, its performance, and its financial results. The
Company has experienced increased air and ocean freight rates due to overall
cargo restraints imposed by shippers and carriers and is in a position to pass
these cost increases directly to the customers without significantly effecting
its margins.



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"). From inception,
October 28, 2019 to May 29, 2020, ULHI was inactive. The activity of ULHI and UL
US Entities presented in the consolidated financial statements for the period
May 29, 2020 through May 31, 2020 as "Successor. The activity of combined UL US
Entities prior to the UL HK Transaction date is presented as "Predecessor" for
periods from June 1, 2019 to May 28, 2020.



Cash and capital resources

The accompanying consolidated financial statements have been prepared on a going
concern basis. As a consequence of acquisition financing at inception, the
Company experienced negative working capital and adverse cash flows from
operations. As of May 31, 2021, the Company had cash of approximately $0.25
million and negative working capital of approximately $3.5 million. This was a
significant improvement in working capital compared with May 31, 2020, when the
Company's negative working capital was approximately $10.7 million. The Company
has financed its first year of operations primarily through the sale of
convertible notes, PPP loans, promissory notes, and cash advances received from
factoring arrangements. The negative working capital resulted primarily from
increases to short term liabilities, such as trade accounts payable, PPP loans
received, operating lease liability and current portion of a long-term debt
incurred by the company during the acquisition.



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During its first full fiscal year, the Company paid down most of the acquisition
related debt, received forgiveness of PPP loans and reached an agreement to
exchange most of its convertible debt into common stocks. In addition, on August
4, 2021 the parties to the TBK Agreement entered into an agreement to increase
the Company's credit facility from $30.0 million to $40.0 million during the
period August 4, 2021, through and including December 2, 2021, further reducing
liquidity concerns.


The following table summarizes the total current assets, liabilities and working capital on May 31, 2021 compared to May 31, 2020 :


                          May 31, 2021      May 31, 2020         Change
Current Assets            $  52,400,799     $  15,181,076     $ 37,219,723
Current Liabilities          55,929,942        25,834,209       30,095,733
Working Capital Deficit   $  (3,529,143 )   $ (10,653,133 )   $  7,123,990




The change in working capital deficit is primarily attributable to an increase
in trade accounts receivable of $12.4 million, an increase of contract asset of
$18.6 million, an increase in factoring reserve of $6.6 million, an increase in
prepaid expenses of $0.7 million, a decrease in accrued expenses and other
current liabilities of $1.2 million and a decrease of $6.0 in the current
portion of long-term debt due to related parties. These amounts were offset by
decrease in cash of $1.1 million, an increase in trade accounts payable of $29.4
million, an increase in accrued freight of $6.9 million, an increase in current
portion of operating lease liabilities of $0.2 million and an increase in the
current portion of notes payable of $0.8 million.



The following table presents the Company’s cash flows:

                                                    Successor                      Predecessor
                                                             Period from           Period from
                                        Year Ended         May 29, 2020 to       June 1, 2019 to
                                       May 31, 2021         May 31, 2020          May 28, 2020
Net cash provided by (used in)
operating activities                  $      (161,906 )   $       1,562,052     $       1,431,254
Net cash used in investing
activities                                    (51,489 )            (212,689 )            (101,828 )
Net cash provided by (used in)
financing activities                  $      (883,353 )   $               -     $         604,481




Operating activities used cash of approximately $0.2 million for the year ended
May 31, 2021 compared to net cash provided by operations of $1.6 million and
cash used in operations of $1.2 million during the Successor period from May 29,
2020 through May 31, 2020, and the Predecessor period from June 1, 2019 to May
29, 2020, respectively. Primary reason for cash used for the year ended May 31,
2021, was a significant increase in accounts receivables, reflecting extended
credit terms, specifically as it relates to increase in charter operations,
where prepayments have to be made in advance of the upcoming flights. This cash
outlays were balanced by a corresponding increase in accounts payable,
reflecting company's ability to finance operations through extended credit with
diverse network of suppliers, partners and shipping companies.



Investing activities used cash of $0.1 million for the year ended May 31, 2021
compared to $0.2 million and $0.1 million during the Successor period from May
29, 2020 through May 31, 2020, and the Predecessor period from June 1, 2019 to
May 29, 2020, respectively. All these cash outlays primarily related to
purchases of computer and office related equipment as the company grew its
office and warehouse space and employed more staff in operations and customer
service.



Financing activities used cash of $0.8 million for the year ended May 31, 2021
and were the result of receiving aggregate gross proceeds of $5,174,902 from
promissory notes and convertible notes offset by payments on notes payable and
related party debt of $858,330 and $5,149,925, respectively. During the
Predecessor period ended on May 29, 2020, the financing activities provided cash
of approximately $0.6 million from net borrowing on the operating line of
credit.



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The Company does not anticipate having any significant capital expenditures in
the next fiscal year (June 1, 2020 to May 31, 2022). The Company expects to turn
its operating capital positive early in the upcoming fiscal year as we continue
to invest in our network, products, customer development, sales and marketing
activities. Management is fully aware that the Company's business plan is
dependent upon the generation of sufficient revenues from its products to offset
expenses, increased cash flow from ongoing operations the collection of
outstanding receivables and the restructuring of the current debt burden.
Although the Company believes in the viability of management's strategy to
generate sufficient revenue, control costs and the ability to raise additional
funds, if necessary, there can be no assurances to that effect. In the event
that the Company does not generate sufficient cash flows from operations and is
unable to obtain funding, the Company will be forced to delay, reduce, or
eliminate some or all of its discretionary spending, which could adversely
affect the Company's business prospects, ability to meet long-term liquidity
needs or ability to continue operations. Based on the above analysis and
business performance of the Company subsequent to the balance sheet date,
management has concluded that the Company's cash and operating capital as of May
31, 2021, would be sufficient to continue as a going concern for at least one
year from the date these consolidated financial statements are available for
issuance.



Results of Operations for the Year Ended May 31, 2021 compared with the period
May 29, 2020 through May 31, 2020 (Successor) and period from June 1, 2019
to
May 28, 2020 (Predecessor)



                                                   Successor                      Predecessor
                                                            Period from           Period from
                                        Year Ended        May 29, 2020 to       June 1, 2019 to
                                       May 31, 2021        May 31, 2020          May 28, 2020
Revenue                               $  371,887,272     $       1,070,324     $     114,619,829
Cost of Sales                            345,358,428               948,062           101,494,747
Gross Margin                              26,528,844               122,262            13,125,082

Operating Expenses
Salaries and related costs                 9,184,390                60,776             9,202,566
Professional fees                          1,350,369               180,000               409,961
Rent and occupancy                         1,815,194                21,086             1,823,189
Selling and promotion                      4,535,373                 5,720               832,107
Depreciation and amortization                765,532                     -               172,295
Fees on factoring arrangements             4,471,540                     - 
                   -
Other                                        877,458               259,032             1,479,526
                                          22,999,856               526,614            13,919,645

Other Expenses (Income)
Interest                                   1,781,828                 4,158              (333,608 )
Gain on forgiveness of promissory
notes                                     (1,646,062 )                   -
Loss on extinguishment of
convertible debt                           1,147,856                     -                     -
                                           1,283,622                 4,258              (333,608 )
                                                                                               -
Income (Loss) before Income tax            2,245,366              (408,510
)          (1,128,171 )
-Income tax                                  519,869                     -                     -
Net Income (Loss)                     $    1,725,497     $        (408,510 )   $      (1,128,171 )




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The table below presents our profit margins achieved by mode of transport:



                                        Successor                         Predecessor
                                                    Period from           Period from
                         For the Year Ended       May 29, 2020 to       June 1, 2019 to
                            May 31, 2021           May 31, 2020          May 28, 2020
Air                     $          6,491,325     $          11,701     $       3,413,304
Ocean                             16,282,069               102,402             6,677,538
Contract Logistics                 1,826,266                14,629             1,515,408
Customs brokage                    1,929,184                (6,470 )           1,518,831
Total:                  $         26,528,844     $         122,262     $      13,125,082
Gross Profit Margin %                    7.1 %                11.4 %                11.5 %




Revenue


Revenue from operations was $371.9 million for the year ended May 31, 2021,
compared to $1.1 million and $114,6 million for the periods from May 29, 2020
through May 31, 2020, and the Predecessor period from June 1, 2019 to May 28,
2020, respectively. The increase in revenue was primarily attributable to
management's success in combining the acquired entities, achievement of
synergies, as well as significant increase in a number of customers, shipping
volumes and the market prices, for both air and ocean freight services, during
the year. The Company is in a strong position to deliver on its strategy,
ensuring growth both organically and through acquisitions in strategic
geographic areas of our business.



Costs of Sales



Cost of sales was were $345.4 million for the year ended May 31, 2021, compared
with $0.9million and $101.5 million for the period from May 29, 2020 through May
31, 2020, and the Predecessor period from June 1, 2019 to May 28, 2020,
respectively. This increase in cost was attributable to a significant increase
in shipping volume as well as increase in market prices. For the year ended May
31, 2021, the Company maintained 7.1% gross margins for products and services
which are close to historical average.



Operating Expenses


Operating expenses were approximately $23.0 million for the year ended May 31,
2021, compared with $0.5 million and $13.9 million for the period from May 29,
2020 through May 31, 2020, and the Predecessor period from June 1, 2019 to May
29, 2020, respectively. Comparing the year ended May 31, 2021 and the
Predecessor period ended May 28, 2020, increase in operating expenses mostly due
to professional fees increased by $0.9 million due to acquisition related
transactions in May of 2020 and the reverse merger transactions in October of
2020, selling and promotion expense increased by approximately $3.7 million due
to increase in sales team and more effective incentives, resulting in higher
sales. In order to support higher sales, the Company engaged in a factoring
arrangement starting May 29, 2020, to provide short term liquidity while working
with a number of banks on establishing an operating line of credit. The Company
was successful in securing a line by the end of year ended May 31, 2021. As a
result, the Company incurred $4.5 million in Factoring fees during the year
ended May 31, 2021.



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Other Income (Expense)


Interest expense was approximately $1.8 million for the year ended May 31, 2021,
compared with $4,158 and $0.3 million for the period from May 29, 2020 through
May 31, 2020, and the Predecessor period from June 1, 2019 to May 28, 2020,
respectively. During the year ended May 31, 2021 (Predecessor) interest expense
totaled approximately $1.8 million and was comprised of $121,000 for bank
interest charges, $310,000 for loan interest and approximately $1.4 million for
accretion of debt discount related to the Company's convertible notes. During
Predecessor period, interest expense was charged on the two small lines of
credit used by the ULI HK Entities for operating capital.



During the year ended May 31, 2021, the Company recorded loss on extinguishment
of convertible note payable of approximately $1.1 million. The Company was also
granted forgiveness of the Paycheck Protection Program loans under the CARES
Act, (the "PPP Loan") and recorded a gain on forgiveness of approximately $1.6
million.



Net Income (Loss)



Interest income was approximately $1.7 million for the year ended May 31, 2021,
compared with a net loss of $0.5 million and a net loss of $1.1 million for the
period from May 29, 2020 through May 31, 2020, and the Predecessor period from
June 1, 2019 to May 28, 2020, respectively. The increase was primarily due to
the Company's management successfully combining the acquired entities, achieved
synergies, and growing profitable new business.



Adjusted EBITDA



We define adjusted EBITDA to be earnings before interest, taxes, depreciation
and amortization, factoring fees, other income, net, stock-based compensation
and expenses, merger and acquisition costs, restructuring, transition and
acquisitions expense, net, goodwill impairment and certain other items.



Adjusted EBITDA is not a measurement of financial performance under GAAP and may
not be comparable to other similarly titled measures of other companies. We
present adjusted EBITDA because we believe that adjusted EBITDA is a useful
supplement to net income from operations as an indicator of operating
performance. We use adjusted EBITDA as a financial metric to measure the
financial performance of the business because management believes it provides
additional information with respect to the performance of its fundamental
business activities. For this reason, we believe adjusted EBITDA will also be
useful to others, including our stockholders, as a valuable financial metric.



We believe that adjusted EBITDA is a performance measure and not a liquidity
measure, and therefore a reconciliation between net income from continuing
operations and adjusted EBITDA has been provided in the financial results.
Adjusted EBITDA should not be considered as an alternative to income from
operations or net income from operations as an indicator of performance or as an
alternative to cash flows from operating activities as an indicator of cash
flows, in each case as determined in accordance with GAAP, or as a measure of
liquidity. In addition, adjusted EBITDA does not take into account changes in
certain assets and liabilities as well as interest and income taxes that can
affect cash flows. We do not intend the presentation of these non-GAAP measures
to be considered in isolation or as a substitute for results prepared in
accordance with GAAP. These non-GAAP measures should be read only in conjunction
with our consolidated financial statements prepared in accordance with GAAP.



Here are the reconciliations between Adjusted EBITDA and net income, the most comparable GAAP measure:


                                                     Successor                        Predecessor
                                                                Period from           Period from
                                          Year Ended           May 29, 200 to       June 1, 2019 to
                                       December 31, 2021        May 31, 2020         May 28, 2020

Net income (loss)                     $         1,725,497     $       (408,510 )   $      (1,128,171 )

Adjustments:
Income tax expense                                519,869                                          -
Depreciation and amortization                     765,532                                    172,295
Stock based compensation                           91,666                                          -
Gain on forgiveness of promissory
notes                                           1,147,856                                          -
Loss on extinguishment of
convertible notes                              (1,646,062 )                                        -
Factoring fees                                  4,471,540                                          -
Interest expense (including
accretion of debt discount)                     1,781,828                                    333,608

Adjusted EBITDA                       $         8,857,726     $      
(408,510 )   $        (622,268 )




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Critical accounting policies



Accounting policies, methods and estimates are an integral part of the condensed
consolidated financial statements prepared by management and are based upon
management's current judgments. These judgments are normally based on knowledge
and experience regarding past and current events and assumptions about future
events. Certain accounting policies, methods and estimates are particularly
sensitive because of their significance to the financial statements and because
of the possibility that future events affecting them may differ from
management's current judgments. While there are a number of accounting policies,
methods and estimates that affect our condensed consolidated financial
statements, the areas that are particularly significant include revenue
recognition; the fair value of acquired assets and liabilities; fair value of
contingent consideration; the assessment of the recoverability of long-lived
assets, goodwill and intangible assets; and leases.



We perform an impairment test of goodwill for each year unless events or
circumstances indicate impairment may have occurred before that time. We assess
qualitative factors to determine whether it is more-likely-than-not that the
fair value of the reporting unit is less than the carrying amount. After
assessing qualitative factors, if further testing is necessary, we would
determine the fair value of each reporting unit and compare the fair value to
the reporting unit's carrying amount.



Intangible assets consist of customer relationships, trade names and trademarks
and non-compete agreements arising from our acquisitions. Customer relationships
are amortized on a straight-line basis over 12 to 15 years. Tradenames,
trademarks and non-compete agreements, are amortized on a straight-line basis
over 3 to 10 years.



We review long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying amount of the assets may not be recoverable.
If the sum of the undiscounted expected future cash flows over the remaining
useful life of a long-lived asset is less than its carrying amount, the asset is
considered to be impaired. Impairment losses are measured as the amount by which
the carrying amount of the asset exceeds the fair value of the asset. When fair
values are not available, we estimate fair value using the expected future cash
flows discounted at a rate commensurate with the risks associated with the
recovery of the asset. Assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell.



Our significant accounting policies are summarized in Note 1 to our condensed consolidated financial statements.

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