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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended November 30, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _________ to _________

 

Commission file number: 000-50612

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   01-0721929

(State or other Jurisdiction

of Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

154-09 146th Ave, Jamaica, NY   11434
(Address of Principal Executive Offices)   (Zip Code)

 

678-365-6004

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
       
Non-accelerated filer Smaller reporting company
       
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of January 17, 2023, there were 799,141,770 shares of the registrant’s common stock outstanding.

 

 

 

   
 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2022

 

TABLE OF CONTENTS

 

  Page
   
PART I. FINANCIAL INFORMATION F-1
     
ITEM 1. Financial Statements F-1
     
  Condensed Consolidated Balance Sheets as of November 30, 2022 (unaudited) and May 31, 2022 F-1
     
  Condensed Consolidated Statements of Operations for the Three and Six Months ended November 30, 2022 and 2021 (unaudited) F-2
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months ended November 30, 2022 and 2021 (unaudited) F-3
     
  Condensed Consolidated Statements of Cash Flows for the Six Months ended November 30, 2022 and 2021 (unaudited) F-4
     
  Notes to Condensed Consolidated Financial Statements (unaudited) F-5
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 10
     
ITEM 4. Controls and Procedures 10
     
PART II. OTHER INFORMATION 11
     
ITEM 1. Legal Proceedings 11
     
ITEM 1A. Risk Factors 11
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
     
ITEM 3. Defaults Upon Senior Securities 11
     
ITEM 4. Mine Safety Disclosures 11
     
ITEM 5. Other Information 11
     
ITEM 6. Exhibits 12
     
SIGNATURES 13

 

2

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   November 30, 2022   May 31, 2022 
   (Unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $1,244,044   $1,422,393 
Accounts receivable, net   51,348,532    74,746,036 
Contract assets   13,804,866    30,970,581 
Other prepaid expenses and current assets   2,260,969    1,404,021 
Total current assets   68,658,411    108,543,031 
           
Property and equipment, net   223,757    188,889 
           
Long-term assets:          
Goodwill   4,463,129    4,463,129 
Intangible assets, net   6,984,131    7,337,704 
Operating lease right-of-use assets, net   10,579,787    2,408,098 
Deferred tax asset, net   987,648    942,748 
Deposits   1,596,926    1,028,336 
Total long-term assets   24,611,621    16,180,015 
Total assets  $93,493,789   $124,911,935 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities:          
Accounts payable  $30,955,523   $49,028,862 
Accrued expenses and other current liabilities   4,898,633    5,666,159 
Accrued freight   1,195,946    9,240,650 
Contract Liabilities   -    468,209 
Revolving credit facility   20,691,815    38,141,451 
Current portion of notes payable, net of discount   304,167    608,333 
Current portion of long-term debt due to related parties   349,631    301,308 
Current portion of operating lease liability   1,796,663    912,618 
Total current liabilities   60,192,378    104,367,590 
           
Long-term liabilities   141,330    282,666 
Long-term-debt due to related parties, net of current portion   150,655    397,968 
Derivative liabilities   11,693,338    12,437,994 
Operating lease liability, net of current portion   8,891,206    1,593,873 
Total long-term liabilities   20,876,529    14,712,501 
           
Total liabilities   81,068,907    119,080,091 
           
Commitments and contingencies   -    - 
           
Stockholders’ Equity:          
Preferred Stock, $0.001 par value: 5,000,000 shares authorized          
Series A Convertible Preferred stock, $0.001 par value; 120,065 and 130,000, issued and outstanding as of November 30, 2022 and May 31, 2022, respectively. Liquidation preference $120 on November 30, 2022.   120    130 
Series B Convertible Preferred stock, $0.001 par value; 820,800 shares issued and outstanding as of November 30, 2022 and May 31, 2022. Liquidation preference $821 on November 30, 2022.   821    821 
Series C Convertible Preferred stock, $0.001 par value; 195 shares, issued and outstanding as of November 30, 2022 and May 31, 2022   -    - 
Series D Convertible Preferred stock, $0.001 par value; 180 and 187, issued and outstanding as of November 30, 2022 and May 31, 2022, respectively.   -    - 
Common stock $0.001 par value; 800,000,000 shares authorized.
799,141,770 and 687,196,478 common shares issued and outstanding as of November 30, 2022 and May 31, 2022, respectively
   799,142    687,197 
           
Additional paid-in capital   180,220    292,155 
Retained earnings   11,444,579    4,851,541 
Total Stockholders’ Equity   12,424,882    5,831,844 
Total Liabilities and Stockholders’ Equity  $93,493,789   $124,911,935 

 

See notes to accompanying condensed consolidated financial statements.

 

F-1

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATION

(Unaudited)

 

   For the
Three Months Ended
November 30, 2022
   For the
Three Months Ended
November 30, 2021
   For the
Six Months Ended
November 30, 2022
   For the
Six Months Ended
November 30, 2021
 
Revenues:                
Airfreight services  $21,581,667   $275,070,204   $51,515,704   $327,232,845 
Ocean freight and ocean services   47,930,347    115,421,970    136,185,077    238,722,728 
Contract logistics   975,711    1,211,056    1,744,425    1,933,720 
Customs brokerage and other services   18,349,508    13,727,459    35,900,899    27,313,256 
Total revenues   88,837,233    405,430,689    225,346,105    595,202,549 
                     
Costs and operating expenses:                    
Airfreight services   19,950,949    269,019,226    47,500,790    320,645,001 
Ocean freight and ocean services   41,145,915    107,173,955    123,083,775    223,761,697 
Contract logistics   318,089    679,426    630,981    1,069,826 
Customs brokerage and other services   16,731,183    12,393,603    33,375,926    25,318,695 
Salaries and related costs   3,675,597    2,817,938    6,959,979    5,569,318 
Professional fees   411,421    184,459    1,174,725    478,326 
Rent and occupancy   613,572    489,770    1,142,682    969,979 
Selling and promotion   461,578    2,659,490    562,432    3,692,618 
Depreciation and amortization   201,966    194,875    402,640    388,672 
Other   336,814    1,154,945    669,761    1,423,067 
Total costs and operating expenses   83,847,084    396,767,687    215,503,691    583,317,199 
                     
Income from operations   4,990,149    8,663,002    9,842,414    11,858,350 
                     
Other income (expenses)                    
Interest expense   (972,300)   (1,881,201)   (2,329,985)   (3,198,480)
Amortization of debt discount   -    (391,035)   -    (776,515)
Gain on forgiveness of promissory note   -    -    -    358,236 
Change in fair value of derivative liabilities   125,708    -    744,656    - 
Gain on extinguishment of convertible note   -    -    -    780,050 
Total other income (expenses)   (846,592)   (2,272,236)   (1,585,329)   (2,836,709)
                     
Net income before income taxes   4,143,557    6,390,766    8,257,085    9,048,641 
                     
Income tax expense   871,860    1,902,541    1,664,047    2,537,000 
                     
Net income  $3,271,697   $4,488,225   $6,593,038   $6,511,641 
                     
Net income available for common shareholders per common share                    
– basic  $-   $-   $0.01   $- 
– diluted  $-   $-   $-   $- 
                     
Weighted average common shares outstanding                    
– basic   799,141,770    1,764,049,961    771,683,232    1,687,489,133 
– diluted   9,677,967,424    10,899,465,407    9,650,508,886    10,822,904,579 

 

See notes to accompanying condensed consolidated financial statements.

 

F-2

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

For the Three and Six Months Ended November 30, 2022

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
   Series A   Series B   Series C   Series D           Additional         
   Preferred Stock   Preferred Stock   Preferred Stock   Preferred Stock   Common Stock   Paid In   Retained     
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
Balance, June 1, 2022   130,000   $130    820,800   $821    195   $-    187   $-    687,196,478   $687,197   $292,155   $4,851,541   $5,831,844 
                                                                  
Conversion of Preferred A to Common Stock   (9,935)  $(10)   -   $-    -   $-    -   $-    67,963,732   $67,964   $(67,954)   -    - 
                                                                  
Conversion of Preferred D to Common Stock        -         -         -    (7)   -    43,981,560   $43,981   $(43,981)   -   $- 
                                                                  
Net income                                                         $3,321,341   $3,321,341 
                                                                  
Balance, August 31, 2022   120,065   $120    820,800   $821    195   $-    180   $-    799,141,770   $799,142   $180,220   $8,172,882   $9,153,185 
                                                                  
Net income        -         -         -         -         -    -   $3,271,697   $3,271,697 
                                                                  
Balance, November 30, 2022   120,065   $120    820,800   $821    195   $-    180   $-    799,141,770   $799,142   $180,220   $11,444,579   $12,424,882 

 

For the Three and Six Months Ended November 30, 2021

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
   Series A   Series B           Additional         
   Preferred Stock   Preferred Stock   Common Stock   Paid-in   Retained     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
Balance, June 1, 2021   130,000   $130    840,000   $840    393,742,663   $393,743   $4,906,384   $1,316,987   $6,618,084 
                                              
Conversion of Preferred B to Common Stock   -    -    (19,200)   (19)   125,692,224    125,692    (125,673)   -    - 
                                              
Issuance of Common Stock for the conversion of notes and accrued interest   -    -    -    -    83,811,872    83,812    66,746    -    150,558 
                                              
Net income   -    -    -    -    -    -    -    2,023,416    2,023,416 
                                              
Balance, August 31, 2021   130,000   $130    820,800   $821    603,246,759   $603,247   $4,847,457   $3,340,403   $8,792,058 
                                              
Issuance of Common Stock for the conversion of notes and accrued interest   -    -    -    -    52,534,319    52,534    41,838    -    94,372 
                                              
Net income   -    -    -    -    -    -    -    4,488,225    4,488,225 
                                              
Balance, November 30, 2021   130,000   $130    820,800   $821    655,781,078   $655,782   $4,889,295   $7,828,628   $13,374,656 

 

See notes to accompanying condensed consolidated financial statements.

 

F-3

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

For the
Six Months Ended

November 30, 2022

  

For the
Six Months Ended

November 30, 2021

 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $6,593,038   $6,511,641 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   402,640    388,672 
Amortization of debt discount   -    776,515 
Amortization of right of use assets   719,517    710,140 
Gain on forgiveness of promissory note   -    (358,236)
Gain on extinguishment of notes payable   -    (780,050)
Change in deferred tax asset, net   (44,900)   (304,000)
Change in fair value of derivative liabilities   (744,656)   - 
Bad debt expense   -    850,000 
Accretion of consulting agreement   (141,336)   (141,336)
Changes in operating assets and liabilities:          
Accounts receivable   23,397,504    (123,057,802)
Contract assets   17,165,715    (26,580,945)
Factoring reserve   -    7,593,665 
Other prepaid expenses and other current assets   (856,948)   (219,321)
Deposits and other assets   (568,590)   (20,000)
Accounts payable   (18,073,339)   36,893,108 
Accrued expenses and other current liabilities   (767,526)   8,764,328 
Accrued freight   (8,044,704)   38,934,277 
Contract liabilities   (468,209)   20,331,879 
Operating lease liability   (709,828)   (699,094)
Net Cash Provided by (Used In) Operating Activities   17,858,377    (30,406,559)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (83,934)   (43,727)
Net Cash Used in Investing Activities   (83,934)   (43,727)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from notes payable   -    2,000,000 
Repayments of notes payable   (304,166)   (579,165)
Repayments of long-term debt due to related parties   (198,990)   (215,656)
Borrowings (repayments) line of credit, net   (17,449,636)   29,833,248 
Net Cash (Used in) Provided by Financing Activities   (17,952,792)   31,038,427 
           
Net change in cash and cash equivalents   (178,349)   588,141 
           
Cash and cash equivalents - Beginning of period   1,422,393    252,615 
Cash and cash equivalents - End of period  $1,244,044   $840,756 
           
SUPPLEMENTARY CASH FLOW INFORMATION:          
Cash paid during the period for:          
Income taxes  $1,415,758   $422,836 
Interest  $2,184,260   $601,377 
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Operating lease asset and liability additions  $8,891,206   $- 
Conversion of Preferred Stock Series A preferred to common  $67,954   $- 
Conversion of Preferred Stock Series B preferred to common  $-   $125,673 
Conversion of Preferred Stock Series D preferred to common  $43,981   $- 
Issuance of Common Stock for the conversion of notes and accrued interest  $-   $193,306 

 

See notes to accompanying condensed consolidated financial statements.

 

F-4

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2022

 

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
     
  Ocean Freight
     
  Customs Brokerage and Compliance
     
  Warehousing and Distribution
     
  Order Management

 

Liquidity

 

The accompanying condensed 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 November 30, 2022, the Company reported working capital of approximately $8.5 million compared with $4.2 million working capital as of May 31, 2022. The Company has adequate cash availability through the TBK Facility.

 

Since its inception, the Company has experienced significant business growth. To fund such growth, operating capital was initially provided by third party investors through the sale of Convertible Notes which were subsequently exchanged into convertible securities. Preferred shares are more beneficial to the Company because they do not require cash repayments. Due to the antidilution provision embedded in certain of the convertible securities, these provisions resulted in an embedded derivative and the Company recorded a long-term liability. As of the quarter ended November 30, 2022, and the year ended May 31, 2022, this liability was $11.7 million and $12.4 million, respectively. This liability is recorded as a long-term liability due to its future settlement in common stock on the balance sheet and is being adjusted to market on each of the subsequent reporting periods.

 

To fund the pending acquisitions, as discussed in Note 6: Commitments and Contingencies, on December 18, 2022, the Company has entered into a commitment from a lender for a senior secured financing facility that will provide the necessary debt capital to execute the acquisitions. 

 

F-5

 

 

While we continue to execute our strategic plan, management is focused on managing cash and monitoring our liquidity position. We have implemented a number of initiatives to conserve our liquidity position including activities such as increasing credit facilities, when needed, 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 as of and subsequent to the balance sheet date, management has concluded that the Company’s current cash and cash availability under the TBK Facility as of November 30, 2022, would be sufficient to fund its planned operations 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.

 

Basis of Presentation

 

The condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

The unaudited interim financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended May 31, 2022. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The condensed consolidated balance sheet on May 31, 2022 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 

Principles of Consolidation

 

The consolidated financial statements of the Company include the accounts of the Company and its majority 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” below.

 

F-6

 

 

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 November 30, 2022 and May 31, 2022. 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 November 30, 2022. On November 30, 2021, Level 3 derivative liability balances were insignificant. There were no transfers between levels during the reporting period.

 

Accounts Receivable

 

Accounts receivable 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, 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 November 30, 2022 and May 31, 2022, the Company recorded an allowance for doubtful accounts of approximately $2.7 million.

 

F-7

 

 

Concentrations

 

Three major customers represented approximately 21.0% of all accounts receivable as of November 30, 2022 and no single customer represented more than 10.0% of total accounts receivable. Revenue from these three major customers as a percentage of the Company’s total revenue was 20.0% and 21.0% for the three and six months ended November 30, 2022, respectively, and no single customer represented more than 10.0% of total revenue.

 

Three major customers represented approximately 21.0% of all accounts receivable as of May 31, 2022 and no single customer represented more than 10.0% of total accounts receivable. Same three customers accounted for 72.0% and 56% of total revenue for the three and six months ended November 30, 2021 with only customer A at 54% and 40% respectively, and customers B and C were less than 10.0% each for the three and six months ended November 30, 2021.

 

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 Convertible Preferred Stock Series C and D.

 

Similar to the existing Convertible Preferred Stock Series A, these preferred stocks featured anti-dilution provision that expire on a specified 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, C and D Preferred Stock. 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. During the three months ended November 30, 2022, the Company recorded a change in fair value of $0.7 million in the condensed consolidated statements of operations.

 

 

   Level 1   Level 2   Level 3 
Derivative liabilities as June 1, 2022  $      -   $      -   $12,437,994 
Addition   -    -    - 
Change in fair value   -    -    744,656 
Derivative liabilities as November 30, 2022  $-   $-   $11,693,338 

 

F-8

 

 

The underlying value of the anti-dilution provision is calculated from estimating the probability and value of the provision assuming a near term financing event. For the period ended May 31, 2022, 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 required 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. For the period ended November 30, 2022, due to changes in the way antidilutive shares of Convertible Preferred Series A, C and D would be exchanged in the near future for common stock, and the fact that the antidilution provision of these shares was extended through March 31, 2023, the assumptions were changed to include probability of the financing event, estimated value of common stock at the exchange point and estimated time to financing event.

 

The key inputs into the model were as follows:

 

   November 30, 2022   May 31, 2022 
Risk-free interest rate   4.4%   1.6%
Probability of financing event or capital raise   90.0%   50%
Estimated capital raise   -   $39.0 million 
Estimated value of common stock  $10.00 per share    - 
Estimated time to financing event   0.25 years    0.5 years 

 

Revenue Recognition

 

The Company adopted ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for services. The Company recognizes revenue upon meeting each performance obligation based on the allocated amount of the total consideration of the contract to each specific performance obligation.

 

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.

 

F-9

 

 

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.

 

Contract Liabilities

 

Contract liabilities represent the amount of obligation to transfer goods or services to a customer for which consideration has been received.

 

F-10

 

 

Significant Changes in Contract Asset and Contract Liability Balances for the six months ended November 30, 2022:

 

  

Contract

Assets

Increase

(Decrease)

  

Contract

Liabilities

(Increase)

Decrease

 
         
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligation satisfied  $-   $468,209 
Cash Received in advance and not recognized as revenue   -    - 
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional   (38,422,917)   - 
Contract assets recognized   21,257,202    - 
Net Change  $(17,165,715)  $468,209 

 

There were no changes in contract assets or liabilities as of November 30, 2021.

 

Disaggregation of Revenue from Contracts with Customers

 

The following table disaggregates gross revenue from our clients (for the most part US based) by significant geographic area for the three and six months ended November 30, 2022 and 2021, based on origin of shipment (imports) or destination of shipment (exports):

 

   For the
Three Months Ended November 30, 2022
   For the
Three Months Ended November 30, 2021
 
China, Hong Kong & Taiwan  $42,491,614   $125,312,137 
Southeast Asia   21,132,687    164,883,397 
United States   11,277,753    16,212,165 
India Sub-continent   10,519,966    78,801,261 
Other   3,415,213    20,221,729 
Total revenue  $88,837,233   $405,430,689 

 

 
 
 
 
For the
Six Months Ended
 
 
 
 
For the
Six Months Ended
 
 
   November 30, 2022   November 30, 2021 
China, Hong Kong & Taiwan  $106,549,769   $203,417,446 
Southeast Asia   63,114,120    240,260,018 
United States   21,677,175    23,204,268 
India Sub-continent   29,316,674    99,449,575 
Other   4,688,367    28,871,242 
Total revenue  $225,346,105   $595,202,549 

 

F-11

 

 

Segment Reporting

 

Based on the guidance provided by ASC Topic 280, Segment Reporting, management has determined that the Company currently operates in one geographical segment and consists of a single reporting unit given the similarities in economic characteristics between its operations and the common nature of its products, services and customers.

 

Earnings per Share

 

The Company adopted ASC 260, Earnings per share, guidance from the inception. Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. Basic EPS is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding, including warrants exercisable for less than a penny, (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the consolidated statements of operations) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

 

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.

 

   November 30, 2022   November 30, 2021 
   For the Three Months Ended 
   November 30, 2022   November 30, 2021 
Numerator:          
Net income attributable to common stockholders  $3,271,697   $4,488,225 
Effect of dilutive securities:        391,035 
           
Diluted net income  $3,271,697   $4,879,260 
           
Denominator:          
Weighted average common shares outstanding – basic   799,141,770    1,764,049,961 
           
Dilutive securities:          
Series A Preferred   1,168,177,320    1,316,157,000 
Series B Preferred   5,373,342,576    5,499,034,800 
Series C Preferred   1,206,351,359    - 
Series D Preferred   1,130,954,399    - 
Convertible notes   -    2,320,223,646 
Warrants   -    - 
           
Weighted average common shares outstanding and assumed conversion – diluted   9,677,967,424    10,899,465,407 
           
Basic net income per common share  $0.00   $0.00 
           
Diluted net income per common share  $0.00   $0.00 

 

F-12

 

 

   November 30, 2022   November 30, 2021 
   For the Six Months Ended 
   November 30, 2022   November 30, 2021 
Numerator:          
Net income attributable to common stockholders  $6,593,038   $6,511,641 
Effect of dilutive securities:   -    776,515 
           
Diluted net income  $6,593,038   $7,288,156 
           
Denominator:          
Weighted average common shares outstanding – basic   771,683,232    1,687,489,133 
           
Dilutive securities:          
Series A Preferred   1,168,177,320    1,316,157,000 
Series B Preferred   5,373,342,576    5,499,034,800 
Series C Preferred   1,206,351,359    - 
Series D Preferred   1,130,954,399    - 
Convertible notes   -    2,320,223,646 
Warrants   -    - 
           
Weighted average common shares outstanding and assumed conversion – diluted   9,650,508,886    10,822,904,579 
           
Basic net income per common share  $0.01   $0.00 
           
Diluted net income per common share  $0.00   $0.00 

 

Leases

 

The Company recognizes a right of use (“ROU”) asset and liability in the consolidated balance sheet primarily related to its operating leases of office space, warehouse space and equipment. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. All ROU assets and lease liabilities are recognized at the commencement date at the present value of lease payments over the lease term. ROU assets are adjusted for lease incentives and initial direct costs. The lease term includes renewal options exercisable at the Company’s sole discretion when the Company is reasonably certain to exercise that option. As the Company’s leases generally do not have an implicit rate, the Company uses an estimated incremental borrowing rate based on borrowing rates available to them at the commencement date to determine the present value. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. The Company excludes variable payments from ROU assets and lease liabilities to the extent not considered fixed, and instead expenses variable payments as incurred. Lease expense is recognized on a straight-line basis over the lease term and is included in rent and occupancy expenses in the consolidated statements of operations.

 

F-13

 

 

Recently Issued Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, Debt — “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. ASU 2020-06 is effective for public business entities, other than smaller reporting companies as defined by the SEC starting January 1, 2022. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.

 

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current year presentation.

 

2. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following on November 30, 2022, and May 31, 2022:

 

   November 30, 2022   May 31, 2022 
         
Accrued salaries and related expenses  $926,245   $625,000 
Accrued sales and marketing expense   1,052,455    2,383,500 
Accrued professional fees   1,900,000    1,350,170 
Accrued income tax   856,890    559,544 
Accrued overdraft liabilities   160,376