UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the Quarterly Period Ended
or
For the Transition Period from _________ to _________
Commission
file number:
(Exact name of registrant as specified in its charter)
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| (Address of Principal Executive Offices) | (Zip Code) |
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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
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has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
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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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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As of January 17, 2023, there were 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
| 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 | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Contract assets | ||||||||
| Other prepaid expenses and current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Long-term assets: | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Deferred tax asset, net | ||||||||
| Deposits | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Accrued freight | ||||||||
| Contract Liabilities | ||||||||
| Revolving credit facility | ||||||||
| Current portion of notes payable, net of discount | ||||||||
| Current portion of long-term debt due to related parties | ||||||||
| Current portion of operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Long-term-debt due to related parties, net of current portion | ||||||||
| Derivative liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value: shares authorized | ||||||||
| Series
A Convertible Preferred stock, $ par value; and , issued and outstanding as of November 30, 2022 and May 31,
2022, respectively. Liquidation preference $ | ||||||||
| Series
B Convertible Preferred stock, $ par value; shares issued and outstanding as of November 30, 2022 and May 31, 2022.
Liquidation preference $ | ||||||||
| Series C Convertible Preferred stock, $par value; shares, issued and outstanding as of November 30, 2022 and May 31, 2022 | ||||||||
| Series D Convertible Preferred stock, $par value; and , issued and outstanding as of November 30, 2022 and May 31, 2022, respectively. | ||||||||
| Common stock $ par
value; shares authorized. and common shares issued and outstanding as of November 30, 2022 and May 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
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 | $ | $ | $ | $ | ||||||||||||
| Ocean freight and ocean services | ||||||||||||||||
| Contract logistics | ||||||||||||||||
| Customs brokerage and other services | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Costs and operating expenses: | ||||||||||||||||
| Airfreight services | ||||||||||||||||
| Ocean freight and ocean services | ||||||||||||||||
| Contract logistics | ||||||||||||||||
| Customs brokerage and other services | ||||||||||||||||
| Salaries and related costs | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Rent and occupancy | ||||||||||||||||
| Selling and promotion | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Other | ||||||||||||||||
| Total costs and operating expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
| Gain on forgiveness of promissory note | ||||||||||||||||
| Change in fair value of derivative liabilities | ||||||||||||||||
| Gain on extinguishment of convertible note | ||||||||||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income before income taxes | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Net income available for common shareholders per common share | ||||||||||||||||
| – basic | $ | $ | $ | $ | ||||||||||||
| – diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| – basic | ||||||||||||||||
| – diluted | ||||||||||||||||
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
| 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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred A to Common Stock | ( | ) | $ | ( | ) | - | $ | - | $ | - | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||||
| Conversion of Preferred D to Common Stock | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, August 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, November 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
For the Three and Six Months Ended November 30, 2021
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Conversion of Preferred B to Common Stock | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Issuance of Common Stock for the conversion of notes and accrued interest | - | - | ||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance, August 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Issuance of Common Stock for the conversion of notes and accrued interest | - | - | ||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance, November 30, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
See notes to accompanying condensed consolidated financial statements.
| F-3 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For
the November 30, 2022 | For
the November 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of right of use assets | ||||||||
| Gain on forgiveness of promissory note | ( | ) | ||||||
| Gain on extinguishment of notes payable | ( | ) | ||||||
| Change in deferred tax asset, net | ( | ) | ( | ) | ||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Bad debt expense | ||||||||
| Accretion of consulting agreement | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ( | ) | ||||||
| Factoring reserve | ||||||||
| Other prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Deposits and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Accrued freight | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net Cash Provided by (Used In) Operating Activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Repayments of long-term debt due to related parties | ( | ) | ( | ) | ||||
| Borrowings (repayments) line of credit, net | ( | ) | ||||||
| Net Cash (Used in) Provided by Financing Activities | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents - Beginning of period | ||||||||
| Cash and cash equivalents - End of period | $ | $ | ||||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Operating lease asset and liability additions | $ | $ | ||||||
| Conversion of Preferred Stock Series A preferred to common | $ | $ | ||||||
| Conversion of Preferred Stock Series B preferred to common | $ | $ | ||||||
| Conversion of Preferred Stock Series D preferred to common | $ | $ | ||||||
| Issuance of Common Stock for the conversion of notes and accrued interest | $ | $ | ||||||
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 $
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 $
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 $
| F-7 |
Concentrations
Three
major customers represented approximately
Three
major customers represented approximately
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 $
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liabilities as June 1, 2022 | $ | $ | $ | |||||||||
| Addition | ||||||||||||
| Change in fair value | ||||||||||||
| Derivative liabilities as November 30, 2022 | $ | $ | $ | |||||||||
| 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 | % | % | ||||||
| Probability of financing event or capital raise | % | % | ||||||
| Estimated capital raise | $ | |||||||
| Estimated value of common stock | $ | |||||||
| Estimated time to financing event | ||||||||
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 | $ | $ | ||||||
| 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 | ( | ) | ||||||
| Contract assets recognized | ||||||||
| Net Change | $ | ( | ) | $ | ||||
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 | $ | $ | ||||||
| Southeast Asia | ||||||||
| United States | ||||||||
| India Sub-continent | ||||||||
| Other | ||||||||
| Total revenue | $ | $ | ||||||
| |
|
For
the Six Months Ended |
|
|
For
the Six Months Ended |
|
||
| November 30, 2022 | November 30, 2021 | |||||||
| China, Hong Kong & Taiwan | $ | $ | ||||||
| Southeast Asia | ||||||||
| United States | ||||||||
| India Sub-continent | ||||||||
| Other | ||||||||
| Total revenue | $ | $ | ||||||
| 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.
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.
| For the Three Months Ended | ||||||||
| November 30, 2022 | November 30, 2021 | |||||||
| Numerator: | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Effect of dilutive securities: | ||||||||
| Diluted net income | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average common shares outstanding – basic | ||||||||
| Dilutive securities: | ||||||||
| Series A Preferred | ||||||||
| Series B Preferred | ||||||||
| Series C Preferred | ||||||||
| Series D Preferred | ||||||||
| Convertible notes | ||||||||
| Warrants | ||||||||
| Weighted average common shares outstanding and assumed conversion – diluted | ||||||||
| Basic net income per common share | $ | $ | ||||||
| Diluted net income per common share | $ | $ | ||||||
| F-12 |
| For the Six Months Ended | ||||||||
| November 30, 2022 | November 30, 2021 | |||||||
| Numerator: | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Effect of dilutive securities: | ||||||||
| Diluted net income | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average common shares outstanding – basic | ||||||||
| Dilutive securities: | ||||||||
| Series A Preferred | ||||||||
| Series B Preferred | ||||||||
| Series C Preferred | ||||||||
| Series D Preferred | ||||||||
| Convertible notes | ||||||||
| Warrants | ||||||||
| Weighted average common shares outstanding and assumed conversion – diluted | ||||||||
| Basic net income per common share | $ | $ | ||||||
| Diluted net income per common share | $ | $ | ||||||
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 | $ | $ | ||||||
| Accrued sales and marketing expense | ||||||||
| Accrued professional fees | ||||||||
| Accrued income tax | ||||||||
| Accrued overdraft liabilities | ||||||||