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:
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| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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UNIQUE LOGISTICS INTERNATIONAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2023
TABLE OF CONTENTS
| Page | ||
| PART I. FINANCIAL INFORMATION | F-1 | |
| ITEM 1. | Financial Statements | F-1 |
| Condensed Consolidated Balance Sheets | F-1 | |
| Condensed Consolidated Statements of Operations | F-2 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity | F-3 | |
| Condensed Consolidated Statements of Cash Flows | F-5 | |
| Notes to Condensed Consolidated Financial Statements | F-6 | |
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 9 |
| ITEM 4. | Controls and Procedures | 9 |
| PART II. OTHER INFORMATION | 10 | |
| ITEM 1. | Legal Proceedings | 10 |
| ITEM 1A. | Risk Factors | 10 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 10 |
| ITEM 3. | Defaults Upon Senior Securities | 10 |
| ITEM 4. | Mine Safety Disclosures | 10 |
| ITEM 5. | Other Information | 10 |
| ITEM 6. | Exhibits | 11 |
| SIGNATURES | 14 | |
| 2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| February 28, 2023 | May 31, 2022 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Contract assets | ||||||||
| Other current assets and prepaids | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other long-term assets: | ||||||||
| Goodwill | ||||||||
| Identifiable intangible assets, net | ||||||||
| Equity-method investments | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Deferred tax asset, net | ||||||||
| Other noncurrent assets | ||||||||
| Total other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and current liabilities | ||||||||
| Accrued freight | ||||||||
| Contract Liabilities | ||||||||
| Revolving credit facility | ||||||||
| Current portion of notes payable | ||||||||
| Current portion of noncurrent debt due to related parties | ||||||||
| Current portion of operating lease liability | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities: | ||||||||
| Noncurrent portion of notes payable | ||||||||
| Noncurrent debt due to related parties, net of current portion | ||||||||
| Derivative liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Other noncurrent liabilities | ||||||||
| Total noncurrent 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 February 28, 2023, and May 31, 2022, respectively. Liquidation preference $ | ||||||||
| Series B
Convertible Preferred stock, $
par value;
shares issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $ | ||||||||
| Series C Convertible Preferred stock, $par value; shares, issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $ | ||||||||
| Series D Convertible Preferred stock, $par value; and ,
issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $ | ||||||||
| Common stock $ par value; shares authorized, and common shares issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total Stockholders’ equity attributable to registrant | ||||||||
| Equity attributable to noncontrolling interests | ||||||||
| Total Stockholder’s Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See notes accompanying condensed consolidated financial statements.
| F-1 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
For the Three Months Ended February 28, 2023 | For the
Three Months Ended
February 28, 2022 | For the
Nine Months Ended
February 28, 2023 | For the
Nine Months Ended
February 28, 2022 | |||||||||||||
| 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 | ( | ) | ||||||||||||||
| Loss on extinguishment of convertible notes payable | ( | ) | ( | ) | ||||||||||||
| Gain on forgiveness of promissory note | ||||||||||||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||||||||||
| Other Income | ||||||||||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax (credit) expense | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Deemed Dividend | ( | ) | ( | ) | ||||||||||||
| Net income (loss) available to common shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income 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 Nine Months Ended February 28, 2023
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid in | Retained | Total Stockholders’ equity attributable | Non- Controlling | Total Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | earning | to registrant | Interest(1) | Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, May 31 2022 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred A to Common Stock | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred D to Common Stock | - | - | - | - | - | - | (7 | ) | - | 43,981,560 | 43,981 | (43,981 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, August 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, November 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recognition of non-controlling interest upon acquisition | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, February 28, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) |
See notes to accompanying condensed consolidated financial statements.
| F-3 |
For the Three and Nine Months Ended February 28, 2022
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid-in | Retained | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of debt to preferred C and D | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, February 28, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
See notes to accompanying condensed consolidated financial statements.
| F-4 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine
Months Ended
February 28, 2023 | For the Nine
Months Ended
February 28, 2022 | |||||||
| 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 | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Bad debt expense | ||||||||
| Gain on forgiveness of note payable | ( | ) | ||||||
| Loss on extinguishment of convertible notes payable | ||||||||
| Change in deferred tax asset | ( | ) | ||||||
| Accretion of consulting agreement | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ( | ) | ||||||
| Factoring reserve | ||||||||
| Other prepaid expenses and 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 equipment | ( | ) | ( | ) | ||||
| Acquisitions of businesses, net of cash acquired | ||||||||
| Net Cash Used in Investing Activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Revolving credit facility, net | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Repayments of debt due to related parties | ( | ) | ( | ) | ||||
| 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 | $ | $ | ||||||
| Non-cash transactions: | ||||||||
| Right-of-use assets obtained in exchange for lease liabilities | $ | $ | ||||||
| Non-cash consideration paid in business acquisition (Note 2) | $ | $ | ||||||
| Conversion of Series B Preferred to Common Stock | $ | $ | ||||||
| Issuance of common stock for the conversion of principal net of accrued interest capitalized to principal to Notes Payable | $ | $ | ||||||
| Reduction of debt due to exchange of convertible Notes for Preferred Stock Series C&D | $ | $ | ||||||
See notes to accompanying condensed consolidated financial statements.
| F-5 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2023
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Unique Logistics International, Inc. and its subsidiaries (the “Company” or “Unique”) is a global logistics and freight forwarding company. 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 |
Basis of Presentation
These condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include all accounts of the Company and its subsidiaries stated in U.S. dollars, the Company’s functional currency. For subsidiaries operating outside the U.S., the financial information will be accounted for on a one-month lag. Substantially all unremitted earnings of international subsidiaries are free of legal and contractual restrictions.
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 condensed consolidated financial statements.
Acquisitions
These condensed consolidated financial statements include the operations of acquired businesses from the date of the acquisitions. The decision of whether to consolidate an entity for financial reporting purposes requires consideration of majority voting interests, as well as effective economic or other control over the entity.
We account for acquired businesses that we control using the acquisition method of accounting, which requires, among other things, that most assets acquired, and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill.
Contingent consideration in a business combination is included as part of the contingent liability and is recognized at fair value as of the acquisition date. Fair value is generally estimated by using a probability-weighted discounted cash flow approach. Any liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. These changes in fair value are recognized in earnings.
For equity-method investments in share capital of the subsidiaries where share interest acquired is less than 50%, but we have significant influence over the financial and operating policies of the investee, we use the equity method of accounting. Under the equity-method, we record our share of the investee’s income and expenses in income from operation and any share of the earnings and loss would be recorded against investment reduced by cash dividends received. The initial excess of the cost of the investment over our share of the underlying equity in the net assets of the investee as of the acquisition date is allocated to the identifiable assets and liabilities of the investee, with any remaining excess amount allocated to goodwill. Such investments are initially recorded at cost, which is the fair value of consideration paid and typically does not include contingent consideration. For equity-method investments, an impairment charge is recorded only if and when a decline in fair value is determined to be other-than-temporary.
Use of Estimates
The preparation of condensed 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.
| F-6 |
Significant estimates inherent in the preparation of the condensed 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.
Foreign Currency Translation
For most of our international operations conducted by the subsidiaries operating outside the U.S, local currencies have been determined to be functional currencies. We translate functional currency assets and liabilities to their U.S. dollar equivalents at exchange rates in effect as of the balance sheet date and income and expense amounts at average exchange rates for the period. The U.S. dollar affects that arise from changing translation rates are recorded in Other comprehensive income/(loss). The effects of converting non-functional currency monetary assets and liabilities into the functional currency are recorded in Other (income)/deductions.
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 February 28, 2023, the Company reported
negative working capital of $
The Company intends to either timely pay off the $
As previously reported, on December 18, 2022, the
Company entered into an Agreement and Plan of Merger with Edify Acquisition Corp. and Edify Merger Sub, Inc. that, subject to various
conditions, included a commitment from a lender for a senior secured financing facility in the maximum aggregate principal amount of $
In addition, the Company maintains its
operating line of credit with TBK Bank, SSB, under which TBK Bank will, from time to time, buy approved receivables from the
Company, which has a credit limit up to $
While we continue to execute our strategic plan, growing the Company and its customer base, management is focused on managing cash and monitoring our liquidity position. We have implemented several initiatives to conserve our liquidity position, including activities such as increasing credit facilities, when needed, reducing the cost of debt by obtaining more favorable financing, controlling general and administrative expenditures and improving our collection processes. Many of the aspects of the liquidity 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. Negative operating capital may be 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 February 28, 2023, management has concluded that the Company’s current cash and cash availability under the TBK Facility as of February 28, 2023, would be sufficient to fund its planned operations for at least one year from the date the consolidated financial statements were issued.
| F-7 |
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 February 28, 2023, 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 February 28, 2023 and May 31, 2022. 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 receivable recorded, net of allowance for
doubtful accounts. As of February 28, 2023, and May 31, 2022 the Company recorded an allowance for doubtful accounts of
approximately $
| F-8 |
Concentrations
As
of February 28, 2023, three major customers represented approximately
As
of May 31, 2022, 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 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 nine months ended February
28, 2023, the Company recorded a change in fair value of $
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liabilities as May 31, 2022 | $ | $ | $ | |||||||||
| Addition | ||||||||||||
| Change in fair value | ( | ) | ||||||||||
| Derivative liabilities as February 28, 2023 | $ | $ | $ | |||||||||
| F-9 |
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 the probability of 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 February 28, 2023, 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 December 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:
| February 28, 2023 | 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 through 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 through 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-10 |
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 the Port of entry (or in the case when the customer requires delivery to a designated point, the arrival at that delivery point). This overtime 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 consider 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.
Significant Changes in Contract Asset and Contract Liability Balances for the nine months ended February 28,2023:
| Contract | Contract | |||||||
| Assets | Liabilities | |||||||
| Increase | (Increase) | |||||||
| (Decrease) | 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 reclassification to receivables | ||||||||
| Net Change | $ | ( | ) | $ | ||||
| F-11 |
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates gross revenue from our clients by significant geographic area for the three and six months ended February 28, 2023, and 2022, based on origin of shipment (imports) or destination of shipment (exports):
| For the Three | For the Three | |||||||
| Months Ended | Months Ended | |||||||
| February 28, 2023 | February 28, 2022 | |||||||
| China, Hong Kong & Taiwan | $ | $ | ||||||
| Southeast Asia | ||||||||
| United States | ||||||||
| India Sub-continent | ||||||||
| Other | ||||||||
| Total revenue | $ | $ | ||||||
| For the Nine | For the Nine | |||||||
| Months Ended | Months Ended | |||||||
| February 28, 2023 | February 28, 2022 | |||||||
| China, Hong Kong & Taiwan | $ | $ | ||||||
| Southeast Asia | ||||||||
| United States | ||||||||
| India Sub-continent | ||||||||
| Other | ||||||||
| Total revenue | $ | $ | ||||||
Segment Reporting
Based on the guidance provided by ASC Topic 280, Segment Reporting, management has determined that the Company currently operates in one primary geographical segment, the US where most of the customers are 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 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.
| F-12 |
| For the Three Months Ended | ||||||||
| February 28, 2023 | February 28, 2022 | |||||||
| Numerator: | ||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | ) | ||||
| Effect of dilutive securities: | ||||||||
| Diluted net income (loss) | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average common shares outstanding – basic | ||||||||
| Dilutive securities: | ||||||||
| Series A Preferred | ||||||||
| Series B Preferred | ||||||||
| Series C Preferred | ||||||||
| Series D Preferred | ||||||||
| Weighted average common shares outstanding and assumed conversion – diluted | ||||||||
| Basic net income per common share | $ | $ | ) | |||||
| Diluted net income per common share | $ | $ | ) | |||||
| For the Nine Months Ended | ||||||||
| February 28, 2023 | February 28, 2022 | |||||||
| Numerator: | ||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | ) | ||||
| Effect of dilutive securities: | ||||||||
| Diluted net income (loss) | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average common shares outstanding – basic | ||||||||
| Dilutive securities: | ||||||||
| Series A Preferred | ||||||||
| Series B Preferred | ||||||||
| Series C Preferred | ||||||||
| Series D Preferred | ||||||||
| Weighted average common shares outstanding and assumed conversion – diluted | ||||||||
| Basic net income per common share | $ | $ | ( | ) | ||||
| Diluted net income per common share | $ | $ | ) | |||||
| F-13 |
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 exercised 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.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation.
| 2. | ACQUISITIONS AND EQUITY METHOD INVESTMENTS |
On February 21, 2023, the Company completed the acquisition via a stock purchase agreement (“SPA”) signed on April 28, 2022, and applicable amendments by and between the Company and Unique Logistics Holdings Limited, a Hong Kong corporation (the “ULHL”), whereby the Company acquired all ULHL’s share capital in eight (8) of ULHL’s operating subsidiaries as follows:
| Name of acquired operating subsidiary | Purchased Percentage | Designation | ||
| Unique Logistics International (H.K.) Limited | Consolidated subsidiary | |||
| Unique Logistics International (Vietnam) Co., Ltd. | Consolidated subsidiary | |||
| ULI (South China) Limited | Consolidated subsidiary | |||
| Unique Logistics International (South China) Limited | Consolidated subsidiary | |||
| Unique Logistics International (India) Private Ltd. | Consolidated subsidiary | |||
| ULI (North & East China) Company Limited | Equity-method investment | |||
| Unique Logistics International Co., Ltd | Equity-method investment | |||
| TGF Unique Limited | Equity-method investment |
| F-14 |
Purchase Price
The
total fair value of the consideration transferred was $
| Maturity Date | Description | Fair Value | Interest rate | |||||||||||||
| Cash at closing | $ | |||||||||||||||
| Promissory Notes | % | |||||||||||||||
| % | ||||||||||||||||
| % | ||||||||||||||||
| Contingent considerations | ||||||||||||||||
| % | ||||||||||||||||
| Purchase Price | $ | |||||||||||||||
Promissory Notes
As part of the acquisition, the Company issued certain promissory notes consisting of the following:
Promissory Note 1 in the principal amount of $
Promissory Note 2 in the principal amount of $
Promissory Note 3 in the principal amount of $
Promissory
Note 4 in the principal amount of $
Promissory Note 5 in the principal amount of $
Promissory
Note 6 in the principal amount of $
Promissory
Note 7 in the principal amount of $
| F-15 |
Contingent Considerations
At Closing, the Company issued two additional promissory notes, in lieu of cash, as payment of certain milestones set forth in the SPA that were already achieved:
| ● | Promissory
Note 8 in the principal amount of $ | |
| ● | Promissory
Note 9 in the principal amount of $ |
As of the acquisition date and based on the preliminary assessment by management, the seller (ULHL) fully met its obligation as it relates to the purchase price adjustments provided by the SPA and would be entitled to full amount of the contingent consideration, therefore the Company recorded these notes at fair value as stated in the promissory notes as of February 28, 2023.
In
addition to the Initial Purchase Price, ULHL will be eligible for a one-time cash earn-out payment in the amount of (i) $
All
contingent considerations and earn out payment are recorded in other current liabilities on the balance sheet as of February 28, 2023,
in the amount of $
Purchase Price Allocation
The Company obtained full control of five subsidiaries during the acquisition identified above and consolidated these subsidiaries as of the acquisition date. US GAAP requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquirer at the acquisition date, measured at their fair values as of that date. The acquisition method of accounting requires extensive use of estimates and judgments to allocate the considerations transferred to the identifiable tangible and intangible assets acquired and liabilities assumed.
| F-16 |
The following summarizes preliminary estimates of fair values of the assets acquired and liabilities assumed at the acquisition:
| Fair Value | ||||
| Assets Acquired: | ||||
| Current assets | $ | |||
| Equity method investments | ||||
| Identifiable intangible assets | ||||
| Fixed Assets and other non-current assets | ||||
| Liabilities Assumed: | ||||
| Current liabilities | ( | ) | ||
| Other long-term liabilities | ( | ) | ||
| Non-Controlling Interest | ( | ) | ||
| Goodwill | ||||
| Purchase Price | $ | |||
Total amount of goodwill recognized in this transaction was $
The Company paid approximately $
Identifiable intangible assets and their amortization periods are estimated as follows:
| Cost Basis | Useful Life | |||||||
| Customer relationships | $ | |||||||
| Non-compete agreements | ||||||||
| $ | ||||||||
Amortization of intangible assets was immaterial for the period from the acquisition date to the end of the reporting period February 28, 2023. The future amortization schedule is as follows:
| For the Twelve Months Ending February 28, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total. | $ | |||
Equity Method Investments
| The following summarizes financial information at fair value for the equity-method investments at the acquisition: | ||||
| Fair Value | ||||
| Current assets | $ | |||
| Noncurrent assets | ||||
| Total Assets | ||||
| Current liabilities | ||||
| Noncurrent liabilities | ||||
| Total liabilities | ||||
| Net assets of the equity investee | ||||
| Equity attributable to non-controlling interest | ( | ) | ||
| Equity attributable to registrant | ||||
| Equity goodwill attributable to registrant | ||||
| Total Equity method investment | $ | |||
| F-17 |
Pro Forma Information (Unaudited)
The results of operations of eight entities which the Company acquired on February 21, 2023, have not been included in our February 28, 2023, condensed consolidated financial statements because of the company’s decision to include earnings from consolidated subsidiaries and equity method investments on a one-month lag basis. The following unaudited pro forma financial information represents a summary of the consolidated results of operations for the three and nine months ended February 28, 2022, assuming the acquisitions had been completed as of June 1, 2021, first day of the period presented. The proforma adjustments include the elimination of intercompany revenue and expense transactions. The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had been effective as of these dates, or of future results.
| Three Months Ended February 28, 2022 | Nine Months Ended February 28, 2022 | |||||||
| Revenue, net | $ | $ | ||||||
| Net Income attributable to registrant | ||||||||
| Weighted average shares of common stock outstanding, basic and diluted (as previously reported) | ||||||||
| Net income per share, basic and diluted | $ | |||||||