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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 February 28, 2023

 

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 April 19, 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 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  $14,402,666   $1,422,393 
Accounts receivable, net   40,438,290    74,746,036 
Contract assets   3,859,562    30,970,581 
Other current assets and prepaids   3,769,572    1,404,021 
Total current assets   62,470,090    108,543,031 
           
Property and equipment, net   1,691,248    188,889 
           
Other long-term assets:          
Goodwill   8,449,454    4,463,129 
Identifiable intangible assets, net   13,322,344    7,337,704 
Equity-method investments   10,861,111    - 
Operating lease right-of-use assets, net   10,931,331    2,408,098 
Deferred tax asset, net   1,193,610    942,748 
Other noncurrent assets   2,021,926    1,028,336 
Total other long-term assets   46,779,776    16,180,015 
Total assets  $110,941,114   $124,911,935 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities:          
Accounts payable  $17,462,662   $49,028,862 
Accrued expenses and current liabilities   10,178,857    5,666,159 
Accrued freight   8,056,941    9,240,650 
Contract Liabilities   358,365    468,209 
Revolving credit facility   9,882,529    38,141,451 
Current portion of notes payable   17,804,500    608,333 
Current portion of noncurrent debt due to related parties   325,478    301,308 
Current portion of operating lease liability   2,422,306    912,618 
Other current liabilities   5,710,057    - 
Total current liabilities   72,201,695    104,367,590 
Noncurrent liabilities:          
Noncurrent portion of notes payable   1,500,000    - 
Noncurrent debt due to related parties, net of current portion   150,655    397,968 
Derivative liabilities   11,628,383    12,437,994 
Operating lease liability, net of current portion   8,813,569    1,593,873 
Other noncurrent liabilities   -    282,666 
Total noncurrent liabilities   22,092,607    14,712,501 
           
Total liabilities   94,294,302    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 February 28, 2023, and May 31, 2022, respectively. Liquidation preference $120 on February 28, 2023   120    130 
Series B Convertible Preferred stock, $0.001 par value; 820,800 shares issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $821 on February 28, 2023   821    821 
Series C Convertible Preferred stock, $0.001 par value; 195 shares, issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $18.5 million on February 28, 2023   -    - 
Series D Convertible Preferred stock, $0.001 par value; 180 and 187, issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $17.3 million on February 28, 2023   -    - 
           
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 February 28, 2023, and May 31, 2022, respectively.   799,143    687,197 
           
Additional paid-in capital   180,220    292,155 
Retained earnings   12,107,752    4,851,541 
Total Stockholders equity attributable to registrant   13,088,055    5,831,844 
Equity attributable to noncontrolling interests   3,558,757    - 
Total Stockholder’s Equity   

16,646,812

    

5,831,844

 
Total Liabilities and Stockholders’ Equity  $110,941,114   $124,911,935 

 

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  $13,206,112    127,787,167   $64,721,816   $455,020,012 
Ocean freight and ocean services   23,106,949    104,379,472    159,292,026    343,102,200 
Contract logistics   755,034    725,932    2,499,459    2,659,652 
Customs brokerage and other services   12,559,407    17,543,324    48,460,306    44,856,580 
Total revenues   49,627,502    250,435,895    274,973,607    845,638,444 
                     
Costs and operating expenses:                    
Airfreight services   11,964,314    127,220,095    59,465,104    447,865,096 
Ocean freight and ocean services   19,722,259    99,620,036    142,806,034    323,381,733 
Contract logistics   215,245    459,492    846,226    1,529,318 
Customs brokerage and other services   11,397,398    16,011,938    44,773,324    41,330,633 
Salaries and related costs   3,076,221    2,551,481    10,036,200    8,120,799 
Professional fees   39,082    190,765    1,213,807    669,091 
Rent and occupancy   883,681    508,621    2,026,363    1,478,600 
Selling and promotion   1,471,236    899,097    2,033,668    4,591,715 
Depreciation and amortization   203,390    196,347    606,030    585,019 
Other   323,747    524,933    993,508    1,975,000 
Total costs and operating expenses   49,296,573    248,182,805    264,800,264    831,527,004 
                     
Income from operations   330,929    2,253,090    10,173,343    14,111,440 
                     
Other income (expenses)                    
Interest expense   (546,791)   (1,395,396)   (2,876,776)   (4,566,876)
Amortization of debt discount   -    -    -    (776,515)
Loss on extinguishment of convertible notes payable   -    (1,344,087)   -    (564,037)
Gain on forgiveness of promissory note   -    -    -    358,236 
Change in fair value of derivative liabilities   64,955    (4,275,986)   809,611    (4,275,986)
Other Income   -    60,000    -    60,000 
                     
Total other income (expenses)   (481,836)   (6,955,469)   (2,067,165)   (9,765,178)
                     
Net income (loss) before income taxes   (150,907)   (4,702,379)   8,106,178    4,346,262 
                     
Income tax (credit) expense   (814,080)   228,207    849,967    2,765,207 
                     
Net income (loss)   663,173    (4,930,586)   7,256,211    1,581,055 
                     
Deemed Dividend   -    (4,565,725)   -    (4,565,725)
Net income (loss) available to common shareholders  $663,173  

$

(9,496,311)  $7,256,211   $(2,984,670)
Net income per common share                    
– basic  $-   $(0.01)  $0.01   $(0.01)
– diluted  $-   $(0.01)  $-   $(0.01)
                     
Weighted average common shares outstanding                    
– basic   799,141,770    655,781,078    780,768,778    582,680,746 
– diluted   9,677,967,424    655,781,078    9,659,594,432    582,680,746 

 

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

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   capital   Earning     Equity     Interest (1)   Total 
   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   130,000   $130    820,800   $821    195   $-    187   $-    687,196,478   $687,197   $292,155   $ 4,851,541     $ 5,831,844     $-   $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      

-

    

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      -    9,153,185 
                                                                                  
Net income   -    -    -    -    -    -    -    -    -    -    -     3,271,697       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      -    12,424,882 
                                                                                  
Recognition of non-controlling interest upon acquisition   -    -    -    -    -    -    -    -    -    -    -     -       -      3,558,757    3,558,757 
                                                                                  
Net income   -    -    -    -    -    -    -    -    -    -    -     663,173       663,173      -    663,173 
                                                                                  
Balance, February 28, 2023   120,065   $120    820,800   $821    195   $-    180   $-    799,141,770   $799,142   $180,220   $ 12,107,752     $

13,088,055

    $3,558,757   $16,646,812 

 

(1)The net income(loss) attributable to the non-controlling interest for the period from the date of acquisition of February 21, 2023 to February 28, 2023 was not material.

 

See notes to accompanying condensed consolidated financial statements.

 

F-3
 

 

For the Three and Nine Months Ended February 28, 2022

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
  

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   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 
Conversion of debt to preferred C and D                       195    -    192    -    -    -    -    -    - 
                                                                  
Deemed dividend   -    -    -    -    -    -    -    -    -    -    (4,565,725)   -    (4,565,725)
                                                                  
Net income   -    -    -    -    -                 -              (4,930,586)   (4,930,586)
Balance, February 28, 2022   130,000   $130    820,800   $821    195   $  -   192   $  -   655,781,078   $655,782    323,570    2,898,042    3,878,345 

 

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  $7,256,211   $1,581,055 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   606,030    585,019 
Amortization of debt discount   -    776,515 
Amortization of right of use assets   1,269,299    1,103,649 
Change in fair value of derivative liability   (809,611)   4,275,986 
Bad debt expense   -    850,000 
Gain on forgiveness of note payable   -    (358,236)
Loss on extinguishment of convertible notes payable   -    564,037 
Change in deferred tax asset   (261,118)   99,000 
Accretion of consulting agreement   (282,666)   (212,004)
Changes in operating assets and liabilities:         
Accounts receivable   58,562,998    (82,890,241)
Contract assets   27,111,019    (12,706,657)
Factoring reserve   -    7,593,665 
Other prepaid expenses and current assets   (2,716,596)   256,716 
Deposits and other assets   (1,533,533)   (20,000)
Accounts payable   (44,314,785)   18,807,393 
Accrued expenses and other current liabilities   (9,511,815)   2,962,457 
Accrued freight   (1,183,709)   5,397,339 
Contract liabilities   (109,844)   10,403,335 
Operating lease liability   (1,049,118)   (1,098,769)
Net Cash Provided by (Used in) Operating Activities   33,032,762    (42,029,741)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of equipment   

(94,900

)   

(54,474

)
Acquisitions of businesses, net of cash acquired   8,828,309    - 
Net Cash Used in Investing Activities   8,733,409   (54,474)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Revolving credit facility, net   (28,258,922)   43,888,787 
Proceeds from notes payable   -   2,000,000 
Repayments of notes payable   (303,833)   (2,821,664)
Repayments of debt due to related parties   (223,143)   (239,924)
Net Cash (Used in) Provided by Financing Activities   (28,785,898)   42,827,199 
           
Net change in cash and cash equivalents   12,980,273    742,984 
           
Cash and cash equivalents - Beginning of Period   1,422,393    252,615 
Cash and cash equivalents - End of Period  $14,402,666   $995,598 
SUPPLEMENTARY CASH FLOW INFORMATION:          
Cash paid during the period for:          
Income taxes  $1,932,100   $2,375,900 
Interest  $2,571,748   $4,072,366 
Non-cash transactions:          
Right-of-use assets obtained in exchange for lease liabilities  $8,897,639   $1,098,769 
Non-cash consideration paid in business acquisition (Note 2)  $

25,250,000

   $

-

 
Conversion of Series B Preferred to Common Stock  $-   $125,673 
Issuance of common stock for the conversion of principal net of accrued interest capitalized to principal to Notes Payable  $-   $244,931 
Reduction of debt due to exchange of convertible Notes for Preferred Stock Series C&D  $-   $3,861,162 

 

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 $9.7 million compared to positive working capital of $4.2 million as of May 31, 2022. This change is mainly due to the completion of the ULHL Entities Acquisition on February 21, 2023. At the time of the acquisition, the Company paid $3.5 million in cash and assumed further $23.8 million as current liabilities and $1.5 million in noncurrent liabilities by either issuing promissory notes to the seller or by recognizing contingent liabilities at fair value on its balance sheet as of February 28, 2023. The amount of $3.8 million of the purchase price was recorded as goodwill, $6.5 million was recorded as intangibles and $10.9 million of the purchase price was recorded as equity method investments. All these assets were classified as noncurrent assets while most of the liabilities associated with the acquisition were recorded as current liabilities, resulting in a temporary negative impact on working capital.

 

The Company intends to either timely pay off the $23.8 million in current liabilities associated with the acquisition with cash generated by its operations, cash accumulated in the acquired ULHL Entities or by refinancing a portion of the current liabilities with non-current debt, which will have a positive effect on the working capital. As of the date of filing this form, the Company paid off $10.0 million of the promissory notes, ahead of scheduled maturity. See Note 9, Subsequent Events

 

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 $35.0 million. In this regard, on March 10, 2023, the Company entered into a financing agreement and related fee letter as borrower with certain of its subsidiaries party thereto as guarantors, the lenders party thereto, CB Agent Services LLC, as origination agent, and Alter Domus (US) LLC, as collateral agent and administrative agent, that provides for an initial senior secured term loan in a principal amount of $4,210,526.32 and a delayed draw term loan facility in an aggregate principal amount of up to $14,789,473.68. This debt will be classified as a noncurrent liability, which will have a positive effect on the working capital. The Company intends to use some of the proceeds of these term loans to pay off approximately $9.0 million of the promissory notes and, after the closing of the business combination transaction with Edify Acquisition Corp. and to pay any deferred expenses relating to that transaction. See Note 9, Subsequent Events.

 

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 $47.5 million (the “TBK Facility”). The TBK Facility matures on May 31, 2023, and we expect that TBK Bank will renew the TBK Facility prior to its expiration, which will provide the Company with the cash required to support its ongoing operations in addition to cash generated by operating activities.

 

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 $1.7 million and $2.7 million, respectively.

 

F-8
 

 

Concentrations

 

As of February 28, 2023, three major customers represented approximately 13.0% of all accounts receivable and no single customer represented more than 10.0% of total accounts receivable. Revenue from these customers in the aggregate as a percentage of the Company’s total revenue was 18.0% and 20.0% for the three and nine months ended February 28, 2023, respectively, and no single customer represented more than 10.0% of total revenue.

 

As of May 31, 2022, three major customers represented approximately 21.0% of all accounts receivable and no single customer represented more than 10.0% of total accounts receivable. Revenue from these customers in the aggregate as a percentage of the Company’s total revenue was approximately 50.0% and 52.0% for three months ended February 28, 2022, and nine months ended February 28, 2022, respectively with only one customer A at 39.0% and 38.0% respectively, and customers B and C were less than 10.0% each.

 

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 $809,611 in the condensed consolidated statements of operations.  

 

   Level 1   Level 2   Level 3 
Derivative liabilities as May 31, 2022  $-   $-   $12,437,994 
Addition         -          -    - 
Change in fair value   -    -    (809,611)
Derivative liabilities as February 28, 2023  $-   $-   $11,628,383 

 

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   

5.0

%   1.60%
Probability of financing event or capital raise   90%   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 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  $-   $468,209 
Cash Received in advance and not recognized as revenue   -    (358,365)
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional   (39,978,761)    - 
Contract assets recognized, net reclassification to receivables   12,867,742    - 
Net Change  $(27,111,019)   $109,844 

 

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  $17,427,833   $82,006,657 
Southeast Asia   9,335,793    121,340,162 
United States   8,022,489    5,049,985 
India Sub-continent   8,602,665    34,943,595 
Other   6,238,722    7,095,496 
Total revenue  $49,627,502   $250,435,895 

 

   For the Nine   For the Nine 
   Months Ended   Months Ended 
   February 28, 2023   February 28, 2022 
China, Hong Kong & Taiwan  $123,977,602   $285,424,103 
Southeast Asia   72,449,913    361,600,180 
United States   29,699,664    28,254,253 
India Sub-continent   37,919,338    134,393,170 
Other   10,927,090    35,966,738 
Total revenue  $274,973,607   $845,638,444 

 

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.

 

Earnings per Share

 

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
 

 

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.

 

   February 28, 2023   February 28, 2022 
   For the Three Months Ended 
   February 28, 2023   February 28, 2022 
Numerator:          
Net income (loss) attributable to common stockholders  $663,173   $(9,496,311)
Effect of dilutive securities:   -    - 
           
Diluted net income (loss)  $663,173   $(9,496,311)
           
Denominator:          
Weighted average common shares outstanding – basic   799,141,770    655,781,078 
           
Dilutive securities:          
Series A Preferred   1,168,177,320    - 
Series B Preferred   5,373,342,576    - 
Series C Preferred   1,206,351,359    - 
Series D Preferred   1,130,954,399    - 
           
Weighted average common shares outstanding and assumed conversion – diluted   9,677,967,424    655,781,078 
           
Basic net income per common share  $0.00   $(0.01)
           
Diluted net income per common share  $0.00   $(0.01)

 

   February 28, 2023   February 28, 2022 
   For the Nine Months Ended 
   February 28, 2023   February 28, 2022 
Numerator:          
Net income (loss) attributable to common stockholders  $7,256,211   $(2,984,670)
Effect of dilutive securities:   -    - 
           
Diluted net income (loss)  $7,256,211   $(2,984,670)
           
Denominator:          
Weighted average common shares outstanding – basic   780,768,778    582,680,746 
           
Dilutive securities:          
Series A Preferred   1,168,177,320    - 
Series B Preferred   5,373,342,576    - 
Series C Preferred   1,206,351,359    - 
Series D Preferred   1,130,954,399    - 
           
Weighted average common shares outstanding and assumed conversion – diluted   9,659,594,432    582,680,746 
           
Basic net income per common share  $0.01   $(0.01)
           
Diluted net income per common share  $0.00   $(0.01)

 

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   100%   Consolidated subsidiary
Unique Logistics International (Vietnam) Co., Ltd.   65%   Consolidated subsidiary
ULI (South China) Limited   70%   Consolidated subsidiary
Unique Logistics International (South China) Limited   70%   Consolidated subsidiary
Unique Logistics International (India) Private Ltd.   65%   Consolidated subsidiary
ULI (North & East China) Company Limited   50%   Equity-method investment
Unique Logistics International Co., Ltd   50%   Equity-method investment
TGF Unique Limited   49.99%   Equity-method investment

 

F-14
 

 

Purchase Price

 

The total fair value of the consideration transferred was $28.8 million ($15.5 million, net of cash acquired).

 

     Maturity Date     Description     Fair Value     Interest rate 
                 
Cash at closing            $3,500,000      
                     
Promissory Notes   3/7/2023    Note 1 to ULHL    4,500,000    15.0%
    4/7/2023    Note 2 to ULHL    5,000,000    15.0%
    6/30/2023    Note 3 to ULHL    5,000,000    15.0%
    2/21/2025    Note 4 to ULHL    1,000,000    - 
    2/21/2025    Note 5 to FTS    500,000    - 
    6/30/2023    Note 6 to ULHL    2,000,000    - 
    6/30/2023    Note 7 to ULHL    1,000,000    - 
              19,000,000      
Contingent considerations                    
    6/30/2023    Note 8 to ULHL    2,500,000    15.0%
    2/21/2024    Note 9 to ULHL    2,000,000    - 
    2/21/2024    Earnout payment (estimated)    1,750,000    - 
              6,250,000      
                     
Purchase Price            $28,750,000      

 

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 $4,500,000 which matures March 7, 2023, having an interest rate of 15%.

 

Promissory Note 2 in the principal amount of $5,000,000 which matures April 7, 2023, having an interest rate of 15%.

 

Promissory Note 3 in the principal amount of $5,000,000 which matures June 30, 2023, having an interest rate of 15%

 

Promissory Note 4 in the principal amount of $1,000,000 which matures February 21, 2025 and bearing no interest.

 

Promissory Note 5 in the principal amount of $500,000 for the remaining 35% share capital of Unique Logistics International (India) Private Ltd. acquired by the Company from Frangipani Trade Services, Inc. (“FTS”), a New York corporation owned by Sunandan Ray, Chief Executive Officer of the Company, maturing February 21, 2025 and bearing no interest.

 

Promissory Note 6 in the principal amount of $2,000,000 due June 30, 2023 (the “Initial Taiwan Maturity Date”), bearing no interest and payable on: (a) July 15, 2023, provided that all government and other regulatory approvals necessary or required by Taiwan in order to consummate the Transaction as the same relates to Unique-Taiwan (the “Taiwan Approvals”) have been received by the Initial Taiwan Maturity Date; or (b) in the event that the Taiwan Approvals have not been received by the Taiwan Maturity Date, payment under this promissory note will be due and payable within fifteen (15) days of receipt of the Taiwan Approvals. This promissory note was issued in lieu of cash otherwise due under the original Local SPA in respect of the Purchased Shares of Unique-Taiwan.

 

Promissory Note 7 in the principal amount of $1,000,000 due June 30, 2023 (the “Initial Vietnam Maturity Date”), bearing no interest and payable on: (a) July 15, 2023, provided that all government and other regulatory approvals necessary or required by Vietnam in order to consummate the Transaction as the same relates to Unique-Vietnam (the “Vietnam Approvals”) have been received by the Initial Vietnam Maturity Date; or (b) in the event that the Vietnam Approvals have not been received by the Vietnam Maturity Date, payment under this promissory note will be due and payable within fifteen (15) days of receipt of the Vietnam Approvals. This promissory note was issued in lieu of cash otherwise due under the original Local SPA in respect of the Purchased Shares of Unique-Vietnam.

 

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 $2,500,000 due on June 30, 2023, having an interest rate of 15%. This Promissory Note was issued in respect of the purchase price adjustment provided for under the SPA.
     
  Promissory Note 9 in the principal amount of $2,000,000 due on February 21, 2024, and bearing no interest. This Promissory Note was issued in respect of the purchase price adjustment provided for under the SPA.

 

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) $2,500,000, if the EBITDA of the Purchased Shares, in the aggregate, exceeds $5,000,000 for the one-year period beginning on July 1, 2022 and ending June 30, 2023 (the “Earn Out Period”), or (ii) $2,000,000, if the EBITDA of the Purchased Shares, in the aggregate is equal to or less than $5,000,000 but exceeds $4,500,000, for the Earn Out Period, in each case, to be paid by the Company within 90 days of June 30, 2023. Management estimated fair value of the earnout payment based on the actual up to date performance of the acquired entities and the probability of the earn out payment occurrence to be at $1,750,000 as of February 28, 2023.

 

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 $5,710,057. While the first two contingent considerations were met by the Seller in its entirety, given the uncertain nature of the earn out payment, we conducted a sensitivity analysis based on both historical performance and projected performance throughout the period covered by the earn out payment. We determined the present value of the earn out payment based on the anticipated payment date of September 28, 2023, and the cost of debt of 15.0%.

 

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  $36,232,526 
Equity method investments   10,861,111 
Identifiable intangible assets   6,515,000 
Fixed Assets and other non-current assets   2,367,272 
      
Liabilities Assumed:     
Current liabilities   (27,326,110)
Other long-term liabilities   (327,861)
Non-Controlling Interest   (3,558,263)
      
Goodwill   

3,986,325

 
Purchase Price  $

28,750,000

 

 

Total amount of goodwill recognized in this transaction was $9,478,477, with $5,492,152 allocated to equity method investments and $3,986,325 recorded as additional goodwill on the balance sheet. The goodwill acquired is primarily attributable to the workforce retained of the acquired businesses and synergies expected to arise after the Company’s acquisition of the above operating subsidiaries. It is also anticipated that the goodwill will be deductible for tax purposes.

 

The Company paid approximately $0.5 million of closing costs for legal, accounting, and other professional fees which were expensed during the period ended February 28, 2023.

 

Identifiable intangible assets and their amortization periods are estimated as follows:

 

   Cost Basis   Useful Life 
Customer relationships  $

6,292,000

    7 years 
Non-compete agreements   

223,000

    1 year 
   $

6,515,000

      

 

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:

2024  $1,121,857 
For the Twelve Months Ending February 28,    
2024  $1,121,857 
2025   898,857 
2026   898,857 
2027   898,857 
2028   898,857 
Thereafter   1,797,715 
Total.  $6,515,000 

 

Equity Method Investments

 

 

The following summarizes financial information at fair value for the equity-method investments at the acquisition:    
   Fair Value 
Current assets  $17,493,164 
Noncurrent assets   152,658 
Total Assets   17,645,822 
Current liabilities   6,907,904 
Noncurrent liabilities   - 
Total liabilities   6,907,904 
Net assets of the equity investee   10,737,918 
Equity attributable to non-controlling interest   (5,368,959)
Equity attributable to registrant   5,368,959 
Equity goodwill attributable to registrant   

5,492,152

 
Total Equity method investment  $

10,861,111

 

 

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  $339,213,905   $

1,040,963,776

 
Net Income attributable to registrant   1,030,332    18,653,614 
Weighted average shares of common stock outstanding, basic and diluted (as previously reported)   655,781,078     

582,680,746

 
Net income per share, basic and diluted  $-