UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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UNIQUE LOGISTICS INTERNATIONAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 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 | |
| F-3 | ||
| Condensed Consolidated Statements of Changes in Stockholders’ Equity | F-4 | |
| 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 | 10 |
| ITEM 4. | Controls and Procedures | 10 |
| PART II. OTHER INFORMATION | 11 | |
| ITEM 1. | Legal Proceedings | 11 |
| ITEM 1A. | Risk Factors | 11 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
| ITEM 3. | Defaults Upon Senior Securities | 11 |
| ITEM 4. | Mine Safety Disclosures | 11 |
| ITEM 5. | Other Information | 12 |
| ITEM 6. | Exhibits | 12 |
| SIGNATURES | 13 | |
| 2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| August 31, 2023 | May 31, 2023 | |||||||
| (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 noncurrent assets: | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Equity-method investments | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Deferred offering cost | ||||||||
| Other noncurrent assets | ||||||||
| Total other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and current liabilities | ||||||||
| Accrued freight | ||||||||
| Revolving credit facility | ||||||||
| Current portion of notes payable | ||||||||
| Current portion of notes payable to related parties | ||||||||
| Current portion of operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities | ||||||||
| Notes payable | ||||||||
| Notes payable to related parties, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Derivative liabilities | ||||||||
| Deferred tax liability, net | ||||||||
| Other noncurrent liabilities | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 6) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value: shares authorized | ||||||||
| Series A Convertible Preferred stock, $ par value; issued and outstanding as of August 31, 2023 and May 31, 2023, respectively. Liquidation preference $ | ||||||||
| Series B Convertible Preferred stock, $ par value; issued and outstanding as of August 31, 2023 and May 31, 2023, respectively. Liquidation preference of $ | ||||||||
| Series C Convertible Preferred stock, $ par value; , issued and outstanding as of August 31, 2023 and May 31, 2023, respectively. Liquidation preference $ | ||||||||
| Series D Convertible Preferred stock, $ par value; issued and outstanding as of August 31, 2023 and May 31, 2023, respectively. Liquidation preference $ | ||||||||
| Common stock, $ par value; shares authorized; shares issued and outstanding as of August 31, 2023 and May 31, 2023, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Retained earnings | ||||||||
| Total Stockholders’ Equity attributable to common shareholder | ||||||||
| Equity attributable to noncontrolling interests | ||||||||
| Total Stockholders’ 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 August 31, 2023 | For the Three August 31, 2022 | |||||||
| Revenues: | ||||||||
| Airfreight services | $ | $ | ||||||
| Ocean freight and ocean services | ||||||||
| Contract logistics | ||||||||
| Customs brokerage and other services | ||||||||
| Total revenues | ||||||||
| Equity method earnings | ||||||||
| 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 expense | ||||||||
| Total costs and operating expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Other income (expenses) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Change in fair value of derivative liabilities | ( | ) | ) | |||||
| Total other income (expenses) | ( | ) | ( | ) | ||||
| Net income (loss) before income taxes | ( | ) | ||||||
| Income tax expense (benefit) | ( | ) | ||||||
| Net income (loss) | ( | ) | ||||||
| Noncontrolling interest | ||||||||
| Net income (loss) attributable to for common shareholders | $ | ( | ) | $ | ||||
| Net income (loss) attributable to common shareholders per common share | ||||||||
| – basic | $ | $ | ||||||
| – diluted | $ | $ | ||||||
| Weighted average common shares outstanding | ||||||||
| – basic | ||||||||
| – diluted | ||||||||
See notes to accompanying condensed consolidated financial statements.
| F-2 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
| For the Three Months Ended August 31, 2023 | For the Three Months Ended August 31, 2022 | |||||||
| Net Income (loss) | $ | ( | ) | $ | ||||
| Other comprehensive income, net of tax: | ||||||||
| Foreign currency translation adjustments | ||||||||
| Total comprehensive income (loss) | ( | ) | ||||||
| Net loss attributable to noncontrolling interest | ||||||||
| Comprehensive income (loss) attributable to common shareholder | $ | ( | ) | $ | ||||
| F-3 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended August 31, 2023
| Series
A Preferred Stock | Series
B Preferred Stock | Series
C Preferred Stock | Series
D Preferred Stock | Common Stock | Additional Paid in | Accumulated Comprehensive | Retained | Total to common | Non- Controlling | Total Stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | income | earning | stockholder | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 1, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | $ | | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, August 31, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended August 31, 2022
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid in | Retained | Total Stockholders | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Equity | Shares | Amount | capital | earning | Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 1, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred A to Common Stock | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred D to Common Stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, August 31, 2022 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
See notes to accompanying condensed consolidated financial statements.
| F-4 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Three Months Ended August 31, 2023 | For the Three Months Ended August 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use assets | ||||||||
| Equity method investment income | ( | ) | ||||||
| Change in net deferred tax provision | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Accretion of consulting agreement | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ||||||||
| Prepaid expenses and current assets | ( | ) | ||||||
| Deposits and other noncurrent assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Accrued freight | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net Cash (Used in) Provided by Operating Activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable, net | ||||||||
| Repayments of debt due to related parties, net | ( | ) | ( | ) | ||||
| Deferred offering costs | ( | ) | ||||||
| Revolving credit facility, net | ( | ) | ||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ) | ||||||
| Effect of exchange rate on cash and equivalents | ||||||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents - Beginning of period | ||||||||
| Cash and cash equivalents - End of period | $ | $ | ||||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Operating lease asset and liability additions | $ | $ | ||||||
| Conversion of Preferred Stock Series D preferred to common | $ | $ | ||||||
| Conversion of Preferred Stock Series A preferred to common | $ | $ | ||||||
| F-5 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 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 non-asset-based provider of global logistics and freight forwarding services operating through a worldwide network of offices and exclusive or non-exclusive agents. The Company’s customers include retailers and wholesalers, electronics, high technology, industrial and manufacturing companies around the world. 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 (“GAAP”) and include all accounts of the Company and its majority owned 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. All intercompany transactions and balances have been eliminated in the condensed consolidated financial statements.
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. The results reported in these interim condensed consolidated financial statements should not be regarded as necessary indicative of results that may be expected for an entire fiscal year. 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, 2023. 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, 2023 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
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.
The
Company’s working capital was $
While the Company continues to execute its strategic plan and grow its customer base, management is focused on managing cash and monitoring liquidity position. 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. Based on our evaluation of the Company’s projected cash flows and business performance as of and subsequent to August 31, 2023, management has concluded that the Company’s current cash and cash availability under the TBK Facility would be sufficient to fund its planned operations for at least one year from the date the consolidated financial statements were issued.
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.
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-7 |
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 three months ended August 31, 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 Change | $ | ( | ) | $ | ||||
| F-8 |
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 August 31, 2023, and 2022, based on origin of shipment (imports) or destination of shipment (exports):
| For the Three | For the Three | |||||||
| Months Ended | Months Ended | |||||||
| August 31, 2023 | August 31, 2022 | |||||||
| China, Hong Kong & Taiwan | $ | $ | ||||||
| Southeast Asia | ||||||||
| United States | ||||||||
| India Sub-continent | ||||||||
| Other | ||||||||
| Total revenue | $ | $ | ||||||
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.
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.
| F-9 |
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 August 31, 2023, and May 31, 2023. 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 August 31, 2023, and May 31, 2023. 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 August 31, 2023, and May 31, 2023 the Company recorded an allowance for doubtful accounts of approximately
$
Concentrations
As
of August 31, 2023, three major customers represented approximately
Revenue
from three customers in the aggregate as a percentage of the Company’s total revenue was
| F-10 |
Goodwill and Other Intangibles
The Company accounts for business acquisitions in accordance with GAAP. Goodwill in such acquisitions is determined as the excess of fair value over amounts attributable to specific tangible and intangible assets. GAAP specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates.
In
accordance with GAAP, the Company does not amortize goodwill or indefinite-lived intangible assets. Management evaluates the remaining
useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue
to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite
useful life, it is amortized prospectively over its estimated remaining useful life. Amortizable intangible assets, including tradenames
and non-compete agreements, are amortized on a straight-line basis over
The Company tests goodwill for impairment annually as of May 31 or if an event occurs or circumstances change that indicate that the fair value of the entity, or the reporting unit, may be below its carrying amount (a “triggering event”). Whenever events or circumstances change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. If impairment is deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step impairment test is not required. In assessing the qualitative factors, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of the relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgements and assumptions. The judgement and assumptions include the identification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific events and share price trends, an assessment of whether each relevant factor will impact the impairment test positively or negatively, and the magnitude of such impact.
If a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
| F-11 |
Derivative Liability
Convertible Preferred Stock Series A, C and D feature anti-dilution provision that expires 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. An embedded derivative liability
is representing the rights of holders of Convertible Preferred Stock Series A, C and D to receive additional common stock of the Company
upon issuance of any additional common stock by the Company prior to qualified financing event as defined in the agreement. Each reporting
period, the embedded derivative liability, if material, would be adjusted to reflect fair value at each period end with changes in fair
value recorded in the “Change in fair value of embedded derivative liability” financial statement line item of the company’s
statements of operations. During the three months ended August 31, 2023, the Company recorded a change in fair value of $
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liabilities as of June 1, 2023 | $ | $ | $ | |||||||||
| Addition | ||||||||||||
| Change in fair value | ||||||||||||
| Derivative liabilities as of August 31, 2023 | $ | $ | $ | |||||||||
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 August 31, 2023, based on the assumption of how 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 is effective through December 31, 2023, the assumptions 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:
| August 31, 2023 | May 31, 2023 | |||||||
| Risk-free interest rate | % | % | ||||||
| Probability of financing event or capital raise | % | % | ||||||
| Estimated value of common stock | $ | per share | $ | per share | ||||
| Estimated time to financing event | ||||||||
Income Taxes
Income taxes are accounted for under the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, the tax effect of loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
| F-12 |
The Company uses a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating its tax positions and estimating our tax benefits, which may require periodic adjustments, and which may not match the ultimate future outcome.
U.S. corporate income tax laws and regulations include a territorial tax framework and provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries, Base Erosion and Anti-Abuse Tax (BEAT) under which taxes are imposed on certain base eroding payments to affiliated foreign companies as well as U.S. income tax deductions for Foreign-derived intangible income (FDII). The Company treats BEAT and GILTI as adjustments and components of current income tax expense.
Earnings of the Company’s foreign subsidiaries are not considered to be indefinitely reinvested outside of the United States.
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.
Basic Earnings Per Share (“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 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, preferred stock, stock options or warrants.
| F-13 |
| For the Three Months Ended | ||||||||
| August 31, 2023 | August 31, 2022 | |||||||
| Numerator: | ||||||||
| Net income (loss) | $ | ( | ) | |||||
| 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 (loss) per common share | $ | ) | $ | |||||
| Diluted net income (loss) per common share | $ | ) | $ | |||||
| * |
| August 31, 2023 | ||||
| Weighted average common shares outstanding – basic | ||||
| Series A Preferred | ||||
| Series B Preferred | ||||
| Series C Preferred | ||||
| Series D Preferred | ||||
| Weighted average common shares outstanding and assumed conversion – diluted | ||||
2. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following on August 31, 2023, and May 31, 2023:
| August 31, 2023 | May 31, 2023 | |||||||
| Accrued salaries and related expenses | $ | $ | ||||||
| Accrued sales and marketing expense | ||||||||
| Accrued professional fees | ||||||||
| Accrued income tax | ||||||||
| Accrued overdraft liabilities | ||||||||
| Other accrued expenses and current liabilities | ||||||||
| $ | $ | |||||||
| F-14 |
3. FINANCING ARRANGEMENTS
Financing arrangements on the consolidated balance sheets consists of:
| August 31, 2023 | May 31, 2023 | |||||||
| Revolving Credit Facility | $ | $ | ||||||
| Term Debt | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Revolving Credit Facility
The
Company’s Revolving Purchase, Loan and Security Agreement with TBK Bank, SSB, a Texas State Savings Bank matured on May 31, 2023.
The parties agreed to extend the maturity date and on July 20, 2023, the Company and TBK Bank entered into a new loan and security agreement
(the “New TBK Agreement,”) amending and restating in their entirety, the terms, conditions, agreements, covenants, obligations,
representations, and warranties of the existing TBK Agreement. The terms of the new agreement are substantially the same as the original
agreement. The New TBK Agreement provides for a facility under which TBK Bank will, from time to time, make advances under the Revolving
Credit Facility to the Company in such amounts as the Company may request, but not to exceed $
Term Debt
On
March 10, 2023, the Company entered into a financing agreement and related fee letter as a 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. The Financing Agreement provides for an initial senior secured term loan in a principal amount of $
Debt Covenants
The Company is subject to certain financial covenants as part of the financing agreement with both Revolving Credit Facility and Term Debt.
As of August 31, 2023, the Company was in compliance with the financial covenants except for the following:
Events of default have occurred per the financing agreement (Term Debt) with noncompliance related to meeting a EBITDA leverage ratio financial covenant. On October 23, 2023, the Company entered into a waiver agreement with CB Agent Services LLC, origination agent and Alter Domus (US) LLC, administrative agent to waive Section 7.01(c) of the financing agreement for the fiscal quarter ending August 31, 2023 default existing as of this date and specifically listed in the waiver agreement. The waiver is effective only in this specific instance and for the specific purpose set forth in the agreement and does not allow for any other or further departure from the terms and conditions of the Financing Agreement or any other loan document, which terms and conditions shall continue in full force and effect.
| F-15 |
4. RELATED PARTY TRANSACTIONS
The Company has the following debt due to related parties:
| August 31, 2023 | May 31, 2023 | |||||||
| Due to FTS (1) | $ | $ | ||||||
| Due to ULHK(2) | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| (1) |
The
Promissory Note dated March 30, 2021 in the principal amount $
Promissory
Note dated February 21, 2023, in connection with the acquisitions completed in the principal amount of $ |
| (2) |
On February 21, 2023, the Company completed the acquisition of eight ULHK operating subsidiaries, in a combination of cash and promissory notes issued to the Seller. As of August 31, 2023, some of these notes were paid off, or refinanced with the Term Debt.
|
Transactions listed below are between the Company and ULHK and its operating
subsidiaries. These are considered related party transactions due to ULHK being an entity with over
Accounts Receivable and Payable
Transactions
with related parties account for $
Revenue and Expenses
Revenue
from related party transactions is for export services from related parties or for delivery at place imports nominated by such related
parties. For the three months ended August 31, 2023, and 2022 these transactions represented approximately $
Direct
costs are services billed to the Company by related parties for shipping activities. For the three months ended August 31, 2023 and 2022
these transactions represented approximately $
Accounting Services
David
Briones, one of the Company’s directors, is the managing member and sole owner of the Brio Financial Group, a financial consulting
firm that the Company uses to assist it in preparing and reviewing its financial statements and Management’s Discussion and Analysis
disclosure in the reports that it files with the SEC pursuant to the requirements of the Exchange Act. Brio Financial Group billed the
Company $
| F-16 |
5. STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue shares of stock, a par value of $ per share.
During
the three months ended August 31, 2023, there were
Preferred Shares
The Company is authorized to issue shares of preferred stock, $ par value per share.
Preferred Shares
Series A Convertible Preferred
The holders of Series A Preferred stock. subject to the rights of holders of shares of the Company’s Series B Preferred stock which shares will be pari passu with Series B Preferred in terms of liquidation preference and dividend rights and are subject to an anti-dilution provision, making the holders subject to an adjustment necessary to maintain their agreed upon fully diluted ownership percentage.
Each holder of shares of Series A Preferred stock has the right to convert all or any portion of such holder’s Series A Preferred stock into fully paid and non-assessable shares of common stock at any time or from time to time at such holder’s sole discretion. Each share of Series A Preferred Stock as to which the conversion right is exercised may be converted into shares of the Company’s authorized but unissued shares of common stock.
If the Common Stock issuable upon conversion of Series A Preferred may be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise, then, in any such event, in lieu of the number of shares of common stock which the holders would otherwise have been entitled to receive, each holder of Series A Preferred Stock may have the right thereafter to convert such shares of Series A Preferred stock into a number of shares of such other class or classes of stock which a holder of the number of shares of common stock deliverable upon conversion of the Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.
If and whenever on or after the date on which the holder received shares of Series A Preferred stock (the “Issuance Date”) and through December 31, 2023, the anti-dilution termination date, the Company issues or sells, or in accordance with the terms herein is deemed to have issued or sold, any shares of common stock or equivalents, the number of conversion shares issuable upon conversion will be adjusted to entitle the holder to acquire such number of shares of common stock necessary to maintain the holders fully-diluted ownership percentage at the time of the Issuance Date.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the stockholders of record of shares of Series A Preferred shall be entitled to receive, at their option, immediately prior and in preference to any distribution to the holders of the Company’s common stock, $ par value per share and other junior securities, a liquidation preference equal to the Stated Value per share.
Series B Convertible Preferred
The holders of Series B Preferred stock, subject to the rights of holders of shares of the Company’s Series A Preferred stock which shares will be pari passu with the Series B Preferred in terms of liquidation preference and dividend rights, may be entitled to receive, at their option, immediately prior an in preference to any distribution to the holders of the Company’s common stock.
Each holder of shares of Series B Preferred stock has the right to convert all or any portion of such holder’s Series A Preferred Stock into fully paid and non-assessable shares of common stock at any time or from time to time at such holder’s sole discretion. Each share of Series B Preferred stock as to which the conversion right is exercised may be converted into shares of the Company’s authorized but unissued shares of common stock.
If the Common Stock issuable upon conversion of Series B Preferred may be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise, then, in any such event, in lieu of the number of shares of common stock which the holders would otherwise have been entitled to receive, each holder of Series B Preferred stock may have the right thereafter to convert such shares of Series B Preferred stock into a number of shares of such other class or classes of stock which a holder of the number of shares of common stock deliverable upon conversion of the Series B Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the stockholders of record of shares of Series B Preferred shall be entitled to receive, at their option, immediately prior and in preference to any distribution to the holders of the Company’s common stock, $ par value per share and other junior securities, a liquidation preference equal to the stated value per share.
Series C & D Convertible Preferred
The number of shares designated as Series C and D Preferred stock may be each. Such number may not be subject to increase without the written consent of the Series C and D holders of a majority of the then-issued and outstanding Series C or D Preferred stock. The Series C and D Preferred Stock have no voting rights.
Each share of Series C Preferred
Stock may be convertible, at any time and from time to time from and after the date of issuance, at the option of the Series C holder
thereof, into a number of shares of common stock determined in accordance with the conversion ratio calculated on the conversion date
where
Each share of Series D Preferred
stock may be convertible, at any time and from time to time from and after the date of issuance, at the option of the Series D holder
thereof, into a number of shares of common stock determined in accordance with the conversion ratio calculated on the conversion date
where
In order to maintain the conversion ratio, the fully diluted basis may be calculated as of the conversion date and after an anti-dilution termination event the conversion ratio will be set to the fully diluted basis as of the moment after the anti-dilution termination event without any further adjustments for any subsequent issuance of common stock or equivalents, by the Corporation after the anti-dilution termination event. An anti-dilution termination event is the earlier of (i) December 31, 2023, or (ii) the closing of the qualified financing or SPAC merger.
The holders of the Series C and D Preferred stock may be entitled to receive, upon liquidation, dissolution or winding up of the Company, the amount of cash, securities, or other property to which such holder would be entitled to receive with respect to such shares of Series C and D Preferred stock if such shares had been converted to common stock immediately prior to such liquidation.
| F-17 |
6. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the business. There are no claims or actions pending or threatened against the Company that, if adversely determined, would in the Company’s management’s judgment have a material adverse effect on the Company.
Leases
The Company leases office space, warehouse facilities and equipment under non-cancellable lease agreements expiring on various dates through October 2028. Office leases contain provisions for future rent increases. The Company adopted ASC 842 from inception, requiring the Company to recognize an asset and liability on the consolidated balance sheets for lease arrangements with terms longer than 12 months. The Company has elected the practical expedient to not apply the recognition requirement to leases with a term of less than one year (short term leases). The Company uses its incremental borrowing rate to discount lease payments to present value. The incremental borrowing rate is based on the estimated interest rate the Company could obtain for borrowing over a similar term of the lease at commencement date. Rental escalations, renewal options and termination options, when applicable, have been factored into the Company’s determination of lease payments when appropriate. The Company does not separate lease and non-lease components of contracts. Variable payments related to pass-through costs for maintenance, taxes and insurance or adjustments based on an index such as Consumer Price Index are not included in the measurement of the lease liability or asset and are expensed as incurred.
The components of lease expense were as follows:
| For the Three Months Ended | For the Three Months Ended | |||||||
| August 31, 2023 | August 31, 2022 | |||||||
| Operating lease | $ | |||||||
| Interest on lease liabilities | ||||||||
| Total net lease cost | $ | |||||||
Supplemental balance sheet information related to leases was as follows:
| August 31, 2023 | May 31, 2023 | |||||||
| Operating leases: | ||||||||
| Operating lease ROU assets – net | $ | $ | ||||||
| Current operating lease liabilities, included in current liabilities | ||||||||
| Noncurrent operating lease liabilities, included in long-term liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| F-18 |
Supplemental cash flow and other information related to leases was as follows:
| For the Three Months Ended | For the Three Months Ended | |||||||
| August 31, 2023 | August 31, 2022 | |||||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||
| Operating leases | $ | |||||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
Future minimum lease payments under noncancelable operating leases are as follows:
| August 31, 2023 | |||||
| 2024 (remaining) | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less: imputed interest | ( | ) | |||
| Total lease obligations | $ | ||||
| F-19 |
7. INCOME TAX PROVISION
The breakout of pretax income (loss) between foreign and domestic is as follows:
For the August 31, 2023 | For the August 31, 2022 | |||||||
| Domestic | $ | ( | ) | $ | ||||
| Foreign | ||||||||
| $ | ( | ) | $ | |||||
The expense (benefit) for income taxes consists of:
For the Three Months Ended August 31, 2023 | For the August 31, 2022 | |||||||
| Current: | ||||||||
| Federal | $ | ( | ) | $ | ||||
| State | ( | ) | ||||||
| Foreign | ( | ) | ||||||
( | ) | |||||||
| Deferred: | ||||||||
| Federal | ( | ) | ||||||
| State | ||||||||
| Foreign | ( | ) | ||||||
( | ) | |||||||
| Total tax expense (benefit) | $ | ( | ) | $ | ||||
Other noncurrent liabilities include liabilities for uncertain tax provision (UTP) as follows:
| For the Three Months Ended August 31, 2023 | For the Three Months Ended August 31, 2022 | |||||||
| Total UTP balance on June 1 | $ | $ | ||||||
| Additions based on tax provisions related to the current year | ||||||||
| Additions for tax positions of prior years | ||||||||
| Reductions for tax positions of prior years | ||||||||
| Settlements | ||||||||
| Reductions due to lapse of applicable statute of limitations | ||||||||
| Total UTP balance on August 31 | $ | $ |
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If applicable, interest and penalties related to the unrecognized tax positions are required to be calculated and would be classified as “tax expense” in the statement of operations.
These reserves would impact income tax expense if released into income. The Company does not expect a change to its unrealized tax positions in the next twelve months.
The Taxing jurisdiction that is significant to Company is the U.S. open tax years related to this taxing jurisdiction remains subject to examination and could result in additional tax liabilities. The Company is no longer subject to income tax examinations for years before 2019.
| F-20 |
The expected tax expense (benefit) based on the statutory rate is reconciled with actual tax expense benefit as follows:
| For the Three Months Ended August 31, 2023 | For the Three Months Ended August 31, 2022 | |||||||
| US Federal statutory rate (%) | ||||||||
| State income tax, net of federal benefit | ||||||||
| GILTI adjustment | ||||||||
| Foreign income taxes and adjustments | ||||||||
| FDII deduction | ( | ) | ( | ) | ||||
| Other | ( | ) | ||||||
| Income tax provision | ||||||||
8. SUBSEQUENT EVENTS
On
February 21, 2023, as part of the acquisition of operating subs from ULHL, the Company issued three promissory notes, as amended, with
an original principal amount of $
On
October 3, 2023, the Company and ULHL agreed to cancel, replace and supersede the Net Assets Note and the Taiwan Note, each in their
entirety, in favor of a newly issued promissory note as of the same date (the “New Note”). The New Note includes the remaining
balances of the Net Assets Note and the Taiwan Note, with an additional loan in the principal amount of $
On
October 9, 2023, the Company amended the Second Net Assets Note (the “Amended Second Net Assets Note” together with the New
Note, the “Notes”), which extended the
On October 23, 2023, the Company entered into a waiver agreement with CB Agent Services LLC, origination agent and Alter Domus (US) LLC, administrative agent to waive Section 7.01(c) of the financing agreement for the fiscal quarter ending August 31, 2023, default existing as of this date and specifically listed in the waiver agreement. The waiver is effective only in this specific instance and for the specific purpose set forth in the agreement and does not allow for any other or further departure from the terms and conditions of the Financing Agreement or any other loan document, which terms and conditions shall continue in full force and effect.
| F-21 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) that reflect management’s current views with respect to future events and financial performance. These statements are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgements and assumptions. We believe that the estimates, judgements and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgements and assumptions are made. These estimates, judgements and assumptions can affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our condensed consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report. The forward-looking statements made in this report are based only on events or information as of the date on which the statements are made in this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents we refer to in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. These risks include, by way of example and without limitation:
● The company provides services to customers engaged in international commerce. Everything that affects international trade has the potential to expand or contract our primary market and adversely impact our operating results
● We depend on operators of aircrafts, ships, trucks, ports and airports
● We derive a significant portion of our total revenues and net revenues from our largest customers
● Due to our dependence on a limited number of customers, we are subject to a concentration of credit risk
● Our earnings may be affected by seasonal changes in the transportation industry
● Our business is affected by ever increasing regulations from a number of sources in the United States and in foreign locations in which we operate
● As a corporation transacting business in multiple countries, we are subject to formal or informal investigations from governmental authorities or others in the countries in which we do business
● The global economy and capital and credit markets continue to experience uncertainty and volatility
● Our business is subject to significant seasonal fluctuations driven by market demands and each quarter is affected by seasonal trends.
● Our revenue and direct costs are subject to significant fluctuations depending on supply and demand for freight capacity.
| 3 |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission (“SEC”). We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
Business Overview and Recent Developments
The Company is a global logistics and freight forwarding company.
Unique Logistics provides a range of international logistics services that enable its customers to outsource to the Company sections of their supply chain process. Our global network of trained employees and integrated information systems seamlessly manage the services that we provide. We enable our customers to share data regarding their international vendors and purchase orders with us, execute the flow of goods and information under their operating instructions, provide visibility to the flow of goods from factory to distribution center or store and, when required, update their inventory records.
Our range of services can be categorized as follows:
| ● | Air freight services | |
| ● | Ocean freight services | |
| ● | Customs brokerage and compliance services | |
| ● | Warehousing and distribution services | |
| ● | Order management |
On February 21, 2023, the Company completed the acquisition of all of the share capital owned by Unique Logistics Holdings Limited, a Hong Kong company (“ULHK”), in eight subsidiaries (the “ULHK Entities”) for $26.5 million (the “ULHK Entities Acquisition”). In addition to the acquisition of the shares in the ULHK Entities, Unique Logistics acquired two companies that are owned by two of the ULHK Entities. We expect that the acquisition of these entities will have a material favorable impact on the Company’s revenues and consolidated income going forward.
Market and Business Trends
The logistics industry experienced a global slowdown in the June to August 2023 period compared with the corresponding prior year period. The slowdown was significant in relation to United States imports by ocean and even more so for air imports. In the corresponding period of 2022, United States importers were still shipping to build up inventory for anticipated sales in the post Covid period. On the other hand, in 2023, the outlook for importers changed and fears about excessive inventory in relation to inflation clouded sales forecasts dampened the shipping requirements of our customers. The slowdown impacted the Company’s business in the period January through August 2023 severely in comparison with the same period in the prior year. While the period June to August is generally a period when the flow of imported goods to the United States starts to pick up for the “back to school” season, in 2023 the more pessimistic outlook resulted in much lower shipping volumes. The lower volumes resulted in over capacity of space on ocean vessels and airlines which reduced both buying and selling prices. In these conditions of over-capacity, Unique Logistics sharpened its procurement strategies in an effort to improve yield. The Company successfully increased its net revenue yield to 13.1% for the reported quarter compared with 7.4% for the corresponding prior year quarter. As a consequence, while revenue dropped 53.9% in the quarter ended August 31, 2023 versus the quarter ended August 31, 2022, the gross margin decrease was contained at 18.1%.
We believe that despite the abovementioned slowdown in global markets, Unique Logistics is well positioned to grow its business and continue to build its customer base. We continue to expand our sales activities in the United States while targeting business growth in the markets served by the recently completed ULHK Entities Acquisition. Our sales activities now cover local markets in India, China, Hong Kong and Vietnam. Our existing customers in the United States project some growth in business in our second fiscal quarter and a more optimistic outlook for 2024.
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Results of Operations
Revenue
For the three months ended August 31, 2023 and 2022, Unique Logistics’ revenue by product line was as follows:
| For the Three Months ended August 31, 2023 | For the Three Months ended August 31, 2022 | $ change | % change | |||||||||||||
| Airfreight services | $ | 19,147,970 | $ | 29,934,037 | $ | (10,786,067 | ) | (36.0 | )% | |||||||
| Ocean freight and ocean services | 30,728,501 | 88,254,730 | (57,526,229 | ) | (65.2 | )% | ||||||||||
| Contract logistics | 572,712 | 768,714 | (196,002 | ) | (25.5 | )% | ||||||||||
| Customs brokerage and other services | 12,419,101 | 17,551,391 | (5,132,290 | ) | (29.2 | )% | ||||||||||
| Total revenues | $ | 62,868,284 | $ | 136,508,872 | (73,640,588 | ) | (53.9 | )% | ||||||||
The 53.9% decrease in total revenue for the three months ended August 31, 2023, compared to the three months ended August 31, 2022, is primarily due to decreases of 65.2 % in ocean freight and ocean services and 36.0 % in air freight services.
The decline in air freight revenue was primarily due to a volume reduction of approximately 51.7% over three-month period ended August 31, 2022, which accounted for 67.8% of the decline in air freight revenue quarter-over-quarter, due to a decrease in demand. During the quarter ended August 31, 2022, demand for air freight was still very strong due to the rebound of consumer purchases post-COVID. A price reduction of approximately 24.5% over the comparable period of the prior year, also due to a decrease in demand, accounted for the remainder of the decrease in air freight revenue.
The decline in ocean freight revenue was due to a volume reduction of approximately 22.0% and a pricing reduction of approximately 59.6% over the comparable period ended August 31, 2022, which individually were responsible for 28.4.0%% and 71.6%, respectively, of the decline in ocean freight revenue period-over period, in each case due to decreases in demand.
Management is expecting both the air and the ocean freight business to steadily improve in terms of volumes and to remain stable in terms of pricing during the remainder of fiscal 2024 based on the customer volume projections and secured customer commitments we have received to date. The Company also expects revenues from the ULHK Entities acquired on February 21, 2023, to have a positive impact on revenues for the interim periods and the full fiscal year ending May 31, 2024.
In addition, contract logistics and custom brokerage services revenue declined compared to the quarter ended August 31, 2022, because of the overall decrease in demand for shipping services, meaning less cargo being handled and less customer entries are being processed by brokerage.
Costs and Operating Expenses
| For
the Three Months ended August 31, 2023 | For
the Three Months ended August 31, 2022 | $ change | % change | |||||||||||||
| Costs and operating expenses: | ||||||||||||||||
| Airfreight services | $ | 17,892,433 | $ | 27,549,841 | $ | (9,657,408 | ) | (35.1 | )% | |||||||
| Ocean freight and ocean services | 25,819,755 | 81,937,860 | (56,118,105 | ) | (68.5 | )% | ||||||||||
| Contract logistics | 168,158 | 312,892 | (144,734 | ) | (46.3 | )% | ||||||||||
| Customs brokerage and other services | 10,748,897 | 16,644,743 | (5,895,846 | ) | (35.4 | )% | ||||||||||
| Salaries and related costs | 6,016,892 | 3,284,382 | 2,732,510 | 83.2 | % | |||||||||||
| Professional fees | 807,893 | 763,304 | 44,589 | 5.8 | % | |||||||||||
| Rent and occupancy | 1,096,565 | 529,110 | 567,455 | 107.2 | % | |||||||||||
| Selling and promotion | 714,971 | 100,854 | 614,117 | 608.9 | % | |||||||||||
| Depreciation and amortization | 699,400 | 200,674 | 498,726 | 248.5 | % | |||||||||||
| Other expense | 471,979 | 332,947 | 139,032 | 41.8 | % | |||||||||||
| Total costs and operating expenses | $ | 64,436,943 | $ | 131,656,607 | (67,219,664 | ) | (51.1 | )% | ||||||||
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Decreases in the cost of sales were partially offset by increases in other operating and administrative expenses, which increased by an aggregate of $5.0 million, during the three months ended August 31, 2023 compared to the three months ended August 31, 2022, primarily due to salaries and related costs for the employees of our new subsidiaries acquired in the ULHK Entities Acquisition, which accounted for $2.2 million of the increase; the balance of this increase resulted from our hiring six new employees based in the United States since August 31, 2022. The Company doesn’t expect significant increases in salaries and benefits going forward and is considering actions to implement in order to curtail these costs in future periods. Selling and promotion expenses increased by 608.9%, period-over-period, due to monthly recognition of commissions expense based on fiscal 2024 annual projections and an adjustment for an over accrued commissions made during the quarter ended August 31, 2022. Rent and occupancy expenses increased by 107.2%, period-over-period due to an approximately 50.0% increase in the rental rates under the renewed lease for our warehouse facility in Los Angeles and leasing of new offices during fiscal 2023 as the Company expanded globally. The Company doesn’t expect significant increases in rent and occupancy expenses going forward. The 248.5% increase in depreciation and amortization was the result of recognition of approximately $6.5 million of identifiable intangible assets such as customer relations and non-complete agreements as part of the ULHK Entities Acquisition. Finally, other expense, which consists primarily of insurance and IT related expenditures, increased 41.8% period-over-period primarily as a result of the addition of consolidated subsidiaries as a result of the ULHK Entities Acquisition, in particular, the inclusion of the ULHK Entities’ expenses in our operating results for the quarter ended August 31, 2023, additional insurance coverage and investments made in the preventive measures to address global cybersecurity threats. We do not expect these costs to increase significantly going forward.
Gross Margins
Although revenue and direct costs both decreased during the three months ended August 31, 2023 compared to the quarter ended August 31, 2022, the gross margin as a percentage of revenue increased from 7.4% to 13.1% period over period. This increase was primarily the result of our adoption of better planning and procurement practices, synergies achieved with recently acquired entities in strategic markets, better alignment and retention with our existing customers and positive contributions from our recently upgraded sales and customer service teams. Gross margin is an important measurement of the logistics company efficiency and profitability. The Company is focused on this and other measures when making strategic decisions and investments.
Other Income (Expenses)
During the quarter ended August 31, 2023, total other expenses were approximately $1.0 million and consisted primarily of $1.4 million of interest paid on our operating line of credit with TBK Bank, SSB, term debt and related party debt.
During the quarter ended August 31, 2022, total other expenses consisted of $1.4 million in interest expense offset by an $0.6 million increase in the fair value of derivative liabilities related to the antidilution provision imbedded in the Company’s preferred stock series A, D and C.
Income Tax Expense (Benefit)
Due to the loss before taxes recognized during the quarter ended August 31, 2023, the Company realized $0.5 million in tax benefits as part of its annual tax provision compared with income tax expense of $0.8 million recorded during the three months ended August 31, 2022, based on net income before income taxes of $4.1 million for that quarter.
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Liquidity and Capital Resources
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.
The following table summarizes the Company’s total current assets, liabilities and working capital at the dates indicated:
August 31, 2023 | May 31, 2023 | Change | % change | |||||||||||||
| Current Assets | $ | 64,091,141 | $ | 60,326,985 | $ | 3,764,156 | 6.2 | % | ||||||||
| Current Liabilities | 53,191,841 | 52,448,603 | 743,238 | 1.4 | % | |||||||||||
| Working Capital | $ | 10,899,300 | $ | 7,878,382 | $ | 3,020,918 | 38.3 | % | ||||||||
The Company’s working capital was $10.9 million and $7.9 million, respectively, as of August 31 and May 31, 2023. The Company maintains its operating line of credit with TBK Bank, SSB (the “TBK Facility”), and on July 25, 2023 the Company entered into an agreement with TBK Bank to renew the TBK Facility with a credit limit of up to $25.0 million. The funds available under the current TBK Facility provide the Company with the cash required to support its ongoing operations.
While the Company continues to execute its strategic plan and grow its customer base, management is focused on managing cash and monitoring the Company’s liquidity position. Many aspects of the liquidity projections 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. Based on our evaluation of the Company’s projected cash flows and business performance as of and subsequent to August 31, 2023, management has concluded that the Company’s current cash and cash availability under the TBK Facility would be sufficient to fund its planned operations for at least one year from the date that the consolidated financial statements were issued.
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Cash generated and used by the Company during the three-month periods ended August 31, 2023 and 2022 was as follows:
| For the Three Months ended August 31, 2023 | For
the August 31, 2022 | Change | ||||||||||
| Net cash provided by (used) in operating activities | $ | (9,615,876 | ) | $ | 301,164 | $ | (9,917,040 | ) | ||||
| Net cash used in investing activities | (263,353 | ) | (68,571 | ) | (194,782 | ) | ||||||
| Net cash provided (used in) by financing activities | 6,505,170 | (1,384,184 | ) | 7,889,354 | ||||||||
| Effect of exchange rate changes on cash | 3 | 3 | ||||||||||
| Net (decrease) in cash and cash equivalent | $ | (3,374,056 | ) | $ | (1,151,591 | ) | $ | (2,222,465 | ) | |||
Operating activities used cash of $9.6 million during the three months ended August 31, 2023 compared to net cash provided by operations of $0.3 million for the three months ended August 31, 2022. The primary reason for the cash used during the 2023 period was the $9.4 million increase in accounts receivable due to increase in sales and slower collections offset by a $2.0 million decrease in accounts payable due to timely payments made to the carriers. The primary reason for cash provided for the three months ended August 31, 2022, was the collections on accounts receivables offset by reduction in accounts payable and accrued freight.
Investing activities used cash of approximately $0.3 million during the three months ended August 31, 2023 compared to $0.1 million during the three months ended August 31, 2022. During the three months ended August 31, 2023, investing activities consisted of losses of approximately $0.2 million recognized from equity method investments (investments in non-consolidated subsidiaries) and cash used for purchases of equipment in the amount of approximately $0.1 million compared with approximately $0.1 million cash used for purchases of equipment during the period ended August 31, 2022.
Financing activities provided cash of $6.5 million during the three months ended August 31, 2023, primarily as a result of additional borrowing of $5.3 million under the TBK Facility and additional borrowing of $5.5 million in term debt. This increase was offset by repayments of the party debt in the amount of $4.3 million. . Cash used by financing activities during the three months ended August 31, 2022, was primarily for repayment of $1.4 million on the TBK Facility.
Critical Accounting Policies
Accounting policies, methods and estimates are an integral part of the condensed consolidated financial statements prepared by management and are based upon management’s current judgments. These judgments are normally based on knowledge and experience regarding past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. While there are a number of accounting policies, methods and estimates that affect our condensed consolidated financial statements, the areas that are particularly significant include revenue recognition; the fair value of acquired assets and liabilities; fair value of contingent consideration; the assessment of the recoverability of long-lived assets, goodwill and intangible assets; and leases.
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We perform an impairment test of goodwill for each year unless events or circumstances indicate impairment may have occurred before that time. We assess qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount. After assessing qualitative factors, if further testing is necessary, we would determine the fair value of each reporting unit and compare the fair value to the reporting unit’s carrying amount.
Intangible assets consist of customer relationships, trade names and trademarks and non-compete agreements arising from our acquisitions. Customer relationships are amortized on a straight-line basis over 12 to 15 years. Tradenames, trademarks and non-compete agreements, are amortized on a straight-line basis over 3 to 10 years.
We review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
The Company has identified derivative instruments arising from an antidilution provision in the Company’s preferred stock. Each reporting period, the embedded derivative liability is 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 condensed consolidated statements of operations.
Our significant accounting policies are summarized in Note 1 of our condensed consolidated financial statements.
Adjusted EBITDA
We define adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.
Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We present adjusted EBITDA because we believe that adjusted EBITDA is a useful supplement to net income as an indicator of operating performance. We use adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes that it provides additional information with respect to the performance of our fundamental business activities. For this reason, we believe that adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric.
Adjusted EBITDA should not be considered as an alternative to net income, as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of this non-GAAP financial measure to be considered in isolation or as a substitute for results prepared in accordance with GAAP. This non-GAAP financial measure should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP.
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Following is the reconciliation of our consolidated net income to adjusted EBITDA for the three months ended August 31, 2023 and 2022:
| For
the three months Ended August 31, 2023 | For
the three months ended August 31, 2022 | |||||||
| Net income (loss) | $ | (2,311,128 | ) | $ | 3,321,341 | |||
| Add Back: | ||||||||
| Income tax (benefit) | (493,831 | ) | 792,187 | |||||
| Depreciation and amortization | 699,400 | 200,674 | ||||||
| Change in fair value of derivative liability | 21,788 | (618,948 | ) | |||||
| Interest expense | 1,390,208 | 1,357,685 | ||||||
| Adjusted EBITDA | $ | (693,563 | ) | $ | 5,052,939 | |||
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our principal executive officer to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, the Company recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
As of August 31, 2023, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded, based upon the evaluation described above, that as of August 31, 2023, our disclosure controls and procedures were not effective and require remediation in order to be effective at the reasonable assurance level.
In addition, our auditors identified material weaknesses in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the audit of the fiscal year ended May 31, 2022. A material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to the fact that we did not design and maintain an effective control environment commensurate with our financial reporting requirements, including (a) lack of a sufficient number of trained professionals with an appropriate level of accounting knowledge, training and experience and (b) we have not completed a full risk assessment of our internal controls over financial reporting at the activity level, including process documentation and testing. In the course of preparing the financial statements for the year ended May 31, 2023, we identified separate material weaknesses in internal control over financial reporting, which relates to the ineffective design and implementation of information technology general controls (“ITGC”) combined with the lack of properly designed management review controls to compensate for these deficiencies. The Company’s ITGC deficiencies included improperly designed controls pertaining to user access rights and segregation of duties over systems that are critical to the Company’s system of financial reporting. Management’s general assessment of the above processes in light of the company’s size, maturity and complexity, as to the design and effectiveness of the internal control over financial reporting, is that the key controls and procedures in each of these processes provide reasonable assurance regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Changes in Internal Control over Financial Reporting
During the quarter ended August 31, 2023, the Company actively addressed and remediated a number of previously identified material weaknesses in its internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting, including all previously identified ITGC deficiencies. We improved our accounting processes and documentation, introduced new accounting policies and procedures, and added new accounting personnel. The Company has not completed a full risk assessment of its internal controls over financial reporting at the activity level, including process documentation and testing and because we have not completed a full risk assessment of the internal control over financial reporting at the activity level, including extensive process documentation and testing, we are not able to conclude that our internal control over financial reporting is operating effectively and efficiently at this time. The Company’s principal executive officer, principal financial officer, and board of directors are fully committed to achieving full compliance by the end of the fiscal year ending May 31, 2024.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any disputes and does not have any litigation matters pending that it believes could have a material adverse effect on its financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company’s executive officers or any of its subsidiaries, threatened against or affecting the Company, its common stock, any of its subsidiaries or of the Company’s or the Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
From time to time, however, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of our business. Litigation is subject to inherent uncertainties, and an adverse result in any such matters may arise from time to time that may harm our business.
ITEM 1A. RISK FACTORS
Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our most recent Annual Report on Form 10-K and in our other filings with the SEC, the occurrence of any one of which could have a material adverse effect on our actual results. There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K and our other filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER REPURCHAES OF EQUITY SECURITIES.
There were no unregistered sales of the Company’s equity securities during the quarter ended August 31, 2023.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| UNIQUE LOGISTICS INTERNATIONAL, INC. | ||
| By: | /s/ Sunandan Ray | |
| Sunandan Ray | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| October 23, 2023 | ||
| By: | /s/ Eli Kay | |
| Eli Kay | ||
| Chief Financial Officer (Principal Financial Officer) | ||
| October 23, 2023 | ||
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