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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended November 30, 2023

 

or

 

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

 

For the transition period from _________ to _________

 

Commission file number: 000-50612

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   01-0721929

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     
154-09 146th Ave, Jamaica, NY   11434
(Address of principal executive offices)   (Zip Code)

 

678-365-6004

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Act:

 

Title of each class   Trading symbol(s)   Name of exchange on which registered
None   None   None

 

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

 

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

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: ☐

 

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

 

As of February 9, 2024, there were 799,141,770 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2023

 

TABLE OF CONTENTS

 

  Page
   
PART I. FINANCIAL INFORMATION F-1
     
ITEM 1. Financial Statements F-1
     
  Condensed Consolidated Balance Sheets as of November 30, 2023 (unaudited) and May 31, 2023 F-1
     
  Condensed Consolidated Statements of Operations for the Three and Six Months ended November 30, 2023 and 2022 (unaudited) F-2
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months ended November 30, 2023 and 2022 (unaudited) F-4
     
  Condensed Consolidated Statements of Cash Flows for the Six Months ended November 30, 2023 and 2022 (unaudited) F-5
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 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 13
     
ITEM 4. Controls and Procedures 13
     
PART II. OTHER INFORMATION 14
     
ITEM 1. Legal Proceedings 14
     
ITEM 1A. Risk Factors 14
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
     
ITEM 3. Defaults Upon Senior Securities 14
     
ITEM 4. Mine Safety Disclosures 14
     
ITEM 5. Other Information 14
     
ITEM 6. Exhibits 14
     
SIGNATURES 15

 

2
 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   November 30, 2023   May 31, 2023 
   (Unaudited)   (Audited) 
         
ASSETS          
Current Assets:          
Cash and cash equivalents  $6,148,097   $6,744,238 
Accounts receivable, net   39,205,888    41,402,435 
Contract assets   919,716    2,886,779 
Other current assets and prepaids   5,982,186    9,293,533 
Total current assets   52,255,887    60,326,985 
           
Property and equipment, net   573,298    609,785 
           
Other noncurrent assets:          
Goodwill   20,516,018    20,516,018 
Intangible assets, net   12,002,757    12,865,093 
Equity-method investments   3,233,118    3,381,683 
Operating lease right-of-use assets, net   10,091,318    10,269,516 
Deferred offering cost   3,004,992    2,419,976 
Other noncurrent assets   686,447    1,133,674 
Total other noncurrent assets   49,534,650    50,585,960 
Total assets  $102,363,835   $111,522,730 
           
Liabilities and Stockholders’ Equity          
Current Liabilities:          
Accounts payable  $19,432,782   $25,132,388 
Accrued expenses and current liabilities   6,569,992    8,594,947 
Accrued freight   2,477,881    3,489,957 
Revolving credit facility   14,024,194    8,050,227 
Current portion of notes payable   453,075    - 
Current portion of notes payable to related parties   150,655    4,801,310 
Current portion of operating lease liability   2,823,417    2,379,774 
Total current liabilities   45,931,996    52,448,603 
           
Noncurrent liabilities          
Notes payable   8,780,098    4,000,000 
Notes payable to related parties, net of current portion   9,899,013    8,750,000 
Operating lease liability, net of current portion   7,753,900    8,212,445 
Derivative liabilities   11,740,124    11,558,261 
Deferred tax liability, net   3,314,392    4,405,442 
Other noncurrent liabilities   2,773,727    4,552,346 
Total noncurrent liabilities   44,261,254    41,478,494 
           
Total liabilities   90,193,250    93,927,097 
           
Commitments and contingencies (Note 6)   -    - 
           
Stockholders’ Equity:          
Preferred Stock, $.001 par value: 5,000,000 shares authorized          
           
Series A Convertible Preferred stock, $0.001 par value; 120,065 issued and outstanding as of November 30, 2023 and May 31, 2023, respectively. Liquidation preference $120 on November 30, 2023   120    120 
Series B Convertible Preferred stock, $0.001 par value; 820,800 issued and outstanding as of November 30, 2023 and May 31, 2023, respectively. Liquidation preference of $821 on November 30, 2023   821    821 
Series C Convertible Preferred stock, $0.001 par value; 195, issued and outstanding as of November 30, 2023 and May 31, 2023, respectively. Liquidation preference $9.8 million on November 30, 2023   -    - 
Series D Convertible Preferred stock, $0.001 par value; 180 issued and outstanding as of November 30, 2023 and May 31, 2023, respectively. Liquidation preference $9.2 million on November 30, 2023   -    - 
           
Common stock, $0.001 par value; 800,000,000 shares authorized; 799,141,770 shares issued and outstanding as of November 30, 2023 and May 31, 2023, respectively.   799,142    799,142 
Additional paid-in capital   180,220    180,220 
Accumulated other comprehensive income   (239,979)   3,258 
Retained earnings   7,938,723    13,066,109 
Total Stockholders’ Equity attributable to common shareholder   8,679,047    14,049,670 
Equity attributable to noncontrolling interests   3,491,538    3,545,963 
Total Stockholders’ Equity   12,170,585    17,595,633 
Total Liabilities and Stockholders’ Equity  $102,363,835   $111,522,730 

 

See notes accompanying condensed consolidated financial statements.

 

F-1
 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATION

(Unaudited)

 

   For the
Three Months Ended
November 30, 2023
   For the
Three Months Ended
November 30, 2022
   For the
Six Months Ended
November 30, 2023
   For the
Six Months Ended
November 30, 2022
 
Revenues:                    
Airfreight services  $36,281,790   $21,581,667   $55,429,760   $51,515,704 
Ocean freight and ocean services   16,661,249    47,930,347    47,389,750    136,185,077 
Contract logistics   740,567    975,711    1,313,279    1,744,425 
Customs brokerage and other services   8,158,647    18,349,508    20,577,748    35,900,899 
Total revenues   61,842,253    88,837,233    124,710,537    225,346,105 
                     
Equity method earnings   275,056    -    450,752    - 
                     
Costs and operating expenses:                    
Airfreight services   34,405,651    19,950,949    52,298,084    47,500,790 
Ocean freight and ocean services   13,145,339    41,145,915    38,965,094    123,083,775 
Contract logistics   212,645    318,089    380,803    630,981 
Customs brokerage and other services   7,167,890    16,731,183    17,916,787    33,375,926 
Salaries and related costs   5,746,888    3,675,597    11,763,780    6,959,979 
Professional fees   824,569    411,421    1,632,462    1,174,725 
Rent and occupancy   1,109,425    613,572    2,205,990    1,142,682 
Selling and promotion   563,717    461,578    1,278,688    562,432 
Depreciation and amortization   750,943    201,966    1,450,343    402,640 
Foreign exchange transactions, net   (99,881)   -    (294,067)   - 
Other   (634)   336,814    665,531    669,761 
Total costs and operating expenses   63,826,551    83,847,084    128,263,494    215,503,691 
                     
(Loss) income from operations   (1,709,243)   4,990,149    (3,102,206)   9,842,414 
                     
Other income (expenses)                    
Interest expense   (1,026,165)   (972,300)   (2,416,373)   (2,329,985)
Change in fair value of derivative liabilities   (160,075)   125,708    (181,863)   744,656 
Total other income (expenses)   (1,186,240)   (846,592)   (2,598,236)   (1,585,329)
                     
Net (loss) income before income taxes   (2,895,483)   4,143,557    (5,700,442)   8,257,085 
                     
Income tax expense (benefit)   (24,800)   871,860    (518,631)   1,664,047 
                     
Net (loss) income   (2,870,683)   3,271,697    (5,181,811)   6,593,038 
                     
Noncontrolling interest   (26,052)   -    54,425    - 
                     
Net (loss) income attributable to for common shareholders  $(2,896,735)  $3,271,697   $(5,127,386)  $6,593,038 
                     
Net income (loss) available for common shareholders per common share                    
– basic  $(0.00)  $0.00   $(0.01)  $0.01 
– diluted  $(0.00)  $0.00   $(0.01)  $0.00 
                     
Weighted average common shares outstanding                    
– basic   799,141,770    799,141,770    799,141,770    771,683,232 
– diluted   799,141,770    9,677,967,424    799,141,770    9,650,508,886 

 

See notes to accompanying condensed consolidated financial statements.

 

F-2
 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

   For the Three   For the Three 
   Months Ended   Months Ended 
   November 30, 2023   November 30, 2022 
Net (loss) income   (2,870,683)   3,271,697 
Other comprehensive income (OCI), net of tax:          
Foreign currency translation adjustments   (160,511)   - 
OCI tax effect   84,024    - 
Total comprehensive (loss) income   (2,947,170)   3,271,697 
Net loss attributable to noncontrolling interest   (26,052)   - 
Comprehensive (loss) income attributable to common shareholder   (2,973,222)   3,271,697 

 

   For the Six   For the Six 
   Months Ended   Months Ended 
   November 30, 2023   November 30, 2022 
Net (loss) income   (5,181,811)   6,593,038 
Other comprehensive income, net of tax:          
Foreign currency translation adjustments   (327,261)   - 
OCI tax effect   84,024    - 
Total comprehensive (loss) income   (5,425,048)   6,593,038 
Net loss attributable to noncontrolling interest   54,425    - 
Comprehensive (loss) income attributable to common shareholder   (5,370,623)   6,593,038 

 

F-3
 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 

For the Three and Six Months Ended November 30, 2023

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   capital   income   earning   stockholder   Interest   Equity 
   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
Stockholders’
equity
attributable 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   120,065   $   120    820,800   $821    195   $    -    180   $       -    799,141,770   $799,142   $180,220   $3,258   $13,066,109   $       14,049,670   $3,545,963   $17,595,633 
                                                                                 
Other comprehensive income (loss), net of tax   -    -    -    -    -    -    -    -    -    -    -    (166,750   -    (166,750   -    (166,750
                                                                                 
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    (2,230,651)   (2,230,651)   (80,477)   (2,311,128)
                                                                                 
Balance, August 31, 2023   120,065    120    820,800    821    195    -    180    -    799,141,770    799,142    180,220    (163,493   10,835,458    11,652,269    3,465,486    15,117,755 
Other comprehensive income (loss), net of tax   -    -    -    -    -    -    -    -    -    -    -    (76,487)   -    (76,487)   -    (76,487)
                                                                                 
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    (2,896,735)   (2,896,735)   26,052    (2,870,683)
Balance, November 30, 2023   120,065   $120    820,800   $821    195   $-    180   $-    799,141,770   $799,142   $180,220   $(239,979)  $7,938,723   $8,679,047   $3,491,538   $12,170,585 

 

For the Three and Six Months Ended November 30, 2022

 

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

 

See notes accompanying condensed consolidated financial statements.

 

F-4
 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   For the
Six Months Ended
November 30, 2023
   For the
Six Months Ended
November 30, 2022
 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net (loss) income  $(5,181,811)  $6,593,038 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:          
Depreciation and amortization   1,450,343    402,640 

Bad debt recovery

   (594,388)     
Amortization of right of use assets   1,428,413    719,517 
Equity method earnings   (450,752)     
Change in net deferred tax provision   (1,091,050)   (44,900)
Change in fair value of derivative liabilities   181,863    (744,656)
Accretion of consulting agreement   -    (141,336)
Changes in operating assets and liabilities:          
Accounts receivable   2,790,935    23,397,504 
Contract assets   1,967,063    17,165,715 
Prepaid expenses and current assets   3,311,347    (856,948)
Deposits and other noncurrent assets   447,227    (568,590)
Accounts payable   (5,699,607)   (18,073,339)
Accrued expenses and other current liabilities   (3,803,574)   (767,526)
Accrued freight   (1,012,076)   (8,044,704)
Contract liabilities   -    (468,209)
Operating lease liability   (1,265,117)   (709,828)
Net Cash (Used in) Provided by Operating Activities   (7,521,184)   17,858,378 
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (551,520)   (83,934)
Dividends received from equity method investments   599,318    - 
Net Cash Used in Investing Activities   

47,798

    

(83,934

)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Borrowing (repayments) from notes payable   5,233,173    (304,166)
Borrowing (repayments) of debt due to related parties   (3,501,642)   (198,990)
Borrowing (repayments) line of credit, net   5,973,967    (17,449,636)
Deferred offering costs   (585,016)   - 
Net Cash Provided by (Used in) Financing Activities   7,120,482    (17,952,792)
           
Effect of exchange rate on cash and equivalents   (243,237)   - 
           
Net change in cash and cash equivalents   (596,141)   (178,348)
           
Cash and cash equivalents - Beginning of period   6,744,238    1,422,393 
Cash and cash equivalents - End of period  $6,148,097   $1,244,045 
SUPPLEMENTARY CASH FLOW INFORMATION:          
Cash Paid During the period for:          
Income taxes  $883,551   $1,415,758 
Interest  $2,337,059   $2,184,260 
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Operating lease asset and liability additions  $1,250,215   $8,891,206 
Conversion of Preferred Stock Series D preferred to common  $-   $43,981 
Conversion of Preferred Stock Series A preferred to common  $-   $67,954 

 

F-5
 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

November 30, 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 $6.3 million and $7.9 million as of November 30 and May 31, 2023, respectively. The Company maintains its operating line of credit with TBK Bank, SSB, and on July 20, 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 Company has experienced negative operating cash flows during the six months ended November 30, 2023 due to adverse market conditions. The Company relied heavily on its cash collections, cash reserves, dividends received from the recently acquired subsidiaries, and the use of its operating line of credit. The funds available under the current TBK Facility are sufficient to provide the Company with the cash required to support its ongoing operations until market conditions improve.

 

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 November 30, 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 six months ended November 30, 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   (3,140,423)   - 
Contract assets recognized   1,173,360    - 
Net Change  $(1,967,063)  $- 

 

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 November 30, 2023 and 2022, based on origin of shipment (imports) or destination of shipment (exports):

 

   For the
Three Months Ended
November 30, 2023
   For the
Three Months Ended
November 30, 2022
 
China, Hong Kong & Taiwan  $14,375,941   $42,491,614 
Southeast Asia   12,062,505    21,132,687 
United States   13,622,472    11,277,753 
India Sub-continent   16,288,777    10,519,966 
Other   5,492,558    3,415,213 
Total revenue  $61,842,253   $88,837,233 

 

   For the
Six Months Ended
   For the
Six Months Ended
 
   November 30, 2023   November 30, 2022 
China, Hong Kong & Taiwan  $28,737,587   $106,549,769 
Southeast Asia   22,357,449    63,114,120 
United States   20,337,485    21,677,175 
India Sub-continent   34,925,534    29,316,674 
Other   18,352,482    4,688,367 
Total revenue  $124,710,537   $225,346,105 

 

Foreign Currency

 

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).

 

Transaction gains or losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. We aggregate all transaction gains and losses and classify the net amount in a single caption in the income statement in operating income as Foreign exchange transactions, net.

 

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 November 30, 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 November 30, 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 November 30, 2023, and May 31, 2023 the Company recorded an allowance for doubtful accounts of approximately $0.7 million and $1.7 million, respectively and the bad debt expense was immaterial for each of the three and six months ended November 30, 2023 and 2022.

 

Concentrations

 

As of November 30, 2023, three major customers represented approximately 26.0% of all accounts receivable and no single customer represented more than 10.0% of total accounts receivable except for Customer A who represented 16%. As of May 31, 2023, three major customers represented approximately 21.0% of all accounts receivable and no single customer represented more than 10.0% of total accounts receivable.

 

Revenue from three customers in the aggregate as a percentage of the Company’s total revenue was 34.0 % and 25.0%, respectively, for the three months and six months ended November 30, 2023, and no single customer represented more than 10.0% of total revenue except for customer A who represented 19%. Revenue from these three major customers as a percentage of the Company’s total revenue was 20.0% and 21.0% for the three and six months ended November 30, 2022, respectively, and no single customer represented more than 10.0% of total revenue except for Customer A who represented 13%.

 

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 3 to 10 years. Customer relationships are amortized on a straight-line basis over 12 to 15 years.

 

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. The change in fair value of the derivative instrument recorded for the three and six months ended November 30, 2023 was an increase of $160,075 and $181,863, respectively.

 

   Level 1   Level 2   Level 3 
Derivative liabilities as of June 1, 2023  $    -   $    -   $11,558,261 
Addition   -    -    - 
Change in fair value   -    -    181,863 
Derivative liabilities as of November 30, 2023  $-   $-   $11,740,124 

 

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 November 30, 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 January 15, 2024, 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:

 

   November 30, 2023   May 31, 2023 
Risk-free interest rate   5.5%   5.5%
Probability of financing event or capital raise   90%   90%
Estimated value of common stock  $10.00 per share   $10.00 per share 
Estimated time to financing event   0.13 years    0.42 years 

 

Income Taxes

 

Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in the applicable quarter. In each quarter, the estimated annual effective tax rate is updated and a year-to-date adjustment to the provision is made. The estimated annual effective tax rate is subject to significant volatility due to several factors, including the mix of pretax income or loss across multiple jurisdictions and certain book-tax differences.

 

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.

 

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.

 

F-12
 

 

Segment Reporting

 

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

 

Earnings per Share

 

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
 

 

The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income (loss) attributable to common stockholders per common share.

 

          
   For the Three Months Ended 
   November 30, 2023   November 30, 2022 
Numerator:          
Net (loss) income  $(2,870,683)   3,271,697 
Effect of dilutive securities:        - 
Diluted net income (loss)  $(2,870,683)   3,271,697 
           
Denominator:          
Weighted average common shares outstanding – basic   799,141,770    799,141,770 
           
Dilutive securities*:          
Series A Preferred  -    1,168,177,320 
Series B Preferred  -    5,373,342,576 
Series C Preferred  -    1,206,351,359 
Series D Preferred  -    1,130,954,399 
           
Weighted average common shares outstanding and assumed conversion – diluted   799,141,770    9,677,967,424 
           
Basic net income (loss) per common share  $(0.00)  $0.00 
           
Diluted net income (loss) per common share  $(0.00)  $0.00 

 

          
   For the Six Months Ended 
   November 30, 2023   November 30, 2022 
Numerator:          
Net (loss) income   $(5,181,811)  $6,593,038 
Effect of dilutive securities:        - 
           
Diluted net income  $(5,181,811)  $6,593,038 
           
Denominator:          
Weighted average common shares outstanding – basic   799,141,770    771,683,232 
           
Dilutive securities*:          
Series A Preferred  -    1,168,177,320 
Series B Preferred  -    5,373,342,576 
Series C Preferred  -    1,206,351,359 
Series D Preferred  -    1,130,954,399 
           
Weighted average common shares outstanding and assumed conversion – diluted   799,141,770    9,650,508,886 
           
Basic net income per common share  $(0.01)  $0.01 
           
Diluted net income per common share  $(0.01)  $0.00 

 

* Due to a net loss for the three and six months ended November 30, 2023, only weighted average common shares are used in calculations. In case of net income for these periods, the Company’s dilution of all outstanding securities would be as follows:

 

   November 30, 2023 
Weighted average common shares outstanding – basic   799,141,770 
Series A Preferred   1,168,177,320 
Series B Preferred   5,373,342,576 
Series C Preferred   1,206,351,359 
Series D Preferred   1,130,954,399 
Weighted average common shares outstanding and assumed conversion – diluted   9,677,967,424 

 

Pro Forma Information (Unaudited)

 

The results of operations of eight entities which the Company acquired on February 21, 2023, have not been included in our November 30th, 2022, condensed consolidated financial statements but are included in the November 30th, 2023, condenses financials statements. The following unaudited pro forma financial information represents a summary of the consolidated results of operations for the three and six months ended November 30, 2022, assuming the acquisitions had been completed as of June 1, 2022, first day of the period presented. The proforma adjustments include the elimination of intercompany revenue and expense transactions. The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had been effective as of these dates, or of future results.

   Three Months Ended
November 30, 2022
   Six Months Ended
November 30, 2022
 
         
Revenue, net  $132,615,083   $319,418,469 
Net Income attributable to registrant   5,742,487    12,493,462 
Weighted average shares of common stock outstanding, basic (as previously reported)   799,141,770    771,683,232 
Weighted average shares of common stock outstanding, diluted (as previously reported)   9,677,967,424    9,650,508,886 
Net income per share, basic  $0.01   $0.02 
Net income per share, diluted  $-   $- 

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current year’s presentation.

 

2. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following on November 30, 2023, and May 31, 2023:

 

   November 30, 2023   May 31, 2023 
         
Accrued salaries and related expenses  $903,762   $1,938,111 
Accrued sales and marketing expense   205,220    768,713 
Accrued professional fees   2,622,508    2,574,542 
Accrued income tax   608,966    1,531,789 
Accrued Interest   537,076    - 
Other accrued expenses and current liabilities   1,692,460    1,782,792 
Accrued expenses and other current liabilities  $6,569,992   $8,594,947 

 

F-14
 

 

3. FINANCING ARRANGEMENTS

 

Financing arrangements on the consolidated balance sheets consists of:

 

   November 30, 2023   May 31, 2023 
         
Revolving Credit Facility  $14,024,194   $8,050,227 
Term loans   9,233,173    4,000,000 
Notes payable, gross   23,257,367    12,050,227 
Less: Current portion   (14,477,269)   (8,050,227)
Long term, notes payable  $8,780,098   $4,000,000 

 

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 $25,000,000. This loan is scheduled to mature on June 1, 2025.

 

Term Loans

 

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 $4,210,526 which was received on March 13, 2023 and a delayed draft term loan in an aggregate principal amount of up to $14,789,474. On June 30, 2023, the Company borrowed on the delayed draft term loan amount of $5,263,158. Each term loan under the financing agreement shall be, at the option of the Company, either a base rate loan or a SOFR Loan. Interest on each term loan shall be payable monthly in arrears, on the first business day of each month. The outstanding principal amounts for all loans are subject to mandatory quarterly amortization at various rates, payable quarterly, throughout the life of the loan. All loans mature on March 10, 2026. As of November 30, 2023, the outstanding principal amount for all loans was $9,233,173.

 

Debt Covenants

 

The Company is subject to certain financial covenants as part of the financing agreement with both Revolving Credit Facility with TBK Bank and Term Debt.

 

As of November 30, 2023, the Company was in compliance with the financial covenants except for the following:

 

An event of default has occurred with the loan and security agreement with TBK Bank as a result of the Company failing to maintain, as of the last day of the fiscal quarter ended November 30, 2023, a fixed charge coverage ratio at a specified rate. On February 5, 2024, the Company entered into a waiver and amendment number 1 to the loan and security agreement with TBK Bank where the bank agreed to waive this default and to make certain modifications to the loan agreement.
   
An event of default has occurred per the Term Debt with noncompliance related to meeting EBITDA leverage ratio financial covenant. On February 5, 2024, the Company entered into a waiver to financial 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 November 30, 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:

 

   November 30, 2023   May 31, 2023 
         
Due to FTS (1)  $650,655   $801,310 
Due to ULHK(2)   9,399,013    12,750,000 
Total due to related party transaction   10,049,668    13,551,310 
Less: current portion   (150,655)   (4,801,310)
Non current portion  $9,899,013   $8,750,000 

 

(1) Two Notes due to Frangipani Trade Services (“FTS”), an entity owned by the Company’s CEO:
   
  The Promissory Note dated March 30, 2021 in the principal amount $903,927 bears no interest provided that any amount due under this Note which is not paid when due shall bear interest at an interest rate equal to six percent (6%) per annum. The principal amount is due and payable in six payments of $150,655. The first payment was due on November 30, 2021, with each succeeding payment to be made six months after the preceding payment. The balance of this Promissory Note due within the next 12 months is $150,655 as of November 30, 2023.
   
  Promissory Note dated February 21, 2023, in connection with the acquisitions completed in the principal amount of $500,000 for the remaining 35% share capital of Unique Logistics International (India) Private Ltd. acquired by the Company from FTS maturing February 21, 2025, and bearing no interest.
   
(2) Due to ULHK, the entity with over 10% investment in the Company.
   
  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 November 30, 2023, some of these notes were paid off or had been refinanced.

 

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 10% investment in the Company.

 

Accounts Receivable and Payable

 

Transactions with related parties account for $2.5 million and $2.1 million of accounts receivable and accounts payable as of November 30, 2023, respectively, compared to $3.5 million and $2.9 million of accounts receivable and accounts payable as of May 31, 2023, respectively.

 

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 November 30, 2023 and 2022 these transactions represented approximately $0.4 million and $1.2 million, respectively. For the six months ended November 30, 2023 and 2022, these transactions represented $0.6 million and $1.9 million, respectively.

 

Direct costs are services billed to the Company by related parties for shipping activities. For the three months ended November 30, 2023, and 2022 these transactions represented approximately $1.8 million and $13.1 million, respectively. For the six months ended November 30, 2023 and 2022, these transactions represented $2.5 million and $39.0 million, respectively.

 

F-16
 

 

5. STOCKHOLDERS’ EQUITY

 

Common Stock

 

The Company is authorized to issue 800,000,000 shares of stock, a par value of $0.001 per share.

 

During the three months ended November 30, 2023, there were no common stock issuances and no conversions of Preferred Shares.

 

Preferred Shares

 

The Company is authorized to issue 5,000,000 shares of preferred stock, $0.001 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 6,546.47 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, $0.001 par value per share and other junior securities, a liquidation preference equal to the Stated Value per share.

 

During the six months ended November 30, 2023, there were no conversions of Series A Preferred stock.

 

F-17
 

 

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 6,546.47 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, $0.001 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 200 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 C Preferred stock may be a number of shares of common stock equal to 0.064113% (or up to 12.48% in the aggregate) of the Corporation’s common stock on a fully diluted basis, subject to anti-dilution adjustment.

 

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 each share of Series D Preferred stock may be a number of shares of common stock equal to 0.0651869% (or up to 12.48% in the aggregate) of the Corporation’s common stock on a fully diluted basis, subject to anti-dilution adjustment.

 

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.

 

During the six months ended November 30, 2023, there were no conversions of Series D Preferred stock.

 

F-18
 

 

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
 
   November 30, 2023   November 30, 2022 
Operating lease cost – Right of Use Asset Amortization  $732,624    328,217 
Interest on lease liabilities   219,174    101,413 
Total net lease cost  $951,798    429,630 

 

   For the
Six Months Ended
   For the
Six Months Ended
 
   November 30, 2023   November 30, 2022 
Operating lease cost – Right of Use Asset Amortization  $1,428,413    815,034 
Interest on lease liabilities   440,868    160,513 
Total net lease cost  $1,869,281    975,547 

 

Supplemental balance sheet information related to leases was as follows:

 

   November 30, 2023   May 31, 2023 
         
Operating leases:          
Operating lease ROU assets – net  $10,091,318   $10,269,516 
           
Current operating lease liabilities, included in current liabilities   2,823,417    2,379,774 
Noncurrent operating lease liabilities, included in long-term liabilities   7,753,900    8,212,445 
Total operating lease liabilities  $10,577,317   $10,592,219 

 

F-19
 

 

Supplemental cash flow and other information related to leases was as follows:

 

   For the
Three Months Ended
   For the
Three Months Ended
 
   November 30, 2023   November 30, 2022 
         
ROU assets obtained in exchange for lease liabilities:          
Operating leases  $1,231,429    8,533,906 
Weighted average remaining lease term (in years):          
Operating leases   3.9    4.0 
Weighted average discount rate:          
Operating leases   9.0%   9.0%

 

   For Six Months   For Six Months 
   Ended   Ended 
   November 30, 2023   November 30, 2022 
         
ROU assets obtained in exchange for lease liabilities:          
Operating leases  $1,250,215   $8,817,803 
Weighted average remaining lease term (in years):          
Operating leases   3.9    4.9 
Weighted average discount rate:          
Operating leases   9.1%   9.0%

 

Future minimum lease payments under noncancelable operating leases are as follows:

 

   November 30, 2023 
2024 (remaining)  $3,597,449 
2025   2,924,117 
2026   2,732,111 
2027   2,776,945 
2028   331,502 
Total lease payments   12,362,124 
Less: imputed interest   (1,784,807)
Total lease obligations  $10,577,317 

 

F-20
 

 

7. INCOME TAX PROVISION

 

The expense (benefit) for income taxes consists of:

 

  

For the

Three Months Ended

November 30, 2023

  

For the
Three Months Ended

November 30, 2022

 
Current:          
Federal  $94,570   $767,010 
State   342,291    198,010 
Foreign   1,036,089    - 
Total   1,472,951    965,020 
Deferred:          
Federal   (1,034,413)   (70,634)
State   (256,125)   (22,526)
Foreign   (207,213)   - 
Total   (1,497,751)   (93,160)
Total tax expense (benefit)  $(24,800)  $871,860 

 

  

For the

Six Months Ended

November 30, 2023

  

For the
Six Months Ended

November 30, 2022

 
Current:          
Federal  $-   $1,329,597 
State   286,900    403,480 
Foreign   829,743    - 
Total   1,116,644    1,733,077 
Deferred:          
Federal   (1,150,558)   (52,959)
State   (256,125)   (16,071)
Foreign   (228,592)   - 
Total   (1,635,275)   (69,030)
Total tax expense (benefit)  $(518,631)  $1,664,047 

 

F-21
 

 

Other noncurrent liabilities include liabilities for uncertain tax provision (UTP) as follows:

 

   For the
Six Months Ended
November 30, 2023
   For the
Six Months Ended
November 30, 2022
 
Total UTP balance on June 1  $2,582,341   $- 
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 November 30  $2,582,341   $- 

 

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.

 

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 fiscal year 2019.

 

The expected tax expense (benefit) based on the statutory rate is reconciled with actual tax expense benefit as follows:

 

   For the
Six Months Ended
November 30, 2023
   For the
Six Months Ended
November 30, 2022
 
US Federal statutory rate (%)   21.0    21.0 
State income tax, net of federal benefit   (0.5)   3.5 
Prior year provision adjustment to actual   (5.0)   - 
Foreign income taxes and adjustments   (