Annual Statements Open main menu

Unique Logistics International, Inc. - Quarter Report: 2022 November (Form 10-Q)

 

 

 

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, 2022

 

or

 

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

 

For the Transition Period from _________ to _________

 

Commission file number: 000-50612

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   01-0721929

(State or other Jurisdiction

of Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

154-09 146th Ave, Jamaica, NY   11434
(Address of Principal Executive Offices)   (Zip Code)

 

678-365-6004

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ☐

 

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

 

As of January 17, 2023, there were 799,141,770 shares of the registrant’s common stock outstanding.

 

 

 

   
 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2022

 

TABLE OF CONTENTS

 

  Page
   
PART I. FINANCIAL INFORMATION F-1
     
ITEM 1. Financial Statements F-1
     
  Condensed Consolidated Balance Sheets as of November 30, 2022 (unaudited) and May 31, 2022 F-1
     
  Condensed Consolidated Statements of Operations for the Three and Six Months ended November 30, 2022 and 2021 (unaudited) F-2
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months ended November 30, 2022 and 2021 (unaudited) F-3
     
  Condensed Consolidated Statements of Cash Flows for the Six Months ended November 30, 2022 and 2021 (unaudited) F-4
     
  Notes to Condensed Consolidated Financial Statements (unaudited) F-5
     
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 11
     
ITEM 6. Exhibits 12
     
SIGNATURES 13

 

2

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   November 30, 2022   May 31, 2022 
   (Unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $1,244,044   $1,422,393 
Accounts receivable, net   51,348,532    74,746,036 
Contract assets   13,804,866    30,970,581 
Other prepaid expenses and current assets   2,260,969    1,404,021 
Total current assets   68,658,411    108,543,031 
           
Property and equipment, net   223,757    188,889 
           
Long-term assets:          
Goodwill   4,463,129    4,463,129 
Intangible assets, net   6,984,131    7,337,704 
Operating lease right-of-use assets, net   10,579,787    2,408,098 
Deferred tax asset, net   987,648    942,748 
Deposits   1,596,926    1,028,336 
Total long-term assets   24,611,621    16,180,015 
Total assets  $93,493,789   $124,911,935 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities:          
Accounts payable  $30,955,523   $49,028,862 
Accrued expenses and other current liabilities   4,898,633    5,666,159 
Accrued freight   1,195,946    9,240,650 
Contract Liabilities   -    468,209 
Revolving credit facility   20,691,815    38,141,451 
Current portion of notes payable, net of discount   304,167    608,333 
Current portion of long-term debt due to related parties   349,631    301,308 
Current portion of operating lease liability   1,796,663    912,618 
Total current liabilities   60,192,378    104,367,590 
           
Long-term liabilities   141,330    282,666 
Long-term-debt due to related parties, net of current portion   150,655    397,968 
Derivative liabilities   11,693,338    12,437,994 
Operating lease liability, net of current portion   8,891,206    1,593,873 
Total long-term liabilities   20,876,529    14,712,501 
           
Total liabilities   81,068,907    119,080,091 
           
Commitments and contingencies   -    - 
           
Stockholders’ Equity:          
Preferred Stock, $0.001 par value: 5,000,000 shares authorized          
Series A Convertible Preferred stock, $0.001 par value; 120,065 and 130,000, issued and outstanding as of November 30, 2022 and May 31, 2022, respectively. Liquidation preference $120 on November 30, 2022.   120    130 
Series B Convertible Preferred stock, $0.001 par value; 820,800 shares issued and outstanding as of November 30, 2022 and May 31, 2022. Liquidation preference $821 on November 30, 2022.   821    821 
Series C Convertible Preferred stock, $0.001 par value; 195 shares, issued and outstanding as of November 30, 2022 and May 31, 2022   -    - 
Series D Convertible Preferred stock, $0.001 par value; 180 and 187, issued and outstanding as of November 30, 2022 and May 31, 2022, respectively.   -    - 
Preferred stock, value   -    - 
Common stock $0.001 par value; 800,000,000 shares authorized.
799,141,770 and 687,196,478 common shares issued and outstanding as of November 30, 2022 and May 31, 2022, respectively
   799,142    687,197 
           
Additional paid-in capital   180,220    292,155 
Retained earnings   11,444,579    4,851,541 
Total Stockholders’ Equity   12,424,882    5,831,844 
Total Liabilities and Stockholders’ Equity  $93,493,789   $124,911,935 

 

See notes to accompanying condensed consolidated financial statements.

 

F-1

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATION

(Unaudited)

 

   For the
Three Months Ended
November 30, 2022
   For the
Three Months Ended
November 30, 2021
   For the
Six Months Ended
November 30, 2022
   For the
Six Months Ended
November 30, 2021
 
Revenues:                
Airfreight services  $21,581,667   $275,070,204   $51,515,704   $327,232,845 
Ocean freight and ocean services   47,930,347    115,421,970    136,185,077    238,722,728 
Contract logistics   975,711    1,211,056    1,744,425    1,933,720 
Customs brokerage and other services   18,349,508    13,727,459    35,900,899    27,313,256 
Total revenues   88,837,233    405,430,689    225,346,105    595,202,549 
                     
Costs and operating expenses:                    
Airfreight services   19,950,949    269,019,226    47,500,790    320,645,001 
Ocean freight and ocean services   41,145,915    107,173,955    123,083,775    223,761,697 
Contract logistics   318,089    679,426    630,981    1,069,826 
Customs brokerage and other services   16,731,183    12,393,603    33,375,926    25,318,695 
Salaries and related costs   3,675,597    2,817,938    6,959,979    5,569,318 
Professional fees   411,421    184,459    1,174,725    478,326 
Rent and occupancy   613,572    489,770    1,142,682    969,979 
Selling and promotion   461,578    2,659,490    562,432    3,692,618 
Depreciation and amortization   201,966    194,875    402,640    388,672 
Other   336,814    1,154,945    669,761    1,423,067 
Total costs and operating expenses   83,847,084    396,767,687    215,503,691    583,317,199 
                     
Income from operations   4,990,149    8,663,002    9,842,414    11,858,350 
                     
Other income (expenses)                    
Interest expense   (972,300)   (1,881,201)   (2,329,985)   (3,198,480)
Amortization of debt discount   -    (391,035)   -    (776,515)
Gain on forgiveness of promissory note   -    -    -    358,236 
Change in fair value of derivative liabilities   125,708    -    744,656    - 
Gain on extinguishment of convertible note   -    -    -    780,050 
Total other income (expenses)   (846,592)   (2,272,236)   (1,585,329)   (2,836,709)
                     
Net income before income taxes   4,143,557    6,390,766    8,257,085    9,048,641 
                     
Income tax expense   871,860    1,902,541    1,664,047    2,537,000 
                     
Net income  $3,271,697   $4,488,225   $6,593,038   $6,511,641 
                     
Net income available for common shareholders per common share                    
– basic  $-   $-   $0.01   $- 
– diluted  $-   $-   $-   $- 
                     
Weighted average common shares outstanding                    
– basic   799,141,770    1,764,049,961    771,683,232    1,687,489,133 
– diluted   9,677,967,424    10,899,465,407    9,650,508,886    10,822,904,579 

 

See notes to accompanying condensed consolidated financial statements.

 

F-2

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

For the Three and Six Months Ended November 30, 2022

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
   Series A   Series B   Series C   Series D           Additional         
   Preferred Stock   Preferred Stock   Preferred Stock   Preferred Stock   Common Stock   Paid In   Retained     
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
Balance, June 1, 2022   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 

 

For the Three and Six Months Ended November 30, 2021

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
   Series A   Series B           Additional         
   Preferred Stock   Preferred Stock   Common Stock   Paid-in   Retained     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
Balance, June 1, 2021   130,000   $130    840,000   $840    393,742,663   $393,743   $4,906,384   $1,316,987   $6,618,084 
                                              
Conversion of Preferred B to Common Stock   -    -    (19,200)   (19)   125,692,224    125,692    (125,673)   -    - 
                                              
Issuance of Common Stock for the conversion of notes and accrued interest   -    -    -    -    83,811,872    83,812    66,746    -    150,558 
                                              
Net income   -    -    -    -    -    -    -    2,023,416    2,023,416 
                                              
Balance, August 31, 2021   130,000   $130    820,800   $821    603,246,759   $603,247   $4,847,457   $3,340,403   $8,792,058 
                                              
Issuance of Common Stock for the conversion of notes and accrued interest   -    -    -    -    52,534,319    52,534    41,838    -    94,372 
                                              
Net income   -    -    -    -    -    -    -    4,488,225    4,488,225 
                                              
Balance, November 30, 2021   130,000   $130    820,800   $821    655,781,078   $655,782   $4,889,295   $7,828,628   $13,374,656 

 

See notes to accompanying condensed consolidated financial statements.

 

F-3

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

For the
Six Months Ended

November 30, 2022

  

For the
Six Months Ended

November 30, 2021

 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $6,593,038   $6,511,641 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   402,640    388,672 
Amortization of debt discount   -    776,515 
Amortization of right of use assets   719,517    710,140 
Gain on forgiveness of promissory note   -    (358,236)
Gain on extinguishment of notes payable   -    (780,050)
Change in deferred tax asset, net   (44,900)   (304,000)
Change in fair value of derivative liabilities   (744,656)   - 
Bad debt expense   -    850,000 
Accretion of consulting agreement   (141,336)   (141,336)
Changes in operating assets and liabilities:          
Accounts receivable   23,397,504    (123,057,802)
Contract assets   17,165,715    (26,580,945)
Factoring reserve   -    7,593,665 
Other prepaid expenses and other current assets   (856,948)   (219,321)
Deposits and other assets   (568,590)   (20,000)
Accounts payable   (18,073,339)   36,893,108 
Accrued expenses and other current liabilities   (767,526)   8,764,328 
Accrued freight   (8,044,704)   38,934,277 
Contract liabilities   (468,209)   20,331,879 
Operating lease liability   (709,828)   (699,094)
Net Cash Provided by (Used In) Operating Activities   17,858,377    (30,406,559)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (83,934)   (43,727)
Net Cash Used in Investing Activities   (83,934)   (43,727)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from notes payable   -    2,000,000 
Repayments of notes payable   (304,166)   (579,165)
Repayments of long-term debt due to related parties   (198,990)   (215,656)
Borrowings (repayments) line of credit, net   (17,449,636)   29,833,248 
Net Cash (Used in) Provided by Financing Activities   (17,952,792)   31,038,427 
           
Net change in cash and cash equivalents   (178,349)   588,141 
           
Cash and cash equivalents - Beginning of period   1,422,393    252,615 
Cash and cash equivalents - End of period  $1,244,044   $840,756 
           
SUPPLEMENTARY CASH FLOW INFORMATION:          
Cash paid during the period for:          
Income taxes  $1,415,758   $422,836 
Interest  $2,184,260   $601,377 
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Operating lease asset and liability additions  $8,891,206   $- 
Conversion of Preferred Stock Series A preferred to common  $67,954   $- 
Conversion of Preferred Stock Series B preferred to common  $-   $125,673 
Conversion of Preferred Stock Series D preferred to common  $43,981   $- 
Issuance of Common Stock for the conversion of notes and accrued interest  $-   $193,306 

 

See notes to accompanying condensed consolidated financial statements.

 

F-4

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2022

 

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

Unique Logistics International, Inc. (the “Company” or “Unique”) is a global logistics and freight forwarding company. The Company currently operates via its wholly owned subsidiaries, Unique Logistics International (NYC), LLC, a Delaware limited liability company (“UL NYC”) and Unique Logistics International (BOS) Inc, a Massachusetts corporation (“UL BOS”) and (collectively the “UL US Entities”). The Company provides a range of international logistics services that enable its customers to outsource sections of their supply chain process. This range of services can be categorized as follows:

 

  Air Freight
     
  Ocean Freight
     
  Customs Brokerage and Compliance
     
  Warehousing and Distribution
     
  Order Management

 

Liquidity

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.

 

As of November 30, 2022, the Company reported working capital of approximately $8.5 million compared with $4.2 million working capital as of May 31, 2022. The Company has adequate cash availability through the TBK Facility.

 

Since its inception, the Company has experienced significant business growth. To fund such growth, operating capital was initially provided by third party investors through the sale of Convertible Notes which were subsequently exchanged into convertible securities. Preferred shares are more beneficial to the Company because they do not require cash repayments. Due to the antidilution provision embedded in certain of the convertible securities, these provisions resulted in an embedded derivative and the Company recorded a long-term liability. As of the quarter ended November 30, 2022, and the year ended May 31, 2022, this liability was $11.7 million and $12.4 million, respectively. This liability is recorded as a long-term liability due to its future settlement in common stock on the balance sheet and is being adjusted to market on each of the subsequent reporting periods.

 

To fund the pending acquisitions, as discussed in Note 6: Commitments and Contingencies, on December 18, 2022, the Company has entered into a commitment from a lender for a senior secured financing facility that will provide the necessary debt capital to execute the acquisitions. 

 

F-5

 

 

While we continue to execute our strategic plan, management is focused on managing cash and monitoring our liquidity position. We have implemented a number of initiatives to conserve our liquidity position including activities such as increasing credit facilities, when needed, reducing cost of debt, controlling general and administrative expenditures and improving collection processes. Many of the aspects of the plan involve management’s judgments and estimates that include factors that could be beyond our control and actual results could differ from our estimates. These and other factors could cause the strategic plan to be unsuccessful which could have a material adverse effect on our operating results, financial condition, and liquidity. Use of operating cash is an indicator that there could be a going concern issue, but based on our evaluation of the Company’s projected cash flows and business performance as of and subsequent to the balance sheet date, management has concluded that the Company’s current cash and cash availability under the TBK Facility as of November 30, 2022, would be sufficient to fund its planned operations for at least one year from the date these consolidated financial statements are issued.

 

COVID-19

 

Covid-19 remains a threat and certain countries, such as China, are still subject to restrictions related to Covid-19. While the threat level has declined to a significant extent in the USA and globally, any resurgence could have a material adverse effect on our business operations, results of operations, cash flows and financial position.

 

Basis of Presentation

 

The condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

The unaudited interim financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended May 31, 2022. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The condensed consolidated balance sheet on May 31, 2022 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 

Principles of Consolidation

 

The consolidated financial statements of the Company include the accounts of the Company and its majority owned subsidiaries stated in U.S. dollars, the Company’s functional currency. All intercompany transactions and balances have been eliminated in the consolidated financial statements.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.

 

Significant estimates inherent in the preparation of the consolidated financial statements include determinations of the useful lives and expected future cash flows of long-lived assets, including intangibles, valuation of assets and liabilities acquired in business combinations, and estimates and assumptions in valuation of debt and equity instruments, including derivative liabilities. In addition, the Company makes significant judgments to recognize revenue – see policy note “Revenue Recognition” below.

 

F-6

 

 

Fair Value Measurement

 

The Company follows the authoritative guidance that establishes a formal framework for measuring fair values of assets and liabilities in the consolidated financial statements that are already required by generally accepted accounting principles to be measured at fair value. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction in the principal or most advantageous market considered from the perspective of the market participant that holds the asset or owes the liability.

 

The Company utilizes market data or assumptions that market participants who are independent, knowledgeable, and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The Company is able to classify fair value balances based on the observability of those inputs. The guidance establishes a formal fair value hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority to Level 1 measurements and the lowest priority to level 3 measurements, and accordingly, Level 1 measurement should be used whenever possible.

 

The hierarchy is broken down into three levels based on the reliability of inputs as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities or published net asset value for alternative investments with characteristics similar to a mutual fund.

 

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3 – Unobservable inputs for the asset or liability.

 

The methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while management believes its valuation methods are appropriate, the fair value of certain financial instruments could result in a difference fair value measurement at the reporting date. There were no changes in the Company’s valuation methodologies from the prior year.

 

For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts for financial assets and liabilities such as cash and cash equivalents, accounts receivable - trade, contract assets, factoring reserve, other prepaid expenses and current assets, accounts payable – trade and other current liabilities, including contract liabilities, convertible notes, promissory notes, all approximate fair value due to their short-term nature as of November 30, 2022 and May 31, 2022. The carrying amount of the long-term debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company. Lease liabilities approximate fair value based on the incremental borrowing rate used to discount future cash flows. The Company had Level 3 liabilities (See Derivative liabilities note) as of November 30, 2022. On November 30, 2021, Level 3 derivative liability balances were insignificant. There were no transfers between levels during the reporting period.

 

Accounts Receivable

 

Accounts receivable from revenue transactions are based on invoiced prices which the Company expects to collect. In the normal course of business, the Company extends credit to customers that satisfy pre-defined credit criteria. The Company generally does not require collateral to support customer receivables. Accounts receivable, as shown on the consolidated balance sheets, is net of allowances when applicable. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the consolidated financial statements, assessments of collectability based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers, and an evaluation of the impact of economic conditions. The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded, net of allowance for doubtful accounts. As of November 30, 2022 and May 31, 2022, the Company recorded an allowance for doubtful accounts of approximately $2.7 million.

 

F-7

 

 

Concentrations

 

Three major customers represented approximately 21.0% of all accounts receivable as of November 30, 2022 and no single customer represented more than 10.0% of total accounts receivable. 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.

 

Three major customers represented approximately 21.0% of all accounts receivable as of May 31, 2022 and no single customer represented more than 10.0% of total accounts receivable. Same three customers accounted for 72.0% and 56% of total revenue for the three and six months ended November 30, 2021 with only customer A at 54% and 40% respectively, and customers B and C were less than 10.0% each for the three and six months ended November 30, 2021.

 

Derivative Liability

 

On December 10, 2021, the Company entered into an amended securities exchange agreement with the holders of convertible notes to exchange all Convertible Notes of the Company into shares of the Convertible Preferred Stock Series C and D.

 

Similar to the existing Convertible Preferred Stock Series A, these preferred stocks featured anti-dilution provision that expire on a specified date. Management has determined the anti-dilution provision embedded in preferred stock Series A, C and D is required to be accounted for separately from the preferred stock as a derivative liability and recorded at fair value. Separation of the anti-dilution option as a derivative liability is required because its economic characteristics are considered more akin to an equity instrument and therefore the anti-dilution option is not considered to be clearly and closely related to the economic characteristics of the preferred stock.

 

The Company has identified and recorded derivative instruments arising from an anti-dilution provision in the Company’s Series A, C and D Preferred Stock. An embedded derivative liability is representing the rights of holders of Convertible Preferred Stock Series A, C and D to receive additional common stock of the Company upon issuance of any additional common stock by the Company prior to qualified financing event as defined in the agreement. Each reporting period, the embedded derivative liability, if material, would be adjusted to reflect fair value at each period end with changes in fair value recorded in the “Change in fair value of embedded derivative liability” financial statement line item of the company’s statements of operations. During the three months ended November 30, 2022, the Company recorded a change in fair value of $0.7 million in the condensed consolidated statements of operations.

 

 

   Level 1   Level 2   Level 3 
Derivative liabilities as June 1, 2022  $      -   $      -   $12,437,994 
Addition   -    -    - 
Change in fair value   -    -    744,656 
Derivative liabilities as November 30, 2022  $-   $-   $11,693,338 

 

F-8

 

 

The underlying value of the anti-dilution provision is calculated from estimating the probability and value of the provision assuming a near term financing event. For the period ended May 31, 2022, the model used estimates the potential that the company completes a capital raise prior to the expiration of the anti-dilution feature and determines the value of the anti-dilution feature given these assumptions. The model required the use of certain assumptions. These assumptions include probability a raise is completed, probability certain anti-dilution features are extended, estimated raise amount, term to a raise, and an appropriate risk-free interest rate. For the period ended November 30, 2022, due to changes in the way antidilutive shares of Convertible Preferred Series A, C and D would be exchanged in the near future for common stock, and the fact that the antidilution provision of these shares was extended through March 31, 2023, the assumptions were changed to include probability of the financing event, estimated value of common stock at the exchange point and estimated time to financing event.

 

The key inputs into the model were as follows:

 

   November 30, 2022   May 31, 2022 
Risk-free interest rate   4.4%   1.6%
Probability of financing event or capital raise   90.0%   50%
Debt Securities, measurement inputs          
Estimated capital raise   -   $39.0 million 
Estimated value of common stock  $10.00 per share    - 
Estimated time to financing event   0.25 years    0.5 years 

 

Revenue Recognition

 

The Company adopted ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for services. The Company recognizes revenue upon meeting each performance obligation based on the allocated amount of the total consideration of the contract to each specific performance obligation.

 

To determine revenue recognition, the Company applies the following five steps:

 

  1. Identify the contract(s) with a customer;
     
  2. Identify the performance obligations in the contract;
     
  3. Determine the transaction price;
     
  4. Allocate the transaction price to the performance obligations in the contract; and
     
  5. Recognize revenue as or when the performance obligation is satisfied.

 

Revenue is recognized as follows:

 

  i. Freight income - export sales
     
    Freight income from the provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit time basis thru the sail or departure from origin port. The Company is the principal in these transactions and recognizes revenue on a gross basis.
     
  ii. Freight income - import sales
     
    Freight income from the provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit time basis thru the delivery to the customer’s designated location. The Company is the principal in these transactions and recognizes revenue on a gross basis.
     
  iii. Customs brokerage and other service income
     
    Customs brokerage and other service income from the provision of other services are recognized at the point in time the performance obligation is met.

 

F-9

 

 

The Company’s business practices require, for accurate and meaningful disclosure, that it recognizes revenue over time. The “over time” policy is the period from point of origin to arrival of the shipment at US Port of entry (or in the case when the customer requires delivery to a designated point, the arrival at that delivery point). This over time policy requires the Company to make significant judgements to recognize revenue over the estimated duration of time from port of origin to arrival at port of entry. The point in the process when the Company meets its obligation in the port of entry and the subsequent transfer of the goods to the customer is when the customer has the obligation to pay, has taken physical possession, has legal title, risk and awards (ownership) and has accepted the goods. The Company has elected to not disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of the end of the period as the Company’s contracts with its customers have an expected duration of one year or less.

 

 

The Company uses independent contractors and third-party carriers in the performance of its transportation services. The Company evaluates who controls the transportation services to determine whether its performance obligation is to transfer services to the customer or to arrange for services to be provided by another party. The Company determined it acts as the principal for its transportation services performance obligation since it is in control of establishing the prices for the specified services, managing all aspects of the shipments process and assuming the risk of loss for delivery and collection.

 

Revenue billed prior to realization is recorded as contract liabilities on the consolidated balance sheets and contract costs incurred prior to revenue recognition are recorded as contract assets on the consolidated balance sheets.

 

Contract Assets

 

Contract assets represent amounts for which the Company has the right to consideration for the services provided while a shipment is still in-transit but for which it has not yet completed the performance obligation and has not yet invoiced the customer. Upon completion of the performance obligations, which can vary in duration based upon the method of transport and billing the customer, these amounts become classified within accounts receivable.

 

Contract Liabilities

 

Contract liabilities represent the amount of obligation to transfer goods or services to a customer for which consideration has been received.

 

F-10

 

 

Significant Changes in Contract Asset and Contract Liability Balances for the six months ended November 30, 2022:

 

  

Contract

Assets

Increase

(Decrease)

  

Contract

Liabilities

(Increase)

Decrease

 
         
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligation satisfied  $-   $468,209 
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   (38,422,917)   - 
Contract assets recognized   21,257,202    - 
Net Change  $(17,165,715)  $468,209 

 

There were no changes in contract assets or liabilities as of November 30, 2021.

 

Disaggregation of Revenue from Contracts with Customers

 

The following table disaggregates gross revenue from our clients (for the most part US based) by significant geographic area for the three and six months ended November 30, 2022 and 2021, based on origin of shipment (imports) or destination of shipment (exports):

 

   For the
Three Months Ended November 30, 2022
   For the
Three Months Ended November 30, 2021
 
China, Hong Kong & Taiwan  $42,491,614   $125,312,137 
Southeast Asia   21,132,687    164,883,397 
United States   11,277,753    16,212,165 
India Sub-continent   10,519,966    78,801,261 
Other   3,415,213    20,221,729 
Total revenue  $88,837,233   $405,430,689 

 

 
 
 
 
For the
Six Months Ended
 
 
 
 
For the
Six Months Ended
 
 
   November 30, 2022   November 30, 2021 
China, Hong Kong & Taiwan  $106,549,769   $203,417,446 
Southeast Asia   63,114,120    240,260,018 
United States   21,677,175    23,204,268 
India Sub-continent   29,316,674    99,449,575 
Other   4,688,367    28,871,242 
Total revenue  $225,346,105   $595,202,549 

 

F-11

 

 

Segment Reporting

 

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

 

Earnings per Share

 

The Company adopted ASC 260, Earnings per share, guidance from the inception. Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. Basic EPS is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding, including warrants exercisable for less than a penny, (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the consolidated statements of operations) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

 

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

 

   November 30, 2022   November 30, 2021 
   For the Three Months Ended 
   November 30, 2022   November 30, 2021 
Numerator:          
Net income attributable to common stockholders  $3,271,697   $4,488,225 
Effect of dilutive securities:        391,035 
           
Diluted net income  $3,271,697   $4,879,260 
           
Denominator:          
Weighted average common shares outstanding – basic   799,141,770    1,764,049,961 
           
Dilutive securities:          
Series A Preferred   1,168,177,320    1,316,157,000 
Series B Preferred   5,373,342,576    5,499,034,800 
Series C Preferred   1,206,351,359    - 
Series D Preferred   1,130,954,399    - 
Convertible notes   -    2,320,223,646 
Warrants   -    - 
           
Weighted average common shares outstanding and assumed conversion – diluted   9,677,967,424    10,899,465,407 
           
Basic net income per common share  $0.00   $0.00 
           
Diluted net income per common share  $0.00   $0.00 

 

F-12

 

 

   November 30, 2022   November 30, 2021 
   For the Six Months Ended 
   November 30, 2022   November 30, 2021 
Numerator:          
Net income attributable to common stockholders  $6,593,038   $6,511,641 
Effect of dilutive securities:   -    776,515 
           
Diluted net income  $6,593,038   $7,288,156 
           
Denominator:          
Weighted average common shares outstanding – basic   771,683,232    1,687,489,133 
           
Dilutive securities:          
Series A Preferred   1,168,177,320    1,316,157,000 
Series B Preferred   5,373,342,576    5,499,034,800 
Series C Preferred   1,206,351,359    - 
Series D Preferred   1,130,954,399    - 
Convertible notes   -    2,320,223,646 
Warrants   -    - 
           
Weighted average common shares outstanding and assumed conversion – diluted   9,650,508,886    10,822,904,579 
           
Basic net income per common share  $0.01   $0.00 
           
Diluted net income per common share  $0.00   $0.00 

 

Leases

 

The Company recognizes a right of use (“ROU”) asset and liability in the consolidated balance sheet primarily related to its operating leases of office space, warehouse space and equipment. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. All ROU assets and lease liabilities are recognized at the commencement date at the present value of lease payments over the lease term. ROU assets are adjusted for lease incentives and initial direct costs. The lease term includes renewal options exercisable at the Company’s sole discretion when the Company is reasonably certain to exercise that option. As the Company’s leases generally do not have an implicit rate, the Company uses an estimated incremental borrowing rate based on borrowing rates available to them at the commencement date to determine the present value. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. The Company excludes variable payments from ROU assets and lease liabilities to the extent not considered fixed, and instead expenses variable payments as incurred. Lease expense is recognized on a straight-line basis over the lease term and is included in rent and occupancy expenses in the consolidated statements of operations.

 

F-13

 

 

Recently Issued Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, Debt — “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. ASU 2020-06 is effective for public business entities, other than smaller reporting companies as defined by the SEC starting January 1, 2022. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.

 

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current year presentation.

 

2. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following on November 30, 2022, and May 31, 2022:

 

   November 30, 2022   May 31, 2022 
         
Accrued salaries and related expenses  $926,245   $625,000 
Accrued sales and marketing expense   1,052,455    2,383,500 
Accrued professional fees   1,900,000    1,350,170 
Accrued income tax   856,890    559,544 
Accrued overdraft liabilities   160,376    681,058 
Other accrued expenses and current liabilities   2,667    66,887 
 Accrued expenses and other current liabilities  $4,898,633   $5,666,159 

 

3. FINANCING ARRANGEMENTS

 

Financing arrangements on the consolidated balance sheets consists of :

 

   November 30, 2022   May 31, 2022 
         
Revolving Credit Facility  $20,691,815   $38,141,451 
Notes payable   304,167    608,333 
 Long term, notes payable  $20,995,982   $38,749,784 

 

Revolving Credit Facility

 

On June 1, 2021, the Company entered a Revolving Purchase, Loan and Security Agreement (the “TBK Agreement”) with TBK BANK, SSB, a Texas State Savings Bank (“TBK”), for a facility under which TBK will, from time to time, buy approved receivables from the Company. This line was subject to periodic increases and on April 14, 2022, the parties entered into a Fourth Amendment to temporarily increase the credit facility availability from $47.5 million to $57.5 million through October 31, 2022. The line of credit facility returned to $47.5 million as of November 30, 2022 and is scheduled to mature on May 31, 2023.

 

F-14

 

 

Notes Payable

 

On May 29, 2020, as part of the acquisition of UL ATL the Company entered into a $1,825,000 note payable with a former shareholder. The loan bears a zero percent interest rate and has a maturity of three years, or May 29, 2023. The agreement calls for six semi-annual payments of $304,167, for which the first payment was due on November 29, 2020.

 

4. RELATED PARTY TRANSACTIONS

 

The Company has the following debt due to related parties:

 

   November 30, 2022   May 31, 2022 
         
Due to Frangipani Trade Services (1)  $451,964   $602,618 
Due to employee (2)   15,000    30,000 
Due to employee (3)   33,322    66,658 
Due to related parties, gross   500,286    699,276 
Less: current portion   (349,631)   (301,308)
Long term, due to related parties  $150,655   $397,968 

 

  (1) Due to Frangipani Trade Services (“FTS”), an entity owned by the Company’s CEO, is due on demand and is non-interest bearing. The principal amount of this Promissory Note 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.
  (2) On May 29, 2020, the Company entered into a $90,000 payable with an employee for the acquisition of UL BOS common stock from a previous owner. The payment terms consist of thirty-six monthly non-interest-bearing payments of $2,500 from the date of closing.
  (3) On May 29, 2020, the Company entered into a $200,000 payable with an employee for the acquisition of UL BOS common stock from a previous owner. The payment terms consist of thirty-six monthly non-interest-bearing payments of $5,556 from the date of closing.

 

Consulting Agreements

 

Unique entered into a Consulting Services Agreement on May 29, 2020, for a term of three years with Great Eagle Freight Limited (“Great Eagle” or “GEFD”), a Hong Kong Company (the “Consulting Services Agreement”) where the Company pays $500,000 per year until the expiration of the agreement on May 28, 2023. The fair value of the services was determined to be less than the cash payments and the difference was recorded as Other Long Term Liabilities line item on the condensed consolidated balance sheets and amortized over the life of the agreement. The unamortized balances were $141,330 and $282,666 as of November 30, 2022, and May 31, 2022, respectively.

 

F-15

 

 

Accounts Receivable and Payable

 

Transactions with related parties account for $1.1 million and $13.1 million of accounts receivable and accounts payable as of November 30, 2022, respectively compared to $3.0 million and $15.2 million of accounts receivable and accounts payable as of May 31, 2022.

 

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, 2022 and 2021 these transactions represented approximately $ 1.2 million and $0.3 million, respectively. For the six months ended November 30, 2022 and 2021, these transactions represented $1.9 million and $0.8 million, respectively.

 

Direct costs are services billed to the Company by related parties for shipping activities. For the three months ended November 30, 2022 and 2021 these transactions represented approximately $13.1 million and $29.3 million. For the six months ended November 30, 2022 and 2021, these transactions represented $39.0 million and $101.2 million, respectively.

 

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, 2022 there was no common stock issuances.

 

Preferred Shares

 

The Company authorized to issue 5,000,000 shares of preferred stock, $0.001 par value per share.

 

Series A Convertible Preferred

 

The holders of Series A Preferred. subject to the rights of holders of shares of the Company’s Series B Preferred 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.

 

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, 2022, a shareholder converted 9,935 shares of Series A Convertible Preferred Stock into 67,963,732 shares of the Company’s common stock.

 

Series B Convertible Preferred

 

The holders of Series B Preferred, 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, shall be entitled to receive, at their option, immediately prior an in preference to any distribution to the holders of the Company’s common stock.

 

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 holders of the Preferred Stock shall 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 Preferred Stock if such shares had been converted to common stock immediately prior to such liquidation.

 

During the six months ended November 30, 2022, a shareholder converted 7 shares of Series D Convertible Preferred Stock into 43,981,560 shares of the Company’s common stock. During the six months ended November 30, 2021 there were no conversions of Series C and D Preferred Shares.

 

F-16

 

 

6. COMMITMENTS AND CONTINGENCIES

 

Pending acquisitions

 

On April 28, 2022, Unique Logistics International, Inc. (the “Company”) entered into a stock purchase agreement (the “Purchase Agreement”), by and between the Company and Unique Logistics Holdings Limited, a Hong Kong corporation (the “Seller”), whereby the Company acquired from the Seller all of Seller’s share capital (the “Purchased Shares”) in nine (9) of Seller’s subsidiaries (collectively the “Subsidiaries”) as listed in Schedule I of the Purchase Agreement. As consideration for the Purchased Shares, the Company agreed to (i) pay the Seller $21,000,000 (the “Cash Consideration”); and (ii) issue to the Seller a $1,000,000 promissory note (the “Note” and, together with the Cash Consideration, the “Purchase Price”). The Purchase Price is subject to certain adjustments set forth in the Purchase Agreement.

 

The transactions contemplated by the Purchase Agreement shall be contingent upon and subject to successful Financing and shell be completed prior to February 15, 2023. If the Company is unable to obtain the Financing, the Company may provide written notice to Seller stating that the Company has been unable to obtain the Financing and notify Seller that the Company has elected to either (i) waive the condition of the Financing, in which event the Purchase Agreement will continue as if the Financing had been obtained or (ii) terminate the Purchase Agreement.

 

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, 2022   November 30, 2021 
Operating lease  $328,217   $430,483 
Interest on lease liabilities   101,413    34,948 
Total net lease cost  $429,630   $465,431 

 

F-17

 

 

  

For the
Six Months Ended

  

For the
Six Months Ended

 
   November 30, 2022   November 30, 2021 
Operating lease  $815,034   $792,684 
Interest on lease liabilities   160,513    87,332 
Total net lease cost  $975,547   $880,016 

 

Supplemental balance sheet information related to leases was as follows:

 

   November 30, 2022   May 31, 2022 
         
Operating leases:          
Operating lease ROU assets – net  $10,579,787   $2,408,098 
           
Current operating lease liabilities, included in current liabilities   1,796,663    912,618 
Noncurrent operating lease liabilities, included in long-term liabilities   8,891,206    1,593,873 
Total operating lease liabilities  $10,687,869   $2,506,491 

 

The operating lease right of use asset and corresponding lease liabilities were significantly impacted during the six month ended November 30, 2022, by a renewal of a warehouse lease located in in Santa Fe Springs, CA with a term of 5 years and the addition of new office warehouse lease in Lawrence, NY and an office in Garden City, NY with terms of 5 years and 3 years, respectively. The discount rate used to account for new leases was approximately 10.0 %. The Company assessed the renewal options as a part of the adoption of ASC 842, if the renewal options were determined to be reasonably assured/certain at inception they would be appropriately captured within the future minimum lease payment schedule within the footnote of the Company’s financial statement and included in the ROU Asset and ROU liability upon transition.

 

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

 

   For Three Months   For Three Months 
   Ended   Ended 
   November 30, 2022   November 30, 2021 
         
ROU assets obtained in exchange for lease liabilities:          
Operating leases  $8,533,906   $- 
Weighted average remaining lease term (in years):          
Operating leases   4.0    3.9 
Weighted average discount rate:                      
Operating leases   9.0%   4.3%

 

   For Six Months   For Six Months 
   Ended   Ended 
   November 30, 2022   November 30, 2021 
         
ROU assets obtained in exchange for lease liabilities:          
Operating leases  $8,817,803   $- 
Weighted average remaining lease term (in years):          
Operating leases   4.9    3.9 
Weighted average discount rate:                    
Operating leases   9.0%   4.3%

 

As of November 30, 2022, future minimum lease payments under noncancelable operating leases are as follows:

 

For the Twelve Months Ending November 30,    
2023  $2,679,795 
2024   2,724,369 
2025   2,663,290 
2026   2,527,983 
2027   2,575,994 
Thereafter   180,789 
Total lease payments   13,348,739 
Less: imputed interest   (2,664,351)
Total lease obligations  $10,687,869 

 

F-18

 

 

7. INCOME TAX PROVISION

 

The income tax provision consists of the following:

         
   For the
Three Month Ended
November 30, 2022
   For the
Three Month Ended
November 30, 2021
 
Federal provision (benefit)          
Current  $767,010   $1,931,000 
Deferred   (70,634)   (325,027)
State and Local provision (benefit)          
Current   198,010    351,000 
Deferred   (22,526)   (54,432)
Total provision  $871,860   $1,902,541 

  

         
  

For the
Six Month Ended
November 30, 2022

   For the
Six Month ended
November 30, 2021
 
Federal provision (benefit)          
Current  $1,329,597   $2,388,000 
Deferred   (52,959)   (259,579)
State and Local provision (benefit)          
Current   403,480    453,000 
Deferred   (16,071)   (44,421)
Total provision  $1,664,047   $2,537,000 

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. For the three or six months ended November 30, 2022 and 2021, there was no valuation allowance necessary.

 

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 costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other expenses – Interest” in the statement of operations. Penalties would be recognized as a component of “General and administrative.”

 

No interest or penalties on unpaid tax were recorded during the three months ended November 30, 2022 and no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.

 

The Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:

 

Deferred Tax Assets  November 30, 2022   May 31, 2022 
Allowance for doubtful accounts  $693,684   $733,139 
Consulting contract liability   217,871    230,263 
Lease liability   2,502,494    659,460 
Other   427,519    238,006 
Total deferred tax assets   3,841,567    1,860,868 
Valuation allowance   -    - 
Deferred tax asset, net of valuation allowance  $3,841,567   $1,860,868 
           
Deferred Tax Liabilities          
Operating lease right-of-use assets  $(2,496,850)  $(631,173)
Goodwill and intangibles   (321,344)   (256,533)
Fixed assets   (35,726)   (30,414)
Net deferred tax asset (liability)  $987,648   $942,748 

 

F-19

 

 

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, 2022
   For the
Six Months Ended
November 30, 2021
 
US Federal statutory rate   21.0%   21.0%
State income tax, net of federal benefit   3.5%   4.0%
FDII deduction   (4.0)%   (3.0)%
Other permanent differences, net   (0.5)%   6.0%
Income tax provision   20.0%   28.0%

 

8. SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued. Based on this evaluation, the Company has identified no reportable subsequent events other than those disclosed elsewhere in these consolidated financial statements.

 

On December 18, 2022, the Company entered into an Agreement and Plan of Merger by and among Edify Acquisition Corp., a Delaware corporation (“Edify”), Edify Merger Sub, Inc., a Nevada corporation, and a wholly owned subsidiary of Edify (“Merger Sub”), a Special Purpose Acquisition Corp., and the Company. The Merger Agreement and the transactions contemplated thereby (the “Transactions”) were approved by the board of directors of each of the Company, Edify, and Merger Sub. The proposed Merger is expected to be consummated after receipt of the required approvals from the stockholders of Edify and the Company and the satisfaction of certain conditions.

 

F-20

 

 

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 (the “Securities Act”), 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, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our 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 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.

 

3

 

 

  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 multinational corporation, 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.

 

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.

 

As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to Unique Logistics International, Inc. and our wholly subsidiaries, Unique Logistics International (BOS) Inc, a Massachusetts corporation (“UL BOS”) and Unique Logistics International (NYC) LLC, a Delaware limited liability company (“UL NYC”).”). Unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

Business Overview

 

The Company provides a range of international logistics services that enable its customers to outsource to the Company sections of their supply chain process. The services provided by the Company are seamlessly managed by its network of trained employees and integrated information systems. 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

 

4

 

 

Market and Business Trends

 

The current fiscal year 2023 that commenced June 1, 2022 can be considered the Company’s first fiscal year in the post Covid period. The impact of Covid in the previous two fiscal years resulted in an initial drop in shipping volumes and then the post Covid surge in shipping volumes including all related logistics challenges.

 

As we report the current quarter and six months ended November 30, 2022, it is pertinent to compare our business base and the emerging trends with the equivalent periods from 2019 before Covid impacted the logistics industry. The equivalent period in 2019 was prior to the acquisitions in May 2020 and the comparisons are based on the aggregation of the three operating companies prior to the acquisition in May 2020. The Company’s 25 largest customers based on revenue during the period ended November 30, 2022, include 12 customers that were added after the acquisition in May 2020. In addition, the Company still retains 23 of the customers that were in the top 25 in 2019. Thus, the Company, today, has a significantly expanded customer base besides substantially retaining virtually all its legacy customers.

 

In terms of volume, the Company’s top 25 customers, today, ship more containers (94%) and more air freight weight (15%) compared with the top 25 customers in 2019. An identifiable trend in the market in the current period, versus 2019, is a significant shift in shipping from air to ocean. The Company expects air freight volumes to increase in the course of 2023.

 

Overall, the Company is well positioned to grow its business in the post Covid era as it continues to build its customer base, increases profitability, and makes strategic plans for organic growth and through the targeted acquisitions. We are expanding our sales organization, locking in procurement strategies and receiving positive feedback from our existing customers regarding their future shipping needs.

 

Results of Operations for the Three Months ended November 30, 2022, and 2021

 

Revenue

 

For the three months ended November 30, 2022 and 2021, the Company’s reported revenue by product line as follows:

 

  

For the

Three Months Ended November 30, 2022

  

For the

Three Months Ended November 30, 2021

   $ change   % change 
                 
Revenues                    
Air Freight  $21,581,667   $275,070,204    (253,488,537)   (92)%
Ocean Freight   47,930,347    115,421,970    (67,491,623)   (58)%
Contract logistics   975,711    1,211,056    (235,345)   (19)%
Customs brokerage and other services   18,349,508    13,727,459    4,622,049    34%
Total revenues  $88,837,233   $405,430,689    (316,593,456)   (78)%

 

Total revenue declined by 78% driven by a slowdown in shipping and pricing decline in both air and sea. Air freight revenue declined 92% compared with the same period last year due to 85% lower shipped volume and 40% lower sell rates. Ocean freight revenue declined 58% compared with the same period last year due to 46% lower shipped volume and 23% lower sell rates. The Company continues to invest in its sales and marketing strategy to increase market share, while seeking opportunities for strategic acquisitions to grow our business.

 

Product costs and Operating Expenses

 

Product costs and operating expenses in total were $83.8 million for the three months ended November 30, 2022, compared with $396.8 million for the three months ended November 30, 2021. Reduction of 79% in the total product costs and operating expenses was primarily attributable to reduction in shipping volumes in our air and ocean product divisions. Air freight cost was lower by 93% and Ocean freight was lower by 63% when compared with the same period last year. Further reduction in operating expenses was due to reduction in sales commissions by 83% which was partially offset by 30% increases in salaries and benefits due to higher professional staff count and 123% increase in professional fees related to pending acquisitions.

 

Other Income (Expenses)

 

Other expenses comprised of interest expense, gain on forgiveness of promissory notes, amortization of debt discount and gain on extinguishment of convertible debt and change in fair value of derivative liabilities.

 

During the three months ended November 30, 2022 and 2021, interest expense and bank fees totaled approximately $0.9 million and $1.9 million, respectively. This reduction is primarily due to reduced amount of borrowing on the operating line of credit due to lower shipping volume and decline in buy rates. During the same period, the Company also recorded approximately $0.1 million gain in fair value of derivative liabilities associated with the antidilution provision imbedded in Series A, C and D Preferred Stocks. None was recorded during the three-month ended November 30, 2021.

 

Net Income

 

Net income was approximately $3.3 million for the three months ended November 30, 2022, compared to a net income of approximately $4.5 million for the three months ended November 30, 2021.

 

Results of Operations for the Six Months ended November 30, 2022, and 2021

 

5

 

 

Revenue

 

For the six months ended November 30, 2022 and 2021 the Company reported revenue by product line as follows:

 

  

For the

Six Months Ended November 30, 2022

  

For the

Six Months Ended

November 30, 2021

   $ change   % change 
                 
Revenues                    
Air Freight  $51,515,704   $327,232,845    (275,717,141)   (84)%
Ocean Freight   136,185,077    238,722,728    (102,537,651)   (43)%
Contract logistics   1,744,425    1,933,720    (189,295)   (10)%
Customs brokerage and other services   35,900,899    27,313,256    8,587,643    31%
Total revenues  $225,346,105   $595,202,549    (369,856,444)   (62)%

 

Total revenue declined by 62% driven by a slowdown in shipping and pricing decline in both air and sea. Air freight revenue declined 84% compared with the same period last year due to 79% lower shipped volume and 11% lower sell rates. Ocean freight revenue declined 43% compared with the same period last year due to 47% lower shipped volume with approximately unchanged sell rates. The Company continues to invest in its sales and marketing strategy to increase market share, while seeking opportunities for strategic acquisitions to grow our business.

 

Costs and Operating Expenses

 

Product costs and operating expenses were $215.5 million for the Six months ended November 30, 2022, compared with $583.3 million for the Six months ended November 30, 2021. Reduction of 63% in the total product costs and operating expenses was primarily attributable to reduction in shipping volumes in our air and ocean product divisions. Air freight cost was lower by 85% and Ocean freight was lower by 45% when compared with the same period last year. Further reduction in operating expenses was due to reduction in sales commissions by 85% which was partially offset by 25% increases in salaries and benefits due to higher professional staff count and 146% increase in professional fees related to pending acquisitions.

 

Other Income (Expense)

 

Other expenses comprised of interest expense, gain on forgiveness of promissory notes, amortization of debt discount and gain on extinguishment of convertible debt and change in fair value of derivative liabilities.

 

During the six months ended November 30, 2022 and 2021, interest expense and bank fees totaled approximately $2.3 million and $3.2 million, respectively. This reduction is primarily due to reduced amount of borrowing on the operating line of credit due to lower shipping volume and decline in buy rates during the period ended November 30, 2022. During the same period, the Company also recorded approximately $0.7 million gain in fair value of derivative liabilities associated with the antidilution provision imbedded in Series A, C and D Preferred Stocks.

 

For the period ended November 30, 2021, there was no adjustments recorded in the value of a derivative liability, and the Company recorded approximately $0.8 million amortization of debt discount related to the convertible notes outstanding at that time and approximately $0.8 million gain on extinguishment of debt related to the same notes. In addition, during the six months ended November 30, 2021, the Company was granted forgiveness of the Paycheck Protection Program loans under the CARES Act, (the “PPP Loan”) and recorded a gain on forgiveness of approximately $358,000.

 

6

 

 

Net Income

 

Net income was approximately $6.6 million for the six months ended November 30, 2022, compared to a net income of approximately $6.5 million for the six months ended November 30, 2021.

 

Adjusted EBITDA

 

We define adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, factoring fees, 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 from operations 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 it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric.

 

We believe that adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net income from continuing operations and adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net income from operations 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 these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP.

 

Following is the reconciliation of our consolidated net income to adjusted EBITDA:

 

   For the
Three Months Ended
November 30, 2022
   For the
Three Months ended
November 30, 2021
 
Net income available to common shareholders  $3,271,697   $4,488,225 
           
Add Back:          
Income tax expense   871,860    1,902,541 
Depreciation and amortization   201,966    194,875 
Change in fair value of derivative liability   (125,708)   - 
Interest expense (including accretion of debt discount)   972,300    2,272,236 
           
Adjusted EBITDA  $5,192,115   $8,857,877 

 

7

 

 

   For the
Six Months Ended
November 30, 2022
   For the
Six Months Ended
November 30, 2021
 
Net income available to common shareholders  $6,593,038   $6,511,641 
           
Add Back:          
Income tax expense   1,664,047    2,537,000 
Depreciation and amortization   402,640    388,672 
Gain on forgiveness of promissory notes   -    (358,236)
Gain on extinguishment of convertible notes   -    (780,050)
Change in fair value of derivative liability   (744,656)   - 
Interest expense (including accretion of debt discount)   2,329,985    3,974,995 
           
Adjusted EBITDA  $10,245,054   $12,274,022 

 

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.

 

As of November 30, 2022, the Company reported working capital of approximately $8.5 million compared with $4.2 million working capital as of May 31, 2022. The Company’s Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”) contribution to working capital was $5.2 million and $10.2 million during the three and six months ended November 30, 2022. The Company has adequate cash availability through the TBK Facility.

 

Since its inception, the Company has experienced significant business growth. To fund such growth, operating capital was initially provided by third party investors through the sale of Convertible Notes which were subsequently exchanged into convertible securities. Preferred shares are more beneficial to the Company because they do not require cash repayments. Due to the antidilution provision imbedded in the certain of the convertible securities, these provisions resulted in an embedded derivative and the Company recorded a long-term liability. As of the quarter ended November 30, 2022, and the year ended May 31, 2022, this liability was $11.7 million and $12.4 million, respectively. This liability is recorded as a long-term liability due to its future settlement in common stock on the balance sheet and is being adjusted to market on each of the subsequent reporting periods.

 

To fund the pending acquisitions, as discussed in Note 6: Commitments and Contingencies, on December 18, 2022, the Company has entered into a commitment from a lender for a senior secured financing facility that will provide the necessary debt capital to execute the acquisitions. 

 

While we continue to execute our strategic plan, management is focused on managing cash and monitoring our liquidity position. We have implemented a number of initiatives to conserve our liquidity position including activities such as increasing credit facilities, when needed, reducing cost of debt, controlling general and administrative expenditures and improving collection processes. Many of the aspects of the plan involve management’s judgments and estimates that include factors that could be beyond our control and actual results could differ from our estimates. These and other factors could cause the strategic plan to be unsuccessful which could have a material adverse effect on our operating results, financial condition, and liquidity. Use of operating cash is an indicator that there could be a going concern issue, but based on our evaluation of the Company’s projected cash flows and business performance as of and subsequent to the balance sheet date, management has concluded that the Company’s current cash and cash availability under the TBK Facility as of November 30, 2022, would be sufficient to fund its planned operations for at least one year from the date these consolidated financial statements are issued.

 

8

 

 

The following table summarizes total current assets, liabilities and working capital on November 30, 2022, compared to May 31, 2022:

 

   November 30, 2022   May 31, 2022   Change 
Current Assets  $68,658,411   $108,543,031   $(39,884,620)
Current Liabilities   60,192,378    104,367,590    (44,175,212)
Working Capital (Deficit)  $8,466,033   $4,175,441   $4,290,592 

 

The change in working capital is primarily attributable a decrease in accounts receivable of about $23.4 million, a decrease in contract assets of $17.2 million offset by an increase in ROU assets $8.9 million, offset by a decrease in accounts payable of about $18.1 million, a decrease of accrued freight of about $8.0 million and decrease in the borrowed amount on the line of credit by $17.4 million offset by a lease liability of $8.9 incurred due to signing of new leases

 

The cash generated and used by the Company was as follows:

 

  

For the
Six Months Ended,
November 30, 2022

  

For the
Six Months Ended,
November 30, 2021

   Change 
Net cash provided by (used in) by operating activities  $17,858,377   $(30,406,559)  $48,264,936 
Net cash used in investing activities   (83,934)   (43,727)   (40,207)
Net cash provided by (used in) financing activities   (17,952,792)   31,038,427    (48,991,219)
Net increase in cash and cash equivalents  $(178,349)  $588,141   $(766,490)

 

Operating activities provided cash of $17.9 million for the six months ended November 30, 2022, compared to net cash used by operations of $30.4 million for the six months ended November 30, 2021. Primary reason for cash provided during the six months ended November 30, 2022, was the collections on accounts receivables offset by reduction in Accounts Payable and Accrued Freight. Primary reason for cash used for the six months ended November 30, 2022, was a significant increase in accounts receivables, reflecting repurchase of trade receivables from a factor taking advantage of a better interest rate on Company’s new revolving credit facility.

 

Cash used by financing activities of $18 million for the six months ended November 30, 2022, primarily for repayment of $17.4 million to the line of credit. During for the six months ended November 30, 2021, financing activities provided cash of $31.0 million due to initial borrowing of $29.8 million from the line of credit facility in effect from June 1, 2021, used to repurchase factored trade receivables.

  

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.

 

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.

 

9

 

 

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 it 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.

 

Our significant accounting policies are summarized in Note 1 of our condensed consolidated financial statements.

 

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

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of November 30, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management has determined there is a lack of supervisory review of the financial statement closing process due to limited resources and formal documentation of procedures and controls. This control deficiency constitutes a material weakness in internal control over financial reporting. As a result, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were not effective. We plan to take steps to remedy this material weakness by adding additional resources and completing the formal documentation process of our controls and procedures.

 

Disclosure controls and procedures are designed to ensure that the information that is required to be disclosed by us in our Exchange Act report 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 management, including our principal executive officer and principal financial and accounting officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

During the three months ended November, 30, 2022, we actively addressed and remediated a number of previously identified material weaknesses in internal controls over financial reporting, we significantly improved our accounting processes, documentation, introduced accounting policies and procedures, upgraded our accounting personnel and provided our employees with necessary tools and resources, but because we have not completed a full risk assessment of the internal controls over financial reporting at the activity level, including extensive process documentation and testing, we are not able to conclude that our internal controls over financial reporting are operating effectively and efficiently at this time. The Company anticipates fully remediating its material weaknesses by the end of its May 31, 2024 fiscal year end.

 

10

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our 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 executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

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 AND USE OF PROCEEDS

 

There were no unregistered sales of the Company’s equity securities during the quarter ended November 30, 2022.

  

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

11

 

 

ITEM 6. EXHIBITS

 

Exhibit       Incorporated by Reference   Filed or Furnished
Number  Exhibit Description   Form   Exhibit   Filing Date
3.1   Certificate of Amendment of Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of Unique Logistics International, Inc., filed with the Nevada Secretary of State on October 4, 2022   8-K   3.1   10/07/22
3.2   Certificate of Amendment of Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock of Unique Logistics International, Inc., filed with the Nevada Secretary of State on October 4, 2022   8-K   3.2   10/07/22
3.3   Certificate of Amendment of Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock of Unique Logistics International, Inc., filed with the Nevada Secretary of State on October 4, 2022   8-K   3.3   10/07/22
10.1   Stock Purchase Agreement, dated April 28, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 3, 2022).   8-K   10.1   09/19/22
10.2   Share Sale and Purchase Agreement (Unique Logistics International (India) Private Limited), dated September 13, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited.   8-K   10.2   09/19/22
10.3   Share Sale and Purchase Agreement (ULI (North & East China) Company Limited), dated September 13, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited.   8-K   10.3   09/19/22
10.4   Share Sale and Purchase Agreement (Unique Logistics International Co., Ltd.), dated September 13, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited.   8-K   10.4   09/19/22
10.5   Share Sale and Purchase Agreement (TGF Unique Limited), dated September 13, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited.   8-K   10.5   09/19/22
10.6   Share Sale and Purchase Agreement (Unique Logistics International (H.K.) Limited), dated September 13, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited.   8-K   10.6   09/19/22
10.7   Share Sale and Purchase Agreement (Unique Logistics International (Vietnam) Co., Ltd.), dated September 13, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited.   8-K   10.7   09/19/22
10.8   Share Sale and Purchase Agreement (Unique Logistics International (ULI (South China)) Limited), dated September 13, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited.   8-K   10.8   09/19/22
10.9   Share Sale and Purchase Agreement (Unique Logistics International (Unique Logistics International (South China) Limited), dated September 13, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited.   8-K   10.9   09/19/22
31.1*   Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.            
31.2*   Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.            
32.1**   Section 1350 Certification of Chief Executive Officer.            
32.2**   Section 1350 Certification of Chief Financial Officer.            
101.INS*   Inline XBRL Instance Document            
101.SCH*   Inline XBRL Taxonomy Extension Schema Document            
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document            
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document            
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document            
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document            
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)            

 

12

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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)  
     
  January 17, 2023  
     
By: /s/ Eli Kay  
  Eli Kay  
  Chief Financial Officer (Principal Financial Officer)  
     
  January 17, 2023  

 

13