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 Endedquarterly period ended February 28,29, 20232024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Periodtransition 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 of | (I.R.S. Employer Identification No.) |
154-09 146th Ave, Jamaica, NY | 11434 | |
(Address of | (Zip Code) |
678-365-6004
(Registrant’s(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of exchange on which registered | ||
None | None | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or a small reportingan emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company”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)13(a) of the SecuritiesExchange Act: ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No No☒ ☒
As of April 19, 2023,May 2, 2024, there were shares of the registrant’s common stock outstanding.
UNIQUE LOGISTICS INTERNATIONAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 202329, 2024
TABLE OF CONTENTS
2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
February 29, 2024 | May 31, 2023 | |||||||||||||||
February 28, 2023 | May 31, 2022 | (Unaudited) | (Audited) | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 14,402,666 | $ | 1,422,393 | $ | 6,743,144 | $ | 6,744,238 | ||||||||
Accounts receivable, net | 40,438,290 | 74,746,036 | 42,059,013 | 41,402,435 | ||||||||||||
Contract assets | 3,859,562 | 30,970,581 | 3,047,570 | 2,886,779 | ||||||||||||
Other current assets and prepaids | 3,769,572 | 1,404,021 | 5,374,732 | 9,293,533 | ||||||||||||
Total current assets | 62,470,090 | 108,543,031 | 57,224,459 | 60,326,985 | ||||||||||||
Property and equipment, net | 1,691,248 | 188,889 | 822,230 | 609,785 | ||||||||||||
Other long-term assets: | ||||||||||||||||
Other noncurrent assets: | ||||||||||||||||
Goodwill | 8,449,454 | 4,463,129 | 20,516,018 | 20,516,018 | ||||||||||||
Identifiable intangible assets, net | 13,322,344 | 7,337,704 | ||||||||||||||
Intangible assets, net | 11,571,589 | 12,865,093 | ||||||||||||||
Equity-method investments | 10,861,111 | - | 3,449,163 | 3,381,683 | ||||||||||||
Operating lease right-of-use assets, net | 10,931,331 | 2,408,098 | 9,395,501 | 10,269,516 | ||||||||||||
Deferred tax asset, net | 1,193,610 | 942,748 | 1,978,178 | - | ||||||||||||
Deferred offering cost | - | 2,419,976 | ||||||||||||||
Other noncurrent assets | 2,021,926 | 1,028,336 | 670,707 | 1,133,674 | ||||||||||||
Total other long-term assets | 46,779,776 | 16,180,015 | ||||||||||||||
Total other noncurrent assets | 47,581,156 | 50,585,960 | ||||||||||||||
Total assets | $ | 110,941,114 | $ | 124,911,935 | $ | 105,627,845 | $ | 111,522,730 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 17,462,662 | $ | 49,028,862 | $ | 27,712,571 | $ | 25,132,388 | ||||||||
Accrued expenses and current liabilities | 10,178,857 | 5,666,159 | 6,372,823 | 8,594,947 | ||||||||||||
Accrued freight | 8,056,941 | 9,240,650 | 2,225,313 | 3,489,957 | ||||||||||||
Contract Liabilities | 358,365 | 468,209 | ||||||||||||||
Revolving credit facility | 9,882,529 | 38,141,451 | 11,852,663 | 8,050,227 | ||||||||||||
Current portion of notes payable | 17,804,500 | 608,333 | 971,081 | - | ||||||||||||
Current portion of noncurrent debt due to related parties | 325,478 | 301,308 | ||||||||||||||
Current portion of notes payable to related parties | 150,655 | 4,801,310 | ||||||||||||||
Current portion of notes payable | 150,655 | 4,801,310 | ||||||||||||||
Current portion of operating lease liability | 2,422,306 | 912,618 | 2,676,904 | 2,379,774 | ||||||||||||
Other current liabilities | 5,710,057 | - | ||||||||||||||
Total current liabilities | 72,201,695 | 104,367,590 | 51,962,010 | 52,448,603 | ||||||||||||
Noncurrent liabilities: | ||||||||||||||||
Noncurrent portion of notes payable | 1,500,000 | - | ||||||||||||||
Noncurrent debt due to related parties, net of current portion | 150,655 | 397,968 | ||||||||||||||
Noncurrent liabilities | ||||||||||||||||
Notes payable | 11,028,919 | 4,000,000 | ||||||||||||||
Notes payable to related parties, net of current portion | 10,100,000 | 8,750,000 | ||||||||||||||
Notes payable | 10,100,000 | 8,750,000 | ||||||||||||||
Operating lease liability, net of current portion | 7,194,929 | 8,212,445 | ||||||||||||||
Derivative liabilities | 11,628,383 | 12,437,994 | 7,439,695 | 11,558,261 | ||||||||||||
Operating lease liability, net of current portion | 8,813,569 | 1,593,873 | ||||||||||||||
Deferred tax liability, net | - | 4,405,442 | ||||||||||||||
Other noncurrent liabilities | - | 282,666 | 11,558,135 | 4,552,346 | ||||||||||||
Total noncurrent liabilities | 22,092,607 | 14,712,501 | 47,321,678 | 41,478,494 | ||||||||||||
Total liabilities | 94,294,302 | 119,080,091 | 99,283,688 | 93,927,097 | ||||||||||||
Commitments and contingencies | - | - | ||||||||||||||
Commitments and contingencies (Note 6) | - | - | ||||||||||||||
Stockholders’ Equity: | ||||||||||||||||
Preferred Stock, $ | par value: shares authorized||||||||||||||||
Series A Convertible Preferred stock, $120 on February 28, 2023 | par value; and , issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $120 | 130 | ||||||||||||||
Series B Convertible Preferred stock, $821 on February 28, 2023 par value; shares issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $ | 821 | 821 | ||||||||||||||
Series C Convertible Preferred stock, $18.5 million on February 28, 2023 | par value; shares, issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $- | - | ||||||||||||||
Series D Convertible Preferred stock, $17.3 million on February 28, 2023 | par value; and , issued and outstanding as of February 28, 2023, and May 31, 2022, respectively. Liquidation preference $- | - | ||||||||||||||
Preferred Stock, $ | par value: shares authorized||||||||||||||||
Series A Convertible Preferred stock, $120 on February 29, 2024 | par value; issued and outstanding as of February 29, 2024 and May 31, 2023, respectively. Liquidation preference $120 | 120 | ||||||||||||||
Series B Convertible Preferred stock, $821 on February 29, 2024 | par value; issued and outstanding as of February 29, 2024 and May 31, 2023, respectively. Liquidation preference of $821 | 821 | ||||||||||||||
Series C Convertible Preferred stock, $7.6 million on February 29, 2024 | par value; , issued and outstanding as of February 29, 2024 and May 31, 2023, respectively. Liquidation preference $- | - | ||||||||||||||
Series D Convertible Preferred stock, $7.1 million on February 29, 2024 | par value; issued and outstanding as of February 29, 2024 and May 31, 2023, respectively. Liquidation preference $- | - | ||||||||||||||
Preferred stock, value | - | - | ||||||||||||||
Common stock $ | par value; shares authorized, and common shares issued and outstanding as of February 28, 2023, and May 31, 2022, respectively.799,143 | 687,197 | ||||||||||||||
Common stock, $ | par value; shares authorized; shares issued and outstanding as of February 29, 2024 and May 31, 2023, respectively.799,142 | 799,142 | ||||||||||||||
Additional paid-in capital | 180,220 | 292,155 | 180,220 | 180,220 | ||||||||||||
Accumulated other comprehensive income | (218,547 | ) | 3,258 | |||||||||||||
Retained earnings | 12,107,752 | 4,851,541 | 1,976,325 | 13,066,109 | ||||||||||||
Total Stockholders’ equity attributable to registrant | 13,088,055 | 5,831,844 | ||||||||||||||
Total Stockholders’ Equity attributable to common shareholder | 2,738,081 | 14,049,670 | ||||||||||||||
Equity attributable to noncontrolling interests | 3,558,757 | - | 3,606,076 | 3,545,963 | ||||||||||||
Total Stockholder’s Equity | 16,646,812 | 5,831,844 | ||||||||||||||
Total Stockholders’ Equity | 6,344,157 | 17,595,633 | ||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 110,941,114 | $ | 124,911,935 | $ | 105,627,845 | $ | 111,522,730 |
See notes accompanying condensed consolidated financial statements.
F-1 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
For the Three Months Ended February 28, 2023 | For the Three Months Ended February 28, 2022 | For the Nine Months Ended February 28, 2023 | For the Nine Months Ended February 28, 2022 | For the Three Months Ended February 29, 2024 | For the Three Months Ended February 28, 2023 | For the Nine Months Ended February 29, 2024 | For the Nine Months Ended February 28, 2023 | |||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Airfreight services | $ | 13,206,112 | 127,787,167 | $ | 64,721,816 | $ | 455,020,012 | $ | 31,672,402 | $ | 13,206,112 | $ | 87,102,162 | $ | 64,721,816 | |||||||||||||||||
Ocean freight and ocean services | 23,106,949 | 104,379,472 | 159,292,026 | 343,102,200 | 27,543,642 | 23,106,949 | 74,933,392 | 159,292,026 | ||||||||||||||||||||||||
Contract logistics | 755,034 | 725,932 | 2,499,459 | 2,659,652 | 579,675 | 755,034 | 1,892,954 | 2,499,459 | ||||||||||||||||||||||||
Customs brokerage and other services | 12,559,407 | 17,543,324 | 48,460,306 | 44,856,580 | 8,034,666 | 12,559,407 | 28,612,414 | 48,460,306 | ||||||||||||||||||||||||
Total revenues | 49,627,502 | 250,435,895 | 274,973,607 | 845,638,444 | 67,830,385 | 49,627,502 | 192,540,922 | 274,973,607 | ||||||||||||||||||||||||
Equity method earnings | 224,854 | - | 675,606 | - | ||||||||||||||||||||||||||||
Costs and operating expenses: | ||||||||||||||||||||||||||||||||
Airfreight services | 11,964,314 | 127,220,095 | 59,465,104 | 447,865,096 | 29,076,358 | 11,964,314 | 81,374,442 | 59,465,104 | ||||||||||||||||||||||||
Ocean freight and ocean services | 19,722,259 | 99,620,036 | 142,806,034 | 323,381,733 | 23,999,410 | 19,722,259 | 62,964,504 | 142,806,034 | ||||||||||||||||||||||||
Contract logistics | 215,245 | 459,492 | 846,226 | 1,529,318 | 126,523 | 215,245 | 507,326 | 846,226 | ||||||||||||||||||||||||
Customs brokerage and other services | 11,397,398 | 16,011,938 | 44,773,324 | 41,330,633 | 6,346,786 | 11,397,398 | 24,263,573 | 44,773,324 | ||||||||||||||||||||||||
Salaries and related costs | 3,076,221 | 2,551,481 | 10,036,200 | 8,120,799 | 5,529,773 | 3,076,221 | 17,293,553 | 10,036,200 | ||||||||||||||||||||||||
Professional fees | 39,082 | 190,765 | 1,213,807 | 669,091 | 666,850 | 39,082 | 2,299,312 | 1,213,807 | ||||||||||||||||||||||||
Rent and occupancy | 883,681 | 508,621 | 2,026,363 | 1,478,600 | 1,176,612 | 883,681 | 3,382,602 | 2,026,363 | ||||||||||||||||||||||||
Selling and promotion | 1,471,236 | 899,097 | 2,033,668 | 4,591,715 | 609,751 | 1,471,236 | 1,888,439 | 2,033,668 | ||||||||||||||||||||||||
Depreciation and amortization | 203,390 | 196,347 | 606,030 | 585,019 | 752,750 | 203,390 | 2,203,093 | 606,030 | ||||||||||||||||||||||||
Foreign exchange transactions, net | 26,858 | - | (267,209 | ) | - | |||||||||||||||||||||||||||
Other | 323,747 | 524,933 | 993,508 | 1,975,000 | 282,871 | 323,747 | 948,402 | 993,508 | ||||||||||||||||||||||||
Total costs and operating expenses | 49,296,573 | 248,182,805 | 264,800,264 | 831,527,004 | 68,594,542 | 49,296,573 | 196,858,037 | 264,800,264 | ||||||||||||||||||||||||
Income from operations | 330,929 | 2,253,090 | 10,173,343 | 14,111,440 | ||||||||||||||||||||||||||||
(Loss) income from operations | (539,303 | ) | 330,929 | (3,641,509 | ) | 10,173,343 | ||||||||||||||||||||||||||
Other income (expenses) | ||||||||||||||||||||||||||||||||
Other (expenses) income | ||||||||||||||||||||||||||||||||
Interest expense | (546,791 | ) | (1,395,396 | ) | (2,876,776 | ) | (4,566,876 | ) | (1,407,449 | ) | (546,791 | ) | (3,823,822 | ) | (2,876,776 | ) | ||||||||||||||||
Amortization of debt discount | - | - | - | (776,515 | ) | |||||||||||||||||||||||||||
Loss on extinguishment of convertible notes payable | - | (1,344,087 | ) | - | (564,037 | ) | ||||||||||||||||||||||||||
Gain on forgiveness of promissory note | - | - | - | 358,236 | ||||||||||||||||||||||||||||
Change in fair value of derivative liabilities | 64,955 | (4,275,986 | ) | 809,611 | (4,275,986 | ) | 4,300,429 | 64,955 | 4,118,566 | 809,611 | ||||||||||||||||||||||
Other Income | - | 60,000 | - | 60,000 | ||||||||||||||||||||||||||||
SPAC merger termination cost | (10,415,816 | ) | - | (10,415,816 | ) | - | ||||||||||||||||||||||||||
Uplist termination cost | (3,054,514 | ) | - | (3,054,514 | ) | - | ||||||||||||||||||||||||||
Total other (expenses) income | (10,577,350 | ) | (481,836 | ) | (13,175,586 | ) | (2,067,165 | ) | ||||||||||||||||||||||||
Total other income (expenses) | (481,836 | ) | (6,955,469 | ) | (2,067,165 | ) | (9,765,178 | ) | ||||||||||||||||||||||||
Net (loss) income before income taxes | (11,116,653 | ) | (150,907 | ) | (16,817,095 | ) | 8,106,178 | |||||||||||||||||||||||||
Net income (loss) before income taxes | (150,907 | ) | (4,702,379 | ) | 8,106,178 | 4,346,262 | ||||||||||||||||||||||||||
Income tax (benefit) expense | (5,268,793 | ) | (814,080 | ) | (5,787,424 | ) | 849,967 | |||||||||||||||||||||||||
Income tax (credit) expense | (814,080 | ) | 228,207 | 849,967 | 2,765,207 | |||||||||||||||||||||||||||
Net (loss) income | (5,847,860 | ) | 663,173 | (11,029,671 | ) | 7,256,211 | ||||||||||||||||||||||||||
Net income (loss) | 663,173 | (4,930,586 | ) | 7,256,211 | 1,581,055 | |||||||||||||||||||||||||||
Noncontrolling interest | (114,538 | ) | - | (60,113 | ) | - | ||||||||||||||||||||||||||
Deemed Dividend | - | (4,565,725 | ) | - | (4,565,725 | ) | ||||||||||||||||||||||||||
Net income (loss) available to common shareholders | $ | 663,173 | $ | (9,496,311 | ) | $ | 7,256,211 | $ | (2,984,670 | ) | ||||||||||||||||||||||
Net income per common share | ||||||||||||||||||||||||||||||||
Net (loss) income attributable to for common shareholders | $ | (5,962,398 | ) | $ | 663,173 | $ | (11,089,784 | ) | $ | 7,256,211 | ||||||||||||||||||||||
Net (loss) income available for common shareholders per common share | ||||||||||||||||||||||||||||||||
– basic | $ | - | $ | (0.01 | ) | $ | 0.01 | $ | (0.01 | ) | $ | (0.01 | ) | $ | - | $ | (0.01 | ) | $ | 0.01 | ||||||||||||
– diluted | $ | - | $ | (0.01 | ) | $ | - | $ | (0.01 | ) | $ | (0.01 | ) | $ | - | $ | (0.01 | ) | $ | - | ||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||||||||||||||
– basic | 799,141,770 | 655,781,078 | 780,768,778 | 582,680,746 | 799,141,770 | 799,141,770 | 799,141,770 | 780,768,778 | ||||||||||||||||||||||||
– diluted | 9,677,967,424 | 655,781,078 | 9,659,594,432 | 582,680,746 | 799,141,770 | 9,677,967,424 | 799,141,770 | 9,659,594,432 |
See notes to accompanying condensed consolidated financial statements.
F-2 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
For the Three | For the Three | |||||||
Months Ended | Months Ended | |||||||
February 29, 2024 | February 28, 2023 | |||||||
Net (loss) income | $ | (5,847,860 | ) | $ | 663,173 | |||
Other comprehensive income (OCI), net of tax: | ||||||||
Foreign currency translation adjustments | 21,432 | - | ||||||
OCI tax effect | - | - | ||||||
Total comprehensive (loss) income | (5,826,428 | ) | 663,173 | |||||
Net loss attributable to noncontrolling interest | 114,538 | - | ||||||
Comprehensive (loss) income attributable to common shareholder | $ | (5,940,966 | ) | $ | 663,173 |
For the Nine | For the Nine | |||||||
Months Ended | Months Ended | |||||||
February 28, 2023 | February 28, 2023 | |||||||
Net (loss) income | $ | (11,029,671 | ) | $ | 7,256,211 | |||
Other comprehensive income, net of tax: | ||||||||
Foreign currency translation adjustments | (236,674 | ) | - | |||||
OCI tax effect | 14,869 | - | ||||||
Total comprehensive (loss) income | (11,251,476 | ) | 7,256,211 | |||||
Net loss attributable to noncontrolling interest | 60,113 | - | ||||||
Comprehensive (loss) income attributable to common shareholder | $ | (11,311,589 | ) | $ | 7,256,211 |
F-3 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited)For the Three and Nine Months Ended February 29, 2024
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid in | Accumulated Comprehensive | Retained | Total Stockholders’ equity attributable to common | Non- Controlling | Total Stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | income | earning | stockholder | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 1, 2023 | 120,065 | $ | 120 | 820,800 | $ | 821 | 195 | $ | - | 180 | $ | - | 799,141,770 | $ | 799,142 | $ | 180,220 | $ | 3,258 | $ | 13,066,109 | $ | 14,049,670 | $ | 3,545,963 | $ | 17,595,633 | |||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | - | - | - | - | - | - | - | (166,750 | ) | - | (166,750 | ) | - | (166,750 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | - | (2,230,651 | ) | (2,230,651 | ) | (80,477 | ) | (2,311,128 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Balance, August 31, 2023 | 120,065 | 120 | 820,800 | 821 | 195 | - | 180 | - | 799,141,770 | 799,142 | 180,220 | (163,493 | ) | 10,835,458 | 11,652,269 | 3,465,486 | 15,117,755 | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | - | - | - | - | - | - | - | (76,487 | ) | - | (76,487 | ) | - | (76,487 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | - | (2,896,735 | ) | (2,896,735 | ) | 26,052 | (2,870,683 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Balance, November 30, 2023 | 120,065 | 120 | 820,800 | 821 | 195 | - | 180 | - | 799,141,770 | $ | 799,142 | 180,220 | (239,979 | ) | 7,938,723 | 8,679,047 | 3,491,538 | 12,170,585 | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | - | - | - | - | - | - | - | 21,432 | - | 21,432 | - | 21,432 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | - | (5,962,398 | ) | (5,962,398 | ) | 114,538 | (5,847,860 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Balance, February 29, 2024 | 120,065 | $ | 120 | 820,800 | $ | 821 | 195 | $ | - | 180 | $ | - | 799,141,770 | $ | 799,142 | $ | 180,220 | $ | (218,547 | ) | $ | 1,976,325 | $ | 2,738,081 | 3,606,076 | $ | 6,344,157 |
For the Three and Nine Months Ended February 28, 2023
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | Earning | Equity | Interest (1) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid in | Retained | Total Stockholders’ equity attributable | Non- Controlling | Total Stockholders | Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid in | Retained | Total Stockholders’ equity attributable | Non- Controlling | Total Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | earning | to registrant | Interest(1) | Equity | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | earning | to registrant | Interest(1) | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, May 31 2022 | 130,000 | $ | 130 | 820,800 | $ | 821 | 195 | $ | - | 187 | $ | - | 687,196,478 | $ | 687,197 | $ | 292,155 | $ | 4,851,541 | $ | 5,831,844 | $ | - | $ | 5,831,844 | 130,000 | $ | 130 | 820,800 | $ | 821 | 195 | $ | - | 187 | $ | - | 687,196,478 | $ | 687,197 | $ | 292,155 | $ | 4,851,541 | $ | 5,831,844 | $ | - | $ | 5,831,844 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Preferred A to Common Stock | (9,935 | ) | (10 | ) | - | - | - | - | - | - | 67,963,732 | 67,964 | (67,954 | ) | - | - | - | - | (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 | ) | - | - | - | - | - | - | - | - | - | - | (7 | ) | - | 43,981,560 | 43,981 | (43,981 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | - | - | - | - | 3,321,341 | 3,321,341 | - | 3,321,341 | - | - | - | - | - | - | - | - | - | - | - | 3,321,341 | 3,321,341 | - | 3,321,341 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, August 31, 2022 | 120,065 | 120 | 820,800 | 821 | 195 | - | 180 | - | 799,141,770 | 799,142 | 180,220 | 8,172,882 | 9,153,185 | - | 9,153,185 | 120,065 | 120 | 820,800 | 821 | 195 | - | 180 | - | 799,141,770 | 799,142 | 180,220 | 8,172,882 | 9,153,185 | - | 9,153,185 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | - | - | - | - | 3,271,697 | 3,271,697 | - | 3,271,697 | - | - | - | - | - | - | - | - | - | - | - | 3,271,697 | 3,271,697 | - | 3,271,697 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, November 30, 2022 | 120,065 | 120 | 820,800 | 821 | 195 | - | 180 | - | 799,141,770 | 799,142 | 180,220 | 11,444,579 | 12,424,882 | - | 12,424,882 | 120,065 | 120 | 820,800 | 821 | 195 | - | 180 | - | 799,141,770 | 799,142 | 180,220 | 11,444,579 | 12,424,882 | - | 12,424,882 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance | 120,065 | 120 | 820,800 | 821 | 195 | - | 180 | - | 799,141,770 | 799,142 | 180,220 | 11,444,579 | 12,424,882 | - | 12,424,882 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognition of non-controlling interest upon acquisition | - | - | - | - | - | - | - | - | - | - | - | - | - | 3,558,757 | 3,558,757 | - | - | - | - | - | - | - | - | - | - | - | - | - | 3,558,757 | 3,558,757 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | - | - | - | - | 663,173 | 663,173 | - | 663,173 | - | - | - | - | - | - | - | - | - | - | - | 663,173 | 663,173 | - | 663,173 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | - | - | - | 663,173 | 663,173 | - | 663,173 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, February 28, 2023 | 120,065 | $ | 120 | 820,800 | $ | 821 | 195 | $ | - | 180 | $ | - | 799,141,770 | $ | 799,142 | $ | 180,220 | $ | 12,107,752 | $ | 13,088,055 | $ | 3,558,757 | $ | 16,646,812 | 120,065 | $ | 120 | 820,800 | $ | 821 | 195 | $ | - | 180 | $ | - | 799,141,770 | $ | 799,142 | $ | 180,220 | $ | 12,107,752 | $ | 13,088,055 | $ | 3,558,757 | $ | 16,646,812 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance | 120,065 | $ | 120 | 820,800 | $ | 821 | 195 | $ | - | 180 | $ | - | 799,141,770 | $ | 799,142 | $ | 180,220 | $ | 12,107,752 | $ | 13,088,055 | $ | 3,558,757 | $ | 16,646,812 |
See notes to accompanying condensed consolidated financial statements.
For the Three and Nine Months Ended February 28, 2022
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Total | ||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid-in | Retained | ||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Total | ||||||||||||||||||||||||||||||||||||||||
Balance, June 1, 2021 | 130,000 | $ | 130 | 840,000 | $ | 840 | - | $ | - | - | - | 393,742,663 | $ | 393,743 | $ | 4,906,384 | $ | 1,316,987 | $ | 6,618,084 | ||||||||||||||||||||||||||||||||
Conversion of Preferred B to Common Stock | - | - | (19,200 | ) | (19 | ) | - | - | - | - | 125,692,224 | 125,692 | (125,673 | ) | - | - | ||||||||||||||||||||||||||||||||||||
Issuance of Common Stock for the conversion of notes and accrued interest | - | - | - | - | - | - | - | - | 83,811,872 | 83,812 | 66,746 | - | 150,558 | |||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | - | - | - | - | 2,023,416 | 2,023,416 | |||||||||||||||||||||||||||||||||||||||
Balance, August 31, 2021 | 130,000 | $ | 130 | 820,800 | $ | 821 | - | $ | - | - | $ | - | 603,246,759 | $ | 603,247 | $ | 4,847,457 | $ | 3,340,403 | $ | 8,792,058 | |||||||||||||||||||||||||||||||
Issuance of Common Stock for the conversion of notes and accrued interest | - | - | - | - | - | - | - | - | 52,534,319 | 52,534 | 41,838 | - | 94,372 | |||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | - | - | - | - | 4,488,225 | 4,488,225 | |||||||||||||||||||||||||||||||||||||||
Balance, November 30, 2021 | 130,000 | $ | 130 | 820,800 | $ | 821 | - | - | - | - | 655,781,078 | $ | 655,782 | $ | 4,889,295 | $ | 7,828,628 | $ | 13,374,656 | |||||||||||||||||||||||||||||||||
Beginning balance | 130,000 | $ | 130 | 820,800 | $ | 821 | - | - | - | - | 655,781,078 | $ | 655,782 | $ | 4,889,295 | $ | 7,828,628 | $ | 13,374,656 | |||||||||||||||||||||||||||||||||
Conversion of debt to preferred C and D | 195 | - | 192 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
Deemed dividend | - | - | - | - | - | - | - | - | - | - | (4,565,725 | ) | - | (4,565,725 | ) | |||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | (4,930,586 | ) | (4,930,586 | ) | ||||||||||||||||||||||||||||||||||||||||||
Balance, February 28, 2022 | 130,000 | $ | 130 | 820,800 | $ | 821 | 195 | $ | - | 192 | $ | - | 655,781,078 | $ | 655,782 | 323,570 | 2,898,042 | 3,878,345 | ||||||||||||||||||||||||||||||||||
Ending balance | 130,000 | $ | 130 | 820,800 | $ | 821 | 195 | $ | - | 192 | $ | - | 655,781,078 | $ | 655,782 | 323,570 | 2,898,042 | 3,878,345 |
F-4 |
See notes to accompanying condensed consolidated financial statements.
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended February 28, 2023 | For the Nine Months Ended February 28, 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 7,256,211 | $ | 1,581,055 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 606,030 | 585,019 | ||||||
Amortization of debt discount | - | 776,515 | ||||||
Amortization of right of use assets | 1,269,299 | 1,103,649 | ||||||
Change in fair value of derivative liability | (809,611 | ) | 4,275,986 | |||||
Bad debt expense | - | 850,000 | ||||||
Gain on forgiveness of note payable | - | (358,236 | ) | |||||
Loss on extinguishment of convertible notes payable | - | 564,037 | ||||||
Change in deferred tax asset | (261,118 | ) | 99,000 | |||||
Accretion of consulting agreement | (282,666 | ) | (212,004 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 58,562,998 | (82,890,241 | ) | |||||
Contract assets | 27,111,019 | (12,706,657 | ) | |||||
Factoring reserve | - | 7,593,665 | ||||||
Other prepaid expenses and current assets | (2,716,596 | ) | 256,716 | |||||
Deposits and other assets | (1,533,533 | ) | (20,000 | ) | ||||
Accounts payable | (44,314,785 | ) | 18,807,393 | |||||
Accrued expenses and other current liabilities | (9,511,815 | ) | 2,962,457 | |||||
Accrued freight | (1,183,709 | ) | 5,397,339 | |||||
Contract liabilities | (109,844 | ) | 10,403,335 | |||||
Operating lease liability | (1,049,118 | ) | (1,098,769 | ) | ||||
Net Cash Provided by (Used in) Operating Activities | 33,032,762 | (42,029,741 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of equipment | (94,900 | ) | (54,474 | ) | ||||
Acquisitions of businesses, net of cash acquired | 8,828,309 | - | ||||||
Net Cash Used in Investing Activities | 8,733,409 | (54,474 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Revolving credit facility, net | (28,258,922 | ) | 43,888,787 | |||||
Proceeds from notes payable | - | 2,000,000 | ||||||
Repayments of notes payable | (303,833 | ) | (2,821,664 | ) | ||||
Repayments of debt due to related parties | (223,143 | ) | (239,924 | ) | ||||
Net Cash (Used in) Provided by Financing Activities | (28,785,898 | ) | 42,827,199 | |||||
Net change in cash and cash equivalents | 12,980,273 | 742,984 | ||||||
Cash and cash equivalents - Beginning of Period | 1,422,393 | 252,615 | ||||||
Cash and cash equivalents - End of Period | $ | 14,402,666 | $ | 995,598 | ||||
SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | 1,932,100 | $ | 2,375,900 | ||||
Interest | $ | 2,571,748 | $ | 4,072,366 | ||||
Non-cash transactions: | ||||||||
Right-of-use assets obtained in exchange for lease liabilities | $ | 8,897,639 | $ | 1,098,769 | ||||
Non-cash consideration paid in business acquisition (Note 2) | $ | 25,250,000 | $ | - | ||||
Conversion of Series B Preferred to Common Stock | $ | - | $ | 125,673 | ||||
Issuance of common stock for the conversion of principal net of accrued interest capitalized to principal to Notes Payable | $ | - | $ | 244,931 | ||||
Reduction of debt due to exchange of convertible Notes for Preferred Stock Series C&D | $ | - | $ | 3,861,162 |
For the Nine Months Ended February 29, 2024 | For the Nine Months Ended February 28, 2023 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) income | $ | (11,029,671 | ) | $ | 7,256,211 | |||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 2,203,093 | 606,030 | ||||||
Bad debt recovery | (1,203,978 | ) | - | |||||
Amortization of right of use assets | 2,144,717 | 1,269,299 | ||||||
Equity method earnings | (675,606 | ) | - | |||||
Change in net deferred tax provision | (6,838,466 | ) | (261,118 | ) | ||||
Change in fair value of derivative liabilities | (4,118,566 | ) | (809,611 | ) | ||||
Accretion of consulting agreement | - | (282,666 | ) | |||||
Uplist termination cost previously deferred | 2,419,976 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 547,400 | 58,562,998 | ||||||
Contract assets | (160,791 | ) | 27,111,019 | |||||
Prepaid expenses and current assets | 3,918,801 | (2,716,596 | ) | |||||
Other noncurrent assets | 462,967 | (1,533,533 | ) | |||||
Accounts payable | 3,035,028 | (44,314,785 | ) | |||||
Accrued expenses and other liabilities | 4,783,665 | (9,511,815 | ) | |||||
Accrued freight | (1,264,644 | ) | (1,183,709 | ) | ||||
Contract liabilities | - | (109,844 | ) | |||||
Operating lease liability | (1,991,088 | ) | (1,049,118 | ) | ||||
Net Cash (Used in) Provided by Operating Activities | (7,767,163 | ) | 33,032,762 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (1,122,034 | ) | (94,900 | ) | ||||
Dividends received from equity method investments | 608,127 | 8,828,309 | ||||||
Net Cash (Used in) Provided by Investing Activities | (513,907 | ) | 8,733,409 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings from notes payable | 8,000,000 | (303,833 | ) | |||||
Repayments of debt due to related parties | (3,300,655 | ) | (223,143 | ) | ||||
Borrowing (repayments) line of credit, net | 3,802,436 | (28,258,922 | ) | |||||
Net Cash Provided by (Used in) Financing Activities | 8,501,781 | (28,785,898 | ) | |||||
Difference on the effect of exchange rate on cash and equivalents | (221,805 | ) | - | |||||
Net change in cash and cash equivalents | (1,094 | ) | 12,980,273 | |||||
Cash and cash equivalents - Beginning of period | 6,744,238 | 1,422,393 | ||||||
Cash and cash equivalents - End of period | $ | 6,743,144 | $ | 14,402,666 | ||||
SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
Cash Paid During the period for: | ||||||||
Income taxes | $ | 1,013,900 | $ | 1,932,100 | ||||
Interest | $ | 3,088,765 | $ | 2,571,748 | ||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Operating lease asset and liability additions | $ | 1,270,702 | $ | 8,897,639 | ||||
Non-cash consideration paid in business acquisition | $ | - | $ | 25,250,000 |
See notes to accompanying condensed consolidated financial statements.
F-5 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 202329, 2024
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Unique Logistics International, Inc. and its subsidiaries (the “Company” or “Unique”) is a non-asset-based provider of global logistics and freight forwarding company.services operating through a worldwide network of offices and exclusive or non-exclusive agents. The Company’s customers include retailers and wholesalers, electronics, high technology, industrial and manufacturing companies around the world. The Company provides a range of international logistics services that enable its customers to outsource sections of their supply chain process. This range of services can be categorized as follows:
● | Air Freight | |
● | Ocean Freight | |
● | Customs Brokerage and Compliance | |
● | Warehousing and Distribution | |
● | Order Management |
Basis of Presentation
These condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include all accounts of the Company and its majority owned subsidiaries stated in U.S. dollars, the Company’s functional currency. For subsidiaries operating outside the U.S., the financial information will be accounted for on a one-month lag. Substantially all unremitted earnings of international subsidiaries are free of legal and contractual restrictions. All intercompany transactions and balances have been eliminated in the condensed consolidated financial statements.
The unaudited interim financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for the periods presented. The results reported in these interim condensed consolidated financial statements should not be regarded as necessary indicative of results that may be expected for an entire fiscal year. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended May 31, 2022.2023. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The condensed consolidated balance sheet on May 31, 20222023 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 ConsolidationLiquidity
The accompanying condensed 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 eliminatedprepared 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 condensed consolidatedaggregate, 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.statements are issued.
The Company’s working capital was $Acquisitions5.3 million and $7.9 million as of February 29, 2024 and May 31, 2023, respectively. The Company maintains its operating line of credit with TBK Bank, SSB, and on July 20, 2023 the Company entered into an agreement with TBK Bank to renew the TBK line of credit with a credit limit of up to $25.0 million. The Company has experienced negative operating cash flows during the nine months ended February 29, 2024 due to adverse market conditions. The Company relied heavily on its cash collections, cash reserves, dividends received from the ULHK Entities, new loans, and the use of its operating line of credit. The funds available under the current TBK line of credit are sufficient to provide the Company with the cash required to support its ongoing operations until market conditions improve.
While the Company continues to execute its strategic plan and grow its customer base, management is focused on managing cash and monitoring liquidity position. Many of the aspects of the liquidity plan involve management’s judgments and estimates that include factors that could be beyond our control and actual results could differ from our estimates. These condensedand other factors could cause the strategic plan to be unsuccessful, which could have a material adverse effect on our operating results, financial condition, and liquidity. Based on our evaluation of the Company’s projected cash flows and business performance as of and subsequent to February 29, 2024, management has concluded that the Company’s current cash and cash availability under the TBK Facility would be sufficient to fund its planned operations for at least one year from the date the consolidated financial statements include the operations of acquired businesses from the date of the acquisitions. The decision of whether to consolidate an entity for financial reporting purposes requires consideration of majority voting interests, as well as effective economic or other control over the entity.
We account for acquired businesses that we control using the acquisition method of accounting, which requires, among other things, that most assets acquired, and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill.
Contingent consideration in a business combination is included as part of the contingent liability and is recognized at fair value as of the acquisition date. Fair value is generally estimated by using a probability-weighted discounted cash flow approach. Any liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. These changes in fair value are recognized in earnings.
For equity-method investments in share capital of the subsidiaries where share interest acquired is less than 50%, but we have significant influence over the financial and operating policies of the investee, we use the equity method of accounting. Under the equity-method, we record our share of the investee’s income and expenses in income from operation and any share of the earnings and loss would be recorded against investment reduced by cash dividends received. The initial excess of the cost of the investment over our share of the underlying equity in the net assets of the investee as of the acquisition date is allocated to the identifiable assets and liabilities of the investee, with any remaining excess amount allocated to goodwill. Such investments are initially recorded at cost, which is the fair value of consideration paid and typically does not include contingent consideration. For equity-method investments, an impairment charge is recorded only if and when a decline in fair value is determined to be other-than-temporary.were issued.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.
F-6 |
Significant estimates inherent in the preparation of the condensed consolidated financial statements include determinations of the useful lives and expected future cash flows of long-lived assets, including intangibles, valuation of assets and liabilities acquired in business combinations, and estimates and assumptions in valuation of debt and equity instruments, including derivative liabilities. In addition, the Company makes significant judgments to recognize revenue – see policy note “Revenue Recognition” below.
Foreign Currency Translation
For most of our international operations conducted by the subsidiaries operating outside the U.S, local currencies have been determined to be functional currencies. We translate functional currency assets and liabilities to their U.S. dollar equivalents at exchange rates in effect as of the balance sheet date and income and expense amounts at average exchange rates for the period. The U.S. dollar affects that arise from changing translation rates are recorded in Other comprehensive income/(loss). The effects of converting non-functional currency monetary assets and liabilities into the functional currency are recorded in Other (income)/deductions.
Liquidity
The accompanying condensed consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.
As of February 28, 2023, the Company reported negative working capital of $9.7 million compared to positive working capital of $4.2 million as of May 31, 2022. This change is mainly due to the completion of the ULHL Entities Acquisition on February 21, 2023. At the time of the acquisition, the Company paid $3.5 million in cash and assumed further $23.8 million as current liabilities and $1.5 million in noncurrent liabilities by either issuing promissory notes to the seller or by recognizing contingent liabilities at fair value on its balance sheet as of February 28, 2023. The amount of $3.8 million of the purchase price was recorded as goodwill, $6.5 million was recorded as intangibles and $10.9 million of the purchase price was recorded as equity method investments. All these assets were classified as noncurrent assets while most of the liabilities associated with the acquisition were recorded as current liabilities, resulting in a temporary negative impact on working capital.
The Company intends to either timely pay off the $23.8 million in current liabilities associated with the acquisition with cash generated by its operations, cash accumulated in the acquired ULHL Entities or by refinancing a portion of the current liabilities with non-current debt, which will have a positive effect on the working capital. As of the date of filing this form, the Company paid off $10.0 million of the promissory notes, ahead of scheduled maturity. See Note 9, Subsequent Events
As previously reported, on December 18, 2022, the Company entered into an Agreement and Plan of Merger with Edify Acquisition Corp. and Edify Merger Sub, Inc. that, subject to various conditions, included a commitment from a lender for a senior secured financing facility in the maximum aggregate principal amount of $35.0 million. In this regard, on March 10, 2023, the Company entered into a financing agreement and related fee letter as borrower with certain of its subsidiaries party thereto as guarantors, the lenders party thereto, CB Agent Services LLC, as origination agent, and Alter Domus (US) LLC, as collateral agent and administrative agent, that provides for an initial senior secured term loan in a principal amount of $4,210,526.32 and a delayed draw term loan facility in an aggregate principal amount of up to $14,789,473.68. This debt will be classified as a noncurrent liability, which will have a positive effect on the working capital. The Company intends to use some of the proceeds of these term loans to pay off approximately $9.0 million of the promissory notes and, after the closing of the business combination transaction with Edify Acquisition Corp. and to pay any deferred expenses relating to that transaction. See Note 9, Subsequent Events.
In addition, the Company maintains its operating line of credit with TBK Bank, SSB, under which TBK Bank will, from time to time, buy approved receivables from the Company, which has a credit limit up to $47.5 million (the “TBK Facility”). The TBK Facility matures on May 31, 2023, and we expect that TBK Bank will renew the TBK Facility prior to its expiration, which will provide the Company with the cash required to support its ongoing operations in addition to cash generated by operating activities.
While we continue to execute our strategic plan, growing the Company and its customer base, management is focused on managing cash and monitoring our liquidity position. We have implemented several initiatives to conserve our liquidity position, including activities such as increasing credit facilities, when needed, reducing the cost of debt by obtaining more favorable financing, controlling general and administrative expenditures and improving our collection processes. Many of the aspects of the liquidity plan involve management’s judgments and estimates that include factors that could be beyond our control and actual results could differ from our estimates. These and other factors could cause the strategic plan to be unsuccessful, which could have a material adverse effect on our operating results, financial condition, and liquidity. Negative operating capital may be an indicator that there could be a going concern issue, but based on our evaluation of the Company’s projected cash flows and business performance as of and subsequent to February 28, 2023, management has concluded that the Company’s current cash and cash availability under the TBK Facility as of February 28, 2023, would be sufficient to fund its planned operations for at least one year from the date the consolidated financial statements were issued.
Fair Value Measurement
The Company follows the authoritative guidance that establishes a formal framework for measuring fair values of assets and liabilities in the consolidated financial statements that are already required by generally accepted accounting principles to be measured at fair value. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction in the principal or most advantageous market considered from the perspective of the market participant that holds the asset or owes the liability.
The Company utilizes market data or assumptions that market participants who are independent, knowledgeable, and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company is able to classify fair value balances based on the observability of those inputs. The guidance establishes a formal fair value hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority to Level 1 measurements and the lowest priority to level 3 measurements, and accordingly, Level 1 measurement should be used whenever possible.
The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities or published net asset value for alternative investments with characteristics similar to a mutual fund.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 – Unobservable inputs for the asset or liability.
The methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while management believes its valuation methods are appropriate, the fair value of certain financial instruments could result in a difference fair value measurement at the reporting date. There were no changes in the Company’s valuation methodologies from the prior year.
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts for financial assets and liabilities such as cash and cash equivalents, accounts receivable - trade, contract assets, factoring reserve, other prepaid expenses and current assets, accounts payable – trade and other current liabilities, including contract liabilities, convertible notes, promissory notes, all approximate fair value due to their short-term nature as of February 28, 2023, and May 31, 2022. The carrying amount of the long-term debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company. Lease liabilities approximate fair value based on the incremental borrowing rate used to discount future cash flows. The Company had Level 3 liabilities (See Derivative liabilities note) as of February 28, 2023 and May 31, 2022. There were no transfers between levels during the reporting period.
Accounts Receivable
Accounts receivable from revenue transactions are based on invoiced prices which the Company expects to collect. In the normal course of business, the Company extends credit to customers that satisfy pre-defined credit criteria. The Company generally does not require collateral to support customer receivables. Accounts receivable, as shown on the consolidated balance sheets, is net of allowances when applicable. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the consolidated financial statements, assessments of collectability based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers, and an evaluation of the impact of economic conditions. The maximum accounting loss from the credit risk associated with accounts receivable is the amount receivable recorded, net of allowance for doubtful accounts. As of February 28, 2023, and May 31, 2022 the Company recorded an allowance for doubtful accounts of approximately $1.7 million and $2.7 million, respectively.
Concentrations
As of February 28, 2023, three major customers represented approximately 13.0% of all accounts receivable and no single customer represented more than 10.0% of total accounts receivable. Revenue from these customers in the aggregate as a percentage of the Company’s total revenue was 18.0% and 20.0% for the three and nine months ended February 28, 2023, respectively, and no single customer represented more than 10.0% of total revenue.
As of May 31, 2022, three major customers represented approximately 21.0% of all accounts receivable and no single customer represented more than 10.0% of total accounts receivable. Revenue from these customers in the aggregate as a percentage of the Company’s total revenue was approximately 50.0% and 52.0% for three months ended February 28, 2022, and nine months ended February 28, 2022, respectively with only one customer A at 39.0% and 38.0% respectively, and customers B and C were less than 10.0% each.
Derivative Liability
On December 10, 2021, the Company entered into an amended securities exchange agreement with the holders of convertible notes to exchange all Convertible Notes of the Company into shares of the Convertible Preferred Stock Series C and D.
Similar to the Convertible Preferred Stock Series A, these preferred stocks featured anti-dilution provision that expire on a specified date. Management has determined the anti-dilution provision embedded in preferred stock Series A, C and D is required to be accounted for separately from the preferred stock as a derivative liability and recorded at fair value. Separation of the anti-dilution option as a derivative liability is required because its economic characteristics are considered more akin to an equity instrument and therefore the anti-dilution option is not considered to be clearly and closely related to the economic characteristics of the preferred stock.
The Company has identified and recorded derivative instruments arising from an anti-dilution provision in the Company’s Series A, C and D Preferred Stock. An embedded derivative liability is representing the rights of holders of Convertible Preferred Stock Series A, C and D to receive additional common stock of the Company upon issuance of any additional common stock by the Company prior to qualified financing event as defined in the agreement. Each reporting period, the embedded derivative liability, if material, would be adjusted to reflect fair value at each period end with changes in fair value recorded in the “Change in fair value of embedded derivative liability” financial statement line item of the company’s statements of operations. During the nine months ended February 28, 2023, the Company recorded a change in fair value of $809,611 in the condensed consolidated statements of operations.
SCHEDULE OF DERIVATIVE LIABILITIES
Level 1 | Level 2 | Level 3 | ||||||||||
Derivative liabilities as May 31, 2022 | $ | - | $ | - | $ | 12,437,994 | ||||||
Addition | - | - | - | |||||||||
Change in fair value | - | - | (809,611 | ) | ||||||||
Derivative liabilities as February 28, 2023 | $ | - | $ | - | $ | 11,628,383 |
The underlying value of the anti-dilution provision is calculated from estimating the probability and value of the provision assuming a near term financing event. For the period ended May 31, 2022, the model used estimates the potential that the company completes a capital raise prior to the expiration of the anti-dilution feature and determines the value of the anti-dilution feature given these assumptions. The model required the use of certain assumptions. These assumptions include the probability of a raise is completed, probability certain anti-dilution features are extended, estimated raise amount, term to a raise, and an appropriate risk-free interest rate. For the period ended February 28, 2023, due to changes in the way antidilutive shares of Convertible Preferred Series A, C and D would be exchanged in the near future for common stock, and the fact that the antidilution provision of these shares was extended through December 31, 2023, the assumptions were changed to include probability of the financing event, estimated value of common stock at the exchange point and estimated time to financing event.
The key inputs into the model were as follows:
SCHEDULE OF FAIR VALUE ASSUMPTION
February 28, 2023 | May 31, 2022 | |||||||
Risk-free interest rate | 5.0 | % | 1.60 | % | ||||
Probability of financing event or capital raise | 90 | % | 50 | % | ||||
Estimated capital raise | - | 39.0 million | ||||||
Estimated value of common stock | $ | 10.00 per share | - | |||||
Estimated time to financing event | 0.25 years | 0.5 years |
Revenue Recognition
The Company adopted ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for services. The Company recognizes revenue upon meeting each performance obligation based on the allocated amount of the total consideration of the contract to each specific performance obligation.
To determine revenue recognition, the Company applies the following five steps:
1. | Identify the contract(s) with a customer; | |
2. | Identify the performance obligations in the contract; | |
3. | Determine the transaction price; | |
4. | Allocate the transaction price to the performance obligations in the contract; and | |
5. | Recognize revenue as or when the performance obligation is satisfied. |
Revenue is recognized as follows:
i. | Freight income - export sales | |
Freight income from the provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit time basis through the sail or departure from origin port. The Company is the principal in these transactions and recognizes revenue on a gross basis. | ||
ii. | Freight income - import sales | |
Freight income from the provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit time basis through the delivery to the customer’s designated location. The Company is the principal in these transactions and recognizes revenue on a gross basis. | ||
iii. | Customs brokerage and other service income | |
Customs brokerage and other service income from the provision of other services are recognized at the point in time the performance obligation is met. |
The Company’s business practices require, for accurate and meaningful disclosure, that it recognizes revenue over time. The “over time” policy is the period from point of origin to arrival of the shipment at the Port of entry (or in the case when the customer requires delivery to a designated point, the arrival at that delivery point). This overtime policy requires the Company to make significant judgements to recognize revenue over the estimated duration of time from port of origin to arrival at port of entry. The point in the process when the Company meets its obligation in the port of entry and the subsequent transfer of the goods to the customer is when the customer has the obligation to pay, has taken physical possession, has legal title, risk and awards (ownership) and has accepted the goods. The Company has elected to not disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of the end of the period as the Company’s contracts with its customers have an expected duration of one year or less.
F-7 |
The Company uses independent contractors and third-party carriers in the performance of its transportation services. The Company evaluates who controls the transportation services to determine whether its performance obligation is to transfer services to the customer or to arrange for services to be provided by another party. The Company determined it acts as the principal for its transportation services performance obligation since it is in control of establishing the prices for the specified services, managing all aspects of the shipments process and assuming the risk of loss for delivery and collection.
Revenue billed prior to realization is recorded as contract liabilities on the consolidated balance sheets and contract costs incurred prior to revenue recognition are recorded as contract assets on the consolidated balance sheets.
Contract Assets
Contract assets represent amounts for which the Company has the right to consider for the services provided while a shipment is still in-transit but for which it has not yet completed the performance obligation and has not yet invoiced the customer. Upon completion of the performance obligations, which can vary in duration based upon the method of transport and billing the customer, these amounts become classified within accounts receivable.
Contract Liabilities
Contract liabilities represent the amount of obligation to transfer goods or services to a customer for which consideration has been received.
Significant Changes in Contract Asset and Contract Liability Balances for the nine months ended February 28,2023:29, 2024:
SCHEDULE OF CHANGES IN CONTRACT ASSET AND CONTRACT LIABILITY
Contract | Contract | |||||||||||||||
Assets | Liabilities | Contract Assets | Contract Liabilities | |||||||||||||
Increase | (Increase) | Increase | (Increase) | |||||||||||||
(Decrease) | Decrease | (Decrease) | Decrease | |||||||||||||
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligation satisfied | $ | - | $ | 468,209 | $ | - | $ | - | ||||||||
Cash Received in advance and not recognized as revenue | - | (358,365 | ) | - | - | |||||||||||
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional | (39,978,761 | ) | - | (4,307,081 | ) | - | ||||||||||
Contract assets recognized, net reclassification to receivables | 12,867,742 | - | ||||||||||||||
Contract assets recognized | 4,467,872 | - | ||||||||||||||
Net Change | $ | (27,111,019 | ) | $ | 109,844 | $ | 160,791 | $ | - |
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates gross revenue from our clients by significant geographic area for the three and sixnine months ended February 29, 2024, and February 28, 2023, and 2022, based on origin of shipment (imports) or destination of shipment (exports):
SCHEDULE OF DISAGGREGATION OF REVENUE
For the Three Months Ended February 29, 2024 | For the Three Months Ended February 28, 2023 | |||||||
China, Hong Kong & Taiwan | $ | 16,597,938 | $ | 17,427,833 | ||||
Southeast Asia | 12,329,911 | 9,335,793 | ||||||
United States | 17,455,213 | 8,022,489 | ||||||
India Sub-continent | 11,868,317 | 8,602,665 | ||||||
Other | 9,529,007 | 6,238,722 | ||||||
Total revenue | $ | 67,830,385 | $ | 49,627,502 |
For the Three | For the Three | |||||||||||||||
Months Ended | Months Ended | For the Nine Months Ended | For the Nine Months Ended | |||||||||||||
February 28, 2023 | February 28, 2022 | February 29, 2024 | February 28, 2023 | |||||||||||||
China, Hong Kong & Taiwan | $ | 17,427,833 | $ | 82,006,657 | $ | 52,412,801 | $ | 123,977,602 | ||||||||
Southeast Asia | 9,335,793 | 121,340,162 | 34,667,956 | 72,449,913 | ||||||||||||
United States | 8,022,489 | 5,049,985 | 46,648,201 | 29,699,664 | ||||||||||||
India Sub-continent | 8,602,665 | 34,943,595 | 32,490,278 | 37,919,338 | ||||||||||||
Other | 6,238,722 | 7,095,496 | 26,321,685 | 10,927,090 | ||||||||||||
Total revenue | $ | 49,627,502 | $ | 250,435,895 | $ | 192,540,922 | $ | 274,973,607 |
F-8 |
Foreign Currency
For the Nine | For the Nine | |||||||
Months Ended | Months Ended | |||||||
February 28, 2023 | February 28, 2022 | |||||||
China, Hong Kong & Taiwan | $ | 123,977,602 | $ | 285,424,103 | ||||
Southeast Asia | 72,449,913 | 361,600,180 | ||||||
United States | 29,699,664 | 28,254,253 | ||||||
India Sub-continent | 37,919,338 | 134,393,170 | ||||||
Other | 10,927,090 | 35,966,738 | ||||||
Total revenue | $ | 274,973,607 | $ | 845,638,444 |
For most of our international operations conducted by the subsidiaries operating outside the U.S, local currencies have been determined to be functional currencies. We translate functional currency assets and liabilities to their U.S. dollar equivalents at exchange rates in effect as of the balance sheet date and income and expense amounts at average exchange rates for the period. The U.S. dollar affects that arise from changing translation rates are recorded in Other comprehensive income/(loss).
Transaction gains or losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. We aggregate all transaction gains and losses and classify the net amount in a single caption in the income statement in operating income as foreign exchange transactions, net.
Fair Value Measurement
The Company follows the authoritative guidance that establishes a formal framework for measuring fair values of assets and liabilities in the consolidated financial statements that are already required by generally accepted accounting principles to be measured at fair value. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction in the principal or most advantageous market considered from the perspective of the market participant that holds the asset or owes the liability.
The Company utilizes market data or assumptions that market participants who are independent, knowledgeable, and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company is able to classify fair value balances based on the observability of those inputs. The guidance establishes a formal fair value hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority to Level 1 measurements and the lowest priority to level 3 measurements, and accordingly, Level 1 measurement should be used whenever possible.
The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities or published net asset value for alternative investments with characteristics similar to a mutual fund.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 – Unobservable inputs for the asset or liability.
F-9 |
The methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while management believes its valuation methods are appropriate, the fair value of certain financial instruments could result in a difference fair value measurement at the reporting date. There were no changes in the Company’s valuation methodologies from the prior year.
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts for financial assets and liabilities such as cash and cash equivalents, accounts receivable - trade, contract assets, other prepaid expenses and current assets, accounts payable and other current liabilities, promissory notes, all approximate fair value due to their short-term nature as of February 29, 2024, and May 31, 2023. The carrying amount of the long-term debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company. Lease liabilities approximate fair value based on the incremental borrowing rate used to discount future cash flows. The Company had Level 3 liabilities (See Derivative liabilities note) as of February 29, 2024, and May 31, 2023. There were no transfers between levels during the reporting period.
Accounts Receivable
Accounts receivable from revenue transactions are based on invoiced prices which the Company expects to collect. In the normal course of business, the Company extends credit to customers that satisfy pre-defined credit criteria. The Company generally does not require collateral to support customer receivables. Accounts receivable, as shown on the consolidated balance sheets, is net of allowances when applicable. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the consolidated financial statements, assessments of collectability based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers, and an evaluation of the impact of economic conditions. The maximum accounting loss from the credit risk associated with accounts receivable is the amount receivable recorded, net of allowance for doubtful accounts. As of February 29, 2024, and May 31, 2023 the Company recorded an allowance for doubtful accounts of approximately $0.5 million and $1.7 million, respectively and the bad debt expense was immaterial for each of the three and nine months ended February 29, 2024 and February 28, 2023. The reason for the reduction in an allowance for doubtful accounts from the prior period is a successful settlement and subsequent collection of $1.2 million on a specific customer reserved account.
Concentrations
As of February 29, 2024, three major customers represented approximately 13% of all accounts receivable and no single customer represented more than 10.0% of total accounts receivable. As of May 31, 2023, three major customers represented approximately 21.0% of all accounts receivable and no single customer represented more than 10.0% of total accounts receivable.
Revenue from three customers in the aggregate as a percentage of the Company’s total revenue was approximately 35.0% and 25.0%, respectively, for the three months and nine months ended February 29, 2024, and no single customer represented more than 10.0% of total revenue except for customer A who represented approximately 16.0% and 12.0% respectively. Revenue from these customers in the aggregate as a percentage of the Company’s total revenue was 18.0% and 20.0% for the three and nine months ended February 28, 2023, respectively, and no single customer represented more than 10.0% of total revenue.
Goodwill and Other Intangibles
The Company accounts for business acquisitions in accordance with GAAP. Goodwill in such acquisitions is determined as the excess of fair value over amounts attributable to specific tangible and intangible assets. GAAP specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates.
F-10 |
In accordance with GAAP, the Company does not amortize goodwill or indefinite-lived intangible assets. Management evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, it is amortized prospectively over its estimated remaining useful life. Amortizable intangible assets, including tradenames and non-compete agreements, are amortized on a straight-line basis over 3 to 10 years. Customer relationships are amortized on a straight-line basis over 12 to 15 years.
The Company tests goodwill for impairment annually as of May 31 or if an event occurs or circumstances change that indicate that the fair value of the entity, or the reporting unit, may be below its carrying amount (a “triggering event”). Whenever events or circumstances change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. If impairment is deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step impairment test is not required. In assessing the qualitative factors, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of the relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgements and assumptions. The judgement and assumptions include the identification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific events and share price trends, an assessment of whether each relevant factor will impact the impairment test positively or negatively, and the magnitude of such impact.
If a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
Equity-method investments
Equity methods investments were acquired from Unique Logistics Holdings Limited, a Hong Kong corporation on February 21, 2023. These are less than 50% owned operating entities. Under the equity method, we record our share of the investee’s income and expenses in income from operation and any share of the earnings and loss would be recorded against investment reduced by cash dividends received. The following activity took place for the nine months ended February 29, 2024.
SCHEDULE OF EQUITY METHOD INVESTMENTS
Equity method investment as of June 1, 2023 | $ | 3,381,683 | ||
Net income | 675,606 | |||
Dividends paid | (608,126 | ) | ||
Equity method investment as of February 29, 2024 | $ | 3,449,163 |
Derivative Liability
SCHEDULE OF DERIVATIVE LIABILITIES
Level 1 | Level 2 | Level 3 | ||||||||||
Derivative liability as of June 1, 2023 | $ | - | $ | - | $ | 11,558,261 | ||||||
Additions | - | - | - | |||||||||
Change in fair value | - | - | (4,118,566 | ) | ||||||||
Derivative liability as of February 29, 2024 | $ | - | $ | - | $ | 7,439,695 |
Convertible Preferred Stock
Convertible Preferred Stock Series A, C and D feature anti-dilution provision that expires on a specified date. Management has determined the anti-dilution provision embedded in preferred stock Series A, C and D is required to be accounted for separately from the preferred stock as a derivative liability and recorded at fair value. Separation of the anti-dilution option as a derivative liability is required because its economic characteristics are considered more akin to a debt instrument and therefore the anti-dilution option is not considered to be clearly and closely related to the economic characteristics of the preferred stock.
The Company has identified and recorded derivative instruments arising from an anti-dilution provision. An embedded derivative liability is representing the rights of holders of Convertible Preferred Stock Series A, C and D to receive additional common stock of the Company upon issuance of any additional common stock by the Company prior to qualified financing event as defined in the agreement. Each reporting period, the embedded derivative liability, if material, would be adjusted to reflect fair value at each period end with changes in fair value recorded in the “Change in fair value of embedded derivative liability” financial statement line item of the company’s statements of operations.
F-11 |
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 February 29, 2024, based on the assumption of how antidilutive shares of Convertible Preferred Series A, C and D would be exchanged in the near future for common stock, and the fact that the antidilution provision of these shares is effective through December 31, 2024, the assumptions include probability of the financing event, estimated value of common stock at the exchange point and estimated time to financing event.
The key inputs into the model were as follows:
SCHEDULE OF FAIR VALUE ASSUMPTION
February 29, 2024 | May 31, 2023 | |||||||
Risk-free interest rate | 4.5 | % | 5.5 | % | ||||
Probability of financing event or capital raise | 63.8 | % | 90 | % | ||||
Estimated value of common stock | $ | $ | per share | |||||
Estimated time to financing event | 2.00 years | 0.42 years |
Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in the applicable quarter. In each quarter, the estimated annual effective tax rate is updated and a year-to-date adjustment to the provision is made. The estimated annual effective tax rate is subject to significant volatility due to several factors, including the mix of pretax income or loss across multiple jurisdictions and certain book-tax differences.
Income taxes are accounted for under the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, the tax effect of loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
F-12 |
The Company uses a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating its tax positions and estimating our tax benefits, which may require periodic adjustments, and which may not match the ultimate future outcome.
Segment Reporting
Based on the guidance provided by ASC Topic 280, Segment Reporting, management has determined that the Company currently operates in one primary geographical segment, the US where most of the customers are and consists of a single reporting unit given the similarities in economic characteristics between its operations and the common nature of its products, services, and customers.
The Company adopted ASC 260, Basic Earnings per share, guidance from inception. Earnings per sharePer 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, preferred stock, stock options or warrants.
SCHEDULE OF EARNING PER SHARE
February 28, 2023 | February 28, 2022 | |||||||
For the Three Months Ended | ||||||||
February 28, 2023 | February 28, 2022 | |||||||
Numerator: | ||||||||
Net income (loss) attributable to common stockholders | $ | 663,173 | $ | (9,496,311 | ) | |||
Effect of dilutive securities: | - | - | ||||||
Diluted net income (loss) | $ | 663,173 | $ | (9,496,311 | ) | |||
Denominator: | ||||||||
Weighted average common shares outstanding – basic | 799,141,770 | 655,781,078 | ||||||
Dilutive securities: | ||||||||
Series A Preferred | 1,168,177,320 | - | ||||||
Series B Preferred | 5,373,342,576 | - | ||||||
Series C Preferred | 1,206,351,359 | - | ||||||
Series D Preferred | 1,130,954,399 | - | ||||||
Weighted average common shares outstanding and assumed conversion – diluted | 9,677,967,424 | 655,781,078 | ||||||
Basic net income per common share | $ | 0.00 | $ | (0.01 | ) | |||
Diluted net income per common share | $ | 0.00 | $ | (0.01 | ) |
February 28, 2023 | February 28, 2022 | February 29, 2024 | February 28, 2023 | |||||||||||||
For the Nine Months Ended | For the Three Months Ended | |||||||||||||||
February 28, 2023 | February 28, 2022 | February 29, 2024 | February 28, 2023 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) attributable to common stockholders | $ | 7,256,211 | $ | (2,984,670 | ) | |||||||||||
Net (loss) income | $ | (5,847,860 | ) | 663,173 | ||||||||||||
Effect of dilutive securities: | - | - | - | |||||||||||||
Diluted net income (loss) | $ | 7,256,211 | $ | (2,984,670 | ) | $ | (5,847,860 | ) | 663,173 | |||||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding – basic | 780,768,778 | 582,680,746 | 799,141,770 | 799,141,770 | ||||||||||||
Dilutive securities: | ||||||||||||||||
Dilutive securities*: | - | |||||||||||||||
Series A Preferred | 1,168,177,320 | - | * | - | 1,168,177,320 | |||||||||||
Series B Preferred | 5,373,342,576 | - | * | - | 5,373,342,576 | |||||||||||
Series C Preferred | 1,206,351,359 | - | * | - | 1,206,351,359 | |||||||||||
Series D Preferred | 1,130,954,399 | - | * | - | 1,130,954,399 | |||||||||||
Weighted average common shares outstanding and assumed conversion – diluted | 9,659,594,432 | 582,680,746 | 799,141,770 | 9,677,967,424 | ||||||||||||
Basic net income per common share | $ | 0.01 | $ | (0.01 | ) | |||||||||||
Basic net income (loss) per common share | $ | (0.01 | ) | $ | 0.00 | |||||||||||
Diluted net income per common share | $ | 0.00 | $ | (0.01 | ) | |||||||||||
Diluted net income (loss) per common share | $ | (0.01 | ) | $ | 0.00 |
February 29, 2024 | February 28, 2023 | |||||||
For the Nine Months Ended | ||||||||
February 29, 2024 | February 28, 2023 | |||||||
Numerator: | ||||||||
Net (loss) income | $ | (11,029,671 | ) | $ | 7,256,211 | |||
Effect of dilutive securities: | ||||||||
Diluted net income | $ | (11,029,671 | ) | $ | 7,256,211 | |||
Denominator: | ||||||||
Weighted average common shares outstanding – basic | 799,141,770 | 780,768,778 | ||||||
Dilutive securities*: | ||||||||
Series A Preferred | * | - | 1,168,177,320 | |||||
Series B Preferred | * | - | 5,373,342,576 | |||||
Series C Preferred | * | - | 1,206,351,359 | |||||
Series D Preferred | * | - | 1,130,954,399 | |||||
799,141,770 | ||||||||
Weighted average common shares outstanding and assumed conversion – diluted | 799,141,770 | 9,659,594,432 | ||||||
Basic net income per common share | $ | (0.01 | ) | $ | 0.01 | |||
Diluted net income per common share | $ | (0.01 | ) | $ | 0.00 |
* | Due to a net loss for the three and nine months ended February 29, 2024, only weighted average common shares are used in calculations. In case of net income for these periods, the Company’s dilution of all outstanding securities would be as follows: |
Leases
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation.
Weighted average common shares outstanding – basic | 799,141,770 | |||
Series A Preferred | 1,168,177,320 | |||
Series B Preferred | 5,373,342,576 | |||
Series C Preferred | 1,206,351,359 | |||
Series D Preferred | 1,130,954,399 | |||
Weighted average common shares outstanding and assumed conversion – diluted | 9,677,967,424 |
On February 21, 2023, the Company completed the acquisition via a stock purchase agreement (“SPA”) signed on April 28, 2022, and applicable amendments by and between the Company and Unique Logistics Holdings Limited, a Hong Kong corporation (the “ULHL”), whereby the Company acquired all ULHL’s share capital in eight (8) of ULHL’s operating subsidiaries as follows:
Schedule Of Acquired Subsidiary
F-14 |
Purchase Price
The total fair value of the consideration transferred was $28.8 million ($15.5 million, net of cash acquired).
SCHEDULE OF BUSINESS COMBINATION CONTINGENT CONSIDERATION
Maturity Date | Description | Fair Value | Interest rate | |||||||||||||
Cash at closing | $ | 3,500,000 | ||||||||||||||
Promissory Notes | 3/7/2023 | Note 1 to ULHL | 4,500,000 | 15.0 | % | |||||||||||
4/7/2023 | Note 2 to ULHL | 5,000,000 | 15.0 | % | ||||||||||||
6/30/2023 | Note 3 to ULHL | 5,000,000 | 15.0 | % | ||||||||||||
2/21/2025 | Note 4 to ULHL | 1,000,000 | - | |||||||||||||
2/21/2025 | Note 5 to FTS | 500,000 | - | |||||||||||||
6/30/2023 | Note 6 to ULHL | 2,000,000 | - | |||||||||||||
6/30/2023 | Note 7 to ULHL | 1,000,000 | - | |||||||||||||
19,000,000 | ||||||||||||||||
Contingent considerations | ||||||||||||||||
6/30/2023 | Note 8 to ULHL | 2,500,000 | 15.0 | % | ||||||||||||
2/21/2024 | Note 9 to ULHL | 2,000,000 | - | |||||||||||||
2/21/2024 | Earnout payment (estimated) | 1,750,000 | - | |||||||||||||
6,250,000 | ||||||||||||||||
Purchase Price | $ | 28,750,000 |
Promissory Notes
As part of the acquisition, the Company issued certain promissory notes consisting of the following:
Promissory Note 1 in the principal amount of $4,500,000 which matures March 7, 2023, having an interest rate of 15%.
Promissory Note 2 in the principal amount of $5,000,000 which matures April 7, 2023, having an interest rate of 15%.
Promissory Note 3 in the principal amount of $5,000,000 which matures June 30, 2023, having an interest rate of 15%
Promissory Note 4 in the principal amount of $1,000,000 which matures February 21, 2025 and bearing no interest.
Promissory Note 5 in the principal amount of $500,000 for the remaining 35% share capital of Unique Logistics International (India) Private Ltd. acquired by the Company from Frangipani Trade Services, Inc. (“FTS”), a New York corporation owned by Sunandan Ray, Chief Executive Officer of the Company, maturing February 21, 2025 and bearing no interest.
Promissory Note 6 in the principal amount of $2,000,000 due June 30, 2023(the “Initial Taiwan Maturity Date”), bearing no interest and payable on: (a) July 15, 2023, provided that all government and other regulatory approvals necessary or required by Taiwan in order to consummate the Transaction as the same relates to Unique-Taiwan (the “Taiwan Approvals”) have been received by the Initial Taiwan Maturity Date; or (b) in the event that the Taiwan Approvals have not been received by the Taiwan Maturity Date, payment under this promissory note will be due and payable within fifteen (15) days of receipt of the Taiwan Approvals. This promissory note was issued in lieu of cash otherwise due under the original Local SPA in respect of the Purchased Shares of Unique-Taiwan.
Promissory Note 7 in the principal amount of $1,000,000 due June 30, 2023(the “Initial Vietnam Maturity Date”), bearing no interest and payable on: (a) July 15, 2023, provided that all government and other regulatory approvals necessary or required by Vietnam in order to consummate the Transaction as the same relates to Unique-Vietnam (the “Vietnam Approvals”) have been received by the Initial Vietnam Maturity Date; or (b) in the event that the Vietnam Approvals have not been received by the Vietnam Maturity Date, payment under this promissory note will be due and payable within fifteen (15) days of receipt of the Vietnam Approvals. This promissory note was issued in lieu of cash otherwise due under the original Local SPA in respect of the Purchased Shares of Unique-Vietnam.
Contingent Considerations
At Closing, the Company issued two additional promissory notes, in lieu of cash, as payment of certain milestones set forth in the SPA that were already achieved:
As of the acquisition date and based on the preliminary assessment by management, the seller (ULHL) fully met its obligation as it relates to the purchase price adjustments provided by the SPA and would be entitled to full amount of the contingent consideration, therefore the Company recorded these notes at fair value as stated in the promissory notes as of February 28, 2023.
In addition to the Initial Purchase Price, ULHL will be eligible for a one-time cash earn-out payment in the amount of (i) $2,500,000, if the EBITDA of the Purchased Shares, in the aggregate, exceeds $5,000,000 for the one-year period beginning on July 1, 2022 and ending June 30, 2023 (the “Earn Out Period”), or (ii) $2,000,000, if the EBITDA of the Purchased Shares, in the aggregate is equal to or less than $5,000,000 but exceeds $4,500,000, for the Earn Out Period, in each case, to be paid by the Company within 90 days of June 30, 2023. Management estimated fair value of the earnout payment based on the actual up to date performance of the acquired entities and the probability of the earn out payment occurrence to be at $1,750,000 as of February 28, 2023.
All contingent considerations and earn out payment are recorded in other current liabilities on the balance sheet as of February 28, 2023, in the amount of $5,710,057. While the first two contingent considerations were met by the Seller in its entirety, given the uncertain nature of the earn out payment, we conducted a sensitivity analysis based on both historical performance and projected performance throughout the period covered by the earn out payment. We determined the present value of the earn out payment based on the anticipated payment date of September 28, 2023, and the cost of debt of 15.0%.
Purchase Price Allocation
The Company obtained full control of five subsidiaries during the acquisition identified above and consolidated these subsidiaries as of the acquisition date. US GAAP requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquirer at the acquisition date, measured at their fair values as of that date. The acquisition method of accounting requires extensive use of estimates and judgments to allocate the considerations transferred to the identifiable tangible and intangible assets acquired and liabilities assumed.
The following summarizes preliminary estimates of fair values of the assets acquired and liabilities assumed at the acquisition:
SCHEDULE OF FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
Fair Value | ||||
Assets Acquired: | ||||
Current assets | $ | 36,232,526 | ||
Equity method investments | 10,861,111 | |||
Identifiable intangible assets | 6,515,000 | |||
Fixed Assets and other non-current assets | 2,367,272 | |||
Liabilities Assumed: | ||||
Current liabilities | (27,326,110 | ) | ||
Other long-term liabilities | (327,861 | ) | ||
Non-Controlling Interest | (3,558,263 | ) | ||
Goodwill | 3,986,325 | |||
Purchase Price | $ | 28,750,000 |
Total amount of goodwill recognized in this transaction was $9,478,477, with $5,492,152 allocated to equity method investments and $3,986,325 recorded as additional goodwill on the balance sheet. The goodwill acquired is primarily attributable to the workforce retained of the acquired businesses and synergies expected to arise after the Company’s acquisition of the above operating subsidiaries. It is also anticipated that the goodwill will be deductible for tax purposes.
The Company paid approximately $0.5 million of closing costs for legal, accounting, and other professional fees which were expensed during the period ended February 28, 2023.
Identifiable intangible assets and their amortization periods are estimated as follows:
SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS AND AMORTIZATION PERIOD
Cost Basis | Useful Life | |||||||
Customer relationships | $ | 6,292,000 | 7 years | |||||
Non-compete agreements | 223,000 | 1 year | ||||||
$ | 6,515,000 |
Amortization of intangible assets was immaterial for the period from the acquisition date to the end of the reporting period February 28, 2023. The future amortization schedule is as follows:
AMORTIZATION OF INTANGIBLE ASSETS
2024 | $ | 1,121,857 | ||
For the Twelve Months Ending February 28, | ||||
2024 | $ | 1,121,857 | ||
2025 | 898,857 | |||
2026 | 898,857 | |||
2027 | 898,857 | |||
2028 | 898,857 | |||
Thereafter | 1,797,715 | |||
Total. | $ | 6,515,000 |
Equity Method Investments
SCHEDULE OF FINANCIAL INFORMATION AT FAIR VALUE FOR EQUITY METHOD INVESTMENT
The following summarizes financial information at fair value for the equity-method investments at the acquisition: | ||||
Fair Value | ||||
Current assets | $ | 17,493,164 | ||
Noncurrent assets | 152,658 | |||
Total Assets | 17,645,822 | |||
Current liabilities | 6,907,904 | |||
Noncurrent liabilities | - | |||
Total liabilities | 6,907,904 | |||
Net assets of the equity investee | 10,737,918 | |||
Equity attributable to non-controlling interest | (5,368,959 | ) | ||
Equity attributable to registrant | 5,368,959 | |||
Equity goodwill attributable to registrant | 5,492,152 | |||
Total Equity method investment | $ | 10,861,111 |
Business Combination - Pro Forma Information (Unaudited)
The results of operations of eight entities which the Company acquired on February 21, 2023, have not been included in ourthe Company’s results for the three months ended February 28, 2023 condensed consolidated financial statements because offor the company’s decision to include earningsperiod from consolidated subsidiaries and equity method investments on a one-month lag basis.February 21, 2023 through February 28, 2023, such amount was not deemed material. The following unaudited pro forma financial information represents a summary of the consolidated results of operations for the threenine and ninethree months ended February 28, 2022,2023 assuming the acquisitions had been completed as of June 1, 2021,2022, first day of the period presented. The proforma adjustments include the elimination of intercompany revenue and expense transactions. The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had been effective as of these dates, or of future results.
SCHEDULE OF PRO FORMA INFORMATION
Three Months Ended February 28, 2023 | Nine Months Ended February 28, 2023 | |||||||
Revenue, net | $ | 77,956,880 | $ | 397,275,349 | ||||
Net income attributable to registrant | 2,177,952 | 14,671,414 | ||||||
Weighted average shares of common stock outstanding, basic (as previously reported) | 799,141,770 | 780,768,778 | ||||||
Weighted average shares of common stock outstanding, diluted (as previously reported) | - | - | ||||||
Net (loss) income per share, basic | $ | 0.00 | $ | 0.02 | ||||
Net (loss) income per share, diluted | $ | 0,00 | $ | 0.00 |
2. SPAC MERGER TERMINATION
Merger Termination
As previously disclosed, on December 18, 2022, the Company entered into an Agreement and Plan of Merger by and among Edify Acquisition Corp., a Delaware corporation, Edify Merger Sub, Inc., a Nevada corporation (“Merger Sub”), and the Company, as amended and supplemented (the “Merger Agreement”). On March 1, 2024, the Company, Buyer and Merger Sub entered into a mutual termination agreement, pursuant to which they mutually agreed to terminate the Merger Agreement effective as of such date (Subsequent Event Note 9).
As a result of terminating the merger, besides the merger termination costs of approximately $10.4 million, the Company recognized an impairment charge for the previously deferred uplist costs in the amount of $3.1 million as reflected on the statement of operations for the period ended February 29, 2024, of which approximately $2.4 million was deferred as of December 31, 2023.
Amendment to the financing agreement and a waiver
As previously disclosed, on March 10, 2023, the Company entered into a financing agreement (the “Agreement”) as borrower with certain of its subsidiaries party thereto as guarantors (collectively, the “Borrowers”), the lenders party thereto (collectively, the “Lenders”), CB Agent Services LLC, as origination agent, and Alter Domus (US) LLC, as collateral agent and administrative agent (together with CB Agents, the “Agents”)(collectively, the “Parties”), for an initial senior secured term loan in a principal amount of $4,210,526 and a delayed draft term loan in an aggregate principal amount of up to $14,789,474.
Effective March 1, 2024, the Parties entered into a waiver and amendment no. 2 to financing agreement (the “Second Waiver”), (Subsequent Event Note 9) whereby the Agents and the Lenders agreed to waive (i) (a) that certain event of default that has occurred or may occur, due to the borrower’s’ noncompliance with Section 7.03(a) of the Agreement for each of the fiscal quarters in the fiscal year ending May 31, 2024 and for the fiscal quarter ending August 31, 2024 (the “FCCR Event of Default”), (b) that certain Event of Default that has occurred or may occur, due to the Loan Parties’ noncompliance with Section 7.03(b) of the Agreement for each of the fiscal quarters in the fiscal year ending May 31, 2024 and for the fiscal quarter ending August 31, 2024 (the “Liquidity Event of Default”) and (c) that certain Event of Default that has occurred or may occur, due to the Loan Parties’ noncompliance with Section 7.03(c) of the Agreement for each of the fiscal quarters in the fiscal year ending May 31, 2024 and for the fiscal quarter ending August 31, 2024” and, together with the FCCR Event of Default and the Liquidity Event of Default, the “Specified Events of Default”). Each of the Specified Events of Default constitute an Event of Default under Section 9.01(c) of the Agreement; and (ii) interest at the post-default rate with respect to the Specified Events of Default from the date such event occurred through the Second Waiver effective date.
In addition, pursuant to the Second Waiver, the borrowers agreed to (i) pay the administrative agent a non-refundable Waiver Fee in an aggregate amount equal to $3,000,000, which was deemed fully earned on the effective date; and (ii) issue the origination agent or its designee warrants, in form and substance satisfactory to the origination agent, entitling the holder thereof to purchase a number of shares of the Company’s common stock equal to the greater of (a) seven percent (7%) of enterprise value as calculated in a manner to be mutually agreed and acceptable to the origination agent and the Company on a fully diluted basis and (b) $7,000,000, on terms, conditions and in a form reasonably acceptable to origination agent, and having an exercise price of $0.01 per share.
The anti-dilution provisions applicable to the warrants shall at no time be less favorable to the holder thereof than those accorded by the parent to any other person on or after the effective date. The warrants shall be exercisable for a period of 7.5 years. This contract did not meet qualification requirements to be classified as equity because there is no explicit limit on the number of shares to be delivered in a share settlement. Accordingly, the warrants were classified as a liability as the issuer is obligated to settle the warrant by issuing a variable number of shares and the monetary value of the obligation based on a predetermined fixed amount, variation in something other than the issuers stock price, in this case the amount is the enterprise value of the Company at the time of the future financing event. As the warrants were not issued on the balance sheet date, these expected warrants were recorded as other long-term liability at initially estimated fair market value of $7,415,816.
F-15 |
For the period ended February 29, 2024, both amounts related to the nonrefundable waiver fee and the warrant, or $3.0 million and $7.4 million, respectively, were expensed as SPAC merger termination cost on the condensed consolidated statements of operations, since the terms of the agreements were agreed to as of February 28, 2024 and the documents were executed on March 1, 2024.
Due to the unique nature of these warrants, which the Company anticipates will have an effective date of March 1, 2024, a Monte Carlo simulation was necessary in order to properly perform the valuation. Monte Carlo simulation analysis is mathematically similar to that used in a Black-Scholes option pricing model. However, in a Monte Carlo simulation, a computer is used to generate random price movements, which are constrained by the expected volatility of the underlying security. Where each step in a binomial model contains two possible outcomes, each step in a Monte Carlo simulation contains an unlimited number of potential outcomes. For the fair value of the warrants to be issued, a simulation using a risk neutral drift factor, the risk-free rate, was used.
The key inputs into the model were as follows:
Three Months Ended February 28, 2022 | Nine Months Ended February 28, 2022 | |||||||
Revenue, net | $ | 339,213,905 | $ | 1,040,963,776 | ||||
Net Income attributable to registrant | 1,030,332 | 18,653,614 | ||||||
Weighted average shares of common stock outstanding, basic and diluted (as previously reported) | 655,781,078 | 582,680,746 | ||||||
Net income per share, basic and diluted | $ | - | $ | 0.03 |
SCHEDULE OF FAIR VALUE ASSUMPTION
February 29, 2024 | ||||
Risk-free interest rate | 4.3 | % | ||
Probability of financing event next 2 years | 85.0 | % | ||
Probability of financing event years 2 through 7.5 | 90.0 | % | ||
Probability of financing event | 90.0 | % | ||
Volatility: | 100.0 | % |
3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following on February 28, 2023,29, 2024, and May 31, 2022:2023:
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
February 28, 2023 | May 31, 2022 | |||||||
Accrued salaries and related expenses | $ | 2,519,124 | $ | 625,000 | ||||
Accrued sales and marketing expense | 1,173,564 | 2,383,500 | ||||||
Accrued professional fees | 1,805,259 | 1,350,170 | ||||||
Accrued income tax | 2,713,523 | 559,544 | ||||||
Accrued overdraft liabilities | 1,156,708 | 681,058 | ||||||
Other accrued expenses and current liabilities | 810,679 | 66,887 | ||||||
Accrued expenses and other current liabilities | $ | 10,178,857 | $ | 5,666,159 |
February 29, 2024 | May 31, 2023 | |||||||
Accrued salaries and related expenses | $ | 720,132 | $ | 1,938,111 | ||||
Accrued sales and marketing expense | 306,980 | 768,713 | ||||||
Accrued professional fees | 2,878,114 | 2,574,542 | ||||||
Accrued income tax | - | 1,531,789 | ||||||
Accrued Interest | 739,951 | - | ||||||
Other accrued expenses and current liabilities | 1,727,646 | 1,781,812 | ||||||
Accrued expenses and other current liabilities | $ | 6,372,823 | $ | 8,594,947 |
4. FINANCING ARRANGEMENTS
Financing arrangements on the consolidated balance sheets consists of:
SCHEDULE OF FINANCING ARRANGEMENT
February 28, 2023 | May 31, 2022 | February 29, 2024 | May 31, 2023 | |||||||||||||
Revolving Credit Facility | $ | 9,882,529 | $ | 38,141,451 | $ | 11,852,663 | $ | 8,050,227 | ||||||||
Current portion of notes payable | 17,804,500 | 608,333 | ||||||||||||||
Term loans | 12,000,000 | 4,000,000 | ||||||||||||||
Notes payable, gross | 27,687,029 | 38,749,784 | 23,852,663 | 12,050,227 | ||||||||||||
Noncurrent portion of notes payable | 1,500,000 | - | ||||||||||||||
Less: Current portion | (12,823,744 | ) | (8,050,227 | ) | ||||||||||||
Long term, notes payable | $ | 29,187,029 | $ | 38,749,784 | $ | 11,028,919 | $ | 4,000,000 |
Revolving Credit Facility
On June 1, 2021, the Company entered aThe Company’s Revolving Purchase, Loan and Security Agreement (the “TBK Agreement”) with TBK BANK,Bank, SSB, a Texas State Savings Bank (“TBK”matured on May 31, 2023. The parties agreed to extend the maturity date and on July 20, 2023, the Company and TBK Bank entered into a new loan and security agreement (the “New TBK Agreement,”), amending and restating in their entirety, the terms, conditions, agreements, covenants, obligations, representations, and warranties of the existing TBK Agreement. The terms of the new agreement are substantially the same as the original agreement. The New TBK Agreement provides for a facility under which TBK Bank will, from time to time, buy approved receivables frommake advances under the Company.Revolving Credit Facility to the Company in such amounts as the Company may request, but not to exceed $25,000,000. 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 andloan is scheduled to mature on May 31, 2023.June 1, 2025.
Notes PayableTerm Loans
On May 29, 2020, as part of the acquisition of UL ATLMarch 10, 2023, the Company entered into a $1,825,000 note payablefinancing agreement and related fee letter as a borrower with certain of its subsidiaries party thereto as guarantors, the lenders party thereto, CB Agent Services LLC, as origination agent, and Alter Domus (US) LLC, as collateral agent, and administrative agent (“the Lenders”). The Financing Agreement provides for an initial senior secured term loan in a former shareholder. The agreement calls for six semi-annual paymentsprincipal amount of $304,1674,210,526, for which was received on March 13, 2023 and a delayed draft term loan in an aggregate principal amount of up to $14,789,474. On June 30, 2023, the Company borrowed on the delayed draft term loan amount of $5,263,158. Each term loan under the financing agreement shall be, at the option of the Company, either a base rate loan or a SOFR Loan. Interest on each term loan shall be payable monthly in arrears, on the first payment was duebusiness day of each month. The outstanding principal amounts for all loans are subject to mandatory quarterly amortization at various rates, payable quarterly, throughout the life of the loan. These loans mature on November 29, 2020.March 10, 2026 The loan bears a zero percent interest rate and has a maturity of three years, or May 29, 2023. The note’s remaining balance was recorded in the current portion of notes payable with balance of $304,167 and $608,333 as of February 28, 2023 and May 31, 2022, respectively.
On February 21, 2023,As discussed in more details in Subsequent Events Note 8, effective March 1, 2024, the Company and the Lenders entered into a waiver and amendment no. 2 to financing agreement (the “Second Waiver”), whereby the Lenders agreed to waive a certain event of default that has occurred or may occur, due to noncompliance with Section 7.03(a) of the agreement for each of the fiscal quarters in the fiscal year ending May 31, 2024 and for the fiscal quarter ending August 31, 2024. In addition, pursuant to the Second Waiver, the Borrowers agreed to pay the administrative agent as part of the acquisitions of ULHL operating subsidiaries,SPAC termination costs a non-refundable waiver fee in an aggregate amount equal to $3,000,000, which was deemed fully earned on the Company recorded $19.0 million of new promissory notes payable to ULHL. $17.5 million of these notes were recorded as the currenteffective date with interest on this portion of notes payablethe loan accrued through maturity with no interest or principal payments until maturity March 10, 2026. This instrument was classified as a liability that existed on the balance sheet date and $1.5 million was recordedrecognized at fair value and reported as noncurrent portion of notes payable as of February 28, 2023.an additional term loan. (See Note 2).
As of February 29, 2024, the outstanding principal amount for the above loans combined was $12,000,000.
Debt Covenant
The Company is subject to certain financial covenants. As of February 29, 2024, the Company was in compliance with the financial covenants except for the following:
An event of default has occurred with the loan and security agreement with TBK Bank as a result of the Company failing to maintain, as of the last day of the fiscal quarter ended February 29, 2024, a fixed charge coverage ratio at a specified rate. On April 30, 2024, the Company entered into a waiver and amendment to the loan and security agreement with TBK Bank where the bank agreed to waive this default and to make certain modifications to the loan agreement.
F-16 |
5. RELATED PARTY TRANSACTIONS
The Company has the following debt due to related parties:
SCHEDULE OF RELATED PARTY TRANSACTIONTRANSACTIONS
February 28, 2023 | May 31, 2022 | |||||||
Due to Frangipani Trade Services (1) | $ | 451,964 | $ | 602,618 | ||||
Due to employee (2) | 7,500 | 30,000 | ||||||
Due to employee (3) | 16,661 | 66,658 | ||||||
476,124 | 699,276 | |||||||
Less: current portion | (325,478 | ) | (301,308 | ) | ||||
$ | 150,655 | $ | 397,968 |
February 29, 2024 | May 31, 2023 | |||||||
Due to FTS (1) | $ | 650,655 | $ | 801,310 | ||||
Due to ULHK(2) | 9,600,000 | 12,750,000 | ||||||
Total due to related party transaction | 10,250,655 | 13,551,310 | ||||||
Less: current portion | (150,655 | ) | (4,801,310 | ) | ||||
Non current portion | $ | 10,100,000 | $ | 8,750,000 |
(1) | ||
The Promissory Note dated March 30, 2021 in the principal amount | ||
(2) | Due to ULHK, the entity with over 10% investment in the Company. | |
On |
Transactions listed below are between the Company and ULHK and its operating subsidiaries. These are considered related party transactions due to ULHK being an entity with over 10% investment in the Company.
Accounts Receivable and Payable
Transactions with related parties account for $7.20.2 million and $10.83.1 million, respectively, of accounts receivable and accounts payable as of February 28, 2023, respectively,29, 2024, compared to $3.0 3.5million and $15.22.9 million, respectively, of accounts receivable and accounts payable as of May 31, 2022, respectively.2023.
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 February 29, 2024, and February 28, 2023, and 2022 these transactions represented approximately $6.40.2 million and $1.26.4 million, respectively. For the nine months ended February 28,29, 2024, and February 2, 2023, and 2022, these transactions represented $5.5 0.8million and $1.95.5 million, respectively.
Direct costs are services billed to the Company by related parties for shipping activities. For the three months ended February 29, 2024, and February 28, 2023 and 2022 these transactions represented approximately $4.52.4 million and $13.14.5 million.million, respectively. For the nine months ended February 29, 2024, and February 28, 2023, and 2022, these transactions represented $32.54.9 million and $39.032.5 million, respectively.
6. STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue shares of stock, a par value of $ per share.
F-17 |
During the three and nine months ended February 28, 2023,29, 2024, there were common stock issuances except for theand conversions of Preferred Shares as discussed below.Shares.
Preferred Shares
The Company is authorized to issue shares of preferred stock, $ par value per share.
Preferred Shares
Series A Convertible Preferred
The holders of Series A Preferred.Preferred stock. subject to the rights of holders of shares of the Company’s Series B Preferred stock which shares will be pari passu with Series B Preferred in terms of liquidation preference and dividend rights and are subject to an anti-dilution provision, making the holders subject to an adjustment necessary to maintain their agreed upon fully diluted ownership percentage.
Each holder of shares of Series A Preferred stock has the right to convert all or any portion of such holder’s Series A Preferred stock into fully paid and non-assessable shares of common stock at any time or from time to time at such holder’s sole discretion. Each share of Series A Preferred Stock as to which the conversion right is exercised may be converted into shares of the Company’s authorized but unissued shares of common stock.
If the common stock issuable upon conversion of Series A Preferred may be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise, then, in any such event, in lieu of the number of shares of common stock which the holders would otherwise have been entitled to receive, each holder of Series A Preferred Stock may have the right thereafter to convert such shares of Series A Preferred stock into a number of shares of such other class or classes of stock which a holder of the number of shares of common stock deliverable upon conversion of the Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.
If and whenever on or after the date on which the holder received shares of Series A Preferred stock (the “Issuance Date”) and through December 31, 2024, the anti-dilution termination date, the Company issues or sells, or in accordance with the terms herein is deemed to have issued or sold, any shares of common stock or equivalents, the number of conversion shares issuable upon conversion will be adjusted to entitle the holder to acquire such number of shares of common stock necessary to maintain the holders fully-diluted ownership percentage at the time of the Issuance Date.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the stockholders of record of shares of Series A Preferred shall be entitled to receive, at their option, immediately prior and in preference to any distribution to the holders of the Company’s common stock, $ par value per share and other junior securities, a liquidation preference equal to the Stated Value per share.
During the nine months ended February 28, 2023, a shareholder converted shares of Series A Convertible Preferred Stock into shares of the Company’s common stock. During the nine months ended February 28, 202229, 2024, there were conversions of Series A Preferred Shares.stock.
Series B Convertible Preferred
The holders of Series B Preferred stock, subject to the rights of holders of shares of the Company’s Series A Preferred Stockstock which shares will be pari passu with the Series B Preferred in terms of liquidation preference and dividend rights, shallmay be entitled to receive, at their option, immediately prior an in preference to any distribution to the holders of the Company’s common stock.
F-18 |
Each holder of shares of Series B Preferred stock has the right to convert all or any portion of such holder’s Series A Preferred Stock into fully paid and non-assessable shares of common stock at any time or from time to time at such holder’s sole discretion. Each share of Series B Preferred stock as to which the conversion right is exercised may be converted into shares of the Company’s authorized but unissued shares of common stock.
If the common stock issuable upon conversion of Series B Preferred may be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise, then, in any such event, in lieu of the number of shares of common stock which the holders would otherwise have been entitled to receive, each holder of Series B Preferred stock may have the right thereafter to convert such shares of Series B Preferred stock into a number of shares of such other class or classes of stock which a holder of the number of shares of common stock deliverable upon conversion of the Series B Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the stockholders of record of shares of Series B Preferred shall be entitled to receive, at their option, immediately prior and in preference to any distribution to the holders of the Company’s common stock, $ par value per share and other junior securities, a liquidation preference equal to the stated value per share.
During the nine months ended February 28, 2023 there were no conversions of Series B Preferred Shares.
During the nine months ended February 28, 2022 the Company issued shares of the Company’s common stock pursuant to the conversion of shares of Series B Convertible Preferred Stock held by Frangipani Trade Services Inc, an entity 100% owned by the Company’s Chief Executive Officer
Series C & D Convertible Preferred
The number of shares designated as Series C and D Preferred stock may be each. Such number may not be subject to increase without the written consent of the Series C and D holders of a majority of the then-issued and outstanding Series C or D Preferred stock. The Series C and D Preferred Stock have no voting rights.
Each share of Series C Preferred Stock may be convertible, at any time and from time to time from and after the date of issuance, at the option of the Series C holder thereof, into a number of shares of common stock determined in accordance with the conversion ratio calculated on the conversion date where each share of Series C Preferred stock may be a number of shares of common stock equal to 0.064113% (or up to 12.48% in the aggregate) of the Corporation’s common stock on a fully diluted basis, subject to anti-dilution adjustment.
Each share of Series D Preferred stock may be convertible, at any time and from time to time from and after the date of issuance, at the option of the Series D holder thereof, into a number of shares of common stock determined in accordance with the conversion ratio calculated on the conversion date where each share of Series D Preferred stock may be a number of shares of common stock equal to 0.0651869% (or up to 12.48% in the aggregate) of the Corporation’s common stock on a fully diluted basis, subject to anti-dilution adjustment.
In order to maintain the conversion ratio, the fully diluted basis may be calculated as of the conversion date and after an anti-dilution termination event the conversion ratio will be set to the fully diluted basis as of the moment after the anti-dilution termination event without any further adjustments for any subsequent issuance of common stock or equivalents, by the Corporation after the anti-dilution termination event. An anti-dilution termination event is the earlier of (i) December 31, 2024, or (ii) the closing of the qualified financing or SPAC merger.
The holders of the Series C and D Preferred Stock shallstock may be entitled to receive, upon liquidation, dissolution or winding up of the Company, the amount of cash, securities, or other property to which such holder would be entitled to receive with respect to such shares of Series C and D Preferred Stockstock if such shares had been converted to common stock immediately prior to such liquidation.
During the nine months ended February 28, 2023, a shareholder converted29, 2024, there were sharesconversions of Series D Convertible Preferred Stock into shares of the Company’s common stock.
During the nine months ended February 28, 2022 there were no conversions of Series C and D Preferred Shares.
F-19 |
7. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the business. There are no claims or actions pending or threatened against the Company that, if adversely determined, would in the Company’s management’s judgment have a material adverse effect on the Company.
Leases
The Company leases office space, warehouse facilities and equipment under non-cancellable lease agreements expiring on various dates through October 2028. Office leases contain provisions for future rent increases. The Company adopted ASC 842 from inception, requiring the Company to recognize an asset and liability on the consolidated balance sheets for lease arrangements with terms longer than 12 months. The Company has elected the practical expedient to not apply the recognition requirement to leases with a term of less than one year (short term leases). The Company uses its incremental borrowing rate to discount lease payments to present value. The incremental borrowing rate is based on the estimated interest rate the Company could obtain for borrowing over a similar term of the lease at commencement date. Rental escalations, renewal options and termination options, when applicable, have been factored into the Company’s determination of lease payments when appropriate. The Company does not separate lease and non-lease components of contracts. Variable payments related to pass-through costs for maintenance, taxes and insurance or adjustments based on an index such as Consumer Price Index are not included in the measurement of the lease liability or asset and are expensed as incurred.
The components of lease expense were as follows:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE
For the Three Months Ended | For the Three Months Ended | |||||||
February 28, 2023 | February 28, 2022 | |||||||
Operating lease | $ | 531,728 | $ | 310,965 | ||||
Interest on lease liabilities | 202,885 | 16,910 | ||||||
Total net lease cost | $ | 734,613 | $ | 327,875 |
For the Three Months Ended | For the Three Months Ended | |||||||
February 29, 2024 | February 28, 2023 | |||||||
Operating lease cost – Right of Use Asset Amortization | $ | 734,957 | 531,728 | |||||
Interest on lease liabilities | 209,561 | 202,885 | ||||||
Total net lease cost | $ | 944,518 | 734,613 |
For the Nine Months Ended | For the Nine Months Ended | For the Nine Months Ended | For the Nine Months Ended | |||||||||||||
February 28, 2023 | February 28, 2022 | February 29, 2024 | February 28, 2023 | |||||||||||||
Operating lease | $ | 1,269,299 | $ | 1,103,649 | ||||||||||||
Operating lease cost – Right of Use Asset Amortization | $ | 2,144,717 | 1,269,299 | |||||||||||||
Interest on lease liabilities | 363,398 | 104,242 | 650,419 | 363,398 | ||||||||||||
Total net lease cost | $ | 1,632,697 | $ | 1,207,891 | $ | 2,795,136 | 1,632,697 |
Supplemental balance sheet information related to leases was as follows:
SCHEDULE OF SUPPLEMENTSUPPLEMENTAL BALANCE SHEET INFORMATION
February 28, 2023 | May 31, 2022 | February 29, 2024 | May 31, 2023 | |||||||||||||
Operating leases: | ||||||||||||||||
Operating lease ROU assets – net | $ | 10,931,331 | $ | 2,408,098 | $ | 9,395,501 | $ | 10,269,516 | ||||||||
Current operating lease liabilities, included in current liabilities | 2,422,306 | 912,618 | 2,676,904 | 2,379,774 | ||||||||||||
Noncurrent operating lease liabilities, included in long-term liabilities | 8,813,569 | 1,593,873 | 7,194,929 | 8,212,445 | ||||||||||||
Total operating lease liabilities | $ | 11,235,875 | $ | 2,506,491 | $ | 9,871,833 | $ | 10,592,219 |
F-20 |
The operating lease right of use asset and corresponding lease liabilities were significantly impacted during the nine-month ended February 28, 2023, 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:
SCHEDULE OF SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION RELATED TO LEASES
For the Three Months Ended | For the Three Months Ended | |||||||
February 29, 2024 | February 28, 2023 | |||||||
ROU assets obtained in exchange for lease liabilities: | ||||||||
Operating leases | $ | 21,371 | $ | - | ||||
Weighted average remaining lease term (in years): | ||||||||
Operating leases | 3.68 | 4.60 | ||||||
Weighted average discount rate: | ||||||||
Operating leases | 9.01 | % | 8.57 | % |
For Nine Months | For Nine Months | |||||||
Ended | Ended | |||||||
February 28, 2023 | February 28, 2022 | |||||||
ROU assets obtained in exchange for lease liabilities: | ||||||||
Operating leases | $ | 8,897,639 | $ | 1,098,769 | ||||
Weighted average remaining lease term (in years): | ||||||||
Operating leases | 4.60 | 3.98 | ||||||
Weighted average discount rate: | ||||||||
Operating leases | 8.57 | % | 4.25 | % |
For | For | |||||||
Nine Months Ended | Nine Months Ended | |||||||
February 29, 2024 | February 28, 2023 | |||||||
ROU assets obtained in exchange for lease liabilities: | ||||||||
Operating leases | $ | 1,270,702 | $ | 8,897,639 | ||||
Weighted average remaining lease term (in years): | ||||||||
Operating leases | 3.68 | 4.60 | ||||||
Weighted average discount rate: | ||||||||
Operating leases | 8.96 | % | 8.57 | % |
As of February 28, 2023, futureFuture minimum lease payments under noncancelable operating leases are as follows:
SCHEDULE OF MINIMUM LEASE PAYMENTS
For the Twelve Months Ending February 28, | ||||||||
2024 | $ | 3,281,807 | ||||||
February 29, 2024 | ||||||||
2024 (remaining) | $ | 3,397,531 | ||||||
2025 | 3,024,640 | 2,875,024 | ||||||
2026 | 2,660,969 | 2,753,892 | ||||||
2027 | 2,537,799 | 2,194,694 | ||||||
2028 | 1,978,600 | 238,279 | ||||||
Thereafter | 131,485 | |||||||
Total lease payments | 13,615,299 | 11,459,420 | ||||||
Less: imputed interest | (2,379,424 | ) | (1,587,587 | ) | ||||
Total lease obligations | $ | 11,235,875 | $ | 9,871,833 |
F-21 |
8. INCOME TAX PROVISION
The expense (benefit) for income tax provisiontaxes consists of the following:of:
SCHEDULE OF INCOME TAX EXPENSE
For the Three Month Ended February 28, 2023 | For the Three Month Ended February 28, 2022 | |||||||
Federal provision (benefit) | ||||||||
Current | $ | (134,755 | ) | $ | (93,752 | ) | ||
Deferred | (135,654 | ) | 343,363 | |||||
Foreign | 10,299 | - | ||||||
State and Local provision (benefit) | ||||||||
Current | (542,436 | ) | (81,039 | ) | ||||
Deferred | (11,534 | ) | 59,635 | |||||
Total provision | $ | (814,080 | ) | $ | 228,207 |
For the Three Months Ended February 29, 2024 | For the Three Months Ended February 28, 2023 | |||||||
Current: | ||||||||
Federal | $ | (676,503 | ) | $ | (134,755 | ) | ||
State | (286,900 | ) | (542,436 | ) | ||||
Foreign | 897,801 | 10,299 | ||||||
Total | (65,602 | ) | (666,892 | ) | ||||
Deferred: | ||||||||
Federal | (4,525,137 | ) | (135,654 | ) | ||||
State | (156,917 | ) | (11,534 | ) | ||||
Foreign | (521,138 | ) | ||||||
Total | (5,203,191 | ) | (147,188 | ) | ||||
Total tax expense (benefit) | $ | (5,268,793 | ) | $ | (814,080 | ) |
For the Nine Months Ended February 29, 2024 | For the Nine Months Ended February 28, 2023 | |||||||
Current: | ||||||||
Federal | $ | (784,480 | ) | $ | 1,194,842 | |||
State | 107,978 | (138,956 | ) | |||||
Foreign | 1,727,544 | 10,299 | ||||||
Total | 1,051,042 | 1,066,185 | ||||||
Deferred: | ||||||||
Federal | (5,675,695 | ) | (188,613 | ) | ||||
State | (413,042 | ) | (27,605 | ) | ||||
Foreign | (749,730 | ) | - | |||||
Total | (6,838,466 | ) | (216,218 | ) | ||||
Total tax expense (benefit) | $ | (5,787,424 | ) | $ | 849,967 |
For the Nine Month Ended February 28, 2023 | For the Nine Month Ended February 28, 2022 | |||||||
Federal provision (benefit) | ||||||||
Current | $ | 1,194,842 | $ | 2,294,248 | ||||
Deferred | (188,613 | ) | 83,784 | |||||
Foreign | 10,299 | - | ||||||
State and Local provision (benefit) | ||||||||
Current | (138,956 | ) | 371,961 | |||||
Deferred | (27,605 | ) | 15,214 | |||||
Total provision | $ | 849,967 | $ | 2,765,207 |
In assessing
The Company recorded a provision for income tax benefit of $5.3 million, reflecting an effective tax rate of 48.3%, and $0.8 million of income tax benefit, reflecting an effective tax rate of 539.82%, for the realization of deferredthree months ended February 29, 2024, and February 28, 2023, respectively. For the three-months ended February 29, 2024, our effective tax assets, management considers whether it is more likely than not that some portion or allrate differed from the U.S. federal statutory rate primarily due to the section 245A Deduction on distributions from foreign subsidiaries and equity investments. For the three-months ended February 28, 2023, our effective tax rate differed from the U.S. federal statutory rate primarily as a result of the deferredforeign derived intangible income deduction.
The Company recorded a provision for income taxes benefit of $5.8 million, reflecting an effective tax assets will not be realized. The ultimate realizationrate of deferred35.3%, and $0.8 million of income tax assets is dependent upon future generationexpense, reflecting an effective tax rate of 10.49%, 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 and nine months ended February 29, 2024, and February 28, 2023, respectively. For the nine-months ended February 29, 2024, our effective tax rate differed from the U.S. federal statutory rate primarily due to the section 245A Deduction on distributions from foreign subsidiaries and 2022, there was equity investments. For the nine-months ended February 28, 2023, our effective tax rate differed from the U.S. federal statutory rate primarily as a result of the foreign derived intangible income deduction.
Other noncurrent liabilities include liabilities for uncertain tax provision (UTP) as follows:
SCHEDULE OF UNCERTAIN TAX PROVISIONno valuation allowance necessary.
For the Nine Months Ended February 29, 2024 | For the Nine Months Ended February 28, 2023 | |||||||
Total UTP balance on June 1 | $ | 2,582,341 | $ | - | ||||
Additions based on tax provisions related to the current year | - | - | ||||||
Additions for tax positions of prior years | - | - | ||||||
Reductions for tax positions of prior years | - | - | ||||||
Settlements | - | - | ||||||
Reductions due to lapse of applicable statute of limitations | - | - | ||||||
Total UTP balance on February 29, 2024 | $ | 2,582,341 | $ | - |
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If applicable, interest costs Interest and penalties related to the unrecognized tax benefitspositions are required to be calculated and would be classified as “Other expenses – Interest”“tax expense” in the statement of operations. Penalties would be recognized as a componentInterest expense in the amount of “General$0.3 million has been recorded related to the unrecognized tax positions for the period ended February 29, 2024 and administrative.”
Nonone interest or penalties on unpaid tax were recorded duringfor the three and nine monthsperiod ended February 28, 2023 and 2022 and no liability for unrecognized2023. These reserves would impact income tax benefits was required to be reported.expense if released into income. The Company does not expect any significant changes ina change to its unrecognizedunrealized tax benefitspositions in the next year.twelve months.
F-22 |
The Company’s deferredTaxing jurisdiction that is significant to Company is the U.S. open tax assets (liabilities) consisted of the effects of temporary differences attributableyears related to the following:this taxing jurisdiction remains subject to examination and could result in additional tax liabilities. The Company is no longer subject to income tax examinations for years before fiscal year 2019.
SCHEDULE OF DEFERRED TAX ASSETS (LIABILITIES)
Deferred Tax Assets | February 28, 2023 | May 31, 2022 | ||||||
Allowance for doubtful accounts | $ | 694,532 | $ | 733,139 | ||||
Consulting contract liability | 218,137 | 230,263 | ||||||
Lease liability | 2,512,188 | 659,460 | ||||||
Other | 548,364 | 238,006 | ||||||
Total deferred tax assets | 3,973,221 | 1,860,868 | ||||||
Deferred Tax Liabilities | ||||||||
Operating lease right-of-use assets | $ | (2,418,863 | ) | $ | (631,173 | ) | ||
Goodwill and intangibles | (321,736 | ) | (256,533 | ) | ||||
Fixed assets | (39,012 | ) | (30,414 | ) | ||||
Net deferred tax asset | $ | 1,193,610 | $ | 942,748 |
The expected tax expense (benefit) based on the statutory rate is reconciled with actual tax expense benefit as follows:
SCHEDULE OF EXPECTED TAX EXPENSE (BENEFIT)
For the Nine Months Ended February 28, 2023 | For the Nine Months Ended February 28, 2022 | |||||||
US Federal statutory rate | 21.0- | % | 21.0 | % | ||||
State income tax, net of federal benefit | 2.0 | % | 9 | % | ||||
Foreign income taxes and adjustments | 0.6 | % | - | % | ||||
Prior year provision adjustment to actual | (6.3 | )% | - | % | ||||
FDII deduction | (6.7 | )% | - | % | ||||
Change in valuation allowance | - | (3.0 | )% | |||||
Other permanent differences, net | (0.1 | )% | 1.0 | % | ||||
Income tax provision | 10.5 | % | 28.0 | % |
9. 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.
Merger Termination
As previously disclosed, on December 18, 2022, The Company entered into an Agreement and Plan of Merger by and among Edify Acquisition Corp., a Delaware corporation, Edify Merger Sub, Inc., a Nevada corporation (“Merger Sub”), and the Company, as amended and supplemented (the “Merger Agreement”). On March 1, 2024, the Company, Buyer and Merger Sub finalized a mutual termination agreement, pursuant to which they mutually agreed to terminate the Merger Agreement effective as of such date. (See Note 2: SPAC Merger Termination)
Amendment to the financing agreement and a waiver
As previously disclosed, on March 10, 2023, the Company entered into a financing agreement and related fee letter(the “Agreement”) as borrower with certain of its subsidiaries party thereto as guarantors (collectively, the “Borrowers”), the lenders party thereto (collectively, the “Lenders”), CB Agent Services LLC, as origination agent, and Alter Domus (US) LLC, as collateral agent and administrative agent. The Financing Agreement providesagent (together with CB Agents, the “Agents”)(collectively, the “Parties”), for an initial senior secured term loan in a principal amount of $4,210,526.324.2 million and a delayed draft term loan available in an aggregate principal amount of up to $14,789,473.6814.8 million (See Note 4: Financing Arrangements)
Effective March 1, 2024, the Parties entered into a waiver and amendment no. 2 to financing agreement (the “Second Waiver”), whereby the Agents and the Lenders agreed to waive (i) (a) that certain event of default that has occurred or may occur, due to the borrower’s’ noncompliance with Section 7.03(a) of the Agreement for each of the fiscal quarters in the fiscal year ending May 31, 2024 and for the fiscal quarter ending August 31, 2024 (the “FCCR Event of Default”), (b) that certain Event of Default that has occurred or may occur, due to the Loan Parties’ noncompliance with Section 7.03(b) of the Agreement for each of the fiscal quarters in the fiscal year ending May 31, 2024 and for the fiscal quarter ending August 31, 2024 (the “Liquidity Event of Default”) and (c) that certain Event of Default that has occurred or may occur, due to the Loan Parties’ noncompliance with Section 7.03(c) of the Agreement for each of the fiscal quarters in the fiscal year ending May 31, 2024 and for the fiscal quarter ending August 31, 2024” and, together with the FCCR Event of Default and the Liquidity Event of Default, the “Specified Events of Default”). The proceedsEach of the Specified Events of Default constitute an Event of Default under Section 9.01(c) of the Agreement; and (ii) interest at the post-default rate with respect to the Specified Events of Default from the date such term loans may be usedevent occurred through the Second Waiver effective date (See Note 2: SPAC Merger Termination)
F-23 |
Line of credit waiver of financial covenant
On April 30, 2024, the Company entered into an amendment and waiver to (i) pay feesthe loan and expensessecurity agreement, dated as of July 20, 2023 with TBK Bank, SSB where the bank agreed to waive a specified event of default and to make certain modifications to the loan agreement. All other terms and conditions of the original and amended loan and security agreement remain the same. This loan is scheduled to mature on June 1, 2025.
Amendment to Promissory Notes
As previously reported, on February 21, 2023, the Company issued to Unique Logistics Holdings Limited, a Hong Kong corporation (“ULHK”), three promissory notes related to entering into the Financing Agreement and the related transaction documents and the acquisitions of those certain ULHK entities contemplated by that certain Stock Purchase Agreementthe Company, as amended, with the following original principal amounts: (i) $2,500,000 (the “Net Assets Note”), (ii) $2,000,000 (the “Second Net Assets Note”), (iii) $2,000,000 (the “Taiwan Note”), and (iv) $1,000,000 (the “Original Seller Note”), respectively.
On October 3, 2023, the Company and ULHK agreed to cancel, replace and supersede the Net Assets Note and the Taiwan Note, each in their entirety, in favor of a newly issued promissory note as of the same date (“Note 9”). Note 9 includes the remaining balances of the Net Assets Note and the Taiwan Note, along with an additional loan in the principal amount of $1,100,000 for an aggregate principal amount of $4,500,000. Note 9 matures on March 31, 2025, and has an interest rate of fifteen percent (15%) per annum.
On October 9, 2023, the Company amended the Second Net Assets Note (the “Amended Second Net Assets Note”), which extended the maturity date thereof from February 21, 2024, to March 31, 2025. The Amended Second Net Assets Note includes simple interest accruing at a rate of fifteen percent (15%) per annum starting February 21, 2024, until such time as the principal amount is paid in full.
On March 5, 2024, the Company and ULHK agreed to cancel, replace and supersede Note 9, in its entirety, in favor of (i) a promissory note in the aggregate principal amount of $2,500,000 (“Note 11”) and (ii) a promissory note in the aggregate principal amount of $3,400,000 (“Note 12”).
Note 11 matures on June 30, 2025, with an interest rate of 15% per annum, payable to ULHK in quarterly installments.
Note 12 matures on June 30, 2025, with an interest rate of 15% per annum.
On March 5, 2024, the Company and ULHK further amended the Amended Second Net Assets Note”), which extended the maturity date thereof from March 31, 2025 to June 30, 2025.
Additionally, on March 6, 2024, the Company and ULHK amended the Original Seller Note which extended the maturity date thereof from the second anniversary of the date of the Note to June 30, 2025 and increased the principal amount of the Note to $1,053,000.
Acquisitions
On April 29, 2024, the Company entered into a share sale and purchase agreement between the Company and seller thereunder and those separate certain Share Sale and Purchase Agreements, as previously reported onUnique Logistics Holdings Limited, a Hong Kong corporation (the “ULHK”), to acquire 100% ULHK’s share capital in Unique Logistics International (Sin) Pte Ltd., with a purchase price of $2.2 million, to be settled in cash in the Company’s Current Report on Form 8-K filed on February 27, 2023 (the “Acquisitions”), (ii) redeem certainamount of the notes issued to the Seller in connection with the Acquisition, and (iii) pay fees and expenses related of the transactions contemplated by that certain Agreement and Plan of Merger, dated as of December 18, 2022, by and among Edify Acquisition Corp., a Delaware corporation, Edify Merger Sub, Inc., a Nevada corporation,$0.4 million and the assumption by the Company as previously reported on the Company’s Current Report on Form 8-K filed on December 19, 2022.of $1.8 million existing indebtedness to ULHK.
Subsequently to quarter ended on February 28, 2023, the Company paid off two of the Promissory Notes to the Seller (See Note 2, Acquisitions) including associated interest, and made a partial payment on another note, as follows:
SCHEDULE OF PROMISSORY NOTES DUE
Promissory Notes Due | 3/7/2023 | Note 1 to ULHL | $ | 4,500,000 | 15.0 | % | ||||||
4/7/2023 | Note 2 to ULHL | 5,000,000 | 15.0 | % | ||||||||
6/30/2023 | Note 3 to ULHL | 500,000 | 15.0 | % | ||||||||
Total: | $ | 10,000,000 |
F-24 |
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, judgmentsjudgements and assumptions. We believe that the estimates, judgmentsjudgements and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgmentsjudgements and assumptions are made. These estimates, judgmentsjudgements and assumptions can affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our condensed consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report. The forward-looking statements made in this report are based only on events or information as of the date on which the statements are made in this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents we refer to in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. These risks include, by way of example and without limitation:
● | The |
● | We depend on operators of aircrafts, ships, trucks, ports and |
● | We derive a significant portion of our total revenues and net revenues from our largest |
● | Due to our dependence on a limited number of customers, we are subject to a concentration of credit |
● | Our earnings may be affected by seasonal changes in the transportation |
● | Our business is affected by ever increasing regulations from a number of sources in the United States and in foreign locations in which we |
3 |
● | As a |
● | The global economy and capital and credit markets continue to experience uncertainty and |
● | 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.
Business Overview and Recent Developments
The Company is a global logistics and freight forwarding company.
Unique Logistics provides a range of international logistics services that enable its customers to outsource to the Company sections of their supply chain process. The services provided by the Company are seamlessly managed by itsOur global network of trained employees and integrated information systems.systems seamlessly manage the services that we provide. We enable our customers to share data regarding their international vendors and purchase orders with us, execute the flow of goods and information under their operating instructions, provide visibility to the flow of goods from factory to distribution center or store and, when required, update their inventory records.
Our range of services can be categorized as follows:
● | Air | |
● | Ocean | |
● | Customs | |
● | Warehousing and | |
● | Order management |
On February 21, 2023, we closedthe Company completed the acquisition of all of the share capital (the “Purchased Shares”) owned by Unique Logistics Holdings Limited, a Hong Kong company (“ULHL”ULHK”), in eight subsidiaries (the “ULHL(the “ULHK Entities”) for $26.5 million (the “ULHL“ULHK Entities Acquisition”), provided that the acquisition of the Purchased Shares in each of Unique Logistics International Co., Ltd (“Unique-Taiwan”) and Unique Logistics International (Vietnam) Co., Ltd. (“Unique-Vietnam”) is subject to receipt of all required governmental approvals in Taiwan and Vietnam, respectively, and the Company’s acquisition of the Purchased Shares in those entities will therefore not officially close until after such approvals are obtained, which we expect will be second or third quarter of 2023.. In addition to the acquisition of the shares in the ULHLULHK Entities, we Unique Logistics acquired two companies that are owned by two of the ULHLULHK Entities. We expect that the acquisition of these entities will have a material favorable impact on the Company’s revenues and consolidated income going forward.
At
On December 18, 2022, the closingCompany entered into an Agreement and Plan of Merger by and among Edify Acquisition Corp., a Delaware corporation, Edify Merger Sub, Inc., a Nevada corporation, and the Company, as amended and supplemented (the “Merger Agreement”). On March 1, 2024, the parties entered into a mutual termination agreement, pursuant to which they mutually agreed to terminate the Merger Agreement effective as of such date.
Market and Business Trends - Overview of Impact on Results of Operations
The logistics industry experienced a global slowdown in 2023 compared with calendar year 2022. Typically, the flow of imported goods to the United States starts to pick up for the “back to school” and “holiday sales” seasons during the June to November period, with a particular increase in air shipping to meet store deadlines towards the later part of this peak period. In 2023, however, overall volumes remained depressed even during the traditional peak period, possibly due to excess inventory overhang and conservative ordering by retailers. The trend started to reverse itself, somewhat, in the later part of the ULHL Entities Acquisition,traditional June to November peak with conversions of shipping mode, to air freight from sea freight, and the Company paid $3.5benefited through increased air freight revenue but at low margins.
By December 2023, attacks on ships in the Red Sea, which required re-routing of vessels traveling from Asia to Europe and the East Coast of the United States, created shipping bottlenecks and increased freight rates. Air freight volumes were already on an elevated trend driven by Chinese e-commerce shipments and the Red Sea situation added to this volume as shippers converted ocean shipments to air. Thus, air freight rates have been driven up and they remain at elevated levels as Chinese e-commerce shipping continues to grow and the Red Sea situation has become worse.
4 |
Results of Operations for the Three Months ended February 29, 2024 and February 28, 2023
Revenue
For the three months ended February 29, 2024 and February 28, 2023, Unique Logistics’ revenue by product line was as follows:
For the Three Months ended February 29, 2024 | For the Three Months ended February 28, 2023 | $ change | % change | |||||||||||||
Airfreight services | $ | 31,672,402 | $ | 13,206,112 | $ | 18,466,290 | 139.8 | % | ||||||||
Ocean freight and ocean services | 27,543,642 | 23,106,949 | 4,436,693 | 19.2 | % | |||||||||||
Contract logistics | 579,675 | 755,034 | (175,359 | ) | (23.2 | )% | ||||||||||
Customs brokerage and other services | 8,034,666 | 12,559,407 | (4,524,741 | ) | (36.0 | )% | ||||||||||
Total revenues | $ | 67,830,385 | $ | 49,627,502 | $ | 18,202,883 | 36.0 | % |
For the three months ended February 29, 2024 and February 28, 2023, the Company’s revenue by product line, excluding the operations of the ULHK Entities acquired on February 21, 2023, were as follows:
For the Three Months ended February 29, 2024 | For the Three Months ended February 28, 2023 | $ change | % change | |||||||||||||
Airfreight services | $ | 23,150,157 | $ | 13,206,112 | $ | 9,944,045 | 75.3 | % | ||||||||
Ocean freight and ocean services | 19,331,728 | 23,106,949 | (3,775,221 | ) | (16.3 | )% | ||||||||||
Contract logistics | 579,675 | 755,034 | (175,359 | ) | (23.2 | )% | ||||||||||
Customs brokerage and other services | 7,363,918 | 12,559,407 | (5,195,489 | ) | (41.4 | )% | ||||||||||
Total revenues | $ | 50,425,478 | $ | 49,627,502 | $ | 797,976 | 1.6 | % |
The 36.0% increase in total revenues for the three months ended February 29, 2024, compared to the three months ended February 28, 2023, is primarily due to increases in airfreight revenue and, to a lesser extent, ocean freight and ocean services revenue, offset by a decrease in revenue from customs brokerage and other services.
The 139.8% increase in airfreight revenue was primarily due to the acquisition of the ULHK Entities and the market trends discussed above. A 209.8% increase in volume resulted in a 149.3% increase in air freight revenue, offset by a 49.3% reduction in such revenue as a result of a 22.3% decrease in air freight pricing compared to the same period last year.
Excluding airfreight revenues of $8.5 million (net of intercompany eliminations) attributable to the operations of the ULHK Entities, air freight revenue increased by 75.3% over the same period last year. A 97.1% increase in cashvolume resulted in a 129.0% increase in air freight revenue, offset by a 29.0% reduction in such revenue as a result of an 11.1% decrease in pricing, quarter over quarter.
The 19.2% increase in ocean freight and issued promissory notesocean services revenue was due to ULHL totaling $23.0the acquisition of the ULHK Entities in February 2023, offset by a decrease in ocean freight and ocean services revenue from our legacy operations. The overall increase in ocean freight and ocean services revenues was the result of an 81.8% increase in volume, which resulted in a 426.1% increase in such revenue, offset by a 326.1% decrease in such revenue resulting from a 34.4% reduction in pricing, quarter over quarter.
Excluding ocean revenues of $8.2 million (net of intercompany eliminations) attributable to purchase the Purchased Shares.acquisition of the ULHK Entities, ocean freight and ocean services revenue decreased by 16.3% over the same period last year. Such decrease is the result of a 22.5% decrease in pricing for such services, which resulted in a 148.8% decrease in revenues, offset by an increase of 48.8% in such revenue resulting from an 8.0% increase in volume, quarter over quarter.
The decline in revenue from customs brokerage and other services during the three months ended February 29, 2024 as compared with the same period of 2023 was a direct result of our asking customers to pay their own duties.
While not a material contributor to the decrease in revenues generally, contract logistics revenue declined by 23.2% during the three months ended February 29, 2024 compared with the same period of 2023, both with and without the inclusion of the operations of the ULHK Entities, because of the overall decrease in demand for ocean freight and services, meaning less cargo was being handled in the Company’s warehouses.
5 |
Costs and Operating Expenses
For the three months ended February 29, 2024 and February 28, 2023, Unique Logistics’ costs and operating expenses were as follows:
For the Three Months ended February 29, 2024 | For the Three Months ended February 28, 2023 | $ change | % change | |||||||||||||
Costs and operating expenses: | ||||||||||||||||
Airfreight services | $ | 29,076,358 | $ | 11,964,314 | $ | 17,112,044 | 143.0 | % | ||||||||
Ocean freight and ocean services | 23,999,410 | 19,722,259 | 4,277,151 | 21.7 | % | |||||||||||
Contract logistics | 126,523 | 215,245 | (88,722 | ) | (41.2 | )% | ||||||||||
Customs brokerage and other services | 6,346,786 | 11,397,398 | (5,050,612 | ) | (44.3 | )% | ||||||||||
Salaries and related costs | 5,529,773 | 3,076,221 | 2,453,552 | 79.8 | % | |||||||||||
Professional fees | 666,850 | 39,082 | 627,768 | 1606.3 | % | |||||||||||
Rent and occupancy | 1,176,612 | 883,681 | 292,931 | 33.1 | % | |||||||||||
Selling and promotion | 609,751 | 1,471,236 | (861,485 | ) | (58.6 | )% | ||||||||||
Depreciation and amortization | 752,750 | 203,390 | 549,360 | 270.1 | % | |||||||||||
Foreign exchange transactions, net | 26,858 | - | 26,858 | 100 | % | |||||||||||
Other expense | 282,871 | 323,747 | (40,876 | ) | (12.6 | )% | ||||||||||
Total costs and operating expenses | $ | 68,594,542 | $ | 49,296,573 | 19,297,969 | 39.1 | % |
For the three months ended February 29, 2024 and February 28, 2023, the Company’s costs and operating expenses, excluding the operations of the ULHK Entities, were as follows:
For the Three Months ended February 29, 2024 | For the Three Months ended February 28, 2023 | $ change | % change | |||||||||||||
Costs and operating expenses: | ||||||||||||||||
Airfreight services | $ | 21,877,801 | $ | 11,964,314 | $ | 9,913,487 | 82.9 | % | ||||||||
Ocean freight and ocean services | 17,206,923 | 19,722,259 | (2,515,336 | ) | (12.8 | )% | ||||||||||
Contract logistics | 145,747 | 215,245 | (69,498 | ) | (32.3 | )% | ||||||||||
Customs brokerage and other services | 5,743,583 | 11,397,398 | (5,653,815 | ) | (49.6 | )% | ||||||||||
Salaries and related costs | 3,334,963 | 3,076,221 | 258,742 | (8.4 | )% | |||||||||||
Professional fees | 627,225 | 39,082 | 588,143 | 1,504.9 | % | |||||||||||
Rent and occupancy | 846,327 | 883,681 | (37,354 | ) | (4.2 | )% | ||||||||||
Selling and promotion | 527,871 | 1,471,236 | (943,365 | ) | (64.1 | )% | ||||||||||
Depreciation and amortization | 464,708 | 203,390 | 261,318 | 128.5 | % | |||||||||||
Other expense | 456,037 | 323,747 | 132,290 | 40.9 | % | |||||||||||
Total costs and operating expenses | $ | 51,231,185 | $ | 49,296,573 | 1,934,612 | 3.9 | % |
The $16.3 million or 37.5% increase in cost of sales correlates with the 36.0% increase in product revenue for the period, specifically in airfreight and ocean freight and ocean services revenue.
In addition, other operating and administrative expenses increased by $3.0 million during the three months ended February 29, 2024, compared to the same period of 2023, primarily due to a $2.5 million increase in salaries and related costs, $2.2 million of which is attributable to the employees of our new subsidiaries acquired in the ULHK Entities Acquisition; the balance of this increase resulted primarily from increases in professional fees, rent and occupancy, and amortization of newly acquired intangible assets, offset by a decrease in selling and promotional expenses. The Company doesn’t expect significant increases in salaries and benefits going forward and is considering actions it can implement to curtail these costs in future periods. Professional fees increased during the three months ended February 29, 2024 compared to the same period of 2023 primarily due to additional legal fees incurred in connection with the now-abandoned merger transaction pursuant to the Merger Agreement. Approximately half of the 33.1% increase in rent and occupancy expenses was due to an increase in the rental rates of our warehouse facility in Los Angeles and the other half to leases of the newly acquired ULHK Entities. The Company doesn’t expect significant increases in rent and occupancy expenses going forward. The 270.1% increase in depreciation and amortization was the result of recognition of approximately $6.5 million of identifiable intangible assets such as customer relations and non-compete agreements as part of the ULHK Entities Acquisition. These intangible assets are now being amortized over the useful life of the assets contributing to approximately half of the increase, with the other half being contributed by depreciation expense recorded by the ULHK Entities. Finally, selling and promotion expenses decreased by 58.6% quarter-over-quarter due to lower sales commissions as a result of revisions of commission-based sales targets.
6 |
Excluding costs (net of intercompany eliminations) attributable to the operations of the ULHK Entities, costs of sales increased by $1.6 million or 3.8% during the quarter ended February 29, 2024, compared to the same period of 2023, which is consistent with the $0.8 million or 1.6% increase in product revenue for the same period.
Other operating and administrative expenses, excluding the operations of the ULHK Entities, increased by $0.3 million, primarily as a result of increases in professional fees, salaries and related costs, and depreciation and amortization, offset by a decrease in selling and promotion expenses. Professional fees increased by $0.6 million primarily due to additional legal fees incurred in connection with the now-abandoned merger, as discussed above. The 128.5% increase in depreciation and amortization was the result of our recognition of approximately $6.5 million of identifiable intangible assets such as customer relations and non-compete agreements as part of the ULHK Entities Acquisition. Selling and promotion expenses decreased by $0.9 million or 64.1% period-over-period due to lower sales commissions as a result of revisions of commission-based sales targets.
Gross Margins
Gross margin as a percentage of revenue decreased from 12.8% for three months ended February 28, 2023, to 10.0%, or to 10.8% excluding the operations of the ULHK Entities, during the three months ended February 29, 2024.as a result of market pricing fluctuations Gross margin is an important measurement of a logistics company’s efficiency and profitability. The Company is focused on this and other measures when making strategic decisions and investments.
Other Income (Expenses)
During the quarter ended February 29, 2024, total other expenses were $10.6 million and consisted of $1.4 million of interest paid off one such promissory noteon our operating line of credit with TBK Bank, SSB, term debt and related party debt, a net gain in derivative liabilities of $4.3 million, a $10.4 million expense related to the termination of the Merger Agreement in the form of an additional loan and issuance of a warrant and an uplist termination cost of previously deferred offering costs in the amount of $4.5 million, which matured on March 7, 2023, using cash held by the ULHL Entities. One such promissory note in the amount of $5.0 million matures on April 7, 2023, four promissory notes in the aggregate amount of $10.5 million mature on June 30, 2023, and one promissory note in the amount of $1.0 million matures on February 21, 2024.$3.1 million.
While the promissory notes related to the purchase price for the Purchased Shares in Unique-Taiwan and Unique-Vietnam, in the amount of $2.0 million and $1.0 million, respectively, mature on June 30, 2023, they are not payable until the later of July 15, 2023, or 15 days after receipt of all required or necessary government and other regulatory approvals. These promissory notes and the promissory note due in 2024 bear no interest, while the promissory notes due during 2023 have an annual interest rate of 15%.
In addition, the Company may be obligated to pay ULHL an earn-out payment of either $2.5 million or $2.0 million if the ULHL Entities achieve certain EBITDA-related milestones during the 12 month-period ending June 30, 2023. Any such earn-out payment would be due, in cash, on or before September 28, 2023.
$1.0 million of the cash portion of the purchase price was used to establish a reserve against certain potential existing and contingent liabilities relating to certain of the ULHL Entities that had not been disclosed to the Company as of the date of the original Stock Purchase Agreement with respect to the ULHL Entities Acquisition. To the extent that any claims related to such undisclosed liabilities are asserted on or before February 20, 2024, any amounts that the relevant ULHL Entities pay upon settlement or are found liable for by a competent court, tribunal or governmental authority will be paid to Unique Logistics up to the $1.0 million amount of the reserve. If no such claims are made then the entire $1.0 million reserve, or the amount left, if any, after deducting such settlement or liability amounts, will be released to ULHL.
We expect that the closing of the ULHL Entities Acquisition duringDuring the quarter ended February 28, 2023, will result in significant increases in revenues andtotal other expenses over the next 12 months as we integrate the operations of the ULHL entities with our own.$0.5 million consisted primarily of interest expense of $0.5 million.
Results of Operations for the Nine Months Ended February 29, 2024 and February 28, 2023
Market and Business TrendsRevenue
The current fiscal yearFor the nine months ended February 29, 2024 and February 28, 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.Unique Logistics’ revenue by product line was as follows:
Market conditions have trended towards a slowdown in shipping in the current fiscal year. This slowdown significantly impacted the Company in the third quarter. The impact was particularly severe in the air freight sector. The uncertainty created by inflation and high inventory levels coupled with the fact that the Company’s third quarter is traditionally a slow period due to shipping market seasonality, has resulted in lower shipping volumes and lower shipping costs. Lower shipping costs result in lower revenue for the Company. However, we believe that the Company is positioned to improve net revenue yield through improved procurement; the Company has also added to its customer base in the last twelve months, which will mitigate the impact of a declining shipping market.
For the Nine Months ended February 29, 2024 | For the Nine Months ended February 28, 2023 | $ change | % change | |||||||||||||
Airfreight services | $ | 87,102,162 | $ | 64,721,816 | $ | 22,380,346 | 35.6 | % | ||||||||
Ocean freight and ocean services | 74,933,392 | 159,292,026 | (84,358,634 | ) | (53.0 | )% | ||||||||||
Contract logistics | 1,892,954 | 2,499,459 | (606,505 | ) | (24.3 | )% | ||||||||||
Customs brokerage and other services | 28,612,414 | 48,460,306 | (19,847,892 | ) | (41.0 | )% | ||||||||||
Total revenues | $ | 192,540,922 | $ | 274,973,607 | (82,432,685 | ) | (30.0 | )% |
The Company continues to invest in sales and marketing to increase market share. The ULHL Entities Acquisition has added to the Company’s customer base and its ability to target new business. The Company continues to seek strategic acquisitions to supplement organic growth. We believe that these actions put the Company in a good position to maintain growth trends even without a significant turnaround in global shipping in the foreseeable future.
Results of Operations forFor the Three Monthsnine months ended February 29, 2024 and February 28, 2023, andthe Company’s revenue by product line, excluding the operations of the ULHK Entities acquired on February 28, 202221, 2023, were as follows:
Revenue
For the Nine Months ended February 29, 2024 | For the Nine Months ended February 29, 2023 | $ change | % change | |||||||||||||
Airfreight services | $ | 61,548,566 | $ | 64,721,816 | $ | (3,173,250 | ) | (4.9. | )% | |||||||
Ocean freight and ocean services | 57,451,916 | 159,292,026 | (101,840,110 | ) | (63.9 | )% | ||||||||||
Contract logistics | 1,892,954 | 2,499,459 | (606,505 | ) | (24.3 | )% | ||||||||||
Customs brokerage and other services | 23,373,286 | 48,460,306 | (25,087,020 | ) | (51.8 | )% | ||||||||||
Total revenues | $ | 144,266,722 | $ | 274,973,607 | (130,706,885 | ) | (47.5 | )% |
The Company’s30.0% decrease in total revenuerevenues for the threenine months ended February 29, 2024, compared to the nine months ended February 28, 2023, and 2022 was $49.6 million and $250.4 million, respectively. This 80.2% decrease period over period is primarilyalmost entirely due to decreases of 83.1%in ocean freight and ocean services revenue and, to a lesser extent, in customs brokerage revenue, offset by an increase in air freight revenue and 54.1% in ocean freight revenue.
The air53.0% decrease in ocean freight and ocean services revenue reduction was primarily driven by an approximately 90%attributable to a reduction in airfreightpricing period over period, offset by a slight increase in volume. Shipping volumesA20.3% increase in volume, primarily as a result of the United Statesacquisition of the ULHK Entities, resulted in a 38.4% increase in ocean freight and ocean services revenue, offset by a 138.4% decrease in such revenue resulting from a 60.9% reduction in pricing based on market has declined significantlyconditions, period over period.
Excluding revenues of $17.5 million (net of intercompany eliminations) attributable to the operations of the ULHK Entities, ocean freight and ocean services revenue decreased 63.9% during the Company feels its impact through lower shipping volumes by its existing customers. Comparatively,nine months ended February 29, 2024, compared to the nine months ended February 28, 2023, which decrease is attributable to reductions in both pricing and volume period over period. A 22.4% decrease in volume accounted for 35.1% of the corresponding quarterdecrease while a 53.5% decrease in the prior fiscal year demand for air freight was so great that the Company was operating dedicated air cargo charters for its customers. The air charter program was an agreement with several major airlines to add a substantial number of charter flightspricing accounted for the period of August 1, 2021, through December 31,2021 peak season. The charter flights were concluded in the third quarterremaining 64.9% of the prior fiscal year.decrease in ocean freight and ocean services revenue, period over period.
The 41.0% decline in ocean freight revenue from customs brokerage and other services during the nine months ended February 29, 2024, as compared to the same period of 2023 was a direct result of our asking customers to pay their own duties as duty is a pure cash outlay.
The 35.6% increase in airfreight revenue during the nine months ended February 29, 2024, as compared to the same period of 2023, was due to the acquisition of the ULHK Entities and the market trends discussed above. A 114.7% increase in volume resulted in a 331.8% increase in air freight revenue, offset by a 231.8% decrease in such revenue resulting from a 37.3% reduction in pricing reductiondue to market conditions, period over period.
Excluding revenues of approximately 58.0% and a volume reduction$25.6 million (net of approximately 47.0% over the comparable period last year, equally contributingintercompany eliminations) attributable to the overall oceanoperations of the ULHK Entities, airfreight revenue reduction for the period. The overall shipping volumes are currently experiencing a steady global decline in the past 12 months, with additional ocean freight capacity available, putting further pressure on pricing. The Company’s third quarter is traditionally a slow shipping perioddecreased 4.9%, mostly due to seasonal factors.a decrease in market prices, period over period. While volume increased 25.5%, resulting in a 519.2% increase in air freight revenue, this increase was offset by a 619.2% decrease in such revenue resulting from a 24.2% reduction in pricing period over period.
Going forward, management is expectingWhile not a material contributor to the decrease in revenues generally, contract logistics revenue declined by 24.3%, both with and without the air andinclusion of the ocean freight business to steadily improve in termsoperations of volumes and to remain stable in termsthe ULHK Entities, during the nine months ended February 29, 2024 compared with the same period of pricing in the second half of calendar 2023 based on the customer projections and secured customer commitments received to date.mostly due a lower warehousing activity off peak season.
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Costs and Operating Expenses
Cost of freightFor the nine months ended February 29, 2024 and otherFebruary 28, 2023, Unique Logistics’ costs and operating expenses were $49.3 million foras follows:
For the Nine Months ended February 29, | For the Nine Months ended February 28, 2023 | $ change | % change | |||||||||||||
Costs and operating expenses: | ||||||||||||||||
Airfreight services | $ | 81,374,442 | $ | 59,465,104 | $ | 21,909,338 | 36.8 | % | ||||||||
Ocean freight and ocean services | 62,964,504 | 142,806,034 | (79,841,530 | ) | (55.9 | )% | ||||||||||
Contract logistics | 507,326 | 846,226 | (338,900 | ) | (40.0 | )% | ||||||||||
Customs brokerage and other services | 24,263,573 | 44,773,324 | (20,509,751 | ) | (45.8 | )% | ||||||||||
Salaries and related costs | 17,293,553 | 10,036,200 | 7,257,353 | 72.3 | % | |||||||||||
Professional fees | 2,299,312 | 1,213,807 | 1,085,505 | 89.4 | % | |||||||||||
Rent and occupancy | 3,382,602 | 2,026,363 | 1,356,239 | 66.9 | % | |||||||||||
Selling and promotion | 1,888,439 | 2,033,668 | (145,229 | ) | (7.1 | )% | ||||||||||
Depreciation and amortization | 2,203,093 | 606,030 | 1,597,063 | 263.5 | % | |||||||||||
Foreign exchange transactions, net | (267,209 | ) | - | (267,209 | ) | % | ||||||||||
Other expense | 948,402 | 993,508 | (45,106 | ) | (4.5 | )% | ||||||||||
Total costs and operating expenses | $ | 196,858,037 | $ | 264,800,264 | (67,942,227 | ) | (25.7 | )% |
For the threenine months ended February 29, 2024 and February 28, 2023, compared to $248.2Unique Logistics’ costs and operating expenses, excluding the operations of the ULHK Entities, were as follows:
For the Nine Months ended February 29, 2024 | For the Nine Months ended February 28, 2023 | $ change | % change | |||||||||||||
Costs and operating expenses: | ||||||||||||||||
Airfreight services | $ | 59,064,241 | $ | 59,465,104 | $ | (400,863 | ) | (0.7 | )% | |||||||
Ocean freight and ocean services | 50,176,428 | 142,806,034 | (92,629,606 | ) | (64.9 | )% | ||||||||||
Contract logistics | 507,326 | 846,226 | (338,900 | ) | (40.0 | )% | ||||||||||
Customs brokerage and other services | 20,338,896 | 44,773,324 | (24,434,428 | ) | (54.6 | )% | ||||||||||
Salaries and related costs | 10,733,395 | 10,036,200 | 697,195 | 6.9 | % | |||||||||||
Professional fees | 2,150,093 | 1,213,807 | 936,286 | 77.1 | % | |||||||||||
Rent and occupancy | 2,516,493 | 2,026,363 | 490,130 | 24.2 | % | |||||||||||
Selling and promotion | 1,651,463 | 2,033,668 | (382,205 | ) | (18.8 | )% | ||||||||||
Depreciation and amortization | 1,394,290 | 606,030 | 788,260 | 130.1 | % | |||||||||||
Other expense | 1,046,785 | 993,508 | (53,277 | ) | 5.4 | % | ||||||||||
Total costs and operating expenses | $ | 149,579,410 | $ | 264,800,264 | (115,220,854 | ) | (43.5 | )% |
the $78.8 million or 31.8% reduction in cost of sales correlates with the 30.0% decrease in product revenue for the threeperiod, as discussed above.
The overall decrease in cost and operating expenses for the period of $67.9 million or 25.7% was due to the decrease in cost of sales offset by increases in other operating and administrative expenses, which in total increased by $10.8 million during the nine months ended February 28, 2022, a reduction of 80.1% that correlates with the reduction in total revenue during29, 2024, compared to the same period of 2023, primarily due to a $7.3 million increase in salaries and related costs, $6.6 million of which is attributable to the employees of our new subsidiaries acquired in the ULHK Entities Acquisition; the balance of this increase resulted primarily from increases in professional fees, rent and occupancy costs and amortization of newly acquired intangible assets. Professional fees increased during the nine months ended February 29, 2024, compared to the same period of 2023, primarily due to additional legal fees incurred in connection with the now-abandoned merger transaction pursuant to the Merger Agreement. Approximately half of the 66.9% increase in rent and occupancy expenses was due to an increase in the rental rates of our warehouse facility in Los Angeles and the other half related to leases of the newly acquired ULHK Entities. The 263.5% increase in depreciation and amortization was the result of recognition of approximately $6.5 million of identifiable intangible assets such as discussed abovecustomer relations and non-compete agreements as air freight servicespart of the ULHK Entities Acquisition. These intangible assets are now being amortized over the useful life of the assets contributing to approximately half of the increase, with the other half being contributed by depreciation expense recorded by the ULHK Entities.
Excluding the cost of sales of the acquired ULHK Entities of $39.9 million, cost of sales decreased by $117.1 million period over period or 43.5%, which is consistent with the 47.5% decrease in product revenue for the period.
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The overall decrease in total cost and operating expenses for the period, excluding the operations of the ULHK Entities, of $115.2 million or 43.5% was due to the cost of sales decrease offset by a $2.5 million increase in other operating and administrative expenses during the nine months ended February 29, 2024, compared to the same period of 2023, as a result of increases in salaries and related costs, were 90.6% lowerprofessional fees, rent and ocean freightoccupancy expenses and ocean services costs were 80.2% loweramortization of newly acquired intangible assets, offset by a decrease in selling and promotion expenses. Professional fees increased during the three months ended February 28, 2023,29, 2024, compared withto the same period of 2022.
Other operating and administrative expenses increased2023, primarily due to additional legal fees incurred in total by $1.1 million or 23 %, primarily becauseconnection with the no-abandoned merger transaction pursuant to the Merger Agreement. Most of the timing$0.5 million increase in rent and occupancy expenses was due to an increase in the rental rates of our warehouse facility in Los Angeles. The 130.1% increase in depreciation and amortization was the result of recognition of approximately $6.5 million of identifiable intangible assets such as customer relations and non-compete agreements as part of the ULHK Entities Acquisition. Selling and promotion expenses decreased by 58.6% period-over-period due to lower sales commissions and hiring new employees. Duringcommission as a result of revision of commission-based sales targets.
Gross Margin
The gross margin as a percentage of revenue increased from 9.9% for the threenine months ended February 28, 2023 salaries and related costs increased 20.6% mostly due to adding and promoting employees, selling and promotion costs increased 73.7% primarily due to the timing of the sales commission recognition with rents and occupancy costs increased 63.6% primarily due to opening of new offices and rising rent prices, in each case compared to the three months ended February 28, 2022. The Company doesn’t expect these costs to significantly change going forward.
Other Income (Expense)
For the three months ended February 28, 2023, other expenses were approximately $0.5 million and comprised of interest expense from the operating line of credit of $0.55 million and a gain in fair value of derivative liabilities of $0.05 million associated with the antidilution provision imbedded in our convertible preferred stock.
For the three months ended February 28, 2022, other expenses were $7.0 million and comprised mostly of interest expense of $1.4 million, loss on the exchange of convertible notes for shares of convertible preferred stock of $1.3 million and a loss in fair value of derivative liabilities of $4.3 million related to the antidilution provisions imbedded in our convertible preferred stock.
The slight gain in the fair value of derivative liabilities during the three months ended February 28, 2023 compared to the $4.3 million loss11.4% for the same period of 2022 is due to derivative recognition for the first time during the quarter ended February 28, 2022. Interest expense decreased period over period primarily due to our reduced amount of borrowing on the operating line of credit due to lower shipping volumes and a decline in the costs of freight services.
Net Income
Net income was approximately $0.7 million for the three months ended February 28, 2023, compared to a net loss of $4.9 million for the three months ended February 28, 2022 while net loss available to common shareholders was $9.5 million for the three months ended February 28, 2022, due to a deemed dividend of $4.6 million.
As a result of the Company exchanging $3.9 million of convertible notes into Series C and D Preferred Stock on December 10, 2022, the Company recognized net loss on the extinguishment of convertible notes payable and warrants of approximately $1.3 million in Other Income (Expenses) and recognized approximately $4.6 million as deemed dividends as reflected in Comprehensive Income line item of the statement of operations, both reflected in the statement of operations for the three and nine months ended February 28, 2022. The Company also recorded a $4.3 million net loss on29, 2024, excluding the mark to marketoperations of the derivative liability associated with the Series A Preferred Stock in Other Income (Expenses) in the statement of operations for the three and nine months, ended February 28, 2022.
Results of Operations for the Nine Months ended February 28, 2023, and 2022.
Revenue
The Company’s total revenueULHK Entities, gross margins was at 9.8% for the nine months ended February 28, 2023 and 2022 was $275.0 million and $845.6 million, respectively. This 67.5% decrease period over period is primarily due to decreases of 85.8% in air freight revenue and 53.6% in ocean freight revenue.February 29, 2024.
The air freight revenue reduction was primarily driven by an 82.5% reduction in volume, mostly due to our discontinuation of the air charter program in December of 2022, as discussed above.
The decline in ocean freight revenue was due to a pricing reduction of approximately 24.0% and a volume reduction of approximately 43.0% over the same period of 2022 equally contributing to reduction in ocean revenue for the period.
The overall shipping volumes are currently experiencing a steady global decline in the past 12 months, with additional ocean freight capacity available, putting further pressure on pricing. Going forward, management is expecting both the air and the ocean freight business to steadily improve in terms of volumes and to remain stable in terms of pricing in the second half of calendar 2023 based on the customer projections and secured customer commitments received to date.
Costs and Operating ExpensesOther Income (Expenses)
Cost of freight and operating expenses were $264.8 million forFor the nine months ended February 28, 2023, compared to $831.529, 2024, other expenses were $13.2 million for the nine months ended February 28, 2022,and consisted of interest expense of $3.8 million on our operating line of credit with TBK Bank, SSB, term loan interest and interest on related party debts, a reductionnet gain in derivative liabilities of 68.2% that correlates with the reduction in revenue during the same period as discussed above as air freight costs were 86.7% lower and ocean freight costs were 55.8% lower during the nine months ended February 28, 2023, compared with the same period of 2022.
In addition, other selling and administrative decreased in total by approximately $0.5$4.1 million, mostly due to total selling and promotional expenses decreased by 55.7% during the nine months ended February 28, 2023 compared to the nine months ended February 28, 2022 due to lower sales commissions as a result of the overall revenue decrease during current fiscal year. Salaries and related costs were higher by 23.6% primarily because of adding and promoting employees in connection with positioning the Company for future growth. Professional fees increased 81.4% primarily due to legal and audit expenses$10.4 million expense related to the closingtermination of the acquisitionsMerger Agreement in the quarter ended February 28, 2023. While we expect professional fees to remain atform of an elevated level compared to prior periods as the Company continues to execute its growth plans, we do not expect professional fees to continue to increase at a significant rate going forward. Rentadditional loan and occupancy expenses increased 37.0% due to the openingan issued warrant and an uplist termination cost of new offices. Finally, other expenses decreased by 49.7%, primarily as a result of a decreasepreviously deferred offering costs in the bad debt reserve.
Other Income (Expense)amount of $3.1 million.
For the nine months ended February 28, 2023, other expenses were $2.1 million and were comprisedconsisted of interest expense of $2.9 million offset by $0.8 million in gain in fair value of derivative liabilities related to the antidilution provision imbedded in our convertible preferred stock.
For the nine months ended February 28, 2022, other expenses were $9.8 million, and were comprised primarily of interest expense of $4.6 million, gain on forgiveness of promissory note of $0.4 million, plus a $0.8 million loss on amortization of debt discount on convertible notes, a $0.6 million loss on exchange of the convertible note for preferred convertible shares, and a $4.3 million loss in fair value of derivative liabilities related to the antidilution provisions imbedded in our convertible preferred stock.
As explained above, $0.8 gainincrease in the fair value of derivative liabilities during the nine months ended February 28, 2023 compared to the $4.3 million loss for the same period of 2022 is due to recognition of derivative liability for the first time in 2022. Interest expense decreased period over period primarily due to our reduced amount of borrowing on the operating line of credit due to lower shipping volumesliabilities.
Liquidity and a decline in the costs of freight services.
Net IncomeCapital Resources
Net income was $7.3 million and $1.6 million for the nine months ended February 28, 2023 and 2022, respectively. Net loss available to common shareholders was $3.0 million for the nine months ended February 28, 2022, due to a deemed dividend of $4.6 million during the 2022 period, as explained above.
Liquidity
The accompanying condensed consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.
The following table summarizes the Company’s total current assets, liabilities and working capital:
February 28, 2023 | May 31, 2022 | Change | ||||||||||
Current Assets | $ | 62,470,090 | $ | 108,543,031 | $ | (46,072,941 | ) | |||||
Current Liabilities | 72,201,695 | $ | 104,367,590 | (32,165,895 | ) | |||||||
Net Working Capital (Deficit) | $ | (9,731,605 | ) | $ | 4,175,441 | $ | (13,907,046 | ) |
As of February 28, 2023,capital at the Company reported negative working capital of $9.7 million compared to positive working capital of $4.2 million as of May 31, 2022. This change is mainly due to the completion of the ULHL Entities Acquisition on February 21, 2023. At the time of the acquisition, the Company paid $3.5 million in cash and assumed further $23.8 million as current liabilities and $1.5 million in noncurrent liabilities by either issuing promissory notes to the seller or by recognizing contingent liabilities at fair value on its balance sheet as of February 28, 2023. The amount of $3.8 million of the purchase price was recorded as goodwill, $6.5 million was recorded as intangibles and $10.9 million of the purchase price was recorded as equity method investments. All these assets were classified as noncurrent assets while most of the liabilities associated with the acquisition were recorded as current liabilities, resulting in a temporary negative impact on working capital.dates indicated:
The Company intends to either timely pay off the $23.8 million in current liabilities associated with the acquisition with cash generated by its operations cash accumulated in the acquired ULHL Entities or by refinancing a portion of the current liabilities with non-current debt, which will have a positive effect on the working capital. As of the date of filing this form, the Company paid off $10.0 million of the promissory notes, ahead of scheduled maturity. See Note 9, Subsequent Events
February 29, 2024 | May 31, 2023 | Change | % change | |||||||||||||
Current Assets | $ | 57,224,459 | $ | 60,326,985 | $ | (3,102,526 | ) | (5.1 | )% | |||||||
Current Liabilities | 51,962,012 | 52,448,603 | (486,591 | ) | 0.9 | % | ||||||||||
Working Capital | $ | 5,262,447 | $ | 7,878,382 | $ | (2,615,935 | ) | (33.2 | )% |
As previously reported, on December 18, 2022, the Company entered into an Agreement
The Company’s working capital was $5.3 million and Plan$7.9 million as of Merger with Edify Acquisition Corp.February 29, 2024 and Edify Merger Sub, Inc. that, subject to various conditions, included a commitment from a lender for a senior secured financing facility in the maximum aggregate principal amount of $35.0 million. In this regard, on March 10,May 31, 2023, the Company entered into a financing agreement and related fee letter as borrower with certain of its subsidiaries party thereto as guarantors, the lenders party thereto, CB Agent Services LLC, as origination agent, and Alter Domus (US) LLC, as collateral agent and administrative agent, that provides for an initial senior secured term loan in a principal amount of $4,210,526.32 and a delayed draw term loan facility in an aggregate principal amount of up to $14,789,473.68. This debt will be classified as a noncurrent liability, which will have a positive effect on the working capital.respectively. The Company intends to use some of the proceeds of these term loans to pay off approximately $9.0 million of the promissory notes and, after the closing of the business combination transaction with Edify Acquisition Corp. and to pay any deferred expenses relating to that transaction.
In addition, the Company maintains its operating line of credit with TBK Bank, SSB, under whichand on July 20, 2023 the Company entered into an agreement with TBK Bank will, from time to time, buy approved receivables fromrenew the Company, which hasTBK line of credit with a credit limit of up to $47.5 million (the “TBK Facility”).$25.0 million. The Company has experienced negative operating cash flows during the nine months ended February 29, 2024 due to adverse market conditions. The Company relied heavily on its cash collections, cash reserves, dividends received from the ULHK Entities, new loans, and the use of its operating line of credit. The funds available under the current TBK Facility matures on May 31, 2023, and we expect that TBK Bank will renew the TBK Facility priorline of credit are sufficient to its expiration, which will provide the Company with the cash required to support its ongoing operations in addition to the cash flows generated by operating activities.until market conditions improve.
While we continuethe Company continues to execute ourits strategic plan growing the Company and grow its customer base, management is focused on managing cash and monitoring our liquidity position. We have implemented several initiatives to conserve our liquidity position, including activities such as increasing credit facilities, when needed, reducing the cost of debt by obtaining more favorable financing, controlling general and administrative expenditures and improving our collection processes. Many of the aspects of the liquidity plan involve management’s judgments and estimates that include factors that could be beyond our control and actual results could differ from our estimates. These and other factors could cause the strategic plan to be unsuccessful, which could have a material adverse effect on our operating results, financial condition, and liquidity. Negative operating capital may be an indicator that there could be a going concern issue, but basedBased on our evaluation of the Company’s projected cash flows and business performance as of and subsequent to February 28, 2023,29, 2024, management has concluded that the Company’s current cash and cash availability under the TBK Facility as of February 28, 2023, would be sufficient to fund its planned operations for at least one year from the date the consolidated financial statements were issued.
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Cash generated and used by the Company during the nine months ended February 29, 2024 and for the nine months ended February 28, 2024 was as follows:
For the Nine Months Ended, February 28, 2023 | For the Nine Months Ended, February 28, 2022 | Change | ||||||||||
Net cash provided by (used in) by operating activities | $ | 33,032,762 | $ | (42,029,741 | ) | $ | 75,062,503 | |||||
Net cash provided by (used in) investing activities | 8,733,409 | (54,474 | ) | 8,787,883 | ||||||||
Net cash provided by (used in) financing activities | (28,785,898 | ) | 42,827,199 | (71,613,097 | ) | |||||||
Net increase in cash and cash equivalents | $ | 12,980,273 | $ | 742,984 | $ | 12,237,289 |
For the Nine Months ended February 29, 2024 | For the Nine Months ended February 28, 2023 | Change | ||||||||||
Net cash (used in) provided by operating activities | $ | (7,767,163 | ) | $ | 33,032,762 | $ | (40,799,925 | ) | ||||
Net cash used in investing activities | (513,907 | ) | 8,733,409 | (9,247,316 | ) | |||||||
Net cash provided (used in) by financing activities | 8,501,781 | (28,785,898 | ) | 37,287,679 | ||||||||
Effect of exchange rate changes on cash | (221,805 | ) | - | (221,805 | ) | |||||||
Net (decrease) in cash and cash equivalent | $ | (1,094 | ) | $ | 12,980,273 | $ | (12,981,367 | ) |
Operating activities used cash of $7.8 million during the nine months ended February 29, 2024 compared to net cash provided cashby operations of $33.0 million for the nine months ended February 28, 2023 compared to net cash used in operations of $42.0 million for the nine months ended February 28, 2022.2023. The primary reason for the cash provided during the 2023 period was the $66.0 million collection on accounts receivable and contact assets, offset by a $43.1 million reduction in accounts payable and accrued freight. It should be noted thatused during the nine months ended February 28, 2022, the Company repurchased approximately $30.029, 2024 was our $11.0 million of previously factored accounts receivable. This repurchase created a negative impact on the operatingnet loss adjusted for non-cash items. The primary reason for cash flow that was fully offset by a positive cash flow impact from the investing activities as the Company borrowed cash to repurchase these receivables.
Investing activities provided cash of $8.7 million for the nine months ended February 28, 2023, comparedwas collections on accounts receivables offset by a reduction in accounts payable and accrued freight.
Investing activities used cash of $0.5 million to cash used of $0.05 million forpurchase equipment during the nine months ended February 28, 2022. During29, 2024 compared to net cash generated of $8.7 million during the nine months ended February 28, 2023, mostly due to February 21, 2023 acquisitions of operating subsidiaries from ULHK with approximately $13.3 million of cash on hand at the time of the acquisition.
Financing activities provided cash of $8.5 million during the nine months ended February 29, 2024, primarily as a result of borrowing on the TBK line of credit and February 28, 2022, investing activities consisted ofnet borrowing on the term debt to partially repay seller notes assumed during the acquisition of subsidiaries and equity method investments, net of cash paid and acquired as discussed in Note 2 to the condensed consolidated financial statements for the period endedULHK Entities on February 28,21, 2023.
Financing Cash used by financing activities used cash of $28.8 million forduring the nine months ended February 28, 20232023was primarily as a result of repayment of $28.3 million on the TBK Facility. Financing activities provided cash in the amountline of $42.8 million for the nine months ended February 28, 2022, primarily because of borrowing on the TBK Facility during the year when the cost of freight increased significantly in the post Covid period of unprecedented demand and the record high prices.credit.
Critical Accounting PoliciesEstimates
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.
Intangible assets consist of customer relationships, trade names and trademarks and non-compete agreements arising from our acquisitions. Customer relationships are amortized on a straight-line basis over 12 to 15 years. Tradenames, trademarks and non-compete agreements, are amortized on a straight-line basis over 3 to 10 years.
We review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
The Company has identified derivative instruments arising from an antidilution provision in the Company’s preferred stock. Each reporting period, the embedded derivative liability is adjusted to reflect fair value at each period end with changes in fair value recorded in the “change in fair value of embedded derivative liability” financial statement line item of the Company’s condensed consolidated statements of operations.
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Our significant accounting policies are summarized in Note 1 of our condensed consolidated financial statements.
Adjusted EBITDA
We define adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, factoring fees,transaction gains and losses, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment charges and certain other non-recurring 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.performance and represents income that is within management’s control. We use adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes that it provides additional information with respect to the performance of itsour fundamental business activities. For this reason, we believe that adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric.
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 thesethis non-GAAP measuresfinancial measure to be considered in isolation or as a substitute for results prepared in accordance with GAAP. TheseThis non-GAAP measuresfinancial measure 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:EBITDA for the three and nine months ended February 29, 2024 and February 28, 2023:
For the Three Months Ended February 28, 2023 | For the Three Months Ended February 28, 2022 | |||||||
Net income (loss) | $ | 663,173 | $ | (4,930,586 | ) | |||
Add Back: | ||||||||
Income tax | (814,080 | ) | 228,207 | |||||
Depreciation and amortization | 203,390 | 196,347 | ||||||
(Gain) loss on extinguishment of convertible notes | - | 1,344,087 | ||||||
Interest expense (including accretion of debt discount) | 546,791 | 1,395,396 | ||||||
Change in fair value of derivative liabilities | (64,955 | ) | 4,275,986 | |||||
Adjusted EBITDA | $ | 534,319 | $ | 2,509,437 |
For the Three Months Ended February 29, 2024 | For the Three Months Ended February 28, 2023 | |||||||
Net (loss) income | $ | (5,847,860 | ) | $ | 663,173 | |||
Add Back: | ||||||||
Income tax expense (benefit) | (5,268,793 | ) | (814,080 | ) | ||||
Depreciation and amortization | 752,750 | 203,390 | ||||||
Foreign exchange transactions, net | 26,858 | - | ||||||
Change in fair value of derivative liability | (4,300,429 | ) | 546,791 | |||||
Uplist termination cost | 3,054,514 | - | ||||||
SPAC Merger termination cost | 10,415,816 | - | ||||||
Interest expense | 1,407,449 | (64,955 | ) | |||||
Adjusted EBITDA | $ | 240,305 | $ | 534,319 |
For the Nine Months Ended February 28, 2023 | For the Nine Months Ended February 28, 2022 | |||||||
Net income | $ | 7,256,211 | $ | 1,581,055 | ||||
Add Back: | ||||||||
Income tax | 849,967 | 2,765,207 | ||||||
Depreciation and amortization | 606,030 | 585,019 | ||||||
Gain on forgiveness of promissory notes | (358,236 | ) | ||||||
Loss on extinguishment of convertible notes | 564,037 | |||||||
Factoring fees | 27,000 | |||||||
Change in fair value of derivative liabilities | (809,611 | ) | 4,275,986 | |||||
Interest expense (including accretion of debt discount) | 2,876,776 | 5,343,391 | ||||||
Adjusted EBITDA | $ | 10,752,373 | $ | 14,783,459 |
For the Nine Months Ended February 29, 2024 | For the Nine Months Ended February 28, 2023 | |||||||
Net (loss) income | $ | (11,029,671 | ) | $ | 7,256,211 | |||
Add Back: | ||||||||
Income tax expense (benefit) | (5,787,424 | ) | 849,967 | |||||
Depreciation and amortization | 2,203,093 | 606,030 | ||||||
Foreign exchange transactions, net | (267,209 | ) | - | |||||
Change in fair value of derivative liability | (4,118,566 | ) | (809,611 | ) | ||||
Uplist termination cost | 3,054,514 | - | ||||||
SPAC Merger termination cost | 10,415,816 | - | ||||||
Interest expense | 3,823,822 | 2,876,776 | ||||||
Adjusted EBITDA | $ | (1,705,625 | ) | $ | 10,779,373 |
12 |
ItemITEM 3. Quantitative and Qualitative Disclosures about Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.item.
ItemITEM 4. Controls and ProceduresCONTROLS 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 disclosureWe maintain “disclosure controls and procedures,” as of February 28, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management has determined there are control deficiencies as it relates to financial statement closing process due to limited formal documentation around disclosure 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 concludedAct, 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 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 ourreports that we file or submit under the 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. In designing and evaluating our disclosure controls and procedures, the Company recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
As of February 29, 2024, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded, based upon the evaluation described above, that as of February 29, 2024, our disclosure controls and procedures were not effective and require remediation in order to be effective at the reasonable assurance level.
In addition, our auditors identified material weaknesses in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the audit of the fiscal year ended May 31, 2023. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to the fact that we did not design and maintain an effective control environment commensurate with our financial reporting requirements, including (a) lack of a sufficient number of trained professionals with an appropriate level of accounting knowledge, training and experience and (b) we have not completed a full risk assessment of our internal control over financial reporting at the activity level, including process documentation and testing. In the course of preparing the financial statements for the year ended May 31, 2023, we identified separate material weaknesses in internal control over financial reporting, which relates to the ineffective design and implementation of information technology general controls (“ITGC”) combined with the lack of properly designed management review controls to compensate for these deficiencies. The Company’s ITGC deficiencies included improperly designed controls pertaining to user access rights and segregation of duties over systems that are critical to the Company’s system of financial reporting. Management’s general assessment of the above processes in light of the company’s size, maturity and complexity, as to the design and effectiveness of the internal control over financial reporting, is that the key controls and procedures in each of these processes provide reasonable assurance regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
13 |
Changes in Internal Control Overover Financial Reporting
During the nine monthsquarter ended February 28, 2023, we29, 2024, the Company actively addressed and remediatedcommenced to remediate a number of previously identified material weaknesses in its internal controlscontrol over financial reporting we significantlythat has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. We improved our accounting processes and documentation, introduced new accounting policies and procedures, upgradedand provided training to our accounting personnelpersonnel. The Company has not completed a full risk assessment of its internal control over financial reporting at the activity level, including process documentation and provided our employees with necessary toolstesting and resources, but because we have not completed a full risk assessment of the internal controlscontrol over financial reporting at the activity level, including extensive process documentation and testing, we are not able to conclude that our internal controlscontrol over financial reporting areis operating effectively and efficiently at this time. The Company anticipatesCompany’s principal executive officer, principal financial officer, and board of directors are fully remediating its material weaknessescommitted to achieving full compliance by the end of its MayAugust 31, 2024 fiscal year end.2024.
PART II -– OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currentlyThe Company is not involved in any disputes and does not have any litigation matters pending that we believeit believes could have a material adverse effect on ourits financial condition or results of operations, except as set forth below.operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company’s executive officers of our company or any of ourits subsidiaries, threatened against or affecting our company, ourthe Company, its common stock, any of ourits subsidiaries or of our companiesthe Company’s or ourthe Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
From time to time, however, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of our business. Litigation is subject to inherent uncertainties, and an adverse result in any such matters may arise from time to time that may harm our business.
ITEM 1A. RISK FACTORS
Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our most recent Annual Report on Form 10-K and in our other filings with the SEC, the occurrence of any one of which could have a material adverse effect on our actual results. There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K and our other filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER REPURCHAES OF EQUITY SECURITIES.
There were no unregistered sales of the Company’s equity securities during the quarter ended February 28, 2023.29, 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
On April 19, 2023, the Company filed with the Secretary of State of the State of Nevada certificates of amendments to the Certificates of Designations, Preferences and Rights of each of its Series A, C and D Convertible Preferred Stock (collectively, the “Certificates of Designations”), amending (i) Section IV(b)(iii) of the Certificate of Designations, Preferences and Rights of its Series A Convertible Preferred Stock, (ii) Section 7(a)(ii) of the Certificate of Designations, Preferences and Rights of its Series C Convertible Preferred Stock, and (iii) Section 7(a)(ii) of the Certificate of Designations, Preferences and Rights of its Series D Convertible Preferred Stock (collectively, the “the “Certificates of Amendments”), extending the Anti-dilution Termination Date (as defined in the Certificates of Amendments) to the earlier of (i) December 31, 2023 or (ii) a Qualified Financing (as defined in the Certificates of Designations).None.
ITEM 6. EXHIBITS
** In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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) | ||
May 2, 2024 | ||
By: | /s/ Eli Kay | |
Eli Kay | ||
Chief Financial Officer (Principal Financial Officer) | ||
May 2, 2024 |