| NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature
of Business Unique
Logistics International, Inc. (the “Company” or “Unique”) is a global logistics and freight forwarding company.
The Company currently operates via its wholly owned subsidiaries, Unique Logistics International (NYC), LLC, a Delaware limited liability
company (“UL NYC”), and Unique Logistics International (BOS) Inc, a Massachusetts corporation (“UL BOS”), (collectively
the “UL US Entities”). The Company provides a range of international logistics services that enable its customers to outsource
sections of their supply chain process. This range of services can be categorized as follows:
● Air Freight services
● Ocean Freight services
● Customs Brokerage and Compliance
services
● Warehousing and Distribution
services
● Order Management Liquidity The
accompanying condensed consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s
ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that
the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are
issued. The
Company experienced adverse cash flows from operations, primarily due to significant business growth since inception, entering new markets
and products and repayment of an acquisition related debt. As of February 28, 2022, the Company reported negative working capital
of approximately $ 8.1 million
compared with $ 3.5 million
negative working capital as of May 31, 2021 Increase in negative reported working capital period over period was primarily due to
recording $ 12.7 4.2 In
response to such factors, the Company took steps to alleviate the risk of substantial doubt by
● Repayment
most of its acquisition related debt.
● Entering
into a Fourth Amendment to the TBK Loan Agreement to increase its credit facility from $ 47.5.0
million to $ 57.5
million until October 2022 (Subsequent
Event Note 11)
● Recapitalizing
its balance sheet by entering into an Exchange
Agreement on December 10, 2021 to exchange all of its Convertible debt into shares of Convertible Preferred Shares Series C and D
(Financial Arrangements Note 5) The Company
is in process of potentially raising capital through a planned underwritten offering of its securities. As of February 28, 2022 we expect to alleviate
our going concern needs for at least the next twelve months from the time these financial statements are made available with existing
cash and cash equivalents and cash flows from operations. The Company expects to meet its long-term liquidity needs with cash flows from
operations and financing arrangements. Covid-19 In
January 2020, the World Health Organization has declared the outbreak of a novel coronavirus (COVID-19) as a “Public Health Emergency
of International Concern,” which continues to have an impact throughout the world and has adversely impacted global commercial
activity and contributed to significant declines and volatility in financial markets. The coronavirus outbreak and government responses
are creating disruption in global supply chains and adversely impacting many industries. The
outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown.
The extent of the impact of COVID-19 on our operational and financial performance will depend on the effect on our shippers and carriers,
all of which are uncertain and cannot be predicted. The rapid development and fluidity of this situation precludes any prediction as
to the ultimate material adverse impact of the coronavirus outbreak. Nevertheless, the outbreak presents uncertainty and risk with respect
to the Company, its performance, and its financial results. The Company has experienced increased air and ocean freight rates due to
overall cargo restraints imposed by shippers and carriers and is in a position to pass these cost increases directly to the customers
without significantly affecting its margins. Due
to impacts from the COVID-19 pandemic and the uncertain pace of recovery, seasonal variations in the availability of air and ocean carriers,
the volatility of fuel prices and other supply and demand related factors, operating results for the three and six months ended February
28, 2022 are not necessarily indicative of operating results for the entire year. While
we continue to execute our strategic plan, the Company is also in a process of evaluating several other liquidity-oriented options such
as raising additional capital, increasing credit limits of the revolving credit facilities, reducing cost of debt, controlling expenditures,
and improving its cash collection processes. While many of the aspects of the Company’s 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. Basis
of Presentation The
condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation. The
unaudited interim financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which
in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for
the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes
thereto included in the Company’s Form 10-K for the year ended May 31, 2021. 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 at May 31, 2021 was derived from audited financial statements but does not include all disclosures required by accounting principles
generally accepted in the United States of America. 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 condensed
consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ
from those estimates. Significant
estimates inherent in the preparation of the 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. In addition, the Company makes significant judgments
to recognize revenue – see policy note “ Revenue Recognition Fair
Value Measurement The
Company follows the authoritative guidance that establishes a formal framework for measuring fair values of assets and liabilities in
the condensed 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, imbedded derivative liabilities,
convertible notes, promissory notes, all approximate fair value due to their short-term nature as of February 28, 2022 and May
31, 2021. 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, 2022. On May 31, 2021 Level 3 derivative liability balances were insignificant. There were no transfers between
levels during the reporting period. Cash
and Cash Equivalents The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. No loss has been experienced,
and management believes it is not exposed to any significant risk on credit. Accounts
Receivable – Trade Accounts
receivable - trade 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 - trade, as shown on the condensed 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 condensed consolidated financial statements, assessments of collectability based on an evaluation of historic and
anticipated trends, the financial condition of the Company’s customers, and an evaluation of the impact of economic conditions.
The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded, net of
allowance for doubtful accounts. As of February 28, 2022 and May 31, 2021, the Company recorded an allowance for doubtful accounts of
approximately $ 1,010,500 240,000 Concentration One
major customer represented approximately
42 %
of all accounts receivable as of February 28, 2022. Revenue by this customer as a percentage of the Company’s total revenue
were 39 38 19 29 Off
Balance Sheet Arrangements On
August 30, 2021, the Company terminated its agreement with an unrelated third party (the “Factor”) for factoring of specific
accounts receivable. The factoring under this agreement was treated as a sale in accordance with FASB ASC 860, Transfers and Servicing 31.7 31.6 1.4 During
the factoring agreement in place, the Company acted as the agent on behalf of the Factor for the arrangements and had no significant
retained interests or servicing liabilities related to the accounts receivable sold. The agreement provided the Factor with security
interests in purchased accounts until the accounts have been repurchased by the Company or paid by the customer. In order to mitigate
credit risk related to the Company’s factoring of accounts receivable, the Company may purchase credit insurance, from time to
time, for certain factored accounts receivable, resulting in risk of loss being limited to the factored accounts receivable not covered
by credit insurance, which the Company does not believe to be significant. During
the three months ended February 28, 2022 and 2021, the Company factored accounts receivable invoices totaling approximately none and
$ 64.7 4.3 176.2 1.3 none 27,000 3.2 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 newly created Convertible Preferred Stock Series C and D. For additional information on the exchange agreement see Note 5, Financing Arrangements. Similar
to the existing Convertible Preferred Stock Series A, these preferred stocks featured anti-dilution provision that expire on a certain
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 derivative instruments arising from an anti-dilution provision in the Company’s Series A, Series C, and
Series D Preferred Stock during the three and nine months ended February 28, 2022. The Company had $ 12,693,282 An
embedded derivative liability representing the right of holders of Convertible Preferred Stock Series 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. There was
no change in fair value during the three months ended February 28, 2022. The
underlying value of the anti-dilution provision is calculated from estimating the probability and value of a potential raise. 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 requires the use of certain assumptions.
These assumptions include probability a raise is completed, probability certain anti-dilution features are extended, estimated raise
amount, term to a raise, and an appropriate risk-free interest rate. SCHEDULE
OF DERIVATIVE LIABILITIES
Level
1 Level
2 Level
3
Derivative
liabilities as November 30, 2021 - - -
Addition - - 8,417,296
Changes
in fair value - - 4,275,986
Derivative
liabilities as February 28, 2022 $ - $ - $ 12,693,282
Derivative
liabilities $ - $ - $ 12,693,282 Income
Taxes The
Company files a consolidated income tax return for federal and most state purposes. Management
has determined that there are no uncertain tax positions that would require recognition in the consolidated financial statements. If
the Company were to incur an income tax liability in the future, interest and penalties on any income tax liability would be reported
as interest expense. Management’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later
date based on ongoing analysis of tax laws, regulations, and interpretations thereof as well as other factors. The
Company uses the assets and liability method of accounting for deferred income taxes. Deferred income tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the balance sheet carrying amounts of existing
assets and liabilities and their respective tax basis. As of February 28, 2022 and May 31, 2021, the Company recognized a deferred tax
asset of $ 165,000 264,000 Revenue
Recognition The
Company adopted ASC 606, Revenue from Contracts with Customers To
determine revenue recognition, the Company applies the following five steps:
1. Identify the contract(s)
with a customer;
2. Identify the performance
obligations in the contract;
3. Determine the transaction
price;
4. Allocate the transaction
price to the performance obligations in the contract; and
5. Recognize revenue as or
when the performance obligation is satisfied. Revenue
is recognized as follows:
i. Freight income - export
sales
Freight income from the
provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit time basis thru
the sail or departure from origin port. The Company is the principal in these transactions and recognizes revenue on a gross basis.
ii. Freight income - import
sales
Freight income from the
provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit time basis thru
the delivery to the customer’s designated location. The Company is the principal in these transactions and recognizes revenue
on a gross basis.
iii. Customs brokerage and other
service income
Customs brokerage and other
service income from the provision of other services are recognized at the point in time the performance obligation is met. The
Company’s business practices require, for accurate and meaningful disclosure, that it recognizes revenue over time. The “over
time” policy is the period from point of origin to arrival of the shipment at US Port of entry (or in the case when the customer
requires delivery to a designated point, the arrival at that delivery point). This over time policy requires the Company to make significant
judgements to recognize revenue over the estimated duration of time from port of origin to arrival at port of entry. The point in the
process when the Company meets its obligation in the port of entry and the subsequent transfer of the goods to the customer is when the
customer has the obligation to pay, has taken physical possession, has legal title, risk and awards (ownership) and has accepted the
goods. The Company has elected to not disclose the aggregate amount of the transaction price allocated to performance obligations that
are unsatisfied as of the end of the period as the Company’s contracts with its customers have an expected duration of one year
or less. The
Company uses independent contractors and third-party carriers in the performance of its transportation services. The Company evaluates
who controls the transportation services to determine whether its performance obligation is to transfer services to the customer or to
arrange for services to be provided by another party. The Company determined it acts as the principal for its transportation services
performance obligation since it is in control of establishing the prices for the specified services, managing all aspects of the shipments
process and assuming the risk of loss for delivery and collection. Revenue
billed prior to realization is recorded as contract liabilities on the condensed consolidated balance sheets and contract costs incurred
prior to revenue recognition are recorded as contract assets on the condensed consolidated balance sheets. Contract
Assets Contract
assets represent amounts for which the Company has the right to consideration for the services provided while a shipment is still in-transit
but for which it has not yet completed the performance obligation and has not yet invoiced the customer. Upon completion of the performance
obligations, which can vary in duration based upon the method of transport and billing the customer, these amounts become classified
within accounts receivable - trade. 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, 2022: SCHEDULE OF CHANGES IN CONTRACT ASSET AND CONTRACT LIABILITY
Contract Assets Increase Contract (Increase)
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligation satisfied $ - $ -
Cash Received in advance and not recognized as revenue - (10,403,335 )
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional (32,052,573 ) -
Contract assets recognized, net reclassification to receivables 44,759,230 -
Net Change $ 12,706,657 $ (10,403,335 ) Disaggregation
of Revenue from Contracts with Customers The
following table disaggregates gross revenue by significant geographic area for the three and nine months ended February 28, 2022 and
2021 based on origin of shipment (imports) or destination of shipment (exports): SCHEDULE OF DISAGGREGATION OF REVENUE
For the Three Months Ended February 28, 2022 For the Three Months Ended February 28, 2021
China, Hong Kong & Taiwan $ 82,006,657 $ 48,767,302
Southeast Asia 121,340,162 23,395,258
United States 5,049,985 5,947,013
India Sub-continent 34,943,595 5,645,861
Other 7,095,496 7,206,980
Total revenue $ 250,435,895 $ 90,962,414
For the Nine Months Ended February 28, 2022 For the Nine Months Ended February 28, 2021
China, Hong Kong & Taiwan $ 285,424,103 $ 143,818,543
Southeast Asia 361,600,180 73,073,258
United States 28,254,253 26,170,665
India Sub-continent 134,393,170 16,032,190
Other 35,966,738 13,922,445
Total revenue $ 845,638,444 $ 273,017,101 Segment
Reporting Based
on the guidance provided by ASC Topic 280, Segment Reporting Earnings
per Share The
Company adopted ASC 260, Earnings per share, The
following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income attributable
to common stockholders per common share. SCHEDULE OF EARNING PER SHARE
February 28, 2022 February 28, 2021
For the Three Months Ended
February 28, 2022 February 28, 2021
Numerator:
Net (loss) income available to common stockholders $ (9,496,311 ) 1,264,998
Effect of dilutive securities: - 431,163
Diluted net (loss) income $ (9,496,311 ) $ 1,696,161
Denominator:
Weighted average common shares outstanding – basic 655,781,078 357,891,040
Dilutive securities (a):
Series A Preferred - 1,177,041,100
Series B Preferred - 5,499,034,800
Convertible notes - 1,809,848,927
Warrants - 1,132,733,563
Series C Preferred - -
Series D Preferred - -
Weighted average common shares outstanding and assumed conversion – diluted 655,781,078 9,976,549,430
Basic net (loss) income per common share $ (0.01 ) $ 0.00
Diluted net (loss) income per common share $ (0.01 ) $ 0.00
February 28, 2022 February 28, 2021
For the Nine Months Ended
February 28, 2022 February 28, 2021
Numerator:
Net income available to common stockholders $ (2,984,670 ) 2,088,044
Effect of dilutive securities: - 606,519
Diluted net income $ (2,984,670 ) $ 2,694,963
Denominator:
Weighted average common shares outstanding – basic 582,680,746 230,663,175
Dilutive securities (a):
Series A Preferred - 1,177,041,100
Series B Preferred - 5,499,034,800
Convertible notes 1,809,848,927
Warrants 1,132,733,563
Series C Preferred - -
Series D Preferred - -
Weighted average common shares outstanding and assumed conversion – diluted 582,680,746 9,849,321,565
Basic net income per common share $ (0.01 ) $ 0.01
Diluted net income per common share $ (0.01 ) $ 0.00 |
