| 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”) and (collectively
the “UL US Entities”). The Company provides a range of international logistics services that enable its customers to outsource
sections of their supply chain process. This range of services can be categorized as follows:
● Air Freight
● Ocean Freight
● Customs Brokerage and Compliance
● Warehousing and Distribution
● Order Management Liquidity The
accompanying condensed consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s
ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that
the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are
issued. As
of August 31, 2022, the Company reported working capital of approximately $ 6.5 4.2 5.1 0.3 Since
its inception, the Company has experienced significant business growth. To fund such growth, operating capital was initially
provided by third party investors through the sale of Convertible Notes which were subsequently exchanged into convertible securities. Preferred
shares are more beneficial to the Company because they do not require cash repayments. Due to the antidilution provision imbedded in the
certain of the convertible securities, these provisions resulted in an embedded derivative and the Company recorded a long-term liability.
As of the quarter ended August 31, 2022, and the year ended May 31, 2022, this liability was $ 11.8 12.4 While
we continue to execute our strategic plan, management is focused on managing cash and monitoring our liquidity position. We have
implemented a number of initiatives to conserve our liquidity position including activities such as increasing credit facilities,
when needed, reducing cost of debt, controlling general and administrative expenditures and improving collection processes.
Many of the aspects of the plan involve management’s judgments and estimates that include factors that could be beyond our
control and actual results could differ from our estimates. These and other factors could cause the strategic plan to be
unsuccessful which could have a material adverse effect on our operating results, financial condition, and liquidity. Use of
operating cash is an indicator that there could be a going concern issue, but based on our evaluation of the Company’s
projected cash flows and business performance as of and subsequent to the balance sheet date, management has concluded that the
Company’s current cash and cash availability under the TBK Facility as of August 31, 2022, would be sufficient to fund its planned operations for at least one year from the date these consolidated financial statements are issued. COVID-19 Covid-19
remains a threat and certain countries, such as China, are still subject to restrictions related to Covid-19. While the threat level
has declined to a significant extent in the USA and globally, any resurgence could have a material adverse effect on our business operations,
results of operations, cash flows and financial position. Basis
of Presentation The
condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation. The
unaudited interim financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which
in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for
the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes
thereto included in the Company’s Form 10-K for the year ended May 31, 2022. The Company assumes that the users of the interim
financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the
adequacy of additional disclosure needed for a fair presentation may be determined in that context. The condensed consolidated balance
sheet on May 31, 2022 was derived from audited financial statements but does not include all disclosures required by accounting principles
generally accepted in the United States of America. Principles
of Consolidation The
consolidated financial statements of the Company include the accounts of the Company and its majority owned subsidiaries stated in U.S.
dollars, the Company’s functional currency. All intercompany transactions and balances have been eliminated in the consolidated
financial statements. Use
of Estimates The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Significant
estimates inherent in the preparation of the consolidated financial statements include determinations of the useful lives and expected
future cash flows of long-lived assets, including intangibles, valuation of assets and liabilities acquired in business combinations,
and estimates and assumptions in valuation of debt and equity instruments, including derivative liabilities. In addition, the Company
makes significant judgments to recognize revenue – see policy note “ Revenue Recognition 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 August 31, 2022 and May 31, 2022. The carrying amount of the long-term
debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms
available to the Company. Lease liabilities approximate fair value based on the incremental borrowing rate used to discount future cash
flows. The Company had Level 3 liabilities (See Derivative Liabilities note) as of August 31, 2022. On August 31, 2021, Level 3 derivative
liability balances were insignificant. There were no transfers between levels during the reporting period. Accounts
Receivable Accounts
receivable from revenue transactions are based on invoiced prices which the Company expects to collect. In the normal course
of business, the Company extends credit to customers that satisfy pre-defined credit criteria. The Company generally does not require
collateral to support customer receivables. Accounts receivable - trade, as shown on the consolidated balance sheets, is net of allowances
when applicable. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of
the consolidated financial statements, assessments of collectability based on an evaluation of historic and anticipated trends, the financial
condition of the Company’s customers, and an evaluation of the impact of economic conditions. The maximum accounting loss from
the credit risk associated with accounts receivable is the amount of the receivable recorded, net of allowance for doubtful accounts.
As of August 31, 2022 and May 31, 2022, the Company recorded an allowance for doubtful accounts of approximately $ 2.7 Concentrations Three
major customers represented approximately 23.0 %
of all accounts receivable as of August 31, 2022 and no single customer represented more than 10.0% of total accounts receivable. Revenue
from these three major customers as a percentage of the Company’s total revenue was 20.0 %
for the three months ended August 31, 2022, Three
major customers represented approximately 21.0% 32.0 15.0 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 August 31, 2022 and 2021, the Company factored accounts receivable invoices totaling approximately none 4.3 no 27,000 Factoring
Reserve When
an invoice is sold to Factor, the amount received from the Factor is credited to accounts receivable and a reserve is retained,
less a fee, by Factor which is debited to “factoring reserve” on the condensed consolidated balance sheets. As of August
31, 2022 and May 31, 2022, the Company did not record a factoring reserve. Factor
Recovery In
certain instances, the Company receives payment for a factored reserve directly from the customer. In these cases, until the funds are
paid to the factor, the Company records the payment as “factor recovery” which is in accrued expenses and other current liabilities
on the consolidated balance sheets. As of August 31, 2022 and May 31, 2022, the Company did not record a factor recovery. Recourse
Liability Company
policy is to do a collectability review of uncollected factored receivables in conjunction with the Factor at each reporting date and
assess the need to provide for risk of potential non-collection and resulting recourse. 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 and recorded derivative instruments arising from an anti-dilution provision in the Company’s Series A, C
and D Preferred Stock. An embedded derivative liability is representing the rights of holders of Convertible Preferred Stock Series A,
C and D to receive additional common stock of the Company upon issuance of any additional common stock by the Company prior to qualified
financing event as defined in the agreement. Each reporting period, the embedded derivative liability, if material, would be adjusted
to reflect fair value at each period end with changes in fair value recorded in the “Change in fair value of embedded derivative
liability” financial statement line item of the company’s statements of operations. During the three months ended August
31, 2022, the Company recorded a change in fair value of $ 618,948 SCHEDULE OF DERIVATIVE LIABILITIES
Level 1 Level 2 Level 3
Derivative liabilities as June 1, 2022 $ - $ - $ 12,437,994
Addition - - -
Change in fair value - - 618,948
Derivative liabilities as August 31, 2022 $ - $ - $ 11,819,046 The
underlying value of the anti-dilution provision is calculated from estimating the probability and value of the provision assuming
a near term financing event. For the period ended May 31, 2022, the model used estimates the potential that the company completes a capital
raise prior to the expiration of the anti-dilution feature and determines the value of the anti-dilution feature given these assumptions.
The model required the use of certain assumptions. These assumptions include probability a raise is completed, probability certain anti-dilution
features are extended, estimated raise amount, term to a raise, and an appropriate risk-free interest rate. For the period ended August
31, 2022, due to changes in the way antidilutive shares of Convertible Preferred Series A, C and D would be exchanged in the near future
for common stock, and the fact that the antidilution provision of these shares was extended through March 31, 2023, the assumptions were
changed to include probability of the financing event, estimated value of common stock at the exchange point and estimated time to financing
event. The
key inputs into the model were as follows: SCHEDULE OF FAIR VALUE ASSUMPTION
August
31, 2022 May
31, 2022
Risk-free interest
rate 3.3 %
1.6 %
Probability
of financing event or capital raise 90.0 %
53.9 %
Estimated capital raise - $ 39.0
million
Estimated value of common stock $ 10.0
per share -
Estimated time to financing
event 0.5 0.5 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 consolidated balance sheets and contract costs incurred prior
to revenue recognition are recorded as contract assets on the consolidated balance sheets. Contract
Assets Contract
assets represent amounts for which the Company has the right to consideration for the services provided while a shipment is still in-transit
but for which it has not yet completed the performance obligation and has not yet invoiced the customer. Upon completion of the performance
obligations, which can vary in duration based upon the method of transport and billing the customer, these amounts become classified
within accounts receivable. Contract
Liabilities Contract
liabilities represent the amount of obligation to transfer goods or services to a customer for which consideration has been received. Significant
Changes in Contract Asset and Contract Liability Balances for the three months ended August 31, 2022: SCHEDULE OF CHANGES IN CONTRACT ASSET AND CONTRACT LIABILITY
Contract Assets Increase (Decrease) Contract Liabilities (Increase) Decrease
Reclassification
of the beginning contract liabilities to revenue, as the result of performance obligation satisfied $ - $ 468,209
Cash
Received in advance and not recognized as revenue - -
Reclassification
of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional (24,048,346 ) -
Contract
assets recognized 21,257,202 -
Net Change $ (2,791,145 ) $ 468,209 There
were no changes in contract assets or liabilities as of August 31, 2021. Disaggregation
of Revenue from Contracts with Customers The
following table disaggregates gross revenue from our clients (all US based) by significant geographic area for the three months ended
August 31, 2022 and 2021, based on origin of shipment (imports) or destination of shipment (exports): SCHEDULE OF DISAGGREGATION OF REVENUE
For the three months Ended August 31, 2022 For the three months Ended August 31, 2021
China, Hong Kong & Taiwan $ 64,058,155 $ 78,105,308
Southeast Asia 41,981,433 75,376,620
United States 10,399,422 7,191,202
India Sub-continent 18,796,708 20,648,314
Other 1,273,154 8,450,415
Total revenue $ 136,508,872 $ 189,771,860 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. 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
August 31, 2022 August 31, 2021
For the three months Ended
August 31, 2022 August 31, 2021
Numerator:
Net income available for common shareholders $ 3,321,341 2,023,416
Effect of dilutive securities: - 385,480
Diluted net income available for common shareholders $ 3,321,341 $ 2,408,896
Denominator:
Weighted average common shares outstanding – basic 744,224,695 1,611,146,398
Dilutive securities:
Series A Preferred 1,233,209,295 1,316,157,000
Series B Preferred 5,373,342,576 5,373,342,576
Convertible notes - 1,806,230,539
Series C Preferred 1,206,351,359 -
Series D Preferred 1,130,954,399 -
Weighted average common shares outstanding and assumed conversion – diluted 9,688,082,324 10,106,876,513
Basic net income available for common shareholders per common share $ 0.00 $ 0.00
Diluted net income available for common shareholders per common share $ 0.00 $ 0.00 Leases The Company recognizes a right of use (“ROU”)
asset and liability in the consolidated balance sheet primarily related to its operating leases of office space, warehouse space and equipment.
Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent
the Company’s obligation to make lease payments arising from the lease. All ROU assets and lease liabilities are recognized at the
commencement date at the present value of lease payments over the lease term. ROU assets are adjusted for lease incentives and initial
direct costs. The lease term includes renewal options exercisable at the Company’s sole discretion when the Company is reasonably
certain to exercise that option. As the Company’s leases generally do not have an implicit rate, the Company uses an estimated incremental
borrowing rate based on borrowing rates available to them at the commencement date to determine the present value. Certain of our leases
include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. The Company excludes
variable payments from ROU assets and lease liabilities to the extent not considered fixed, and instead expenses variable payments as
incurred. Lease expense is recognized on a straight-line basis over the lease term and is included in rent and occupancy expenses in the
consolidated statements of operations. Recently
Issued Accounting Pronouncements In
August 2020, the FASB issued ASU 2020-06, Debt — “Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity” |
