UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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Indicate
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UNIQUE LOGISTICS INTERNATIONAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 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 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Contract assets | ||||||||
| Other current assets and prepaids | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other noncurrent assets: | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Equity-method investments | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Deferred tax asset, net | ||||||||
| Deferred offering cost | ||||||||
| Other noncurrent assets | ||||||||
| Total other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and current liabilities | ||||||||
| Accrued freight | ||||||||
| Revolving credit facility | ||||||||
| Current portion of notes payable | ||||||||
| Current portion of notes payable to related parties | ||||||||
| Current portion of operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities | ||||||||
| Notes payable | ||||||||
| Notes payable to related parties, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Derivative liabilities | ||||||||
| Deferred tax liability, net | ||||||||
| Other noncurrent liabilities | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 6) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value: shares authorized | ||||||||
| Series A Convertible Preferred stock, $ par value; issued and outstanding
as of February 29, 2024 and May 31, 2023, respectively. Liquidation preference $ | ||||||||
| Series B Convertible Preferred stock, $ par value; issued and outstanding
as of February 29, 2024 and May 31, 2023, respectively. Liquidation preference of $ | ||||||||
| Series C Convertible Preferred stock, $ par value; , issued and outstanding
as of February 29, 2024 and May 31, 2023, respectively. Liquidation preference $ | ||||||||
| Series D Convertible Preferred stock, $ par value; issued and outstanding
as of February 29, 2024 and May 31, 2023, respectively. Liquidation preference $ | ||||||||
| Common stock, $ par value; shares authorized; shares issued and outstanding as of February 29, 2024 and May 31, 2023, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ( | ) | ||||||
| Retained earnings | ||||||||
| Total Stockholders’ Equity attributable to common shareholder | ||||||||
| Equity attributable to noncontrolling interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
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 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 | $ | $ | $ | $ | ||||||||||||
| Ocean freight and ocean services | ||||||||||||||||
| Contract logistics | ||||||||||||||||
| Customs brokerage and other services | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Equity method earnings | ||||||||||||||||
| Costs and operating expenses: | ||||||||||||||||
| Airfreight services | ||||||||||||||||
| Ocean freight and ocean services | ||||||||||||||||
| Contract logistics | ||||||||||||||||
| Customs brokerage and other services | ||||||||||||||||
| Salaries and related costs | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Rent and occupancy | ||||||||||||||||
| Selling and promotion | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Foreign exchange transactions, net | ( | ) | ||||||||||||||
| Other | ||||||||||||||||
| Total costs and operating expenses | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||||||
| Other (expenses) income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative liabilities | ||||||||||||||||
| SPAC merger termination cost | ( | ) | ( | ) | ||||||||||||
| Uplist termination cost | ( | ) | ( | ) | ||||||||||||
| Total other (expenses) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (loss) income before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax (benefit) expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Net (loss) income | ( | ) | ( | ) | ||||||||||||
| Noncontrolling interest | ( | ) | ( | ) | ||||||||||||
| Net (loss) income attributable to for common shareholders | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net (loss) income available for common shareholders per common share | ||||||||||||||||
| – basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| – diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| – basic | ||||||||||||||||
| – diluted | ||||||||||||||||
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 | $ | ( | ) | $ | ||||
| Other comprehensive income (OCI), net of tax: | ||||||||
| Foreign currency translation adjustments | ||||||||
| OCI tax effect | ||||||||
| Total comprehensive (loss) income | ( | ) | ||||||
| Net loss attributable to noncontrolling interest | ||||||||
| Comprehensive (loss) income attributable to common shareholder | $ | ( | ) | $ | ||||
| For the Nine | For the Nine | |||||||
| Months Ended | Months Ended | |||||||
| February 28, 2023 | February 28, 2023 | |||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Other comprehensive income, net of tax: | ||||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| OCI tax effect | ||||||||
| Total comprehensive (loss) income | ( | ) | ||||||
| Net loss attributable to noncontrolling interest | ||||||||
| Comprehensive (loss) income attributable to common shareholder | $ | ( | ) | $ | ||||
| F-3 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
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 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, August 31, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, November 30, 2023 | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, February 29, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Three and Nine Months Ended February 28, 2023
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 | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, May 31 2022 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred A to Common Stock | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred D to Common Stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, August 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, November 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recognition of non-controlling interest upon acquisition | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, February 28, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
See notes accompanying condensed consolidated financial statements.
| F-4 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended February 29, 2024 | For the Nine Months Ended February 28, 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Bad debt recovery | ( | ) | ||||||
| Amortization of right of use assets | ||||||||
| Equity method earnings | ( | ) | ||||||
| Change in net deferred tax provision | ( | ) | ( | ) | ||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Accretion of consulting agreement | ( | ) | ||||||
| Uplist termination cost previously deferred | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Contract assets | ( | ) | ||||||
| Prepaid expenses and current assets | ( | ) | ||||||
| Other noncurrent assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Accrued freight | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net Cash (Used in) Provided by Operating Activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Dividends received from equity method investments | ||||||||
| Net Cash (Used in) Provided by Investing Activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Borrowings from notes payable | ( | ) | ||||||
| Repayments of debt due to related parties | ( | ) | ( | ) | ||||
| Borrowing (repayments) line of credit, net | ( | ) | ||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ) | ||||||
| Difference on the effect of exchange rate on cash and equivalents | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents - Beginning of period | ||||||||
| Cash and cash equivalents - End of period | $ | $ | ||||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
| SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Operating lease asset and liability additions | $ | $ | ||||||
| Non-cash consideration paid in business acquisition | $ | $ | ||||||
| F-5 |
UNIQUE LOGISTICS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 29, 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 services operating through a worldwide network of offices and exclusive or non-exclusive agents. The Company’s customers include retailers and wholesalers, electronics, high technology, industrial and manufacturing companies around the world. The Company provides a range of international logistics services that enable its customers to outsource sections of their supply chain process. This range of services can be categorized as follows:
| ● | Air Freight | |
| ● | Ocean Freight | |
| ● | Customs Brokerage and Compliance | |
| ● | Warehousing and Distribution | |
| ● | Order Management |
Basis of Presentation
These condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all accounts of the Company and its majority owned subsidiaries stated in U.S. dollars, the Company’s functional currency. For subsidiaries operating outside the U.S., the financial information will be accounted for on a one-month lag. Substantially all unremitted earnings of international subsidiaries are free of legal and contractual restrictions. All intercompany transactions and balances have been eliminated in the condensed consolidated financial statements.
The unaudited interim financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for the periods presented. The results reported in these interim condensed consolidated financial statements should not be regarded as necessary indicative of results that may be expected for an entire fiscal year. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended May 31, 2023. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The condensed consolidated balance sheet on May 31, 2023 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Liquidity
The accompanying condensed consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.
The Company’s working capital was $
While the Company continues to execute its strategic plan and grow its customer base, management is focused on managing cash and monitoring liquidity position. Many of the aspects of the liquidity plan involve management’s judgments and estimates that include factors that could be beyond our control and actual results could differ from our estimates. These and other factors could cause the strategic plan to be unsuccessful, which could have a material adverse effect on our operating results, financial condition, and liquidity. Based on our evaluation of the Company’s projected cash flows and business performance as of and subsequent to 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 were issued.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.
| F-6 |
Significant estimates inherent in the preparation of the condensed consolidated financial statements include determinations of the useful lives and expected future cash flows of long-lived assets, including intangibles, valuation of assets and liabilities acquired in business combinations, and estimates and assumptions in valuation of debt and equity instruments, including derivative liabilities. In addition, the Company makes significant judgments to recognize revenue – see policy note “Revenue Recognition” below.
Revenue Recognition
The Company adopted ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for services. The Company recognizes revenue upon meeting each performance obligation based on the allocated amount of the total consideration of the contract to each specific performance obligation.
To determine revenue recognition, the Company applies the following five steps:
| 1. | Identify the contract(s) with a customer; | |
| 2. | Identify the performance obligations in the contract; | |
| 3. | Determine the transaction price; | |
| 4. | Allocate the transaction price to the performance obligations in the contract; and | |
| 5. | Recognize revenue as or when the performance obligation is satisfied. |
Revenue is recognized as follows:
| i. | Freight income - export sales | |
| Freight income from the provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit time basis through the sail or departure from origin port. The Company is the principal in these transactions and recognizes revenue on a gross basis. | ||
| ii. | Freight income - import sales | |
| Freight income from the provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit time basis through the delivery to the customer’s designated location. The Company is the principal in these transactions and recognizes revenue on a gross basis. | ||
| iii. | Customs brokerage and other service income | |
| Customs brokerage and other service income from the provision of other services are recognized at the point in time the performance obligation is met. |
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 29, 2024:
| Contract Assets | Contract Liabilities | |||||||
| Increase | (Increase) | |||||||
| (Decrease) | Decrease | |||||||
| Reclassification of the beginning contract liabilities to revenue, as the result of performance obligation satisfied | $ | $ | ||||||
| Cash Received in advance and not recognized as revenue | ||||||||
| Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional | ( | ) | ||||||
| Contract assets recognized | ||||||||
| Net Change | $ | $ | ||||||
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates gross revenue from our clients by significant geographic area for the three and nine months ended February 29, 2024, and February 28, 2023, based on origin of shipment (imports) or destination of shipment (exports):
For the Three Months Ended February 29, 2024 | For the Three Months Ended February 28, 2023 | |||||||
| China, Hong Kong & Taiwan | $ | $ | ||||||
| Southeast Asia | ||||||||
| United States | ||||||||
| India Sub-continent | ||||||||
| Other | ||||||||
| Total revenue | $ | $ | ||||||
For the Nine Months Ended | For the Nine Months Ended | |||||||
| February 29, 2024 | February 28, 2023 | |||||||
| China, Hong Kong & Taiwan | $ | $ | ||||||
| Southeast Asia | ||||||||
| United States | ||||||||
| India Sub-continent | ||||||||
| Other | ||||||||
| Total revenue | $ | $ | ||||||
| F-8 |
Foreign Currency
For most of our international operations conducted by the subsidiaries operating outside the U.S, local currencies have been determined to be functional currencies. We translate functional currency assets and liabilities to their U.S. dollar equivalents at exchange rates in effect as of the balance sheet date and income and expense amounts at average exchange rates for the period. The U.S. dollar affects that arise from changing translation rates are recorded in Other comprehensive income/(loss).
Transaction gains or losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. We aggregate all transaction gains and losses and classify the net amount in a single caption in the income statement in operating income as foreign exchange transactions, net.
Fair Value Measurement
The Company follows the authoritative guidance that establishes a formal framework for measuring fair values of assets and liabilities in the consolidated financial statements that are already required by generally accepted accounting principles to be measured at fair value. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction in the principal or most advantageous market considered from the perspective of the market participant that holds the asset or owes the liability.
The Company utilizes market data or assumptions that market participants who are independent, knowledgeable, and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company is able to classify fair value balances based on the observability of those inputs. The guidance establishes a formal fair value hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority to Level 1 measurements and the lowest priority to level 3 measurements, and accordingly, Level 1 measurement should be used whenever possible.
The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities or published net asset value for alternative investments with characteristics similar to a mutual fund.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 – Unobservable inputs for the asset or liability.
| F-9 |
The methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while management believes its valuation methods are appropriate, the fair value of certain financial instruments could result in a difference fair value measurement at the reporting date. There were no changes in the Company’s valuation methodologies from the prior year.
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts for financial assets and liabilities such as cash and cash equivalents, accounts receivable - trade, contract assets, 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 $
Concentrations
As
of February 29, 2024, three major customers represented approximately
Revenue
from three customers in the aggregate as a percentage of the Company’s total revenue was approximately
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
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
| Equity method investment as of June 1, 2023 | $ | |||
| Net income | ||||
| Dividends paid | ( | ) | ||
| Equity method investment as of February 29, 2024 | $ |
Derivative Liability
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liability as of June 1, 2023 | $ | $ | $ | |||||||||
| Additions | ||||||||||||
| Change in fair value | ( | ) | ||||||||||
| Derivative liability as of February 29, 2024 | $ | $ | $ | |||||||||
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:
| February 29, 2024 | May 31, 2023 | |||||||
| Risk-free interest rate | % | % | ||||||
| Probability of financing event or capital raise | % | % | ||||||
| Estimated value of common stock | $ | $ | per share | |||||
| Estimated time to financing event | ||||||||
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.
Basic Earnings Per Share (“EPS”) is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding, including warrants exercisable for less than a penny, (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from net income.
The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, preferred stock, stock options or warrants.
| F-13 |
| For the Three Months Ended | ||||||||
| February 29, 2024 | February 28, 2023 | |||||||
| Numerator: | ||||||||
| Net (loss) income | $ | ( | ) | |||||
| Effect of dilutive securities: | ||||||||
| Diluted net income (loss) | $ | ( | ) | |||||
| Denominator: | ||||||||
| Weighted average common shares outstanding – basic | ||||||||
| Dilutive securities*: | - | |||||||
| Series A Preferred | ||||||||
| Series B Preferred | ||||||||
| Series C Preferred | ||||||||
| Series D Preferred | ||||||||
| Weighted average common shares outstanding and assumed conversion – diluted | ||||||||
| Basic net income (loss) per common share | $ | ( | ) | $ | ||||
| Diluted net income (loss) per common share | $ | ( | ) | $ | ||||
| For the Nine Months Ended | ||||||||
| February 29, 2024 | February 28, 2023 | |||||||
| Numerator: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Effect of dilutive securities: | ||||||||
| Diluted net income | $ | ( | ) | $ | ||||
| Denominator: | ||||||||
| Weighted average common shares outstanding – basic | ||||||||
| Dilutive securities*: | ||||||||
| Series A Preferred | ||||||||
| Series B Preferred | ||||||||
| Series C Preferred | ||||||||
| Series D Preferred | ||||||||
| Weighted average common shares outstanding and assumed conversion – diluted | ||||||||
| Basic net income per common share | $ | ( | ) | $ | ||||
| Diluted net income per common share | $ | ( | ) | $ | ||||
| * |
| February 29, 2024 | ||||
| Weighted average common shares outstanding – basic | ||||
| Series A Preferred | ||||
| Series B Preferred | ||||
| Series C Preferred | ||||
| Series D Preferred | ||||
| Weighted average common shares outstanding and assumed conversion – diluted | ||||
| F-14 |
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 the Company’s results for the three months ended February 28, 2023 because for the period from 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 nine and three months ended February 28, 2023 assuming the acquisitions had been completed as of June 1, 2022, first day of the period presented. The proforma adjustments include the elimination of intercompany revenue and expense transactions. The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had been effective as of these dates, or of future results.
Three Months Ended February 28, 2023 | Nine Months Ended February 28, 2023 | |||||||
| Revenue, net | $ | $ | ||||||
| Net income attributable to registrant | ||||||||
| Weighted average shares of common stock outstanding, basic (as previously reported) | ||||||||
| Weighted average shares of common stock outstanding, diluted (as previously reported) | ||||||||
| Net (loss) income per share, basic | $ | $ | ||||||
| Net (loss) income per share, diluted | $ | $ | ||||||
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 $
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 $
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 $
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
| F-15 |
For
the period ended February 29, 2024, both amounts related to the nonrefundable waiver fee and the warrant, or $
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:
| February 29, 2024 | ||||
| Risk-free interest rate | % | |||
| Probability of financing event next 2 years | % | |||
| Probability of financing event years 2 through 7.5 | % | |||
| Volatility: | % | |||
3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following on February 29, 2024, and May 31, 2023:
| February 29, 2024 | May 31, 2023 | |||||||
| Accrued salaries and related expenses | $ | $ | ||||||
| Accrued sales and marketing expense | ||||||||
| Accrued professional fees | ||||||||
| Accrued income tax | ||||||||
| Accrued Interest | ||||||||
| Other accrued expenses and current liabilities | ||||||||
| $ | $ | |||||||
4. FINANCING ARRANGEMENTS
Financing arrangements on the consolidated balance sheets consists of:
| February 29, 2024 | May 31, 2023 | |||||||
| Revolving Credit Facility | $ | $ | ||||||
| Term loans | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Revolving Credit Facility
The
Company’s Revolving Purchase, Loan and Security Agreement with TBK Bank, SSB, a Texas State Savings Bank matured on May 31, 2023.
The parties agreed to extend the maturity date and on July 20, 2023, the Company and TBK Bank entered into a new loan and security agreement
(the “New TBK Agreement,”) amending and restating in their entirety, the terms, conditions, agreements, covenants, obligations,
representations, and warranties of the existing TBK Agreement. The terms of the new agreement are substantially the same as the original
agreement. The New TBK Agreement provides for a facility under which TBK Bank will, from time to time, make advances under the Revolving
Credit Facility to the Company in such amounts as the Company may request, but not to exceed $
Term Loans
On
March 10, 2023, the Company entered into a financing agreement and related fee letter as a borrower with certain of its subsidiaries
party thereto as guarantors, the lenders party thereto, CB Agent Services LLC, as origination agent, and Alter Domus (US) LLC, as collateral
agent, and administrative agent (“the Lenders”). The Financing Agreement provides for an initial senior secured term loan
in a principal amount of $
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 SPAC termination costs a non-refundable waiver
fee in an aggregate amount equal to $
As
of February 29, 2024, the outstanding principal amount for the above loans combined was $
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:
| February 29, 2024 | May 31, 2023 | |||||||
| Due to FTS (1) | $ | $ | ||||||
| Due to ULHK(2) | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| (1) | |
| The
Promissory Note dated March 30, 2021 in the principal amount $ | |
| Promissory
Note dated February 21, 2023, in connection with the acquisitions completed in the principal amount of $ | |
| (2) | |
| On February 21, 2023, the Company completed the acquisition of eight ULHK operating subsidiaries, in a combination of cash and promissory notes issued to the Seller. As of February 29, 2024, some of these notes were paid off or had been refinanced. |
Transactions
listed below are between the Company and ULHK and its operating subsidiaries. These are considered related party transactions due to
ULHK being an entity with over
Accounts Receivable and Payable
Transactions
with related parties account for $
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, these transactions represented approximately $
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 these transactions represented approximately $
6. STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue shares of stock, a par value of $ per share.
| F-17 |
During the nine months ended February 29, 2024, there were common stock issuances and conversions of Preferred 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 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 29, 2024, there were conversions of Series A Preferred 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 stock which shares will be pari passu with the Series B Preferred in terms of liquidation preference and dividend rights, may be entitled to receive, at their option, immediately prior an in preference to any distribution to the holders of the Company’s common stock.
| 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.
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 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
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 may be entitled to receive, upon liquidation, dissolution or winding up of the Company, the amount of cash, securities, or other property to which such holder would be entitled to receive with respect to such shares of Series C and D Preferred stock if such shares had been converted to common stock immediately prior to such liquidation.
During the nine months ended February 29, 2024, there were conversions of Series D Preferred stock.
| 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:
For the Three Months Ended | For the Three Months Ended | |||||||
| February 29, 2024 | February 28, 2023 | |||||||
| Operating lease cost – Right of Use Asset Amortization | $ | |||||||
| Interest on lease liabilities | ||||||||
| Total net lease cost | $ | |||||||
For the Nine Months Ended | For the Nine Months Ended | |||||||
| February 29, 2024 | February 28, 2023 | |||||||
| Operating lease cost – Right of Use Asset Amortization | $ | |||||||
| Interest on lease liabilities | ||||||||
| Total net lease cost | $ | |||||||
Supplemental balance sheet information related to leases was as follows:
| February 29, 2024 | May 31, 2023 | |||||||
| Operating leases: | ||||||||
| Operating lease ROU assets – net | $ | $ | ||||||
| Current operating lease liabilities, included in current liabilities | ||||||||
| Noncurrent operating lease liabilities, included in long-term liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| F-20 |
Supplemental cash flow and other information related to leases was as follows:
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 | $ | $ | ||||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
| For | For | |||||||
| Nine Months Ended | Nine Months Ended | |||||||
| February 29, 2024 | February 28, 2023 | |||||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||
| Operating leases | $ | $ | ||||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
Future minimum lease payments under noncancelable operating leases are as follows:
| February 29, 2024 | ||||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease obligations | $ | |||
| F-21 |
8. INCOME TAX PROVISION
The expense (benefit) for income taxes consists of:
For the Three Months Ended February 29, 2024 | For the Three Months Ended February 28, 2023 | |||||||
| Current: | ||||||||
| Federal | $ | ( | ) | $ | ( | ) | ||
| State | ( | ) | ( | ) | ||||
| Foreign | ||||||||
| ( | ) | ( | ) | |||||
| Deferred: | ||||||||
| Federal | ( | ) | ( | ) | ||||
| State | ( | ) | ( | ) | ||||
| Foreign | ( | ) | ||||||
| ( | ) | ( | ) | |||||
| Total tax expense (benefit) | $ | ( | ) | $ | ( | ) | ||
For the Nine Months Ended February 29, 2024 | For the Nine Months Ended February 28, 2023 | |||||||
| Current: | ||||||||
| Federal | $ | ( | ) | $ | ||||
| State | ( | ) | ||||||
| Foreign | ||||||||
| Deferred: | ||||||||
| Federal | ( | ) | ( | ) | ||||
| State | ( | ) | ( | ) | ||||
| Foreign | ( | ) | ||||||
| ( | ) | ( | ) | |||||
| Total tax expense (benefit) | $ | ( | ) | $ | ||||
The Company recorded a provision for income tax
benefit of $
The Company recorded a provision for income taxes benefit of $
Other noncurrent liabilities include liabilities for uncertain tax provision (UTP) as follows:
For the Nine Months Ended February 29, 2024 | For the Nine Months Ended February 28, 2023 | |||||||
| Total UTP balance on June 1 | $ | $ | ||||||
| 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 | $ | $ | ||||||
The
Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions
that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return
and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A
liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit
because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized
as a result of applying the provisions of ASC 740. Interest and penalties related to the unrecognized tax positions are required to be
calculated and would be classified as “tax expense” in the statement of operations. Interest expense in the amount of $
| F-22 |
The Taxing jurisdiction that is significant to Company is the U.S. open tax years related to this taxing jurisdiction remains subject to examination and could result in additional tax liabilities. The Company is no longer subject to income tax examinations for years before fiscal year 2019.
9. SUBSEQUENT EVENTS
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 (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 $
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”). 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 (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 the loan and security 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 the acquisitions of certain ULHK entities by the Company, as amended, with the following original principal
amounts: (i) $
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 $
On
October 9, 2023, the Company amended the Second Net Assets Note (the “Amended Second Net Assets Note”), which
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 $
Note
11 matures on
Note
12 matures on
On
March 5, 2024, the Company and ULHK further amended the Amended Second Net Assets Note”),
which
Additionally,
on March 6, 2024, the Company and ULHK amended the Original Seller Note which
Acquisitions
On
April 29, 2024, the Company entered into a share sale and purchase agreement between the Company and Unique 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 $
| 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 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, judgements and assumptions. We believe that the estimates, judgements and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgements and assumptions are made. These estimates, judgements 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 Company provides services to customers engaged in international commerce. Everything that affects international trade has the potential to expand or contract our primary market and adversely impact our operating results |
| ● | We depend on operators of aircrafts, ships, trucks, ports and airports |
| ● | We derive a significant portion of our total revenues and net revenues from our largest customers |
| ● | Due to our dependence on a limited number of customers, we are subject to a concentration of credit risk |
| ● | Our earnings may be affected by seasonal changes in the transportation industry |
| ● | Our business is affected by ever increasing regulations from a number of sources in the United States and in foreign locations in which we operate |
| 3 |
| ● | As a corporation transacting business in multiple countries, we are subject to formal or informal investigations from governmental authorities or others in the countries in which we do business |
| ● | The global economy and capital and credit markets continue to experience uncertainty and volatility |
| ● | Our business is subject to significant seasonal fluctuations driven by market demands and each quarter is affected by seasonal trends. |
| ● | Our revenue and direct costs are subject to significant fluctuations depending on supply and demand for freight capacity. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission (“SEC”). We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
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. Our global network of trained employees and integrated information 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 freight services | |
| ● | Ocean freight services | |
| ● | Customs brokerage and compliance services | |
| ● | Warehousing and distribution services | |
| ● | Order management |
On February 21, 2023, the Company completed the acquisition of all of the share capital owned by Unique Logistics Holdings Limited, a Hong Kong company (“ULHK”), in eight subsidiaries (the “ULHK Entities”) for $26.5 million (the “ULHK Entities Acquisition”). In addition to the acquisition of the shares in the ULHK Entities, Unique Logistics acquired two companies that are owned by two of the ULHK 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.
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, 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 traditional June to November peak with conversions of shipping mode, to air freight from sea freight, and the Company benefited 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 volume 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 ocean services revenue was due to the 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 the 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 on 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 $3.1 million.
During the quarter ended February 28, 2023, total other expenses of $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
Revenue
For the nine months ended February 29, 2024 and February 28, 2023, Unique Logistics’ revenue by product line was as follows:
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 | )% | ||||||||
| 7 |
For the nine 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 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 30.0% decrease in total revenues for the nine months ended February 29, 2024, compared to the nine months ended February 28, 2023, is almost entirely due to decreases in ocean freight and ocean services revenue and, to a lesser extent, in customs brokerage revenue, offset by an increase in air freight revenue.
The 53.0% decrease in ocean freight and ocean services revenue was attributable to a reduction in pricing period over period, offset by a slight increase in volume. A20.3% increase in volume, primarily as a result of the acquisition 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 conditions, 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 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 decrease while a 53.5% decrease in pricing accounted for the remaining 64.9% of the decrease in ocean freight and ocean services revenue, period over period.
The 41.0% decline in 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 due to market conditions, period over period.
Excluding revenues of $25.6 million (net of intercompany eliminations) attributable to the operations of the ULHK Entities, airfreight revenue decreased 4.9%, mostly due to 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.
While not a material contributor to the decrease in revenues generally, contract logistics revenue declined by 24.3%, both with and without the inclusion of the operations of the ULHK Entities, during the nine months ended February 29, 2024 compared with the same period of 2023 mostly due a lower warehousing activity off peak season.
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Costs and Operating Expenses
For the nine months ended February 29, 2024 and February 28, 2023, Unique Logistics’ costs and operating expenses were as 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 nine months ended February 29, 2024 and February 28, 2023, Unique 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 period, 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 29, 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 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.
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.
| 9 |
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, professional fees, rent and occupancy expenses and amortization of newly acquired intangible assets, offset by a decrease in selling and promotion expenses. 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 no-abandoned merger transaction pursuant to the Merger Agreement. Most of the $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 commission 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 nine months ended February 28, 2023 to 11.4% for the nine months ended February 29, 2024, excluding the operations of the ULHK Entities, gross margins was at 9.8% for the nine months ended February 28, 2023 and February 29, 2024.
Other Income (Expenses)
For the nine months ended February 29, 2024, other expenses were $13.2 million 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 net gain in derivative liabilities of $4.1 million, a $10.4 million expense related to the termination of the Merger Agreement in the form of an additional loan and an issued warrant and an uplist termination cost of previously deferred offering costs in the amount of $3.1 million.
For the nine months ended February 28, 2023, other expenses were $2.1 million and consisted of interest expense of $2.9 million offset by a $0.8 million increase in the fair value of derivative liabilities.
Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.
The following table summarizes the Company’s total current assets, liabilities and working capital at the dates indicated:
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 | )% | |||||||
The Company’s working capital was $5.3 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 and other factors could cause the strategic plan to be unsuccessful, which could have a material adverse effect on our operating results, financial condition, and liquidity. Based on our evaluation of the Company’s projected cash flows and business performance as of and subsequent to 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 were issued.
| 10 |
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 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 by operations of $33.0 million for the nine months ended February 28, 2023. The primary reason for the cash used during the nine months ended February 29, 2024 was our $11.0 million net loss adjusted for non-cash items. The primary reason for cash provided for the nine months ended February 28, 2023, was collections on accounts receivables offset by a reduction in accounts payable and accrued freight.
Investing activities used cash of $0.5 million to purchase equipment during the nine months ended February 29, 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 net borrowing on the term debt to partially repay seller notes assumed during the acquisition of the ULHK Entities on February 21, 2023. Cash used by financing activities during the nine months ended February 28, 2023was primarily repayment of the TBK line of credit.
Critical Accounting Estimates
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, transaction gains and losses, other income, merger and acquisition costs, 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 as an indicator of operating 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 our 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.
Adjusted EBITDA should not be considered as an alternative to net income, 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 this non-GAAP financial measure to be considered in isolation or as a substitute for results prepared in accordance with GAAP. This non-GAAP financial 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 for the three and nine months ended February 29, 2024 and February 28, 2023:
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 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 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act 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 principal executive officer 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 over Financial Reporting
During the quarter ended February 29, 2024, the Company actively addressed and commenced to remediate a number of previously identified material weaknesses in its internal control over financial reporting that 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, and provided training to our accounting personnel. The Company has not completed a full risk assessment of its internal control over financial reporting at the activity level, including process documentation and testing and because we have not completed a full risk assessment of the internal control over financial reporting at the activity level, including extensive process documentation and testing, we are not able to conclude that our internal control over financial reporting is operating effectively and efficiently at this time. The Company’s principal executive officer, principal financial officer, and board of directors are fully committed to achieving full compliance by August 31, 2024.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any disputes and does not have any litigation matters pending that it believes could have a material adverse effect on its financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company’s executive officers or any of its subsidiaries, threatened against or affecting the Company, its common stock, any of its subsidiaries or of the Company’s or the 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, 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 29, 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
| 14 |
ITEM 6. EXHIBITS
| 15 |
SIGNATURES
Pursuant to the requirements 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 | ||
| 16 |