UNIQUE LOGISTICS INTERNATIONAL, INC. Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") that reflect management's current views with respect to future events and financial performance. These statements are based upon beliefs of, and information currently available to, the Company's management as well as estimates and assumptions made by the Company's management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue" or the negative of these terms and similar expressions as they relate to the Company or the Company's management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company's business, industry, and the Company's operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by
applicable law, including the securities laws of
Our financial statements are prepared in accordance with accounting principles
generally accepted in
? 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
? 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
Overview
We are a global logistics and freight forwarding company. We operated via our
wholly owned subsidiaries,
The Company provides a range of international logistics services that enable its customers to outsource to the Company sections of their supply chain process. The services provided by the Company are seamlessly managed by its network of trained employees and integrated information systems. We enable our customers to share data regarding their international vendors and purchase orders with us, execute the flow of goods and information under their operating instructions, provide visibility to the flow of goods from factory to distribution center or store and when required, update their inventory records.
Our range of services can be categorized as follows:
? Air Freight ?Ocean Freight ? Customs Brokerage and Compliance ? Warehousing and Distribution ? Order Management Market Trends
Demand for space by ocean freight and air freight from
3 Business Trends
In response to market trends, the Company increased its procurement of ocean
freight and air freight capacity to meet the requirements of its customer base.
The Company arranged ad hoc air cargo charter flights to
Significant Development
The Company has now initiated an internal process to develop its environmental, social and corporate governance ("ESG") framework. An external consultant has been engaged to guide the Company in its initial steps. The Board of Directors and Management are fully committed towards ensuring that the Company is on a path to the systematic adoption of policies to identify, assess and manage sustainability-related risks and opportunities in respect to all stakeholders (including but not limited to customers, suppliers and employees) and the environment.
Results of Operations Revenue
The Company's recorded total revenue from operations for the three months ended
For the Three For the Three
Months Months
ended ended
August 31, 2022 August 31, 2021
Revenues
Air Freight $ 29,934,037 $ 52,162,641
Ocean Freight 88,254,730 123,300,758
Contract logistics 768,714 722,664
Customs brokerage and other services 17,551,391 13,585,797
Total revenues $ 136,508,872 $ 189,771,860 Revenue declined by 28.1% driven by a slowdown in shipping and pricing decline in both air and sea. The Company's strategic procurement policies ensured that despite the decline in revenue, there was growth in net revenue and profitability. The Company continues to invest in its sales and marketing strategy to increase market share, while seeking opportunities for strategic acquisitions to grow our business.
Gross Margins
Product costs were
4 Operating Expenses
Operating expenses remained steady at
Other Expenses
Other expenses comprised of interest expense, gain on forgiveness of promissory notes, amortization of debt discount and gain on extinguishment of convertible debt and change in fair value of derivative liabilities.
During the three months ended
For the three months ended
Net Income After Tax
The Company reported net income of
Adjusted EBITDA
We define adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, factoring fees, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.
Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We present adjusted EBITDA because we believe that adjusted EBITDA is a useful supplement to net income from operations as an indicator of operating performance. We use adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric.
We believe that adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net income from continuing operations and adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net income from operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP.
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Following is the reconciliation of our consolidated net income to adjusted
EBITDA:
For the three months For the three months
Ended ended
August 31, 2022 August 31, 2021
Net income available to common shareholders $ 3,321,341 $ 2,023,416
Add Back:
Income tax expense 792,187 634,459
Depreciation and amortization 200,674 193,799
Gain on forgiveness of promissory notes - (358,236 )
Gain on extinguishment of convertible notes - (780,050 )
Change in fair value of derivative liability (618,948 ) -
Factoring fees - 27,000
Interest expense (including accretion of
debt discount) 1,357,685 1,675,759
Adjusted EBITDA $ 5,052,939 $ 3,416,147
Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity's ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.
As of
Since its inception, the Company has experienced significant business growth. To
fund such growth, operating capital was initially provided by third party
investors through the sale of Convertible Notes which were subsequently
exchanged into convertible securities. Preferred shares are more beneficial to
the Company because they do not require cash repayments. Due to the antidilution
provision imbedded in the certain of the convertible securities, these
provisions resulted in an embedded derivative and the Company recorded a
long-term liability. As of the quarter ended
While we continue to execute our strategic plan, management is focused on
managing cash and monitoring liquidity position. We have implemented a number of
initiatives to conserve our liquidity position including activities such as
increasing credit facilities, reducing cost of debt, controlling general and
administrative expenditures and improving collection processes. Many of the
aspects of the plan involve management's judgments and estimates that include
factors that could be beyond our control and actual results could differ from
our estimates. These and other factors could cause the strategic plan to be
unsuccessful which could have a material adverse effect on our operating
results, financial condition, and liquidity. Use of operating cash is an
indicator that there could be a going concern issue, but based on our evaluation
of the Company's projected cash flows and business performance subsequent to the
balance sheet date, management has concluded that the Company's current cash and
cash availability under the TBK Facility as of
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The following table summarizes total current assets, liabilities and working
capital at
August 31, May 31,
2022 2022 Change
Current Assets $ 94,909,343 $ 108,543,031 $ (13,633,688)
Current Liabilities 88,404,478 104,367,590 (15,963,112)
Working Capital $ 6,504,865 $ 4,175,441 $ 2,329,424 The change in working capital is primarily attributable to a decrease in cash
and cash equivalents of
For the Three For the Three
Months Months
ended Ended
August 31, August 31,
2022 2021 Change
Net cash provided by (used) in
operating activities $ 301,163 $ (40,400,646 ) $ 40,701,809
Net cash used in investing activities (68,570 ) (24,199 ) (44,371 )
Net cash provided (used in) by
financing activities (1,384,184) 40,468,637 (41,852,821)
Net (decrease) increase in cash and
cash equivalent $ (1,151,591) $ 43,792 $ (1,195,383) Operating activities provided cash of
Cash used by financing activities of
Recent Accounting Pronouncements
In
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Critical Accounting Policies
Accounting policies, methods and estimates are an integral part of the condensed consolidated financial statements prepared by management and are based upon management's current judgments. These judgments are normally based on knowledge and experience regarding past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management's current judgments. While there are a number of accounting policies, methods and estimates that affect our condensed consolidated financial statements, the areas that are particularly significant include revenue recognition; the fair value of acquired assets and liabilities; fair value of contingent consideration; the assessment of the recoverability of long-lived assets, goodwill and intangible assets; and leases.
We perform an impairment test of goodwill for each year unless events or circumstances indicate impairment may have occurred before that time. We assess qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount. After assessing qualitative factors, if further testing is necessary, we would determine the fair value of each reporting unit and compare the fair value to the reporting unit's carrying amount.
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 anti-dilution provision in the Company's preferred stock. 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 condensed consolidated statements of operations.
Our significant accounting policies are summarized in Note 1 of our condensed consolidated financial statements.
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