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 ofthe 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 inthe United States ("GAAP"). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our 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 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.
3
? Our business is affected by ever increasing regulations from a number of
sources in
? As a multinational corporation, 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 theSecurities 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. As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms "Company," "we," "us," and "our" refer toUnique Logistics International, Inc. and our wholly subsidiaries,Unique Logistics International (BOS) Inc , aMassachusetts corporation ("UL BOS") andUnique Logistics International (NYC) LLC , aDelaware limited liability company ("UL NYC")."). Unless otherwise specified, all dollar amounts are expressed inUnited States dollars. Business Overview 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 services
?
? Customs Brokerage and Compliance services
? Warehousing and Distribution services
? Order Management 4 Market and Business Trends
The current fiscal year 2023 that commencedJune 1, 2022 can be considered the Company's first fiscal year in the post Covid period. The impact of Covid in the previous two fiscal years resulted in an initial drop in shipping volumes and then the post Covid surge in shipping volumes including all related logistics challenges.
As we report the current quarter and six months endedNovember 30, 2022 , it is pertinent to compare our business base and the emerging trends with the equivalent periods from 2019 before Covid impacted the logistics industry. The equivalent period in 2019 was prior to the acquisitions inMay 2020 and the comparisons are based on the aggregation of the three operating companies prior to the acquisition inMay 2020 . The Company's 25 largest customers based on revenue during the period endedNovember 30, 2022 , include 12 customers that were added after the acquisition inMay 2020 . In addition, the Company still retains 23 of the customers that were in the top 25 in 2019. Thus, the Company, today, has a significantly expanded customer base besides substantially retaining virtually all its legacy customers. In terms of volume, the Company's top 25 customers, today, ship more containers (94%) and more air freight weight (15%) compared with the top 25 customers in 2019. An identifiable trend in the market in the current period, versus 2019, is a significant shift in shipping from air to ocean. The Company expects air freight volumes to increase in the course of 2023. Overall, the Company is well positioned to grow its business in the post Covid era as it continues to build its customer base, increases profitability, and makes strategic plans for organic growth and through the targeted acquisitions. We are expanding our sales organization, locking in procurement strategies and receiving positive feedback from our existing customers regarding their future shipping needs.
Results of Operations for the Three Months ended
Revenue
For the three months ended
For the For the
Three Months Three Months
Ended November Ended November
30, 2022 30, 2021 $ change % change
Revenues
Air Freight $ 21,581,667 $ 275,070,204 (253,488,537 ) (92 )%
Ocean Freight 47,930,347 115,421,970 (67,491,623 ) (58 )%
Contract logistics 975,711 1,211,056 (235,345 ) (19 )%
Customs brokerage and
other services 18,349,508 13,727,459 4,622,049 34 %
Total revenues $ 88,837,233 $ 405,430,689 (316,593,456 ) (78 )%
Total revenue declined by 78% driven by a slowdown in shipping and pricing decline in both air and sea. Air freight revenue declined 92% compared with the same period last year due to 85% lower shipped volume and 40% lower sell rates. Ocean freight revenue declined 58% compared with the same period last year due to 46% lower shipped volume and 23% lower sell rates. 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.
Product costs and Operating Expenses
Product costs and operating expenses in total were$83.8 million for the three months endedNovember 30, 2022 , compared with$396.8 million for the three months endedNovember 30, 2021 . Reduction of 79% in the total product costs and operating expenses was primarily attributable to reduction in shipping volumes in our air and ocean product divisions. Air freight cost was lower by 93% and Ocean freight was lower by 63% when compared with the same period last year. Further reduction in operating expenses was due to reduction in sales commissions by 83% which was partially offset by 30% increases in salaries and benefits due to higher professional staff count and 123% increase in professional fees related to pending acquisitions. Other Income (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 endedNovember 30, 2022 and 2021, interest expense and bank fees totaled approximately$0.9 million and$1.9 million , respectively. This reduction is primarily due to reduced amount of borrowing on the operating line of credit due to lower shipping volume and decline in buy rates. During the same period, the Company also recorded approximately$0.1 million gain in fair value of derivative liabilities associated with the antidilution provision imbedded in Series A, C and D Preferred Stocks. None was recorded during the three-month endedNovember 30, 2021 . Net Income Net income was approximately$3.3 million for the three months endedNovember 30, 2022 , compared to a net income of approximately$4.5 million for the three months endedNovember 30, 2021 . Results of Operations for the Six Months endedNovember 30, 2022 , and 2021
5 Revenue
For the six months ended
For the
Six Months Ended For the
November 30, Six Months Ended
2022 November 30, 2021 $ change % change
Revenues
Air Freight $ 51,515,704 $ 327,232,845 (275,717,141 ) (84 )%
Ocean Freight 136,185,077 238,722,728 (102,537,651 ) (43 )%
Contract logistics 1,744,425 1,933,720 (189,295 ) (10 )%
Customs brokerage and
other services 35,900,899 27,313,256 8,587,643 31 %
Total revenues $ 225,346,105 $ 595,202,549 (369,856,444 ) (62 )%
Total revenue declined by 62% driven by a slowdown in shipping and pricing decline in both air and sea. Air freight revenue declined 84% compared with the same period last year due to 79% lower shipped volume and 11% lower sell rates. Ocean freight revenue declined 43% compared with the same period last year due to 47% lower shipped volume with approximately unchanged sell rates. 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. Costs and Operating Expenses
Product costs and operating expenses were$215.5 million for the Six months endedNovember 30, 2022 , compared with$583.3 million for the Six months endedNovember 30, 2021 . Reduction of 63% in the total product costs and operating expenses was primarily attributable to reduction in shipping volumes in our air and ocean product divisions. Air freight cost was lower by 85% and Ocean freight was lower by 45% when compared with the same period last year. Further reduction in operating expenses was due to reduction in sales commissions by 85% which was partially offset by 25% increases in salaries and benefits due to higher professional staff count and 146% increase in professional fees related to
pending acquisitions. Other Income (Expense) 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 six months endedNovember 30, 2022 and 2021, interest expense and bank fees totaled approximately$2.3 million and$3.2 million , respectively. This reduction is primarily due to reduced amount of borrowing on the operating line of credit due to lower shipping volume and decline in buy rates during the period endedNovember 30, 2022 . During the same period, the Company also recorded approximately$0.7 million gain in fair value of derivative liabilities associated with the antidilution provision imbedded in Series A, C and D Preferred Stocks. For the period endedNovember 30, 2021 , there was no adjustments recorded in the value of a derivative liability, and the Company recorded approximately$0.8 million amortization of debt discount related to the convertible notes outstanding at that time and approximately$0.8 million gain on extinguishment of debt related to the same notes. In addition, during the six months endedNovember 30, 2021 , the Company was granted forgiveness of the Paycheck Protection Program loans under the CARES Act, (the "PPP Loan") and recorded a gain on forgiveness of approximately$358,000 . 6 Net Income
Net income was approximately$6.6 million for the six months endedNovember 30, 2022 , compared to a net income of approximately$6.5 million for the six months endedNovember 30, 2021 . 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.
Following is the reconciliation of our consolidated net income to adjusted
EBITDA:
For the For the
Three Months Ended Three Months ended
November 30, 2022 November 30, 2021
Net income available to common shareholders $ 3,271,697 $ 4,488,225
Add Back:
Income tax expense 871,860 1,902,541
Depreciation and amortization 201,966 194,875
Change in fair value of derivative liability (125,708 ) -
Interest expense (including accretion of debt
discount) 972,300 2,272,236
Adjusted EBITDA $ 5,192,115 $ 8,857,877
7
For the For the
Six Months Ended Six Months Ended
November 30, 2022 November 30, 2021
Net income available to common shareholders $ 6,593,038 $ 6,511,641
Add Back:
Income tax expense 1,664,047 2,537,000Depreciation and amortization 402,640 388,672 Gain on forgiveness of promissory notes - (358,236 ) Gain on extinguishment of convertible notes - (780,050 ) Change in fair value of derivative liability (744,656 ) - Interest expense (including accretion of debt discount) 2,329,985 3,974,995 Adjusted EBITDA$ 10,245,054 $ 12,274,022
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 ofNovember 30, 2022 , the Company reported working capital of approximately$8.5 million compared with$4.2 million working capital as ofMay 31, 2022 . The Company's Earnings Before Interest, Tax, Depreciation and Amortization ("EBITDA") contribution to working capital was$5.2 million and$10.2 million during the three and six months endedNovember 30, 2022 . The Company has adequate cash availability through the TBK Facility. 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 endedNovember 30, 2022 , and the year endedMay 31, 2022 , this liability was$11.7 million and$12.4 million , respectively. This liability is recorded as a long-term liability due to its future settlement in common stock on the balance sheet and is being adjusted to market on each of the subsequent reporting periods.
To fund the pending acquisitions, as discussed in Note 6: Commitments and
Contingencies, on
While we continue to execute our strategic plan, management is focused on managing cash and monitoring our liquidity position. We have implemented a number of initiatives to conserve our liquidity position including activities such as increasing credit facilities, when needed, reducing cost of debt, controlling general and administrative expenditures and improving collection processes. Many of the aspects of the plan involve management's judgments and estimates that include factors that could be beyond our control and actual results could differ from our estimates. These and other factors could cause the strategic plan to be unsuccessful which could have a material adverse effect on our operating results, financial condition, and liquidity. Use of operating cash is an indicator that there could be a going concern issue, but based on our evaluation of the Company's projected cash flows and business performance as of and subsequent to the balance sheet date, management has concluded that the Company's current cash and cash availability under the TBK Facility as ofNovember 30, 2022 , would be sufficient to fund its planned operations for at least one year from the date these consolidated financial statements are issued. 8
The following table summarizes total current assets, liabilities and working
capital on
November 30, 2022 May 31, 2022 Change
Current Assets $ 68,658,411 $ 108,543,031 $ (39,884,620 )
Current Liabilities 60,192,378 104,367,590 (44,175,212 )
Working Capital (Deficit) $ 8,466,033 $ 4,175,441 $ 4,290,592
The change in working capital is primarily attributable a decrease in accounts
receivable of about $23.4 million , a decrease in contract assets of $17.2
million offset by an increase in ROU assets $8.9 million , offset by a decrease
in accounts payable of about $18.1 million , a decrease of accrued freight of
about $8.0 million and decrease in the borrowed amount on the line of credit by
$17.4 million offset by a lease liability of $8.9 incurred due to signing of new
leases
The cash generated and used by the Company was as follows:
For the For the
Six Months Ended, Six Months Ended,
November 30, 2022 November 30, 2021 Change
Net cash provided by (used in) by
operating activities $ 17,858,377 $ (30,406,559 ) $ 48,264,936
Net cash used in investing
activities (83,934 ) (43,727 ) (40,207 )
Net cash provided by (used in)
financing activities (17,952,792 ) 31,038,427 (48,991,219 )
Net increase in cash and cash
equivalents $ (178,349 ) $ 588,141 $ (766,490 )
Operating activities provided cash of $17.9 million for the six months ended
November 30, 2022 , compared to net cash used by operations of $30.4 million for
the six months ended November 30, 2021 . Primary reason for cash provided during
the six months ended November 30, 2022 , was the collections on accounts
receivables offset by reduction in Accounts Payable and Accrued Freight. Primary
reason for cash used for the six months ended November 30, 2022 , was a
significant increase in accounts receivables, reflecting repurchase of trade
receivables from a factor taking advantage of a better interest rate on
Company's new revolving credit facility.
Cash used by financing activities of $18 million for the six months ended
November 30, 2022 , primarily for repayment of $17.4 million to the line of
credit. During for the six months ended November 30, 2021 , financing activities
provided cash of $31.0 million due to initial borrowing of $29.8 million from
the line of credit facility in effect from June 1, 2021 , used to repurchase
factored trade receivables.
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. 9 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 it 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.
Our significant accounting policies are summarized in Note 1 of our condensed consolidated financial statements.
© Edgar Online, source
