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. 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 the
Business Overview and Recent Developments
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 ?Ocean Freight services ? Customs Brokerage and Compliance services ? Warehousing and Distribution services
On
At the closing of the ULHL Entities Acquisition, the Company paid
While the promissory notes related to the purchase price for the Purchased
Shares in Unique-
In addition, the Company may be obligated to pay ULHL an earn-out payment of
either
We expect that the closing of the ULHL Entities Acquisition during the quarter
ended
Market and Business Trends
The current fiscal year 2023 that commenced
Market conditions have trended towards a slowdown in shipping in the current fiscal year. This slowdown significantly impacted the Company in the third quarter. The impact was particularly severe in the air freight sector. The uncertainty created by inflation and high inventory levels coupled with the fact that the Company's third quarter is traditionally a slow period due to shipping market seasonality, has resulted in lower shipping volumes and lower shipping costs. Lower shipping costs result in lower revenue for the Company. However, we believe that the Company is positioned to improve net revenue yield through improved procurement; the Company has also added to its customer base in the last twelve months, which will mitigate the impact of a declining shipping market.
The Company continues to invest in sales and marketing to increase market share. The ULHL Entities Acquisition has added to the Company's customer base and its ability to target new business. The Company continues to seek strategic acquisitions to supplement organic growth. We believe that these actions put the Company in a good position to maintain growth trends even without a significant turnaround in global shipping in the foreseeable future.
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Results of Operations for the Three Months ended
Revenue
The Company's total revenue for the three months ended
The air freight revenue reduction was primarily driven by an approximately 90%
reduction in airfreight volume. Shipping volumes in
The decline in ocean freight revenue was due to a pricing reduction of approximately 58.0% and a volume reduction of approximately 47.0% over the comparable period last year, equally contributing to the overall ocean revenue reduction for the period. The overall shipping volumes are currently experiencing a steady global decline in the past 12 months, with additional ocean freight capacity available, putting further pressure on pricing. The Company's third quarter is traditionally a slow shipping period due to seasonal factors.
Going forward, management is expecting both the air and the ocean freight business to steadily improve in terms of volumes and to remain stable in terms of pricing in the second half of calendar 2023 based on the customer projections and secured customer commitments received to date.
Costs and Operating Expenses
Cost of freight and other operating expenses were
Other operating and administrative expenses increased in total by
Other Income (Expense)
For the three months ended
For the three months ended
The slight gain in the fair value of derivative liabilities during the three
months ended
Net Income
Net income was approximately
As a result of the Company exchanging
Results of Operations for the Nine Months ended
Revenue
The Company's total revenue for the nine months ended
The air freight revenue reduction was primarily driven by an 82.5% reduction in volume, mostly due to our discontinuation of the air charter program in December of 2022, as discussed above.
The decline in ocean freight revenue was due to a pricing reduction of approximately 24.0% and a volume reduction of approximately 43.0% over the same period of 2022 equally contributing to reduction in ocean revenue for the period.
The overall shipping volumes are currently experiencing a steady global decline in the past 12 months, with additional ocean freight capacity available, putting further pressure on pricing. Going forward, management is expecting both the air and the ocean freight business to steadily improve in terms of volumes and to remain stable in terms of pricing in the second half of calendar 2023 based on the customer projections and secured customer commitments received to date.
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Costs and Operating Expenses
Cost of freight and operating expenses were
In addition, other selling and administrative decreased in total by
approximately
Other Income (Expense)
For the nine months ended
For the nine months ended
As explained above,
Net Income
Net income was
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 following table summarizes total current assets, liabilities and working
capital:
February 28, 2023 May 31, 2022 Change
Current Assets $ 62,470,090 $ 108,543,031 $ (46,072,941 )
Current Liabilities 72,201,695 $ 104,367,590 (32,165,895 )
As of
The Company intends to either timely pay off the
As previously reported, on
In addition, the Company maintains its operating line of credit with
While we continue to execute our strategic plan, growing the Company and its
customer base, management is focused on managing cash and monitoring our
liquidity position. We have implemented several initiatives to conserve our
liquidity position, including activities such as increasing credit facilities,
when needed, reducing the cost of debt by obtaining more favorable financing,
controlling general and administrative expenditures and improving our collection
processes. 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.
Negative operating capital may be 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
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Cash generated and used by the Company was as follows:
For the Nine For the Nine
Months Ended, Months Ended,
February 28, February 28,
2023 2022 Change
Net cash provided by (used in) by
operating activities $ 33,032,762 $ (42,029,741 ) $ 75,062,503
Net cash provided by (used in)
investing activities 8,733,409 (54,474 ) 8,787,883
Net cash provided by (used in)
financing activities (28,785,898 ) 42,827,199 (71,613,097 )
Net increase in cash and cash
equivalents $ 12,980,273 $ 742,984 $ 12,237,289 Operating activities provided cash of
Investing activities provided cash of
Financing activities used cash of
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.
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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.
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, 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 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 For the Three
Months Ended Months Ended
February 28, 2023 February 28, 2022
Net income (loss) $ 663,173 $ (4,930,586 )
Add Back:
Income tax (814,080 ) 228,207
Depreciation and amortization 203,390 196,347
(Gain) loss on extinguishment of convertible
notes - 1,344,087
Interest expense (including accretion of debt
discount) 546,791 1,395,396
Change in fair value of derivative liabilities (64,955 ) 4,275,986
Adjusted EBITDA $ 534,319 $ 2,509,437
For the Nine For the Nine
Months Ended Months Ended
February 28, 2023 February 28, 2022
Net income $ 7,256,211 $ 1,581,055
Add Back:
Income tax 849,967 2,765,207
Depreciation and amortization 606,030 585,019
Gain on forgiveness of promissory notes (358,236 )
Loss on extinguishment of convertible notes 564,037
Factoring fees 27,000
Change in fair value of derivative liabilities (809,611 ) 4,275,986
Interest expense (including accretion of debt
discount) 2,876,776 5,343,391
Adjusted EBITDA $ 10,752,373 $ 14,783,459 © Edgar Online, source
