NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November
30, 2021
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
Unique
Logistics International, Inc. (the “Company” or “Unique”) is a global logistics and freight forwarding
company. The Company currently operates via its wholly owned subsidiaries, Unique Logistics International (NYC), LLC, a Delaware
limited liability company (“UL NYC”), and Unique Logistics International (BOS) Inc, a Massachusetts corporation (“UL
BOS”), (collectively the “UL US Entities”). The Company provides a range of international logistics services
that enable its customers to outsource sections of their supply chain process. This range of services can be categorized as
follows:
|
●
|
Air
Freight services
|
|
●
|
Ocean
Freight services
|
|
●
|
Customs
Brokerage and Compliance services
|
|
●
|
Warehousing
and Distribution services
|
|
●
|
Order
Management
|
Liquidity
The
accompanying condensed consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s
ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that
the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are
issued.
From
the inception the Company experienced adverse cash flows from operations, primarily due to significant business growth since inception,
entering new markets and products and repayment of an acquisition related debt. As of November 30, 2021, the Company had working capital
of approximately $2.8 million compared with $3.5 million negative working capital as of May 31, 2021. Liquidity fluctuations may raise
the risk of there being substantial doubt about the Company’s ability to continue as a going concern.
In
response to such factors, the Company’s took steps to alleviate the risk of substantial doubt by
|
●
|
Repayment
of significant portion of its acquisition related debt.
|
|
●
|
Entering
a Second Amendment to the TBK Agreement to increase the credit facility from $40.0
million to $47.5
million for the period through January 31,
2022.
|
|
●
|
Entering
into a Purchase Money Financing Agreement on September 8, 2021, with Corefund Capital, LLC to enable the Company to finance additional
cargo charter flights for the peak shipping season.
|
|
●
|
Entering
into an Exchange Agreement on August 4, 2021 and into the Amendment to the Exchange Agreement on December 10, 2021 to exchange
all of its Convertible debt into shares of common stock.
|
The
Company also is preparing to raise additional funds through an uplisting on a major securities exchange in early 2022. The funds would
be used for acquisitions and partially for operating capital.
Covid-19
In
January 2020, the World Health Organization has declared the outbreak of a novel coronavirus (COVID-19) as a “Public Health Emergency
of International Concern,” which continues to have an impact throughout the world and has adversely impacted global commercial
activity and contributed to significant declines and volatility in financial markets. The coronavirus outbreak and government responses
are creating disruption in global supply chains and adversely impacting many industries.
The
outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown.
The extent of the impact of COVID-19 on our operational and financial performance will depend on the effect on our shippers and carriers,
all of which are uncertain and cannot be predicted. The rapid development and fluidity of this situation precludes any prediction as
to the ultimate material adverse impact of the coronavirus outbreak. Nevertheless, the outbreak presents uncertainty and risk with respect
to the Company, its performance, and its financial results. The Company has experienced increased air and ocean freight rates due to
overall cargo restraints imposed by shippers and carriers and is in a position to pass these cost increases directly to the customers
without significantly affecting its margins.
Due
to impacts from the COVID-19 pandemic and the uncertain pace of recovery, seasonal variations in the availability of air and ocean carriers,
the volatility of fuel prices and other supply and demand related factors, operating results for the three and six months ended November
30, 2021 are not necessarily indicative of operating results for the entire year.
While
we continue to execute our strategic plan, the Company is also in a process of evaluating several other liquidity-oriented options such
as raising additional capital, increasing credit limits of the revolving credit facilities, reducing cost of debt, controlling expenditures,
and improving its cash collection processes. While many of the aspects of the Company’s 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.
As
of November 30, 2021, we expect to alleviate our going concern needs for at least the next twelve months from the time these financial
statements are made available with existing cash and cash equivalents and cash flows from operations. The Company expects to meet its
long-term liquidity needs with cash flows from operations and financing arrangements.
Basis
of Presentation
The
condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
The
unaudited interim financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which
in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for
the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes
thereto included in the Company’s Form 10-K for the year ended May 31, 2021. 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 at May 31, 2021 was derived from audited financial statements but does not include all disclosures required by accounting principles
generally accepted in the United States of America.
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 condensed
consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ
from those estimates.
Significant
estimates inherent in the preparation of the 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,
estimates of valuation assumptions for long-lived assets impairment, estimates and assumptions in valuation of debt and equity instruments
and the calculation of share-based compensation. In addition, the Company makes significant judgments to recognize revenue – see
policy note “Revenue Recognition” below.
Fair
Value Measurement
The
Company follows the authoritative guidance that establishes a formal framework for measuring fair values of assets and liabilities in
the condensed consolidated financial statements that are already required by generally accepted accounting principles to be measured
at fair value. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction
in the principal or most advantageous market considered from the perspective of the market participant that holds the asset or owes the
liability.
The
Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing and able to transact
would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.
These inputs can be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
The
Company is able to classify fair value balances based on the observability of those inputs. The guidance establishes a formal fair value
hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority to Level 1 measurements and the lowest
priority to level 3 measurements, and accordingly, Level 1 measurement should be used whenever possible.
The
hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level
1 – Quoted prices in active markets for identical assets or liabilities or published net asset value for alternative investments
with characteristics similar to a mutual fund.
Level
2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level
3 – Unobservable inputs for the asset or liability.
The
methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.
Furthermore, while management believes its valuation methods are appropriate, the fair value of certain financial instruments could result
in a difference fair value measurement at the reporting date. There were no changes in the Company’s valuation methodologies from
the prior year.
For
purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts for financial assets and liabilities
such as cash and cash equivalents, accounts receivable - trade, contract assets, factoring reserve, other prepaid expenses and current
assets, accounts payable – trade and other current liabilities, including contract liabilities, convertible notes, net and current
portion of promissory loans approximate fair value due to their short-term nature as of November 30, 2021 and May 31, 2021. The carrying
amount of the 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 no Level 3 assets or liabilities as of November 30, 2021, and May 31, 2021. There were no transfers
between levels during the reporting period.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. No loss has been experienced,
and management believes it is not exposed to any significant risk on credit.
Accounts
Receivable – Trade
Accounts
receivable - trade from revenue transactions are based on invoiced prices which the Company expects to collect. In the normal course
of business, the Company extends credit to customers that satisfy pre-defined credit criteria. The Company generally does not
require collateral to support customer receivables. Accounts receivable - trade, as shown on the condensed 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 condensed consolidated financial statements, assessments of collectability based on an
evaluation of historic and anticipated trends, the financial condition of the Company’s customers, and an evaluation of the
impact of economic conditions. The maximum accounting loss from the credit risk associated with accounts receivable is the amount of
the receivable recorded, net of allowance for doubtful accounts. As of November 30, 2021 and May 31, 2021, the Company recorded an
allowance for doubtful accounts of approximately $1,010,000
and $240,000,
respectively.
Concentrations
Three
major customers represented approximately 62%
of accounts receivable as of November 30, 2021. Revenue by the significant customers were represented as follows:
SCHEDULE OF CONCENTRATION OF RISK
Customer
|
|
For the Three
Months Ended
November 30, 2021
|
|
|
For the Three
Months Ended
November 30, 2020
|
|
A
|
|
|
54
|
%
|
|
|
37
|
%
|
B
|
|
|
10
|
%
|
|
|
16
|
%
|
C
|
|
|
8
|
%
|
|
|
-
|
|
Total:
|
|
|
72
|
%
|
|
|
53
|
%
|
Customer
|
|
For the Six
Months Ended
November 30, 2021
|
|
|
For the Six
Months Ended
November 30, 2020
|
|
A
|
|
|
40
|
%
|
|
|
33
|
%
|
B
|
|
|
9
|
%
|
|
|
16
|
%
|
C
|
|
|
7
|
%
|
|
|
-
|
|
Total:
|
|
|
56
|
%
|
|
|
49
|
%
|
Off
Balance Sheet Arrangements
On
August 30, 2021, the Company terminated its agreement with an unrelated third party (the “Factor”) for factoring of specific
accounts receivable. The factoring under this agreement was treated as a sale in accordance with FASB ASC 860, Transfers and Servicing,
and is accounted for as an off-balance sheet arrangement. Proceeds from the transfers reflected the face value of the account less a
fee, which is presented in costs and operating expenses on the Company’s condensed consolidated statements of operations in the
period the sale occurs. Net funds received are recorded as an increase to cash and a reduction to accounts receivable outstanding in
the condensed consolidated balance sheets. The Company reported the cash flows attributable to the sale of receivables to third parties
and the cash receipts from collections made on behalf of and paid to third parties, on a net basis as trade accounts receivables in cash
flows from operating activities in the Company’s condensed consolidated statements of cash flows. The net principal balance of
trade accounts receivable outstanding in the books of the factor under the factoring agreement was $31,747,702 as of May 31, 2021. On
June 2, 2021 and on August 30, 2021, the Company repurchased all of its factored trade accounts receivables from the Factor, in the amounts
of $31,596,215 and $1,415,445, respectively, utilizing its TBK revolving credit facility (See Note 5).
During
the factoring agreement in place, the Company acted as the agent on behalf of the Factor for the arrangements and had no significant
retained interests or servicing liabilities related to the accounts receivable sold. The agreement provided the Factor with security
interests in purchased accounts until the accounts have been repurchased by the Company or paid by the customer. In order to mitigate
credit risk related to the Company’s factoring of accounts receivable, the Company may purchase credit insurance, from time to
time, for certain factored accounts receivable, resulting in risk of loss being limited to the factored accounts receivable not covered
by credit insurance, which the Company does not believe to be significant.
During
the three months ended November 30, 2020, the Company factored accounts receivable invoices totaling approximately $73.8 million, pursuant
to the Company’s factoring agreement, representing the face value of the invoices. During the six months ended November 30, 2021
and 2020, the Company factored accounts receivable invoices totaling approximately $4.3 million and $111.7 million, respectively, pursuant
to the Company’s factoring agreement, representing the face value of the invoices. The Company recognizes factoring costs upon
disbursement of funds. The Company incurred expenses totaling approximately $1,410,000, pursuant to the agreements for the three months
ended November 30, 2020. The Company recognizes factoring costs upon disbursement of funds. The Company incurred expenses totaling approximately
$27,000 and $1,884,000, pursuant to the agreements for the six months ended November 30, 2021 and 2020. Factoring expenses are presented
in costs and operating expenses on the condensed consolidated statement of operations.
Income
Taxes
The
Company files a consolidated income tax return for federal and most state purposes.
Management
has determined that there are no uncertain tax positions that would require recognition in the consolidated financial statements. If
the Company were to incur an income tax liability in the future, interest and penalties on any income tax liability would be reported
as interest expense. Management’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later
date based on ongoing analysis of tax laws, regulations, and interpretations thereof as well as other factors. Generally, federal, state,
and local authorities may examine the Company’s tax returns for three
to four
years from the filing date and the current and
prior three to four years remain subject to examination as of December 31, 2020 for the UL US Entities, January 31, 2020 for the Company
and May 31, 2020 for Unique Logistics Holdings, Inc.,(“UL HI”), a Delaware corporation, formed on October 28, 2019,
for the purpose of conducting a management buyout of three United States subsidiaries majority owned by Unique Logistics Holdings Ltd.,
a Hong Kong company (“UL HK”).
The
Company uses the assets and liability method of accounting for deferred taxes. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the balance sheet carrying amounts of existing assets and liabilities
and their respective tax basis. As of November 30, 2021 and May 31, 2021, the Company recognized a deferred tax asset of $568,000 and
$264,000, respectively, which is included in deposits and other assets on the condensed consolidated balance sheets. The Company regularly
evaluates the need for a valuation allowance related to the deferred tax asset.
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 thru the sail or departure from origin port. The Company is the principal in these transactions and recognizes revenue
on a gross basis.
|
|
|
|
|
ii.
|
Freight
income - import sales
|
|
|
|
|
|
Freight
income from the provision of air, ocean, and land freight forwarding services are recognized over time based on a relative transit
time basis thru the delivery to the customer’s designated location. The Company is the principal in these transactions and
recognizes revenue on a gross basis.
|
|
|
|
|
iii.
|
Customs
brokerage and other service income
|
|
|
|
|
|
Customs
brokerage and other service income from the provision of other services are recognized at the point in time the performance obligation
is met.
|
The
Company’s business practices require, for accurate and meaningful disclosure, that it recognizes revenue over time. The “over
time” policy is the period from point of origin to arrival of the shipment at US Port of entry (or in the case when the customer
requires delivery to a designated point, the arrival at that delivery point). This over time policy requires the Company to make significant
judgements to recognize revenue over the estimated duration of time from port of origin to arrival at port of entry. The point in the
process when the Company meets its obligation in the port of entry and the subsequent transfer of the goods to the customer is when the
customer has the obligation to pay, has taken physical possession, has legal title, risk and awards (ownership) and has accepted the
goods. The Company has elected to not disclose the aggregate amount of the transaction price allocated to performance obligations that
are unsatisfied as of the end of the period as the Company’s contracts with its customers have an expected duration of one year
or less.
The
Company uses independent contractors and third-party carriers in the performance of its transportation services. The Company evaluates
who controls the transportation services to determine whether its performance obligation is to transfer services to the customer or to
arrange for services to be provided by another party. The Company determined it acts as the principal for its transportation services
performance obligation since it is in control of establishing the prices for the specified services, managing all aspects of the shipments
process and assuming the risk of loss for delivery and collection.
Revenue
billed prior to realization is recorded as contract liabilities on the condensed consolidated balance sheets and contract costs incurred
prior to revenue recognition are recorded as contract assets on the condensed consolidated balance sheets.
Contract
Assets
Contract
assets represent amounts for which the Company has the right to consideration for the services provided while a shipment is still in-transit
but for which it has not yet completed the performance obligation and has not yet invoiced the customer. Upon completion of the performance
obligations, which can vary in duration based upon the method of transport and billing the customer, these amounts become classified
within accounts receivable - trade.
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 six months ended November 30, 2021:
CSCHEDULE
OF CHANGES IN CONTRACT ASSET AND CONTRACT LIABILITY
|
|
Contract
Assets
Increase (Decrease)
|
|
|
Contract Liabilities
(Increase) Decrease
|
|
|
|
|
|
|
|
|
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligation satisfied
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash Received in advance and not recognized as revenue
|
|
|
-
|
|
|
|
(20,331,879
|
)
|
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional
|
|
|
(11,003,081
|
)
|
|
|
-
|
|
Contract assets recognized, net reclassification to receivables
|
|
|
37,584,026
|
|
|
|
-
|
|
Net Change
|
|
$
|
26,580,945
|
|
|
$
|
(20,331,879
|
)
|
Disaggregation
of Revenue from Contracts with Customers
The
following table disaggregates gross revenue by significant geographic area for the three and six months ended November 30, 2021 and 2020
based on origin of shipment (imports) or destination of shipment (exports):
SCHEDULE OF DISAGGREGATION OF REVENUE
|
|
For the Three
Months Ended
November 30, 2021
|
|
|
For the Three
Months Ended
November 30, 2020
|
|
China, Hong Kong & Taiwan
|
|
$
|
125,312,137
|
|
|
$
|
58,742,573
|
|
Southeast Asia
|
|
|
164,883,397
|
|
|
|
40,546,168
|
|
United States
|
|
|
16,212,165
|
|
|
|
14,946,011
|
|
India Sub-continent
|
|
|
78,801,261
|
|
|
|
6,370,739
|
|
Other
|
|
|
20,221,729
|
|
|
|
4,033,929
|
|
Total revenue
|
|
$
|
405,430,689
|
|
|
$
|
124,639,420
|
|
|
|
For
the Six
Months
Ended
November
30, 2021
|
|
|
For
the Six
Months Ended
November 30, 2020
|
|
China, Hong Kong & Taiwan
|
|
$
|
203,417,446
|
|
|
$
|
95,051,241
|
|
Southeast Asia
|
|
|
240,260,018
|
|
|
|
49,678,000
|
|
United States
|
|
|
23,204,268
|
|
|
|
20,223,652
|
|
India Sub-continent
|
|
|
99,449,575
|
|
|
|
10,386,329
|
|
Other
|
|
|
28,871,242
|
|
|
|
6,715,465
|
|
Total revenue
|
|
$
|
595,202,549
|
|
|
$
|
182,054,687
|
|
Segment
Reporting
Based
on the guidance provided by ASC Topic 280, Segment Reporting, management has determined that the Company currently operates in
one geographical segment 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.
Earnings
per Share
The
Company adopted ASC 260, Earnings per share, guidance from the inception. Earnings per share (“EPS”) is the amount
of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share.
Basic 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 income from continuing operations (if that amount appears in
the consolidated statements of operations) and also 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, stock options or warrants.
The
following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income attributable
to common stockholders per common share.
SCHEDULE OF EARNING PER SHARE
|
|
November 30, 2021
|
|
|
November 30, 2020
|
|
|
|
For the Three Months Ended
|
|
|
|
November 30, 2021
|
|
|
November 30, 2020
|
|
Numerator:
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
4,488,225
|
|
|
|
1,397,183
|
|
Effect of dilutive securities:
|
|
|
391,035
|
|
|
|
175,356
|
|
|
|
|
|
|
|
|
|
|
Diluted net income
|
|
$
|
4,879,260
|
|
|
$
|
1,572,539
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
1,764,049,961
|
|
|
|
1,393,560,488
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities (a):
|
|
|
|
|
|
|
|
|
Series A Preferred
|
|
|
1,316,157,000
|
|
|
|
1,177,041,100
|
|
Series B Preferred
|
|
|
5,499,034,800
|
|
|
|
5,499,034,800
|
|
Convertible notes
|
|
|
2,320,223,646
|
|
|
|
1,236,932,052
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and assumed conversion – diluted
|
|
|
10,899,465,407
|
|
|
|
9,306,568,440
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
(a) - Anti-dilutive securities excluded:
|
|
|
-
|
|
|
|
-
|
|
|
|
November 30, 2021
|
|
|
November 30, 2020
|
|
|
|
For the Six Months Ended
|
|
|
|
November 30, 2021
|
|
|
November 30, 2020
|
|
Numerator:
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
6,511,641
|
|
|
|
823,046
|
|
Effect of dilutive securities:
|
|
|
776,515
|
|
|
|
175,356
|
|
|
|
|
|
|
|
|
|
|
Diluted net income
|
|
$
|
7,288,156
|
|
|
$
|
998,402
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
1,687,489,133
|
|
|
|
1,308,705,539
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities (a):
|
|
|
|
|
|
|
|
|
Series A Preferred
|
|
|
1,316,157,000
|
|
|
|
1,177,041,100
|
|
Series B Preferred
|
|
|
5,499,034,800
|
|
|
|
5,499,034,800
|
|
Convertible notes
|
|
|
2,320,223,646
|
|
|
|
1,236,932,052
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and assumed conversion – diluted
|
|
|
10,822,904,579
|
|
|
|
9,221,713,491
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
(a) - Anti-dilutive securities excluded:
|
|
|
-
|
|
|
|
-
|
|
2.
|
PROPERTY
AND EQUIPMENT
|
Major
classifications of property and equipment are summarized below:
SCHEDULE OF PROPERTY AND EQUIPMENT
|
|
November 30, 2021
|
|
|
May 31, 2021
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
97,716
|
|
|
$
|
84,085
|
|
Computer equipment
|
|
|
135,746
|
|
|
|
108,479
|
|
Software
|
|
|
30,609
|
|
|
|
27,780
|
|
Leasehold improvements
|
|
|
27,146
|
|
|
|
27,146
|
|
Property and equipment, gross
|
|
|
291,217
|
|
|
|
247,490
|
|
Less: accumulated depreciation
|
|
|
(90,496
|
)
|
|
|
(55,398
|
)
|
Property and equipment, net
|
|
$
|
200,721
|
|
|
$
|
192,092
|
|
Depreciation
expense charged to income for the three months ended November 30, 2021 and 2020 amounted to $18,088 and $14,611. Depreciation expense
charged to income for the six months ended November 30, 2021 and 2020 amounted to $35,098 and $28,643.
Intangible
assets consist of the following:
SCHEDULE OF INTANGIBLE ASSETS
|
|
November 30, 2021
|
|
|
May 31, 2021
|
|
|
|
|
|
|
|
|
Trade names / trademarks
|
|
$
|
806,000
|
|
|
$
|
806,000
|
|
Customer relationships
|
|
|
7,633,000
|
|
|
|
7,633,000
|
|
Non-compete agreements
|
|
|
313,000
|
|
|
|
313,000
|
|
Finite lived intangible assets, gross
|
|
|
8,752,000
|
|
|
|
8,752,000
|
|
Less: Accumulated amortization
|
|
|
(1,060,721
|
)
|
|
|
(707,147
|
)
|
Finite lived intangible assets, net
|
|
$
|
7,691,279
|
|
|
$
|
8,044,853
|
|
Amortizable
intangible assets, including tradenames and non-compete agreements, are amortized on a straight-line basis over 3 to 10 years. Customer
relationships are amortized on a straight-line basis over 12 to 15 years. For the three months ended November 30, 2021 and 2020, amortization
expense related to the intangible assets was $176,787. For the six months ended November 30, 2021 and 2020, amortization expense related
to the intangible assets was $353,574. As of November 30, 2021, the weighted average remaining useful lives of these assets was 7.83
years.
Estimated
amortization expense for the next five years and thereafter is as follows:
SCHEDULE OF ESTIMATED AMORTIZATION EXPENSE
Twelve Months Ending November 30,
|
|
|
|
2022
|
|
$
|
353,574
|
|
2023
|
|
|
707,148
|
|
2024
|
|
|
602,814
|
|
2025
|
|
|
602,814
|
|
2026
|
|
|
602,814
|
|
Thereafter
|
|
|
4,822,114
|
|
Intangible
assets, net
|
|
$
|
7,691,279
|
|
4.
|
ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES
|
Accrued
expenses and other current liabilities consisted of the following:
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
|
November 30, 2021
|
|
|
May 31, 2021
|
|
|
|
|
|
|
|
|
Accrued salaries and related expenses
|
|
$
|
351,021
|
|
|
$
|
672,455
|
|
Accrued sales and marketing expense
|
|
|
2,067,913
|
|
|
|
539,810
|
|
Accrued professional fees
|
|
|
181,066
|
|
|
|
75,000
|
|
Accrued income tax
|
|
|
2,678,991
|
|
|
|
256,286
|
|
Accrued overdraft liabilities
|
|
|
5,065,419
|
|
|
|
790,364
|
|
Accrued interest expense
|
|
|
249,557
|
|
|
|
-
|
|
Other accrued expenses and current liabilities
|
|
|
116,039
|
|
|
|
50,000
|
|
Accrued expenses and
other current liabilities
|
|
$
|
10,710,006
|
|
|
$
|
2,383,915
|
|
5.
|
FINANCING
ARRANGEMENTS
|
Financing
arrangements on the consolidated balance sheets consists of:
SCHEDULE OF FINANCING ARRANGEMENT
|
|
November 30, 2021
|
|
|
May 31, 2021
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
|
$
|
29,833,248
|
|
|
$
|
-
|
|
Promissory note (PPP)
|
|
|
-
|
|
|
|
358,236
|
|
Promissory notes (EIDL)
|
|
|
-
|
|
|
|
150,000
|
|
Notes payable
|
|
|
4,526,677
|
|
|
|
2,528,886
|
|
Convertible notes – net of discount of $1,656,792 and $1,607,283, respectively
|
|
|
2,204,366
|
|
|
|
2,441,551
|
|
|
|
|
36,564,291
|
|
|
|
5,478,673
|
|
Less: current portion (1)
|
|
|
(33,751,587
|
)
|
|
|
(2,285,367
|
)
|
|
|
$
|
2,812,704
|
|
|
$
|
3,193,306
|
|
|
(1)
|
As
of November 30, 2021, a current portion of outstanding debt is represented by a revolving line of credit in the amount of $29,833,248
and of a current portion of the notes payable in the amount of $3,918,339.
|
Revolving
Credit Facility
On
June 1, 2021, the Company entered into a Revolving Purchase, Loan and Security Agreement (the “TBK Agreement”) with TBK BANK,
SSB, a Texas State Savings Bank (“Purchaser”), for a facility under which Purchaser will, from time to time, buy approved
receivables from the Seller. The TBK Agreement provides for Seller to have access to the lesser of (i) $30 million (“Maximum Facility”)
and (ii) the Formula Amount (as defined in the TBK Agreement). Upon receipt of any advance, Seller agreed to sell and assign all of its
rights in accounts receivables and all proceeds thereof. Seller granted to Purchaser a continuing ownership interest in the accounts
purchased under the Agreement. Seller granted to Purchaser a continuing first priority security interest in all of Seller’s assets.
The facility is for an initial term of twenty-four (24) months (the “Term”) and may be extended or renewed, unless terminated
in accordance with the TBK Agreement. The TBK Agreement replaced the Company’s prior agreement with Corefund Capital, LLC (“Core”)
entered into on May 29, 2020, pursuant to which Core agreed to purchase from the Company up to an aggregate of $25 million of accounts
receivables (the “Core Facility”).
The
Core Facility provided Core with security interests in purchased accounts until the accounts have been repurchased by the Company or
paid by the customer. As of June 1, 2021, the Core Facility has been terminated along with all security interests granted to Core and
replaced with the TBK Agreement. This facility temporarily renewed on June 17, 2021, under the same terms and conditions as the original
agreement and the credit line was set at $2.0 million and terminated again on August 31, 2021, after the Company repurchased all its
factored accounts receivable.
On
August 4, 2021, the parties to the TBK Agreement entered into a First Amendment Agreement to increase the credit facility from $30.0
million to $40.0 million during the Temporary Increase Period, the period commencing on August 4, 2021, through and including December
2, 2021, with all other terms of the original TBK Agreement remained unchanged.
On
September 17, 2021, the parties to the TBK Agreement entered into a Second Amendment to the TBK Agreement primarily to increase the credit
facility from $40.0 million to $47.5 million for the period commencing on August 4, 2021, through and including January 31, 2022.
Purchase
Money Financing
On
September 8, 2021 (the “Effective Date”), the Company entered into a Purchase Money Financing Agreement (the “Financing
Agreement”) with Corefund Capital, LLC (“Corefund”) in order to enable the Company to finance additional cargo charter
flights for the peak shipping season.
Pursuant
to the Financing Agreement, the Company may, from time to time, request financing from Corefund to enable the Company to engage Company’s
suppliers to provide chartered cargo flights for the Company’s clients. The Company may also request that Corefund tender payments
directly to a supplier. Corefund requires payments from a buyer to be made to a Deposit Account Control Agreement account at an agreed
upon bank where Corefund is the sole director and accessor to the account for the term of the relationship.
As
collateral securing its obligations under the Financing Agreement, the Company granted Corefund a continuing security interest in all
of the Company’s now owned and hereafter acquired Accounts Receivable (“Collateral”) subject to the security interest
granted pursuant to that certain Revolving Purchase, Loan and Security Agreement, dated as of June 2, 2021. Immediately upon an Event
of Default (as defined in the Financing Agreement), all outstanding obligations shall accrue interest at the rate of 0.1% (one-tenth
of one percent) per day. If the Company substantially ceases operating as a going concern, and the proceeds of the Collateral created
after the occurrence of an Event of Default (the “Default”) are in excess of the obligations at the time of Default, the
Company shall pay to Corefund a liquidation success premium of 10 percent of the amount of such excess. The Financing Agreement contains
ordinary and customary provisions for agreements and documents of this nature, such as representations, warranties, covenants, and indemnification
obligations, as applicable.
Promissory
Note (PPP)
On
March 9, 2021, the Company was granted a loan in the aggregate amount of $358,236, pursuant to the second round of the Paycheck Protection
Program (the “PPP”) under the CARES Act. The Loan, which was in the form of a note, matures on March 5, 2026, and bears interest
at a rate of 1% per annum. The Loan is payable in equal monthly instalments after the Deferral Period which ends on the day of the Forgiveness
Deadline. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. The funds from the Loan
may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, and utilities. The Company
intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven
if they are used for qualifying expenses as described in the CARES Act. The Loan was forgiven on August 9, 2021 and is included in gain
on forgiveness of promissory notes on the condensed consolidated statements of operations.
Notes
Payable
On
May 29, 2020, the Company entered into a $1,825,000 note payable as part of the acquisition related to UL ATL. The loan bears a zero
percent interest rate and has a maturity of three years, or May 29, 2023. The agreement calls for six semi-annual payments of $304,166.67,
for which the first payment was due on November 29, 2020. As of November 30, 2021, and May 31, 2021, the outstanding balance due under
the note was $912,500 and $1,825,000, respectively.
On
May 29, 2020, the Company entered into a non-compete, non-solicitation and non-disclosure agreement with a former owner of UL
ATL. The amount payable under the agreement is $500,000
over a three-year period. The agreement calls for twenty-four monthly non-interest-bearing payments of $20,833.33 with the first payment on June 29, 2020. As of November 30,
2021, and May 31, 2021, the outstanding balance due under the agreement was $125,006
and $500,000,
respectively.
On
March 19, 2021 the Company issued to an accredited investor a 10% promissory note in the principal aggregate amount of $1,000,000 (the
“Trillium Note”) due and payable in 30 days. The Company received aggregate gross proceeds of $1,000,000. On April 7, 2021,
the Company entered into an Amended and Restated Promissory Note (the “Amended and Restated Note”) superseding and replacing
the Original Note. The Amended and Restated Note is in the principal aggregate amount of $1,000,000 and bears interest at a rate of a
guaranteed 7.5% or $75,000 at maturity. The Amended and Restated Note matures on June 15, 2021. On September 23, 2021, the Company further
amended the Amended and Restated Note pursuant to which the Company and Trillium agreed to extend the maturity date of the Amended and
Restated Note to December 31, 2021. As of November 30, 2021, and May 31, 2021, the outstanding balance due under the agreement was $1,249,166
and $1,062,215, respectively.
On
October 1, 2021, the Company entered into a Securities Purchase Agreement with Trillium Partners LP and Carpathia LLC (each a “Buyer”)
pursuant to which the Company issued to each Buyer a Note in the aggregate principal amount of $1,000,000, respectively, for a total
of $2,000,000 (collectively the “Notes”). The Notes mature on March 31, 2022 (the “Maturity Date”). Interest
on this Notes shall initially accrue on the outstanding Principal Amount (as defined therein) at a rate equal to twelve (12) % per annum
during the first 120 calendar days following the issuance date of this Note (“Issue Date”). Commencing 121 days following
the Issue Date and continuing thereafter, absent an Event of Default, interest shall accrue on the outstanding Principal Amount at a
rate equal to eighteen (18) % per annum. The Principal Amount and all accrued Interest shall become due and payable on the Maturity Date.
Upon the occurrence of any Event of Default, including at any time following the Maturity Date, a default interest rate equal to twenty
four percent (24%) per annum shall be in effect as to all unpaid principal then outstanding. The Company shall pay a minimum interest
payment equal to twelve percent (12%) on the Principal Amount, or $120,000 (“Minimum Interest Payment”). The Company may
prepay the Notes at any time in whole or in part by making a payment equal to (a) the Principal Amount owed under the Notes plus (b)
the greater of: (i) all accrued and unpaid interest, or (ii) the Minimum Interest Payment. As of November 30, 2021, the outstanding balance
on each of these notes was $1,120,000 and $0, respectively. As of November 30, 2021, the each of the notes included $120,000 of accrued
interest.
Convertible
Notes
Trillium
SPA
On
October 8, 2020, the Company entered into a Securities Purchase Agreement (the “Trillium SPA”) with Trillium Partners (“Trillium”)
pursuant to which the Company sold to Trillium (i) a 10% secured subordinated convertible promissory note in the principal aggregate
amount of $1,111,000 (the “Trillium Note”) realizing gross proceeds of $1,000,000 (the “Proceeds”) and (ii) a
warrant to purchase up to 570,478,452 shares of the Company’s common stock at an exercise price of $0.001946, subject to adjustment
as provided therein (the “Trillium Warrant”). The Trillium Note was to mature on October 6, 2021 and is convertible at any
time. The Company shall pay interest on a quarterly basis in arrears.
The
Company initially determined the fair value of the warrant and the beneficial conversion feature of the note using the Black-Scholes
model and recorded an adjustment to the carrying value of the note liability with an equal and offsetting adjustment to Stockholders’
Equity.
The
note was amended on October 14, 2020, to adjust the conversion price to $0.00179638. Upon amendment, the Company accounted for the modification
as debt extinguishment and recorded a loss in the statement of operations for the period ended November 30, 2020.
On
June 1, 2021, this Note maturity was extended to October 6, 2022.
On
August 19, 2021, Trillium entered into a Securities Exchange Agreement as discussed below.
During
the six months ended November 30, 2021, a noteholder converted $131,759 of principal and interest of the convertible note into 73,346,191
shares of the Company’s common stock at a rate of $0.00179640 per share. As of November 30, 2021, and May 31, 2021, the outstanding
balance on the Trillium Note was $1,030,000 and $1,104,500.
3a
SPA
On
October 14, 2020, the Company entered into a Securities Purchase Agreement (the “3a SPA”) with 3a Capital Establishment (“3a”)
pursuant to which the Company sold to 3a (i) a 10% secured subordinated convertible promissory note in the principal aggregate amount
of $1,111,000 (the “3a Note”) realizing gross proceeds of $1,000,000 (the “Proceeds”) and (ii) a warrant to purchase
up to 570,478,452 shares of the Company’s common stock at an exercise price of $0.001946, subject to adjustment as provided therein
(the “3a Warrant”). The 3a Note matures on October 6, 2021 (the “Maturity Date”) and is convertible at any time.
The
Company determined the fair value of the warrant using the Black-Scholes model and recorded an adjustment to the carrying value of the
note liability with an equal and offsetting adjustment to Stockholders Equity. The warrant had a grant date fair value of $563,156 and
the beneficial conversion feature was valued at $436,844.
On
June 1, 2021, this Note maturity was extended to October 6, 2022. Upon this amendment the Company accounted for this modification as
debt extinguishment and recorded a net gain of $383,819 in the condensed consolidated statements of operations for the period ended November
30, 2021.
On
August 19, 2021, 3a entered into a Securities Exchange Agreement as discussed below (See Securities Exchange Agreement).
As
of November 30, 2021 and May 31, 2021 the total unamortized debt discount related to the 3a SPA was $490,528 and $391,757, respectively.
During the three and six months ended November 30, 2021, the Company recorded amortization of debt discount totaling $141,598 and $285,048,
respectively.
During
the three months ended November 30, 2021, the noteholder converted $41,317 in convertible notes into 23,000,000 shares of the Company’s
common stock at a rate of $0.00179638 per share. During the six months ended November 30, 2021, a noteholder converted $113,172 in convertible
notes into 63,000,000 shares of the Company’s common stock at a rate of $0.00179638 per share. As of November 30, 2021 and May
31, 2021, the outstanding principal balance on the 3a Note was $997,828 and $1,111,000, respectively.
Trillium
and 3a January Convertible Notes
On
January 28, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Trillium Partners
LP (“Trillium”) and 3a Capital Establishment (“3a” together with Trillium, the “Investors”) pursuant
to which the Company sold to each of the Investors (i) a 10% secured subordinated convertible promissory note in the principal aggregate
amount of $916,666 or $1,833,333 in the aggregate (each a “Note” and together the “Notes”) realizing gross proceeds
of $1,666,666 (the “Proceeds”).
The
Notes mature on January 28, 2022 (the “Maturity Date”) and are convertible at any time. The conversion price of the Note
is $0.0032 (the “Conversion Price”). The Company determined the fair value of the warrant using the Black-Scholes model and
recorded an adjustment to the carrying value of the note liability with an equal and offsetting adjustment to Stockholders Equity. The
beneficial conversion feature for both Notes was valued at $1,666,666.
On
June 1, 2021, maturity of these Notes was extended to January 28, 2023. Upon this amendment the Company accounted for this modification
as debt extinguishment and recorded a net gain of $247,586.
On
August 19, 2021, investors entered into a Securities Exchange Agreement as discussed below (See Securities Exchange Agreement).
As
of November 30, 2021 and May 31, 2021, the total unamortized debt discount related these Notes was $1,157,290 and $1,215,526, respectively.
During the three months ended November 30, 2021 and 2020, the Company recorded amortization of debt discount totaling $243,882 and $162,212.
During the six months ended November 30, 2021 and 2020, the Company recorded amortization of debt discount totaling $491,467 and $162,212.
As of November 30, 2021, and May 31, 2021, the outstanding balance on these convertible notes was $1,833,334.
Covenants
As
of November 30, 2021 and May 31, 2020, the Company was in compliance with all covenants and debt agreements except for Trillium and 3a
where the Company was deemed to be in default. On January 29, 2021, the Company and the investors (Trillium and 3a) entered into a waiver
agreement which waived any and all defaults underlying the 3a, Trillium and 3a SPA’s and the Trillium and 3a Notes for a period
of six months. Subsequently, the Company signed the Securities Exchange Agreement extending this waiver until a Termination Date event
as described below.
Securities
Exchange Agreements
On
August 4, 2021, the Company entered into a securities exchange agreement (the “Exchange Agreement”) with the investors (Trillium
and 3a) holding the above listed notes and warrants of the Company (each, including its successors and assigns, a “Holder”
and collectively the “Holders”). Pursuant to the Exchange Agreement, the Company agreed to issue, and the Holders agreed
to acquire the New Securities (as defined herein) in exchange for the Surrendered Securities (the “Old Notes” defined as
October and January Notes and Warrants in the Exchange Agreement). “New Securities” means a number of Exchange Shares (as
defined in the Exchange Agreement) determined by applying the Exchange Ratio (as defined in the Exchange Agreement) upon consummation
of a registered public offering of shares of the Company’s Common Stock (and warrants if included in such financing), at a valuation
of not less than $200,000,000.00 pre-money, pursuant to which the Company receives gross proceeds of not less than $20,000,000 and the
Company’s Trading Market is a National Securities Exchange (the “Qualified Financing”).
To
extent that any events that have occurred prior to the date hereof that could have resulted in an event of default under the Old Notes
the Holders hereby waive the occurrence of any such event of default. From the date hereof through the earlier of date of (i) the Closing
of the Exchange, or (ii) the Termination Date, the Holders agree to forebear from declaring any such event of default and further agree
that will not take any steps to collect on the Old Notes and collect any liquidated damages owed under the Old Registration Rights Agreement
(“RRA”). In the event the Exchange closes on or before the Termination Date, the defaults under the Old Notes will be permanently
waived and any liquidated damages accrued under the Old RRAs will be forgiven. If the Exchange does not close on or before the Termination
Date, the Company will be required to pay all the liquidated damages accrued under the Old RRAs as if this Agreement was never executed
and the Holders will be entitled to all of the rights and remedies under the Old Transaction Documents.
Amended
Securities Exchange Agreement
On
December 10, 2021, Unique Logistics International, Inc. (the “Company”) entered into an amended securities exchange agreement
(See Subsequent Event Note 11)
Upon
effectiveness of the Amended Exchange Agreement, the Company no longer has any outstanding convertible notes or warrants.
Future
maturities related to the above promissory notes, notes payable and convertible notes are as follows:
SCHEDULE OF FUTURE MATURITIES OF PROMISSORY NOTES
Twelve Months Ending November 30,
|
|
|
|
2022
|
|
$
|
3,918,339
|
|
2023
|
|
|
4,469,496
|
|
Long-term Debt, Gross
|
|
|
8,387,834
|
|
Less: current portion
|
|
|
(3,918,339
|
)
|
Less: unamortized discount
|
|
|
(1,656,792
|
)
|
Long term, notes payable
|
|
$
|
2,812,704
|
|
6.
|
RELATED
PARTY TRANSACTIONS
|
Related
party debt consisted of the following:
SCHEDULE OF RELATED PARTY TRANSACTIONS
|
|
November 30, 2021
|
|
|
May 31, 2021
|
|
|
|
|
|
|
|
|
Due to Frangipani Trade Services (1)
|
|
$
|
753,273
|
|
|
$
|
903,927
|
|
Due to employee (2)
|
|
|
45,000
|
|
|
|
60,000
|
|
Due to employee (3)
|
|
|
99,994
|
|
|
|
149,996
|
|
|
|
|
898,267
|
|
|
|
1,113,923
|
|
Less: current portion
|
|
|
(198,933
|
)
|
|
|
(397,975
|
)
|
|
|
$
|
699,334
|
|
|
$
|
715,948
|
|
|
(1)
|
Due
to Frangipani Trade Services (“FTS”), an entity owned by the Company’s CEO, is due on demand and is non-interest
bearing. The principal amount of this Promissory Note bears no interest; provided that any amount due under this Note which is not
paid when due shall bear interest at an interest rate equal to six percent (6%) per annum. The principal amount is due and payable
in six payments of $150,655 the first payment due on November 30, 2021, with each succeeding payment to be made six months after
the preceding payment.
|
|
|
|
|
(2)
|
On
May 29, 2020, the Company entered into a $90,000 payable with an employee for the acquisition of UL BOS common stock from a previous
owner. The payment terms consist of thirty-six monthly non-interest-bearing payments of $2,500 from the date of closing.
|
|
|
|
|
(3)
|
On
May 29, 2020, the Company entered into a $200,000 payable with an employee for the acquisition of UL BOS common stock from a previous
owner. The payment terms consist of thirty-six monthly non-interest-bearing payments of $5,556 from the date of closing.
|
Consulting
Agreements
Unique
entered into a Consulting Services Agreement on May 29, 2020 for a term of three years with Great Eagle Freight Limited
(“Great Eagle” or “GEFD”), a Hong Kong Company (the “Consulting Services Agreement”) where the
Company pays $500,000
per year until the expiration of the agreement on May 28, 2023. The fair value of the services was determined to be less than the
cash payments and the difference was recorded as Contingent Liability on the consolidated balance sheets and amortized over the life
of the agreement. Unique paid $250,000
during the year ended May 31, 2021, and amortized balances were $424,002
and $565,338
as of November 30, 2021 and May 31, 2021, respectively.
The
Company utilizes financial reporting services from the firm owned and controlled by David Briones, a member of the Board of Directors.
The service fees are $5,000 per month. Total fees were $15,000 and none for three months ended November 30, 2021 and 2020, respectively.
Total fees were $30,000 and none for six months ended November 30, 2021 and 2020, respectively.
Accounts
Receivable - trade and Accounts Payable - trade
Transactions
with related parties account for $39,565,861 and $54,899,638 of accounts receivable and accounts payable as of November 30, 2021, respectively
compared to $1,274,250 and $10,839,224 of accounts receivable and accounts payable as of May 31, 2021.
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 and six months ended November 30, 2021, these transactions represented $0.3 million and $0.8 million of revenue,
respectively.
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 and six months ended November 30, 2020, these transactions represented $0.6 million and $1.2 million of revenue,
respectively.
Direct
costs are services billed to the Company by related parties for shipping activities. For the three and six months ended November 30,
2021, these transactions represented $29.3 million and $101.2 million of total direct costs, respectively.
Direct
costs are services billed to the Company by related parties for shipping activities. For the three and six months ended November 30,
2020, these transactions represented $23.2 million and $27.6 million of total direct costs, respectively.
We
have two savings plans that qualify under Section 401(k) of the Internal Revenue Code. Eligible employees may contribute a portion of
their salary into the savings plans, subject to certain limitations. In one of which the Company has the discretionary option of matching
employee contributions and in the other the Company matches 20% on the first 100% contribution. In either Plan, employees can contribute
1% to 98% of gross salary up to a maximum permitted by law. The Company recorded expense of $52,028 and $0 for the three months ended
November 30, 2021 and 2020, respectively. The Company recorded expense of $56,321 and $12,727 for the six months ended November 30, 2021
and 2020, respectively.
Common
Stock
On
June 28, 2021, a noteholder converted $71,855.20 in convertible notes (principal and interest) into 40,000,000 shares of the Company’s
common stock at a rate of $0.00179638 per share.
On
July 8, 2021, a noteholder converted $15,620.83 in convertible notes (principal and interest) into 8,695,727 shares of the Company’s
common stock at a rate of $0.00179638 per share.
On
August 3, 2021, a noteholder converted $24,418.89 in convertible notes (principal and interest) into 13,593,388 shares of the Company’s
common stock at a rate of $0.00179638 per share.
On
August 9, 2021, a noteholder converted $12,820.83 in convertible notes (principal and interest) into 7,137,037 shares of the Company’s
common stock at a rate of $0.00179638 per share.
On
September 28, 2021, a noteholder converted $53,054.86 in convertible notes (principal and interest) into 29,534,319 shares of the Company’s
common stock at a rate of $0.00179638 per share.
On
October 27, 2021, a noteholder converted $41,317
in convertible notes (principal and interest)
into 23,000,000
shares of the Company’s common stock at a rate of $0.00179638
per
share.
Preferred
Shares
Series
B Convertible Preferred
On
August 13, 2021, Unique Logistics International, Inc. (the “Company”) issued 125,692,224 shares of the Company’s common
stock (the “Preferred Conversion Shares”) pursuant to the conversion of 19,200 shares of Series B Convertible Preferred Stock
held by Frangipani Trade Services Inc, an entity 100% owned by the Company’s Chief Executive Officer.
Warrants
The
following is a summary of the Company’s warrant activity:
SCHEDULE OF WARRANTS ACTIVITY
|
|
|
|
|
Weighted Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Outstanding – May 31, 2021
|
|
|
1,140,956,904
|
|
|
$
|
0.002
|
|
Exercisable – May 31, 2021
|
|
|
1,140,956,904
|
|
|
$
|
0.002
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding – November 30, 2021
|
|
|
1,140,956,904
|
|
|
$
|
0.002
|
|
Exercisable – November 30, 2021
|
|
|
1,140,956,904
|
|
|
$
|
0.002
|
|
SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.002
|
|
|
|
1,140,956,904
|
|
|
|
3.85
|
|
|
$
|
0.002
|
|
|
|
1,140,956,904
|
|
|
$
|
0.002
|
|
On
November 30, 2021, the total intrinsic value of warrants outstanding
and exercisable was $18,088,731.
9.
|
COMMITMENTS
AND CONTINGENCIES
|
Pending
acquisitions
On
August 23, 2021, the Company and Unique Logistics Limited, Hong Kong (“ULHK”) entered into a Non-Binding Term Sheet for the
Company’s purchase from ULHK of (i) 65% of the capital stock of Unique Logistics International India (Private) Ltd.; (ii) 50% of
the capital stock of ULI (North & East China) Company Limited; (iii) 50% of the capital stock of Unique Logistics International (Shanghai)
Co. Ltd; (iv) 50% of the capital stock of ULI International Co. Ltd.; (v) 49.99% of TGF Unique Limited; (vi) 100% of the capital stock
of Unique Logistics International (H.K.) Limited; (vii) 65% of the capital stock of Unique Logistics International (Vietnam) Co. Ltd.;
(viii) 70% of the capital stock of ULI (South China) Limited; (ix) 100% of the capital stock of Unique Logistics International (South
China) Ltd.; and (x) 100 of the capital stock of Shenzhen Unique Logistics Limited (collectively the “ULHK Entities”). The
initial purchase price, subject to adjustment, to be paid for the ULHK Entities is $22,000,000 payable as follows (i) $21,000,000 payable
at closing (ii) $1,000,000 in the form of a zero interest 24-month promissory note. Seller shall also be entitled to an additional $2,500,000
payable (the “Earn-Out
The initial purchase price, subject to adjustment, to be paid for the ULHK Entities is $22,000,000 payable as follows (i) $210,000,000
payable at closing (ii) $1,000,000 in the form of a zero interest 24-month promissory note. Seller shall also be entitled to an additional
$2,500,000 payable (the “Earn-Out Payment”) by March 31, 2023, in the event that ULHK Entities EBITDA exceeds $5,000,000 for
the calendar year of 2022. Should ULHK Entities EBITDA be less than $5,000,000 but more than $4,500,000 for the 2022 calendar year, the
Earn-Out Payment will be adjusted to $2,000,000. No Earn-Out will be paid if the EBITDA of the ULHK Entities is less than $4,500,000 for
the 2022 calendar year.
Payment”)
by March 31, 2023, in the event that ULHK Entities EBITDA exceeds $5,000,000 for the calendar year of 2022. Should ULHK Entities EBITDA
be less than $5,000,000 but more than $4,500,000 for the 2022 calendar year, the Earn-Out Payment will be adjusted to $2,000,000. No
Earn-Out will be paid if the EBITDA of the ULHK Entities is less than $4,500,000 for the 2022 calendar year.
The
purchase of ULHK Entities is subject to, among other things, due diligence, receipt and review of definitive agreements, receipt of certain
regulatory approvals, audited financial statements, material third part consents and consent of minority shareholders of ULHK Entities
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:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
November 30, 2021
|
|
|
November 30, 2020
|
|
Operating lease
|
|
$
|
430,483
|
|
|
$
|
383,860
|
|
Interest on lease liabilities
|
|
|
34,948
|
|
|
|
47,324
|
|
Total net lease cost
|
|
$
|
465,431
|
|
|
$
|
431,184
|
|
|
|
For the Six
Months Ended
|
|
|
For the Six
Months Ended
|
|
|
|
November 30, 2021
|
|
|
November 30, 2020
|
|
Operating lease
|
|
$
|
792,684
|
|
|
$
|
737,424
|
|
Interest on lease liabilities
|
|
|
87,332
|
|
|
|
98,065
|
|
Total net lease cost
|
|
$
|
880,016
|
|
|
$
|
835,489
|
|
Supplemental
balance sheet information related to leases was as follows:
SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION
|
|
November 30, 2021
|
|
|
May 31, 2021
|
|
|
|
|
|
|
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
Operating lease ROU assets – net
|
|
$
|
3,087,387
|
|
|
$
|
3,797,527
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities, included in current liabilities
|
|
|
1,399,186
|
|
|
|
1,466,409
|
|
Noncurrent operating lease liabilities, included in long-term liabilities
|
|
|
1,799,273
|
|
|
|
2,431,144
|
|
Total operating lease liabilities
|
|
$
|
3,198,459
|
|
|
$
|
3,897,553
|
|
Supplemental
cash flow and other information related to leases was as follows:
SCHEDULE OF SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION
|
|
For the Six
Months Ended
November, 2021
|
|
|
For the Six
Months Ended
November, 2020
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
-
|
|
|
$
|
639,338
|
|
ROU assets obtained in exchange for lease liabilities:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
-
|
|
|
$
|
223,242
|
|
Weighted average remaining lease term (in years):
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
3.90
|
|
|
|
4.20
|
|
Weighted average discount rate:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4.25
|
%
|
|
|
4.25
|
%
|
Future
minimum lease payments under noncancelable operating leases are as
follows:
SCHEDULE OF MINIMUM LEASE PAYMENTS
Twelve Months Ending November 30,
|
|
|
|
2022
|
|
$
|
1,500,001
|
|
2023
|
|
|
525,640
|
|
2024
|
|
|
509,667
|
|
2025
|
|
|
354,528
|
|
2026
|
|
|
211,383
|
|
Thereafter
|
|
|
373,181
|
|
Total lease payments
|
|
|
3,474,400
|
|
Less: imputed interest
|
|
|
(275,941
|
)
|
Total lease obligations
|
|
$
|
3,198,459
|
|
The
income tax expense consists of the following:
SCHEDULE OF INCOME TAX EXPENSE
|
|
November 30, 2021
|
|
|
November 30, 2020
|
|
Federal provision (benefit)
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
2,388,000
|
|
|
$
|
307,199
|
|
Deferred
|
|
|
(259,579
|
)
|
|
|
-
|
|
State and Local provision (benefit)
|
|
|
|
|
|
|
-
|
|
Current
|
|
|
453,000
|
|
|
|
-
|
|
Deferred
|
|
|
(44,421
|
)
|
|
|
-
|
|
Total
provision
|
|
$
|
2,537,000
|
|
|
$
|
307,199
|
|
A
reconciliation of the provision for income taxes using the statutory federal income tax rate to our effective income tax rate for the
period ended November 30, 2021, is as follows:
SCHEDULE
OF EXPECTED TAX EXPENSE (BENEFIT)
|
|
For
the Six
Months
Ended
November 30, 2021
|
|
|
For
the Six
Months
Ended
November 30, 2020
|
|
Federal statutory rate (%)
|
|
|
21
|
%
|
|
|
21
|
%
|
State income taxes, net of federal benefit
|
|
|
4
|
%
|
|
|
4
|
%
|
Change in valuation allowance
|
|
|
(3
|
)%
|
|
|
-
|
%
|
Other, net
|
|
|
6
|
%
|
|
|
3
|
%
|
Effective income tax rate (%)
|
|
|
28
|
%
|
|
|
27
|
%
|
As
of November 30, 2020, the Company recorded a full valuation allowance against the deferred tax assets due to insufficient evidence to
support the utilization of these benefits.
Information
Statement
On
November 29, 2021, the Company filed an Information Statement with the SEC for the holders of record of the outstanding common stock,
informing them of the actions to be effective at least 20 days after the mailing of the Information Statement. Contemplated actions are:
A
reverse stock split of the Company’s issued and outstanding shares of Common Stock (the “Reverse Stock Split”) with
a ratio within the range of 1-for-300 to 1-for-400 (the “Reverse Stock Split Ratio”)
A
decrease in the number of authorized shares of Common Stock from 800,000,000 shares to 250,000,000 shares.
The
filing of an amendment to our Articles of Incorporation, as amended, to affect the Reverse Stock Split and the Decrease in Authorized
Shares.
Amendment
to the Unique 2020 Equity and Incentive Plan (the “2020 Plan”) to set the number of shares of the Company’s Common
Stock available for issuance under the 2020 Plan to 1,500,000 shares effective upon the Reverse Stock Split.
Amended
Securities Exchange Agreement
On
December 10, 2021, Unique Logistics International, Inc. (the “Company”) entered into an amended securities exchange agreement
(the “Amended Exchange Agreement”) with two investors holding convertible notes, issued by the Company, in the aggregate
remaining principal amount of $3,861,160 plus interest; and warrants to purchase an aggregate of 1,140,956,904 shares of common stock
of the Company (the “Surrendered Securities”). Pursuant to the Amended Exchange Agreement, the Company agreed to issue, and
the Holders agreed to acquire, in exchange for the Surrendered Securities shares of the newly created Series C Convertible Preferred
Stock, par value $0.001 per share (the “Series C Preferred”) and shares of Series D Convertible Preferred Stock, par value
$0.001 per share (the “Series D Preferred”, and together with the Series C Preferred, the “Preferred Stock”),
of the Company, upon entering into the Exchange Amendment.
In
connection with the Amended Exchange Agreement, each of the Holders received that certain number of Preferred Stock equal to one share
of Preferred Stock for every $10,000.00
of
Note Value held by such Holder (the “Exchange Ratio”). Specifically, the Company issued approximately 194.66
shares
of Series C Preferred and issued approximately 191.45
shares
of Series D Preferred. In the aggregate, each of the Series C Preferred and Series D Preferred may be converted up to an amount of common
stock equal to 12.48% of the Company’s capital stock on a fully diluted basis, subject to adjustment. The
designations, rights, preferences, and privileges of the Series C Preferred and Series D Preferred are further described below (the “CODs”).
Upon
effectiveness of the Amended Exchange Agreement, the Company no longer has any outstanding convertible notes or warrants.
Series
C and D Preferred
The
Company has designated 200 shares of preferred stock, $0.001 par value per share, for each of the Series C Preferred and Series D Preferred.
The holders of the Preferred Stock shall 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 Preferred Stock
if such shares had been converted to common stock immediately prior to such liquidation.
Holders
of the Preferred Stock shall have no voting rights. However, as long as any shares of Preferred Stock are outstanding, the Company shall
not, without the affirmative vote of the holders of a majority of the then outstanding series of Preferred Stock, (a) disproportionally
alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend the CODs, (b) amend its certificate
of incorporation or other charter documents in any manner that disproportionally adversely affects any rights of the holders of the Preferred
Stock, (c) increase or decrease the number of authorized shares of each series of Preferred Stock or (d) enter into any agreement with
respect to any of the foregoing.
Repayment
of Notes Payable
On
January 7, 2022, the Company repaid in full both subordinated notes issued on October 1, 2021 per Purchase Agreement with Trillium Partners
LP and Carpathia LLC (each a “Buyer”) pursuant to which the Company issued to each Buyer a Note in the aggregate principal
amount of $1,000,000,
respectively, for a total of $2,000,000
(collectively the “Notes”). The Company
also paid a minimum interest payment of $90,000
on each Note and indebtedness was satisfied in
full.
Amended
and Restated Promissory Note
On
April 7, 2021, the Company entered into an Amended and Restated Promissory Note (the “Amended and Restated Note”) with Trillium
Partners (“Trillium”), pursuant to which the Company and Trillium amended and restated in its entirety that certain promissory
note, issued to Trillium on March 19, 2020 (the “Original Note”). The Amended and Restated Note was to mature on June 15,
2021 (the “Maturity Date”). On September 23, 2021, the Company further amended the Amended and Restated Note pursuant to
which the Company and Trillium agreed to extend the maturity date of the Amended and Restated Note to December 31, 2021. On January 6,
2022, the Company entered into a third amendment to the Amended and Restated Note pursuant to which the Company and Trillium agreed to
extend the maturity date of the Amended and Restated Note to March 31, 2022.