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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended November 30, 2021

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _________ to _________

 

Commission file number: 000-50612

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   01-0721929

(State or other Jurisdiction

of Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

154-09 146th Ave

Jamaica, NY

  11434
(Address of Principal Executive Offices)   (Zip Code)

 

678-365-6004

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol(s)   Name of exchange on which registered
None   None   None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
       
Non-accelerated filer Smaller reporting company
       
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of January 14, 2022, there were 655,781,078 shares of the registrant’s common stock outstanding.

 

 

 

 

 

  

UNIQUE LOGISTICS INTERNATIONAL, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED NOVEMEBR 30, 2021

 

TABLE OF CONTENTS

 

  Page
   
PART I. FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements F-1
     
  Condensed Consolidated Balance Sheets as of November 30, 2021 (unaudited) and May 31, 2021 F-1
     
  Condensed Consolidated Statements of Operations for the Three and Six Months ended November 30, 2021 and 2020 (unaudited) F-2
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months ended November 30, 2021 and 2020 (unaudited) F-3
     
  Condensed Consolidated Statements of Cash Flows for the Six Months ended November 30, 2021 and 2020 (unaudited) F-4
     
  Notes to Condensed Consolidated Financial Statements (unaudited) F-5
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 9
     
ITEM 4. Controls and Procedures 10
     
PART II. OTHER INFORMATION 10
     
ITEM 1. Legal Proceedings 10
     
ITEM 1A. Risk Factors 10
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
     
ITEM 3. Defaults Upon Senior Securities 11
     
ITEM 4. Mine Safety Disclosures 11
     
ITEM 5. Other Information 11
     
ITEM 6. Exhibits 11
     
SIGNATURES 12

 

2

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   November 30, 2021   May 31, 2021 
    (unaudited)      
ASSETS          
Current Assets:          
Cash and cash equivalents  $840,756   $252,615 
Accounts receivable – trade, net   142,577,549    20,369,747 
Contract assets   50,004,259    23,423,314 
Factoring reserve   -    7,593,665 
Other prepaid expenses and current assets   980,779    761,458 
Total current assets   194,403,343    52,400,799 
           
Property and equipment – net   200,721    192,092 
           
Other long-term assets:          
Goodwill   4,463,129    4,463,129 
Intangible assets – net   7,691,279    8,044,853 
Operating lease right-of-use assets – net   3,087,387    3,797,527 
Deposits and other assets   879,362    555,362 
Other long-term assets   16,121,157    16,860,871 
Total assets  $210,725,221   $69,453,762 
           
Liabilities and Stockholders’ Equity          
Current Liabilities:          
Accounts payable – trade  $75,885,954   $38,992,846 
Accrued expenses and other current liabilities   10,710,006    2,383,915 
Accrued freight   49,337,707    10,403,430 
Contract liabilities   20,331,879    - 
Revolving credit facility   29,833,248    - 
Current portion of notes payable – net of discount   3,918,339    2,285,367 
Current portion of long-term debt due to related parties   198,933    397,975 
Current portion of operating lease liability   1,399,186    1,466,409 
Total current liabilities   191,615,252    55,929,942 
           
Other long-term liabilities   424,002    565,338 
Long-term-debt due to related parties, net of current portion   699,334    715,948 
Notes payable, net of current portion – net of discount   2,812,704    3,193,306 
Operating lease liability, net of current portion   1,799,273    2,431,144 
Total long-term liabilities   5,735,313    6,905,736 
           
Total liabilities   197,350,565    62,835,678 
           
Commitments and contingencies (Note 9)   -    - 
           
Stockholders’ Equity:          
Preferred Stock, $0.001 par value: 5,000,000 shares authorized          
Series A Convertible Preferred stock, $0.001 par value; 130,000 issued and outstanding as of November 30, 2021 and May 31, 2021   130    130 
Series B Convertible Preferred stock, $0.001 par value; 820,800 and 840,000 shares issued and outstanding as of November 30, 2021 and May 31, 2021, respectively   821    840 
Preferred Stock, Value          
Common stock, $0.001 par value; 800,000,000 shares authorized; 655,781,078 and 393,742,663 shares issued and outstanding as of November 30, 2021 and May 31, 2021, respectively   655,782    393,743 
Additional paid-in capital   4,889,295    4,906,384 
Retained earnings   7,828,628    1,316,987 
Total Stockholders’ Equity   13,374,656    6,618,084 
Total Liabilities and Stockholders’ Equity  $210,725,221   $69,453,762 

 

See notes to accompanying condensed consolidated financial statements.

 

F-1

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   2021   2020   2021   2020 
  

For the Three Months Ended

November 30,

  

For the Six Months Ended

November 30,

 
   2021   2020   2021   2020 
                 
Revenues:                    
Airfreight services  $275,070,204   $72,388,144   $327,232,845   $89,887,028 
Ocean freight and ocean services   115,421,970    42,601,314    238,722,728    73,254,180 
Contract logistics   1,211,056    838,853    1,933,720    1,527,563 
Customs brokerage and other services   13,727,459    8,811,109    27,313,256    17,385,916 
Total revenues   405,430,689    124,639,420    595,202,549    182,054,687 
                     
Costs and operating expenses:                    
Airfreight services   269,019,226    68,891,139    320,645,001    85,628,080 
Ocean freight and ocean services   107,173,955    38,726,139    223,761,697    66,592,372 
Contract logistics   679,426    297,758    1,069,826    561,826 
Customs brokerage and other services   12,393,603    8,357,835    25,318,695    16,502,717 
Salaries and related costs   2,817,938    2,191,247    5,569,318    4,292,136 
Professional fees   184,459    228,739    478,326    658,480 
Rent and occupancy   489,770    442,605    969,979    901,116 
Selling and promotion   2,659,490    846,883    3,692,618    1,898,311 
Depreciation and amortization   194,875    191,398    388,672    382,311 
Fees on factoring agreements   -    1,410,203    27,000    1,884,263 
Other   1,154,945    16,190    1,423,067    238,889 
Total costs and operating expenses   396,767,687    121,600,136    583,344,199    179,540,407 
                     
Income from operations   8,663,002    3,039,284    11,858,350    2,514,280 
                     
Other income (expenses)                    
Interest expense, net   (1,881,201)   (28,474)   (3,171,480)   (60,913)
Amortization of debt discount   (391,035)   (175,266)   (776,515)   (175,266)
Gain (loss) on extinguishment of convertible notes payable   -    (1,147,856)   780,050    (1,147,856)
Gain on forgiveness of promissory note   -    -    358,236    - 
Total other income (expenses)   (2,272,236)   (1,351,596)   (2,809,709)   (1,384,035)
                     
Net income before income tax provision   6,390,766    1,687,688    9,048,641    1,130,245 
                     
Income tax provision   1,902,541    290,505    2,537,000    307,199 
                     
Net income  $4,488,225   $1,397,183   $6,511,641   $823,046 
                     
Net income per common share                    
– basic  $0.00   $0.00   $0.00   $0.00 
– diluted  $0.00   $0.00   $0.00   $0.00 
                     
Weighted average common shares outstanding                    
– basic   1,764,049,961    1,393,560,488    1,687,489,133    1,308,705,539 
– diluted   10,899,465,407    9,306,568,440    10,822,904,579    9,221,713,491 

 

See notes to accompanying condensed consolidated financial statements.

 

F-2

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited)

 

For the Six Months Ended November 30, 2021

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
   Series A   Series B           Additional         
   Preferred Stock   Preferred Stock   Common Stock   Paid-in   Retained     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Total 
Balance, June 1, 2021   130,000   $130    840,000   $840    393,742,663   $393,743   $4,906,384   $1,316,987   $6,618,084 
                                              
Conversion of Preferred B to Common Stock   -    -    (19,200)   (19)   125,692,224    125,692    (125,673)   -    - 
                                              
Issuance of Common Stock for the conversion of notes and accrued interest   -    -    -    -    83,811,872    83,812    66,746    -    150,558 
                                              
Net income   -    -    -    -    -    -    -    2,023,416    2,023,416 
                                              
Balance, August 31, 2021   130,000   $130    820,800   $821    603,246,759   $603,247   $4,847,457   $3,340,403   $8,792,058 
                                              
Issuance of Common Stock for the conversion of notes and accrued interest   -    -    -    -    52,534,319    52,534    41,838    -    94,372 
                                              
Net income   -    -    -    -    -    -    -    4,488,225    4,488,225 
                                              
Balance, November 30, 2021   130,000   $130    820,800   $821    655,781,078   $  655,782   $  4,889,295   $  7,828,628   $  13,374,656 

 

For the Six Months Ended November 30, 2020

 

   Series A   Series B           Additional         
   Preferred Stock   Preferred Stock   Common Stock   Paid-in   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
Balance, June 1, 2020   130,000   $130    870,000   $870    -   $-   $1,523,811   $(408,510)  $1,116,301 
                                              
Net loss   -    -    -    -    -    -    -    (574,137)   (574,137)
                                              
Balance, August 31, 2020   130,000   $130    870,000   $870    -   $-   $1,523,811   $(982,647)  $542,164 
                                              
Issuance of Common Stock for services rendered   -    -    -    -    27,833,754    27,834    22,166    -    50,000 
                                              
Conversion of Preferred B to Common Stock   -    -    (30,000)   (30)   196,394,100    196,394    (196,364)   -    - 
                                              
Recapitalization upon acquisition - net   -    -    -    -    133,601,511    133,602    (179,340)   -    (45,738)
                                              
Warrants issued with convertible notes   -    -    -    -    -    -    1,126,497    -    1,126,497 
                                              
Beneficial conversion feature of convertible notes   -    -    -    -    -    -    873,503    -    873,503 
                                              
Net income   -    -    -    -    -    -    -    1,397,183    1,397,183 
                                              
Balance, November 30, 2020   130,000   $130    840,000   $840    357,829,365   $  357,830   $  3,170,273   $414,536   $  3,943,609 

 

See notes to accompanying condensed consolidated financial statements.

 

F-3

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

  

For the Six

Months Ended

November 30, 2021

  

For the Six

Months Ended

November 30, 2020

 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $6,511,641   $823,046 
Adjustments to reconcile net income to net cash used in operating activities:          
Depreciation and amortization   388,672    382,217 
Amortization of debt discount   776,515    175,356 
Amortization of right of use assets   710,140    693,404 
Share-based compensation   -    50,000 
Bad debt expense   850,000    60,000 
Gain on forgiveness of note payable   (358,236)   - 
(Gain) loss on extinguishment of convertible notes payable   (780,050)   1,147,856 
Change in deferred tax asset   (304,000)   (221,000)
Accretion of consulting agreement   (141,336)   (141,336)
Changes in operating assets and liabilities:          
Accounts receivable - trade   (123,057,802)   (19,555,154)
Contract assets   (26,580,945)   (7,362,508)
Factoring reserve   7,593,665    (7,284,449)
Other prepaid expenses and current assets   (219,321)   9,666 
Deposits and other assets   (20,000)   1,042 
Accounts payable - trade   36,893,108    27,528,499 
Accrued expenses and other current liabilities   8,764,328    (1,976,209)
Accrued freight   38,934,277    6,880,696 
Contract liabilities   20,331,879    - 
Operating lease liability   (699,094)   (639,338)
Net Cash (Used in) Provided by Operating Activities   (30,406,559)   571,788 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (43,727)   (15,026)
Net Cash Used in Investing Activities   (43,727)   (15,026)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from notes payable   2,000,000    150,000 
Repayments of notes payable   (579,165)   (429,165)
Repayments of long-term debt due to related parties   (215,656)   (44,000)
Proceeds from convertible notes payable   -    2,000,000 
Borrowings on revolving credit facility, net   29,833,248    - 
Cash paid for debt issuance costs   -    (50,000)
Net Cash Provided by Financing Activities   31,038,427    1,626,835 
           
Net change in cash and cash equivalents   588,141    2,183,597 
           
Cash and cash equivalents - Beginning of Period   252,615    1,349,363 
Cash and cash equivalents - End of Period  $840,756   $3,532,960 
SUPPLEMENTARY CASH FLOW INFORMATION:          
Cash Paid During the Period for:          
Income taxes  $422,836   $16,199 
Interest  $601,377   $- 
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Conversion of Series B Preferred to Common Stock  $125,673   $- 
Issuance of common stock for the conversion of principal net of accrued interest capitalized to principal to Notes Payable  $193,306   $- 
Operating asset and liability  $-   $223,242 
Fair value of warrants issued with convertible notes  $-   $1,126,497 
Beneficial conversion feature of convertible notes  $-   $873,503 

 

See notes to accompanying condensed consolidated financial statements.

 

F-4

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

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.

 

F-5

 

 

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.

 

F-6

 

 

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.

 

F-7

 

 

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:

 

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).

 

F-8

 

 

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.

 

F-9

 

 

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.

 

F-10

 

 

Significant Changes in Contract Asset and Contract Liability Balances for the six months ended November 30, 2021:

 

  

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):

 

  

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.

 

F-11

 

 

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.

  

   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:   -    - 

 

F-12

 

 

2. PROPERTY AND EQUIPMENT

 

Major classifications of property and equipment are summarized below:

 

   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.

 

3. INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

   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.

 

F-13

 

 

Estimated amortization expense for the next five years and thereafter is as follows:

 

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:

 

   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:

 

   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”).

 

F-14

 

 

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.

 

F-15

 

 

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.

 

F-16

 

 

 

 

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”).

 

F-17

 

 

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)

 

F-18

 

 

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:

 

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:

 

   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.

 

F-19

 

 

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 $