NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February
28, 2022
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.
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 February 28, 2022, the Company reported negative working capital
of approximately $8.1 million
compared with $3.5 million
negative working capital as of May 31, 2021 Increase in negative reported working capital period over period was primarily due to
recording $12.7 million derivative liability related to antidilution provision in Series A, C and D Convertible Preferred Stocks. (See
Imbedded Liability note below), without such liability, the Company’s working capital would be $4.2 million. 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 took steps to alleviate the risk of substantial doubt by
|
● |
Repayment
most of its acquisition related debt. |
|
● |
Entering
into a Fourth Amendment to the TBK Loan Agreement to increase its credit facility from $47.5.0
million to $57.5
million until October 2022 (Subsequent
Event Note 11) |
|
● |
Recapitalizing
its balance sheet by entering into an Exchange
Agreement on December 10, 2021 to exchange all of its Convertible debt into shares of Convertible Preferred Shares Series C and D
(Financial Arrangements Note 5) |
The Company
is in process of potentially raising capital through a planned underwritten offering of its securities.
As of February 28, 2022 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.
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 February
28, 2022 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.
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,
and estimates and assumptions in valuation of debt and equity instruments. 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, imbedded derivative liabilities,
convertible notes, promissory notes, all approximate fair value due to their short-term nature as of February 28, 2022 and May
31, 2021. The carrying amount of the long-term 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 Level 3 liabilities (See Derivative Liabilities note) as of
February 28, 2022. On May 31, 2021 Level 3 derivative liability balances were insignificant. 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 February 28, 2022 and May 31, 2021, the Company recorded an allowance for doubtful accounts of
approximately $1,010,500 and $240,000, respectively.
Concentration
One
major customer represented approximately
42%
of all accounts receivable as of February 28, 2022. Revenue by this customer as a percentage of the Company’s total revenue
were 39% and 38% for three months ended February 28, 2022 and nine months ended February 28, 2022, respectively, compared with 19% and
29%, for the three months ended February 28, 2021 and nine months ended February 28, 2021, respectively.
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 $31.7 million 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 $31.6 million and $1.4 million, 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 February 28, 2022 and 2021, the Company factored accounts receivable invoices totaling approximately none and
$64.7 million, pursuant to the Company’s factoring agreement, representing the face value of the invoices. During the nine months
ended February 28, 2022 and 2021, the Company factored accounts receivable invoices totaling approximately $4.3 million and $176.2 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 $1.3 million, pursuant to the agreements
for the three months ended February 28, 2021 and none for the three months ended February 28, 2022. The Company recognizes factoring
costs upon disbursement of funds. The Company incurred expenses totaling approximately $27,000 and $3.2 million, pursuant to the agreements
for the nine months ended February 28, 2022 and 2021. Factoring expenses are presented in costs and operating expenses on the condensed
consolidated statement of operations.
Derivative
Liability
On
December 10, 2021, the Company entered into an amended securities exchange agreement with the holders of convertible notes to exchange
all Convertible Notes of the Company into shares of the newly created Convertible Preferred Stock Series C and D. For additional information on the exchange agreement see Note 5, Financing Arrangements.
Similar
to the existing Convertible Preferred Stock Series A, these preferred stocks featured anti-dilution provision that expire on a certain
date. Management has determined the anti-dilution provision embedded in preferred stock Series A, C and D is required to be accounted
for separately from the preferred stock as a derivative liability and recorded at fair value. Separation of the anti-dilution option
as a derivative liability is required because its economic characteristics are considered more akin to an equity instrument and therefore
the anti-dilution option is not considered to be clearly and closely related to the economic characteristics of the preferred
stock.
The
Company has identified derivative instruments arising from an anti-dilution provision in the Company’s Series A, Series C, and
Series D Preferred Stock during the three and nine months ended February 28, 2022. The Company had $12,693,282 of derivative liabilities
measured at fair value as of February 28, 2022. Derivative liability related to Preferred Convertible Stock Series A existed but was
immaterial as of May 31, 2021.
An
embedded derivative liability representing the right of holders of Convertible Preferred Stock Series C and D to receive additional common
stock of the Company upon issuance of any additional common stock by the Company prior to qualified financing event as defined in the
agreement. Each reporting period, the embedded derivative liability,
if material, would be adjusted to reflect fair value at each period end with changes in fair value recorded in the “Change in fair
value of embedded derivative liability” financial statement line item of the company’s statements of operations. There was
no change in fair value during the three months ended February 28, 2022.
The
underlying value of the anti-dilution provision is calculated from estimating the probability and value of a potential raise. The model
used estimates the potential that the company completes a capital raise prior to the expiration of the anti-dilution feature and determines
the value of the anti-dilution feature given these assumptions. The model requires the use of certain assumptions.
These assumptions include probability a raise is completed, probability certain anti-dilution features are extended, estimated raise
amount, term to a raise, and an appropriate risk-free interest rate.
SCHEDULE
OF DERIVATIVE LIABILITIES
| |
Level
1 | | |
Level
2 | | |
Level
3 | |
Derivative
liabilities as November 30, 2021 | |
| - | | |
| - | | |
| - | |
Addition | |
| - | | |
| - | | |
| 8,417,296 | |
Changes
in fair value | |
| - | | |
| - | | |
| 4,275,986 | |
Derivative
liabilities as February 28, 2022 | |
$ | - | | |
$ | - | | |
$ | 12,693,282 | |
Derivative
liabilities | |
$ | - | | |
$ | - | | |
$ | 12,693,282 | |
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.
The
Company uses the assets and liability method of accounting for deferred income taxes. Deferred income 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 February 28, 2022 and May 31, 2021, the Company recognized a deferred tax
asset of $165,000 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 nine months ended February 28, 2022:
SCHEDULE 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 | |
| - | | |
| (10,403,335 | ) |
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional | |
| (32,052,573 | ) | |
| - | |
Contract assets recognized, net reclassification to receivables | |
| 44,759,230 | | |
| - | |
Net Change | |
$ | 12,706,657 | | |
$ | (10,403,335 | ) |
Disaggregation
of Revenue from Contracts with Customers
The
following table disaggregates gross revenue by significant geographic area for the three and nine months ended February 28, 2022 and
2021 based on origin of shipment (imports) or destination of shipment (exports):
SCHEDULE OF DISAGGREGATION OF REVENUE
| |
For the Three Months Ended February 28, 2022 | | |
For the Three Months Ended February 28, 2021 | |
China, Hong Kong & Taiwan | |
$ | 82,006,657 | | |
$ | 48,767,302 | |
Southeast Asia | |
| 121,340,162 | | |
| 23,395,258 | |
United States | |
| 5,049,985 | | |
| 5,947,013 | |
India Sub-continent | |
| 34,943,595 | | |
| 5,645,861 | |
Other | |
| 7,095,496 | | |
| 7,206,980 | |
Total revenue | |
$ | 250,435,895 | | |
$ | 90,962,414 | |
| |
For the Nine Months Ended February 28, 2022 | | |
For the Nine Months Ended February 28, 2021 | |
China, Hong Kong & Taiwan | |
$ | 285,424,103 | | |
$ | 143,818,543 | |
Southeast Asia | |
| 361,600,180 | | |
| 73,073,258 | |
United States | |
| 28,254,253 | | |
| 26,170,665 | |
India Sub-continent | |
| 134,393,170 | | |
| 16,032,190 | |
Other | |
| 35,966,738 | | |
| 13,922,445 | |
Total revenue | |
$ | 845,638,444 | | |
$ | 273,017,101 | |
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
| |
February 28, 2022 | | |
February 28, 2021 | |
| |
For the Three Months Ended | |
| |
February 28, 2022 | | |
February 28, 2021 | |
Numerator: | |
| | | |
| | |
Net (loss) income available to common stockholders | |
$ | (9,496,311 | ) | |
| 1,264,998 | |
Effect of dilutive securities: | |
| - | | |
| 431,163 | |
| |
| | | |
| | |
Diluted net (loss) income | |
$ | (9,496,311 | ) | |
$ | 1,696,161 | |
| |
| | | |
| | |
Denominator: | |
| | | |
| | |
Weighted average common shares outstanding – basic | |
| 655,781,078 | | |
| 357,891,040 | |
| |
| | | |
| | |
Dilutive securities (a): | |
| | | |
| | |
Series A Preferred | |
| - | | |
| 1,177,041,100 | |
Series B Preferred | |
| - | | |
| 5,499,034,800 | |
Convertible notes | |
| - | | |
| 1,809,848,927 | |
Warrants | |
| - | | |
| 1,132,733,563 | |
Series C Preferred | |
| - | | |
| - | |
Series D Preferred | |
| - | | |
| - | |
| |
| | | |
| | |
Weighted average common shares outstanding and assumed conversion – diluted | |
| 655,781,078 | | |
| 9,976,549,430 | |
| |
| | | |
| | |
Basic net (loss) income per common share | |
$ | (0.01 | ) | |
$ | 0.00 | |
| |
| | | |
| | |
Diluted net (loss) income per common share | |
$ | (0.01 | ) | |
$ | 0.00 | |
| |
February 28, 2022 | | |
February 28, 2021 | |
| |
For the Nine Months Ended | |
| |
February 28, 2022 | | |
February 28, 2021 | |
Numerator: | |
| | | |
| | |
Net income available to common stockholders | |
$ | (2,984,670 | ) | |
| 2,088,044 | |
Effect of dilutive securities: | |
| - | | |
| 606,519 | |
| |
| | | |
| | |
Diluted net income | |
$ | (2,984,670 | ) | |
$ | 2,694,963 | |
| |
| | | |
| | |
Denominator: | |
| | | |
| | |
Weighted average common shares outstanding – basic | |
| 582,680,746 | | |
| 230,663,175 | |
| |
| | | |
| | |
Dilutive securities (a): | |
| | | |
| | |
Series A Preferred | |
| - | | |
| 1,177,041,100 | |
Series B Preferred | |
| - | | |
| 5,499,034,800 | |
Convertible notes | |
| | | |
| 1,809,848,927 | |
Warrants | |
| | | |
| 1,132,733,563 | |
Series C Preferred | |
| - | | |
| - | |
Series D Preferred | |
| - | | |
| - | |
| |
| | | |
| | |
Weighted average common shares outstanding and assumed conversion – diluted | |
| 582,680,746 | | |
| 9,849,321,565 | |
| |
| | | |
| | |
Basic net income per common share | |
$ | (0.01 | ) | |
$ | 0.01 | |
| |
| | | |
| | |
Diluted net income per common share | |
$ | (0.01 | ) | |
$ | 0.00 | |
2. PROPERTY AND EQUIPMENT
Major
classifications of property and equipment are summarized below:
SCHEDULE OF PROPERTY AND EQUIPMENT
|
|
February
28, 2022 |
|
|
May
31, 2021 |
|
|
|
|
|
|
|
|
Furniture and fixtures |
|
$ |
97,716 |
|
|
$ |
84,085 |
|
Computer equipment |
|
|
146,493 |
|
|
|
108,479 |
|
Software |
|
|
30,609 |
|
|
|
27,780 |
|
Leasehold improvements |
|
|
27,146 |
|
|
|
27,146 |
|
Property
and equipment, gross |
|
|
301,964 |
|
|
|
247,490 |
|
Less: accumulated depreciation |
|
|
(110,056 |
) |
|
|
(55,398 |
) |
Property
and equipment, net |
|
$ |
191,908 |
|
|
$ |
192,092 |
|
Depreciation
expense charged to income for the three months ended February 28, 2022 and 2021 amounted to $19,560 and $14,439. Depreciation expense
charged to income for the nine months ended February 28, 2022 and 2021 amounted to $54,658 and $43,082.
3. INTANGIBLE ASSETS
Intangible
assets consist of the following:
SCHEDULE OF INTANGIBLE ASSETS
| |
February 28, 2022 | | |
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 | |
| (1,237,508 | ) | |
| (707,147 | ) |
Finite lived intangible
assets, net | |
$ | 7,514,492 | | |
$ | 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 February 28, 2022 and 2021, amortization
expense related to the intangible assets was $176,787. For the nine months ended February 28, 2022 and 2021, amortization expense related
to the intangible assets was $530,361. As of February 28, 2022, the weighted average remaining useful lives of these assets was 7.58
years.
Estimated
amortization expense for the next five years and thereafter is as follows:
SCHEDULE OF ESTIMATED AMORTIZATION EXPENSE
Twelve Months Ending February 28, | |
| |
2022 | |
$ | 176,787 | |
2023 | |
| 707,148 | |
2024 | |
| 602,814 | |
2025 | |
| 602,814 | |
2026 | |
| 602,814 | |
Thereafter | |
| 4,822,114 | |
Intangible
assets, net | |
$ | 7,514,492 | |
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
| |
February 28, 2022 | | |
May 31, 2021 | |
| |
| | |
| |
Salaries and related expenses | |
$ | 300,000 | | |
$ | 672,455 | |
Sales and marketing expense | |
| 2,323,484 | | |
| 539,810 | |
Professional fees | |
| 110,000 | | |
| 75,000 | |
Income tax | |
| 128,318 | | |
| 256,286 | |
Overdraft liabilities | |
| 545,053 | | |
| 790,364 | |
Interest expense | |
| 25,000 | | |
| - | |
Other current liabilities | |
| 1,196,887 | | |
| 50,000 | |
Accrued expenses and
other current liabilities | |
$ | 4,628,742 | | |
$ | 2,383,915 | |
5. FINANCING ARRANGEMENTS
Financing
arrangements on the consolidated balance sheets consists of:
SCHEDULE OF FINANCING ARRANGEMENT
| |
February 28, 2022 | | |
May 31, 2021 | |
| |
| | |
| |
Revolving Credit Facility | |
$ | 43,888,787 | | |
$ | - | |
Promissory note (PPP) | |
| - | | |
| 358,236 | |
Promissory notes (EIDL) | |
| - | | |
| 150,000 | |
Notes payable | |
| 2,260,453 | | |
| 2,528,886 | |
Convertible notes – net of discount | |
| - | | |
| 2,441,551 | |
Notes payable, gross | |
| 46,149,240 | | |
| 5,478,673 | |
Less: current portion | |
| (45,540,473 | ) | |
| (2,285,367 | ) |
Long term, notes payable | |
$ | 608,767 | | |
$ | 3,193,306 | |
As
of February 28, 2022, a current portion of outstanding third-party debt represented by a revolving line of credit in the amount of $43,888,787
and of a current portion of the notes payable in the amount of $1,651,686.
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 to temporarily 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.
On
January 31, 2022, the parties to the TBK Agreement entered into a Third Amendment to the TBK Agreement to permanently increase the credit
facility from $40.0 million to $47.5 million.
On April
14, 2022, the parties to the TBK Loan Agreement entered into a Fourth Amendment to temporarily increase the credit facility from $47.5
million to $57.5 million from April 15, 2022 through October 31, 2022 (See Subsequent Events Note 11)
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.
The
fees and interest related to CoreFund purchase money financing are included in the interest expense on the statement of operations. The
fee paid to CoreFund for the three and nine months ended February 28, 2022 were $0.3 million and $0.9 million, respectively.
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 February 28, 2022, 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 February 28, 2022 and May 31, 2021, the outstanding balance due
under the agreement was $62,507 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. 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, 2022As of February
28, 2022, and May 31, 2021, the outstanding balance including accrued interest due under the agreement was $1,287,829 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. Both notes were paid off and indebtedness
fully satisfied on January 7, 2022 including accrued interest paid in the amount of $180,000. Interest paid was less than the contractual
amount resulting in recognition of gain of $60,000 in other income on the statement of operations.
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 and on December 10, 2021 into an amended Securities Exchange Agreement,
as discussed below. Upon effectiveness of these agreements, Trillium Note was exchanged for Preferred Stock Series D.
During
the nine months ended February 28, 2022, 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 February 28, 2022, and May 31, 2021, the outstanding
balance on the Trillium Note was $0 and $1,104,500. The note did not have a discount related to a beneficiary conversion feature, due
to modification of this Note in November of 2020, when this debt discount was recorded as a loss on extinguishment of debt.
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 and on December 10, 2021 into an amended Securities Exchange Agreement,
as discussed below. Upon effectiveness of these agreements, 3A Note was exchanged for Preferred Stock Series C.
As
of February 28, 2022 and May 31, 2021 the total unamortized debt discount related to the 3a SPA was $0 and
$391,757,
respectively. During the three and nine months ended February 28, 2022, the Company recorded amortization of debt discount totaling
none and $285,048,
respectively.
During
the nine months ended February 2022, the 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 February 28, 2022 and May 31, 2021, the outstanding principal balance on the 3a
Note was $0 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 and on December 10, 2021 into an amended Securities Exchange
Agreement, as discussed below. Upon effectiveness of these agreements, Trillium and 3a January Convertible Notes were exchanged for Preferred
Stocks Series C and D.
As
of February 28, 2022, and May 31, 2021, the outstanding balance on these convertible notes was $0 and $1,833,334, respectively. During
the three and nine months ended February 28, 2022, the Company recorded amortization of debt discount totaling none and $491,467, respectively.
Covenants
As
of February 28, 2022 the Company was in full compliance with all covenants and debt agreements. As of May 31, 2021, 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 due to a
violation of several covenants. 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 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, the Company entered into an amended securities exchange agreement Trillium and 3A (the “Holders”) 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. 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 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
of
Note Value held by such Holder (the “Exchange Ratio”). The Company issued
195
shares
of Series C Preferred and 192
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 up
to a specified date
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 February 28, | |
| |
2023 | |
$ | 1,651,686 | |
2024 | |
| 608,767 | |
| |
| 2,260,453 | |
Less: current portion | |
| (1,651,686 | ) |
| |
$ | 608,767 | |
6. RELATED PARTY TRANSACTIONS
Related
party debt consisted of the following:
SCHEDULE OF RELATED PARTY TRANSACTIONS
| |
February 28, 2022 | | |
May 31, 2021 | |
| |
| | |
| |
Due to Frangipani Trade Services (1) | |
$ | 753,273 | | |
$ | 903,927 | |
Due to employee (2) | |
| 37,500 | | |
| 60,000 | |
Due to employee (3) | |
| 83,226 | | |
| 149,996 | |
| |
| 873,999 | | |
| 1,113,923 | |
Less: current portion | |
| (174,822 | ) | |
| (397,975 | ) |
| |
$ | 699,177 | | |
$ | 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 $353,334 and $565,338 as of February
28, 2022 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 February 28, 2022 and 2021, respectively.
Total fees were $45,000 and none for nine months ended February 28, 2022 and 2021, respectively.
Accounts
Receivable - trade and Accounts Payable - trade
Transactions
with related parties account for $1.9 million and $28.4 million of accounts receivable and accounts payable as of February 28, 2022,
respectively compared to $1.3 million and $10.8 million 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 nine months ended February 28, 2022, these transactions represented $0.5 million and $1.3 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 February 28, 2021, these transactions represented $0.7 million and $1.9 million of
revenue, respectively.
Direct
costs are services billed to the Company by related parties for shipping activities. For the three and nine months ended February 28,
2022, these transactions represented $56.2 million and $157.4 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 February 28,
2021, these transactions represented $15.1 million and $42.7 million of total direct costs, respectively.
7. RETIREMENT PLANS
We
have two savings plans that qualify under Section 401(k) of the Internal Revenue Code legacy of the predecessor companies 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 $--28,019 and
$21,140 for the
three months ended February 28, 2022 and 2021, respectively. The Company recorded expense of $41,219
and $33,867 for
the nine months ended February 28, 2022 and 2021, respectively.
8. STOCKHOLDERS’ EQUITY
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
The
Company authorized to issue 5,000,000 shares of preferred stock, $0.001 par value per share.
Series
A Convertible Preferred
The
Company has designated 130,000 shares of Series A Convertible Preferred stock and has 130,000 shares issued and outstanding as of February
28, 2022 and May 31, 2021, respectively. The holders of Series A Preferred. subject to the rights of holders of shares of the Company’s
Series B Preferred stock which shares will be pari passu with Series B Preferred in terms of liquidation preference and dividend rights
and are subject to an anti-dilution provision, making the holders subject to an adjustment necessary to maintain their agreed upon fully
diluted ownership percentage.
Series
B Convertible Preferred
The
Company has designated 870,000 shares of Series B Convertible Preferred stock and has 820,800 and 840,000 shares issued and outstanding
as of February 28, 2022 and May 31, 2021, respectively. The holders of Series B Preferred, subject to the rights of holders of shares
of the Company’s Series A Preferred Stock which shares will be pari passu with the Series B Preferred in terms of liquidation preference
and dividend rights, shall be entitled to receive, at their option, immediately prior an in preference to any distribution to the holders
of the Company’s common stock.
Series
C & D Convertible Preferred
The
Company has designated 200
shares of preferred stock each for Series
C and D Convertible Preferred Stock. The Company had 195
shares of Series C and 192
shares of Series D Preferred shares issued and outstanding as of February 28, 2022 and none
as of May 31, 2021. 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. 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 antidilution provision until qualified financing
event. (See Note 5 - Amended Securities Exchange Agreement)
As
a result of the Company exchanging $3.9 million of convertible notes into Series C and D Preferred Stock on December 10, 2022, the Company
recognized net loss on the extinguishment of convertible notes payable and warrants of approximately $1.3 million in Other Income (Expenses)
and recognized approximately $4.6 million as deemed dividends as reflected in Comprehensive Income line item of the statement of operations,
both reflected in the statement of operations for the three and nine months, ended February 28, 2022.
The
Company also recorded $4.3 million net loss on the mark to market of the derivative liability associated with the Series A Preferred
Stock in Other Income (Expenses) in the statement of operations for the three and nine months, ended February 28, 2022.
Since
the anti-dilution provisions exist in the Preferred Stock Series A, C and D, derivative liabilities were recorded on the balance sheet
as of February 28, 2022, at fair value (see Note 1, Derivative Liability).
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 – February 28, 2022 | |
| - | | |
$ | - | |
Exercisable – February 28, 2022 | |
| - | | |
$ | - | |
On
December 10, 2021, the Company entered into an amended securities exchange with two investors holding convertible notes and warrants
for Convertible Preferred Stock Series C and D. For additional information on the exchange agreement see Note 5, Financing Arrangements.
Upon effectiveness of the amended exchange agreement, the Company no longer has any outstanding warrants.
At
May 31, 2021, the total intrinsic value of warrants outstanding and exercisable was $111,875,388 with warrants outstanding as follows:
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 | | |
| 3.61 | | |
$ | 0.002 | | |
| 1,140,956,904 | | |
$ | 0.002 | |
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
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.
On April 11, 2022 the term sheet was extended to June 30, 2022.
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 | |
| |
February 28, 2022 | | |
February 28, 2021 | |
Operating lease | |
$ | 310,965 | | |
$ | 387,657 | |
Interest on lease liabilities | |
| 16,910 | | |
| 43,200 | |
Total net lease cost | |
$ | 327,875 | | |
$ | 430,857 | |
| |
For the Nine Months Ended | | |
For the Nine Months Ended | |
| |
February 28, 2022 | | |
February 28, 2021 | |
Operating lease | |
$ | 1,103,649 | | |
$ | 1,125,081 | |
Interest on lease liabilities | |
| 104,242 | | |
| 141,265 | |
Total net lease cost | |
$ | 1,207,891 | | |
$ | 1,266,346 | |
Supplemental
balance sheet information related to leases was as follows:
SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION
| |
February 28, 2022 | | |
May 31, 2021 | |
| |
| | |
| |
Operating leases: | |
| | | |
| | |
Operating lease ROU assets – net | |
$ | 2,693,878 | | |
$ | 3,797,527 | |
| |
| | | |
| | |
Current operating lease liabilities, included in current liabilities | |
| (1,141,902 | ) | |
| (1,466,409 | ) |
Noncurrent operating lease liabilities, included in long-term liabilities | |
| (1,656,882 | ) | |
| (2,431,144 | ) |
Total operating lease liabilities | |
$ | (2,798,784 | ) | |
$ | (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 Nine Months Ended February 28, 2022 | | |
For the Nine Months Ended February 28, 2021 | |
| |
| | |
| |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | | |
| | |
Operating leases | |
$ | 1,098,769 | | |
$ | 981,967 | |
ROU assets obtained in exchange for lease liabilities: | |
| | | |
| | |
Operating leases | |
$ | - | | |
$ | 223,242 | |
Weighted average remaining lease term (in years): | |
| | | |
| | |
Operating leases | |
| 3.98 | | |
| 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 February 28, | |
| |
2022 | |
$ | 1,234,111 | |
2023 | |
| 535,217 | |
2024 | |
| 427,463 | |
2025 | |
| 310,223 | |
2026 | |
| 211,383 | |
Thereafter | |
| 373,181 | |
Total lease payments | |
| 3,091,578 | |
Less: imputed interest | |
| (292,794 | ) |
Total lease obligations | |
$ | 2,798,784 | |
10. INCOME TAX PROVISION
The
income tax expense consists of the following:
SCHEDULE OF INCOME TAX EXPENSE
| |
February 28, 2022 | | |
February 28, 2021 | |
Federal provision (benefit) | |
| | | |
| | |
Current | |
$ | 2,294,246 | | |
$ | 436,000 | |
Deferred | |
| 83,784 | | |
| (116,393 | ) |
State and Local provision (benefit) | |
| | | |
| - | |
Current | |
| 371,961 | | |
| 89,000 | |
Deferred | |
| 15,216 | | |
| (23,607 | ) |
Total provision | |
$ | 2,765,207 | | |
$ | 385,000 | |
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 February 28, 2022 and 2021, is as follows:
SCHEDULE OF EXPECTED TAX EXPENSE (BENEFIT)
| |
For the Nine Months Ended February 28, 2022 | | |
For the Nine Months Ended February 28, 2021 | |
Federal statutory rate (%) | |
| 21 | % | |
| 21 | % |
State income taxes, net of federal benefit | |
| 9 | % | |
| 1 | % |
Change in valuation allowance | |
| (3 | )% | |
| (2 | )% |
Other, net | |
| 1 | % | |
| (4 | )% |
Effective income tax rate (%) | |
| 28 | % | |
| 16 | % |
As
of February 28, 2021, the Company recorded a full valuation allowance against the deferred tax assets due to insufficient evidence to
support the utilization of these benefits.
11. SUBSEQUENT EVENTS
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 March 31, 2022, the Company entered into a fourth amendment and agreed to extend the maturity
date of this Amended and Restated Note to September 30, 2022, without changing any other terms of the agreement.
Revolving credit facility
On April
14, 2022, the parties to the TBK Loan Agreement entered into a Fourth Amendment to the TBK Agreement primarily to increase the credit
facility from $47.5 million to 57.5 million for the period commencing on April 15, 2022 through and including October 15, 2022.
Preferred Stock Conversion
On April
5, 2022, a shareholder converted 5 shares of Series D Convertible Preferred Stock into 31,415,400 shares of the Company’s common
stock.