PART
I
Item
1. Business.
Corporate
History
Unique
Logistics International, Inc. (the “Company” or “Unique”) (formerly Innocap, Inc.) was incorporated in Nevada
on January 23, 2004. In May 2011, the Company changed its business plan to begin researching the location of and salvaging sunken ships.
Until October 2020, the Company had been actively negotiating several research and salvage projects in Indonesia, Malaysia, and other
countries in connection with ships that were sunk during World War II.
On
October 8, 2020, the Company, Inno Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company (the
“Merger Sub”), and Unique Logistics Holdings, Inc., a privately-held Delaware corporation headquartered in New York
(“Unique”), entered into an Acquisition Agreement and Plan of Merger (the “Acquisition Agreement”) pursuant
to which the Merger Sub was merged with and into Unique, with Unique surviving as a wholly-owned subsidiary of the Company (the
“Merger”). The transaction (the “Closing”) took place on October 8, 2020 (the “Closing Date”).
The Company acquired, through a reverse triangular merger, all of the outstanding capital stock of Unique in exchange for issuing
Unique’s shareholders (the “Unique Shareholders”), pro-rata, an aggregate of 1,000,000 million shares of preferred
stock, with certain of Unique Shareholders receiving 130,000 shares of the Company’s Series A Preferred Stock par value $0.001
per share, and certain of the Unique Shareholders receiving of 870,000 shares of the Company’s Series B Preferred Stock, par
value $0.001 per share. Immediately after the Merger was consummated, and further to the Acquisition Agreement, certain affiliates
of the Company cancelled a total of 45,606,489 shares of the Company’s common stock, and 1,000,000 shares of Preferred Stock
held by them (the “Cancellation”). In consideration of the Cancellation of such shares of the Company’s common
stock and preferred stock, Unique agreed to assume certain liabilities of the Company. As a result of the Merger and the
Cancellation, the Unique Shareholders became the majority shareholders of the Company. Immediately following the Closing of the
Merger, the Company changed its business plan to that of Unique.
Increase
in Authorized Shares and Name Change
On
January 11, 2021, Innocap Inc. filed a certificate of amendment to its articles of incorporation with the Secretary of State of the State
of Nevada, for the adoption of amended and restated articles of incorporation of Innocap Inc. (the “Amended and Restated Articles
of Incorporation”). The adopted Amended and Restated Articles of Incorporation: (i) increased the number of authorized common stock
from 500,000,000 shares to 800,000,000 shares; and (ii) changed the Company’s name to Unique Logistics International, Inc. (the
“Company”).
The
Name Change was approved by the Financial Industry Regulatory Authority (FINRA) and became effective in the market on January 14, 2021.
In connection with the name change, the Company changed its ticker symbol from “INNO” to “UNQL”.
Management
Buyout Transaction
Unique
Logistics Holdings, Inc. (“Unique”) a Delaware corporation, was 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 “Management Buy Out Transaction”).
UL
HK was incorporated in Hong Kong in 1983. UL HK commenced its business with a focus on transpacific logistics services because of the
increasing demands of trade between Hong Kong and the United States. The initial focus was on air freight services, but UL HK quickly
diversified into ocean freight services. In its first fifteen years of operations, UL HK established itself as a major international
logistics service provider in Hong Kong. Driven by the needs of its customer base, from 1997 through 2012, UL HK established a network
of offices throughout Asia and the United States. By the end of 2012, the Unique Logistics brand was well recognized in several Asian
countries including China, India, and Vietnam. In the United States, UL HK offices in Boston, Atlanta, New York, Los Angeles, and Chicago
had a growing United States customer base in several sectors such as fashion, department stores, furniture, toys, and home goods. The
vast majority of ULHK’s international business consisted of services pertaining to United States based companies.
On
May 29, 2020 (the “Buyout Transaction Date”), Unique entered into that certain Securities Purchase Agreement (“UL
HK Purchase Agreement”) by and between Unique and UL HK, pursuant to which the Company purchased from UL HK (i) sixty percent (60%)
of the membership interests of Unique Logistics International (ATL) LLC, a Georgia limited liability company (“UL ATL”);
(ii) eighty percent (80%) of the common stock of Unique Logistics International (BOS) Inc, a Massachusetts corporation (“UL BOS”);
and (iii) sixty-five percent (65%) of Unique Logistics International (USA) Inc., a New York corporation, a sole owner of Unique Logistics
International (NYC), Inc. (“UL NYC”), for a purchase price of: (i) US$6,000,000, to be paid in accordance with the following
(a) $1,000,000 in cash (the “UL HK Cash Purchase Price”); (b) $5,000,000 in the form a subordinated promissory note issued
in favor of UL HK and (c) 1,500,000 shares of common stock of Unique Logistics Holdings, representing on issuance 15% of fully paid and
non-assessable shares of common stock then outstanding on a fully diluted basis (the “UL HK Stock Purchase Price”). Pursuant
to the UL HK Purchase Agreement, Unique has been granted an option to purchase 50% of UL HK’s interest in Unique Logistics International
(North and East China) Company Limited and its affiliated companies (collectively “UL China”) and has been granted an option
to purchase 65% of UL HK’s interest in Unique Logistics International India (Private) Limited (“UL India”) within 12
months of the Buyout Transaction Date.
Further,
in connection with the Management Buyout Transaction, Unique entered into a Consulting Services Agreement for a term of three years with
Great Eagle Freight Limited (“Great Eagle” or “GEFD”), a Hong Kong Company (the “Consulting Services Agreement”).
Pursuant to the Consulting Services Agreement, GEFD will provide Unique with logistics services, agents management services, support
services, accounting and financial controls support, software, and IT support.
In
connection with the Management Buyout Transaction, Unique also entered into three separate securities purchase agreements with the minority
interest holders of UL ATL (the “UL ATL Transaction”), UL BOS (the “UL BOS Transaction”) and UL NYC (the
“UL NYC Transaction”), respectively, whereby, together with the consummation of the Management Buy Out Transaction,
each such entity became a wholly owned subsidiary of Unique Logistics Holdings.
In
connection with the UL ATL Transaction, Unique purchased from the minority shareholder, the remaining forty percent (40%) of the UL ATL
Membership Interests, for a purchase price of: (i) US$2,819,000, which was paid in accordance with the following (a) $994,000 in cash;
and (b) $1,825,000 through a subordinated, non-interest bearing, promissory note to be issued in favor of the minority holder (the “UL
ATL Note”). The UL ATL Note bears no interest, except for Default Interest upon the occurrence of a default as defined therein
and has a maturity date of May 29, 2023 (the “Maturity Date”). The UL ATL Note provides that payments shall be made to the
holder in six equal installments of $304,167, with the first payment due on November 29, 2020, and subsequent payment due on May
29th and November 29th of each year until the Maturity Date.
In
connection with the UL BOS Transaction, Unique purchased from the minority shareholder, the remaining twenty percent (20%) of the UL
BOS Common Stock for a purchase price of up to $290,000 to be paid in accordance with the following (a) $90,000 to be paid in monthly
cash payments of $2,500 for a period of thirty-six (36) months, and (b) the assumption of up to $200,000 of debt owed to UL HK. In connection
with the UL BOS Transaction, Unique Logistics Holdings, Inc entered into an employment agreement with the minority shareholder dated
May 29, 2020 (the “UL BOS Employment Agreement”). The UL BOS Employment Agreement contains an initial term of three years,
beginning on May 29, 2020, and ending on May 29, 2023, following the initial term the employment may be terminated by either party on
60 days’ written notice. The UL BOS Employment Agreement provides that the employee will serve as a senior vice president to the
Company and will perform the duties and services consistent with the title and function of such office.
In
connection with the UL NYC Transaction, Unique purchased from the minority shareholder, Unique Chief Executive Officer, Sunandan Ray,
the remaining thirty-five percent (35%) of the UL NYC Common Stock for consideration to be paid in accordance with the following
(a) the issuance of 7,200,000 shares of the Unique common stock and (b) the entrance into and execution of an employment agreement by
and between the parties as further described herein (the “Ray Employment Agreement”).
Business
Overview
Unique
Logistics International, Inc. provides a full range of global logistics services by providing to its customers a robust international
network that strategically supports the movement of its customers goods. Acting solely as a third-party logistics provider, Unique purchases
available cargo space in volume from its network of carriers (such as airlines, ocean shipping, and trucking lines) and resells that
space to our customers. Unique Logistics does not own any of these ships, trucks, or aircraft and does not plan on entering the ownership
model.
Operating
via its wholly owned subsidiaries, UL BOS and UL NYC, Unique provides a range of international logistics services that enable its customers
to outsource to the Company sections of their supply chain process. The services provided by the Company are seamlessly managed by its
network of trained employees and integrated information systems. We enable our customers to share data regarding their international
vendors and purchase orders with us, execute the flow of goods and information under their operating instructions, provide visibility
to the flow of goods from factory to distribution center or store and when required, update their inventory records.
Primary
services
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Air
Freight services
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Ocean
Freight services
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Customs
Brokerage and Compliance services
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Warehousing
and Distribution services
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Order
Management
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Air
Freight Services
Operating
as an Indirect Air Carrier (IAC) or an airfreight consolidator, the Company provides both time savings and cost-effective air freight
options to its customers. An expansive global network enables the Company to offer door to door service allowing customers to benefit
from our expert staff for guidance with the physical movement of cargo and documentation compliance. Unique purchases cargo space from
airlines on a volume basis and resells that space to our customers at a lower price than they would be able to negotiate themselves for
their individual shipments. The Company, through its integrated management system, determines the best routing for shipments and then
arrangements are made to receive the cargo into a designated warehouse. Upon receipt, cargo is inspected and weighed, documentation is
collected, and export clearance is processed. Once cargo is cleared it is prepared for departure. Unique offers real-time tracking visibility
for customers to view when an order is booked, departs and arrives. Unique contracts with a worldwide network of airlines and other service
providers to provide the best airfreight service in assisting importers to ship using the most efficient and cost-effective method. Some
of the selections we offer include:
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Domestic,
deferred, express and charter services, which permit customers to choose from a menu of different priority options that secure at
different price levels, greater assurance of timely delivery
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Port
to Port and Door to Door shipments, which provide customers the option of managing, independently, the post arrival services such
as delivery or clearance if the Company is not providing such services
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Global
blocked space agreements (BSA), which guarantee the availability of space on certain flights
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Air
and ocean combination shipment which offer cost effective transportation using multimodal, combination movements, by one mode to
an international hub, such as Dubai, UAE or Singapore and converting to a different mode at the hub
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Air
and transload dedicated truck shipment, where arriving cargo is transferred from airline container or pallet into a truckload ready
for delivery
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Dangerous
goods handling requiring qualified handling
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Refrigerated
cargo
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Ocean
Freight Services
Operating
as an ocean transportation intermediary (“OTI”) to provide ocean freight service both as a non-vessel owning common carrier
(“NVOCC”) and ocean freight forwarder, Unique Logistics provides to its customers ocean freight consolidation, direct ocean
forwarding, and order management. We are a common carrier that holds itself out to the public to provide ocean transportation, issues
its own house bills of lading or equivalent document, but does not operate the vessels by which ocean transportation is provided. The
Company’s roles and responsibilities in ocean freight services include the following:
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Selecting
the most optimal ocean carriers based on both cost and service. The Company has NVOCC contracts with multiple ocean carriers and
is thus able to offer its customers a choice in service;
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Entering
into contract/rate agreement with clients to transport their ocean shipments. Under such contracts the customer is assured of the
Company’s pricing and weekly capacity to carry the customer’s cargo;
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Consolidating
shipments at origin/deconsolidating of freight at destination. This enables the customer to receive the economics of a consolidated
container rate rather than a higher rate for less than full container load (“LCL”). It also makes delivery at destination
more efficient;
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Arranging
pick-up of shipment at origin and deliver at destination, with a factory to door service; and
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Preparing
and processing the documentation/clearance (customs/security) for shipments during ocean transit, in advance of arrival of shipment
at destination.
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Ocean
freight services are provided in both major and minor trade lanes with representation in all trading nations in Americas, Asia, and
Europe.
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Unique
Logistics offers a wide array of services typically performed by multiple services providers including but not limited to, offering
options to customers on ocean carrier service choices prior to final selection and securing such space based on customer requirement;
this enables our customers to delegate more of its logistics management to us. A more limited range of service would require the
customer to deal with multiple service providers.
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Communicates
on any regulation/compliance issues on exporting and importing shipments
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Plays
intermediary role at any point of ocean transportation based on customer’s routing preferences.
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During
high demand period, space acquisition on carrier service is provided for committed delivery, and in weak demand season, lower price
option is provided for utmost cost saving.
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Customs
Brokerage and Compliance Services
Unique
Logistics is a licensed United States customs broker whose mission is to ensure that its importing clients are in compliance with all
required regulations. Our services help importers clear cargo with the U.S. Customs and Border Protection, including documentation collection,
valuation review, product classification, electronic submission to customs and the collection and payment of duties, tariffs, and fees.
Unique Logistics works with importers to develop a compliant trade program including product databases, compliance manuals and periodic
internal audits. The development of product databases has become critical in the current economic environment due to the increasing trade
tensions and various tariffs imposed as a result. Unique Logistics also offers importers tools to improve on efficiency such as reporting,
visibility and trade consulting including training seminars. Additional services include:
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Preparation
of the Import Security Filing (10+2) required to be on file 24 hours prior to shipment departure;
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Clearance
and compliance with other government agencies such as the Food and Drug Administration, U.S. Department of Agriculture, Consumer
Product Safety Commission and U.S. Fish & Wildlife Service;
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Focused
assessment and internal audit to determine and eliminate weak areas of compliance;
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Post-entry
service to change past entries and take advantage of tariff exclusions granted after the original entry was processed;
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Binding
rulings to obtain pre-entry classification;
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Classification
& valuation;
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Trade
agreements;
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Warehouse
entries to defer duty;
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Licensing
and country of origin marking requirements;
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Free
Trade Zone (FTZ);
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Duty
drawback to get duty back on items exported under certain requirements; and
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Cargo
insurance coverage.
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Warehousing
and Distribution Services
Unique
Logistics operates a warehousing facility in Santa Fe Springs, CA and plans to expand such services through its own managed facilities.
Unique Logistics also provides warehousing and distribution services through third party facilities. Our current facility is leased to
the Company and is 110,000 sq. ft. with storage capacity for around 9,000 pallets and 10 dedicated employees.
Warehousing
and Distribution services enable Unique Logistics to greatly expand its involvement in our customers’ supply chain, post arrival
of international shipments into the United States. By providing inventory management, order fulfillment, and other services, our customers
benefit from cost savings related to space, equipment, and labor due to efficiencies of scale. Our list of Warehousing and Distribution
Services include the following:
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Transloading
of cargo from incoming containers to trucks for delivery
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Pick
and pack services
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Quality
control services under customer instructions
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Kitting
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Storage
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Inventory
management
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Delivery
services, including e-Commerce fulfillment services
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Order
Management
Unique
Logistics offers order management services providing importers with total visibility on every order from the time placed with the supplier
to door delivery. Importers send orders electronically immediately upon creation giving the Company the ability to assist in firmly holding
suppliers to shipping windows. Ultimately this results in optimizing consolidation and improved on-time delivery. Order management also
gives importers the power to control their supply chain by monitoring key milestone events, track order status and manage delivery to
the end consumer.
Order
Management features:
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Importer
and vendor EDI integration
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Key
milestone notifications customized per importers’ requirements
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Vendor,
booking and document management
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Customized
reporting including exception reporting for maximum efficiency
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Consolidation
management
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Tracking
visibility in real-time
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Other
Benefits include:
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Single
Data Platform
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Avoids
a manual booking process
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Eliminates
unnecessary data entry
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Document
visibility and historical recordkeeping
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Vendor
KPI management
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Live
milestone updates
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Industry
Overview and Competition
The
global logistics industry is highly competitive, and we expect it to remain so for the foreseeable future. Although there are a large
number of companies that compete or provide services in one or more segments of the logistics industry, Unique Logistics is part of a
much smaller group of companies that provides a full suite of services. In each area of service, we face competition from companies operating
within that service segment as well as companies that provide a wider range of global services.
The
industry includes (i) specialized Non-Vessel Owning Common Carriers (“NVOCCs”), an ocean carrier that transports goods under
its own House Bill of Lading, or equivalent documentation, without operating ocean transportation vessels and (ii) Indirect Air Carriers
(“IACs”) which are persons or entities within the United States, not in possession of an FAA air carrier operating certificate,
which undertake to engage indirectly in air transportation of property and uses for all or any part of such transportation the services
of an air carrier, freight forwarders, trucking companies, customs brokers and warehouse operators who operate within their specialized
space and very often pose pricing advantages within that segment.
Our
mission is to bring value to our customers through specific competitive advantages:
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Trained,
experienced staff with knowledge of those areas of the world where customers are likely to require problem solving abilities.
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Trained,
experienced staff with knowledge of the various supply chain segments: Air, Ocean, Customs, Warehousing, and Information Technology
integration.
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Responsive
customer service and the ability to meet our customer needs with people at the front of well-established processes.
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Seasonality
Historically,
our own operating results as well as the industry as a whole have been subject to seasonal demand. With our financial year end of May
31, typically our first and second quarters are the strongest with the fourth quarter being the weakest; however, there are no guarantees
that these trends will continue or that the COVID-19 pandemic will not cause any other business disruptions. It is widely understood
in the industry that these seasonal trends are influenced by a number of factors, including weather patterns, national holidays, economic
conditions, consumer demand, major product launches, as well as a number of other market forces. Since many of these forces are unforeseen
there is no way for us to provide assurances that these seasonal trends will continue.
Growth
Strategy
Unique
Logistics has established plans to grow its business by focusing on four key areas: (1) Organic Growth and Expansion in existing markets;
(2) Strategic Acquisitions; (3) Warehousing and Distribution; and (4) Specialized services to United States companies on their
overseas logistics needs in targeted Asian markets.
Organic
Growth and Expansion in existing markets:
We
plan to focus on developing business domestically to drive organic growth. Since the Management Buyout Transaction, we have significantly
improved our operating efficiencies in the areas of procurement, customer service, finance and administration. We believe this will result
in much lower overhead and the ability to build a uniform marketing strategy to build market share and further the brand recognition
of Unique Logistics throughout the United States. Additionally, the Company will continuously assess its Information Technology environment
based on emerging trends in logistics and customer requirements. The first step in the strategy is already in place: a single operating
platform. We will continue to build add-on service tools that enhance our operating platform. One key area for technology focus will
be the seamless delivery of e-Commerce services from origin to consumer with shipment visibility for both customer and the customer’s
consumer.
We
believe Unique Logistics’ business base that includes some of the largest importers in the United States can be expanded by building
our sales organization and the support organization to successfully deliver our brand of service. The targeted growth areas include Charlotte,
NC, Dallas, TX, Houston, TX and Seattle, WA.
Strategic
Acquisitions:
We
currently maintain an option to acquire ownership of significant UL HK foreign subsidiaries that are critical to our ability to meet
our customers’ international requirements. Through the Consulting Services Agreement between the Company and GEFD, we will ensure
that the international brand of Unique Logistics and the seamless services provided to customers remains in place even before the options
to acquire UL HK’s foreign subsidiaries is exercised. Additionally, it is our intention to increase our business by seeking additional
opportunities through potential domestic acquisitions, revenue sharing arrangements, partnerships, or investments.
Warehousing
and Distribution
Unique
Logistics has successfully established a major warehousing facility in Santa Fe Springs, CA and now has in-house the management expertise
(commercial as well as operational) in successfully managing such facilities. Unique Logistics has also identified a method of identifying
growth opportunities by focusing on specific areas of the United States and existing well-constructed facilities where lease assumption
is available with an existing customer base.
Specialized
Services to US Companies in Overseas Markets
Unique
Logistics has several decades of experience in Asian markets such as China, India, Vietnam and Indonesia. Unique Logistics is constantly
dealing with a United States customer base that seeks to do business in these areas but require local expertise. We have the experience
and the connections to assist United States companies with local importation, local warehousing and distribution and other local logistics
and trade compliance services. We plan to build on our expertise in these four specific countries to build tailored services to US customers,
including in business consulting pertaining to logistics and related trade services.
Government
Regulations and Security
Our
industry is subject to regulation and supervision by several governmental authorities.
Operations
The
U.S. Department of Transportation (“DOT”), the Federal Aviation Administration (“FAA”) and the U.S. Department
of Homeland Security, through the Transportation Security Administration (“TSA”), have regulatory authority over our air
transportation services. The Federal Aviation Act of 1958, as amended, is the statutory basis for DOT and FAA authority and the Aviation
and Transportation Security Act of 2001, as amended, is the basis for TSA aviation security authority.
All
United States indirect air carriers are required to maintain prescribed security procedures and are subject to periodic audits by the
TSA. Our overseas offices and agents are licensed as airfreight forwarders in their respective countries of operation. Our offices are
licensed as an airfreight forwarder from the International Air Transport Association (IATA), a voluntary association of airlines and
air transport related entities that prescribes certain operating procedures for airfreight forwarders acting as agents for its members.
The
shipping of goods by sea is regulated by the Federal Maritime Commission (“FMC”). Our Company is licensed by the FMC to operate
as an Ocean Transportation Intermediary (“OTI”) and as a NVOCC. As a licensed OTI and NVOCC, we are required to comply with
several regulations, including the filing of our tariffs.
Under
Department of Homeland Security regulations, we are a qualified participant in the Customs- Trade Partnership Against Terrorism (“C-TPAT”)
program requiring us to be compliant with relevant security procedures in our operations.
We
are licensed as a customs broker by the U.S. Customs and Border Protection (CBP) Agency of DHS, nationally and in each U.S. customs district
in which we do business. All United States customs brokers are required to maintain prescribed records and are subject to periodic audits
by CBP. In other jurisdictions in which we perform customs clearance services, we are licensed by the appropriate governmental authority
where such license is required to perform these services.
We
do not believe that current United States and foreign governmental regulations impose significant economic restraint upon our business
operations. However, the regulations of foreign governments can impose barriers to our ability to provide the full range of our business
activities in a wholly or majority United States-owned subsidiary. For example, foreign ownership of a customs brokerage business is
prohibited in some jurisdictions and, less frequently, the ownership of the licenses required for freight forwarding and/or freight consolidation
is restricted to local entities. When we encounter this sort of governmental restriction, we work to establish a legal structure that
meets the requirements of the local regulations, while also providing the substantive operating and economic advantages that would be
available in the absence of such regulation. This can be accomplished by creating a joint venture or exclusive agency relationship with
a qualified local entity that holds the required license.
Environmental
We
are subject to federal, state and local environmental laws and regulations across all of our business units. These laws and regulations
cover a variety of processes, including, but not limited to: proper storage, handling and disposal of waste materials; appropriately
managing wastewater and stormwater; monitoring and maintaining the integrity of underground storage tanks; complying with laws regarding
clean air, including those governing emissions; protecting against and appropriately responding to spills and releases and communicating
the presence of reportable quantities of hazardous materials to local responders. We have established site- and activity-specific environmental
compliance and pollution prevention programs to address our environmental responsibilities and remain compliant. In addition, we have
created several programs which seek to minimize waste and prevent pollution within our operations.
Employees
and Human Capital
As
of August 31, 2021, the Company had 108 employees. None of our employees are represented by a union or covered by a collective
bargaining agreement. We have not experienced any work stoppages and we consider our relationship with our employees to be good.
Our
human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing
and new employees, advisors and consultants. The principal purposes of our equity incentive plan is to attract, retain and reward personnel
through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company by motivating
such individuals to perform to the best of their abilities and achieve our objectives.
Legal
Proceedings
The
Company is not involved in any disputes and does not have any significant litigation matters pending which the Company believes could
have a materially adverse effect on the Company’s financial condition or results of operations. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to
the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common
stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities
as such, in which an adverse decision could have a material adverse effect.
However,
from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Item
1A. Risk Factors.
This
Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives,
expectations, and intentions. The cautionary statements made in this Annual Report on Form 10-K should be read as applicable to all forward-looking
statements wherever they appear in this report. Our actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Annual Report
on Form 10-K.
RISKS
RELATED TO THE COVID-19 PANDEMIC
THE
COVID-19 PANDEMIC COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS OPERATIONS, RESULTS OF OPERATIONS, CASH FLOWS AND FINANCIAL POSITION.
We
are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact
our employees, customers and business partners. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption,
which could adversely affect our business operations and may materially and adversely affect our results of operations, cash flows and
financial position.
We
experienced declines in demand for our services that began in the first quarter 2020 that had a substantial impact in the period through
June 2020. From July 2020 onwards the recovery of online retail and ultimately brick and mortar retail and a surge of imports increased
our workload significantly, despite the pandemic conditions. We also incurred additional costs to meet the needs of our employees including
arrangements for working from home. An extended period of remote work arrangements could strain our business continuity plans, introduce
operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.
The
impacts of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business,
results of operations and financial condition even after the COVID-19 outbreak has subsided. The extent to which the COVID-19 pandemic
impacts us will depend on numerous evolving factors and future developments that we are not able to predict. Due to the largely unprecedented
and evolving nature of the COVID-19 pandemic, it remains very difficult to predict the extent of the impact on our industry generally
and our business in particular. Furthermore, the extent and pace of a recovery remains uncertain and may differ significantly among the
countries in which we operate. As a result, the pandemic could have a material impact on our results of operations and heighten many
of our other known risks described in this prospectus.
WE
RELY ON SERVICE PROVIDERS, SUCH AS AIR, OCEAN AND GROUND FREIGHT CARRIERS, AND IF THEY BECOME FINANCIALLY UNSTABLE OR HAVE REDUCED CAPACITY
TO PROVIDE SERVICES BECAUSE OF COVID-19, IT MAY ADVERSELY IMPACT OUR BUSINESS AND OPERATING RESULTS.
As
a non-asset-based provider of global logistics services, we depend on a variety of asset-based service providers, including air, ocean
and ground freight carriers. The quality and profitability of our services depend upon effective selection and oversight of our service
providers. COVID-19 places significant stress on our air, ocean, and freight ground carriers, which may continue to result in reduced
carrier capacity or availability, pricing volatility or more limited carrier transportation schedules which could adversely impact our
operations and financial results. During the pandemic, air carriers have been particularly affected having to cancel flights due to travel
restrictions resulting in dramatic drops in revenues, historical losses, and liquidity challenges. Uncertainty over recovery of demand
for passenger air travel, in particular business travel, to pre-pandemic levels means air carriers’ operations and financial stability
may be adversely affected long term. Prior to 2020, ocean carriers have incurred significant operating losses are still highly leveraged
with debt. Additionally, several ocean carriers have consolidated, with the potential for more to occur in the future.
RISKS
RELATED TO OUR COMPANY AND OUR INDUSTRY
THE
COMPANY PROVIDES SERVICES TO CUSTOMERS ENGAGED IN INTERNATIONAL COMMERCE. EVERYTHING THAT AFFECTS INTERNATIONAL TRADE HAS THE POTENTIAL
TO EXPAND OR CONTRACT OUR PRIMARY MARKET AND ADVERSELY IMPACT OUR OPERATING RESULTS. FOR EXAMPLE, INTERNATIONAL TRADE IS INFLUENCED BY:
|
●
|
currency
exchange rates and currency control regulations;
|
|
●
|
interest
rate fluctuations;
|
|
●
|
changes
and uncertainties in governmental policies and inter-governmental disputes, which could result in increased tariff rates, quota restrictions,
trade barriers and other types of restrictions;
|
|
●
|
changes
in and application of international and domestic customs, trade and security regulations;
|
|
●
|
wars,
strikes, civil unrest, acts of terrorism, and other conflicts;
|
|
●
|
changes
in labor and other costs;
|
|
●
|
natural
disasters and pandemics;
|
|
●
|
changes
in consumer attitudes regarding goods made in countries other than their own;
|
|
●
|
changes
in availability of credit;
|
|
●
|
changes
in the price and readily available quantities of oil and other petroleum-related products; and
|
|
●
|
increased
global concerns regarding working conditions and environmental sustainability.
|
WE
HAVE CUSTOMERS WHO ARE RETAILERS AND THUS, SUBJECT TO THE IMPACT OF COVID RELATED RISKS AND RESTRICTIONS.
Our
customer base includes several customers whose business involves retail to the public through brick and mortar stores, many of them in
shopping malls. In the period from February 2020 to May 2020, many such customers faced significant downturn in their business resulting
in shut down of supply chains and business loss for our Company. By February 2021, most of these customers saw their business recover
to pre-pandemic levels. However, the risk of a resurgence of infections or a permanent decline in brick and mortar retail as a fallout
of the pandemic could result in significant shift in the business of some of our customers.
WE
DEPEND ON OPERATORS OF AIRCRAFTS, SHIPS, TRUCKS, PORTS AND AIRPORTS.
The
financial condition of asset-based service providers can have a direct impact on our operations. For example, several ocean carriers
have consolidated, with the potential for more consolidations to occur in the industry. The financial results reported by ocean carriers
have been an industry concern for several years and bankruptcies such as that of Hanjin Shipping have aggravated those concerns. The
combination of reduced carrier capacity and pricing volatility is a risk in our business and our inability to secure shipping capacity
or face costs that we cannot pass on to our customers could materially affect our results. Our dependence on third parties to provide
equipment and services may impact the delivery and quality of our transportation and logistics services.
OUR
PAST ACQUISITIONS, AS WELL AS ANY ACQUISITIONS THAT WE MAY COMPLETE IN THE FUTURE, MAY BE UNSUCCESSFUL OR RESULT IN OTHER RISKS OR DEVELOPMENTS
THAT ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS.
While
we intend for our acquisitions to enhance our competitiveness and profitability, we cannot be certain that our past or future acquisitions
will be accretive to earnings or otherwise meet our operational or strategic expectations. Special risks, including accounting, regulatory,
compliance, information technology or human resources issues, may arise in connection with, or as a result of, the acquisition of an
existing company, including the assumption of unanticipated liabilities and contingencies, difficulties in integrating acquired businesses,
possible management distractions, or the inability of the acquired business to achieve the levels of revenue, profit, productivity or
synergies we anticipate or otherwise perform as we expect on the timeline contemplated. We are unable to predict all of the risks that
could arise as a result of our acquisitions.
In
addition, if the performance of our reporting segments or an acquired business varies from our projections or assumptions, or if estimates
about the future profitability of our reporting segments or an acquired business change, our revenues, earnings or other aspects of our
financial condition could be adversely affected.
WE
DERIVE A SIGNIFICANT PORTION OF OUR TOTAL REVENUES AND NET REVENUES FROM OUR LARGEST CUSTOMER.
Our
largest customer comprises approximately twenty-five percent (25%) of our consolidated total revenues. The sudden loss
of any of our major customers could materially and adversely affect our operating results.
DUE
TO OUR DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS, WE ARE SUBJECT TO A CONCENTRATION OF CREDIT RISK.
As
of May 31, 2021, eight (8) customers accounted for approximately forty seven percent (47%) of our accounts receivable.
In the case of insolvency by one of our significant customers, accounts receivable with respect to that customer might not be collectible,
might not be fully collectible, or might be collectible over longer than normal terms, each of which could adversely affect our financial
position. Additionally, our 10 largest customers accounted for approximately sixty percent (60%) of our total revenues
for the year ended May 31, 2021. This concentration of credit risk makes us more vulnerable economically. The loss of any
of these customers could materially reduce our revenues and net income, which could have a material adverse effect on our business.
WE
RELY ON TECHNOLOGY TO OPERATE OUR BUSINESS.
Our
continued success is dependent on our systems continuing to operate and to meet the changing needs of our customers and users. We rely
on our technology staff and vendors to successfully implement changes to and maintain our operating systems in an efficient manner. If
we fail to maintain and enhance our operating systems, we may be at a competitive disadvantage and lose customers.
As
demonstrated by recent material and high-profile data security breaches, computer malware, viruses, and computer hacking and phishing
attacks have become more prevalent, have occurred on our systems in the past, and may occur on our systems in the future. Previous attacks
on our systems have not had a material financial impact on our operations, but we cannot guarantee that future attacks will have little
to no impact on our business.
Though
it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, a significant impact on
the performance, reliability, security, and availability of our systems and technical infrastructure to the satisfaction of our users
may harm our reputation, impair our ability to retain existing customers or attract new customers, and expose us to legal claims and
government action, each of which could have a material adverse impact on our financial condition, results of operations, and growth prospects.
DIFFICULTY
IN FORECASTING TIMING OR VOLUMES OF CUSTOMER SHIPMENTS OR RATE CHANGE BY CARRIERS COULD ADVERSELY IMPACT OUR MARGINS AND OPERATING RESULTS.
We
are not aware of any accurate means of forecasting short-term customer requirements. However, long-term customer satisfaction depends
upon our ability to meet these unpredictable short-term customer requirements. Personnel costs, our single largest expense, are always
less flexible in the very near term as we must staff to meet uncertain demand. As a result, short-term operating results could be disproportionately
affected.
A
significant portion of our revenues is derived from customers whose shipping patterns are tied closely to consumer demand and from customers
in industries whose shipping patterns are dependent upon just-in-time production schedules. Therefore, the timing of our revenues is,
to a large degree, impacted by factors out of our control, such as a sudden change in consumer demand for retail goods, changes in trade
tariffs, product launches and/or manufacturing production delays. Additionally, many customers ship a significant portion of their goods
at or near the end of a quarter, and therefore, we may not learn of a shortfall in revenues until late in a quarter. To the extent that
a shortfall in revenues or earnings was not expected by securities analysts or investors, any such shortfall from levels predicted by
securities analysts or investors could have an immediate and adverse effect on the trading price of our stock.
Volatile
market conditions can create situations where rate increases charged by carriers and other service providers are implemented with little
or no advance notice. We often cannot pass these rate increases on to our customers in the same time frame, if at all. As a result, our
yields and margins can be negatively impacted, as recently experienced.
OUR
EARNINGS MAY BE AFFECTED BY SEASONAL CHANGES IN THE TRANSPORTATION INDUSTRY.
Results
of operations for our industry generally show a seasonal pattern as customers reduce shipments during and after the winter holiday season.
Historically, income from operations and earnings are lower in the first calendar quarter than in the other three quarters. We
believe this historical pattern has been the result of, or influenced by, numerous factors, including national holidays, weather patterns,
consumer demand, economic conditions, and other similar and subtle forces. Although seasonal changes in the transportation industry have
not had a significant impact on our cash flow or results of operations, we expect this trend to continue and we cannot guarantee that
it will not adversely impact us in the future.
OUR
BUSINESS IS AFFECTED BY EVER INCREASING REGULATIONS FROM A NUMBER OF SOURCES IN THE UNITED STATES AND IN FOREIGN LOCATIONS IN WHICH WE
OPERATE.
Many
of these regulations are complex and require varying degrees of interpretation, including those related to trade compliance, data privacy,
employment, compensation and competition, and may result in unforeseen costs.
In
reaction to the continuing global terrorist threat, governments around the world are continuously enacting or updating security regulations.
These regulations are multi-layered, increasingly technical in nature and characterized by a lack of harmonization of substantive requirements
among various governmental authorities. Furthermore, the implementation of these regulations, including deadlines and substantive requirements,
can be driven by regulatory urgencies rather than industry’s realistic ability to comply.
Failure
to consistently and timely comply with these regulations, or the failure, breach or compromise of our policies and procedures or those
of our service providers or agents, may result in increased operating costs, damage to our reputation, difficulty in attracting and retaining
key personnel, restrictions on operations or fines and penalties.
WE
ARE SUBJECT TO NEGATIVE IMPACTS OF CHANGES IN POLITICAL AND GOVERNMENTAL CONDITIONS.
Our
operations are subject to the influences of significant political, governmental, and similar changes and our ability to respond to them,
including:
|
●
|
changes
in political conditions and in governmental policies;
|
|
●
|
changes
in and compliance with international and domestic laws and regulations; and
|
|
●
|
wars,
civil unrest, acts of terrorism, and other conflicts.
|
WE
MAY BE SUBJECT TO NEGATIVE IMPACTS OF CATASTROPHIC EVENTS.
A
disruption or failure of our systems or operations in the event of a major earthquake, weather event, cyber-attack, heightened security
measures, actual or threatened, terrorist attack, strike, civil unrest, pandemic, or other catastrophic event could cause delays in providing
services or performing other critical functions. A catastrophic event that results in the destruction or disruption of any of our critical
business or information systems could harm our ability to conduct normal business operations and adversely impact our operating results.
OUR
INTERNATIONAL OPERATIONS SUBJECT US TO OPERATIONAL AND FINANCIAL RISKS.
We
provide services within and between foreign countries on an increasing basis. Our business outside of the United States is subject to
various risks, including:
|
●
|
changes
in tariffs, trade restrictions, trade agreements, and taxations;
|
|
●
|
difficulties
in managing or overseeing foreign operations and agents;
|
|
●
|
limitations
on the repatriation of funds because of foreign exchange controls;
|
|
●
|
different
liability standards; and
|
|
●
|
intellectual
property laws of countries that do not protect our rights in our intellectual property, including, but not limited to, our proprietary
information systems, to the same extent as the laws of the United States.
|
The
occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and/or decrease the profitability
of our operations in that region.
As
we continue to expand our business internationally, we expose the Company to increased risk of loss from foreign currency fluctuations
and exchange controls, as well as longer accounts receivable payment cycles. Foreign currency fluctuations could result in currency exchange
gains or losses or could affect the book value of our assets and liabilities. Furthermore, we may experience unanticipated changes to
our income tax liabilities resulting from changes in geographical income mix and changing international tax legislation. We have limited
control over these risks, and if we do not correctly anticipate changes in international economic and political conditions, we may not
alter our business practices in time to avoid adverse effects.
THE
COMPANY OPERATES IN A COMPETITIVE ENVIRONMENT.
Many
of the Company’s current and potential competitors have longer operating histories, greater name recognition, more employees, and
significantly greater financial, technical, marketing, public relations, and distribution resources than the Company. The competitive
environment may require the Company to make changes in the Company’s pricing or marketing to maintain and extend the Company’s
current brand and market position. Price concessions or the emergence of other pricing or distribution strategies of competitors may
diminish the Company’s revenues, impact the Company’s margins, or lead to a reduction in the Company’s market share,
any of which will harm the Company’s business.
AS
A MULTINATIONAL CORPORATION, WE ARE SUBJECT TO FORMAL OR INFORMAL INVESTIGATIONS FROM GOVERNMENTAL AUTHORITIES OR OTHERS IN THE COUNTRIES
IN WHICH WE DO BUSINESS.
We
may become subject to civil litigation with our customers, service providers and other parties with whom we do business. These investigations
and litigation may require significant management time and could cause us to incur substantial additional legal and related costs, which
may include fines, penalties or damages that could have a materially adverse impact on our financial results.
THE
GLOBAL ECONOMY AND CAPITAL AND CREDIT MARKETS CONTINUE TO EXPERIENCE UNCERTAINTY AND VOLATILITY.
Unfavorable
changes in economic conditions may result in lower freight volumes and adversely affect the Company’s revenues and operating results.
These conditions may adversely affect certain of our customers and service providers. Were that to occur, our revenues and net earnings
could also be adversely affected. Should our customers’ ability to pay deteriorate, additional bad debts may be incurred. Volatile
market conditions can create situations where rate increases charged by carriers and other service providers are implemented with little
or no advance notice. We often times cannot pass these rate increases on to our customers in the same time frame, if at all. As a result,
our yields and margins can be negatively impacted, as recently experienced, particularly with ocean freight.
THE
IMPLEMENTATION OF THE COMPANY’S BUSINESS STRATEGY WILL REQUIRE SIGNIFICANT EXPENDITURE OF CAPITAL AND WILL REQUIRE ADDITIONAL FINANCING.
The
implementation of the Company’s business strategy will require significant expenditures of capital, and the Company will require
additional financing. Additional funds may be sought through equity or debt financings. The Company cannot offer any assurances that
commitments for such financings will be obtained on favorable terms, if at all. Equity financings could result in dilution to holders
and debt financing could result in the imposition of significant financial and operational restrictions on the Company. The Company’s
inability to access adequate capital on acceptable terms could have a material adverse effect on the Company’s business, results
of operations and financial condition.
THE
COMPANY’S FAILURE TO CONTINUE TO ATTRACT, TRAIN, OR RETAIN HIGHLY QUALIFIED PERSONNEL COULD HARM THE COMPANY’S BUSINESS.
The
Company’s success also depends on the Company’s ability to attract, train, and retain qualified personnel, specifically those
with management and product development skills. Competition for such personnel is intense, particularly in high-technology centers. If
the Company does not succeed in attracting new personnel or retaining and motivating the Company’s current personnel, the Company’s
business could be harmed.
RISKS
RELATED TO OUR COMMON STOCK
WE
MAY BE SUBJECT TO PENNY STOCK RULES WHICH WILL MAKE THE SHARES OF OUR COMMON STOCK MORE DIFFICULT TO SELL.
We
may be subject now and in the future to the SEC’s “penny stock” rules if our shares common stock sell below $5.00 per
share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to
deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of
each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation
information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer
in writing before or with the customer’s confirmation.
In
addition, the penny stock rules require that prior to a transaction the broker dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The
penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock.
As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more
difficult to sell their securities.
SALES
OF OUR CURRENTLY ISSUED AND OUTSTANDING STOCK MAY BECOME FREELY TRADABLE PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR SHARES
AND HAVE A DEPRESSIVE EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON STOCK
A
substantial majority of our outstanding shares of common stock are “restricted securities” within the meaning of Rule 144
under the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under
the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities
laws. Rule 144 provides in essence that an Affiliate (as such term is defined in Rule 144(a)(1)) of an issuer who has held restricted
securities for a period of at least six months (one year after filing Form 10 information with the SEC for shell companies and former
shell companies) may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not
exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four
calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTC Bulletin Board). Rule 144
also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate of the
Company and who has satisfied a one-year holding period. A sale under Rule 144 or under any other exemption from the Act, if available,
or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common
stock in any active market that may develop.
YOU
WILL EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK AND OUR PREFERRED
STOCK.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests
of our present stockholders. We are currently authorized to issue an aggregate of 805,000,000 shares of capital stock consisting of 800,000,000
shares of common stock, par value $0.001 and 5,000,000 shares of preferred stock, par value $0.001.
We
may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in
connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising
purposes, or for other business purposes. The future issuance of any such additional shares of our common stock or other securities may
create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional
shares, warrants or other convertible securities in the future in conjunction with hiring or retaining employees or consultants, future
acquisitions, future sales of our securities for capital raising purposes or for other business purposes, including at a price (or exercise
prices) below the price at which shares of our common stock are trading.
WE
DO NOT EXPECT TO PAY DIVIDENDS AND INVESTORS SHOULD NOT BUY OUR COMMON STOCK EXPECTING TO RECEIVE DIVIDENDS.
We
have not paid any dividends on our common stock in the past, and do not anticipate that we will declare or pay any dividends in the foreseeable
future. Consequently, investors will only realize an economic gain on their investment in our common stock if the price appreciates.
Investors should not purchase our common stock expecting to receive cash dividends. Because we do not pay dividends, and there may be
limited trading, investors may not have any manner to liquidate or receive any payment on their investment. Therefore, our failure to
pay dividends may cause investors to not see any return on investment even if we are successful in our business operations. In addition,
because we do not pay dividends, we may have trouble raising additional funds, which could affect our ability to expand our business
operations.
Item
1B. Unresolved Staff Comments.
None.
Item
2. Properties.
Our
corporate headquarters is currently located at 154-09 146th Avenue, Jamaica, NY 11434 where we occupy 2,219 square feet. Monthly
rent for this space is approximately $5,000 per month and our lease expires on April 30, 2024.
A
full list of properties leased by the Company are set out below:
LOCATION
|
|
LEASE
|
|
MONTHLY
|
|
|
SQUARE
|
|
|
CITY, STATE
|
|
EXPIRATION
|
|
RENT
|
|
|
FEET
|
|
FUNCTION
|
JAMAICA, NY
|
|
4/30/2024
|
|
$
|
4,813.75
|
|
|
2,219
|
|
OFFICE
|
JAMAICA, NY
|
|
7/15/2022
|
|
$
|
4,000.00
|
|
|
1,440
|
|
WAREHOUSE
|
ATLANTA, GA
|
|
10/31/2028
|
|
$
|
13,227.67
|
|
|
5,669
|
|
OFFICE
|
CHELSEA, MA
|
|
9/30/2022
|
|
$
|
900.00
|
|
|
600
|
|
OFFICE
|
MIDDLETON, MA
|
|
7/31/2025
|
|
$
|
10,620.75
|
|
|
5,202
|
|
OFFICE
|
SANTA FE SPRINGS, CA
|
|
10/15/2022
|
|
$
|
108,410.96
|
|
|
110,791
|
|
WAREHOUSE/ OFFICE
|
CHARLOTTE, NC
|
|
6/302025
|
|
$
|
3,896.06
|
|
|
1,889
|
|
OFFICE
|
ITASCA, IL
|
|
5/31/2026
|
|
$
|
4,383.75
|
|
|
2,338
|
|
OFFICE
|
ROANOKE, VA
|
|
6/1/2022
|
|
$
|
595.57
|
|
|
685
|
|
OFFICE
|
Our
spaces are utilized for office and warehouse purposes, and it is our belief that the spaces are adequate for our immediate needs. Additional
space may be required as we expand our business activities. We do not foresee any significant difficulties in obtaining additional facilities
if deemed necessary.
Item
3. Legal Proceedings.
The
Company is not involved in any disputes and does not have any significant litigation matters pending which the Company believes
could have a materially adverse effect on the Company’s financial condition or results of operations. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company,
our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors
in their capacities as such, in which an adverse decision could have a material adverse effect.
However,
from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Item
4. Mine Safety Disclosures.
Not
Applicable.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
May
31, 2021
1.
|
Nature
of Business and Summary of Significant Accounting Policies
|
Nature
of Business
Unique
Logistics International, Inc. (the “Company” or “Unique”) (formerly Innocap, Inc.) 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”), Unique Logistics International (ATL) LLC, a Georgia limited liability
company (“UL ATL”), and Unique Logistics International (BOS) Inc, a Massachusetts corporation (“UL BOS”) and
(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
|
On
May 29, 2020, Unique Logistics Holdings, Inc., a privately held Delaware corporation incorporated on October 28, 2019 (date of inception)
headquartered in New York (“ULHI”), entered into a Securities Purchase Agreement with Unique Logistics Holdings Ltd, (“UL
HK”), a Hong Kong company, (the “UL HK Transaction”). From inception, October 28, 2019 to May 29, 2020, ULHI was inactive.
See “Acquisitions” in Note 2 below. The activity on the consolidated statements of operations is that of ULH for the period
May 29, 2020 through May 31, 2020.
On
October 8, 2020, Unique Logistics Holdings, Inc., Innocap, Inc., and Inno Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Innocap Inc. (“Merger Sub”), entered into an Acquisition Agreement and Plan of Merger pursuant to which the
Merger Sub was merged with and into ULHI, with ULHI surviving as a wholly owned subsidiary of Innocap, Inc. (the “Merger”).
The transaction took place on October 8,2020 (the “Closing”). Innocap, Inc. was incorporated under the laws of the State
of Nevada on January 23, 2004. (See “Acquisitions” in Note 2)
Effective January 11, 2021, the Company
amended and restated its articles of incorporation with the office of the Secretary of State of Nevada to, among other things, change
the Company’s name to Unique Logistics International, Inc. and increase the number of shares of common stock that the Company is
authorized to issue from 500,000,000 shares to 800,000,000 shares.
On
January 13, 2021, the Company received notice from the Financial Industry Regulation Authority (“FINRA”) that the above name
change had been approved and took effect at the opening of trading on January 14, 2021. In connection with the name change, the Company
changed its ticker symbol from “INNO” to “UNQL”.
Liquidity
The
accompanying consolidated financial statements have been prepared on a going concern basis. Substantial doubt about an entity’s
ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that
the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are
issued.
As a consequence of acquisition financing
at inception, the Company experienced negative working capital and adverse cash flows from operations. As of May 31, 2021, the Company
had cash of approximately $253,000, negative working capital of approximately $3.5 million and cash used in operations of approximately
$162,000. This was a significant improvement from May 31, 2020, when its negative working capital was approximately $10.7 million.
In
response to our liquidity needs and to continue execution of our strategic plan. During the year ended May 31, 2021, the Company paid
down most of its acquisition related debt (see Note 8), received forgiveness for PPP loans (Note 7) and signed an Exchange Agreement
to exchange its Convertible debt into common stocks (Note 13). In addition, as disclosed in Note 13, Subsequent Events, on August 4,
2021 the parties to the TBK Agreement entered into an agreement to increase the Company’s credit facility from $30 million to $40
million during the period August 4, 2021, through and including December 2, 2021, with all other terms of the original TBK Agreement
remaining unchanged.
While
we continue to execute our strategic plan, we will be tightly managing our cash and monitoring our liquidity position. We have
implemented a number of initiatives to conserve our liquidity position including activities such as raising additional capital,
increasing credit facilities, reducing cost of debt, controlling general and administrative expenditures, reducing discretionary
spending and improving cash collection processes. Many of the aspects of the plan involve management’s judgments and estimates
that include factors that could be beyond our control and actual results could differ from our estimates. These and other factors
could cause the strategic plan to be unsuccessful which could have a material adverse effect on our operating results, financial
condition and liquidity. Based on our evaluation and business performance of the Company subsequent
to the balance sheet date, management has concluded that the Company’s cash and operating capital as of May 31, 2021, would be sufficient
to continue as a going concern for at least one year from the date these consolidated financial statements are issued.
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 effecting its margins.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with the accounting
principles generally accepted in the United States of America (“GAAP”).
Principles
of Consolidation
The
consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries stated in U.S.
dollars, the Company’s functional currency. All intercompany transactions and balances have been eliminated in the consolidated
financial statements.
Business
Combination
The
Company accounts for business acquisitions using the acquisition method as required by Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. The assets acquired and liabilities assumed
in business combinations, including identifiable intangible assets, are recorded based upon their estimated fair values as of the acquisition
date. The excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired
is recorded as goodwill. Acquisition expenses are expensed as incurred. While the Company uses its best estimates and assumptions to
accurately value assets acquired and liabilities assumed as of the acquisition date, the estimates are inherently uncertain and subject
to refinement.
The
fair values of intangible assets are generally estimated using a discounted cash flow approach with Level 3 inputs. The estimate of fair
value of an intangible asset is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely
to the intangible asset over its remaining useful life. To estimate fair value, the Company generally uses risk-adjusted cash flows discounted
at rates considered appropriate given the inherent risks associated with each type of asset. The Company believes the level and timing
of cash flows appropriately reflects market participant assumptions.
For
acquisitions that involve contingent consideration, the Company records a liability equal to the fair value of the contingent consideration
obligation as of the acquisition date. The Company determines the acquisition date fair value of the contingent consideration based on
the likelihood of paying the additional consideration. The fair value is generally estimated using projected future operating results
and the corresponding future earn-out payments that can be earned upon the achievement of specified operating objectives and financial
results by acquired companies using Level 3 inputs and the amounts are then discounted to present value. These liabilities are measured
quarterly at fair value, and any change in the fair value of the contingent consideration liability is recognized in the consolidated
statements of operations.
During
the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired
and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination
of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the consolidated
statements of operations.
Use
of Estimates
The
preparation of 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 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 consolidated financial statements include determinations of the useful lives and expected
future cash flows of long-lived assets, including intangibles, valuation of assets and liabilities acquired in business combinations,
estimates of valuation assumptions for long-lived assets impairment, estimates and assumptions in valuation of debt and equity instruments
and the calculation of share-based compensation. In addition, the Company makes significant judgments to recognize revenue – see
policy note “Revenue Recognition” below.
Fair
Value Measurement
The
Company follows the authoritative guidance that establishes a formal framework for measuring fair values of assets and liabilities in
the 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 corroborate 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, current portion of
long-term debt due to related party payables, convertible notes, net and current portion of promissory loans approximate fair value due
to their short-term nature as of May 31, 2021 and 2020. 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 May 31, 2021 and 2020. 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 had 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 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 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 May 31, 2021 and 2020, the Company recorded an allowance for doubtful accounts of approximately $240,000 and $0, respectively.
Concentrations
Two
customers represented approximately 25% of accounts receivable as of May 31, 2021. No customer represented greater than 10% of
accounts receivable as of May 31, 2020. Two customers accounted for 24.6% and 18.9% of revenue, respectively, for the year ended May
31, 2021. Same two customers accounted for 28.4% and 20.8% of revenue, respectively, for the period October 28, 2019 (inception) through
May 31, 2020.
Off
Balance Sheet Arrangements
The
Company has an agreement with an unrelated third party (the “Factor”) for factoring of specific accounts receivable. The
factoring is 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 reflect the face value of the account less a fee, which is presented in costs and operating
expenses on the Company’s 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 consolidated balance sheets. The Company reports 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 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 approximately $31,750,000 and $3,900,000 as of May 31, 2021 and 2020, respectively. (See Note 11).
The
Company acts as the agent on behalf of the Factor for the arrangements and has no significant retained interests or servicing liabilities
related to the accounts receivable sold. The agreement provides 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 years ended May 31, 2021 and 2020 the Company factored accounts receivable invoices totaling approximately $233,896,000 and $4,785,000,
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 $4,472,000 pursuant to the agreements
for the year ended May 31, 2021 and none for the year ended May 31, 2020, which is presented in costs and operating expenses on the consolidated
statement of operations.
Factoring
Reserve
When
an invoice is sold to Factor, the amount received from the Factor is credited to accounts receivable – trade and a reserve is retained,
less a fee, by Factor which is debited to “factoring reserve” on the consolidated balance sheets.
Factor
Recovery
In
certain instances, the Company receives payment for a factored reserve directly from the customer. In these cases, until the funds are
paid to the factor, the Company records the payment as “factor recovery” which is in accrued expenses and other current liabilities
on the consolidated balance sheets.
Recourse
Liability
Company
policy is to do a collectability review of uncollected factored receivables in conjunction with the Factor at each reporting date and
assess the need to provide for risk of potential non-collection and resulting recourse.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is provided for by the straight-line
method over the estimated useful lives of the related assets.
Estimated
useful lives of property and equipment are as follows:
Software
|
|
3
years
|
Computer
equipment
|
|
3
– 5 years
|
Furniture
and fixtures
|
|
5
– 7 years
|
Leasehold
improvements
|
|
Shorter
of estimated useful life or remaining term of the lease
|
Both
the useful life of an asset and its residual value, if any, are reviewed annually.
Expenditures
for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any related gain or loss is reflected in income for the period. The Company did not record
any impairment for the year ended May 21, 2021 and for the period from October 28, 2019 (inception), through May 31, 2020.
Goodwill
and Other Intangibles
The
Company accounts for business acquisitions in accordance with GAAP. Goodwill in such acquisitions is determined as the excess of fair
value over amounts attributable to specific tangible and intangible assets. GAAP specifies criteria to be used in determining whether
intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill
and other identifiable intangible assets are based on independent appraisals or internal estimates.
In
accordance with GAAP, the Company does not amortize goodwill or indefinite-lived intangible assets. Management evaluates the remaining
useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue
to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite
useful life, it is amortized prospectively over its estimated remaining useful life. 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.
The
Company tests goodwill for impairment annually as of May 31 or if an event occurs or circumstances change that indicate that the fair
value of the entity, or the reporting unit, may be below its carrying amount (a “triggering event”). Whenever events or circumstances
change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. If impairment is
deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step impairment test
is not required. In assessing the qualitative factors, the Company assessed relevant events and circumstances that may impact the fair
value and the carrying amount of the reporting unit. The identification of the relevant events and circumstances and how these may impact
a reporting unit’s fair value or carrying amount involve significant judgements and assumptions. The judgement and assumptions
include the identification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific
events and share price trends, an assessment of whether each relevant factor will impact the impairment test positively or negatively,
and the magnitude of an such impact.
If
a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s
fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected
future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair
value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that
reporting unit.
For
the year ended May 31, 2021 and the period from October 28, 2019 (inception) through May 31, 2020, the Company conducted its annual review
of impairment of goodwill and intangible assets and no impairment was identified.
Impairment
of Long-Lived Assets
Long-lived
assets are comprised of intangible assets and property and equipment. Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An estimate of undiscounted future cash
flows produced by the asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment
exists, pursuant to the provisions of FASB ASC 360-10 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of”. If an asset is determined to be impaired, the loss is measured based on quoted market prices in
active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques,
including a discounted value of estimated future cash flows and fundamental analysis. The Company reports an asset to be disposed of
at the lower of its carrying value or its estimated net realizable value. The Company did not record any impairment for the year ended
May 31, 2021 and the period from October 28, 2019 (inception) through May 31, 2020, as there were no triggering events or changes in
circumstances that indicate that the carrying amount of an asset may not be recoverable.
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 UL HI.
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 May 31, 2021 and 2020, the Company recognized a deferred tax asset of $264,000 and $0, respectively,
which is included in deposits and other assets on the consolidated balance sheets. The Company regularly evaluates the need for a valuation
allowance related to the deferred tax asset. No valuation allowance was recorded at May 31, 2021.
In
response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed
into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017
Tax Act”). Corporate taxpayers may carryback net operating losses (“NOLs”) originating between 2018 and
2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable
income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020.
Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under
the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for
the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the
2017 Tax Act.
In
addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property
generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material
adjustments to the income tax provision.
Revenue
Recognition
During
the period ended May 31, 2020, 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. As discussed under ASC 606-10-55, 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 consolidated balance sheets and contract costs incurred prior
to revenue recognition are recorded as contract assets on the 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.
There were no contract liabilities outstanding as of May 31, 2021 and 2020.
Disaggregation
of Revenue from Contracts with Customers
The
following table disaggregates gross revenue by significant geographic area for the year ended May 31, 2021 based on origin of shipment
(imports) or destination of shipment (exports):
|
|
For
the
Year ended
May 31, 2021
|
|
|
For the Period
October
28, 2019 (inception) Through
May 31, 2020
|
|
China, Hong Kong & Taiwan
|
|
$
|
186,932,382
|
|
|
$
|
-
|
|
South East Asia
|
|
|
104,475,697
|
|
|
|
-
|
|
United States
|
|
|
31,452,041
|
|
|
|
-
|
|
India Sub-continent
|
|
|
28,164,102
|
|
|
|
-
|
|
Other
|
|
|
20,863,050
|
|
|
|
1,070,324
|
|
Total revenue
|
|
$
|
371,887,272
|
|
|
$
|
1.070,324
|
|
Segment
Reporting
Based
on the guidance provided by ASC Topic 280, Segment Reporting, management has determined that the Company operates in one segment
and consists of one reporting unit given the similarities in economic characteristics between its operations and the common nature of
its products, services and customers.
Earnings
per Share
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. EPS is computed pursuant to Section 260-10-45 of the FASB ASC. Pursuant to ASC Paragraphs
260-10-45-10 through 260-10-45-16, basic EPS shall be 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.
|
|
For the Year Ended
May 31, 2021
|
|
Numerator:
|
|
|
|
|
Net income
|
|
$
|
1,725,497
|
|
Effect of dilutive securities
|
|
|
1,350,389
|
|
|
|
|
|
|
Diluted net income
|
|
$
|
3,075,886
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
1,408,941,722
|
|
|
|
|
|
|
Dilutive securities (a):
|
|
|
|
|
Series A Preferred
|
|
|
1,316,157,000
|
|
Series B Preferred
|
|
|
5,499,034,800
|
|
Convertible notes
|
|
|
1,806,230,539
|
|
|
|
|
|
|
Weighted average common shares outstanding and assumed conversion – diluted
|
|
|
10,030,364,061
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.00
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.00
|
|
|
|
|
|
|
(a) - Anti-dilutive securities excluded:
|
|
|
-
|
|
The
Company did not have dilutive securities for the period October 28, 2019 (inception) through May 31, 2020.
Leases
In
February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02 “Leases” (Topic 842) which
amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial
statements regarding an entity’s leasing activities. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through
several ASUs; hereinafter the collection of lease guidance is referred to as ASC 842. The revised guidance seeks to achieve this objective
by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements.
During
the period ended May 31, 2020, the Company adopted ASC 842 upon inception and recognized a right of use (“ROU”) asset and
liability in the consolidated balance sheet in the amount of $4,770,280 related to the operating lease for office and warehouse space.
For
leases in which the acquiree is a lessee, the Company shall measure the lease liability at the present value of the remaining lease payments,
as if the acquired lease were a new lease of the Company at the acquisition date. The Company shall measure the right-of-use asset at
the same amount as the lease liability as adjusted to reflect favorable and unfavorable terms of the lease when compared with market
terms. The values of the leases acquired in the business acquisition discussed in Note 2 were representative of fair value at the acquisition
date and no favorable or unfavorable terms were noted.
The
Company adopted the package of practical expedients that allows it to (i) not reassess whether an arrangement contains a lease, (ii)
carry forward its lease classification as operating or capital leases, (iii) not to apply the recognition requirements in ASC 842 to
short-term leases, (iv) not record a right of use asset or right of use liability for leases with an asset or liability balance that
would be considered immaterial. and (v) not reassess its previously recorded initial direct costs. In addition, the Company elected the
practical expedient to not separate lease and non-lease components, and therefore both components are accounted for and recognized as
lease components.
The
Company determines if an arrangement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying
asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
All ROU assets and lease liabilities are recognized at the commencement date at the present value of lease payments over the lease term.
ROU assets are adjusted for lease incentives and initial direct costs. The lease term includes renewal options exercisable at the Company’s
sole discretion when the Company is reasonably certain to exercise that option. As the Company’s leases generally do not have an
implicit rate, the Company uses an estimated incremental borrowing rate based on borrowing rates available to them at the commencement
date to determine the present value. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances
after the start of the lease. The Company excludes variable payments from ROU assets and lease liabilities, to the extent not considered
fixed, and instead expenses variable payments as incurred. Lease expense is recognized on a straight-line basis over the lease term and
is included in rent and occupancy expenses in the consolidated statements of operations.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation”
(“ASC 718”), which establishes financial accounting and reporting standards for stock-based employee compensation.
It defines a fair value-based method of accounting for an employee stock option or similar equity instrument. The Company accounts for
compensation cost for stock option plans in accordance with ASC 718.
The
Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair
value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.
Share-based
payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of share-based payment awards issued
to non-employees for services rendered have been recorded at the fair value of the share-based payment, which is the more readily determinable
value. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If
an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the
termination of service. Stock-based compensation expenses are included in costs and operating expenses depending on the nature of the
services provided in the consolidated statements of operations.
For
the year ended May 31, 2021, share-based compensation amounted to $91,666 for services provided. The Company did not record share-based
compensation for the period October 28, 2019 (inception) through May 31, 2020.
Advertising
and Marketing
All
costs associated with advertising and marketing of the Company products are expensed during the period when the activities take place
and are included in selling and promotion on the consolidated statements of operations.
Convertible Debt
The Company accounts for
Convertible Debt based on the guidance in ASC 470, “Debt with Conversion and Other Options” (“ASC
470”). As such all convertible debt instruments that separated into debt and an equity component based on the beneficial
conversion feature (“BCF”) amount determined on the in-the-money amount of the conversion option. BCF is recorded in
additional paid -in – capital with corresponding discount on the debt liability amortized to interest expense over the life of
the debt instrument. There is no subsequent remeasurement of the amount recorded in equity while discount is amortized in the same
manner as nonconvertible debt. See Note 7, Financing Arrangements for Convertible Notes outstanding and the associated unamortized
discounts
Sequencing Policy
Under ASC 815-40-35, “Derivatives
and Hedging – Contracts in Entity’s Own Equity” (“ASC 815”), the Company has adopted a sequencing policy
whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to
the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable
number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest
grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors
are not subject to the sequencing policy.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current year’s presentation.
Adoption
of Recent Accounting Standards
In
October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers
of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods
beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The
Company adopted the new standard on June 1, 2020. The adoption of the new standard did not have a significant impact on the Company’s
consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,
that simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. The Step 2 test requires
an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an entity will record an
impairment charge based on the excess of a reporting unit’s carrying value over its fair value determined in Step 1. This update
also eliminates the qualitative assessment requirements for a reporting unit with zero or negative carrying value. The Company adopted
the standard upon its inception.
In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial
statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s
financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures
about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years
beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted this standard on June 1, 2020 and
the adoption of the new standard did not have a significant impact on the Company’s consolidated financial statements.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial
Instruments, and has subsequently issued several amendments (collectively, “ASU 2016-13”). ASU 2106-13 adds to U.S. GAAP
an impairment model (known as the current expected credit loss model) that is based on expected losses rather than incurred losses. Under
the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. ASU 2016-13 will be effective for smaller
reporting companies for fiscal years beginning after December 15, 2022. Earlier application is permitted only for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential impact
of this standard on its consolidated financial statements.
In
December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the
general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes.
This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company
is currently evaluating the potential impact of this guidance on its consolidated financial statements.
In
August 2020, the FASB issued ASU 2020-06, Debt—”Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity”. This ASU amends the guidance on convertible instruments and the derivatives scope exception for
contracts in an entity’s own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will be
effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is
permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
Reverse
Merger
On
October 8, 2020 (the “Closing Date”) Innocap, Inc., Inno Acquisition Corp., a Delaware corporation and wholly-owned subsidiary
of the Company (“Merger Sub”), and Unique Logistics Holdings, Inc. (“UHLI”), entered into an Acquisition Agreement
and Plan of Merger (the “Agreement”) pursuant to which the Merger Sub was merged with and into UHLI, with UHLI surviving
as a wholly-owned subsidiary of Innocap, Inc. (the “Merger”). Innocap Inc. acquired, through a reverse triangular merger,
all of the outstanding capital stock of ULHI in exchange for issuing ULHI’s shareholders (the “ULHI Shareholders”),
pro-rata, an aggregate of 1,000,000 shares of preferred stock, with certain ULHI shareholders receiving 130,000 shares of Innocap Inc.’s
Series A Preferred Stock par value $0.001 per share, and certain UHLI shareholders receiving of 870,000 shares of Innocap Inc.’s
Series B Preferred Stock, par value $0.001 per share. Immediately after the Merger was consummated, and further to the Agreement, certain
affiliates of Innocap Inc. cancelled a total of 45,606,489 shares of Innocap Inc.’s common stock, and 1,000,000 shares of Preferred
Stock held by them (the “Cancellation”). In consideration of the Cancellation of such shares of Innocap Inc.’s common
stock and preferred stock, ULHI agreed to assume certain liabilities of Innocap Inc. As a result of the Merger and the Cancellation,
the ULHI Shareholders became the majority shareholders of Innocap Inc.
In
connection with the Merger, on October 8, 2020, Innocap Inc., Star Exploration Corporation, a Texas corporation and wholly-owned subsidiary
of Innocap (the “Split-Off Subsidiary”), and Paul Tidwell, an individual in his capacity as the Split-Off Subsidiary purchaser,
entered into a Split-Off Agreement (the “Split-Off Agreement”). Pursuant to the terms of the Split-Off Agreement, Innocap
Inc., as seller, in consideration of the Cancellation and the assignment and assumption of $797,000 of Innocap Inc.’s liabilities,
sold to Paul Tidwell all of the issued and outstanding shares of the Split-Off Subsidiary including and all assets related to Innocap
Inc.’s current business.
The
Merger was accounted for as a reverse acquisition involving only the exchange of equity. ULHI is the accounting acquirer and Innocap
Inc. is the legal acquirer. In order to account for the acquisition, management closed the books of the Innocap Inc. on the Closing Date,
closed all equity accounts to additional paid in capital and merged the balance sheets as of the Closing Date. ULHI maintained its historical
financial statements, only recasting the equity accounts to that of the Innocap Inc. All assets and liabilities of Innocap Inc. were
spun off, except approximately $46,000 in liabilities as of the Closing Date assumed by Innocap Inc.
Because
the transaction was between two operating companies, the consideration assumed by ULHI to effectuate the Merger, approximately 2% of
fully diluted capital structure post-merger, was fair valued utilizing the market capitalization of Innocap Inc. immediately prior to
the merger. The market capitalization prior to merger was approximately $1.2 million ($0.008 market price per share and 172,000,000 shares
outstanding).
Innocap
Inc. consolidated ULHI as of the closing date of the agreement, and the results of operations of Innocap Inc. include that of ULHI. The
historical financial statements of Innocap Inc. before the Merger will be replaced with the historical financial statements of ULHI before
the Merger in all future filings with the SEC.
On
January 11, 2021, the Company amended and restated its articles of incorporation with the office of the Secretary of State of Nevada
to change the Company’s name to Unique Logistics International, Inc.(the “Company” or “Unique”). See Note
1.
The
following presents the pro-forma combined results of operations of Innocap Inc. with ULHI as if the entities were combined on June 1,
2019 and show activity for the year ended May 31, 2020.
|
|
For the year ended
May 31, 2020
(pro-forma)
|
|
Revenues
|
|
$
|
115,148,267
|
|
Net income (loss)
|
|
$
|
(2,126,697
|
)
|
Net income (loss) per share - basic
|
|
$
|
(0.21
|
)
|
Weighted average number of shares outstanding
|
|
|
10,000,000
|
|
The
pro-forma results of operations are presented for information purposes only. The pro-forma results of operations are not intended to
present actual results that would have been attained had the acquisitions been completed as of June 1, 2019 or to project potential operating
results as of any future date or for any future periods.
UL
US Entities
On
May 29, 2020 (“Acquisition Date”), ULHI entered into a Securities Purchase Agreement (SPA) with Unique Logistics Holdings
Ltd, (“UL HK”), a Hong Kong company, (the “UL HK Transaction”), pursuant to which the Company purchased from
UL HK (i) sixty percent (60%) of the membership interests of (“UL ATL Membership Interests”) of Unique Logistics International
(ATL) LLC, a Georgia limited liability company (“UL ATL”); (ii) eighty percent (80%) of the common stock of Unique Logistics
International (BOS) Inc., a Massachusetts corporation (“UL BOS”); and (iii) sixty-five percent (65%) of the Unique Logistics
International (USA) Inc., a New York corporation (“UL NYC”), for the following consideration: (i) $6,000,000, to be
paid in accordance with the following (a) $1,000,000 in cash; (b) $5,000,000 in the form of subordinated promissory note (zero percent
interest rate and has a maturity of three years) issued in favor of UL HK and (c) 1,500,000 shares of common stock of the ULHI, representing
15% of common stock outstanding. In connection with the UL HK Transaction, the ULHI also entered into a Consulting Services Agreement
for a term of three years with Great Eagle Freight Limited (“GEFL”), a wholly owned subsidiary of UL HK.
UL
ATL, UL BOS, and UL NYC are collectively referred to as “UL US Entities”.
ULHI
also entered into three separate securities purchase agreements with the minority interest holders of UL ATL (the, “UL ATL Transaction”),
UL BOS (the “UL BOS Transaction”) and UL NYC (the “UL NYC Transaction”), respectively, whereby,
together with the consummation of the UL HK Transaction, each such entity became a wholly-owned subsidiary of the ULHI.
In
connection with the UL ATL Transaction, ULHI purchased from the minority shareholder, the remaining forty percent (40%) of the UL ATL
Membership Interests, for the following consideration transferred: (i) US $2,819,000, which was paid in accordance with the following:
(a) $994,000 in cash; and (b) $1,825,000 through subordinated, non-interest bearing, promissory note with a maturity of three years issued
in favor of the minority shareholder. In connection with UL ATL Transaction, ULHI also entered into a non-compete, non-solicitation and
non-disclosure agreement with the minority holder for $500,000 for a three-year period.
In
connection with the UL BOS Transaction, ULHI purchased from the minority shareholder, the remaining twenty percent (20%) of the UL BOS
Common Stock for a purchase price of up to $290,000 to be paid in accordance with the following: (a) $90,000 to be paid in monthly cash
payments of $2,500 for a period of thirty-six (36) months (non-interest), and (b) assumption of up to $200,000 of debt owed to UL HK.
In connection with the UL BOS Transaction, ULHI entered into an employment agreement with the minority shareholder (“UL BOS Employment
Agreement”). The UL BOS Employment Agreement contains an initial term of three years, beginning on May 29, 2020 and ending May
29, 2023. Following the initial term, the UL BOS Employment Agreement may be terminated by either party on 60 days’ written notice.
In
connection with the UL NYC Transaction, ULHI purchased from a minority shareholder, the remaining thirty-five (35%) of the UL
NYC Common Stock for considerations to be paid in accordance with the following: (a) the issuance of 7,199,000 shares of the ULHI
and (b) the execution of an Employment Agreement (“UL NYC Employment Agreement”). The UL NYC Agreement has
an initial term of approximately three years, and automatically renews for successive consecutive one-year period terms, unless either
party provides notice to the other party as provided in the UL NYC Employment Agreement.
In
addition, ULHI paid $239,350 of closing costs for legal, accounting and other professional fees which were expensed during the period
ended May 31, 2020.
The price consideration is as follows:
|
|
|
|
Cash consideration
|
|
$
|
1,994,000
|
|
Notes payable
|
|
|
6,706,439
|
|
Consulting service contract liability
|
|
|
848,010
|
|
Non-compete payable
|
|
|
481,211
|
|
Assumption of seller debt
|
|
|
200,000
|
|
Assumed long term liabilities
|
|
|
1,394,533
|
|
Rollover equity
|
|
|
613,693
|
|
Total purchase price consideration
|
|
$
|
12,237,886
|
|
GAAP
defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination
and establishes the acquisition date as the date the acquirer achieves control. GAAP requires an acquirer to recognize the assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquirer (if any) at the acquisition date, measured at their fair values
as of that date. GAAP also requires the acquirer to recognize contingent consideration (if any) at the acquisition date, measured at
its fair value at that date.
The
following summarizes the fair values of the assets acquired and liabilities assumed at the acquisition:
Assets:
|
|
|
|
Current assets
|
|
$
|
16,571,270
|
|
Property and equipment
|
|
|
206,873
|
|
Security deposits
|
|
|
292,404
|
|
Other intangibles
|
|
|
8,752,000
|
|
Goodwill (1)
|
|
|
4,773,585
|
|
Total identified assets acquired
|
|
$
|
30,596,132
|
|
Liabilities:
|
|
|
|
Current liabilities
|
|
$
|
16,115,703
|
|
Consulting service contract liability
|
|
|
848,010
|
|
Long-term assumed liabilities
|
|
|
1,394,533
|
|
Total liabilities assumed
|
|
|
18,358,246
|
|
|
|
|
|
|
Total net assets assumed
|
|
$
|
12,237,886
|
|
|
(1)
|
The
goodwill acquired is primarily attributable to the workforce of the acquired business and significant synergies expected to arise
after ULHI’s acquisition of UL US Entities. ULHI is assessing the amount of goodwill that will be deductible for income tax
purposes. For the year ended May 31, 2021, the amount of goodwill deductible for income tax purposes was immaterial. The Company
will continue to analyze the goodwill for deductibility over the 15-year life. See Note 4.
|
Other
intangible assets and their amortization periods are as follows:
|
|
Cost Basis
|
|
|
Useful Life
|
Tradenames/trademarks
|
|
$
|
806,000
|
|
|
10 years
|
Customer relationships – ATL
|
|
|
5,605,000
|
|
|
15 years
|
Customer relationships – BOS
|
|
|
310,000
|
|
|
12 years
|
Customer relationships – NYC
|
|
|
1,718,000
|
|
|
14 years
|
Non-compete agreements
|
|
|
313,000
|
|
|
3 years
|
|
|
$
|
8,752,000
|
|
|
|
The
acquisition method of accounting requires extensive use of estimates and judgments to allocate the considerations transferred to the
identifiable tangible and intangible assets acquired and liabilities assumed. The amounts used in computing the purchase price differ
from the amounts in the purchase agreements due to fair value measurement conventions prescribed by accounting standards.
ULHI
consolidated the UL US Entities as of the closing date of the agreement, and the results of operations of Unique include that of UL US
Entities.
3.
|
Property
and Equipment
|
Major
classifications of property and equipment are summarized below as of May 31, 2021 and 2020.
|
|
May 31, 2021
|
|
|
May 31, 2020
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
84,085
|
|
|
$
|
68,685
|
|
Computer equipment
|
|
|
108,479
|
|
|
|
78,743
|
|
Software
|
|
|
27,780
|
|
|
|
24,414
|
|
Leasehold improvements
|
|
|
27,146
|
|
|
|
27,146
|
|
|
|
|
247,490
|
|
|
|
198,988
|
|
Less: accumulated depreciation
|
|
|
(55,398
|
)
|
|
|
-
|
|
|
|
$
|
192,092
|
|
|
$
|
198,988
|
|
Depreciation
expense charged to income for the year ended May 31, 2021 amounted to $58,384. The Company did not incur depreciation expense for the
period October 28, 2019 (inception) through May 31, 2020.
The
carrying amount of goodwill was $4,463,129 and $4,773,584 at May 31, 2021 and 2020, respectively. On February 19, 2021, the Company
and UL HK agreed to reduce an existing $325,000 note assumed by the Company in the May 29, 2020 acquisition (Note 2). The settlement
amount of $310,452 was accounted for as a measurement period adjustment and resulted in a reduction to goodwill.
The
Company conducted its annual review of impairment and no impairment in the carrying amount of goodwill was recognized during the year
ended May 31, 2021 and for the period from October 28, 2019 (inception) through May 31, 2020.
Intangible
assets consist of the following at May 31, 2021 and 2020:
|
|
May 31, 2021
|
|
|
May 31, 2020
|
|
|
|
|
|
|
|
|
Trade names / trademarks
|
|
$
|
806,000
|
|
|
$
|
806,000
|
|
Customer relationships
|
|
|
7,633,000
|
|
|
|
7,633,000
|
|
Non-compete agreements
|
|
|
313,000
|
|
|
|
313,000
|
|
|
|
|
8,752,000
|
|
|
|
8,752,000
|
|
Less: Accumulated amortization
|
|
|
(707,147
|
)
|
|
|
-
|
|
|
|
$
|
8,044,853
|
|
|
$
|
8,752,000
|
|
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 year ended May 31, 2021, amortization expense related
to the intangible assets was $707,147. For the period from October 28, 2019 (inception) through May 31, 2020, there was no amortization
expense related to the intangible assets due to timing of the acquisition and the Company’s fiscal year-end. As of May 31, 2021,
the weighted average remaining useful lives of these assets were 8.33 years.
Estimated
amortization expense for the next five years and thereafter is as follows:
Twelve Months Ending May 31,
|
|
|
|
2022
|
|
$
|
707,143
|
|
2023
|
|
|
707,143
|
|
2024
|
|
|
693,800
|
|
2025
|
|
|
693,800
|
|
2026
|
|
|
693,800
|
|
Thereafter
|
|
|
4,549,167
|
|
|
|
$
|
8,044,853
|
|
6.
|
ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES
|
Accrued
expenses and other current liabilities consisted of the following at May 31, 2021 and 2020:
|
|
May 31, 2021
|
|
|
May 31, 2020
|
|
|
|
|
|
|
|
|
Accrued salaries and related expenses
|
|
$
|
672,455
|
|
|
$
|
145,165
|
|
Accrued sales and marketing expense
|
|
|
539,810
|
|
|
|
116,500
|
|
Accrued professional fees
|
|
|
75,000
|
|
|
|
117,040
|
|
Accrued income tax
|
|
|
256,286
|
|
|
|
-
|
|
Accrued overdraft liabilities
|
|
|
790,364
|
|
|
|
97,519
|
|
Other accrued expenses and current liabilities
|
|
|
50,000
|
|
|
|
3,142,992
|
|
|
|
$
|
2,383,915
|
|
|
$
|
3,619,216
|
|
7.
|
FINANCING
ARRANGEMENTS
|
Financing
arrangements on the consolidated balance sheets consists of:
|
|
May 31, 2021
|
|
|
May 31, 2020
|
|
|
|
|
|
|
|
|
Promissory notes (PPP Program)
|
|
$
|
358,236
|
|
|
$
|
1,646,062
|
|
Promissory notes (EIDL)
|
|
|
150,000
|
|
|
|
-
|
|
Notes payable
|
|
|
2,528,886
|
|
|
|
2,325,000
|
|
Convertible notes – net of discount of $1,607,283
|
|
|
2,441,551
|
|
|
|
-
|
|
|
|
|
5,478,673
|
|
|
|
3,971,062
|
|
Less: current portion
|
|
|
(2,285,367
|
)
|
|
|
(1,476,642
|
)
|
|
|
$
|
3,193,306
|
|
|
$
|
2,494,420
|
|
Paycheck
Protection Program Loans
The
Company’s wholly-owned subsidiaries received proceeds under the Paycheck Protection Program (“PPP”). The PPP, established
as part of the CARES Act, provided for loans to qualifying business for amounts up to 2.5 times the average monthly payroll expenses
of the qualifying business. The PPP Loan (“Note”) and accrued interest are forgivable after twenty-four weeks as long as
the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities and maintains its payroll
levels. The amount of forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.
During
April and May 2020, the UL US Entities received aggregate proceeds of $1,646,062 through this program. The promissory notes mature for
dates ranging from April 2022 through May 2022. As of May 31, 2021 and 2020, the outstanding balance due under these promissory notes
was $358,236 and $1,646,062, respectively.
The
interest rate on the above PPP notes is 1.0% per annum, with interest accruing on the unpaid principal balance computed on the basis
of the actual number of days elapsed in a year of 360 days. No payments of principal or interest are due during the six-month period
beginning on the date of the Note (“Deferral Period”).
As
noted above, the principal and accrued interest under the Note evidencing the PPP Loans are forgivable after twenty-four weeks as long
the Company has used the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll
levels. The amount of loan forgiveness will be reduced if the Company terminates employees or reduces salaries during the twenty-four-week
period. The Company used the proceeds for purposes consistent with the PPP. In order to obtain full or partial forgiveness of the PPP
Loan, the Company must request forgiveness and must provide satisfactory documentation in accordance with applicable Small Business Administration
(“SBA”) guidelines. Interest payable on the Note may be forgiven only if the SBA agrees to pay such interest on the forgiven
principal amount of the Note. The Company will be obligated to repay any portion of the principal amount of the Note that is not forgiven,
together with interest accrued and accruing thereon at the rate set forth above, until such unforgiven portion is paid in full.
Beginning
one month following expiration of the Deferral Period and continuing monthly until 24 months from the date of the Note (the “Maturity
Date”), the Company is obligated to make monthly payments of principal and interest to the Lender with respect to any unforgiven
portion of the Note, in such equal amounts required to fully amortize the principal amount outstanding on the Note as of the last day
of the Deferral Period by the Maturity Date. The Company is permitted to prepay the Note at any time without payment of any premium.
During
January 2021, the PPP notes, which were assumed without recourse in the May 2020 acquisition (see Note 2) were utilized for eligible
purposes under the terms of the agreements and were forgiven after the expiration of the twenty four week period discussed above. The
total amount forgiven was $1,646,062 and is included in gain on forgiveness of promissory notes on the consolidated statements of operations.
On
March 9, 2021, the Company was granted an SBA loan (the “Loan”) by Century Bank 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 installments 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. As of May
31, 2021 and 2020, the outstanding balance due was $358,236 and $0, respectively, which is included in promissory notes on the consolidated
balance sheets.
Economic
Injury Disaster Loan
Pursuant
to a certain Loan Authorization and Agreement (the “SBA Loan Agreement”) in June 2020, the Company securing a loan (the “EIDL
Loan”) with a principal amount of the EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues
at the rate of 3.75% per annum and will accrue only on funds advanced from the date of each advance. Installment payments, including
principal and interest, are due monthly beginning June 2021. The balance of principal and interest is payable thirty years from the date
of the SBA Note. As of May 31, 2021 and 2020, the outstanding balance due was $150,000 and $0, respectively, which is included in promissory
notes on the consolidated balance sheets.
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 May 31, 2021 and 2020, the outstanding balance due under the note was
$1,216,667 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 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 May 31, 2021 and 2020, the outstanding balance due under the agreement was
$250,004 and $500,000, respectively.
Promissory
Note
On
March 19, 2021 (the “Effective Date”), Unique Logistics International, Inc. (the “Company”) issued to an accredited
investor (the “Investor”) a 10% promissory note in the principal aggregate amount of $1,000,000 (the “Note”).
The Company received aggregate gross proceeds of $1,000,000. The purpose of the funds is to augment working capital resulting from a
surge in business and new customer acquisition. The Note matures on the date that is thirty (30) days following the Effective Date (the
“Maturity Date”). The Note bears interest at a rate of ten percent (10%) per annum (the “Interest Rate”). The
Company may prepay the Note without penalty. On April 7, 2021, Unique Logistics International, Inc. (the “Company”) entered
into an Amended and Restated Promissory Note (the “Amended and Restated Note”) with an investor pursuant to which the Company
and the Investor agreed to amend and restate in its entirety that certain promissory note, issued to the Investor on March 19, 2020 (the
“ Original Note”). The Amended and Restated Note supersedes and replaces 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 Seventy-Five Thousand dollars
($75,000) at maturity. The Amended and Restated Note matures on June 15, 2021 (the “Maturity Date”), This Note was subsequently
extended to October 15, 2021, and is subject to the Exchange Agreement consummated on August 19, 2021 (See Subsequent Event Note 13).
The Company may prepay the Amended and Restated Note without penalty. The Amended and Restated Note contains certain events of default.
In the event of a default, at its’ option and sole discretion, the Investor may consider the Amended and Restated Note immediately
due and payable. Upon such an event of default, the interest rate increases to eighteen percent (18%) per annum. As of May 31, 2021 and
2020, the outstanding balance due under the agreement was $1,062,215 and $0, respectively.
Convertible
Notes Payable
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 note was amended on October 14, 2020 to adjust the conversion price to
$0.00179638 as noted below. The transaction with Trillium closed on October 19, 2020 upon receipt of the proceeds.
The
Trillium Note matures on October 6, 2021 (the “Maturity Date”) and is convertible at any time. The Trillium Note was subsequently
extended to October 6, 2022 and is subject to the Exchange Agreement consummated on August 19, 2021 (See Subsequent Event Note 13).
The conversion price of the Trillium Note shall be equal to $0.00179638 (the “Conversion Price”); provided, however, that
in no instance shall the investor be entitled to convert at a price lower than $0.00119759 (the “Trillium Note Floor Price”)
and in no instance shall Trillium be entitled to convert into such an amount of common stock that, together with all shares of common
stock which have been previously converted, would equal greater than 13.8875% of the total issued and outstanding shares of common stock
of the Company, subject to adjustment as provided herein, including, but not limited to, adjustments for any stock split, stock combination,
reclassification or similar transaction that proportionately decreases or increases the common stock during such measuring period. The
Conversion Price shall be rounded down to the nearest $0.0001 and in no event lower than $0.00119759.
Provided
that the Company has satisfied all of the Equity Conditions (as defined in the Trillium Note) the Company may deliver a notice to Trillium
an “Optional Redemption Notice”, of its irrevocable election to redeem some or all of the then outstanding principal or interest
amount of the Trillium Note for cash in an amount equal to the Optional Redemption Amount as further described in the Trillium Note (the
“Optional Redemption Amount”) on the 20th Trading Day following the Optional Redemption Notice.
The
Trillium Warrant has a term of five years and may only be exercised on a cash basis at an “Exercise Price” equal to $0.001946,
subject to adjustment (the “Exercise Price”); provided, however, that in no instance shall Trillium be entitled to at a price
lower than $0.001946 (the “Floor Price”) and in no instance shall Trillium be entitled to exercise the Trillium Warrant into
such an amount of common stock that, together with all shares of Common Stock which have been previously exercised by Trillium, would
equal greater than 8.546% of the total issued and outstanding shares of common stock of the Company, subject to adjustment, including,
but not limited to, adjustments for any stock split, stock combination, reclassification or similar transaction that proportionately
decreases or increases the common stock during such measuring period. The Exercise Price shall be rounded down to the nearest $0.0001
and in no event lower than $0.001946.
The
original issue discount of $111,000 will be amortized to interest expense over the life of the note. In addition, the Company paid legal
fees of $50,000 which will be amortized to interest expense over the life of the note. As discussed below, the note was amended on October
14, 2020 at which point all unamortized discount was written off.
The
Company 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 warrant was valued at $563,341 and the beneficial conversion feature was originally valued at $65,453. Upon amendment of the note
on October 14, 2020, the Company accounted for the modification as debt extinguishment and the Company recorded a loss on extinguishment
of $1,147,856. In addition, the Company recorded a beneficial conversion feature with a value of $436,844 which was recorded to additional
paid in capital. See assumptions used for fair value calculation below.
There was no unamortized debt discount
related to the Trillium SPA as of May 31, 2021. During the year ended May 31, 2021, the Company recorded amortization of debt discount
totaling $13,054 until amendment of the note as discussed above.
On
April 12, 2021, a noteholder converted $63,692 in convertible notes into 35,455,872 shares of the Company’s common stock at
a rate of $0.00179638 per share.
As
of May 31, 2021, the outstanding balance on the Trillium Note was $1,104,500 and the Company was deemed in default. On January 29, 2021,
the Company and Trillium entered into a waiver agreement which waived any and all defaults underlying the Trillium SPA and the Trillium
Note for a period of six months.
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 transaction with 3a closed on October 19, 2020 upon receipt of the Proceeds.
The
3a Note matures on October 6, 2021 (the “Maturity Date”) and is convertible at any time. The 3a Note was subsequently
extended to October 6, 2022 and is subject to the Exchange Agreement consummated on August 19, 2021 (See Subsequent Event Note 13).
The conversion price of the 3a Note shall be equal to $0.00179638 (the “Conversion Price”); provided, however, that in no
instance shall the investor be entitled to convert at a price lower than $0.00119759 (the “3a Note Floor Price”) and in no
instance shall 3a be entitled to convert into such an amount of common stock that, together with all shares of common stock which have
been previously converted, would equal greater than 13.8875% of the total issued and outstanding shares of common stock of the Company,
subject to adjustment as provided herein, including, but not limited to, adjustments for any stock split, stock combination, reclassification
or similar transaction that proportionately decreases or increases the common stock during such measuring period. The Conversion Price
shall be rounded down to the nearest $0.0001 and in no event lower than $0.00119759.
Provided
that the Company has satisfied all of the Equity Conditions (as defined in the 3a Note) the Company may deliver a notice to 3a an “Optional
Redemption Notice”, of its irrevocable election to redeem some or all of the then outstanding principal or interest amount of the
3a Note for cash in an amount equal to the Optional Redemption Amount as further described in the 3a Note (the “Optional Redemption
Amount”) on the 20th Trading Day following the Optional Redemption Notice.
The
3a Warrant has a term of five years and may only be exercised on a cash basis at an “Exercise Price” equal to $0.001946,
subject to adjustment (the “Exercise Price”); provided, however, that in no instance shall 3a be entitled to at a price lower
than $0.001946 (the “Floor Price”) and in no instance shall 3a be entitled to exercise the 3a Warrant into such an amount
of common stock that, together with all shares of Common Stock which have been previously exercised by 3a, would equal greater than 8.546% of the total issued and outstanding shares of common stock of the Company, subject to adjustment, including, but not limited to, adjustments
for any stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common
stock during such measuring period. The Exercise Price shall be rounded down to the nearest $0.0001 and in no event lower than $0.001946.
The
original issue discount of $111,000 will be amortized to interest expense over the life of the note.
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.
There
was total unamortized debt discount related to the 3a SPA of $391,757 as of May 31, 2021. During the year ended May 31, 2021, the Company
recorded amortization of debt discount totaling $719,243.
If
the Company or any subsidiary thereof, as applicable, at any time while the Trillium Note or the 3a Note are outstanding, shall sell
or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale,
grant or any option to purchase or other disposition) any common stock or common stock equivalents, at an effective price per share less
than the Conversion Price then in effect other than in respect of an Exempt Issuance (as defined therein) (such lower price, the “Base
Share Price” and such issuances collectively, a “Dilutive Issuance”), then simultaneously with the consummation of
each Dilutive Issuance, the Conversion Price shall be reduced and only reduced to equal the Base Share Price. Such adjustment shall be
made whenever such common stock or common stock equivalents are issued.
As
of May 31, 2021, the outstanding balance on the 3a Note was $1,111,000 and the Company was deemed in default. On January 29, 2021, the
Company and 3a entered into a waiver agreement which waived any and all defaults underlying the 3a SPA and the 3a Note for a period of
six months.
The
estimated fair value of the warrants was valued using the Black-Scholes option pricing model, using the following assumptions during
the year ended May 31, 2021:
Estimated dividends
|
|
|
None
|
|
Expected volatility
|
|
|
38.5
|
%
|
Risk free interest rate
|
|
|
0.30 – 0.33
|
%
|
Expected term
|
|
|
5 years
|
|
Trillium
and 3a
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”). These Notes were subsequently extended to January 28, 2023 and are subject
to the Exchange Agreement consummated on August 19, 2021 (See Subsequent Event Note 13).
The original issue discount of $166,667
will be amortized to interest expense over the life of the note.
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. beneficial conversion feature for both Notes was valued at $1,666,666
There was total unamortized debt discount
related to the Notes of $1,215,526 as of May 31, 2021. During the year ended May 31, 2021, the Company recorded amortization of debt
discount totaling $617,808
Provided
that the Company has satisfied all of the Equity Conditions (as defined in the Notes) the Company may deliver a notice to the Investors
(an “Optional Redemption Notice”, of its irrevocable election to redeem some or all of the then outstanding principal or
interest amount of the Notes for cash in an amount equal to the Optional Redemption Amount as further described in the Notes (the “Optional
Redemption Amount”) on the 20th Trading Day following the Optional Redemption Notice.
If
the Company or any subsidiary thereof, as applicable, at any time while the Notes are outstanding, shall sell or grant any option to
purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any common stock or common stock equivalents, at an effective price per share less than the Conversion
Price then in effect other than in respect of an Exempt Issuance (as defined therein) (such lower price, the “Base Share Price”
and such issuances collectively, a “Dilutive Issuance”), then simultaneously with the consummation of each Dilutive Issuance
the Conversion Price shall be reduced and only reduced to equal the Base Share Price. Such adjustment shall be made whenever such common
stock or common stock equivalents are issued.
Additionally,
while the Notes remain outstanding the Company shall not, without prior written approval from Investors, enter into a Variable Rate Transaction
(as defined in the Notes). Further, as long as the Notes remain outstanding, upon any issuance by the Company of common stock, common
stock equivalents or other indebtedness or other securities, whether for cash consideration or a combination of units thereof (a “Subsequent
Financing”), the Investors shall have the right to participate up to is Pro Rata Portion (as defined in the Purchase Agreement)
of a percentage of such Subsequent Financing equal to, in the aggregate, one hundred percent (100%) in case of any offering on the same
terms, conditions and price provided for in the Subsequent Financing.
In
connection with the issuance of the Notes, the Company entered into a Security Agreement (the “Security Agreement”) by and
among the Company, certain wholly owned subsidiaries of the Company (the “Guarantors”), as guarantors, and Trillium, whereby
the Company and the Guarantors pledged and granted to Trillium for the benefit of the Investors, a lien on and security interest in all
of the right, title and interest in substantially all of the assets of the Company and the Guarantors, subject to certain exceptions
specified therein.
Additionally,
in connection with the issuance of the Notes, the Company entered into a Guaranty Agreement (the “Guaranty Agreement”) by
and among the Company, the Guarantors, and the Investors, whereby the Guarantors absolutely and unconditionally guarantee the payment
by the Company of all amounts due with respect to the Notes and the performance by the Company of its obligations under the Notes.
In
connection with the issuance of the Notes the Company and the Investor also entered into a registration rights agreement (“Registration
Rights Agreement”) pursuant to which the Company has agreed to register the common stock underlying the Notes within a period of
180 days from the date of the Closing.
Further,
on January 28, 2021, the Company and the Investors entered into a waiver (“Waiver”) waiving any and all defaults for a period
of six months in connection with (i) the Purchase Agreement and Notes (ii) the securities purchase agreement (as modified from time to
time, the “Trillium Purchase Agreement”), dated as of October 7, 2020 by and between the Company and Trillium providing for,
among other things, the issuance at the applicable closing, (A) a 10% Secured Subordinated Convertible Promissory Note (as modified from
time to time, the “Trillium Note”) and (B) Warrants to purchase shares of the Common Stock (as modified from time to time,
the “Trillium Warrants”); and (iii) securities purchase agreement (as modified from time to time, the “3a Capital Purchase
Agreement”), dated as of October 14, 2020 between the Company and 3a providing for, among other things, the issuance at the applicable
closing, (A) a 10% Secured Subordinated Convertible Promissory Note (as modified from time to time, the “3a Note”) and (B)
Warrants to purchase shares of the Common Stock (as modified from time to time, the “3a Warrants”). The Waiver is applicable
to the January 2021 notes issued to Trillium and 3A.
The
convertible notes are subordinated to Corefund Capital LLC (See Note 1, Accounts Receivable – Trade).
Future
maturities related to the above promissory notes, notes payable and convertible notes are as follows:
Future
Minimum Payments for the Twelve Months Ending May 31,
|
|
|
|
2022
|
|
$
|
2,285,367
|
|
2023
|
|
|
4,665,938
|
|
2024
|
|
|
8,772
|
|
2025
|
|
|
8,772
|
|
2026
|
|
|
8,772
|
|
Thereafter
|
|
|
108,335
|
|
|
|
|
7,085,956
|
|
Less: current portion
|
|
|
(2,285,367
|
)
|
Less: unamortized discount
|
|
|
(1,607,283
|
)
|
|
|
$
|
3,193,306
|
|
8.
|
related
party transactions
|
As
part of the UL HK Transaction and related transactions, the Company assumed the following debt due to related parties:
|
|
May 31, 2021
|
|
|
May 31, 2020
|
|
|
|
|
|
|
|
|
Due to Frangipani Trade Services (1)
|
|
$
|
903,927
|
|
|
$
|
959,303
|
|
Due to Unique Logistics Hong
Kong (“UL HK”) (2)
|
|
|
-
|
|
|
|
325,000
|
|
Note Payable UL HK(3)
|
|
|
-
|
|
|
|
5,000,000
|
|
Due to employee (4)
|
|
|
60,000
|
|
|
|
90,000
|
|
Due to employee (5)
|
|
|
149,996
|
|
|
|
200,000
|
|
|
|
|
1,113,923
|
|
|
|
6,574,303
|
|
Less: current portion
|
|
|
(397,975
|
)
|
|
|
(6,380,975
|
)
|
|
|
$
|
715,948
|
|
|
$
|
193,328
|
|
|
(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)
|
Due
to Unique Logistics Holding Limited (“ULHK”) is non-interest bearing and due within 12 months from the date of acquisition.
On February 19, 2021, the Company and UL HK agreed to reduce an existing $325,000 note assumed by the Company in the May 29, 2020
acquisition (Note 2). The settlement amount of $310,452 was accounted for as a measurement period adjustment and resulted in a reduction
to goodwill. See Note 4.
|
|
|
|
|
(3)
|
On
May 29, 2020, the Company entered into a $5,000,000 note payable with UL HK as part of the ULUS acquisition. The loan bears a zero
percent interest rate and has a maturity of 180 days from the date of the note. On November 12, 2020, the Company amended the note
with UL HK in order to (i) extend the maturity date from November 25, 2020 to May 18, 2021, (ii) begin monthly payments of $833,333
commencing on December 18, 2020, (iii) change the interest rate to one-half percent (0.5%) per month and (iv) provide the Company
the right to prepay the outstanding liability in whole or in part. Pursuant to the amendment, if the Company should default on the
note, UL HK has the option to convert the outstanding principal and interest into shares of common stock of the Company. Upon the
earlier of (i) a default in the monthly payment of principal or interest due and owing under the loan or, (ii) in the event that any
outstanding balance of the loan remains outstanding as of May 31, 2021, UL HK at its option may convert the principal and interest
then outstanding into an amount of shares of common stock of the Company equal to 0.2125% of the then outstanding common stock of
the Company on a fully diluted basis for every $25,000 of the outstanding principal balance plus accrued but unpaid interest of this
loan outstanding on the date of such conversion, provided, however, that the UL HK shall not be permitted to convert the loan in the
event that such conversion would provide the UL HK more than 34% of the Company’s issued and outstanding common stock when
including and aggregating all prior conversions of the loan. As of May 31, 2021 the note was paid in full.
|
|
|
|
|
(4)
|
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.
|
|
|
|
|
(5)
|
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
On May 29, 2020, in connection
with the Management Buyout Transaction, Unique entered into a Consulting Services Agreement for a term of three years with Great Eagle
Freight Limited (“Great Eagle” or “GEFD”), a Hong Kong Company (the “Consulting Services Agreement”).
Pursuant to the Consulting Services Agreement, GEFD will provide Unique with logistics services, agents management services, support
services, accounting and financial controls support, software, and IT support. Great Eagle will also provide the Company with strategic
introductions and negotiations with new customers. The Company shall pay to GEFD $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 $565,338 and $848,010 as of May 31, 2021, and 2020, respectively.
The Company utilizes a financial
reporting firm owned and controlled by David Briones, a member of our Board of Directors. The service fees are $5,000 per month. Total
fees were $60,000 and none for years ended May 31, 2021 and the period October 28, 2019 (Inception) through May 31,2020, respectively.
Security
Deposit
FTS
provides Importer of Record (“IOR”) services to the Company’s customers on behalf of the Company. Pursuant to the IOR
agreement with the Company, FTS maintains a Customs Bond in order to continue the agreed upon IOR services. In addition, FTS requires
a security deposit which will be utilized by FTS to settle any charges, penalties or tax assessments incurred when performing IOR services
for the Company. As of May 31, 2021 and 2020, the security deposit was $175,000.
Accounts
Receivable - trade and Accounts Payable - trade
Transactions
with related parties account for $1,274,250 and $10,839,224 of accounts receivable - trade and accounts payable – trade as of May
31, 2021, respectively, and $1,321,473 and $4,171,839 of accounts receivable – trade and accounts payable – trade as of May
31, 2020, respectively.
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 year ended May 31, 2021, these transactions represented $2,355,214 of revenue.
Direct
costs are services billed to the Company by related parties for shipping activities. For the year ended May 31, 2021, these transactions
represented $54,898,109 of total direct costs.
The
Company had three separate 401(k) plans up to July 31, 2020. In each Plan employees could contribute up to a maximum permitted by law.
For one of the plans, the Company had the discretionary option of matching employee contributions. The second plan was a Safe Harbor
Plan where up to first 3% contribution was matched at 100% and additional 2% contribution at 50% match. The third plan allowed for maximum
of 100% match.
Effective
August 1, 2020 the Company consolidated its 401(k) plans into two plans, 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 $45,867 for the year ended May 31, 2021, respectively, and $0 for the period from October 28, 2019 (inception)
through May 31, 2020.
Common
Stock
The
Company is authorized to issue 800,000,000 shares of stock, a par value of $0.001 per share.
During
the year ended May 31, 2021, the Company issued 28,291,180 shares of the Company’s common stock to a consultant. The shares have
an aggregated fair value of approximately $91,666 which was expensed immediately.
On
October 9, 2020, the Company’s Chief Executive Officer converted 30,000 shares of Series B Preferred Stock into an aggregate of
196,394,100 shares of the Company’s common stock.
On November 30, 2020, the Company
issued 27,833,754 shares of the Company’s Common Stock to a consultant. The shares have an aggregated fair value of approximately
$50,000 which was expensed immediately.
On February 16, 2021, the Company
issued 457,426 shares of the Company’s Common Stock to a consultant. The shares have an aggregated fair value of approximately
$41,666 which was expensed immediately.
On April 12, 2021, a
noteholder converted $63,692 in principal and interest into 35,455,872 shares of the Company’s common stock. See Note 7.
As
of May 31, 2021 and 2020, there were 393,742,663 and 0 shares of Common Stock issued and outstanding, respectively.
Preferred Shares
The Company is
authorized to issue 5,000,000 shares of preferred stock have a par value of $0.001 per share.
Series
A Convertible Preferred
The
Company has designated 130,000 shares of preferred stock as Series A Preferred Stock, $0.001 par value per share (the “Series A
Preferred”). 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 the Series A Preferred in terms of liquidation preference and dividend rights, shall be entitled
to receive, at their option, immediately prior and in preference to any distribution to the holders of the Company’s common stock.
$0.001 par value per share and other junior securities, a liquidation preference equal to the stated value per share. Each share of Series
A Preferred shall have a stated value equal to $0.001. Each share of Series A Preferred Stock can be converted into 6,546.47 shares of
the Company’s authorized but unissued shares of Common Stock.
Share
amounts at May 31, 2021 have been retroactively restated to account for the share exchange in connection with reverse merger. As of May
31, 2021 and 2020, there were 130,000 shares of Series A Preferred Stock issued and outstanding.
Series
B Convertible Preferred
The
Company has designated 870,000 shares of preferred stock as Series B Preferred Stock, $0.001 par value per share (the “Series B
Preferred”). 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.
$0.001 par value per share and other junior securities, a liquidation preference equal to the stated value per share. Each share of Series
B Preferred shall have a stated value equal to $0.001. Each share of Series A Preferred can be converted into 6,546.47 shares of the
Company’s authorized but unissued shares of Common Stock.
As
noted above, on October 9, 2020, the Company’s Chief Executive Officer converted 30,000 shares of Series B Preferred Stock into
an aggregate of 196,394,100 shares of the Company’s common stock.
Share
amounts at May 31, 2021 have been retroactively restated to account for the share exchange in connection with reverse merger. As of May
31, 2021 and 2020, there were 840,000 and 870,000 shares of Series B Preferred Stock issued and outstanding, respectively.
Warrants
The
following is a summary of the Company’s warrant activity:
|
|
|
|
|
Weighted Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Outstanding – May 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
Exercisable – May 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
1,140,956,904
|
|
|
$
|
0.002
|
|
Outstanding – May 31, 2021
|
|
|
1,140,956,904
|
|
|
$
|
0.002
|
|
Exercisable – May 31, 2021
|
|
|
1,140,956,904
|
|
|
$
|
0.002
|
|
|
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
|
|
|
|
4.36
|
|
|
$
|
0.002
|
|
|
|
1,140,956,904
|
|
|
$
|
0.002
|
|
At
May 31, 2021, the total intrinsic value of warrants outstanding and exercisable was $111,875,388.
11.
|
Commitments
AND CONTINGENCIES
|
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-cancelable 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:
|
|
For the
Year Ended
May 31, 2021
|
|
|
|
|
|
Operating lease
|
|
$
|
1,506,090
|
|
Interest on lease liabilities
|
|
|
148,039
|
|
Total net lease cost
|
|
$
|
1,654,129
|
|
Supplemental
balance sheet information related to leases was as follows:
|
|
May 31, 2021
|
|
|
May 31, 2020
|
|
|
|
|
|
|
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
Operating lease ROU assets – net
|
|
$
|
3,797,527
|
|
|
$
|
4,770,280
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities, included in current liabilities
|
|
$
|
1,466,409
|
|
|
$
|
1,288,216
|
|
Noncurrent operating lease liabilities, included in long-term liabilities
|
|
|
2,431,144
|
|
|
|
3,482,064
|
|
Total operating lease liabilities
|
|
$
|
3,897,553
|
|
|
$
|
4,770,280
|
|
Supplemental
cash flow and other information related to leases was as follows:
|
|
For the
Year Ended
May 31, 2021
|
|
|
For the Period from October 28, 2019
(Inception)
Through
May 31, 2020
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease liabilities:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
223,242
|
|
|
$
|
4,770,280
|
|
Weighted average remaining lease term (in years):
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4.04
|
|
|
|
4.48
|
|
Weighted average discount rate:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4.25
|
%
|
|
|
4.25
|
%
|
As
of May 31, 2021, future minimum lease payments under noncancelable operating leases are as follows:
Future Minimum Payments for the Twelve Months Ending May 31,
|
|
|
|
2022
|
|
$
|
1,598,287
|
|
2023
|
|
|
958,942
|
|
2024
|
|
|
528,755
|
|
2025
|
|
|
455,771
|
|
2026
|
|
|
256,978
|
|
Thereafter
|
|
|
467,008
|
|
Total lease payments
|
|
|
4,265,740
|
|
Less: imputed interest
|
|
|
(368,187
|
)
|
Total lease obligations
|
|
$
|
3,897,553
|
|
Accounts
Receivable Facility
On
May 29, 2020, the Company entered into a Secured Accounts Receivable Facility (the “Facility”) with Corefund Capital, LLC
(“Core”), pursuant to which Core agreed to purchase from the Company up to an aggregate of $12,000,000 of accounts receivables.
The Facility provides Core with security interests in purchased accounts until the accounts have been repurchased by the Company or paid
by the customer. The Facility includes fees payable to Core based on the number of days between the date on which an account was purchased
by Core and the date on which the Company repurchased the account or the customer paid, as follows: (i) Less than or equal to 30 days,
a 1.5% fee; (ii) more than 30 days but less than or equal to 40 days, a 1.75% fee; (iii) more than 40 days but less than or equal to
50 days, a 2.0% fee; (iv) more than 50 days but less than or equal to 60 days, a 2.25% fee; (v) more than 60 days but less than or equal
to 90 days, a 2.50% fee; (vi) if more than 90 days, a 2.50% fee for each additional week or portion thereof. Fees related to factoring
transactions with Core were approximately $4,472,000 for the year ended May 31, 2021. The net principal balance of trade
accounts receivable outstanding under the factoring agreement was approximately $31,750,000 and $3,900,000 as of May 31, 2021 and 2020,
respectively.
On
November 2, 2020, the Company, entered into an Amendment to the Facility (the “Amendment”) with Core, pursuant to which the
Company and Core agreed to increase the credit line provided in the original Secured Accounts Receivable Facility, dated May 29, 2020,
from $12,000,000 up to $25,000,000. The remaining terms of the Facility were unchanged by the Amendment. The Facility has been terminated
by the Company on May 29, 2021, and was 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.
The
income tax provision consists of the following:
|
|
May 31, 2021
|
|
|
May 31, 2020
|
|
Federal
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
521,293
|
|
|
|
-
|
|
Deferred
|
|
|
(208,560
|
)
|
|
|
-
|
|
State and Local
|
|
|
|
|
|
|
|
|
Current
|
|
|
262,576
|
|
|
|
-
|
|
Deferred
|
|
|
(55,440
|
)
|
|
|
-
|
|
Income tax benefit
|
|
$
|
519,869
|
|
|
$
|
-
|
|
The
Company has U.S. federal net operating loss carryovers (NOLs) of approximately $66,087 as of May 31, 2021, available to offset taxable
income through 2021. If not used, these NOLs may be subject to limitation under Internal Revenue Code Section 382 should there be a greater
than 50% ownership change as determined under the regulations. The Company plans on undertaking a detailed analysis of any historical
and/or current Section 382 ownership changes that may limit the utilization of the net operating loss carryovers. The Company also has
California State Net Operating Loss carry overs of $262,678 as of May 31, 2021, available to offset future taxable income through 2041.
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future generation for
taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. For the year ended May 31, 2021, there was no valuation allowance necessary.
The
Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions
that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return
and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A
liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit
because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized
as a result of applying the provisions of ASC 740.
If
applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other
expenses – Interest” in the statement of operations. Penalties would be recognized as a component of “General and administrative.”
No
interest or penalties on unpaid tax were recorded during the year ended May 31, 2021 and no liability for unrecognized tax benefits was
required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.
The
Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:
Deferred Tax Assets
|
|
Year Ended
May 31, 2021
|
|
|
For the Period October 28, 2019 (Inception) through
May 31, 2020
|
|
Net Operating Loss
|
|
$
|
-
|
|
|
$
|
40,000
|
|
Debt discount liability
|
|
|
288,555
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
39,414
|
|
|
|
|
|
Goodwill
|
|
|
19,513
|
|
|
|
|
|
Total deferred tax assets
|
|
|
347,482
|
|
|
|
40,000
|
|
Valuation allowance
|
|
|
-
|
|
|
|
(40,000
|
)
|
Deferred tax asset, net of valuation allowance
|
|
|
347,482
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(84,261
|
)
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
263,221
|
|
|
$
|
-
|
|
The
expected tax expense (benefit) based on the statutory rate is reconciled with actual tax expense benefit as follows:
|
|
Year Ended
May 31, 2021
|
|
|
For the Period October 28, 2019 (Inception) through
May 31, 2020
|
|
US Federal statutory rate (%)
|
|
|
21.0
|
|
|
|
21.0
|
|
State income tax, net of federal benefit
|
|
|
8.4
|
|
|
|
9.0
|
|
Change in valuation allowance
|
|
|
(1.7
|
)
|
|
|
(30.0
|
)
|
Other permanent differences, net
|
|
|
(4.5
|
)
|
|
|
|
|
Income tax provision (benefit) (%)
|
|
|
23.2
|
|
|
|
-
|
|
The
Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued. Based on
this evaluation, the Company has identified the following reportable subsequent events other than those disclosed elsewhere in these
consolidated financial statements.
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 (the “Purchased Accounts”) and, secured and as collateral security for all Obligations (as
defined below), 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 replaces 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.
On
June 1, 2021, Trillium Partners LP (“Trillium”) and 3a Capital Establishment (“3a”), together (the “Investors”)
extended the maturity dates of the October 8, 2020, subordinated convertible promissory note in the principal aggregate amount of $1,111,000
(the “Trillium Note”) Trillium Note and October 14, 2020, 10% secured subordinated convertible promissory note in the principal
aggregate amount of $1,111,000 (the “3a Note”) from October 6, 2021, to October 6, 2022.
On
June 1, 2021, the Investors also extended the maturity dates of the January 28, 2021, 10% secured subordinated convertible promissory
note in the principal amount of $916,666 or $1,833,333 in the aggregate (each a “Note” and together the “Notes”)
Trillium Note and the 3a Note from January 28, 2022, to January 28, 2023.
Effective
June 17, 2021, the Company and Corefund Capital, LLC amended the Prior
Agreement (the “Addendum”) rescinding the Company’s termination notice of the Prior Agreement. The Addendum provides
for a credit line of $2 million with no term and no early termination fee which is in addition to the facility provided under the TBK
Agreement. Pursuant to the Addendum, the Company and Core agreed that Core would refile a UCC lien on the Company. The UCC lien will
include the following collateral: all seller’s assets now owned and hereafter acquired accounts; chattel paper; deposit accounts;
contract rights; letter of credit rights; instruments; payment and general intangibles; goods; inventory; insurance proceeds; equipment
and fixtures; investment property; and all books and records relating to all the foregoing property, including without limitation, all
computer programs; and all proceeds of the foregoing. All other terms and conditions not amended by the Addendum will remain in full
force and effect.
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
July 22, 2021, the Company entered into an amendment of the 10% promissory note in the principal aggregate amount of $1 million with
Trillium Partners L.P to extend he original maturity date of the note from June 15, 2021 to October 31, 2021 to provide Company with
additional time for payment. The remaining terms of the note remained unchanged by the amendment.
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 4, 2021, the parties to the TBK Agreement entered into a First Amendment Agreement (the “First Amendment”) to increase
the credit facility from $30 million to $40 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
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
August 9, 2021, the Company was notified by the Century Bank that the SBA loan received on March 9, 2021, pursuant to the second round
of the Paycheck Protection Program (the “PPP”) under the CARES Act, (the “PPP Loan”) in the aggregate amount
of $358,236 has been approved by the SBA for the forgiveness.
On
August 13, 2021, Unique Logistics International, Inc. (the “Company”) issued 125,692,224 shares of the Company’s common
stock (the “Preferred Conversion Shares”) pursuant to the conversion of 19,200 shares of Series B Convertible Preferred Stock
held by Frangipani Trade Services Inc, an entity 100% owned by the Company’s Chief Executive Officer.
On
August 19, 2021, we entered into a securities exchange agreement (the “Exchange Agreement”) with certain holders holding
notes and warrants of the Company, 3a Capital Establishment and Trillium Partners, LP, respectively (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 (as defined
in the Exchange Agreement). “New Securities” means a number of Exchange Shares determined by applying the Exchange Ratio
upon consummation of a Qualified Financing (as defined in the exchange Agreement). “Surrendered Securities” means the October
Notes, January Notes, October Warrants, and January Warrants (as aforesaid notes and warrants defined in the Exchange Agreement).
In
the event the number of Exchange Shares would result in the Holder beneficially owning more than the Beneficial Ownership Limitation
(as defined in the Exchange Agreement), all such Exchange Shares in excess of the Beneficial Ownership Limitation shall be issued as
a number of shares of newly created Series C Convertible Preferred Stock.
The
closing will occur on the Trading Day on which all of the Transaction Documents (as defined in Exchange Agreement) have been executed
and delivered by the applicable parties thereto, and all conditions precedent to (i) the Holders’ obligations to tender the Surrendered
Securities at such Closing, and (ii) the Company’s obligations to deliver the New Securities, in each case, have been satisfied
or waived (the “Closing Date”).
Registration
Rights Agreement
In
connection with the Exchange Agreement, on August 19, 2021, the Company entered into a Registration Rights Agreement (the “Registration
Rights Agreement”) with the Holders, pursuant to which the Company agreed to register the Registrable Securities (as defined in
the Registration Rights Agreement).
Pursuant
to the Registration Rights Agreement, the Company is required with respect to the registration statement filed in connection with the
Qualified Financing (the “Qualified Financing Registration Statement”), on or prior to each filing date, to prepare and file
with the SEC a Registration Statement (as defined below) covering the resale of all of the Registrable Securities that are not then registered
on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415.
The
Qualified Financing Registration Statement shall include Registrable Securities only on behalf of 3a Capital Establishment, comprised
of 25,000,000 shares of Common Stock currently held by 3a Capital Establishment, which, if such 25,000,000 shares is not equal to $1,000,000
of value valued at the lowest price at which shares of Common Stock are issued in the Qualified Financing, shall be increased or decreased
to a number of shares of Common Stock equal to $1,000,000 valued at the lowest price at which shares of Common Stock are issued in the
Qualified Financing. Each other Registration Statement to be filed under the Registration Rights Agreement shall include all Registrable
Securities, except as described above.