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 NYCC”), 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
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|
●
|
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 its 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 (“UL ATL Membership Interests”) of Unique Logistics International
(ATL) LLC, a Georgia limited liability company (“UL ATL”); (ii) eighty percent (80%) of the issued and outstanding common
stock of Unique Logistics International (BOS) Inc., a Massachusetts corporation (“UL BOS”); and (iii) sixty-five percent
(65%) of the issued and outstanding common stock of Unique Logistics International (USA) Inc., a New York corporation (“UL NYCC”),
for $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 a 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, 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 NYCC 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 NYCC (the “UL NYCC Transaction”), respectively, whereby, together with
the consummation of the UL HK Transaction, each such entity became a wholly-owned subsidiary of 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 NYCC Transaction, ULHI purchased from a minority shareholder, the remaining thirty-five (35%) of the UL NYCC 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 NYCC Employment Agreement”). The UL NYCC 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 NYCC 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 was to mature 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, the “Company entered into an Amended and Restated Promissory
Note (the “Amended and Restated Note”) with the Investor pursuant to which the Company and the Investor agreed to amend and
restate in its entirety the Note. The Amended and Restated Note supersedes and replaces the 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 the 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.
____
Shares of Common Stock
UNIQUE
LOGISTICS INTERNATIONAL, INC.
PROSPECTUS
Sole
Bookrunner
EF
HUTTON
division
of Benchmark Investments, LLC
,
2021
Through
and including _______ __ , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these
securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s
obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.