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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended
February 28, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the Transition Period from _________ to _________
Commission
file number:
000-50612
UNIQUE LOGISTICS INTERNATIONAL, INC.
(Exact
name of registrant as specified in its charter)
|
Nevada |
|
01-0721929 |
|
(State
or other Jurisdiction
of
Incorporation or Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
154-09 146th Ave
Jamaica,
NY
|
|
11434 |
|
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
(718)
978-2000
(Registrant’s
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class |
|
Trading
symbol(s) |
|
Name
of exchange on which registered |
|
Common Stock, par value $0.001 per share |
|
UNQL |
|
OTC
Markets |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a small reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” a “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
|
|
|
|
|
|
Non-accelerated filer |
☒ |
Smaller
reporting company |
☒ |
|
|
|
|
|
|
|
|
Emerging
growth company |
☐ |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act: ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
As of
April 19, 2022, there were
687,196,478 shares
of the registrant’s common stock outstanding.
UNIQUE
LOGISTICS INTERNATIONAL, INC.
FORM
10-Q
FOR
THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2022
TABLE
OF CONTENTS
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
|
February 28, 2022 |
|
|
May 31, 2021 |
|
| |
|
(unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
| Current Assets: |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$ |
995,598 |
|
|
$ |
252,615 |
|
| Accounts
receivable – trade, net |
|
|
102,409,988 |
|
|
|
20,369,747 |
|
| Contract
assets |
|
|
36,129,971 |
|
|
|
23,423,314 |
|
| Factoring
reserve |
|
|
- |
|
|
|
7,593,665 |
|
| Other
prepaid expenses and current assets |
|
|
504,742 |
|
|
|
761,458 |
|
| Total current
assets |
|
|
140,040,299 |
|
|
|
52,400,799 |
|
| |
|
|
|
|
|
|
|
|
| Property and
equipment – net |
|
|
191,908 |
|
|
|
192,092 |
|
| |
|
|
|
|
|
|
|
|
| Other long-term assets: |
|
|
|
|
|
|
|
|
| Goodwill |
|
|
4,463,129 |
|
|
|
4,463,129 |
|
| Intangible assets
– net |
|
|
7,514,492 |
|
|
|
8,044,853 |
|
| Operating lease
right-of-use assets – net |
|
|
2,693,878 |
|
|
|
3,797,527 |
|
|
Deposits and other assets |
|
|
476,362 |
|
|
|
555,362 |
|
| Other
long-term assets |
|
|
15,147,861 |
|
|
|
16,860,871 |
|
| Total
assets |
|
$ |
155,380,068 |
|
|
$ |
69,453,762 |
|
| |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
| Current Liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable –
trade |
|
$ |
57,800,238 |
|
|
$ |
38,992,846 |
|
| Accrued expenses
and other current liabilities |
|
|
4,628,742 |
|
|
|
2,383,915 |
|
| Accrued
freight |
|
|
15,800,769 |
|
|
|
10,403,430 |
|
| Contract
liabilities |
|
|
10,403,335 |
|
|
|
- |
|
| Revolving credit
facility |
|
|
43,888,787 |
|
|
|
- |
|
| Current portion of
notes payable – net of discount |
|
|
1,651,686 |
|
|
|
2,285,367 |
|
| Current portion of
long-term debt due to related parties |
|
|
174,822 |
|
|
|
397,975 |
|
| Derivative
liabilities |
|
|
12,693,282 |
|
|
|
- |
|
|
Current portion of operating lease liability |
|
|
1,141,902 |
|
|
|
1,466,409 |
|
| Total current
liabilities |
|
|
148,183,563 |
|
|
|
55,929,942 |
|
| |
|
|
|
|
|
|
|
|
| Other long-term
liabilities |
|
|
353,334 |
|
|
|
565,338 |
|
| Long-term-debt due
to related parties, net of current portion |
|
|
699,177 |
|
|
|
715,948 |
|
| Notes payable, net
of current portion – net of discount |
|
|
608,767 |
|
|
|
3,193,306 |
|
|
Operating lease liability, net of current portion |
|
|
1,656,882 |
|
|
|
2,431,144 |
|
| Total long-term
liabilities |
|
|
3,318,160 |
|
|
|
6,905,736 |
|
| |
|
|
|
|
|
|
|
|
| Total
liabilities |
|
|
151,501,723 |
|
|
|
62,835,678 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and contingencies (Note
9) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Stockholders’ Equity: |
|
|
|
|
|
|
|
|
| Preferred Stock, $0.001
par value:
5,000,000 shares authorized , with $5,000
liquidation preference; |
|
|
|
|
|
|
|
|
| Series A Convertible Preferred
stock, $0.001 par value;
130,000
issued and outstanding as of February 28, 2022 and May 31,
2021 |
|
|
130 |
|
|
|
130 |
|
| Series B
Convertible Preferred stock, $0.001 par value;
820,800
and 840,000
shares issued and outstanding as of February 28,2022 and May 31,
2021, respectively |
|
|
821 |
|
|
|
840 |
|
| |
|
|
|
|
|
|
|
|
| Series C
Convertible Preferred stock, $0.001 par value;
195 and
none,
issued and outstanding as of February 28, 2022 and May 31, 2021,
respectively |
|
|
- |
|
|
|
- |
|
| Series D
Convertible Preferred stock, $0.001 par value;
192 and
none,
issued and outstanding as of February 28, 2022 and May 31, 2021,
respectively |
|
|
- |
|
|
|
- |
|
| Preferred Stock,
Value |
|
|
|
|
|
|
|
|
| Common stock, $0.001 par value;
800,000,000
shares authorized; 655,781,078
and 393,742,663
shares issued and outstanding as of February 28, 2022 and May 31,
2021, respectively |
|
|
655,782 |
|
|
|
393,743 |
|
| Additional paid-in capital |
|
|
323,570 |
|
|
|
4,906,384 |
|
| Retained
earnings |
|
|
2,898,042
|
|
|
|
1,316,987 |
|
| Total
Stockholders’ Equity |
|
|
3,878,345
|
|
|
|
6,618,084 |
|
| Total
Liabilities and Stockholders’ Equity |
|
$ |
155,380,068 |
|
|
$ |
69,453,762 |
|
See
notes to accompanying condensed consolidated financial
statements.
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
See
notes to accompanying condensed consolidated financial
statements.
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited)
For
the Nine Months Ended February 28, 2022
For
the Nine months ended February 28, 2021
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
| |
|
Series
A |
|
|
Series
B |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
| |
|
Preferred
Stock |
|
|
Preferred
Stock |
|
|
Common
Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|
Balance,
May 31, 2020 |
|
|
130,000 |
|
|
$ |
130 |
|
|
|
870,000 |
|
|
$ |
870 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
1,523,811 |
|
|
$ |
(408,510 |
) |
|
$ |
1,116,301 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(574,137 |
) |
|
|
(574,137 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 31, 2020 |
|
|
130,000 |
|
|
$ |
130 |
|
|
|
870,000 |
|
|
$ |
870 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
1,523,811 |
|
|
$ |
(982,647 |
) |
|
$ |
542,164 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for services rendered |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
27,833,754 |
|
|
|
27,834 |
|
|
|
22,166 |
|
|
|
- |
|
|
|
50,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Preferred B to Common Stock |
|
|
- |
|
|
|
- |
|
|
|
(30,000 |
) |
|
|
(30 |
) |
|
|
196,394,100 |
|
|
|
196,394 |
|
|
|
(196,364 |
) |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
upon acquisition - net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
133,601,511 |
|
|
|
133,602 |
|
|
|
(179,340 |
) |
|
|
- |
|
|
|
(45,738 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with convertible notes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,126,497 |
|
|
|
- |
|
|
|
1,126,497 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible notes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
873,503 |
|
|
|
- |
|
|
|
873,503 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,397,183 |
|
|
|
1,397,183 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
November 30, 2020 |
|
|
130,000 |
|
|
$ |
130 |
|
|
|
840,000 |
|
|
$ |
840 |
|
|
|
357,829,365 |
|
|
$ |
357,830 |
|
|
$ |
3,170,273 |
|
|
$ |
414,536 |
|
|
$ |
3,943,609 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for services rendered |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
457,426 |
|
|
|
457 |
|
|
|
41,209 |
|
|
|
- |
|
|
|
41,666 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible notes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,666,666 |
|
|
|
- |
|
|
|
1,666,666 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,264,998 |
|
|
|
1,264,998 |
|
|
Balance,
February 28, 2021 |
|
|
130,000 |
|
|
$ |
130 |
|
|
|
840,000 |
|
|
$ |
840 |
|
|
|
358,286,791 |
|
|
$ |
358,287 |
|
|
$ |
4,878,148 |
|
|
$ |
1,679,534 |
|
|
$ |
6,916,939 |
|
See
notes to accompanying condensed consolidated financial
statements.
UNIQUE LOGISTICS INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| |
|
For
the Nine
Months
Ended
February
28,2022
|
|
|
For
the Nine
Months
Ended
February
28, 2021
|
|
| CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Net income |
|
$ |
1,581,055 |
|
|
$ |
2,088,044 |
|
| Adjustments to reconcile net income to
net cash used in operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and
amortization |
|
|
585,019 |
|
|
|
573,443 |
|
| Amortization of
debt discount |
|
|
776,515 |
|
|
|
606,519 |
|
| Amortization of
right of use assets |
|
|
1,103,649 |
|
|
|
1,044,792 |
|
| Share-based
compensation |
|
|
- |
|
|
|
91,666 |
|
| Bad debt
expense |
|
|
850,000 |
|
|
|
110,000 |
|
| Gain on
forgiveness of note payable |
|
|
(358,236 |
) |
|
|
(1,646,062 |
) |
| Loss on
extinguishment of convertible notes payable |
|
|
564,037 |
|
|
|
1,147,856 |
|
| Change in deferred
tax asset |
|
|
99,000 |
|
|
|
(140,000 |
) |
| Change in fair
value of derivative liabilities |
|
|
4,275,986 |
|
|
|
- |
|
| Accretion of
consulting agreement |
|
|
(212,004 |
) |
|
|
(212,004 |
) |
| Changes in operating assets and
liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable - trade |
|
|
(82,890,241 |
) |
|
|
(16,850,718 |
) |
| Contract
assets |
|
|
(12,706,657 |
) |
|
|
(11,638,673 |
) |
| Factoring
reserve |
|
|
7,593,665 |
|
|
|
(1,453,563 |
) |
| Other prepaid
expenses and current assets |
|
|
256,716 |
|
|
|
63,029 |
|
| Deposits and other
assets |
|
|
(20,000 |
) |
|
|
1,042 |
|
| Accounts payable -
trade |
|
|
18,807,393 |
|
|
|
26,165,558 |
|
| Accrued expenses
and other current liabilities |
|
|
2,962,457 |
|
|
|
(1,159,684 |
) |
| Accrued
freight |
|
|
5,397,339 |
|
|
|
1,611,915 |
|
| Contract
liabilities |
|
|
10,403,335 |
|
|
|
- |
|
|
Operating lease liability |
|
|
(1,098,769 |
) |
|
|
(981,967 |
) |
| Net
Cash Used in Operating Activities |
|
|
(42,029,741 |
) |
|
|
(578,807 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(54,474 |
) |
|
|
(26,543 |
) |
| Net
Cash Used in Investing Activities |
|
|
(54,474 |
) |
|
|
(26,543 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Proceeds from
notes payable |
|
|
2,000,000 |
|
|
|
3,816,666 |
|
| Repayments of
notes payable |
|
|
(2,821,664 |
) |
|
|
(491,667 |
) |
| Repayments of
long-term debt due to related parties |
|
|
(239,924 |
) |
|
|
(2,627,420 |
) |
| Borrowings on
revolving credit facility, net |
|
|
43,888,787 |
|
|
|
- |
|
| Cash
paid for debt issuance costs |
|
|
- |
|
|
|
(50,000 |
) |
| Net
Cash Provided by Financing Activities |
|
|
42,827,199 |
|
|
|
647,579 |
|
| |
|
|
|
|
|
|
|
|
| Net change in cash
and cash equivalents |
|
|
742,984 |
|
|
|
42,229 |
|
| |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents - Beginning of Period |
|
|
252,615 |
|
|
|
1,349,363 |
|
| Cash
and cash equivalents - End of Period |
|
$ |
995,598 |
|
|
$ |
1,349,363 |
|
| SUPPLEMENTARY CASH
FLOW INFORMATION: |
|
|
|
|
|
|
|
|
| Cash Paid During the Period for: |
|
|
|
|
|
|
|
|
| Income
taxes |
|
$ |
2,375,900 |
|
|
$ |
398,110 |
|
| Interest |
|
$ |
4,072,366 |
|
|
$ |
49,028 |
|
| SUPPLEMENTARY
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Conversion of
Series B Preferred to Common Stock |
|
$ |
125,673 |
|
|
$ |
- |
|
| Issuance of
common stock for the conversion of principal net of accrued
interest capitalized to principal to Notes Payable |
|
$ |
244,931 |
|
|
$ |
- |
|
| Operating asset
and liability |
|
$ |
- |
|
|
$ |
223,242 |
|
| Reduction
of debt due to exchange of Convertible Notes for Preferred Stock
Series C & D |
|
|
3,861,162
|
|
|
|
-
|
|
| Non-cash
forgiveness of due to UL HK resulting in goodwill
remeasurement |
|
$ |
- |
|
|
$ |
310,455 |
|
| Fair value of
warrants issued with convertible debt |
|
$ |
- |
|
|
$ |
1,126,497 |
|
| Beneficial
conversion feature of convertible notes |
|
$ |
- |
|
|
$ |
2,540,169 |
|
| Gain on
forgiveness of notes payable (PPP) |
|
$ |
- |
|
|
$ |
1,646,062 |
|
See
notes to accompanying condensed consolidated financial
statements.
UNIQUE LOGISTICS INTERNATIONAL, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February
28, 2022
1. NATURE OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Unique
Logistics International, Inc. (the “Company” or “Unique”) is a
global logistics and freight forwarding company. The Company
currently operates via its wholly owned subsidiaries, Unique
Logistics International (NYC), LLC, a Delaware limited liability
company (“UL NYC”), and Unique Logistics International (BOS) Inc, a
Massachusetts corporation (“UL BOS”), (collectively the “UL US
Entities”). The Company provides a range of international logistics
services that enable its customers to outsource sections of their
supply chain process. This range of services can be categorized as
follows:
|
|
● |
Air
Freight services |
|
|
● |
Ocean
Freight services |
|
|
● |
Customs
Brokerage and Compliance services |
|
|
● |
Warehousing
and Distribution services |
|
|
● |
Order
Management |
Liquidity
The
accompanying condensed consolidated financial statements have been
prepared on a going concern basis. Substantial doubt about an
entity’s ability to continue as a going concern exists when
conditions and events, considered in the aggregate, indicate that
it is probable that the entity will be unable to meet its
obligations as they become due within one year after the date that
the financial statements are issued.
The
Company experienced adverse cash flows from operations, primarily
due to significant business growth since inception, entering new
markets and products and repayment of an acquisition related debt.
As of February 28, 2022, the Company reported negative working
capital of approximately $8.1
million
compared with $3.5
million
negative working capital as of May 31, 2021 Increase in negative
reported working capital period over period was primarily due to
recording $12.7 million derivative
liability related to antidilution provision in Series A, C and D
Convertible Preferred Stocks. (See Imbedded Liability note below),
without such liability, the Company’s working capital would be
$4.2
million. Liquidity fluctuations may raise the risk of there being
substantial doubt about the Company’s ability to continue as a
going concern.
In
response to such factors, the Company took steps to alleviate the
risk of substantial doubt by
|
|
● |
Repayment
most of its acquisition related debt. |
|
|
● |
Entering
into a Fourth Amendment to the TBK Loan Agreement to increase its
credit facility from $47.5.0
million
to $57.5
million
until October 2022 (Subsequent Event Note 11) |
|
|
● |
Recapitalizing
its balance sheet by entering into
an Exchange Agreement on December 10, 2021 to exchange all of its
Convertible debt into shares of Convertible Preferred Shares Series
C and D (Financial Arrangements Note 5) |
The Company is in process of potentially raising capital through a
planned underwritten offering of its securities.
As of February 28, 2022 we expect to alleviate our going concern
needs for at least the next twelve months from the time these
financial statements are made available with existing cash and cash
equivalents and cash flows from operations. The Company expects to
meet its long-term liquidity needs with cash flows from operations
and financing arrangements.
Covid-19
In
January 2020, the World Health Organization has declared the
outbreak of a novel coronavirus (COVID-19) as a “Public Health
Emergency of International Concern,” which continues to have an
impact throughout the world and has adversely impacted global
commercial activity and contributed to significant declines and
volatility in financial markets. The coronavirus outbreak and
government responses are creating disruption in global supply
chains and adversely impacting many industries.
The
outbreak could have a continued material adverse impact on economic
and market conditions and trigger a period of global economic
slowdown. The extent of the impact of COVID-19 on our operational
and financial performance will depend on the effect on our shippers
and carriers, all of which are uncertain and cannot be predicted.
The rapid development and fluidity of this situation precludes any
prediction as to the ultimate material adverse impact of the
coronavirus outbreak. Nevertheless, the outbreak presents
uncertainty and risk with respect to the Company, its performance,
and its financial results. The Company has experienced increased
air and ocean freight rates due to overall cargo restraints imposed
by shippers and carriers and is in a position to pass these cost
increases directly to the customers without significantly affecting
its margins.
Due
to impacts from the COVID-19 pandemic and the uncertain pace of
recovery, seasonal variations in the availability of air and ocean
carriers, the volatility of fuel prices and other supply and demand
related factors, operating results for the three and six months
ended February 28, 2022 are not necessarily indicative of operating
results for the entire year.
While
we continue to execute our strategic plan, the Company is also in a
process of evaluating several other liquidity-oriented options such
as raising additional capital, increasing credit limits of the
revolving credit facilities, reducing cost of debt, controlling
expenditures, and improving its cash collection processes. While
many of the aspects of the Company’s plan involve management’s
judgments and estimates that include factors that could be beyond
our control and actual results could differ from our estimates.
These and other factors could cause the strategic plan to be
unsuccessful which could have a material adverse effect on our
operating results, financial condition, and liquidity.
Basis of Presentation
The
condensed consolidated financial statements and related notes have
been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”) and include
the accounts of the Company and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in
consolidation.
The
unaudited interim financial information furnished herein reflects
all adjustments, consisting solely of normal recurring items, which
in the opinion of management are necessary to fairly state the
financial position of the Company and the results of its operations
for the periods presented. This report should be read in
conjunction with the Company’s consolidated financial statements
and notes thereto included in the Company’s Form 10-K for the year
ended May 31, 2021. The Company assumes that the users of the
interim financial information herein have read or have access to
the audited financial statements for the preceding fiscal year and
that the adequacy of additional disclosure needed for a fair
presentation may be determined in that context. The condensed
consolidated balance sheet at May 31, 2021 was derived from audited
financial statements but does not include all disclosures required
by accounting principles generally accepted in the United States of
America.
Use of Estimates
The
preparation of condensed consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the condensed consolidated financial statements and the
reported amounts of revenue and expenses during the reported
period. Actual results could differ from those
estimates.
Significant estimates inherent in the preparation of the condensed
consolidated financial statements include determinations of the
useful lives and expected future cash flows of long-lived assets,
including intangibles, valuation of assets and liabilities acquired
in business combinations, and estimates and assumptions in
valuation of debt and equity instruments. In addition, the Company
makes significant judgments to recognize revenue – see policy note
“Revenue Recognition” below.
Fair Value Measurement
The
Company follows the authoritative guidance that establishes a
formal framework for measuring fair values of assets and
liabilities in the condensed consolidated financial statements that
are already required by generally accepted accounting principles to
be measured at fair value. The guidance defines fair value as the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date (exit price). The transaction is based on a
hypothetical transaction in the principal or most advantageous
market considered from the perspective of the market participant
that holds the asset or owes the liability.
The
Company utilizes market data or assumptions that market
participants who are independent, knowledgeable, and willing and
able to transact would use in pricing the asset or liability,
including assumptions about risk and the risks inherent in the
inputs to the valuation technique. These inputs can be readily
observable, market corroborated or generally unobservable. The
Company attempts to utilize valuation techniques that maximize the
use of observable inputs and minimize the use of unobservable
inputs.
The
Company is able to classify fair value balances based on the
observability of those inputs. The guidance establishes a formal
fair value hierarchy based on the inputs used to measure fair
value. The hierarchy gives the highest priority to Level 1
measurements and the lowest priority to level 3 measurements, and
accordingly, Level 1 measurement should be used whenever
possible.
The
hierarchy is broken down into three levels based on the reliability
of inputs as follows:
Level
1 – Quoted prices in active markets for identical assets or
liabilities or published net asset value for alternative
investments with characteristics similar to a mutual
fund.
Level
2 – Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or
indirectly.
Level
3 – Unobservable inputs for the asset or liability.
The
methods used may produce a fair value calculation that may not be
indicative of net realizable value or reflective of future fair
values. Furthermore, while management believes its valuation
methods are appropriate, the fair value of certain financial
instruments could result in a difference fair value measurement at
the reporting date. There were no changes in the Company’s
valuation methodologies from the prior year.
For purpose of this disclosure, the fair value of a financial
instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a
forced sale or liquidation. The carrying amounts for financial
assets and liabilities such as cash and cash equivalents, accounts
receivable - trade, contract assets, factoring reserve, other
prepaid expenses and current assets, accounts payable – trade and
other current liabilities, including contract liabilities, imbedded
derivative liabilities, convertible notes, promissory notes, all
approximate fair value due to their short-term nature as of
February 28, 2022 and May 31, 2021. The carrying amount of the
long-term debt approximates fair value because the interest rates
on these instruments approximate the interest rate on debt with
similar terms available to the Company. Lease liabilities
approximate fair value based on the incremental borrowing rate used
to discount future cash flows. The Company had Level 3 liabilities
(See Derivative Liabilities note) as of February 28, 2022. On May
31, 2021 Level 3 derivative liability balances were insignificant.
There were no transfers between levels during the reporting
period.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash
equivalents. The Company maintains its cash in bank deposit
accounts, which at times may exceed federally insured limits. No
loss has been experienced, and management believes it is not
exposed to any significant risk on credit.
Accounts Receivable – Trade
Accounts
receivable - trade from revenue transactions are based on invoiced
prices which the Company expects to collect. In the normal course
of business, the Company extends credit to customers that satisfy
pre-defined credit criteria. The Company generally does not require
collateral to support customer receivables. Accounts receivable -
trade, as shown on the condensed consolidated balance sheets, is
net of allowances when applicable. An allowance for doubtful
accounts is determined through analysis of the aging of accounts
receivable at the date of the condensed consolidated financial
statements, assessments of collectability based on an evaluation of
historic and anticipated trends, the financial condition of the
Company’s customers, and an evaluation of the impact of economic
conditions. The maximum accounting loss from the credit risk
associated with accounts receivable is the amount of the receivable
recorded, net of allowance for doubtful accounts. As of February
28, 2022 and May 31, 2021, the Company recorded an allowance for
doubtful accounts of approximately $1,010,500 and
$240,000,
respectively.
Concentration
One
major
customer represented approximately
42% of
all accounts receivable as of February 28, 2022. Revenue by this
customer as a percentage of the Company’s total revenue were
39% and
38% for three months ended February 28, 2022 and nine months
ended February 28, 2022, respectively, compared with
19% and
29%, for the three months ended February 28, 2021 and nine
months ended February 28, 2021, respectively.
Off
Balance Sheet Arrangements
On
August 30, 2021, the Company terminated its agreement with an
unrelated third party (the “Factor”) for factoring of specific
accounts receivable. The factoring under this agreement was treated
as a sale in accordance with FASB ASC 860, Transfers and
Servicing, and is accounted for as an off-balance sheet
arrangement. Proceeds from the transfers reflected the face value
of the account less a fee, which is presented in costs and
operating expenses on the Company’s condensed consolidated
statements of operations in the period the sale occurs. Net funds
received are recorded as an increase to cash and a reduction to
accounts receivable outstanding in the condensed consolidated
balance sheets. The Company reported the cash flows attributable to
the sale of receivables to third parties and the cash receipts from
collections made on behalf of and paid to third parties, on a net
basis as trade accounts receivables in cash flows from operating
activities in the Company’s condensed consolidated statements of
cash flows. The net principal balance of trade accounts receivable
outstanding in the books of the factor under the factoring
agreement was $31.7 million as of
May 31, 2021. On June 2, 2021 and on August 30, 2021, the Company
repurchased all of its factored trade accounts receivables from the
Factor, in the amounts of $31.6 million
and $1.4 million,
respectively, utilizing its TBK revolving credit facility (See Note
5).
During
the factoring agreement in place, the Company acted as the agent on
behalf of the Factor for the arrangements and had no significant
retained interests or servicing liabilities related to the accounts
receivable sold. The agreement provided the Factor with security
interests in purchased accounts until the accounts have been
repurchased by the Company or paid by the customer. In order to
mitigate credit risk related to the Company’s factoring of accounts
receivable, the Company may purchase credit insurance, from time to
time, for certain factored accounts receivable, resulting in risk
of loss being limited to the factored accounts receivable not
covered by credit insurance, which the Company does not believe to
be significant.
During
the three months ended February 28, 2022 and 2021, the Company
factored accounts receivable invoices totaling approximately none
and $64.7 million,
pursuant to the Company’s factoring agreement, representing the
face value of the invoices. During the nine months ended February
28, 2022 and 2021, the Company factored accounts receivable
invoices totaling approximately $4.3 million and
$176.2 million,
respectively, pursuant to the Company’s factoring agreement,
representing the face value of the invoices. The Company recognizes
factoring costs upon disbursement of funds. The Company incurred
expenses totaling approximately $1.3 million, pursuant
to the agreements for the three months ended February 28, 2021 and
none for the three months ended February 28, 2022. The
Company recognizes factoring costs upon disbursement of funds. The
Company incurred expenses totaling approximately $27,000 and $3.2 million, pursuant to the
agreements for the nine months ended February 28, 2022 and 2021.
Factoring expenses are presented in costs and operating expenses on
the condensed consolidated statement of operations.
Derivative
Liability
On
December 10, 2021, the Company entered into an amended securities
exchange agreement with the holders of convertible notes to
exchange all Convertible Notes of the Company into shares of the
newly created Convertible Preferred Stock Series C and D. For
additional information on the exchange agreement see Note 5,
Financing Arrangements.
Similar to the existing Convertible Preferred Stock Series A, these
preferred stocks featured anti-dilution provision that expire on a
certain date. Management has determined the anti-dilution provision
embedded in preferred stock Series A, C and D is required to be
accounted for separately from the preferred stock as a derivative
liability and recorded at fair value. Separation of the
anti-dilution option as a derivative liability is required because
its economic characteristics are considered more akin to an equity
instrument and therefore the anti-dilution option is not considered
to be clearly and closely related to the economic characteristics
of the preferred stock.
The Company has identified derivative instruments arising from an
anti-dilution provision in the Company’s Series A, Series C, and
Series D Preferred Stock during the three and nine months ended
February 28, 2022. The Company had $12,693,282 of derivative
liabilities measured at fair value as of February 28, 2022.
Derivative liability related to Preferred Convertible Stock Series
A existed but was immaterial as of May 31, 2021.
An embedded derivative liability representing the right of holders
of Convertible Preferred Stock Series C and D to receive additional
common stock of the Company upon issuance of any additional common
stock by the Company prior to qualified financing event as defined
in the agreement. Each reporting period, the embedded derivative
liability, if material, would be adjusted to reflect fair value at
each period end with changes in fair value recorded in the “Change
in fair value of embedded derivative liability” financial statement
line item of the company’s statements of operations. There was no
change in fair value during the three months ended February 28,
2022.
The underlying value of the anti-dilution provision is calculated
from estimating the probability and value of a potential raise. The
model used estimates the potential that the company completes a
capital raise prior to the expiration of the anti-dilution feature
and determines the value of the anti-dilution feature given these
assumptions. The model requires the use of certain assumptions.
These assumptions include probability a raise is completed,
probability certain anti-dilution features are extended, estimated
raise amount, term to a raise, and an appropriate risk-free
interest rate.
SCHEDULE OF DERIVATIVE
LIABILITIES
| |
|
Level
1 |
|
|
Level
2 |
|
|
Level
3 |
|
| Derivative
liabilities as November 30, 2021 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Addition |
|
|
- |
|
|
|
- |
|
|
|
8,417,296 |
|
|
Changes
in fair value |
|
|
- |
|
|
|
- |
|
|
|
4,275,986 |
|
|
Derivative
liabilities as February 28, 2022 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12,693,282 |
|
|
Derivative
liabilities |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12,693,282 |
|
Income Taxes
The
Company files a consolidated income tax return for federal and most
state purposes.
Management
has determined that there are no uncertain tax positions that would
require recognition in the consolidated financial statements. If
the Company were to incur an income tax liability in the future,
interest and penalties on any income tax liability would be
reported as interest expense. Management’s conclusions regarding
uncertain tax positions may be subject to review and adjustment at
a later date based on ongoing analysis of tax laws, regulations,
and interpretations thereof as well as other factors.
The
Company uses the assets and liability method of accounting for
deferred income taxes. Deferred income tax assets and liabilities
are recognized for the estimated future tax consequences
attributable to differences between the balance sheet carrying
amounts of existing assets and liabilities and their respective tax
basis. As of February 28, 2022 and May 31, 2021, the Company
recognized a deferred tax asset of $165,000 and $264,000, respectively, which is
included in deposits and other assets on the condensed consolidated
balance sheets. The Company regularly evaluates the need for a
valuation allowance related to the deferred tax asset.
Revenue Recognition
The
Company adopted ASC 606, Revenue from Contracts with
Customers. Under ASC 606, revenue is recognized when control of
the promised goods or services is transferred to the Company’s
customers, in an amount that reflects the consideration the Company
expects to receive in exchange for services. The Company recognizes
revenue upon meeting each performance obligation based on the
allocated amount of the total consideration of the contract to each
specific performance obligation.
To
determine revenue recognition, the Company applies the following
five steps:
|
|
1. |
Identify
the contract(s) with a customer; |
|
|
2. |
Identify
the performance obligations in the contract; |
|
|
3. |
Determine
the transaction price; |
|
|
4. |
Allocate
the transaction price to the performance obligations in the
contract; and |
|
|
5. |
Recognize
revenue as or when the performance obligation is
satisfied. |
Revenue
is recognized as follows:
|
|
i. |
Freight
income - export sales |
|
|
|
|
|
|
|
Freight
income from the provision of air, ocean, and land freight
forwarding services are recognized over time based on a relative
transit time basis thru the sail or departure from origin port. The
Company is the principal in these transactions and recognizes
revenue on a gross basis. |
|
|
|
|
|
|
ii. |
Freight
income - import sales |
|
|
|
|
|
|
|
Freight
income from the provision of air, ocean, and land freight
forwarding services are recognized over time based on a relative
transit time basis thru the delivery to the customer’s designated
location. The Company is the principal in these transactions and
recognizes revenue on a gross basis. |
|
|
|
|
|
|
iii. |
Customs
brokerage and other service income |
|
|
|
|
|
|
|
Customs
brokerage and other service income from the provision of other
services are recognized at the point in time the performance
obligation is met. |
The
Company’s business practices require, for accurate and meaningful
disclosure, that it recognizes revenue over time. The “over time”
policy is the period from point of origin to arrival of the
shipment at US Port of entry (or in the case when the customer
requires delivery to a designated point, the arrival at that
delivery point). This over time policy requires the Company to make
significant judgements to recognize revenue over the estimated
duration of time from port of origin to arrival at port of entry.
The point in the process when the Company meets its obligation in
the port of entry and the subsequent transfer of the goods to the
customer is when the customer has the obligation to pay, has taken
physical possession, has legal title, risk and awards (ownership)
and has accepted the goods. The Company has elected to not disclose
the aggregate amount of the transaction price allocated to
performance obligations that are unsatisfied as of the end of the
period as the Company’s contracts with its customers have an
expected duration of one year or less.
The
Company uses independent contractors and third-party carriers in
the performance of its transportation services. The Company
evaluates who controls the transportation services to determine
whether its performance obligation is to transfer services to the
customer or to arrange for services to be provided by another
party. The Company determined it acts as the principal for its
transportation services performance obligation since it is in
control of establishing the prices for the specified services,
managing all aspects of the shipments process and assuming the risk
of loss for delivery and collection.
Revenue
billed prior to realization is recorded as contract liabilities on
the condensed consolidated balance sheets and contract costs
incurred prior to revenue recognition are recorded as contract
assets on the condensed consolidated balance sheets.
Contract
Assets
Contract
assets represent amounts for which the Company has the right to
consideration for the services provided while a shipment is still
in-transit but for which it has not yet completed the performance
obligation and has not yet invoiced the customer. Upon completion
of the performance obligations, which can vary in duration based
upon the method of transport and billing the customer, these
amounts become classified within accounts receivable -
trade.
Contract
Liabilities
Contract
liabilities represent the amount of obligation to transfer goods or
services to a customer for which consideration has been
received.
Significant
Changes in Contract Asset and Contract Liability Balances for the
nine months ended February 28, 2022:
SCHEDULE OF CHANGES IN CONTRACT ASSET AND
CONTRACT LIABILITY
| |
|
Contract
Assets
Increase
(Decrease)
|
|
|
Contract
Liabilities
(Increase)
Decrease
|
|
| |
|
|
|
|
|
|
|
Reclassification of the beginning contract liabilities to revenue,
as the result of performance obligation satisfied |
|
$ |
- |
|
|
$ |
- |
|
|
Cash Received in advance and not recognized as revenue |
|
|
- |
|
|
|
(10,403,335 |
) |
|
Reclassification of the beginning contract assets to receivables,
as the result of rights to consideration becoming
unconditional |
|
|
(32,052,573 |
) |
|
|
- |
|
|
Contract assets recognized, net reclassification to
receivables |
|
|
44,759,230 |
|
|
|
- |
|
| Net
Change |
|
$ |
12,706,657 |
|
|
$ |
(10,403,335 |
) |
Disaggregation of Revenue from Contracts with
Customers
The
following table disaggregates gross revenue by significant
geographic area for the three and nine months ended February 28,
2022 and 2021 based on origin of shipment (imports) or destination
of shipment (exports):
SCHEDULE OF DISAGGREGATION OF
REVENUE
| |
|
For
the Three
Months
Ended
February
28, 2022
|
|
|
For
the Three
Months
Ended
February
28, 2021
|
|
| China, Hong Kong &
Taiwan |
|
$ |
82,006,657 |
|
|
$ |
48,767,302 |
|
| Southeast Asia |
|
|
121,340,162 |
|
|
|
23,395,258 |
|
| United States |
|
|
5,049,985 |
|
|
|
5,947,013 |
|
| India Sub-continent |
|
|
34,943,595 |
|
|
|
5,645,861 |
|
| Other |
|
|
7,095,496 |
|
|
|
7,206,980 |
|
| Total
revenue |
|
$ |
250,435,895 |
|
|
$ |
90,962,414 |
|
| |
|
For
the Nine
Months
Ended
February
28, 2022
|
|
|
For
the Nine
Months
Ended
February
28, 2021
|
|
| China, Hong Kong &
Taiwan |
|
$ |
285,424,103 |
|
|
$ |
143,818,543 |
|
| Southeast Asia |
|
|
361,600,180 |
|
|
|
73,073,258 |
|
| United States |
|
|
28,254,253 |
|
|
|
26,170,665 |
|
| India Sub-continent |
|
|
134,393,170 |
|
|
|
16,032,190 |
|
| Other |
|
|
35,966,738 |
|
|
|
13,922,445 |
|
| Total
revenue |
|
$ |
845,638,444 |
|
|
$ |
273,017,101 |
|
Segment Reporting
Based
on the guidance provided by ASC Topic 280, Segment
Reporting, management has determined that the Company currently
operates in one geographical segment and consists of a single
reporting unit given the similarities in economic characteristics
between its operations and the common nature of its products,
services and customers.
Earnings per Share
The
Company adopted ASC 260, Earnings per share, guidance from
the inception. Earnings per share (“EPS”) is the amount of earnings
attributable to each share of common stock. For convenience, the
term is used to refer to either earnings or loss per share. Basic
EPS is computed by dividing income available to common stockholders
(the numerator) by the weighted-average number of common shares
outstanding, including warrants exercisable for less than a penny,
(the denominator) during the period. Income available to common
stockholders shall be computed by deducting both the dividends
declared in the period on preferred stock (whether or not paid) and
the dividends accumulated for the period on cumulative preferred
stock (whether or not earned) from income from continuing
operations (if that amount appears in the consolidated statements
of operations) and also from net income. The computation of diluted
EPS is similar to the computation of basic EPS except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if the dilutive potential
common shares had been issued during the period to reflect the
potential dilution that could occur from common shares issuable
through contingent shares issuance arrangement, stock options or
warrants.
The
following table provides a reconciliation of the numerator and
denominator used in computing basic and diluted net income
attributable to common stockholders per common share.
SCHEDULE OF EARNING PER
SHARE
| |
|
February 28, 2022 |
|
|
February 28, 2021 |
|
| |
|
For the Three Months Ended |
|
| |
|
February 28, 2022 |
|
|
February 28, 2021 |
|
| Numerator: |
|
|
|
|
|
|
|
|
| Net (loss) income
available to common stockholders |
|
$ |
(9,496,311 |
) |
|
|
1,264,998 |
|
| Effect of
dilutive securities: |
|
|
- |
|
|
|
431,163 |
|
| |
|
|
|
|
|
|
|
|
| Diluted net
(loss) income |
|
$ |
(9,496,311 |
) |
|
$ |
1,696,161 |
|
| |
|
|
|
|
|
|
|
|
| Denominator: |
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding – basic |
|
|
655,781,078 |
|
|
|
357,891,040 |
|
| |
|
|
|
|
|
|
|
|
| Dilutive securities (a): |
|
|
|
|
|
|
|
|
| Series A Preferred |
|
|
- |
|
|
|
1,177,041,100 |
|
| Series B Preferred |
|
|
- |
|
|
|
5,499,034,800 |
|
| Convertible notes |
|
|
- |
|
|
|
1,809,848,927 |
|
| Warrants |
|
|
- |
|
|
|
1,132,733,563 |
|
| Series C Preferred |
|
|
- |
|
|
|
- |
|
| Series D
Preferred |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Weighted
average common shares outstanding and assumed conversion –
diluted |
|
|
655,781,078 |
|
|
|
9,976,549,430 |
|
| |
|
|
|
|
|
|
|
|
| Basic net
(loss) income per common share |
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
| |
|
|
|
|
|
|
|
|
| Diluted net
(loss) income per common share |
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
| |
|
February 28, 2022 |
|
|
February 28, 2021 |
|
| |
|
For the Nine Months Ended |
|
| |
|
February 28, 2022 |
|
|
February 28, 2021 |
|
| Numerator: |
|
|
|
|
|
|
|
|
| Net income available to
common stockholders |
|
$ |
(2,984,670 |
) |
|
|
2,088,044 |
|
| Effect of
dilutive securities: |
|
|
- |
|
|
|
606,519 |
|
| |
|
|
|
|
|
|
|
|
| Diluted net
income |
|
$ |
(2,984,670 |
) |
|
$ |
2,694,963 |
|
| |
|
|
|
|
|
|
|
|
| Denominator: |
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding – basic |
|
|
582,680,746 |
|
|
|
230,663,175 |
|
| |
|
|
|
|
|
|
|
|
| Dilutive securities (a): |
|
|
|
|
|
|
|
|
| Series A Preferred |
|
|
- |
|
|
|
1,177,041,100 |
|
| Series B Preferred |
|
|
- |
|
|
|
5,499,034,800 |
|
| Convertible notes |
|
|
|
|
|
|
1,809,848,927 |
|
| Warrants |
|
|
|
|
|
|
1,132,733,563 |
|
| Series C Preferred |
|
|
- |
|
|
|
- |
|
| Series D
Preferred |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Weighted
average common shares outstanding and assumed conversion –
diluted |
|
|
582,680,746 |
|
|
|
9,849,321,565 |
|
| |
|
|
|
|
|
|
|
|
| Basic net
income per common share |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
| |
|
|
|
|
|
|
|
|
| Diluted net
income per common share |
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
2.
PROPERTY AND
EQUIPMENT
Major
classifications of property and equipment are summarized
below:
SCHEDULE OF PROPERTY AND
EQUIPMENT
| |
|
February
28, 2022 |
|
|
May
31, 2021 |
|
| |
|
|
|
|
|
|
|
Furniture
and fixtures |
|
$ |
97,716 |
|
|
$ |
84,085 |
|
| Computer
equipment |
|
|
146,493 |
|
|
|
108,479 |
|
| Software |
|
|
30,609 |
|
|
|
27,780 |
|
| Leasehold
improvements |
|
|
27,146 |
|
|
|
27,146 |
|
|
Property and equipment, gross |
|
|
301,964 |
|
|
|
247,490 |
|
| Less:
accumulated depreciation |
|
|
(110,056 |
) |
|
|
(55,398 |
) |
|
Property and equipment, net |
|
$ |
191,908 |
|
|
$ |
192,092 |
|
Depreciation
expense charged to income for the three months ended February 28,
2022 and 2021 amounted to $19,560 and $14,439. Depreciation expense
charged to income for the nine months ended February 28, 2022 and
2021 amounted to $54,658 and $43,082.
3.
INTANGIBLE ASSETS
Intangible
assets consist of the following:
SCHEDULE OF INTANGIBLE
ASSETS
| |
|
February 28, 2022 |
|
|
May 31, 2021 |
|
| |
|
|
|
|
|
|
| Trade names /
trademarks |
|
$ |
806,000 |
|
|
$ |
806,000 |
|
| Customer relationships |
|
|
7,633,000 |
|
|
|
7,633,000 |
|
| Non-compete
agreements |
|
|
313,000 |
|
|
|
313,000 |
|
|
Finite lived intangible assets, gross |
|
|
8,752,000 |
|
|
|
8,752,000 |
|
| Less:
Accumulated amortization |
|
|
(1,237,508 |
) |
|
|
(707,147 |
) |
|
Finite lived intangible assets, net |
|
$ |
7,514,492 |
|
|
$ |
8,044,853 |
|
Amortizable
intangible assets, including tradenames and non-compete agreements,
are amortized on a straight-line basis over 3 to
10 years.
Customer relationships are amortized on a straight-line basis over
12 to
15 years.
For the three months ended February 28, 2022 and 2021, amortization
expense related to the intangible assets was $176,787.
For the nine months ended February 28, 2022 and 2021, amortization
expense related to the intangible assets was $530,361. As
of February 28, 2022, the weighted average remaining useful lives
of these assets was
7.58 years.
Estimated
amortization expense for the next five years and thereafter is as
follows:
SCHEDULE OF ESTIMATED AMORTIZATION
EXPENSE
|
Twelve Months Ending February 28, |
|
|
|
| 2022 |
|
$ |
176,787 |
|
| 2023 |
|
|
707,148 |
|
| 2024 |
|
|
602,814 |
|
| 2025 |
|
|
602,814 |
|
| 2026 |
|
|
602,814 |
|
| Thereafter |
|
|
4,822,114 |
|
|
Intangible assets, net |
|
$ |
7,514,492 |
|
4.
ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
Accrued
expenses and other current liabilities consisted of the
following:
SCHEDULE OF ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES
| |
|
February 28, 2022 |
|
|
May 31, 2021 |
|
| |
|
|
|
|
|
|
| Salaries and related
expenses |
|
$ |
300,000 |
|
|
$ |
672,455 |
|
| Sales and marketing expense |
|
|
2,323,484 |
|
|
|
539,810 |
|
| Professional fees |
|
|
110,000 |
|
|
|
75,000 |
|
| Income tax |
|
|
128,318 |
|
|
|
256,286 |
|
| Overdraft liabilities |
|
|
545,053 |
|
|
|
790,364 |
|
| Interest expense |
|
|
25,000 |
|
|
|
- |
|
| Other current
liabilities |
|
|
1,196,887 |
|
|
|
50,000 |
|
|
Accrued expenses and other current liabilities |
|
$ |
4,628,742 |
|
|
$ |
2,383,915 |
|
5.
FINANCING ARRANGEMENTS
Financing
arrangements on the consolidated balance sheets consists
of:
SCHEDULE OF FINANCING
ARRANGEMENT
| |
|
February 28, 2022 |
|
|
May 31, 2021 |
|
| |
|
|
|
|
|
|
| Revolving Credit
Facility |
|
$ |
43,888,787 |
|
|
$ |
- |
|
| Promissory note (PPP) |
|
|
- |
|
|
|
358,236 |
|
| Promissory notes (EIDL) |
|
|
- |
|
|
|
150,000 |
|
| Notes payable |
|
|
2,260,453 |
|
|
|
2,528,886 |
|
| Convertible
notes – net of discount |
|
|
- |
|
|
|
2,441,551 |
|
|
Notes payable, gross |
|
|
46,149,240 |
|
|
|
5,478,673 |
|
| Less: current
portion |
|
|
(45,540,473 |
) |
|
|
(2,285,367 |
) |
|
Long term, notes payable |
|
$ |
608,767 |
|
|
$ |
3,193,306 |
|
As of
February 28, 2022, a current portion of outstanding third-party
debt represented by a revolving line of credit in the amount of
$43,888,787 and of a current
portion of the notes payable in the amount of $1,651,686.
Revolving Credit Facility
On
June 1, 2021, the Company entered into a Revolving Purchase, Loan
and Security Agreement (the “TBK Agreement”) with TBK BANK, SSB, a
Texas State Savings Bank (“Purchaser”), for a facility under which
Purchaser will, from time to time, buy approved receivables from
the Seller. The TBK Agreement provides for Seller to have access to
the lesser of (i) $30 million (“Maximum
Facility”) and (ii) the Formula Amount (as defined in the TBK
Agreement). Upon receipt of any advance, Seller agreed to sell and
assign all of its rights in accounts receivables and all proceeds
thereof. Seller granted to Purchaser a continuing ownership
interest in the accounts purchased under the Agreement. Seller
granted to Purchaser a continuing first priority security interest
in all of Seller’s assets. The facility is for an initial term of
twenty-four (24) months (the “Term”) and may be extended or
renewed, unless terminated in accordance with the TBK Agreement.
The TBK Agreement replaced the Company’s prior agreement with
Corefund Capital, LLC (“Core”) entered into on May 29, 2020,
pursuant to which Core agreed to purchase from the Company up to an
aggregate of $25 million of accounts
receivables (the “Core Facility”).
The
Core Facility provided Core with security interests in purchased
accounts until the accounts have been repurchased by the Company or
paid by the customer. As of June 1, 2021, the Core Facility has
been terminated along with all security interests granted to Core
and replaced with the TBK Agreement. This facility temporarily
renewed on June 17, 2021, under the same terms and conditions as
the original agreement and the credit line was set at $2.0 million and terminated
again on August 31, 2021, after the Company repurchased all its
factored accounts receivable.
On
August 4, 2021, the parties to the TBK Agreement entered into a
First Amendment Agreement to increase the credit facility from
$30.0 million to $40.0 million during the Temporary
Increase Period, the period commencing on August 4, 2021, through
and including December 2, 2021, with all other terms of the
original TBK Agreement remained unchanged.
On
September 17, 2021, the parties to the TBK Agreement entered into a
Second Amendment to the TBK Agreement to temporarily increase the
credit facility from $40.0 million to $47.5 million for the period
commencing on August 4, 2021, through and including January 31,
2022.
On
January 31, 2022, the parties to the TBK Agreement entered into a
Third Amendment to the TBK Agreement to permanently increase the
credit facility from $40.0 million to $47.5 million.
On April 14, 2022, the parties to the TBK Loan Agreement entered
into a Fourth Amendment to temporarily increase the credit facility
from $47.5 million to $57.5 million from April 15, 2022
through October 31, 2022 (See Subsequent Events Note 11)
Purchase Money Financing
On
September 8, 2021 (the “Effective Date”), the Company entered into
a Purchase Money Financing Agreement (the “Financing Agreement”)
with Corefund Capital, LLC (“Corefund”) in order to enable the
Company to finance additional cargo charter flights for the peak
shipping season.
Pursuant
to the Financing Agreement, the Company may, from time to time,
request financing from Corefund to enable the Company to engage
Company’s suppliers to provide chartered cargo flights for the
Company’s clients. The Company may also request that Corefund
tender payments directly to a supplier. Corefund requires payments
from a buyer to be made to a Deposit Account Control Agreement
account at an agreed upon bank where Corefund is the sole director
and accessor to the account for the term of the
relationship.
As
collateral securing its obligations under the Financing Agreement,
the Company granted Corefund a continuing security interest in all
of the Company’s now owned and hereafter acquired Accounts
Receivable (“Collateral”) subject to the security interest granted
pursuant to that certain Revolving Purchase, Loan and Security
Agreement, dated as of June 2, 2021. Immediately upon an Event of
Default (as defined in the Financing Agreement), all outstanding
obligations shall accrue interest at the rate of 0.1% (one-tenth of one percent) per
day. If the Company substantially ceases operating as a going
concern, and the proceeds of the Collateral created after the
occurrence of an Event of Default (the “Default”) are in excess of
the obligations at the time of Default, the Company shall pay to
Corefund a liquidation success premium of 10 percent of the
amount of such excess. The Financing Agreement contains ordinary
and customary provisions for agreements and documents of this
nature, such as representations, warranties, covenants, and
indemnification obligations, as applicable.
The
fees and interest related to CoreFund purchase money financing are
included in the interest expense on the statement of operations.
The fee paid to CoreFund for the three and nine months ended
February 28, 2022 were $0.3
million and $0.9 million,
respectively.
Promissory Note (PPP)
On
March 9, 2021, the Company was granted a loan in the aggregate
amount of $358,236, pursuant to the
second round of the Paycheck Protection Program (the “PPP”) under
the CARES Act. The Loan, which was in the form of a note, matures
on March 5, 2026, and bears
interest at a rate of 1% per annum. The Loan is
payable in equal monthly instalments after the Deferral Period
which ends on the day of the Forgiveness Deadline. The Note may be
prepaid by the Borrower at any time prior to maturity with no
prepayment penalties. The funds from the Loan may only be used for
payroll costs, costs used to continue group health care benefits,
mortgage payments, rent, and utilities. The Company intends to use
the entire Loan amount for qualifying expenses. Under the terms of
the PPP, certain amounts of the Loan may be forgiven if they are
used for qualifying expenses as described in the CARES Act. The
Loan was forgiven on August 9, 2021 and is included in gain on
forgiveness of promissory notes on the condensed consolidated
statements of operations.
Notes Payable
On
May 29, 2020, the Company entered into a $1,825,000 note payable as part of the
acquisition related to UL ATL. The loan bears a zero percent
interest rate and has a maturity of three years, or May 29, 2023. The agreement calls for
six semi-annual payments of $304,166.67, for which the
first payment was due on November 29, 2020. As of February
28, 2022, and May 31, 2021, the outstanding balance due under the
note was $912,500 and $1,825,000, respectively.
On
May 29, 2020, the Company entered into a non-compete,
non-solicitation and non-disclosure agreement with a former owner
of UL ATL. The amount payable under the agreement is $500,000 over a three-year period.
The agreement calls for
twenty-four monthly non-interest-bearing payments of $20,833.33 with the first
payment on June 29, 2020. As of February 28, 2022 and May
31, 2021, the outstanding balance due under the agreement was
$62,507 and $500,000, respectively.
On
March 19, 2021 the Company issued to an accredited investor a
10% promissory note in the
principal aggregate amount of $1,000,000 (the “Trillium Note”) due
and payable in 30 days. The Company received aggregate gross
proceeds of $1,000,000. On April 7,
2021, the Company entered into an
Amended and Restated Promissory Note (the “Amended and Restated
Note”) superseding and replacing the Original Note. The Amended and
Restated Note is in the principal aggregate amount of $1,000,000 and bears interest at a rate
of a guaranteed 7.5% or $75,000 at maturity. The
Amended and Restated Note matures on June 15, 2021. On
September 23, 2021, the Company further amended the Amended and
Restated Note pursuant to which the Company and Trillium agreed to
extend the maturity date of the Amended and Restated Note to
December 31, 2021. On January 6,
2022, the Company entered into a third amendment to the Amended and
Restated Note pursuant to which the Company and Trillium agreed to
extend the maturity date of the Amended and Restated Note to March
31, 2022As of February 28, 2022, and May 31, 2021, the outstanding
balance including accrued interest due under the agreement was
$1,287,829 and $1,062,215, respectively.
On
October 1, 2021, the Company entered into a Securities Purchase
Agreement with Trillium Partners LP and Carpathia LLC (each a
“Buyer”) pursuant to which the Company issued to each Buyer a Note
in the aggregate principal amount of $1,000,000, respectively, for a total
of $2,000,000 (collectively the “Notes”).
The Notes mature on March 31, 2022 (the “Maturity
Date”). Interest on this Notes shall
initially accrue on the outstanding Principal Amount (as defined
therein) at a rate equal to twelve (12) % per annum during the
first 120 calendar days following the issuance date of this Note
(“Issue Date”). Commencing 121 days following the Issue Date and
continuing thereafter, absent an Event of Default, interest shall
accrue on the outstanding Principal Amount at a rate equal to
eighteen (18) % per annum. The Principal Amount and all accrued
Interest shall become due and payable on the Maturity Date. Upon
the occurrence of any Event of Default, including at any time
following the Maturity Date, a default interest rate equal to
twenty four percent (24%) per annum shall be in effect as to all
unpaid principal then outstanding. The Company shall pay a minimum
interest payment equal to twelve percent (12%) on the Principal
Amount, or $120,000 (“Minimum Interest Payment”). The
Company may prepay the Notes at any time in whole or in part by
making a payment equal to (a) the Principal Amount owed under the
Notes plus (b) the greater of: (i) all accrued and unpaid interest,
or (ii) the Minimum Interest Payment. Both notes were paid off and
indebtedness fully satisfied on January 7, 2022 including accrued
interest paid in the amount of $180,000. Interest
paid was less than the contractual amount resulting in recognition
of gain of $60,000
in other income on the statement of operations.
Convertible Notes
Trillium
SPA
On
October 8, 2020, the Company entered into a Securities Purchase
Agreement (the “Trillium SPA”) with Trillium Partners (“Trillium”)
pursuant to which the Company sold to Trillium (i) a 10% secured subordinated
convertible promissory note in the principal aggregate amount of
$1,111,000 (the “Trillium Note”)
realizing gross proceeds of $1,000,000 (the
“Proceeds”) and (ii) a warrant to purchase up to
570,478,452 shares of the Company’s common stock at an
exercise price of $0.001946,
subject to adjustment as provided therein (the “Trillium Warrant”).
The Trillium Note was to mature on October 6, 2021 and is
convertible at any time. The Company shall pay interest on a
quarterly basis in arrears.
The
Company initially determined the fair value of the warrant and the
beneficial conversion feature of the note using the Black-Scholes
model and recorded an adjustment to the carrying value of the note
liability with an equal and offsetting adjustment to Stockholders’
Equity.
The
note was amended on October 14, 2020, to adjust the conversion
price to $0.00179638.
Upon amendment, the Company accounted for the modification as debt
extinguishment and recorded a loss in the statement of operations
for the period ended November 30, 2020.
On
June 1, 2021, this Note maturity was extended to
October 6, 2022.
On
August 19, 2021, Trillium entered into a Securities Exchange
Agreement and on December 10, 2021 into an amended Securities
Exchange Agreement, as discussed below. Upon effectiveness of these
agreements, Trillium Note was exchanged for Preferred Stock Series
D.
During
the nine months ended February 28, 2022, a noteholder converted
$131,759
of principal and interest of the convertible note into 73,346,191
shares of the Company’s common stock at a rate of $0.00179640 per share. As of
February 28, 2022, and May 31, 2021, the outstanding balance on the
Trillium Note was $0
and $1,104,500.
The note did not have a discount related to a beneficiary
conversion feature, due to modification of this Note in November of
2020, when this debt discount was recorded as a loss on
extinguishment of debt.
3a
SPA
On
October 14, 2020, the Company entered into a Securities Purchase
Agreement (the “3a SPA”) with 3a Capital Establishment (“3a”)
pursuant to which the Company sold to 3a (i) a 10% secured subordinated
convertible promissory note in the principal aggregate amount of
$1,111,000 (the “3a Note”) realizing
gross proceeds of $1,000,000 (the
“Proceeds”) and (ii) a warrant to purchase up to
570,478,452 shares of the Company’s common stock at an
exercise price of $0.001946,
subject to adjustment as provided therein (the “3a Warrant”). The
3a Note matures on October 6, 2021 (the “Maturity
Date”) and is convertible at any time.
The
Company determined the fair value of the warrant using the
Black-Scholes model and recorded an adjustment to the carrying
value of the note liability with an equal and offsetting adjustment
to Stockholders Equity. The warrant had a grant date fair value of
$563,156 and the beneficial
conversion feature was valued at $436,844.
On
June 1, 2021, this Note maturity was extended to October 6, 2022. Upon this
amendment the Company accounted for this modification as debt
extinguishment and recorded a net gain of $383,819 in the
condensed consolidated statements of operations for the period
ended November 30, 2021.
On
August 19, 2021, 3A entered into a Securities Exchange Agreement
and on December 10, 2021 into an amended Securities Exchange
Agreement, as discussed below. Upon effectiveness of these
agreements, 3A Note was exchanged for Preferred Stock Series
C.
As of
February 28, 2022 and May 31, 2021 the total unamortized debt
discount related to the 3a SPA was $0 and $391,757, respectively.
During the three and nine months ended February 28, 2022, the
Company recorded amortization of debt discount totaling none and
$285,048,
respectively.
During
the nine months ended February 2022, the noteholder converted
$113,172
in convertible notes into 63,000,000
shares of the Company’s common stock at a rate of $0.00179638
per share. As of February 28, 2022 and May 31, 2021, the
outstanding principal balance on the 3a Note was $0
and $1,111,000,
respectively.
Trillium
and 3a January Convertible Notes
On
January 28, 2021, the Company entered into a Securities Purchase
Agreement (the “Purchase Agreement”) with Trillium Partners LP
(“Trillium”) and 3a Capital Establishment (“3a” together with
Trillium, the “Investors”) pursuant to which the Company sold to
each of the Investors (i) a 10% secured subordinated
convertible promissory note in the principal aggregate amount of
$916,666 or $1,833,333 in the aggregate
(each a “Note” and together the “Notes”) realizing gross proceeds
of $1,666,666 (the
“Proceeds”).
The
Notes mature on January 28, 2022 (the “Maturity
Date”) and are convertible at any time. The conversion price of the
Note is $0.0032 (the
“Conversion Price”). The Company determined the fair value of the
warrant using the Black-Scholes model and recorded an adjustment to
the carrying value of the note liability with an equal and
offsetting adjustment to Stockholders Equity. The beneficial
conversion feature for both Notes was valued at $1,666,666.
On
June 1, 2021, maturity of these Notes was extended to
January 28, 2023. Upon this amendment the Company accounted
for this modification as debt extinguishment and recorded a net
gain of $247,586.
On
August 19, 2021, Investors entered into a Securities Exchange
Agreement and on December 10, 2021 into an amended Securities
Exchange Agreement, as discussed below. Upon effectiveness of these
agreements, Trillium and 3a January Convertible Notes were
exchanged for Preferred Stocks Series C and D.
As of
February 28, 2022, and May 31, 2021, the outstanding balance on
these convertible notes was $0
and $1,833,334,
respectively. During the three and nine months ended February 28,
2022, the Company recorded amortization of debt discount totaling
none and $491,467,
respectively.
Covenants
As of
February 28, 2022 the Company was in full compliance with all
covenants and debt agreements. As of May 31, 2021, the Company was
in compliance with all covenants and debt agreements, except for
Trillium and 3a where the Company was deemed to be in default due
to a violation of several covenants. On January 29, 2021, the
Company and the investors (Trillium and 3a) entered into a waiver
agreement which waived any and all defaults underlying the 3a,
Trillium and 3a SPA’s and the Trillium and 3a Notes for a period of
six months. Subsequently, the Company signed the Securities
Exchange Agreement extending this waiver as described
below.
Securities
Exchange Agreements
On
August 4, 2021, the Company entered into a securities exchange
agreement (the “Exchange Agreement”) with the investors (Trillium
and 3a) holding the above listed notes and warrants of the Company (each, including its
successors and assigns, a “Holder” and collectively the “Holders”).
Pursuant to the Exchange Agreement, the Company agreed to issue,
and the Holders agreed to acquire the New Securities (as defined
herein) in exchange for the Surrendered Securities (the “Old Notes”
defined as October and January Notes and Warrants in the Exchange
Agreement). “New Securities” means a number of Exchange Shares (as
defined in the Exchange Agreement) determined by applying the
Exchange Ratio (as defined in the Exchange Agreement) upon
consummation of a registered public offering of shares of the
Company’s Common Stock (and warrants if included in such
financing), at a valuation of not less than $200,000,000.00
pre-money, pursuant to which the Company receives gross proceeds of
not less than $20,000,000 and the
Company’s Trading Market is a National Securities Exchange (the
“Qualified Financing”).
To
extent that any events that have occurred prior to the date hereof
that could have resulted in an event of default under the Old Notes
the Holders hereby waive the occurrence of any such event of
default. From the date hereof through the earlier of date of (i)
the Closing of the Exchange, or (ii) the Termination Date, the
Holders agree to forebear from declaring any such event of default
and further agree that will not take any steps to collect on the
Old Notes and collect any liquidated damages owed under the Old
Registration Rights Agreement (“RRA”). In the event the Exchange
closes on or before the Termination Date, the defaults under the
Old Notes will be permanently waived and any liquidated damages
accrued under the Old RRAs will be forgiven. If the Exchange does
not close on or before the Termination Date, the Company will be
required to pay all the liquidated damages accrued under the Old
RRAs as if this Agreement was never executed and the Holders will
be entitled to all of the rights and remedies under the Old
Transaction Documents.
Amended Securities Exchange Agreement
On
December 10, 2021, the Company entered into an amended securities
exchange agreement Trillium and 3A (the “Holders”) holding
convertible notes, issued by the Company, in the aggregate
remaining principal amount of $3,861,160 plus interest; and warrants
to purchase an aggregate of 1,140,956,904
shares of common stock of the Company. Pursuant to the Amended
Exchange Agreement, the Company agreed to issue, and the Holders
agreed to acquire, in exchange for the Surrendered Securities
shares of the newly created Series C Convertible Preferred Stock,
par value $0.001 per share and shares
of Series D Convertible Preferred Stock, par value $0.001
per share (the “Series D Preferred”, and together with the Series C
Preferred, the “Preferred Stock”), of the Company, upon entering
into the Exchange Amendment.
In
connection with the Amended Exchange Agreement, each of the Holders
received that certain number of Preferred Stock equal to one share
of Preferred Stock for every $10,000
of
Note Value held by such Holder (the “Exchange Ratio”). The Company
issued
195 shares
of Series C Preferred and
192 shares
of Series D Preferred. In the aggregate, each of the Series C
Preferred and Series D
Preferred may be converted up to an amount of common stock equal to
12.48% of the Company’s capital stock on a fully diluted basis,
subject to adjustment up to
a specified date
Upon
effectiveness of the Amended Exchange Agreement, the Company no
longer has any outstanding convertible notes or
warrants.
Future
maturities related to the above promissory notes, notes payable and
convertible notes are as follows:
SCHEDULE OF FUTURE MATURITIES OF PROMISSORY
NOTES
|
Twelve Months Ending February 28, |
|
|
|
| 2023 |
|
$ |
1,651,686 |
|
| 2024 |
|
|
608,767 |
|
| |
|
|
2,260,453 |
|
| Less:
current portion |
|
|
(1,651,686 |
) |
| |
|
$ |
608,767 |
|
6.
RELATED PARTY
TRANSACTIONS
Related
party debt consisted of the following:
SCHEDULE OF RELATED PARTY
TRANSACTIONS
| |
|
February 28, 2022 |
|
|
May 31, 2021 |
|
| |
|
|
|
|
|
|
| Due
to Frangipani Trade Services (1) |
|
$ |
753,273 |
|
|
$ |
903,927 |
|
| Due
to employee (2) |
|
|
37,500 |
|
|
|
60,000 |
|
| Due
to employee (3) |
|
|
83,226 |
|
|
|
149,996 |
|
| |
|
|
873,999 |
|
|
|
1,113,923 |
|
| Less: current
portion |
|
|
(174,822 |
) |
|
|
(397,975 |
) |
| |
|
$ |
699,177 |
|
|
$ |
715,948 |
|
|
(1) |
Due
to Frangipani Trade Services (“FTS”), an entity owned by the
Company’s CEO, is due on demand and is non-interest bearing. The
principal amount of this Promissory Note bears no interest;
provided that any amount due under this Note which is not paid when
due shall bear interest at an interest rate equal to six percent
(6%)
per annum. The principal amount is due and payable in six payments
of $150,655
the first payment due on November 30, 2021, with each succeeding
payment to be made six months after the preceding
payment. |
|
|
|
|
(2) |
On
May 29, 2020, the Company entered into a $90,000
payable with an employee for the acquisition of UL BOS common stock
from a previous owner. The payment terms consist of thirty-six
monthly non-interest-bearing payments of $2,500
from the date of closing. |
|
|
|
|
(3) |
On
May 29, 2020, the Company entered into a $200,000
payable with an employee for the acquisition of UL BOS common stock
from a previous owner. The payment terms consist of thirty-six
monthly non-interest-bearing payments of $5,556
from the date of closing. |
Consulting
Agreements
Unique
entered into a Consulting Services Agreement on May 29, 2020 for a
term of three years with Great Eagle Freight Limited (“Great Eagle”
or “GEFD”), a Hong Kong Company (the “Consulting Services
Agreement”) where the Company pays $500,000 per year
until the expiration of the agreement on May 28, 2023. The fair
value of the services was determined to be less than the cash
payments and the difference was recorded as Contingent Liability on
the consolidated balance sheets and amortized over the life of the
agreement. Unique paid $250,000 during the
year ended May 31, 2021, and amortized balances were $353,334 and $565,338 as of February 28, 2022
and May 31, 2021, respectively.
The
Company utilizes financial reporting services from the firm owned
and controlled by David Briones, a member of the Board of
Directors. The service fees are $5,000 per month. Total fees were
$15,000 and none for three months
ended February 28, 2022 and 2021, respectively. Total fees were
$45,000 and none for nine months ended February 28,
2022 and 2021, respectively.
Accounts
Receivable - trade and Accounts Payable - trade
Transactions
with related parties account for $1.9
million and $28.4 million
of accounts receivable and accounts payable as of February 28,
2022, respectively compared to $1.3
million and $10.8 million
of accounts receivable and accounts payable as of May 31,
2021.
Revenue
and Expenses
Revenue
from related party transactions is for export services from related
parties or for delivery at place imports nominated by such related
parties. For the three and nine months ended February 28, 2022,
these transactions represented $0.5 million
and $1.3 million
of revenue, respectively.
Revenue
from related party transactions is for export services from related
parties or for delivery at place imports nominated by such related
parties. For the three and six months ended February 28,
2021, these transactions represented $0.7 million
and $1.9 million
of revenue, respectively.
Direct
costs are services billed to the Company by related parties for
shipping activities. For the three and nine months ended February
28, 2022, these transactions represented $56.2 million and $157.4 million of total direct
costs, respectively.
Direct
costs are services billed to the Company by related parties for
shipping activities. For the three and six months ended February
28, 2021, these transactions represented $15.1 million and $42.7 million of total direct costs,
respectively.
7.
RETIREMENT
PLANS
We
have two savings plans that qualify under Section 401(k) of the
Internal Revenue Code legacy of the predecessor companies Eligible
employees may contribute a portion of their salary into the savings
plans, subject to certain limitations. In one of which the Company has
the discretionary option of matching employee contributions and in
the other the Company matches 20% on the first 100% contribution.
In either Plan, employees can contribute 1% to 98% of gross salary
up to a maximum permitted by law. The Company recorded
expense of $--28,019 and $21,140 for the three months ended
February 28, 2022 and 2021, respectively. The Company recorded
expense of $41,219 and $33,867 for the nine months ended
February 28, 2022 and 2021, respectively.
8.
STOCKHOLDERS’
EQUITY
Common Stock
On
June 28, 2021, a noteholder converted $71,855.20 in
convertible notes (principal and interest) into 40,000,000 shares of the
Company’s common stock at a rate of $0.00179638 per
share.
On
July 8, 2021, a noteholder converted $15,620.83 in
convertible notes (principal and interest) into 8,695,727 shares of the
Company’s common stock at a rate of $0.00179638 per
share.
On
August 3, 2021, a noteholder converted $24,418.89 in
convertible notes (principal and interest) into 13,593,388 shares of the
Company’s common stock at a rate of $0.00179638 per
share.
On
August 9, 2021, a noteholder converted $12,820.83 in
convertible notes (principal and interest) into 7,137,037 shares of the
Company’s common stock at a rate of $0.00179638 per
share.
On
September 28, 2021, a noteholder converted $53,054.86 in
convertible notes (principal and interest) into 29,534,319 shares of the
Company’s common stock at a rate of $0.00179638 per
share.
On
October 27, 2021, a noteholder converted $41,317 in
convertible notes (principal and interest) into 23,000,000 shares of the
Company’s common stock at a rate of $0.00179638 per
share.
Preferred Shares
The Company authorized to issue 5,000,000 shares
of preferred stock, $0.001 par value per
share.
Series A Convertible Preferred
The Company has designated
130,000 shares of Series A Convertible Preferred
stock and has 130,000
shares issued and outstanding as of February 28, 2022 and May 31,
2021, respectively. The holders of Series A Preferred. subject to
the rights of holders of shares of the Company’s Series B Preferred
stock which shares will be pari passu with Series B Preferred in
terms of liquidation preference and dividend rights and are subject
to an anti-dilution provision, making the holders subject to an
adjustment necessary to maintain their agreed upon fully diluted
ownership percentage.
Series
B Convertible Preferred
The Company has designated 870,000
shares of Series B Convertible Preferred stock and has
820,800 and 840,000
shares issued and outstanding as of February 28, 2022 and May 31,
2021, respectively. The holders of Series B Preferred, subject to
the rights of holders of shares of the Company’s Series A Preferred
Stock which shares will be pari passu with the Series B Preferred
in terms of liquidation preference and dividend rights, shall be
entitled to receive, at their option, immediately prior an in
preference to any distribution to the holders of the Company’s
common stock.
Series
C & D Convertible Preferred
The
Company has designated
200 shares
of preferred stock each for Series C and D Convertible Preferred
Stock. The Company had
195 shares of Series C and
192 shares of Series D Preferred shares issued and
outstanding as of February 28, 2022 and
none as of May 31, 2021. The holders of the Preferred Stock
shall be entitled to receive, upon liquidation, dissolution or
winding up of the Company, the amount of cash, securities or other
property to which such holder would be entitled to receive with
respect to such shares of Preferred Stock if such shares had been
converted to common stock immediately prior to such liquidation. In
the aggregate, each of the Series C Preferred and Series D
Preferred may be converted up to an amount of common stock equal to
12.48% of the Company’s capital stock on a fully diluted
basis subject to antidilution provision until qualified financing
event. (See Note 5 - Amended Securities Exchange Agreement)
As a result of the Company exchanging $3.9 million of convertible
notes into Series C and D Preferred Stock on December 10, 2022, the
Company recognized net loss on the extinguishment of convertible
notes payable and warrants of approximately $1.3 million in Other
Income (Expenses) and recognized approximately $4.6
million as deemed dividends as reflected in Comprehensive Income
line item of the statement of operations, both reflected in the
statement of operations for the three and nine months, ended
February 28, 2022.
The Company also recorded $4.3 million net loss on the
mark to market of the derivative liability associated with the
Series A Preferred Stock in Other Income (Expenses) in the
statement of operations for the three and nine months, ended
February 28, 2022.
Since the anti-dilution provisions exist in the Preferred Stock
Series A, C and D, derivative liabilities were recorded on the
balance sheet as of February 28, 2022, at fair value (see Note 1,
Derivative Liability).
Warrants
The
following is a summary of the Company’s warrant
activity:
SCHEDULE OF WARRANTS
ACTIVITY
| |
|
|
|
|
Weighted
Average |
|
| |
|
Warrants |
|
|
Exercise
Price |
|
|
Outstanding
– May 31, 2021 |
|
|
1,140,956,904 |
|
|
$ |
0.002 |
|
| Exercisable
– May 31, 2021 |
|
|
1,140,956,904 |
|
|
$ |
0.002 |
|
| Granted |
|
|
- |
|
|
$ |
- |
|
| Outstanding
– February 28, 2022 |
|
|
- |
|
|
$ |
- |
|
| Exercisable
– February 28, 2022 |
|
|
- |
|
|
$ |
- |
|
On
December 10, 2021, the Company entered into an amended securities
exchange with two investors holding convertible notes and warrants
for Convertible Preferred Stock Series C and D. For additional
information on the exchange agreement see Note 5, Financing
Arrangements. Upon effectiveness of the amended exchange agreement,
the Company no longer has any outstanding warrants.
At
May 31, 2021, the total intrinsic value of warrants outstanding and
exercisable was $111,875,388
with warrants outstanding as follows:
SCHEDULE OF WARRANTS OUTSTANDING AND
EXERCISABLE
|
Warrants Outstanding |
|
|
Warrants Exercisable |
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
| $ |
0.002 |
|
|
|
1,140,956,904 |
|
|
|
3.61 |
|
|
$ |
0.002 |
|
|
|
1,140,956,904 |
|
|
$ |
0.002 |
|
9.
COMMITMENTS AND
CONTINGENCIES
Pending acquisitions
On
August 23, 2021, the Company and Unique Logistics Limited, Hong
Kong (“ULHK”) entered into a Non-Binding Term Sheet for the Company’s purchase from ULHK of
(i) 65% of the capital stock of Unique Logistics International
India (Private) Ltd.; (ii) 50% of the capital stock of ULI (North
& East China) Company Limited; (iii) 50% of the capital stock
of Unique Logistics International (Shanghai) Co. Ltd; (iv) 50% of
the capital stock of ULI International Co. Ltd.; (v) 49.99% of TGF
Unique Limited; (vi) 100% of the capital stock of Unique Logistics
International (H.K.) Limited; (vii) 65% of the capital stock of
Unique Logistics International (Vietnam) Co. Ltd.; (viii) 70% of
the capital stock of ULI (South China) Limited; (ix) 100% of the
capital stock of Unique Logistics International (South China) Ltd.;
and (x) 100 of the capital stock of Shenzhen Unique Logistics
Limited (collectively the “ULHK Entities”). The initial
purchase price, subject to adjustment, to be paid for the ULHK
Entities is $22,000,000 payable
as follows (i) $21,000,000
payable at closing (ii) $1,000,000
in the form of a zero interest 24-month promissory note.
Seller shall also be entitled to an additional $2,500,000 payable (the
“Earn-Out
Payment”)
by March 31, 2023, in
the event
that ULHK Entities EBITDA exceeds $5,000,000 for the calendar year
of 2022. Should ULHK Entities EBITDA be less than $5,000,000 but
more than $4,500,000 for the 2022 calendar year, the Earn-Out
Payment will be adjusted to $2,000,000. No Earn-Out will be paid if
the EBITDA of the ULHK Entities is less than $4,500,000 for the
2022 calendar year.
The
purchase of ULHK Entities is subject to, among other things, due
diligence, receipt and review of definitive agreements, receipt of
certain regulatory approvals, audited financial statements,
material third part consents and consent of minority shareholders
of ULHK Entities. On April 11, 2022 the term sheet was extended to
June 30, 2022.
Litigation
From
time to time, the Company may become involved in litigation
relating to claims arising in the ordinary course of the business.
There are no claims or actions pending or threatened against the
Company that, if adversely determined, would in the Company’s
management’s judgment have a material adverse effect on the
Company.
Leases
The
Company leases office space, warehouse facilities and equipment
under non-cancellable lease agreements expiring on various dates
through October 2028. Office leases contain provisions for future
rent increases. The Company adopted ASC 842 from inception,
requiring the Company to recognize an asset and liability on the
consolidated balance sheets for lease arrangements with terms
longer than 12 months. The Company has elected the practical
expedient to not apply the recognition requirement to leases with a
term of less than one year (short term leases). The Company uses
its incremental borrowing rate to discount lease payments to
present value. The incremental borrowing rate is based on the
estimated interest rate the Company could obtain for borrowing over
a similar term of the lease at commencement date. Rental
escalations, renewal options and termination options, when
applicable, have been factored into the Company’s determination of
lease payments when appropriate. The Company does not separate
lease and non-lease components of contracts. Variable payments
related to pass-through costs for maintenance, taxes and insurance
or adjustments based on an index such as Consumer Price Index are
not included in the measurement of the lease liability or asset and
are expensed as incurred.
The
components of lease expense were as follows:
SCHEDULE OF COMPONENTS OF LEASE
EXPENSE
| |
|
For the Three Months
Ended |
|
|
For the Three Months
Ended |
|
| |
|
February 28, 2022 |
|
|
February 28, 2021 |
|
| Operating lease |
|
$ |
310,965 |
|
|
$ |
387,657 |
|
| Interest on
lease liabilities |
|
|
16,910 |
|
|
|
43,200 |
|
| Total net lease
cost |
|
$ |
327,875 |
|
|
$ |
430,857 |
|
| |
|
For
the Nine
Months
Ended
|
|
|
For
the Nine
Months
Ended
|
|
| |
|
February 28, 2022 |
|
|
February 28, 2021 |
|
| Operating lease |
|
$ |
1,103,649 |
|
|
$ |
1,125,081 |
|
| Interest on
lease liabilities |
|
|
104,242 |
|
|
|
141,265 |
|
| Total net lease
cost |
|
$ |
1,207,891 |
|
|
$ |
1,266,346 |
|
Supplemental
balance sheet information related to leases was as
follows:
SCHEDULE OF SUPPLEMENTAL BALANCE SHEET
INFORMATION
| |
|
February 28, 2022 |
|
|
May 31, 2021 |
|
| |
|
|
|
|
|
|
| Operating leases: |
|
|
|
|
|
|
|
|
| Operating lease ROU assets
– net |
|
$ |
2,693,878 |
|
|
$ |
3,797,527 |
|
| |
|
|
|
|
|
|
|
|
| Current operating lease liabilities,
included in current liabilities |
|
|
(1,141,902 |
) |
|
|
(1,466,409 |
) |
| Noncurrent
operating lease liabilities, included in long-term liabilities |
|
|
(1,656,882 |
) |
|
|
(2,431,144 |
) |
| Total operating
lease liabilities |
|
$ |
(2,798,784 |
) |
|
$ |
(3,897,553 |
) |
Supplemental
cash flow and other information related to leases was as
follows:
SCHEDULE OF SUPPLEMENTAL CASH FLOW AND OTHER
INFORMATION
| |
|
For
the Nine
Months
Ended
February 28, 2022
|
|
|
For
the Nine
Months
Ended
February 28, 2021
|
|
| |
|
|
|
|
|
|
| Cash paid for amounts included in the
measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
1,098,769 |
|
|
$ |
981,967 |
|
| ROU assets
obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
| Operating
leases |
|
$ |
- |
|
|
$ |
223,242 |
|
| Weighted average remaining lease term
(in years): |
|
|
|
|
|
|
|
|
| Operating
leases |
|
|
3.98 |
|
|
|
4.20 |
|
| Weighted average discount rate: |
|
|
|
|
|
|
|
|
| Operating
leases |
|
|
4.25 |
% |
|
|
4.25 |
% |
Future
minimum lease payments under noncancelable operating leases are as
follows:
SCHEDULE OF MINIMUM LEASE
PAYMENTS
|
Twelve Months Ending February 28, |
|
|
|
| 2022 |
|
$ |
1,234,111 |
|
| 2023 |
|
|
535,217 |
|
| 2024 |
|
|
427,463 |
|
| 2025 |
|
|
310,223 |
|
| 2026 |
|
|
211,383 |
|
| Thereafter |
|
|
373,181 |
|
| Total lease payments |
|
|
3,091,578 |
|