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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

(Mark One)

 

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

 

For the fiscal year ended May 31, 2022

 

☐ 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)

 

Tel: (718) 978-2000

 

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Act: Common Stock, par value $0.001 per share

 

Securities registered under Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

Yes ☐ No ☒

 

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 past 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 smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Check one:

 

  ☐ 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 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, as of the last business day of the registrants most recently completed second fiscal quarter was $4,709,921.

 

As of September 13, 2022, there were 799,141,770 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  PART I  
     
ITEM 1 BUSINESS 4
ITEM 1A RISK FACTORS 13
ITEM 1B UNRESOLVED STAFF COMMENTS 20
ITEM 2 PROPERTIES 20
ITEM 3 LEGAL PROCEEDINGS 21
ITEM 4 MINE SAFETY DISCLOSURES 21
     
  PART II  
     
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 21
     
ITEM 6 SELECTED FINANCIAL DATA 22
     
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 22
     
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 28
     
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 28
     
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 28
     
ITEM 9A CONTROLS AND PROCEDURES 29
     
ITEM 9B OTHER INFORMATION 30
     
  PART III  
     
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 31
     
ITEM 11 EXECUTIVE COMPENSATION 33
     
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 34
     
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 35
     
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES 36
     
  PART IV  
     
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 37

 

2

 

 

ADDITIONAL INFORMATION

 

Descriptions of agreements or other documents contained in this report are intended as summaries and are not necessarily complete. Please refer to the agreements or other documents filed or incorporated herein by reference as exhibits. Please see the exhibit index at the end of this report for a complete list of those exhibits.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document contains certain “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

 

Forward looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we include in Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports filed on Form 8-K.

 

In our Form 10-K, Form 10-Q and Form 8-K filings with the Securities and Exchange Commission, references to: (a) “Common Stock” refers to our Common Stock, $0.001 par value per share; and (b) “Unique Logistics International, Inc.”, “Unique”, “UNQL” “the Company”, “we,” “us,” “our” and similar terms refer to Unique Logistics International, Inc. and its wholly owned operating subsidiaries Unique Logistics International (BOS) Inc, a Massachusetts corporation and Unique Logistics International (NYC), LLC and Unique Logistics Holdings, Inc. s listed on Exhibit 21.1 filed with this Annual Report on Form 10-K.

 

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PART I

 

Item 1. Business.

 

Business Overview

 

Unique Logistics International, Inc. provides a full range of global logistics services by providing to its customers a robust international network that strategically supports the movement of its customers’ goods. Acting solely as a third-party logistics provider, Unique purchases available cargo space in volume from its network of carriers (such as airlines, ocean shipping, and trucking lines) and resells that space to our customers. Unique Logistics does not own any of these ships, trucks, or aircraft and does not plan on entering the ownership model.

 

Operating via its wholly owned subsidiaries, Unique Logistics International (BOS) Inc, a Massachusetts corporation (“UL BOS”) and Unique Logistics International (NYC), LLC, a Delaware limited liability company, Unique Logistics provides a range of international logistics services that enable its customers to outsource to the Company sections of their supply chain process. The services provided by the Company are seamlessly managed by its network of trained employees and integrated information systems. We enable our customers to share data regarding their international vendors and purchase orders with us, execute the flow of goods and information under their operating instructions, provide visibility to the flow of goods from factory to distribution center or store and when required, update their inventory records.

 

Unique Logistics primary services include:

 

  ● Air Freight services
  ● Ocean Freight services
  ● Customs Brokerage and Compliance services
  ● Warehousing and Distribution services
  ● Order Management

 

Air Freight Services

 

Operating as an Indirect Air Carrier (IAC) or an airfreight consolidator, Unique Logistics provides both time savings and cost-effective air freight options to its customers. An expansive global network enables the Company to offer door to door service allowing customers to benefit from our expert staff for guidance with the physical movement of cargo and documentation compliance. Unique purchases cargo space from airlines on a volume basis and resells that space to our customers at a lower price than they would be able to negotiate themselves for their individual shipments. The Company, through its integrated management system, determines the best routing for shipments and then arrangements are made to receive the cargo into a designated warehouse. Upon receipt, cargo is inspected and weighed, documentation is collected, and export clearance is processed. Once cargo is cleared it is prepared for departure. Unique Logistics offers real-time tracking visibility for customers to view when an order is booked, departs and arrives. Unique Logistics contracts with a worldwide network of airlines and other service providers to provide the best airfreight service in assisting importers to ship using the most efficient and cost-effective method. Some of the selections we offer include:

 

  ● International, domestic, deferred, express and charter services, which permit customers to choose from a menu of different priority options that secure at different price levels, greater assurance of timely delivery
  ● Port to Port and Door to Door shipments, which provide customers the option of managing, independently, the post arrival services such as delivery or clearance if the Company is not providing such services
  ● Global blocked space agreements (BSA), which guarantee the availability of space on certain flights
  ● Air and ocean combination shipment which offer cost effective transportation using multimodal, combination movements, by one mode to an international hub, such as Dubai, UAE or Singapore and converting to a different mode at the hub
  ● Air and transload dedicated truck shipment, where arriving cargo is transferred from airline container or pallet into a truckload ready for delivery
  ● Dangerous goods handling requiring qualified handling
  ● Refrigerated cargo

 

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Our Air Freight customer base is comprised of importers who are in various industries including fashion retail, technology and general department stores merchandise importers. The majority of shipments originate in Asian manufacturing countries. Air Freight is seasonal for fashion retailers, with the period July through December being much stronger than the remaining six months. For technology companies, the seasonal impact is less pronounced.

 

The Company works with its international network to ensure air freight shipping capacity is secured and planned in advance to meet our customers’ requirements. The capacity is then made available to our customers at competitive pricing and with the added security of availability, particularly during peak Air Freight shipping periods. We supplement scheduled capacity with full charter capacity to ensure customer capacity requirements are met throughout the year. While capacity management is critical to securing and maintaining Air Freight customers, the Company will try to quickly move to the position of offering additional primary services to our Air Freight customers.

 

The Company’s integrated management system is built around a cloud-based software package known as Cargo Wise. The software is accessible to our offices or overseas third party associates when planning and recording the receipt of cargo and booking shipments. The Cargo Wise system assists in the creation of documentation required to plan each shipment, including Management Information Systems that enable our Operational Management Teams to generate reports or provide access to information to our customers so that they have daily visibility to their purchased orders. This enables shipments to be approved, planned and routed within the available air freight capacity procured by the Company. The Cargo Wise software is part of the integrated management system that also incorporates (in some cases with interface) airline resources, congestion/ market condition information, pricing databases, customer preferences in Key Account Management databases and the trained personnel and experienced managers that make decisions as required based on the information.

 

Ocean Freight Services

 

Operating as an ocean transportation intermediary (“OTI”) to provide ocean freight service both as a non-vessel owning common carrier (“NVOCC”) and ocean freight forwarder, Unique Logistics provides to its customers ocean freight consolidation, direct ocean forwarding, and order management. We are a common carrier that holds itself out to the public to provide ocean transportation, issues its own house bills of lading or equivalent document, but does not operate the vessels by which ocean transportation is provided. The Company’s roles and responsibilities in ocean freight services include the following:

 

  ● Selecting the most optimal ocean carriers based on both cost and service. The Company has NVOCC contracts with multiple ocean carriers and is thus able to offer its customers a choice in service;
  ● Entering into contract/rate agreement with clients to transport their ocean shipments. Under such contracts the customer is assured of the Company’s pricing and weekly capacity to carry the customer’s cargo;
  ● Consolidating shipments at origin/deconsolidating of freight at destination. This enables the customer to receive the economics of a consolidated container rate rather than a higher rate for less than full container load (“LCL”). It also makes delivery at destination more efficient;
  ● Arranging pick-up of shipment at origin and deliver at destination, with a factory to door service;
  ● Preparing and processing the documentation/clearance (customs/security) for shipments during ocean transit, in advance of arrival of shipment at destination;
  ● Ocean freight services are provided in both major and minor trade lanes with representation in all trading nations in Americas, Asia, and Europe;
  ● Offering a wide array of services typically performed by multiple services provides including but not limited to, offering options to customers on ocean carrier service choices prior to final selection and securing such space based on customer requirement; this enables our customers to delegate more of its logistics management to us whereas a more limited range of service would require the customer to deal with multiple service providers;
  ● Communicating on any regulation/compliance issues on exporting and importing shipments;
  ● Playing intermediary role at any point of ocean transportation based on customer’s routing preferences; and
  ● Providing space acquisition on carrier service for committed delivery during high demand period, and providing lower price option in weak demand season for utmost cost saving.

 

The website of Datamyne, a Descartes company (us1.datamyne.com) as of January 14, 2022 lists the Company as a top 100 NVOCC on the Transpacific Eastbound sector. Some of the major industry sectors we serve are Home Products and Appliances, Furniture, Automotive, Giftware and Fashion. Our customers are both retailers as well as wholesale importers. Our volumes enable us to enter significant contracts with shipping lines to lock in capacity at prices that enable us to secure and retain customers.

 

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Customs Brokerage and Compliance Services

 

Unique Logistics is a licensed United States customs broker whose mission is to ensure that its importing clients are in compliance with all required regulations. Our services help importers clear cargo with the U.S. Customs and Border Protection, including documentation collection, valuation review, product classification, electronic submission to customs and the collection and payment of duties, tariffs and fees. Unique Logistics works with importers to develop a compliant trade program including product databases, compliance manuals and periodic internal audits. The development of product databases has become critical in the current economic environment due to the increasing trade tensions and various tariffs imposed as a result. Unique Logistics also offers importers tools to improve on efficiency such as reporting, visibility and trade consulting including training seminars. Additional services include:

 

  ● Preparation of the Import Security Filing (10+2) required to be on file 24 hours prior to shipment departure;
  ● Clearance and compliance with other government agencies such as the Food and Drug Administration, U.S. Department of Agriculture, Consumer Product Safety Commission and U.S. Fish & Wildlife Service;
  ● Focused assessment and internal audit to determine and eliminate weak areas of compliance;
  ● Post-entry service to change past entries and take advantage of tariff exclusions granted after the original entry was processed;
  ● Binding rulings to obtain pre-entry classification;
  ● Classification & valuation;
  ● Trade agreements;
  ● Warehouse entries to defer duty;
  ● Licensing and country of origin marking requirements;
  ● Free Trade Zone (FTZ);
  ● Duty drawback to get duty back on items exported under certain requirements; and
  ● Cargo insurance coverage

 

Warehousing and Distribution Services

 

Unique Logistics operates a warehousing facility in Santa Fe Springs, CA and plans to expand such services through its own managed facilities. Unique Logistics also provides warehousing and distribution services through third party facilities. Our current facility is leased to the Company and is 110,000 sq. ft. with storage capacity for around 9,000 pallets and 10 dedicated employees.

 

Warehousing and Distribution services enable Unique Logistics to greatly expand its involvement in our customers’ supply chain, post arrival of international shipments into the United States. By providing inventory management, order fulfillment, and other services, our customers benefit from cost savings related to space, equipment and labor due to efficiencies of scale. Our list of Warehousing and Distribution Services include the following:

 

  ● Transloading of cargo from incoming containers to trucks for delivery
  ● Pick and pack services
  ● Quality control services under customer instructions
  ● Kitting
  ● Storage
  ● Inventory management
  ● Delivery services, including e-Commerce fulfillment services

 

Warehousing and Distribution is a higher margin business than Air Freight or Ocean Freight. In the case of freight service we are primarily re-selling capacity while in Warehousing and Distribution we are offering services based on fixed space cost, fixed staffing and equipment cost and relatively smaller variable labor and equipment cost. The customer base comprises freight customers with Warehousing and Distribution needs as well as customers who are exclusively Warehousing and Distribution service users. They are in a variety of industries: foot-ware, apparel, giftware, home appliances, etc. The customers are billed under three broad categories: Storage, Transloading (with quick turnaround and no storage) and Other Warehouse Services listed above. The location of our existing warehouse, within 15 miles of the Port of Los Angeles/ Long Beach and 20 miles from Los Angeles Airport is an important factor for our customers. Racking as well as bulk storage space availability enables us to handle a variety of customer requirements. In recent years, severe congestion at the terminals serving the Port of Los Angeles/ Long Beach has increased the demand for Transloading as well as short-term storage services at warehouses such as ours that are within a 50 mile radius of the Port.

 

The current facility is the first and only facility of its type operated by us. Warehousing and Distribution is an important opportunity for our business expansion.

 

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Order Management

 

Unique Logistics offers order management services providing importers with total visibility on every order from the time placed with the supplier to door delivery. Importers send orders electronically immediately upon creation giving the Company the ability to assist in firmly holding suppliers to shipping windows. This results in optimizing consolidation and improved on-time delivery. Order management also gives importers the power to control their supply chain by monitoring key milestone events, track order status and manage delivery to the end consumer.

 

Order Management features:

 

  ● Importer and vendor EDI integration
  ● Key milestone notifications customized per importers’ requirements
  ● Vendor, booking and document management
  ● Customized reporting including exception reporting for maximum efficiency
  ● Consolidation management
  ● Tracking visibility in real-time

 

Other Benefits include:

 

  ● Single Data Platform
  ● Avoids a manual booking process
  ● Eliminates unnecessary data entry
  ● Document visibility and historical recordkeeping
  ● Vendor KPI management
  ● Live milestone updates

 

Industry Overview and Competition

 

The global logistics industry is highly competitive, and we expect it to remain so for the foreseeable future. Although there are a large number of companies that compete or provide services in one or more segments of the logistics industry, Unique Logistics is part of a much smaller group of companies that provides a full suite of services. In each area of service, we face competition from companies operating within that service segment as well as companies that provide a wider range of global services.

 

The industry includes (i) specialized Non-Vessel Owning Common Carriers (“NVOCCs”), an ocean carrier that transports goods under its own House Bill of Lading, or equivalent documentation, without operating ocean transportation vessels and (ii) Indirect Air Carriers (“IACs”) which are persons or entities within the United States, not in possession of an FAA air carrier operating certificate, which undertake to engage indirectly in air transportation of property and uses for all or any part of such transportation the services of an air carrier, freight forwarders, trucking companies, customs brokers and warehouse operators who operate within their specialized space and very often pose pricing advantages within that segment.

 

Our mission is to bring value to our customers through specific competitive advantages:

 

  ● Trained, experienced staff with knowledge of those areas of the world where customers are likely to require problem solving abilities.
  ● Trained, experienced staff with knowledge of the various supply chain segments: Air, Ocean, Customs, Warehousing and Information Technology integration.
  ● Responsive customer service and the ability to meet our customer needs with people at the front of well-established processes.

 

Our customer base includes companies in a wide range of industries. Some of the major industry sectors we serve are Home Products and Appliances, Furniture, Fashion Retail, Automotive and Technology. We aim to provide a wide range of services to each customer and cross sell all of our primary services.

 

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Ocean Freight services and Air Freight services are the most significant revenue drivers for the Company. To distinguish our service offerings from our competitors our primary focus is on capacity management for these services. Our volumes enable us to enter significant contracts with shipping lines to lock in capacity at prices that enable us to secure and retain customers. Similarly, our Air Freight capacity strategy includes rate/ space agreements with scheduled airlines as well as a full air cargo charter program under which we are able to lock in capacity for our customers at contracted rates.

 

While capacity management is critical to establishing relations with new customers and securing existing ones, it is essential for the Company to expand its range of services to each customer. Our customer support teams will work with each customer to identify the areas such as Customs Brokerage, Warehousing & Distribution and Order Management where our service offerings may create additional value-added opportunities within the customer’s supply chain.

 

Seasonality

 

Historically, our own operating results, as well as the industry as a whole, have been subject to seasonal demand. With our financial year end of May 31, typically our first and second quarters are the strongest with the fourth quarter being the weakest; however, there are no guarantees that these trends will continue. These seasonal trends are influenced by a number of factors, including weather patterns, national holidays, economic conditions, consumer demand, major product launches, as well as a number of other market forces. Since many of these forces are unforeseen there is no way for us to provide assurances that these seasonal trends will continue.

 

Growth Strategy

 

Unique Logistics has established plans to grow its business by focusing on the following key areas: (1) organic growth and expansion in existing markets; (2) strategic acquisitions; (3) warehousing and distribution; (4) growth of business on the Trans-Atlantic and Latin American trade lanes; and (5) specialized services to United States companies on their overseas logistics needs in conjunction with the export and distribution of products in certain Asian markets such as India, Vietnam and China.

 

Organic Growth and Expansion in Existing Markets:

 

We plan to focus on developing business domestically to drive organic growth. Since our initial formation and combination, we have significantly improved our operating efficiencies in the areas of procurement, customer service, finance and administration. We have achieved this by consolidating our volumes, centralizing many of the functions previously handled separately by individual operating subsidiaries and rationalizing our organizational structure hiring and empowering experienced executives in critical positions including the hiring of a full time Chief Operating Officer. We believe this resulted in much lower overhead and the ability to build a uniform marketing strategy to build market share and further the brand recognition of Unique Logistics throughout the United States. Additionally, the Company will continuously assess its Information Technology environment based on emerging trends in logistics and customer requirements. The first step in the strategy is already in place: a single operating platform. We will continue to build add-on service tools that enhance our operating platform. One key area for technology focus will be the seamless delivery of e-Commerce services from origin to consumer with shipment visibility for both customer and the customer’s consumer.

 

We believe Unique Logistics’ business base that includes three out of the fifty largest importers in the United States can be expanded by building our sales organization and the support organization to successfully deliver our brand of service.

 

Strategic Acquisitions:

 

On April 28, 2022, the Company entered into the Purchase Agreement, by and between the Company and ULHK, whereby the Company is planning to acquire prior to December 31, 2022, from ULHK all of ULHK’s share capital in nine (9) of ULHK’s subsidiaries as listed in Schedule I of the Purchase Agreement. The acquisition of the Subsidiaries is in line with our strategic plan to become a leading supply chain service provider. We believe that these acquisitions would serve to strengthen our control over supply chain services including capacity management and procurement.

 

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Warehousing and Distribution

 

Unique Logistics has successfully established a major warehousing facility in Santa Fe Springs, CA and now has in-house the management expertise (commercial as well as operational) in successfully managing such facilities. Unique Logistics has also identified a method of identifying growth opportunities by focusing on specific areas of the United States and existing well-constructed facilities where lease assumption is available with an existing customer base.

 

Specialized Services to US Companies in Overseas Markets

 

Unique Logistics has several decades of experience in Asian markets such as India, Vietnam and China. Unique Logistics is constantly interacting with a United States customer base that seeks to do business in these areas but requires local expertise. We have the experience and the connections to assist United States companies with local importation, local warehousing and distribution and other local logistics and trade compliance services. We plan to build on our expertise in these three specific countries to build tailored services to US customers, including in business consulting pertaining to logistics and related trade services.

 

Government Regulations and Security

 

Our industry is subject to regulation and supervision by several governmental authorities.

 

Operations

 

The U.S. Department of Transportation (“DOT”), the Federal Aviation Administration (“FAA”) and the U.S. Department of Homeland Security, through the Transportation Security Administration (“TSA”), have regulatory authority over our air transportation services. The Federal Aviation Act of 1958, as amended, is the statutory basis for DOT and FAA authority and the Aviation and Transportation Security Act of 2001, as amended, is the basis for TSA aviation security authority.

 

All United States indirect air carriers are required to maintain prescribed security procedures and are subject to periodic audits by the TSA. Our overseas offices and agents are licensed as airfreight forwarders in their respective countries of operation. Our offices are licensed as an airfreight forwarder from the International Air Transport Association (IATA), a voluntary association of airlines and air transport related entities that prescribes certain operating procedures for airfreight forwarders acting as agents for its members.

 

The shipping of goods by sea is regulated by the Federal Maritime Commission (“FMC”). Our Company is licensed by the FMC to operate as an Ocean Transportation Intermediary (“OTI”) and as a NVOCC. As a licensed OTI and NVOCC, we are required to comply with several regulations, including the filing of our tariffs.

 

Under Department of Homeland Security regulations, we are a qualified participant in the Customs- Trade Partnership Against Terrorism (“C-TPAT”) program requiring us to be compliant with relevant security procedures in our operations.

 

We are licensed as a customs broker by the U.S. Customs and Border Protection (CBP) Agency of DHS, nationally and in each U.S. customs district in which we do business. All United States customs brokers are required to maintain prescribed records and are subject to periodic audits by CBP. In other jurisdictions in which we perform customs clearance services, we are licensed by the appropriate governmental authority where such license is required to perform these services.

 

We do not believe that current United States and foreign governmental regulations impose significant economic restraint upon our business operations. However, the regulations of foreign governments can impose barriers to our ability to provide the full range of our business activities in a wholly or majority United States-owned subsidiary. For example, foreign ownership of a customs brokerage business is prohibited in some jurisdictions and, less frequently, the ownership of the licenses required for freight forwarding and/or freight consolidation is restricted to local entities. When we encounter this sort of governmental restriction, we work to establish a legal structure that meets the requirements of the local regulations, while also providing the substantive operating and economic advantages that would be available in the absence of such regulation. This can be accomplished by creating a joint venture or exclusive agency relationship with a qualified local entity that holds the required license.

 

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Environmental

 

We are subject to federal, state and local environmental laws and regulations across all of our business units. These laws and regulations cover a variety of processes, including, but not limited to: proper storage, handling and disposal of waste materials; appropriately managing wastewater and stormwater; monitoring and maintaining the integrity of underground storage tanks; complying with laws regarding clean air, including those governing emissions; protecting against and appropriately responding to spills and releases and communicating the presence of reportable quantities of hazardous materials to local responders. We have established site- and activity-specific environmental compliance and pollution prevention programs to address our environmental responsibilities and remain compliant. In addition, we have created several programs which seek to minimize waste and prevent pollution within our operations.

 

Corporate History

 

Unique Logistics International, Inc. (the “Company” or “Unique”) (formerly Innocap, Inc.) was incorporated in Nevada on January 23, 2004. In May 2011, the Company changed its business plan to begin researching the location of and salvaging sunken ships. Until October 2020, the Company had been actively negotiating several research and salvage projects in Indonesia, Malaysia, and other countries in connection with ships that were sunk during World War II.

 

Unique Logistics Holdings, Inc. (“Unique”) a Delaware corporation, was formed on October 28, 2019, for the purpose of conducting a management buyout of three United States subsidiaries majority owned by Unique Logistics Holdings Ltd., a Hong Kong company (“UL HK”).

 

UL HK was incorporated in Hong Kong in 1983. UL HK commenced its business with a focus on transpacific logistics services because of the increasing demands of trade between Hong Kong and the United States. The initial focus was on air freight services, but UL HK quickly diversified into ocean freight services. In its first fifteen years of operations, UL HK established itself as a major international logistics service provider in Hong Kong. Driven by the needs of its customer base, from 1997 through 2012, UL HK established a network of offices throughout Asia and the United States. By the end of 2012, the Unique Logistics brand was well recognized in several Asian countries including China, India, and Vietnam. In the United States, UL HK offices in Boston, Atlanta, New York, Los Angeles, and Chicago had a growing United States customer base in several sectors such as fashion, department stores, furniture, toys, and home goods. The vast majority of ULHK’s international business consisted of services pertaining to United States based companies.

 

On May 29, 2020, Unique Logistics Holdings, Inc., a privately held Delaware corporation 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”). pursuant to which the Company purchased from UL HK (i) sixty percent (60%) of the membership interests of (“UL ATL Membership Interests”) of Unique Logistics International (ATL) LLC, a Georgia limited liability company (“UL ATL”); (ii) eighty percent (80%) of the common stock of Unique Logistics International (BOS) Inc., a Massachusetts corporation (“UL BOS”); and (iii) sixty-five percent (65%) of the Unique Logistics International (USA) Inc., a New York corporation (“UL NY”).

 

On October 8, 2020, the Company, Inno Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Company (the “Merger Sub”), and ULHI. entered into an Acquisition Agreement and Plan of Merger (the “Acquisition Agreement”) pursuant to which the Merger Sub was merged with and into ULHI, with ULHI surviving as a wholly owned subsidiary of the Company (the “Merger”). The Company acquired, through a reverse triangular merger, all of the outstanding capital stock of ULHI in exchange for issuing ULHI’s shareholders, pro-rata, an aggregate of 1,000,000 million shares of preferred stock, with certain of ULHI Shareholders receiving 130,000 shares of the Company’s Series A Preferred Stock par value $0.001 per share, and certain of the ULHI Shareholders receiving of 870,000 shares of the Company’s Series B Preferred Stock, par value $0.001 per share. Immediately after the Merger was consummated, and further to the Acquisition Agreement, certain affiliates of the Company cancelled a total of 45,606,489 shares of the Company’s common stock, and 1,000,000 shares of Preferred Stock held by them (the “Cancellation”). In consideration of the Cancellation of such shares of the Company’s common stock and preferred stock, ULHI agreed to assume certain liabilities of the Company. As a result of the Merger and the Cancellation, the ULHI Shareholders became the majority shareholders of the Company. Immediately following the Closing of the Merger, the Company changed its business plan to that of ULHI.

 

On January 11, 2021, Innocap Inc. filed a certificate of amendment to its articles of incorporation with the Secretary of State of the State of Nevada, for the adoption of amended and restated articles of incorporation of Innocap Inc. (the “Amended and Restated Articles of Incorporation”). The adopted Amended and Restated Articles of Incorporation: (i) increased the number of authorized common stock from 500,000,000 shares to 800,000,000 shares; and (ii) changed the Company’s name to Unique Logistics International, Inc. (the “Company”).

 

The Name Change was approved by the Financial Industry Regulatory Authority (FINRA) and became effective in the market on January 14, 2021. In connection with the name change, the Company changed its ticker symbol from “INNO” to “UNQL”.

 

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Employees and Human Capital

 

As of September 13, 2022, the Company had 131 employees. None of our employees are represented by a union or covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider our relationship with our employees to be good.

 

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing, and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plan is to attract, retain and reward personnel through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

 

Insurance

 

The Company effectively maintains all industry specific and business in general insurance policies and believes it has appropriately addressed potential risk of material losses. We currently have the following policies in place:

 

  ● US Customs Bonds
  ● Federal Maritime Commission License Bonds
  ● Business Insurance

 

  ○ General Liability
  ○ Commercial Property (including Business Personal Property and Business Income with Extra Expense)
  ○ Business Auto
  ○ Commercial Umbrella
  ○ Worker’s Compensation and Employer’s Liability
  ○ Employment Practices Liability Insurance
  ○ Trade Credit Insurance

 

  ● Combined Transit Liability

 

  ○ Errors and Omissions
  ○ Warehouse Legal Liability

 

  ●

Marine Open Cargo Insurance

Cyber Security

D&O

 

From time to time, the Company may also purchase credit insurance for certain customers, resulting in risk of loss being limited to the accounts receivable not covered by credit insurance, which the Company does not believe to be significant.

 

Recent Developments:

 

On April 28, 2022, the Company entered into a definitive stock purchase agreement (the “April 2022 Purchase Agreement”), by and between the Company and Unique Logistics Holdings Limited, a Hong Kong corporation (the “Seller” and “ULHK”), whereby the Company will acquire, subject to financing, from the Seller all of Seller’s share capital (the “Purchased Shares”) in nine (9) of Seller’s subsidiaries (collectively the “Subsidiaries” and the “ULHK Entities”) as listed in Schedule I of the April 2022 Purchase Agreement (the “ULHK Entities Acquisition”).

 

As consideration for the Purchased Shares, the Company agreed to (i) pay the Seller $21,000,000 (the “Cash Consideration”); and (ii) issue to the Seller a $1,000,000 promissory note (the “Note” and, together with the Cash Consideration, the “Acquisition Purchase Price”).

 

The Acquisition Purchase Price is subject to certain adjustments set forth in the April 2022 Purchase Agreement. Accordingly, in the event that the Seller Adjusted Net Asset Amount (as defined in the April 2022 Purchase Agreement) is a positive number, the Acquisition Purchase Price at Closing (as defined in the April 2022 Purchase Agreement) shall be increased on a dollar-for dollar basis of such number up to a maximum of $4,500,000 (the “Adjusted Net Asset Maximum”, and such adjustment, the “Net Asset Positive Adjustment”), which shall be paid in two installments as a deferred dividend to Seller as follows: (A) one-half of the excess amount up to an aggregate amount of $2,500,000 to be paid at Closing, and (B) the remaining one-half of the excess amount up to an aggregate amount of $2,000,000 to be paid on the one (1) year anniversary of the Closing Date (as defined in April 2022 Purchase Agreement”).

 

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However, if the Seller Adjusted Net Asset Amount (i) is a negative number, the Acquisition Purchase Price at Closing shall be decreased on a dollar-for-dollar basis by such amount up to the Adjusted Net Asset Maximum (such adjustment, the “Net Asset Negative Adjustment”, and together with the Net Asset Positive Adjustment, the “Net Asset Adjustment”) or (ii) if the Net Asset Adjustment is a positive number (the “Excess Asset Amount”) then the parties agree to have the Subsidiaries declare and distribute a dividend within twelve (12) months following the Closing Date and the Company shall pay Seller the Excess Asset Amount within twelve (12) months following the Closing Date.

 

If (i) based on the financial statements of the Subsidiaries available at the Closing Date, the Adjusted Net Asset Amount and/or the result of the calculation set forth in the Closing Adjusted Net Asset Statement (as defined in the April 2022 Purchase Agreement) is equal to or greater than five percent (5%) higher than the Adjusted Net Asset Amount and/or the result of the calculation set forth in the Seller Adjusted Net Asset Statement, as applicable, (such difference, the “Audited Excess Amount”), then Seller may, within six (6) months of the Closing Date, request the Company to pay to Seller an additional sum equivalent to the Audited Excess Amount, and the Company shall make the payment in the amount of the Audited Excess Amount to Seller within one (1) month of such request.

 

If (i) based on the financial statements of the Subsidiaries available as at the Closing Date, the Adjusted Net Asset Amount and/or the result of the calculation set forth in the Closing Adjusted Net Asset Statement is equal to or greater than five percent (5%) less than the Adjusted Net Asset Amount and/or the result of the calculation set forth in the Seller Adjusted Net Asset Statement, as applicable, (such difference the “Audited Deficit Amount”), then the Company may, within six (6) months of the Closing Date, request the Seller to pay to the Company a sum equivalent to the Audited Deficit Amount, and Seller shall make the payment in the amount of the Audited Deficit Amount to the Company within one (1) month of such request.

 

In addition to the Acquisition Purchase Price, Seller will be eligible for an additional one-time cash earn-out payment (the “Earn Out Payment”), in the amount of (i) $2,500,000, if the EBITDA of the Purchased Shares, in the aggregate, exceeds $5,000,000 for the one-year period beginning on July 1, 2022 and ending June 30, 2023 (the “Earn Out Period”), or (ii) $2,000,000, if the EBITDA of the Purchased Shares, in the aggregate is equal to or less than $5,000,000 but exceeds $4,500,000, for the Earn Out Period, in each case, to be paid by the Company within 90 days of June 30, 2023.

 

Further, not less than five (5) Business Days prior to the Closing Date, Seller shall deliver to the Company a statement (the “Seller Estimated Profit Statement”) containing Seller’s portion of the estimated profit after tax of each Subsidiary for the period beginning on January 1, 2022 and ending on the Closing Reference Date (the “Estimated Profit”)(the “Seller Estimated Profit Amount”), being the product of (i) the sum of (1) the Estimated Profit of each Subsidiary multiplied by (2) the corresponding purchased percentage of such Subsidiary. As promptly as reasonably practicable, but in no event later than 90 days following the Closing, the Company shall be entitled to (i) review the Seller Estimated Profit Statement against the latest management accounts of each Subsidiary and (ii) comment on the Seller Estimated Profit Statement and Seller’s calculation of the Seller Estimated Profit Amount (together with the Seller Estimated Profit Statement shall collectively be referred to as the “Seller Profit Calculation”), which shall be based upon the Company’s review of the latest management accounts of each Subsidiary. Seller shall consider in good faith any such comments and calculations provided to Seller by the Company. The final amount as mutually agreed to by the Company and Seller shall referred to as the “Final Profit Amount”. So long as the Company and Seller mutually agree to the Final Profit Amount, within one (1) year from the Closing Date, the Company shall distribute (or cause to be distributed) an amount of immediately available funds equal to the Final Profit Amount to Seller, provided, that no adjustment shall be made to the Seller Estimated Profit Statement unless the calculation of the Seller Estimated Profit Amount by the Company is equal to or greater than a 5% increase or decrease, as applicable, from the Seller Estimated Profit Amount calculated by Seller.

 

The transactions contemplated by the April 2022 Purchase Agreement shall be contingent upon and subject to successful completion of the Company’s anticipated public offering of securities (the “Financing”). If the Company is unable to obtain the Financing, the Company may provide written notice to Seller stating that the Company has been unable to obtain the Financing and notify Seller that the Company has elected to either (i) waive the condition of the Financing, in which event the April 2022 Purchase Agreement will continue as if the Financing had been obtained or (ii) terminate the April 2022 Purchase Agreement.

 

At Closing, it is anticipated that the Company will enter into separate securities purchase agreements with several of the Subsidiaries. The April 2022 Purchase Agreement contains customary representations, warranties, covenants, indemnification and other terms for transactions of a similar nature. The closing of the transaction contemplated by the April 2022 Purchase Agreement is subject to various conditions described herein and set forth in the April 2022 Purchase Agreement.

 

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Item 1A. Risk Factors.

 

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations, and intentions. The cautionary statements made in this Annual Report on Form 10-K should be read as applicable to all forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Annual Report on Form 10-K.

 

RISKS RELATED TO THE COVID-19 PANDEMIC

 

THE COVID-19 PANDEMIC COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS OPERATIONS, RESULTS OF OPERATIONS, CASH FLOWS AND FINANCIAL POSITION.

 

Covid-19 remains a threat and certain countries, such as China, are still subject to restrictions related to Covid-19. While the threat level has declined to a significant extent in the USA and globally, any resurgence could have a material adverse effect on our business operations, results of operations, cash flows and financial position.

 

WE RELY ON SERVICE PROVIDERS, SUCH AS AIR, OCEAN AND GROUND FREIGHT CARRIERS, AND IF THEY BECOME FINANCIALLY UNSTABLE OR HAVE REDUCED CAPACITY TO PROVIDE SERVICES BECAUSE OF COVID-19, IT MAY ADVERSELY IMPACT OUR BUSINESS AND OPERATING RESULTS.

 

As a non-asset based provider of global logistics services, we depend on a variety of asset-based service providers, including air, ocean and ground freight carriers. The quality and profitability of our services depend upon effective selection and oversight of our service providers. COVID-19 places significant stress on our air, ocean and freight ground carriers, which may continue to result in reduced carrier capacity or availability, pricing volatility or more limited carrier transportation schedules which could adversely impact our operations and financial results. During the pandemic, air carriers have been particularly affected having to cancel flights due to travel restrictions resulting in dramatic drops in revenues, historical losses and liquidity challenges. Uncertainty over recovery of demand for passenger air travel, in particular business travel, to pre-pandemic levels means air carriers’ operations and financial stability may be adversely affected long term. Prior to 2020, ocean carriers have incurred significant operating losses are still highly leveraged with debt. Additionally, several ocean carriers have consolidated, with the potential for more to occur in the future.

 

RISKS RELATED TO OUR COMPANY AND OUR INDUSTRY

 

THE COMPANY PROVIDES SERVICES TO CUSTOMERS ENGAGED IN INTERNATIONAL COMMERCE. EVERYTHING THAT AFFECTS INTERNATIONAL TRADE HAS THE POTENTIAL TO EXPAND OR CONTRACT OUR PRIMARY MARKET AND ADVERSELY IMPACT OUR OPERATING RESULTS. FOR EXAMPLE, INTERNATIONAL TRADE IS INFLUENCED BY:

 

  ● currency exchange rates and currency control regulations;
  ● interest rate fluctuations;
  ● changes and uncertainties in governmental policies and inter-governmental disputes, which could result in increased tariff rates, quota restrictions, trade barriers and other types of restrictions;
  ● changes in and application of international and domestic customs, trade and security regulations;
  ● wars, strikes, civil unrest, acts of terrorism, and other conflicts;
  ● changes in labor and other costs;
  ● natural disasters and pandemics;
  ● changes in consumer attitudes regarding goods made in countries other than their own;
  ● changes in availability of credit;
  ● changes in the price and readily available quantities of oil and other petroleum-related products; and
  ● increased global concerns regarding working conditions and environmental sustainability.

 

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WE HAVE CUSTOMERS WHO ARE RETAILERS AND THUS, SUBJECT TO THE IMPACT OF COVID RELATED RISKS AND RESTRICTIONS.

 

Our customer base includes several customers whose business involves retail to the public through brick and mortar stores, many of them in shopping malls. In the period from February 2020 to May 2020, many such customers faced significant downturn in their business resulting in shut down of supply chains and business loss for our Company. By February 2021, most of these customers saw their business recover to pre-pandemic levels. However, the risk of a resurgence of infections or a permanent decline in brick and mortar retail as a fallout of the pandemic could result in significant shift in the business of some of our customers.

 

WE DEPEND ON OPERATORS OF AIRCRAFTS, SHIPS, TRUCKS, PORTS AND AIRPORTS.

 

The financial condition of asset-based service providers can have a direct impact on our operations. For example, several ocean carriers have consolidated, with the potential for more consolidations to occur in the industry. The financial results reported by ocean carriers have been an industry concern for several years and bankruptcies such as that of Hanjin Shipping have aggravated those concerns. The combination of reduced carrier capacity and pricing volatility is a risk in our business and our inability to secure shipping capacity or face costs that we cannot pass on to our customers could materially affect our results. Our dependence on third parties to provide equipment and services may impact the delivery and quality of our transportation and logistics services.

 

OUR PAST ACQUISITIONS, AS WELL AS ANY ACQUISITIONS THAT WE MAY COMPLETE IN THE FUTURE, MAY BE UNSUCCESSFUL OR RESULT IN OTHER RISKS OR DEVELOPMENTS THAT ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS.

 

While we intend for our acquisitions to enhance our competitiveness and profitability, we cannot be certain that our past or future acquisitions will be accretive to earnings or otherwise meet our operational or strategic expectations. Special risks, including accounting, regulatory, compliance, information technology or human resources issues, may arise in connection with, or as a result of, the acquisition of an existing company, including the assumption of unanticipated liabilities and contingencies, difficulties in integrating acquired businesses, possible management distractions, or the inability of the acquired business to achieve the levels of revenue, profit, productivity or synergies we anticipate or otherwise perform as we expect on the timeline contemplated. We are unable to predict all of the risks that could arise as a result of our acquisitions.

 

In addition, if the performance of our reporting segments or an acquired business varies from our projections or assumptions, or if estimates about the future profitability of our reporting segments or an acquired business change, our revenues, earnings or other aspects of our financial condition could be adversely affected.

 

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WE DERIVE A SIGNIFICANT PORTION OF OUR TOTAL REVENUES AND NET REVENUES FROM OUR LARGEST CUSTOMER.

 

Revenue by one major customers as a percentage of the Company’s total revenue was 35% for the year ended May 31, 2022. Revenue from that major customer was 25% for the year ended May 31, 2021. The loss of this customer would reduce our revenue and net income, which could have a material adverse effect on our business.

 

DUE TO OUR DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS, WE ARE SUBJECT TO A CONCENTRATION OF CREDIT RISK.

 

Three major customers represented approximately 21% of all accounts receivable as of May 31, 2022 with no single customer represented more than 10% of total accounts receivable.

 

Two major customers accounted for 44% of total revenue for the year ended May 31, 2021 with not single customer represented more than 10% of non-factored accounts receivable.

 

In the case of insolvency by one of our significant customers, accounts receivable with respect to that customer might not be collectible, might not be fully collectible, or might be collectible over longer than normal terms, each of which could adversely affect our financial position. This concentration of credit risk makes us more vulnerable economically. The loss of any of these customers could materially reduce our revenues and net income, which could have a material adverse effect on our business.

 

WE RELY ON TECHNOLOGY TO OPERATE OUR BUSINESS.

 

Our continued success is dependent on our systems continuing to operate and to meet the changing needs of our customers and users. We rely on our technology staff and vendors to successfully implement changes to and maintain our operating systems in an efficient manner. If we fail to maintain and enhance our operating systems, we may be at a competitive disadvantage and lose customers.

 

As demonstrated by recent material and high-profile data security breaches, computer malware, viruses, and computer hacking and phishing attacks have become more prevalent, have occurred on our systems in the past, and may occur on our systems in the future. Previous attacks on our systems have not had a material financial impact on our operations, but we cannot guarantee that future attacks will have little to no impact on our business.

 

Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, a significant impact on the performance, reliability, security, and availability of our systems and technical infrastructure to the satisfaction of our users may harm our reputation, impair our ability to retain existing customers or attract new customers, and expose us to legal claims and government action, each of which could have a material adverse impact on our financial condition, results of operations, and growth prospects.

 

DIFFICULTY IN FORECASTING TIMING OR VOLUMES OF CUSTOMER SHIPMENTS OR RATE CHANGE BY CARRIERS COULD ADVERSELY IMPACT OUR MARGINS AND OPERATING RESULTS.

 

We are not aware of any accurate means of forecasting short-term customer requirements. However, long-term customer satisfaction depends upon our ability to meet these unpredictable short-term customer requirements. Personnel costs, our single largest expense, are always less flexible in the very near term as we must staff to meet uncertain demand. As a result, short-term operating results could be disproportionately affected.

 

A significant portion of our revenues is derived from customers whose shipping patterns are tied closely to consumer demand and from customers in industries whose shipping patterns are dependent upon just-in-time production schedules. Therefore, the timing of our revenues is, to a large degree, impacted by factors out of our control, such as a sudden change in consumer demand for retail goods, changes in trade tariffs, product launches and/or manufacturing production delays. Additionally, many customers ship a significant portion of their goods at or near the end of a quarter, and therefore, we may not learn of a shortfall in revenues until late in a quarter. To the extent that a shortfall in revenues or earnings was not expected by securities analysts or investors, any such shortfall from levels predicted by securities analysts or investors could have an immediate and adverse effect on the trading price of our stock.

 

Volatile market conditions can create situations where rate increases charged by carriers and other service providers are implemented with little or no advance notice. We often cannot pass these rate increases on to our customers in the same time frame, if at all. As a result, our yields and margins can be negatively impacted, as recently experienced.

 

15

 

 

OUR EARNINGS MAY BE AFFECTED BY SEASONAL CHANGES IN THE TRANSPORTATION INDUSTRY.

 

Results of operations for our industry generally show a seasonal pattern as customers reduce shipments during and after the winter holiday season. Historically, income from operations and earnings are lower in the first calendar quarter than in the other three quarters. We believe this historical pattern has been the result of, or influenced by, numerous factors, including national holidays, weather patterns, consumer demand, economic conditions, and other similar and subtle forces. Although seasonal changes in the transportation industry have not had a significant impact on our cash flow or results of operations, we expect this trend to continue and we cannot guarantee that it will not adversely impact us in the future.

 

OUR BUSINESS IS AFFECTED BY EVER INCREASING REGULATIONS FROM A NUMBER OF SOURCES IN THE UNITED STATES AND IN FOREIGN LOCATIONS IN WHICH WE OPERATE.

 

Many of these regulations are complex and require varying degrees of interpretation, including those related to trade compliance, data privacy, employment, compensation and competition, and may result in unforeseen costs.

 

In reaction to the continuing global terrorist threat, governments around the world are continuously enacting or updating security regulations. These regulations are multi-layered, increasingly technical in nature and characterized by a lack of harmonization of substantive requirements among various governmental authorities. Furthermore, the implementation of these regulations, including deadlines and substantive requirements, can be driven by regulatory urgencies rather than industry’s realistic ability to comply.

 

Failure to consistently and timely comply with these regulations, or the failure, breach or compromise of our policies and procedures or those of our service providers or agents, may result in increased operating costs, damage to our reputation, difficulty in attracting and retaining key personnel, restrictions on operations or fines and penalties.

 

WE ARE SUBJECT TO NEGATIVE IMPACTS OF CHANGES IN POLITICAL AND GOVERNMENTAL CONDITIONS.

 

Our operations are subject to the influences of significant political, governmental, and similar changes and our ability to respond to them, including:

 

  ● changes in political conditions and in governmental policies;
  ● changes in and compliance with international and domestic laws and regulations; and
  ● wars, civil unrest, acts of terrorism, and other conflicts.

 

WE MAY BE SUBJECT TO NEGATIVE IMPACTS OF CATASTROPHIC EVENTS.

 

A disruption or failure of our systems or operations in the event of a major earthquake, weather event, cyber-attack, heightened security measures, actual or threatened, terrorist attack, strike, civil unrest, pandemic, or other catastrophic event could cause delays in providing services or performing other critical functions. A catastrophic event that results in the destruction or disruption of any of our critical business or information systems could harm our ability to conduct normal business operations and adversely impact our operating results.

 

OUR INTERNATIONAL OPERATIONS SUBJECT US TO OPERATIONAL AND FINANCIAL RISKS.

 

We provide services within and between foreign countries on an increasing basis. Our business outside of the United States is subject to various risks, including:

 

  ● changes in tariffs, trade restrictions, trade agreements, and taxations;
  ● difficulties in managing or overseeing foreign operations and agents;
  ● limitations on the repatriation of funds because of foreign exchange controls;
  ● different liability standards; and
  ● intellectual property laws of countries that do not protect our rights in our intellectual property, including, but not limited to, our proprietary information systems, to the same extent as the laws of the United States.

 

The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and/or decrease the profitability of our operations in that region.

 

As we continue to expand our business internationally, we expose the Company to increased risk of loss from foreign currency fluctuations and exchange controls, as well as longer accounts receivable payment cycles. Foreign currency fluctuations could result in currency exchange gains or losses or could affect the book value of our assets and liabilities. Furthermore, we may experience unanticipated changes to our income tax liabilities resulting from changes in geographical income mix and changing international tax legislation. We have limited control over these risks, and if we do not correctly anticipate changes in international economic and political conditions, we may not alter our business practices in time to avoid adverse effects.

 

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THE COMPANY OPERATES IN A COMPETITIVE ENVIRONMENT.

 

Many of the Company’s current and potential competitors have longer operating histories, greater name recognition, more employees, and significantly greater financial, technical, marketing, public relations, and distribution resources than the Company. The competitive environment may require the Company to make changes in the Company’s pricing or marketing to maintain and extend the Company’s current brand and market position. Price concessions or the emergence of other pricing or distribution strategies of competitors may diminish the Company’s revenues, impact the Company’s margins, or lead to a reduction in the Company’s market share, any of which will harm the Company’s business.

 

AS A MULTINATIONAL CORPORATION, WE ARE SUBJECT TO FORMAL OR INFORMAL INVESTIGATIONS FROM GOVERNMENTAL AUTHORITIES OR OTHERS IN THE COUNTRIES IN WHICH WE DO BUSINESS.

 

We may become subject to civil litigation with our customers, service providers and other parties with whom we do business. These investigations and litigation may require significant management time and could cause us to incur substantial additional legal and related costs, which may include fines, penalties or damages that could have a materially adverse impact on our financial results.

 

THE GLOBAL ECONOMY AND CAPITAL AND CREDIT MARKETS CONTINUE TO EXPERIENCE UNCERTAINTY AND VOLATILITY.

 

Unfavorable changes in economic conditions may result in lower freight volumes and adversely affect the Company’s revenues and operating results, as experienced in 2009 and 2012. These conditions may adversely affect certain of our customers and service providers. Were that to occur, our revenues and net earnings could also be adversely affected. Should our customers’ ability to pay deteriorate, additional bad debts may be incurred. Volatile market conditions can create situations where rate increases charged by carriers and other service providers are implemented with little or no advance notice. We often times cannot pass these rate increases on to our customers in the same time frame, if at all. As a result, our yields and margins can be negatively impacted, as recently experienced, particularly with ocean freight.

 

THE IMPLEMENTATION OF THE COMPANY’S BUSINESS STRATEGY WILL REQUIRE SIGNIFICANT EXPENDITURE OF CAPITAL AND WILL REQUIRE ADDITIONAL FINANCING.

 

The implementation of the Company’s business strategy will require significant expenditures of capital, and the Company will require additional financing. Additional funds may be sought through equity or debt financings. The Company cannot offer any assurances that commitments for such financings will be obtained on favorable terms, if at all. Equity financings could result in dilution to holders and debt financing could result in the imposition of significant financial and operational restrictions on the Company. The Company’s inability to access adequate capital on acceptable terms could have a material adverse effect on the Company’s business, results of operations and financial condition.

 

THE COMPANY’S FAILURE TO CONTINUE TO ATTRACT, TRAIN, OR RETAIN HIGHLY QUALIFIED PERSONNEL COULD HARM THE COMPANY’S BUSINESS.

 

The Company’s success also depends on the Company’s ability to attract, train, and retain qualified personnel, specifically those with management and product development skills. Competition for such personnel is intense, particularly in high-technology centers. If the Company does not succeed in attracting new personnel or retaining and motivating the Company’s current personnel, the Company’s business could be harmed.

 

RISKS RELATED TO OUR COMMON STOCK

 

WE MAY BE SUBJECT TO PENNY STOCK RULES WHICH WILL MAKE THE SHARES OF OUR COMMON STOCK MORE DIFFICULT TO SELL.

 

We may be subject now and in the future to the SEC’s “penny stock” rules if our shares common stock sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

 

In addition, the penny stock rules require that prior to a transaction the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.

 

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SALES OF OUR CURRENTLY ISSUED AND OUTSTANDING STOCK MAY BECOME FREELY TRADABLE PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR SHARES AND HAVE A DEPRESSIVE EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON STOCK

 

A substantial majority of our outstanding shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that an Affiliate (as such term is defined in Rule 144(a)(1)) of an issuer who has held restricted securities for a period of at least six months (one year after filing Form 10 information with the SEC for shell companies and former shell companies) may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTC Bulletin Board). Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate of the Company and who has satisfied a one-year holding period. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.

 

YOU WILL EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL  SHARES OF OUR COMMON STOCK AND OUR PREFERRED STOCK.

 

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue an aggregate of 805,000,000 shares of capital stock consisting of 800,000,000 shares of common stock, par value $0.001 and 5,000,000 shares of preferred stock, par value $0.001.

 

We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock or other securities may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes or for other business purposes, including at a price (or exercise prices) below the price at which shares of our common stock are trading.

 

WE DO NOT EXPECT TO PAY DIVIDENDS AND INVESTORS SHOULD NOT BUY OUR COMMON STOCK EXPECTING TO RECEIVE DIVIDENDS.

 

We have not paid any dividends on our common stock in the past, and do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, investors will only realize an economic gain on their investment in our common stock if the price appreciates. Investors should not purchase our common stock expecting to receive cash dividends. Because we do not pay dividends, and there may be limited trading, investors may not have any manner to liquidate or receive any payment on their investment. Therefore, our failure to pay dividends may cause investors to not see any return on investment even if we are successful in our business operations. In addition, because we do not pay dividends, we may have trouble raising additional funds, which could affect our ability to expand our business operations.

 

18

 

 

OUR ABILITY TO RAISE ADDITIONAL CAPITAL IS IMPEDED BY A LACK OF SUFFICIENT AUTHORIZED COMMON STOCK, WITH NO ASSURANCE THAT WE CAN OBTAIN THE NECESSARY VOTE OF STOCKHOLDERS TO INCREASE IT.

 

We have issued or reserved substantially all our available shares of authorized common stock. Unless and until a the number of shares of our authorized common stock increases, our ability to obtain additional financing through the sale of common stock or other securities convertible or exchangeable into common stock may be limited. Our ability to issue shares of common stock is currently impeded due to a lack of a sufficient number of authorized shares of common stock, which constrains our ability to raise capital. Increasing the authorized number of shares requires an amendment to our articles of incorporation, which can only be obtained by the approval of the holders of a majority of our outstanding shares of common stock.

 

RISKS RELATED TO THE PROPOSED ULHK ENTITIES ACQUISITION

 

IF WE FAIL TO RAISE SUFFICIENT NET PROCEEDS TO FUND THE ACQUISITION PURCHASE PRICE, AND CANNOT OBTAIN ALTERNATIVE SOURCES OF FINANCING, WE WILL BE UNABLE TO CONSUMMATE THE ULHK ENTITIES ACQUISITION.

 

If we are unable to raise sufficient funds, we will need to seek alternative sources of financing to fund the Acquisition Purchase Price. We may not be able to obtain alternative sources of financing sufficient to fund the Acquisition Purchase Price on terms acceptable to us, if at all. If we are unable to obtain sufficient financing, we will be unable to consummate the ULHK Entities Acquisition.

 

CASH EXPENDITURES ASSOCIATED WITH THE ULHK ENTITIES ACQUISITION MAY CREATE SIGNIFICANT LIQUIDITY AND CASH FLOW RISKS FOR US.

 

We expect to incur significant transaction costs and some integration costs in connection with the proposed ULHK Entities Acquisition. While we have assumed that this level of expense will be incurred, there are many factors beyond our control that could affect the total amount or the timing of the ULHK Entities Acquisition and integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. To the extent these ULHK Entities Acquisition and integration expenses are higher than anticipated, we may experience liquidity or cash flow issues.

 

FAILURE TO COMPLETE THE PROPOSED ULHK ENTITIES ACQUISITION COULD MATERIALLY AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND THE MARKET PRICE OF OUR COMMON STOCK.

 

Our consummation of the proposed ULHK Entities Acquisition is subject to many contingences and conditions, including the preparation of audited and unaudited financial statements for the ULHK Entities, the negotiation, execution, and delivery of the definitive agreements necessary to consummate the ULHK Entities Acquisition, and raising the financing required to pay the Acquisition Purchase Price. We cannot assure you that we will be able to successfully consummate the proposed ULHK Entities Acquisition as currently contemplated or at all. Risks related to the failure of the proposed ULHK Entities Acquisition to be consummated include, but are not limited to, the following:

 

  ● we would not realize any of the potential benefits of the transaction, which could have a negative effect on our stock price;
     
  ● we expect to incur, and have incurred, significant fees and expenses regardless of whether the proposed ULHK Entities Acquisition is consummated, including due diligence fees and expenses, accounting fees in connection with the preparation of the ULHK Entities’ financial statements, and legal fees and expenses;
     
  ● we may experience negative reactions to the proposed ULHK Entities Acquisition from customers, clients, business partners, lenders, and employees;
     
  ● the trading price of our Common Stock may decline to the extent that the current market price of our stock reflects a market assumption that the ULHK Entities Acquisition will be completed; and
     
  ● the attention of our management may be diverted to the ULHK Entities Acquisition rather than to our own operations and the pursuit of other opportunities that could have been beneficial to us.

 

The occurrence of any of these events individually or in combination could materially and adversely affect our results of operations and the market price of our Common Stock.

 

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IF THE ULHK ENTITIES ACQUISITION IS CONSUMMATED, THE COMBINED COMPANY MAY NOT PERFORM AS WE OR THE MARKET EXPECTS, WHICH COULD HAVE AN ADVERSE EFFECT ON THE PRICE OF OUR COMMON STOCK.

 

Even if the ULHK Entities Acquisition is consummated, the combined company may not perform as we or the market expects. Risks associated with the combined company following the ULHK Entities Acquisition include:

 

  ● integrating businesses is a difficult, expensive, and time-consuming process, and the failure to integrate successfully our businesses with the business of the ULHK Entities in the expected time frame would adversely affect our financial condition and results of operation;
     
  ● the ULHK Entities Acquisition will materially increase the size of our operations, and, if we are not able to manage our expanded operations effectively, our Common Stock price may be adversely affected;
     
  ● the success of the combined company will also depend upon relationships with third parties and the ULHK Entities’ or our pre-existing customers, which relationships may be affected by customer preferences or public attitudes about the ULHK Entities Acquisition. Any adverse changes in these relationships could adversely affect the combined company’s business, financial condition, and results of operations; and
     
  ● if government agencies or regulatory bodies impose requirements, limitations, costs, divestitures, or restrictions on the consummation of the ULHK Entities Acquisition, the combined company’s ability to realize the anticipated benefits of the ULHK Entities Acquisition may be impaired.

 

THE OBLIGATIONS AND LIABILITIES OF THE ULHK ENTITIES, SOME OF WHICH MAY BE UNANTICIPATED OR UNKNOWN, MAY BE GREATER THAN WE HAVE ANTICIPATED, WHICH MAY DIMINISH THE VALUE OF THE ULHK ENTITIES TO US.

 

ULHK Entities’ obligations and liabilities, some of which may not have been disclosed to us or may not be reflected or reserved for in the ULHK Entities’ historical financial statements, may be greater than we have anticipated. The obligations and liabilities of the ULHK Entities could have a material adverse effect on the ULHK Entities’ business or the ULHK Entities’ value to us or on our business, financial condition, or results of operations. Even in cases where we are able to obtain indemnification, we may discover liabilities greater than the contractual limits or the financial resources of the indemnifying party. In the event that we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification or alternative remedies that might be available to us, or any applicable insurance, we could suffer severe consequences that would substantially reduce our earnings and cash flows or otherwise materially and adversely affect our business, financial condition, or results of operations.

 

Item 1B. Unresolved Staff Comments.

 

Not applicable

 

Item 2. Properties.

 

Our corporate headquarters is currently located at 154-09 146th Avenue, Jamaica, NY 11434.

 

20

 

 

A full list of properties leased by the Company are set out below:

 

LOCATION  LEASE  SQUARE   
CITY, STATE  EXPIRATION  FEET  FUNCTION
JAMAICA, NY  4/30/2024  2,219  OFFICE
GARDEN CITY, NY  8/30/2027  2,219  OFFICE
ATLANTA, GA  10/31/2028  5,669  OFFICE
CHELSEA, MA  9/30/2022  600  OFFICE
MIDDLETON, MA  7/31/2025  5,202  OFFICE
SANTA FE SPRINGS, CA  10/15/2022  110,791  WAREHOUSE/ OFFICE
CHARLOTTE, NC  6/302025    1,889  OFFICE
ITASCA, IL  5/31/2026  2,338  OFFICE
HOUSTON, TX  2/28/2023  650  OFFICE
JACKSONVILLE, FL  2/28/2023  180  OFFICE
SANTA BARBARA, CA  5/1/2025  875  OFFICE
ROANOKE, VA  6/1/2024  685  OFFICE

 

Our spaces are utilized for office and warehouse purposes, and it is our belief that the spaces are adequate for our immediate needs. Additional space may be required as we expand our business activities. We do not foresee any significant difficulties in obtaining additional facilities if deemed necessary.

 

Item 3. Legal Proceedings.

 

The Company is not involved in any disputes and does not have any litigation matters pending which the Company believes could have a materially adverse effect on the Company’s financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

Part II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our common stock is currently traded on the OTCQB tier of the OTC Markets under the trading symbol “UNQL.”

 

Authorized Capital

 

The Company is authorized by its Articles of Incorporation to issue an aggregate of 800,000,000 shares of common stock, $0.001 par value per share (the “Common Stock”), and 5,000,000 shares of preferred stock, of which 130,000 shares are designated as Series A Preferred Stock, 870,000 shares are designated as Series B Preferred Stock, 200 shares are designated as Series C Convertible Preferred Stock, and 200 shares are designated as Series D Convertible Preferred Stock. As of September 13, 2022, 799,141,770 shares of Common Stock were issued and outstanding, 120,065 shares of Series A Preferred Stock were issued and outstanding, 820,800 shares of Series B Preferred Stock were issued and outstanding, 195 shares of Series C Convertible Preferred Stock were issued and outstanding, and 180 shares of Series D Convertible Preferred Stock were issued and outstanding,

 

Holders of Common Equity

 

As of September 13, 2022, there were 67 stockholders of record.

 

21

 

 

Dividends

 

We have not paid any cash dividends to our shareholders. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

During the year ended May 31, 2022, we issued securities that were not registered under the Securities Act, and were not previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K as listed below.

 

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.

 

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.

 

On April 5, 2022, a shareholder converted 5 shares of Series D Convertible Preferred Stock into 31,415,400 shares of the Company’s common stock.

 

The above transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering. The Company relied upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) by virtue of Section 4(a)(2) thereof and/or Regulation D promulgated by the SEC under the Act.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth information as of May 31, 2022 with respect to our compensation plans under which equity securities may be issued.

 

Plan Category 

Number of Securities

to be Issued

upon Exercise

of

Outstanding

Options,

Warrants

and Rights

  

Weighted-

Average

Exercise

Price of

Outstanding
Options,

Warrants

and Rights

  

Number of

Securities

Remaining

Available for

Future Issuance

under Equity

Compensation

Plans

(Excluding

Securities

Reflected in

Column (a))

 
   (a)   (b)   (c) 
Equity compensation plans approved by security holders:               
2020 Equity Incentive Plan           -            -    40,000,000 
                
Total   -    -    40,000,000 

 

Transfer Agent

 

We have appointed Action Stock Transfer Corporation (“AST”) as the transfer agent for our Common Stock. The principal office of AST is located at 2469 E. Fort Union Blvd, Suite 214, Salt Lake City, UT 84121, and its telephone number is (801) 274-1088.

 

Item 6. [Reserved]

 

Not required

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview

 

We are a global logistics and freight forwarding company. We operated via our wholly owned subsidiaries, Unique Logistics Holdings, Inc., a Delaware corporation (“UL HI”), Unique Logistics International (BOS) Inc, a Massachusetts corporation (“UL BOS”) and Unique Logistics International (NYC) LLC, a Delaware limited liability company (“UL NYC”).

 

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The Company provides a range of international logistics services that enable its customers to outsource to the Company sections of their supply chain process. The services provided by the Company are seamlessly managed by its network of trained employees and integrated information systems. We enable our customers to share data regarding their international vendors and purchase orders with us, execute the flow of goods and information under their operating instructions, provide visibility to the flow of goods from factory to distribution center or store and when required, update their inventory records.

 

Our 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

 

Market Trends

Demand for space by ocean freight and air freight from United States importers surged in the period June 2021 through December 2021 as retailers increased inventory in anticipation of the post covid resurgence. This surge coupled with the impact of Covid related factory lockdowns in Vietnam resulted in logistics disruptions and ultimately unprecedented congestion in United States ports and airports. Air cargo charters, including passenger aircrafts converted to cargo charter flights were heavily in demand in the second half of 2021 and pricing of all shipping methods increased to unprecedented levels. The demand for shipping started slowing down in early 2022 and price of shipping has been on a declining trend since then. Many United States retailers found themselves with excessive inventory by the middle of 2022 and temporary corrections resulted in a softer logistics market from May 2022, with recovery expected in the later part of the year.

 

Business Trends

In response to the Market Trends reported, the Company stepped up its procurement of ocean freight and air freight capacity to meet the requirements of its customer base in the second half of 2021. The Company arranged ad hoc air cargo charter flights to the United States from Vietnam, India, Bangladesh, Singapore and Indonesia to meet customer demand for capacity.

The Company experienced not just a surge in volume but due to the elevated cost of shipping, revenues increased tremendously, while net revenue as a percentage declined.

The Company ceased the operation of ad hoc air cargo charter flights by March 2022 as regular capacity returned.

 

Significant Development

 

The Company has now initiated an internal process to develop its environmental, social and corporate governance (“ESG”) framework. An external consultant has been engaged to guide the Company in its initial steps. The Board of Directors and Management are fully committed towards ensuring that the Company is on a path to the systematic adoption of policies to identify, assess and manage sustainability-related risks and opportunities in respect to all organizational stakeholders (including but not limited to customers, suppliers and employees) and the environment.

 

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Results of Operations

 

Revenue

 

The Company’s recorded total revenue from operations for the year ended May 31, 2022, and for the year ended May 31, 2021, in the amounts of approximately $1.0 billion and $371.9 million, respectively. Revenue by product line was reported as follows:

 

   For the Year Ended   For the Year Ended 
   May 31, 2022   May 31, 2021 
Revenues        
Air Freight  $499,024,643   $137,055,903 
Ocean Freight   446,977,162    196,041,832 
Contract logistics   3,491,489    3,093,626 
Customs brokerage and other services   64,993,386    35,695,911 
Total revenues 

$

1,014,486,680   $371,887,272 

 

The year over year 173% revenue increase represents management’s success in combining the acquired entities, achievement of synergies, as well as significant increase in the number of customers, shipping volumes and the impact of market prices, for both Air Freight and Ocean Freight during the year. With its strategy in place, the Company is in a strong position to ensure growth both organically and through acquisitions in strategic geographic areas of our business.

 

Gross Profits

 

Product costs were $971.6 million for the year ended May 31, 2022, compared with $345.4 million for the year ended May 31, 2021. This increase in cost corresponded with increase in revenue. Gross Profit decreased from 7.1% to 4.2% for the years ended May 31, 2021 and 2022, respectively, due to a very challenging year in terms of increase in customer demand, capacity congestion, record high shipping costs and logistics industry challenges with both Air Freight and Ocean Freight. The Company’s management is anticipating growing revenue by adding strategic corporate accounts and margin normalization during the next fiscal year.

 

Operating Expenses

 

Operating expenses increased overall to $26.4 million from $23.0 million for years ended May 31, 2022 and 2021, respectively. Personnel costs increased primarily due to increase in a number of full-time employees of the Company. Selling and promotions expenses increased due to higher selling costs, bad debt expense increased due to increase in allowance for uncollectable accounts, with other expenses increasing due to opening of several new offices in the US to accommodate customer growth.

 

Other Expenses

 

Other expenses comprised of interest expense, gain on forgiveness of promissory notes, amortization of debt discount and loss on extinguishment of convertible debt and change in fair value of derivative liabilities.

 

On December 10, 2021, the Company exchanged $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 in Other Income (Expenses) and recognized approximately $4.6 million as deemed dividends as reflected in Income (loss) available to common shareholders line item of the statement of operations,

 

The Company also recorded $4.0 million net loss on the mark to market of the derivative liability associated with the Series A, C and D Preferred Stocks in Other Income (Expenses) in the statement of operations.

 

During the year ended May 31, 2022, interest expense and bank fees totaled approximately $5.6 million. The Company recorded approximately $0.8 million amortization of debt discount related to the convertible notes. In addition, during the year ended May 31, 2022, the Company was granted forgiveness of the Paycheck Protection Program loans under the CARES Act, (the “PPP Loan”) and recorded a gain on forgiveness of approximately $0.4 million. At the same time, the Company recorded $0.6 million in non-operating loss during the third quarter related to the exchange of convertible notes and warrants into convertible preferred shares.

 

24

 

 

For the year ended May 31, 2021, Other income (expense) is comprised of interest expense, gain on forgiveness of promissory notes and loss on extinguishment of convertible debt. During the year ended May 31, 2021, interest expense totaled approximately $1.8 million and was comprised of $121,000 for bank interest charges, $310,000 for loan interest and approximately $1.4 million for accretion of debt discount related to the Company’s convertible notes. The Company recorded loss on extinguishment of convertible note payable of approximately $1.1 million, In addition, during the year ended May 31, 2021, the Company was granted forgiveness of the Paycheck Protection Program loans under the CARES Act, (the “PPP Loan”) and recorded a gain on forgiveness of approximately $1.6 million.

 

Net Income (Loss)

 

Net income before deemed dividend was $3.5 million for the year ended May 31, 2022, compared to a net income of $1.7 million for the ended May 31, 2021. After recording a deemed dividend of $4.6 million in relation to the derivative liability discussed above in the company reported a net loss of $1.0 million attributable to common shareholders.

 

Adjusted EBITDA

 

We define adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, factoring fees, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.

 

Consolidated adjusted EBITDA for the year ended May 31, 2022 increased by approximately $8.6 million compared to the period ended May 31, 2021.

 

Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We present adjusted EBITDA because we believe that adjusted EBITDA is a useful supplement to net income from operations as an indicator of operating performance. We use adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric.

 

We believe that adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net income from continuing operations and adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net income from operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

 

25

 

 

Following is the reconciliation of our consolidated net income to adjusted EBITDA:

 

  

For the Year Ended

May 31, 2022

  

For the Year Ended

May 31, 2021

 
Net income (loss) available to common shareholders  $(1,031,171)  $1,725,497 
           
Add Back:          
Deemed dividend   4,565,725    - 
Income tax expense   2,414,298    519,869 
Depreciation and amortization   782,351    765,532 
Stock-based compensation   -    91,666 
Gain (loss) on forgiveness of promissory notes   (358,236)   1,147,856 
Gain (loss) on extinguishment of convertible notes   564,037    (1,646,062)
Change in fair value of derivative liability   4,020,698      
Factoring fees   27,000    4,471,540 
Interest expense (including accretion of debt discount)   6,349,067    1,781,828 
           
Adjusted EBITDA  $17,333,769   $8,857,726 

 

Liquidity and Capital Resources

 

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 of May 31, 2022, the Company reported working capital of approximately $4.2 million compared with negative $3.5 million working capital as of May 31, 2021.

 

The Company took the following steps to improve liquidity year over year:

 

  ● Strong operational performance resulted in increase in EBITDA from $8.9 million during the year ended May 31, 2021 to $17.3 million during the year ended May 31, 2022
  ● The Company entered into Fourth Amendment to the TBK Loan Agreement to increase its credit facility from $47.5.0 million to $57.5 million until October 2022 with an option to extend beyond that date.
  ● The Company exchanged all of its Convertible Notes and associated Warrants into shares of Convertible Preferred Shares Series C and D

 

Since its inception, the Company has experienced significant business growth. To fund such growth operating capital was initially provided by third party investors through Convertible Notes and on December 10, 2021 exchanged into Convertible Preferred Shares Series A, C and D with fixed ownership percentage of the company. Preferred shares are more beneficial to the company because they don’t require cash repayments. Due to the antidilution provision imbedded in the Convertible Preferred Shares, these provisions resulted in an embedded derivative and the company recorded a current liability during the quarter ended on February 28, 2022 in the amount of $12.7 million (See Derivative Liability note below). Prior to quarter ended February 28, 2022, this liability was not material. This liability is recorded as a long-term liability due to its future settlement in common stocks on the balance sheet and is being adjusted to market on each of the subsequent reporting period.

 

The Company is also in process of potentially raising additional capital through the planned underwritten offering of securities that would provide funds for planned acquisitions and operating capital. 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 and improving 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. Use of operating cash is an indicator that there could be a going concern issue, but based on our evaluation of the Company’s projected cash flows and business performance subsequent to the balance sheet date, management has concluded that the Company’s current cash and cash availability under the line of credit as of May 31, 2022, would be sufficient to alleviate a going concern issue for at least one year from the date these consolidated financial statements are issued.

 

26

 

 

The following table summarizes total current assets, liabilities and working capital at May 31, 2022 compared to May 31, 2021:

 

  

May 31,

2022

  

May 31,

2021

   Change 
Current Assets  $108,543,031   $52,400,799   $56,142,232 
Current Liabilities   104,367,590    55,929,942    48,437,648 
Working Capital Deficit  $4,175,441   $(3,529,143)  $7,704,584 

 

The change in working capital deficit is primarily attributable to an increase in accounts payable – trade of $10.0 million, an increase in accrued expenses and other current liabilities of $3.3 million, an increase in line of credit of $38.1 million and an increase in derivative liability of $12.4 million. This was offset by increase in trade accounts receivable of $54.4 million, an increase of contract assets of $7.5 million.

 

  

Year Ended

May 31, 2022

  

Year Ended

May 31, 2021

   Change 
Net cash used in operating activities  $(34,011,241)  $(161,906)  $(33,849,335)
Net cash used in investing activities   (72,001)   (51,489)   (20,512)
Net cash provided (used in) by financing activities   35,253,020    (883,353)   36,136,373 
Net (decrease) increase in cash, cash equivalents and restricted cash  $1,169,778   $(1,096,748)  $2,266,526 

 

Operating activities used cash of $34.0 million for the year ended May 31, 2022 compared to net cash used by operations of $161,906 for the year ended May 31, 2021. Primary reason for cash used for the year ended May 31, 2022, was a significant increase in accounts receivables, reflecting repurchase of trade receivables using new revolving credit facility and significant increase in business during the year ended May 31, 2022. This increase in receivables was completely offset by increase in financing activities below.

 

Investing activities used cash of $72,001 for the year ended May 31, 2022 compared to $51,489 for the year ended May 31, 2021. During the year ended May 31, 2022, investing activities consisted of purchasing office equipment.

 

Financing activities provided cash of $35.3 million for the year ended May 31, 2022 and was the result of receiving aggregate gross proceeds of $38 million from line of credit and $2.0 million of proceeds from notes payable. These increases were offset by repayments of notes payable and related party debt of $4.9 million.

 

27

 

 

Recent Accounting Pronouncements

 

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. ASU 2020-06 is effective for public business entities, other than smaller reporting companies as defined by the SEC starting January 1, 2022. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.

 

Critical Accounting Policies

 

Accounting policies, methods and estimates are an integral part of the consolidated financial statements prepared by management and are based upon management’s current judgments. These judgments are normally based on knowledge and experience regarding past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. While there are a number of accounting policies, methods and estimates that affect our consolidated financial statements, the areas that are particularly significant include revenue recognition; the fair value of acquired assets and liabilities; fair value of contingent consideration; the assessment of the recoverability of long-lived assets, goodwill and intangible assets; and leases.

 

We perform an impairment test of goodwill for each year unless events or circumstances indicate impairment may have occurred before that time. We assess qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount. After assessing qualitative factors, if further testing is necessary, we would determine the fair value of each reporting unit and compare the fair value to the reporting unit’s carrying amount.

 

Intangible assets consist of customer relationships, trade names and trademarks and non-compete agreements arising from our acquisitions. Customer relationships are amortized on a straight-line basis over 12 to 15 years. Tradenames, trademarks and non-compete agreements, are amortized on a straight-line basis over 3 to 10 years.

 

We review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

 

For the year ended May 31, 2022 and 2021, the Company conducted its annual review of impairment of goodwill and intangible assets and no impairment was identified.

 

The Company has identified derivative instruments arising from an anti-dilution provision in the Company’s preferred stock. 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.

 

Our significant accounting policies are summarized in Note 1 of our consolidated financial statements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item.

 

Item 8. Financial Statements and Supplementary Data.

 

The consolidated financials are submitted as a separate section of this Annual Report on Form 10-K beginning on page F-1.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

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Item 9A. Controls and Procedures.

 

Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our principal executive officer to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, the Company recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

 

Evaluation of disclosure and controls and procedures

 

As of May 31, 2022, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded based upon the evaluation described above that, as of May 31, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Internal control over financial reporting is defined, under the Exchange Act, as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

  ● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
     
  ● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
     
  ● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

 

29

 

 

The Company’s principal executive officers have assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, 2022. In making this assessment, the Company’s principal executive officers were guided by the releases issued by the SEC and to the extent applicable the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Update). The Company’s principal executive officers have concluded that based on their assessment, as of May 31, 2022, that our internal control over financial reporting were not effective and require remediation in order to be effective at the reasonable assurance level. Prior to the business combination, we have been a private company with limited accounting personnel and other resources necessary for effective internal controls over financial reporting. In addition, our auditors identified material weaknesses in our internal control over financial reporting during the audit of the fiscal year ended May 31, 2021. A material weakness is a deficiency, or combination of deficiencies, in internal controls, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to the fact that we did not design and maintain an effective control environment commensurate with our financial reporting requirements, including (a) lack of a sufficient number of trained professionals with an appropriate level of accounting knowledge, training and experience. Management’s general assessment of the above processes in light of the company’s size, maturity and complexity, as to the design and effectiveness of the internal controls over financial reporting is that the key controls and procedures in each of these processes provide reasonable assurance regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. During the fiscal year ended May 31, 2022, we actively addressed and remediated a number of previously identified material weaknesses in internal controls over financial reporting, we significantly improved our accounting processes, documentation, introduced new accounting policies and procedures, upgraded our accounting personnel and provided our employees with necessary tools and resources, but because we have not completed a full risk assessment of the internal controls over financial reporting at the activity level, including extensive process documentation and testing, we are not able to conclude that our internal controls over financial reporting are operating effectively and efficiently at this time. The Company’s principal executive officers and the board are fully committed to achieving full compliance by the end of the fiscal year ending May 31, 2023.

 

Readers are cautioned that internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes, except for documenting our processes discussed above, in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

Item 9B. Other Information.

 

No event occurred during the fourth quarter of the fiscal year ended May 31, 2022 or subsequent period that would have required disclosure in a report on Form 8-K.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Executive Officers and Directors

 

The following table sets forth, as of the date hereof, the names and ages of our executive officers and directors, and their respective positions and offices held.

 

Name   Age   Position
Sunandan Ray   64   Chief Executive Officer, Director
Migdalia Diaz   55   Chief Operating Officer
David Briones   46   Director
Patrick Lee   45   Director
Eli Kay   56   Chief Financial Officer

 

Sunandan Ray, 64, Chief Executive Officer

 

Mr. Ray has close to 30 years of experience in the logistics industry. He established and managed over 15 of ULHK’s offices in the US and India with over $400 million in revenue. Prior to working with ULHK, Mr. Ray established and managed operating companies on behalf of MSAS Cargo International (now part of DHL/ Deutsche Post) in USA, India, Sri Lanka, Bangladesh, Mauritius and Turkey from 1989 to 1997. In 1997, Sunandan successfully negotiated with MSAS Cargo, a management buyout of the companies under his management and after building the group from 1997 to 2005 into a US $50 million enterprise, it was bought by French transportation company, Group Bollore. After the sale to Group Bollore in 2005, Mr. Ray continued as a Senior Vice President in Group Bollore with responsibility for the Group’s business on the Transpacific sector as well as in the Indian subcontinent before joining the ULHK’s New York based operating subsidiary in 2010. From 1992 through 1996, Mr. Ray built and sold to a strategic investor a group of software companies, Sunrise Group, which had over $10 million in revenue at the time of sale. Mr. Ray is a qualified Chartered Accountant (London, UK) who worked for 10 years with Price Waterhouse (now PwC) in London, UK, The Hague, Netherlands and New York, NY from 1979 to 1989. He also holds a Masters in Science (Technology) in Computer Science from the Birla Institute of Technology & Science, in Pilani, India.

 

Migdalia Diaz, 55, Chief Operating Officer

 

Migdalia (“Mickey”) Diaz brings over 32 years of experience in the logistics industry, with over 20 years in Officer and Senior Management roles. Between 2018 and April 2022, Ms. Diaz served as Senior Vice President Customer Experience for the Americas, and as Vice President of Operations USA at GEODIS, an international logistics provider. From 2011 to 2018, Ms. Diaz served as Vice President of Operations and board member at Dachser USA, another international logistics company. From 2006 to 2011 Ms. Diaz served as a board member, COO of USA, and CEO Latin America of IJS Global, an International Freight Forwarder. The Board believes that Ms. Diaz’s experience in management and operations and her extensive knowledge in logistics and international regulatory requirements makes her ideally qualified to help lead the Company towards continued growth and success.

 

Eli Kay, 56, Chief Financial Officer

 

Eli Kay joined Unique Logistics International Inc. in 2021. As the CFO he is responsible for all aspects of financial management of the company, including the Securities and Exchange Commission (SEC) reporting and compliance. Eli previously served as a CFO for Transit Wireless LLC, an exclusive provider of wireless infrastructure in the New York City Subway from 2019 to 2020, and prior to that as a CFO for JFKIAT, a joint venture between Delta Airlines and Royal Schiphol Group with operations at JFK International Airport, from 2016 to 2019. From 2013-2016 he served as a CFO for the Chicago Skyway and the Indiana Toll Road Concession Companies in Chicago both owned by private equity infrastructure funds. He progressed through a series of senior management positions in finance and accounting roles with two publicly traded companies in the manufacturing industry from 2006 to 2013. Eli started his career in public accounting in 1997 as an auditor and worked for 10 years primarily with PricewaterhouseCoopers LLP (PwC). Mr. Kay holds Bachelor of Science in Accounting and a Master’s in Business Administration degrees, both from the University of Oregon. Mr. Kay is a Certified Public Accountant.

 

David Briones, 46, Director

 

Since October 2020, Mr. Briones has served as a member of the board of directors of Unique Logistics International Inc. Mr. Briones is the founder and managing member of the Brio Financial Group (“Brio”), a financial consulting firm that brings experienced finance and accounting expertise to both public and private companies. Since 2010, Brio has served over 75 companies as well as numerous banks, hedge funds, venture capital funds and private equity firms. Mr. Briones has provided several public companies in financial reporting, internal control development and evaluation, budgeting and forecasting services. He has developed a specialty representing private companies as the outsourced CFO/Financial reporting specialist as a private company navigates toward becoming a public company through a self-filing, a reverse merger or through a traditional initial public offering. In addition, since March 2021, Mr. Briones is the Chief Financial Officer of Larkspur Health Acquisition Corp. Mr. Briones has served as the Chief Financial Officer of Hoth Therapeutics, Inc. From August 2013 to January 2020, Mr. Briones served as Chief Financial Officer of Petro River Oil Corp., an independent energy company focused on the exploration and development of conventional oil and gas assets. Mr. Briones also served as interim Chief Financial Officer of AdiTx Therapeutics, Inc. (Nasdaq: ADTX), a pre-clinical stage, life sciences company with a mission to prolong life and enhance life quality of transplanted patients from January 2018 to July 2020 (until the Company’s initial public offering). From October 2017 to May 2018, Mr. Briones served as the Chief Financial Officer of Bitzumi, Inc., a Bitcoin exchange and marketplace. Prior to founding Brio Financial Group, LLC, Mr. Briones was an auditor with Bartolomei Pucciarelli, LLC in Lawrenceville, New Jersey and PricewaterhouseCoopers LLP in New York, New York. Since May 2020, Mr. Briones has served as a member of the board of directors of Unique Logistics International Inc (OTC Pink: UNQL). Mr. Briones received a Bachelor of Science degree in accounting from Fairfield University.

 

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Patrick Lee, 45, Director

 

Lee, Patrick Man Bun, combines over 15 years of experience in freight forwarding/warehousing senior management. Previously, he had been involved in two global companies in the logistics industry, holding positions including Management Trainee, Business Development Coordinator, and Logistics Operations Coordinator. From 2005 through 2012, Patrick was the Business Development Director for Unique Logistics Holdings Limited, a freight forwarding company based in Hong Kong. From 2012 to 2017, Patrick served Unique Logistics Holdings Limited in his capacity as Executive Vice President. Patrick has taken up the position of Group COO since 2017 and has become a Board Member. He has Bachelor of Commerce from University of British Columbia (Canada), and an MSc Supply Chain Management from Cranfield University (England).

 

Committees

 

We currently do not have any committees in place, but anticipate establishing an audit committee, compensation committee and governance and nominating committee in the near future.

 

Independent Directors

 

For purposes of determining independence, the Company has adopted the definition of independence as contained in NASDAQ Market Place Rules 4200. Pursuant to the definition, the Company has determined that one of its directors, David Briones, currently qualifies as independent.

 

Employment Agreements

 

On May 29, 2020, Unique Logistics and Sunandan Ray, Company’s CEO, entered into the Ray Employment Agreement pursuant to which Mr. Ray has been employed by Unique Logistics to serve as President and Chief Executive Officer. The Ray Employment Agreement has an initial term of three years, and automatically renews for successive consecutive one-year period terms, unless either party provides notice to the other party not more than 270 days and not less than 180 days before the end of the then existing term. Mr. Ray will receive a base salary of $250,000 per year with annual increases at the rate of 3% with such increases applied on January 1 of each year. The Ray Employment Agreement includes a performance-based bonus of up to 125% of the base salary upon Unique Logistics achieving certain performance targets as defined in the Ray Employment Agreement. The Ray Employment Agreement also provides for employment benefits and reimbursement provisions that are typical of such agreements.

 

On August 11, 2021, the Company and Mr. Kay, Company’s CFO, entered into an Employment Agreement which will continue until it is otherwise terminated pursuant to terms therein. Under the Agreement, Mr. Kay will be paid an annual salary of $180,000, subject to annual review and adjustment. Mr. Kay is also entitled to receive certain benefits such as health insurance, vacation, and other benefits consistent with the Company’s benefit plans extended to other executive employees of the Company. In addition, for the fiscal year ended May 31, 2021, and in each subsequent fiscal year, Mr. Kay will be eligible to receive an annual bonus at the discretion of the board of directors of the Company.

 

On April 25, 2022, the Company and Ms. Migdalia Diaz entered into an employment agreement (the “Diaz Employment Agreement”). Pursuant to the Diaz Employment Agreement, Ms. Diaz shall receive an annual salary of $304,500. Additionally, Ms. Diaz shall be eligible for a discretionary performance incentive of up to 60% of her annual gross salary (the “Incentive Bonus”). Ms. Diaz shall receive an incentive advance of $25,000 upon completion of six (6) months which will be offset against the Incentive Bonus. Ms. Diaz will also receive a monthly home office allowance of $125. The Diaz Employment Agreement may be terminated by either party for any or no reason, by providing a 90 days’ notice of termination,

 

Family Relationships

 

There are no family relationships amongst our officers and directors.

 

Code of Ethics

 

The Company is currently in the process of adopting a code of ethics that applies to our officers, employees and directors, including our Chief Executive Officer and senior executives.

 

Our Board adopted a code of business conduct and ethics that applies to our directors, officers and employees. Upon the effectiveness of the registration statement of which this prospectus is a part, a copy of this code will be available on our website. We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.

 

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Compliance with Section 16(a) of Exchange Act

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a). To the Company’s knowledge, based solely on a review of reports furnished to it, for the year ended May 31, 2022, all of the Company’s officers, directors and ten percent holders have made the required filings with the exception of David Briones whose form 3 was not filed timely and Sunandan Ray whose form 4 was not filed timely.

 

Legal Proceedings

 

During the past ten years, none of our current directors or executive officers has been:

 

● the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
   
● convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
   
● subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
   
● found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated;
   
● subject of, or a party to, any order, judgment, decree or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of a federal or state securities or commodities law or regulation, law or regulation respecting financial institutions or insurance companies, law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
   
● subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

None of our directors, officers or affiliates, or any beneficial owner of 5% or more of our Common Stock, or any associate of such persons, is an adverse party in any material proceeding to, or has a material interest adverse to, us or any of our subsidiaries.

 

Item 11. Executive Compensation.

 

The Summary Compensation Table shows certain compensation information for services rendered in all capacities for the fiscal years ended May 31, 2021 and 2020. The following information includes the dollar value of base salaries, bonus awards, the number of stock options granted and certain other compensation, if any, whether paid or deferred.

 

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Name and Principal Position  Year  

Salary

($)

  

Bonus

($)

  

Stock

Awards

($)

  

Option

Awards

($)

  

Non-Equity

Incentive

Plan

Compensation

($)

   D  

All Other

Compensation

($)

  

Totals

($)

 
Sunandan Ray, Chief Executive Officer(1)   2022    

225,000

    

325,000

    -    -    -                -    -    550,000 
    2021    225,000    316,000    -    -         -    -           -    541,000 
                                              
Migdalia Diaz, Chief Operating Officer(2)   2022    

304,000

    -                              304,000 
    2021    -       -    -     -      -   -    -    -
                                              
Eli Kay, Chief Financial Officer(3)   2022    198,000    29,000    -    -    -    -    -    227,000 
    2021    180,000    18,000                             198,000 

 

  1. Mr. Ray became the Company’s Chief Executive Officer and director on October 28, 2019. Prior to that date, Mr. Ray was the minority owner and Chief Executive Officer of UL NYC.
     
  2. Ms. Diaz joined the Company on April 25, 2022 as a Chief Operating Officer.
     
  3. Mr. Kay joined the Company on February 9, 2021 as a Chief Financial Officer.

 

Outstanding Equity Awards at Fiscal Year-end

 

Effective November 20, 2020, the Board approved, authorized and adopted the Unique Logistics International, Inc. 2020 Equity and Incentive Plan (the “2020 Plan”) and certain forms of ancillary agreements to be used in connection with the issuance of stock and/or options pursuant to the 2020 Plan (the “Plan Agreements”). The 2020 Plan provides for the issuance of up to 40,000,000 shares of Common Stock through the grant of non-qualified options (the “Non-qualified Options”), incentive options (the “Incentive Options” and together with the Non-qualified Options, the “Options”) and restricted stock (the “Restricted Stock”) to directors, officers, consultants, attorneys, advisors and employees.

 

There were no equity awards as of May 31, 2022 or 2021.

 

Director Compensation

 

The Company’s directors are not currently compensated for their service in such capacity.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth, as of September 13, 2022, the number of shares of our common stock owned by (i) each person who is known by us to own of record or beneficially five percent (5%) or more of our outstanding shares, (ii) each of our directors, (iii) each of our executive officers and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, each of the persons listed below has sole voting and investment power with respect to the shares of our common stock beneficially owned. The address of our directors and officers is c/o Unique Logistics Holdings, Inc. at 154-09 146th Ave, Jamaica, NY 11434.

 

Beneficial ownership has been determined in accordance with the rules of the SEC and is calculated based on [●] shares of our common stock issued and outstanding as of September 13, 2022. Shares of common stock subject to options, warrants, preferred stock or other securities convertible into common stock that are currently exercisable or convertible, or exercisable or convertible within 60 days of September 13, 2022, are deemed outstanding for computing the percentage of the person holding the option, warrant, preferred stock, or convertible security but are not deemed outstanding for computing the percentage of any other person.

 

Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own.

 

Name and Address of Beneficial Owner(1)  Total Common
Stock Shares
Beneficially Owned		   % of Common
Stock Class(2)  		 
5% Beneficial Shareholders         
           
Great Eagle Freight Limited (3)   -    14.1%
3a Capital Establishment (4)   -    9.9%
Trillium Partners LP (5)        9.9%
    -      
5% Beneficial Shareholders as a Group          
           
Officers and Directors          
Sunandan Ray (6)   322,086,324    54.4%
David Briones (7)   -    4.99%
Patrick Lee (8)   -    * % 
Eli Kay   -    * % 
Migdalia Diaz   -    * % 
           
Officers and Directors as a Group (5 persons)        68.5%

 

*Denotes less than 1%

 

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(1) The person named in this table has sole voting and investment power with respect to all shares of Common Stock reflected as beneficially owned.

 

(2) The percentages in the table have been calculated based on treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.

 

(3) Great Freight Limited beneficially owns 0 shares of the Company’s common stock. In addition, Great Freight Limited beneficially owns 153,062 shares of Series B Preferred Stock owned by Great Eagle Freight Limited which convert at a rate of 6,646.47 shares of common stock for every 1 share of Series B Preferred Stock. The Company is limited to 800,000,000 authorized shares of common stock. The Beneficial ownership percentage only considers the common shares that can be converted up to the authorized number of common shares. Mr. Richard Chi Tak Lee has sole voting and dispositive power over the shares of Common Stock held by Great Freight Limited.

 

(4) Mr. Nicola Feuerstein has sole voting and dispositive power over the shares of Common Stock held by 3a Capital Establishment. The Beneficial ownership percentage only considers the shares of Common Stock that can be converted up to a maximum of 9.99% of the issued and outstanding shares of Common Stock.

 

(5) Mr. Stephen M. Hicks has sole voting and dispositive power over the shares of common stock held by Trillium Partners LP. The Beneficial ownership percentage only considers the shares of Common Stock that can be converted up to a maximum of 9.99% of the issued and outstanding shares of Common Stock.

 

(6) Mr. Sunandan Ray owns 322,086,324 shares of the Company’s Common Stock. In addition, Mr. Ray owns 667,738 shares of Series B Preferred Stock which convert at a rate of 6,546.47 shares of Common Stock for every 1 share of Series B Preferred Stock. The Company is limited to 800,000,000 authorized shares of common stock. The Beneficial ownership percentage only considers the common shares that can be converted up to the authorized number of common shares.

 

(7) Mr. David Briones owns 0 shares of the Company’s Common Stock. In addition, Mr. Briones owns 20,000 shares of Series A Preferred Stock which convert at a rate of 6,546.47 shares of Common Stock for every 1 share of Series A Preferred Stock. The Company is limited to 800,000,000 authorized shares of common stock. The Beneficial ownership percentage only considers the common shares that can be converted up to the authorized number of common shares.

 

(8) Mr. Patrick Lee beneficially owns 0 shares of the Company’s Common Stock. In addition, Mr. Lee beneficially owns 6% of the 153,062 shares of Series B Preferred Stock owned by Great Eagle Freight Limited which convert at a rate of 6,546.47 shares of Common Stock for every 1 share of Series B Preferred Stock. The Company is limited to 800,000,000 authorized shares of common stock. The Beneficial ownership percentage only considers the common shares that can be converted up to the authorized number of common shares.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

The following is a summary of transactions to which we have been or will be a party in which the amount involved exceeded or will exceed $500,000 (one percent of the average of our total assets at year-end for our last two completed fiscal years) and in which any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock, or any immediate family member of, or person sharing a household with, any of these individuals, had or will have a direct or indirect material interest, other than compensation arrangements that are described under the section captioned “Executive compensation.”

 

Other than as disclosed below, there have been no transactions involving the Company since the beginning of the last fiscal year, or any currently proposed transactions, in which the Company was or is to be a participant and the amount involved exceeds $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest.

 

The Company assumed the following debt due to related parties:

 

   May 31, 2022   May 31, 2021 
         
Due to Frangipani Trade Services (1)  $602,618   $903,927 
Due to employee (2)   30,000    60,000 
Due to employee (3)   66,658    149,996 
    699,276    1,113,923 
Less: current portion   (301,308)   (397,975)
   $397,968   $715,948 

 

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  (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. The unamortized balances were $282,666 and $565,338 as of May 31, 2022 and 2021, respectively.

 

Item 14. Principal Accountant Fees and Services.

 

  

Year Ended

May 31, 2022

  

Year Ended

May 31, 2021

 
Audit fees  $212,000   $174,000 
Audit related fees   57,000    - 
Tax services fees   -    - 
Total:  $269,000   $174,000 

 

Audit Fees: Audit fees incurred for the annual audit of the Company’s financial statements included as part of our Form 10-K filing and audit related services including the quarterly reviews associated with our Form 10-Q filings.

 

Audit-Related Fees: Audit-related services consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.

 

Tax Services Fees: Tax fees consist of fees billed for professional services for tax compliance. These services include assistance regarding federal, state, and local tax compliance.

 

36

 

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

 

a. Exhibits

 

(a) Exhibits.

 

        Incorporated by    
Exhibit       Reference   Filed or Furnished
Number   Exhibit Description   Form   Exhibit   Filing Date   Herewith
                     
2.1   Agreement and Plan of Merger and Reorganization, dated October 8, 2020   8-K   2.1   10/13/2020    
3.1   Certificate of Designation of Series A Preferred of Innocap, Inc., dated October 7, 2020   8-K   3.1   10/13/2020    
3.2   Certificate of Designation of Series B Preferred of Innocap, Inc., dated October 7, 2020   8-K   3.2   10/13/2020    
3.3   Certificate of Designation of Series C Convertible Preferred Stock of Unique Logistics International, Inc., dated December 7, 2021   8-K   3.1   12/13/2021    
3.4   Certificate of Designation of Series D Convertible Preferred Stock of Unique Logistics International, Inc., dated December 7, 2021   8-K   3.2   12/13/2021    
3.5   Certificate of Correction to Certificate Designation of Series C Convertible Preferred Stock of Unique Logistics International, Inc., dated December 8, 2021   8-K   3.3   12/13/2021    
3.6   Certificate of Correction to Certificate Designation of Series D Convertible Preferred Stock of Unique Logistics International, Inc., dated December 8, 2021   8-K   3.4   12/13/2021    
3.7   Certificate of Correction to Certificate Designation of Series C Convertible Preferred Stock of Unique Logistics International, Inc., dated December 15, 2021   10-Q   3.5   01/14/2022    
3.8   Certificate of Correction to Certificate Designation of Series D Convertible Preferred Stock of Unique Logistics International, Inc., dated December 15, 2021   10-Q   3.6   01/14/2022    
3.9   Amended and Restated Articles of Incorporation   8-K   3.1   01/14/2021    
3.10   Amended and Restated Bylaws   8-K   3.1   11/09/2021    
3.11   Certificate of Amendment of Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of Unique Logistics International, Inc., filed with the Nevada Secretary of State on April 26, 2022   8-K   3.1   04/29/2022    
4.1   10% Convertible Promissory Note, dated October 7, 2020   8-K   4.1   10/13/2020    
4.2   Common Stock Purchase Warrant, dated October 7, 2020   8-K   4.2   10/13/2020    
4.3   10% Convertible Promissory Note, dated October 14, 2020   8-K   4.2   10/19/2020    
4.4   10% Convertible Promissory Note, dated October 14, 2020   8-K   4.3   10/19/2020    
4.5   Common Stock Purchase Warrant, dated October 14, 2020   8-K   4.4   10/19/2020    
4.6   Amendment No. 1 to Promissory Note, dated November 12, 2020, by and between Innocap, Inc., Unique Logistics Holdings, Inc. and Unique Logistics Holdings Limited   10-K   4.6   08/31/2021    
4.7   Form of 10% Secured Subordinated Convertible Note   10-K   4.7   08/31/2021    
4.8   10% Promissory Note, dated March 19, 2021   8-K   4.1   03/22/2021    
4.9   Amended and Restated Promissory Note, dated April 7, 2021   8-K   4.1   04/09/2021    

 

37

 

 

4.10   Amendment to Secured Subordinated Convertible Promissory Notes of Trillium Partners L.P. dated June 1, 2021   8-K   4.1   06/03/2021    
4.11   Amendment to Secured Subordinated Convertible Promissory Notes of 3a Capital Establishment dated June 1, 2021   8-K   4.2   06/03/2021    
4.12   First Amendment to Amended and Restated Promissory Note entered into as of July 22, 2021 by and between Unique Logistics International Inc. and Trillium Partners, L.P.   8-K   4.1   07/28/2021    
4.13   Second Amendment to Amended and Restated Promissory Note entered into as of September 23, 2021 by and between Unique Logistics International Inc. and Trillium Partners, L.P.   8-K   4.1   09/28/2021    
4.14   Exchange Agreement between Company and certain holders of notes and warrants of the Company, 3a Capital Establishment and Trillium Partners, LP dated August 19, 2021   10-Q   4.4   10/18/2021    
4.15   Form of Leak-Out Agreement   10-Q   4.5   10/18/2021    
4.16   Form of Amended Exchange Agreement   8-K   10.1   12/13/2021    
4.17   Third Amendment to Amended and Restated Promissory Note dated January 6, 2022   8-K   4.1   01/10/2022    
4.18   Fourth Amendment to Amended and Restated Promissory Note dated January 6, 2022   8-K   4.1   04/13/2022    
4.19   Promissory Note, dated May 29, 2020, issued to Unique Logistics Holdings Limited               X
10.1   Securities Purchase Agreement, dated October 8, 2020   8-K   10.1   10/13/2020    
10.2   Registration Rights Agreement, dated October 8, 2020   8-K   10.2   10/19/2020    
10.3   Employment Agreement by and between the Company and Sunandan Ray dated May 29, 2020**   8-K   10.3   10/13/2020    
10.4   Amendment to Employment Agreement by and between the Company and Sunandan Ray dated May 29, 2021   8-K   10.2   06/03/2021    
10.5   General Release Agreement, dated October 8, 2020   8-K   10.4   10/13/2020    
10.6   Split-Off Agreement, dated October 8, 2020   8-K   10.5   10/13/2020    
10.7   Securities Purchase Agreement, dated October 14, 2020   8-K   10.1   10/19/2020    
10.8   Amendment to Secured Accounts Receivable Facility, dated November 2, 2020, by and between Unique Logistics International (NYC) LLC and Corefund Capital, LLC                
10.9   Revolving Purchase, Loan and Security Agreement by and among Unique Logistics International, Inc., Unique Logistics Holdings, Inc., Unique Logistics International (NYC) LLC, Unique Logistics International (BOS), Inc. and TBK Bank, SSB dated June 1, 2021   8-K   10.1   06/03/2021    
10.10   Addendum to Recourse Factoring and Security Agreement   8-K   10.2   06/23/2021    
10.11   SPA-Letter Agreement dated June 22, 2021   8-K   10.1   06/23/2021    
10.12   First Amendment to Revolving Purchase, Loan and Security Agreement entered into as of August 4, 2021 by and among Unique Logistics International, Inc., Unique Logistics Holdings, Inc., Unique Logistics International (NYC) LLC, Unique Logistics International (BOS), Inc. and TBK Bank, SSB  

 

 

8-K

   10.1   08/09/2021    

 

38

 

 

10.13   Purchase Money Financing Agreement between Unique Logistics International, Inc and Corefund Capital, LLC   8-K   10.1   09/13/2021    
10.14   Second Amendment to Revolving Purchase, Loan and Security Agreement entered into as of August 4, 2021 by and among Unique Logistics International, Inc., Unique Logistics Holdings, Inc., Unique Logistics International (NYC) LLC, Unique Logistics International (BOS), Inc. and TBK Bank, SSB   8-K   10.1   09/22/2021    
10.15   Form Purchase Agreement   10-K   10.8   08/31/2021    
10.16   Form Registration Rights Agreement   10-K   10.9   08/31/2021    
10.17   Form Security Agreement   10-K   10.10   08/31/2021    
10.18   Form Guaranty Agreement   10-K   10.11   08/31/2021    
10.19   Form Waiver   10-K   10.12   08/31/2021    
10.20   Employment Agreement By and between the Company and Eli Kay dated August 11, 2021**   8-K   10.1   08/11/2021    
10.21   Consulting Agreement, dated May 29, 2020, by and between Unique Logistics Holdings, Inc. and Great Eagle Freight Limited   S-1/A   10.21   01/18/2022  
10.22   August 2021 Registration Rights Agreement   10-Q   10.1   10/18/2021    
10.23   Form of Registration Rights Agreement   8-K   10.2   12/13/2021    
10.24   Stock Purchase Agreement, dated April 28, 2022, by and between Unique Logistics International, Inc. and Unique Logistics Holdings Limited   8-K   10.1   05/03/2022    
10.25   Third Amendment to Revolving Purchase, Loan and Security Agreement.   8-K   10.1   02/03/2022    
10.26   Fourth Amendment to Revolving Purchase, Loan and Security Agreement.   8-K   10.1   04/15/2022    
10.27**   Employment Agreement, dated April 25, 2022, by and between Unique Logistics International, Inc. and Mickey Diaz   8-K   10.1   04/26/2022    
10.28   Securities Purchase Agreement, dated May 29, 2020, by and between Unique Logistics Holdings Limited and Unique Logistics Holdings, Inc.               X
10.29   Securities Purchase Agreement, dated May 29, 2020, by and between Dawn Lowry and Unique Logistics Holdings, Inc.               X
10.30   Securities Purchase Agreement, dated May 29, 2020, by and between Robert C. Shaver and Unique Logistics Holdings, Inc.               X
10.31   Share Exchange Agreement, dated May 29, 2020, by and between Frangipani Trade Services, Inc. and Unique Logistics Holdings, Inc.               X
21.1   List of Subsidiaries    10-K   21.1   08/31/2021    
24.1   Power of Attorney (included on the signature page to the registration statement)               X
31.1   Principal Executive Officer Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.               X

 

39

 

 

31.2   Principal Financial Officer Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.               X
32.1   Principal Executive Officer Certification Pursuant to Item 601(b)(32) of Regulation S-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.               X
32.2   Principal Financial Officer Certification Pursuant to Item 601(b)(32) of Regulation S-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.               X
101.INS   XBRL Instance Document.               X
101.SCH   XBRL Taxonomy Extension Schema Linkbase Document.               X
101.CAL   XBRL Taxonomy Calculation Linkbase Document.               X
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.               X
101.LAB   XBRL Taxonomy Label Linkbase Document.               X
101.PRE   XBRL Taxonomy Presentation Linkbase Document.               X

 

b. Financial Statement Schedules

 

None.

 

40

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: September 13, 2022 UNIQUE LOGISTICS INTERNATIONAL, INC.
   
  By: /s/ Sunandan Ray                 
    Sunandan Ray
    Chief Executive Officer, Chairman of the Board
(Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Sunandan Ray   Director, Chief Executive Officer   September 13, 2022
Sunandan Ray   Principal Executive Officer    
         
/s/ Eli Kay   Chief Financial Officer   September 13, 2022
Eli Kay   Principal Financial and Accounting Officer    
         
/s/ David Briones   Director   September 13, 2022
David Briones        
         
/s/ Patrick Lee   Director   September 13, 2022
Patrick Lee        

 

41

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2022

 

  Page(s)
Report of Independent Registered Public Accounting Firm (PCAOB ID 688) F-2
   
Consolidated Balance Sheets as of May 31, 2022 and 2021 F-3
   
Consolidated Statements of Operations for the Years ended May 31, 2022 and 2021 F-4
   
Consolidated Statement of Changes in Stockholders’ Equity for the Years ended May 31, 2022 and 2021 F-5
   
Consolidated Statements of Cash Flows for the Years ended May 31, 2022 and 2021 F-6
   
Notes to Consolidated Financial Statements F-7

 

F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of

Unique Logistics International, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Unique Logistics International, Inc. (the “Company”) as of May 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended May 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended May 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

 

/s/ Marcum LLP  
   
Marcum LLP  
   
We have served as the Company’s auditor since 2021.  
   
New York, NY  
September 13, 2021  

 

F-2

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

 

           
   May 31, 2022   May 31, 2021 
         
ASSETS          
Current Assets:          
Cash and cash equivalents  $1,422,393   $252,615 
Accounts receivable, net   74,746,036    20,369,747 
Contract assets   30,970,581    23,423,314 
Factoring reserve   -    7,593,665 
Other prepaid expenses and current assets   1,404,021    761,458 
Total current assets   108,543,031    52,400,799 
           
Property and equipment, net   188,889    192,092 
           
Other long-term assets:          
Goodwill   4,463,129    4,463,129 
Intangible assets, net   7,337,704    8,044,853 
Operating lease right-of-use assets, net   2,408,098    3,797,527 
Deferred tax asset, net   

942,748

    

263,221

 
Deposits    1,028,336    292,141 
Other long-term assets   16,180,015    16,860,871 
Total assets  $124,911,935   $69,453,762 
           
Liabilities and Stockholders’ Equity          
Current Liabilities:          
Accounts payable   $49,028,862   $38,992,846 
Accrued expenses and other current liabilities   5,666,159    2,383,915 
Accrued freight   9,240,650    10,403,430 
Contract Liabilities   468,209    - 
Revolving credit facility   38,141,451    - 
Current portion of notes payable, net of discount   608,333    2,285,367 
Current portion of long-term debt due to related parties   301,308    397,975 
Current portion of operating lease liability   912,618    1,466,409 
Total current liabilities   104,367,590    55,929,942 
           
Other long-term liabilities   282,666    565,338 
Long-term-debt due to related parties, net of current portion   397,968    715,948 
Notes payable, net of current portion, net of discount   -    3,193,306 
Derivative liabilities   12,437,994    - 
Operating lease liability, net of current portion   1,593,873    2,431,144 
Total long-term liabilities   14,712,501    6,905,736 
           
Total liabilities   119,080,091    62,835,678 
           
Commitments and contingencies   -      
           
Stockholders’ Equity:          
Preferred Stock, $.001 par value: 5,000,000 shares authorized          
Series A Convertible Preferred stock, $0.001 par value; 130,000 issued and outstanding as of May 31, 2022 and 2021. Liquidation preference $13 at May 31, 2022   130    130 
Series B Convertible Preferred stock, $0.001 par value; 820,800 and 840,000 shares issued and outstanding as of May 31, 2022 and 2021, respectively. Liquidation preference $82 at May 31, 2022   821    840 
Series C Convertible Preferred stock, $0.001 par value; 195 and none, issued and outstanding as of May 31, 2022 and 2021, respectively. Liquidation preference $15.5 million at May 31, 2022   -    - 
Series D Convertible Preferred stock, $0.001 par value; 187 and none, issued and outstanding as of May 31, 2022 and 2021, respectively. Liquidation preference $15.1 million at May 31, 2022   -    - 
Common stock, $0.001 par value; 800,000,000 shares authorized; 687,196,478 and 393,742,663 shares issued and outstanding as of May 31, 2022 and 2021, respectively.   687,197    393,743 
Additional paid-in capital   292,155    4,906,384 
Retained earnings   4,851,541    1,316,987 
Total Stockholders’ Equity   5,831,844    6,618,084 
Total Liabilities and Stockholders’ Equity  $124,911,935   $69,453,762 

 

See notes to accompanying consolidated financial statements.

 

F-3

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

                 
    For the Year Ended
May 31, 2022		     For the Year Ended
May 31, 2021		  
Revenues:                
Airfreight services   $ 499,024,643     $ 137,055,903  
Ocean freight and ocean services     446,977,162       196,041,832  
Contract logistics     3,491,489       3,093,626  
Customs brokerage and other services     64,993,386       35,695,911  
Total revenues     1,014,486,680       371,887,272  
                 
Costs and operating expenses:                
Airfreight services     496,918,427       130,564,578  
Ocean freight and ocean services     418,552,477       179,759,763  
Contract logistics     1,771,415       1,267,360  
Customs brokerage and other services     54,368,332       33,766,727  
Salaries and related costs     11,736,610       9,184,390  
Professional fees     1,079,819       1,350,369  
Rent and occupancy     2,022,396       1,815,194  
Selling and promotion     6,653,335       4,535,373  
Depreciation and amortization     782,351       765,532  
Fees on factoring agreements     27,000       4,471,540  
Bad debt expense     2,541,676       240,000  
Other     1,508,425       637,458  
Total costs and operating expenses     997,962,263       368,358,284  
                 
Income from operations     16,524,417       3,528,988  
                 
Other income (expenses)                
Interest expense     (5,632,551 )     (431,439 )
Amortization of debt discount     (776,515 )     (1,350,389 )
Gain on forgiveness of promissory note     358,236       1,646,062  
Change in fair value of derivative liabilities     (4,020,698 )     -  
Loss on extinguishment of convertible note     (564,037 )     (1,147,856  
Other income     60,000       -  
Total other income (expenses)     (10,575,565 )     (1,283,622 )
                 
Net income before income taxes     5,948,852       2,245,366  
                 
Income tax expense     2,414,298       519,869  
                 
Net income     3,534,554       1,725,497  
                 
Deemed Dividend     (4,565,725 )     -  
                 
Net (loss) income available for common shareholders   $ (1,031,171 )   $ 1,725,497  
                 
Net (loss) income available for common shareholders per common share                
– basic   $ -     $ -  
– diluted   $ -     $ -  
                 
Weighted average common shares outstanding                
– basic     605,817,180       1,408,941,722  
– diluted     605,817,180       10,030,364,061  

 

See notes to accompanying consolidated financial statements.

 

F-4

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 

For the Years Ended May 31, 2022 and 2021

 

                                                                  
   Series A   Series B   Series C   Series D           Additional  

Retained

Earnings

     
   Preferred Stock   Preferred Stock  Preferred Stock   Preferred Stock   Common Stock   Paid-in  

(Accumulated

     
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital  

Deficit)

   Total 
                                                     
Balance, June 1, 2020   130,000   $130    870,000   $870    -   $-    -    -    -   $-   $1,523,811   $(408,510)  $1,116,301 
                                                                  
Issuance of Common Stock for services rendered   -    -    -    -    -    -    -    -    28,291,180    28,291    63,375    -    91,666 
                                                                  
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   -    -    -    -    -    -    -    -    -    -    2,540,169    -    2,540,169 
                                                                  
Issuance of common stock for the conversion of notes and accrued interest   -    -    -    -    -    -    -    -    35,455,872    35,456    28,236    -    63,692 
                                                                  
Net income   -    -    -    -    -    -    -    -    -    -    -    1,725,497    1,725,497 
                                                                  
Balance, May 31 2021   130,000   $130    840,000   $840    -   $-    -    -    393,742,663   $393,743   $4,906,384   $1,316,987   $6,618,084 
                                                                  
Conversion of Preferred B to Common Stock   -    -    (19,200)   (19)   -    -    -    -    125,692,224    125,692    (125,673)   -    - 
                                                                  
Conversion of debt to preferred C and D   -    -    -    -    195    -    192    -    -    -    -    -    - 
                                                                  
Conversion of Preferred D to Common Stock   -    -    -    -    -    -    (5)   -    31,415,400    31,415    (31,415)   -    - 
                                                                  
Issuance of Common Stock for the conversion of notes and accrued interest   -    -    -    -    -    -    -    -    136,346,191    136,347    108,584    -    244,931 
                                                                  
Deemed Dividend   -    -    -    -    -    -    -    -     -    -    (4,565,725)   -    (4,565,725)
                                                                  
Net income   -    -    -    -                        -              3,534,554    3,534,554 
                                                                  
Balance, May 31, 2022   130,000   $130    820,800   $821    195   $        -    187   $-    687,196,478   $687,197   $292,155   $4,851,541   $5,831,844 

 

See notes to accompanying consolidated financial statements.

 

F-5

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

           
  

For the Year Ended
May 31, 2022

  

For the Year Ended
May 31, 2021

 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $3,534,554   $1,725,497 
Adjustments to reconcile net income to net cash used in operating activities:          
Depreciation and amortization   782,351    765,532 
Amortization of debt discount   776,515    1,350,389 
Amortization of right of use assets   1,389,429    1,195,995 
Share-based compensation   -    91,666 
Bad debt expense   2,541,676    240,000 
Gain on forgiveness of notes payable   (358,236)   (1,646,062)
Loss on extinguishment of notes payable   564,037    1,147,856 
Change in deferred tax asset   (679,527)   (264,000)
Change in fair value of derivative liabilities   4,020,698    - 
Accretion of consulting agreement   (282,672)   (282,672)
Changes in operating assets and liabilities:          
Accounts receivable   (56,917,965)   (12,677,437)
Contract assets   (7,547,267)   (18,586,306)
Factoring reserve   7,593,665    (6,622,941)
Other prepaid expenses and other current assets   (642,563)   (669,787)
Deposits and other assets   (736,195)   1,042 
Accounts payable   10,036,018    29,465,943 
Accrued expenses and other current liabilities   3,999,874    (1,226,702)
Accrued freight   (1,162,780)   6,926,050 
Contract liabilities   468,209    - 
Operating lease liability   (1,391,062)   (1,095,969)
Net Cash Used in Operating Activities   (34,011,241)   (161,906)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (72,001)   (51,489)
Net Cash Used in Investing Activities   (72,001)   (51,489)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from notes payable   2,000,000    5,174,902 
Repayments of notes payable   (4,473,784)   (858,330)
Repayments of long-term debt due to related parties   (414,647)   (5,149,925)
Cash paid for debt issuance costs   -    (50,000)
Borrowings on line of credit, net   38,141,451    - 
Net Cash Provided by (Used in) Financing Activities   35,253,020    (883,353)
           
Net change in cash and cash equivalents   1,169,778    (1,096,748)
           
Cash and cash equivalents - Beginning of year   252,615    1,349,363 
Cash and cash equivalents - End of year  $1,422,393   $252,615 
SUPPLEMENTARY CASH FLOW INFORMATION:          
Cash Paid During the year for:          
Income taxes  $3,775,967   $527,583 
Interest  $5,632,551   $66,717 
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Operating lease asset and liability additions  $-   $223,242 
Non-cash note forgiveness due to UL HK  $-   $310,452 
Fair value of warrants issued with convertible notes  $-   $1,126,497 
Beneficial conversion feature of convertible notes  $-   $2,540,169 
Issuance of Common Stock - Conversions and Awards  $-   $393,743 
Conversion of Preferred Stock Series B preferred to common  $125,673   $- 
Conversion of Preferred Stock Series D preferred to common  $31,415   $- 
Issuance of common stock for the conversion of principal net of accrued interest capitalized to principal to Notes Payable  $244,931   $- 
Reduction of debt due to exchange of Convertible Notes for Preferred Stock Series C & D  $4,565,725   $- 
Derivative liability recognized related to exchange of Convertible Notes for Preferred Stock Series C and D  $8,417,296   $- 

 

See notes to accompanying consolidated financial statements.

 

F-6

 

 

UNIQUE LOGISTICS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 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”) and (collectively the “UL US Entities”). The Company provides a range of international logistics services that enable its customers to outsource sections of their supply chain process. This range of services can be categorized as follows:

 

  ● Air Freight services
  ● Ocean Freight services
  ● Customs Brokerage and Compliance services
  ● Warehousing and Distribution services
  ● Order Management

 

On May 29, 2020, Unique Logistics Holdings, Inc., a privately held Delaware corporation 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”).

 

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.

 

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 of May 31, 2022, the Company reported working capital of approximately $4.2 million compared with negative $3.5 million working capital as of May 31, 2021.

 

The Company took the following steps to improve liquidity year over year:

 

  ● Strong operational performance resulted in increase in EBITDA from $8.9 million during the year ended May 31, 2021 to $17.3 million during the year ended May 31, 2022
  ● The Company entered into Fourth Amendment to the TBK Loan Agreement to increase its credit facility from $47.5.0 million to $57.5 million until October 2022 with an option to extend beyond that date.
  ● The Company exchanged all of its Convertible Notes and associated Warrants into shares of Convertible Preferred Shares Series C and D

 

F-7

 

 

Since its inception, the Company has experienced significant business growth. To fund such growth operating capital was initially provided by third party investors through Convertible Notes and on December 10, 2021 exchanged into Convertible Preferred Shares Series A, C and D with fixed ownership percentage of the company. Preferred shares are more beneficial to the company because they don’t require cash repayments. Due to the antidilution provision imbedded in the Convertible Preferred Shares, these provisions resulted in an embedded derivative and the company recorded a current liability during the quarter ended on February 28, 2022 in the amount of $12.7 million (See Derivative Liability note below). Prior to quarter ended February 28, 2022, this liability was not material. This liability is recorded as a long-term liability due to its future settlement in common stocks on the balance sheet and is being adjusted to market on each of the subsequent reporting period.

 

The Company is also in process of potentially raising additional capital through the planned underwritten offering of securities that would provide funds for planned acquisitions and operating capital. 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 and improving 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. Use of operating cash is an indicator that there could be a going concern issue, but based on our evaluation of the Company’s projected cash flows and business performance subsequent to the balance sheet date, management has concluded that the Company’s current cash and cash availability under the line of credit as of May 31, 2022, would be sufficient to alleviate a going concern issue for at least one year from the date these consolidated financial statements are issued.

 

COVID-19

 

Covid-19 remains a threat and certain countries, such as China, are still subject to restrictions related to Covid-19. While the threat level has declined to a significant extent in the USA and globally, any resurgence could have a material adverse effect on our business operations, results of operations, cash flows and financial position.

 

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 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”).

 

F-8

 

 

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.

 

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, and estimates and assumptions in valuation of debt and equity instruments, including derivative liabilities. 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 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.

 

F-9

 

 

The methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while management believes its valuation methods are appropriate, the fair value of certain financial instruments could result in a difference fair value measurement at the reporting date. There were no changes in the Company’s valuation methodologies from the prior year.

 

For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts for financial assets and liabilities such as cash and cash equivalents, accounts receivable - trade, contract assets, factoring reserve, other prepaid expenses and current assets, accounts payable – trade and other current liabilities, including contract liabilities, convertible notes, promissory notes, all approximate fair value due to their short-term nature as of May 31, 2022 and 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 May 31, 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 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, 2022 and 2021, the Company recorded an allowance for doubtful accounts of approximately $2.7 million and $0.2 million, respectively.

 

Concentrations

 

Revenue by three customers as a percentage of the Company’s total revenue was 48% for the year ended May 31, 2022, with customer A at 35%, customer B at 7% and Customer C 6%. These three customers represented approximately 21% of all accounts receivable as of May 31, 2022 and no single customer represented more than 10% of total accounts receivable.

 

Two customers accounted for 44% of total revenue for the year ended May 31, 2021 with customer A at 25%, customer B at 19%. No customer represented more than 10% of non-factored accounts receivable as of May 31, 2021.

 

F-10

 

 

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 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 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 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 years ended May 31, 2022 and 2021, the Company factored accounts receivable invoices totaling approximately Nil and $233.4 million, 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 $4.5 million, pursuant to the agreements for the year ended May 31, 2021 and $27,000 for the year ended May 31, 2022. The Company recognizes factoring costs upon disbursement of funds. Factoring expenses are presented in costs and operating expenses on the consolidated statements 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, 2022 or May 31, 2021.

 

F-11

 

 

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 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.

 

We test goodwill for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable. For the year ended May 31, 2022 and 2021 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 years ended May 31, 2022 and 2021, as there were no triggering events or changes in circumstances that indicate that the carrying amount of an asset may not be recoverable.

 

F-12

 

 

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 and recorded derivative instruments arising from an anti-dilution provision in the Company’s Series A, Series C, and Series D Preferred Stock during the quarter ended February 28, 2022. The Company recorded $12.4 million of derivative liabilities measured at fair value as of May 31, 2022 on its balance sheet. Derivative liability related to Preferred Convertible Stock Series A was immaterial as of May 31, 2021.

 

An embedded derivative liability is representing the rights of holders of Convertible Preferred Stock Series A, 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. The Company recorded change in fair value of $4,020,698 on the consolidated statements of operations.

 

                
   Level 1   Level 2   Level 3 
Derivative liabilities as June 1, 2021  $    -   $    -   $- 
Addition   -    -    8,417,296 
Changes in fair value   -    -    4,020,698 
Derivative liabilities as May 31, 2022  $-   $-   $12,437,994 

 

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.

 

The key inputs into the model were as follows:

   May 31, 2022   May 31, 2021 
Risk-free interest rate   1.6%   0.7%
Probability of capital raise   53.9%   10%
Estimated capital raise amount  $39,000,000   $2,400,000 
Estimated time to capital raise   0.5 years    1.0 years 

 

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. The Company regularly evaluates the need for a valuation allowance related to the deferred tax asset.

 

F-13

 

 

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.

 

F-14

 

 

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 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.

 

Significant Changes in Contract Asset and Contract Liability Balances for the year ended May 31, 2022:

 

  

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   -    468,209 
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional   (10,491,045)   - 
Contract assets recognized   18,038,312    - 
Net Change  $7,547,267   $468,209 

 

There were no changes in contract assets or liabilities as of May 31, 2021.

 

F-15

 

 

Disaggregation of Revenue from Contracts with Customers

 

The following table disaggregates gross revenue from our clients (all US based) by significant geographic area for the years ended May 31, 2022 and 2021, based on origin of shipment (imports) or destination of shipment (exports):

 

           
   For the
Year Ended
May 31, 2022		  

For the

Year Ended
May 31, 2021

 
China, Hong Kong & Taiwan  $343,370,279   $186,932,382 
Southeast Asia   422,869,068    104,475,697 
United States   39,362,326    31,452,041 
India Sub-continent   161,841,791    28,164,102 
Other   47,043,216    20,863,050 
Total revenue  $1,014,486,680   $371,887,272 

 

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.

 

F-16

 

 

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, 2022    May 31, 2021 
Numerator:          
Net income (loss) available for common shareholders   $(1,031,171)    1,725,497 
Effect of dilutive securities:    -     1,350,389 
             
Diluted net (loss) income available for common shareholders   $(1,031,171)   $3,075,886 
             
Denominator:            
Weighted average common shares outstanding – basic    605,817,180     1,408,941,722 
             
Dilutive securities:            
Series A Preferred    -     1,316,157,000 
Series B Preferred    -     5,499,034,800 
Convertible notes    -     1,806,230,539 
Warrants    -     - 
Series C Preferred    -     - 
Series D Preferred    -     - 
             
Weighted average common shares outstanding and assumed conversion – diluted    605,817,180     10,030,364,061 
             
Basic net (loss) income available for common shareholders per common share   $(0.00)   $0.00 
     -       
Diluted net (loss)income available for common shareholders per common share   $(0.00)   $0.00 

 

The Company has excluded the following shares as of May 31, 2022, because they are antidilutive:

 

   May 31, 2022 
Weighted average common shares outstanding – basic   605,817,180 
Series A Preferred   1,233,209,295 
Series B Preferred   5,373,342,576 
Series C Preferred   1,206,351,359 
Series D Preferred   1,174,935,959 
Weighted average common shares outstanding and assumed conversion – diluted   9,593,656,369 

 

 

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.

 

F-17

 

 

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, 2022 and May 2021, share-based compensation amounted to $0 and $91,666 for services provided.

 

F-18

 

 

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.

 

F-19

 

 

Recently Issued Accounting Pronouncements

 

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. ASU 2020-06 is effective for public business entities, other than smaller reporting companies as defined by the SEC starting January 1, 2022. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.

 

2. PROPERTY AND EQUIPMENT

 

Major classifications of property and equipment are summarized below as of May 31, 2022 and 2021.

 

           
   May 31, 2022   May 31, 2021 
         
Furniture and fixtures  $102,062   $84,085 
Computer equipment   159,674    108,479 
Software   30,609    27,780 
Leasehold improvements   27,146    27,146 
Property and equipment, gross   319,491    247,490 
Less: accumulated depreciation   (130,602)   (55,398)
Property and equipment, net  $188,889   $192,092 

 

F-20

 

 

Depreciation expense charged to income for the years ended May 31, 2022 and May 31, 2021 amounted to $75,204 and $58,384.

 

4. GOODWILL

 

The carrying amount of goodwill was $4,463,129 at May 31, 2022 and 2021. 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 as part of the acquisition.

 

 

      
Beginning balance June 1, 2020  $4,788,129 
Measurement Period Adjustment   (325,000)
Ending balance May 31, 2021 and 2022  $4,463,129 

 

 

5. INTANGIBLE ASSETS

 

Intangible assets consist of the following at May 31, 2022 and 2021:

 

           
   May 31, 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 
Intangible assets, gross    8,752,000    8,752,000 
Less: Accumulated amortization   (1,414,296)   (707,147)
Intangible assets, net  $7,337,704   $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 year ended May 31, 2022 and 2021, amortization expense related to the intangible assets was $707,149 and $707,147. As of May 31, 2022, the weighted average remaining useful lives of these assets were 7.33 years.

 

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

 

      
Twelve Months Ending May 31,    
2023   637,592 
2024   637,592 
2025   637,591 
2026   602,814 
2027   602,814 
Thereafter   4,219,301 
Intangible assets, net  $7,337,704 

 

F-21

 

 

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following at May 31, 2022 and 2021:

 

           
   May 31, 2022   May 31, 2021 
         
Accrued salaries and related expenses  $625,000   $672,455 
Accrued sales and marketing expense   2,383,500    539,810 
Accrued professional fees   1,350,170    75,000 
Accrued income tax   559,544    256,286 
Accrued overdraft liabilities   681,058    790,364 
Other accrued expenses and current liabilities   66,887    50,000 
Accrued expenses and other current liabilities  $5,666,159   $2,383,915 

 

 

7. FINANCING ARRANGEMENTS

 

Financing arrangements on the consolidated balance sheets consists of:

 

           
   May 31, 2022   May 31, 2021 
         
Revolving Credit Facility  $38,141,451   $- 
Promissory note (PPP)   -    358,236 
Promissory notes (EIDL)   -    150,000 
Notes payable   608,333    2,528,886 
Convertible notes – net of discount   -    2,441,551 
Notes payable, gross    38,749,784    5,478,673 
Less: current portion   (38,749,784)   (2,285,367)
Long term, notes payable   $-   $3,193,306 

 

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.

 

F-22

 

 

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 Forth 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.

 

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 year ended May 31, 2022 were approximately $1.0 million.

 

Promissory Note (PPP)

 

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, 2022 and 2021, the outstanding balance due under these promissory notes was $0 and $358,236, 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.

 

F-23

 

 

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 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. As of May 31, 2021 , the outstanding balance was $358,236, and the full amount was forgiven as of May 31, 2022.

 

Promissory Note (EIDL)

 

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. The note had an outstanding balance of $150,000 as of May 31, 2021. As of May 31, 2022 this note was fully repaid.

 

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, 2022 and 2021, the outstanding balance due under the note was $608,333 and $1,216,667, 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, 2022 and 2021, the outstanding balance due under the agreement was $0 and $250,004, respectively.

 

F-24

 

 

Promissory Note

 

On March 19, 2021 (the “Effective Date”), Unique Logistics International, Inc. (the “Company”) issued to an accredited investor (the “Investor”) a 10% promissory note in the principal aggregate amount of $1,000,000 (the “Note”). The Company received aggregate gross proceeds of $1,000,000. The purpose of the funds is to augment working capital resulting from a surge in business and new customer acquisition. The Note matures on the date that is thirty (30) days following the Effective Date (the “Maturity Date”). The Note bears interest at a rate of ten percent (10%) per annum (the “Interest Rate”). The Company may prepay the Note without penalty.

 

As of May 31, 2021, the outstanding balance due under the agreement was $1,062,215. On May 31, 2022, this note was paid in full.

 

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 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 year ended May 31, 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 May 31, 2022 and 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.

 

F-25

 

 

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 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 May 31, 2022 and 2021 the total unamortized debt discount related to the 3a SPA was $0 and $391,757, respectively. During the year ended May 31, 2022, the Company recorded amortization of debt discount totalling $285,048.

 

During the year ended May 31, 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 May 31, 2022 and 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.

 

F-26

 

 

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.

 

As of May 312021, the outstanding balance on these convertible notes was $1,833,334.

 

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.

 

During the year ended May 31, 2022, the Company recorded amortization of debt discount totaling $491,467.

 

Covenants

 

As of May 31, 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 19, 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”).

 

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”).

 

F-27

 

 

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 $608,333 due during the twelve months ended May 31, 2023.

 

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, 2022   May 31, 2021 
         
Due to Frangipani Trade Services (1)  $602,618   $903,927 
Due to employee (2)   30,000    60,000 
Due to employee (3)   66,658    149,996 
Due to related parties, gross   699,276    1,113,923 
Less: current portion   (301,308)   (397,975)
Long term, due to related parties  $397,968   $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.

 

F-28

 

 

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 Other Long Term Liabilities line item on the consolidated balance sheets and amortized over the life of the agreement. The unamortized balances were $282,666 and $565,338 as of May 31, 2022 and 2021, respectively.

 

Accounts Receivable - trade and Accounts Payable - trade

 

Transactions with related parties account for $3.0 million and $15.2 million of accounts receivable and accounts payable as of May 31, 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 year ended May 31, 2022, these transactions represented approximately $3.9 million of revenue.

 

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 $2.4 million of revenue.

 

Direct costs are services billed to the Company by related parties for shipping activities. For the year May 31, 2022, these transactions represented approximately $192.8 million of total direct costs.

 

Direct costs are services billed to the Company by related parties for shipping activities. For the year May 31, 2021, these transactions represented $54.9 million of total direct costs.

 

9. RETIREMENT PLAN

 

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 $0.1 million and $0.05 million for the year ended May 31, 2022 and 2021, respectively.

 

10. STOCKHOLDERS’ EQUITY

 

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

 

-28,291,180 shares of the Company’s common stock were issued to a consultant. The shares have an aggregated fair value of $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 April 12, 2021, a noteholder converted $63,692.00 in principal and interest into 35,455,872 shares of the Company’s common stock. See Note 7.

 

F-29

 

 

During the year ended May 31, 2022:

 

On August 13, 2021 the Company issued 125,692,224 shares of the Company’s common stock 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 April 5, 2022, a shareholder converted 5 shares of Series D Convertible Preferred Stock into 31,415,400 shares of the Company’s common stock.

 

On June 23, 2021, a noteholder converted $25,842.22 in convertible notes (principal and interest) into 14,385,720 shares of the Company’s common stock at a rate of $0.00179638 per share.

 

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.

 

As of May 31, 2022 and 2021, there were 687,196,478 and 393,742,663 shares of Common Stock issued and outstanding, respectively.

 

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 May 31, 2022 and 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 May 31, 2022 and 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.

 

F-30

 

 

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 187 shares of Series D Preferred shares issued and outstanding as of May 31, 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)

 

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 May 31, 2022, at fair value (see Note 1, Derivative Liability). As a result of the Company exchanging $3.9 million of convertible notes into Series C and D Preferred Stock, the Company also recognized net loss on the extinguishment of debt of approximately $4.6 million recorded in the financial statements as deemed dividend and $4.3 million net loss on the mark to market of the derivative liability associated with the Series A Preferred Stock recorded in Other Income (Expenses), both reflected in the statement of operations for the year ended May 31, 2022.

 

Warrants

 

The following is a summary of the Company’s warrant 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 
Cancelled   (1,140,956,904)  $- 
Outstanding – May 31, 2022   -   $- 
Exercisable – May 31, 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, as of May 31, 2022 the Company no longer has any outstanding warrants.

 

F-31

 

 

11. COMMITMENTS AND CONTINGENCIES

 

Pending acquisitions

 

On April 28, 2022, Unique Logistics International, Inc. (the “Company”) entered into a stock purchase agreement (the “Purchase Agreement”), by and between the Company and Unique Logistics Holdings Limited, a Hong Kong corporation (the “Seller”), whereby the Company acquired from the Seller all of Seller’s share capital (the “Purchased Shares”) in nine (9) of Seller’s subsidiaries (collectively the “Subsidiaries”) as listed in Schedule I of the Purchase Agreement. As consideration for the Purchased Shares, the Company agreed to (i) pay the Seller $21,000,000 (the “Cash Consideration”); and (ii) issue to the Seller a $1,000,000 promissory note (the “Note” and, together with the Cash Consideration, the “Purchase Price”). The Purchase Price is subject to certain adjustments set forth in the Purchase Agreement.

 

In addition to the Purchase Price, Seller will be eligible for an additional one-time cash earn-out payment (the “Earn Out Payment”), in the amount of (i) $2,500,000, if the EBITDA of the Purchased Shares, in the aggregate, exceeds $5,000,000 for the one-year period beginning on July 1, 2022 and ending June 30, 2023 (the “Earn Out Period”), or (ii) $2,000,000, if the EBITDA of the Purchased Shares, in the aggregate is equal to or less than $5,000,000 but exceeds $4,500,000, for the Earn Out Period, in each case, to be paid by the Company within 90 days of June 30, 2023.

 

The transactions contemplated by the Purchase Agreement shall be contingent upon and subject to successful completion of the Company’s anticipated public offering of securities (the “Financing”). If the Company is unable to obtain the Financing, the Company may provide written notice to Seller stating that the Company has been unable to obtain the Financing and notify Seller that the Company has elected to either (i) waive the condition of the Financing , in which event the Purchase Agreement will continue as if the Financing had been obtained or (ii) terminate the Purchase Agreement.

 

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:

 

  

For the Year

Ended

  

For the Year

Ended

 
   May 31, 2022   May 31, 2021 
Operating lease  $1,717,807   $1,506,090 
Interest on operating lease liabilities   209,536    148,039 
Total net lease cost  $1,927,343   $1,654,129 

 

Supplemental balance sheet information related to leases was as follows:

 

   May 31, 2022   May 31, 2021 
         
Operating leases:          
Operating lease ROU assets – net  $2,408,098   $3,797,527 
           
Current operating lease liabilities, included in current liabilities  $912,618   $1,466,409 
Noncurrent operating lease liabilities, included in long-term liabilities   1,593,873    2,431,144 
Total operating lease liabilities  $2,506,491   $3,897,553 

 

F-32

 

 

Supplemental cash flow and other information related to leases was as follows:

 

  

For the Year

Ended

May 31, 2022

  

For the Year

Ended

May 31, 2021

 
         
ROU assets obtained in exchange for lease liabilities:          
Operating leases  $1,805   $223,242 
Weighted average remaining lease term (in years):          
Operating leases   3.88    4.04 
Weighted average discount rate:          
Operating leases   4.02%   4.25%

 

As of May 31, 2022, future minimum lease payments under noncancelable operating leases are as follows:

 

Future Minimum Payments for the Twelve Months Ending May 31,    
2023  $1,002,244 
2024   573,301 
2025   448,460 
2026   260,309 
2027   198,255 
Thereafter   249,406 
Total lease payments   2,731,975 
Less: imputed interest   (225,484)
Total lease obligations  $2,506,491 

 

F-33

 

 

12. INCOME TAX PROVISION

 

The income tax provision consists of the following:

 

   May 31, 2022   May 31, 2021 
Federal          
Current  $2,052,526   $521,293 
Deferred   (554,294)   (208,560)
State and Local          
Current   1,041,298    262,576 
Deferred   (125,232)   (55,440)
Income tax expense  $2,414,298   $519,869 

 

The Company has U.S. federal net operating loss carryovers (NOLs) of approximately none, and $0.1 million as of May 31, 2022 and 2021, respectively, available to offset taxable income through 2021. The Company also had California State Net Operating Loss carry overs of $262,678 as of May 31, 2021 and 2022, 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, 2022, 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, 2022 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.

 

F-34

 

 

The Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:

 

Deferred Tax Assets  For the Year Ended
May 31, 2022		  

For the Year Ended

May 31, 2021

 
Debt discount liability  $-   $288,555 
Allowance for doubtful accounts   733,139    39,414 
Contract liability   

230,263

    - 
Lease liability   

659,460

    - 
Other   238,006    19,513 
Total deferred tax assets   1,860,868    347,482 
Valuation allowance   -    - 
Deferred tax asset, net of valuation allowance   1,860,868    347,482 
           
Deferred Tax Liabilities          
Operating lease right-of-use assets   

(631,173

)   - 
Goodwill and intangibles   

(256,533

)   - 
Fixed assets   (30,414 )   (84,261)
Net deferred tax asset (liability)  $942,748   $263,221 

 

The expected tax expense (benefit) based on the statutory rate is reconciled with actual tax expense benefit as follows:

 

   For the Year Ended
May 31, 2022		  

For the Year

Ended

May 31, 2021

 
US Federal statutory rate (%)   21.0    21.0 
State income tax, net of federal benefit   16.4    8.4 
Impact of debt exchange   18.9    - 
FDII deduction   (10.1)   - 
PPP Loan Forgiveness   (1.3)   - 
Change in valuation allowance   -    (1.7)
Other permanent differences, net   (4.3)   (4.5)
Income tax provision (benefit) (%)   40.6    23.2 

 

 

13. SUBSEQUENT EVENTS

 

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.

 

Preferred Stock Conversions

 

On June 21, 2022, a shareholder converted 3 shares of Series D Convertible Preferred Stock into 18,849,240 shares of the Company’s common stock.

 

On June 28, 2022, a shareholder converted 4 shares of Series D Convertible Preferred Stock into 25,132,320 shares of the Company’s common stock.

 

On July 29, 2022, a shareholder converted 9,935 shares of Series A Convertible Preferred Stock into 67,963,732 shares of the Company’s common stock.

 

F-35

 

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