Business Context and Reporting Period
This Form 6-K, filed on January 20, 2022, by Hudson Capital Inc. (a British Virgin Islands company), discloses unaudited pro forma condensed combined financial information regarding its proposed merger with FreightHub, Inc. (d/b/a Freight Technologies, Inc. or "Fr8App"). The filing presents the financial position of the "Combined Company" as if the merger and related financing transactions had occurred on June 30, 2021 (balance sheet) and January 1, 2020 (statements of operations). Fr8App is the accounting acquirer in this equity transaction.
Key Financial Metrics (Pro Forma Combined)
| Metric | Six Months Ended June 30, 2021 | Year Ended December 31, 2020 |
|---|---|---|
| Net Revenue | $10,666,316 | $9,206,559 |
| Gross Profit | $967,805 | $794,989 |
| Gross Margin | 9.1% | 8.6% |
| Operating Loss | $(2,919,769) | $(8,843,107) |
| Net Loss | $(3,104,993) | $(14,927,329) |
| Pro Forma Cash (as of June 30, 2021) | $10,419,315 | N/A |
| Pro Forma Total Assets (as of June 30, 2021) | $16,722,618 | N/A |
| Pro Forma Total Liabilities (as of June 30, 2021) | $7,237,065 | N/A |
Material Changes and Financing Transactions
The pro forma adjustments reflect significant capital raises and debt conversions intended to fund the merger and operations:
- At-Merger Financing: An expected private placement of $3,500,000 in gross proceeds via Series B Preferred Shares and warrants.
- December 2021 Financing: Hudson sold pre-funded warrants for $2,355,000.
- Bridge Notes Conversion: Existing Fr8App convertible notes (2020, January, May, and July Bridge Notes) totaling approximately $7.6 million in principal are converted into Series B Preferred Shares of the Combined Company.
- Short-Term Note: A $170,000 loan from ATW Opportunities to Fr8App, evidenced by a $200,000 principal note.
- Transaction Costs: Estimated direct transaction costs of $3,219,243 are recorded as a reduction to additional paid-in capital.
Outlook, Risks, and Management Commentary
Management Commentary: The pro forma statements are prepared for illustrative purposes only and assume the merger is treated as an equity transaction. Management notes that the Combined Company incurred significant losses during the historical periods presented, rendering the pro forma information potentially not meaningful for predicting future results. The filing assumes shareholder approval of the merger.
Risks and Contingencies:
- Liquidity: Fr8App has historically relied on equity and debt financings to fund operations and has suffered recurring losses. The company believes cash on hand and investor support will allow it to continue as a going concern for the next twelve months.
- Merger Completion: The transaction is subject to customary closing conditions, including shareholder approval. Differences between preliminary pro forma adjustments and final accounting may occur.
- Customer Concentration: For the six months ended June 30, 2021, one customer accounted for 36% of Fr8App's revenue.
- Foreign Operations: Operations in Mexico are subject to risks including changes in tax laws and foreign exchange controls.
Key Facts for Investor Verification
- Merger Status: Verify if the merger between Hudson Capital Inc. and FreightHub, Inc. has been consummated and if the "At-Merger Financing" of $3.5 million was successfully closed.
- Debt Conversion Terms: Confirm the final exchange ratio and the specific number of Series B Preferred Shares issued upon the conversion of the various Bridge Notes.
- Going Concern: Assess the Combined Company's ability to generate positive cash flows from operations given the historical net losses of over $14 million in 2020 and $3.1 million in the first half of 2021.
- Customer Concentration: Evaluate the risk associated with the top customer representing 36% of revenue in the most recent interim period.
- Transaction Costs: Verify the final amount of transaction costs incurred, as the pro forma estimate of $3.2 million is preliminary.