Freight Technologies, Inc. — FY 2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022; comparison is with FY 2021. This is an annual report, not a standalone Q4 filing, and the supplied filing text does not provide separate fourth-quarter results. Financial amounts below are U.S. dollars.
Business context and reporting period
Freight Technologies provides technology-enabled freight brokerage and logistics services, primarily in the U.S.-Mexico market, through Fr8App and Fr8fleet. Its Fr8Now less-than-truckload offering began minimal operations in late Q1 2023. The February 2022 merger with Fr8App was accounted for as a reverse acquisition and recapitalization; historical results principally reflect Fr8App, with Hudson Capital consolidated from the merger date. The company sold its legacy Hong Kong financial-services subsidiary in March 2022 and changed its name and ticker to Freight Technologies (FRGT) in May 2022.
Financial performance and position
| Metric | FY 2022 | FY 2021 | Change / note |
|---|---|---|---|
| Revenue | $25.89 million | $21.47 million | Up 20.6% |
| Cost of revenue | $23.63 million | $19.56 million | Up 20.8% |
| Gross profit / margin | $2.26 million / 8.7% | $1.92 million / 8.9% | Margin slightly lower |
| Operating loss | $7.06 million | $4.81 million | Loss widened $2.25 million |
| Net loss | $8.19 million | $8.20 million | Nearly unchanged |
| Operating cash flow | $(8.47) million | $(5.93) million | Cash use increased |
| Investing cash flow | $(0.38) million | $(0.47) million | Primarily software and equipment |
| Financing cash flow | $6.57 million | $6.83 million | Equity and borrowing proceeds |
| Cash and cash equivalents, year-end | $1.01 million | $3.15 million | Down $2.14 million |
| Current assets / liabilities, year-end | $9.46 million / $7.28 million | $8.52 million / $18.26 million | FY22 working capital: $2.17 million |
| Debt, year-end | $3.35 million short-term; no long-term debt | $1.73 million short-term, plus notes and convertible notes | Prior-year convertible notes were converted to equity in the merger |
| Stockholders’ equity (deficit) | $3.13 million | $(8.97) million | Improved mainly through merger and financing transactions |
The company’s current ratio at year-end was approximately 1.30. The filing reports a $30.0 million accumulated deficit and states that the auditor’s report includes a going-concern paragraph: recurring losses, negative operating cash flows, and dependence on additional financing raise substantial doubt about the company’s ability to continue as a going concern.
Material changes versus FY 2021
- Revenue growth was driven chiefly by Fr8fleet, which contributed approximately $3.69 million more revenue than in 2021 and represented nearly 15% of 2022 revenue, versus 0.3% in 2021.
- Management said Fr8App growth was held back by reduced activity from an important customer beginning in fall 2022; it expected cross-border activity with that customer to resume by mid-2023.
- Operating expenses rose 25.4% to approximately $32.95 million. Compensation and benefits increased 33.7%, general and administrative expenses increased 36.0%, and sales and marketing increased from $0.09 million to $0.56 million.
- Gross margin was approximately 8.7%, versus 8.9%. Management reported improvement in margins in the second half of 2022 as carrier capacity normalized.
- Cash used in operations increased to $8.47 million, with working-capital needs including higher receivables and prepaid assets. Accounts receivable and unbilled receivables together increased substantially; management attributed this partly to slower payment by two major shippers.
- Merger-related conversion of convertible notes and warrant liabilities into equity reduced reported liabilities, while new short-term borrowing and preferred-share issuances supported liquidity.
Outlook, risks, contingencies, and unusual items
- Outlook: No quantified revenue, earnings, or cash-flow guidance is provided. Management plans to expand Fr8App, Fr8fleet, and Fr8Now, invest in software, sales capacity and automation, and pursue Mexican domestic, cross-border, and selected North American routes. It expects operating losses to continue for the foreseeable future and anticipates compensation and general and administrative costs will rise as the business grows.
- Funding and dilution: Management says additional debt or equity funding is needed to support operations and investment, but availability and terms are uncertain. A January 2023 investor facility was described as up to $6.6 million, with staged funding and conditions; the filing also describes a possible extension to $9.9 million. The subsequent-event note reports $3.75 million received in three tranches through February 6, 2023. The facility includes a 9% original issue discount, interest provisions, conversion at $0.23 per share, and a warrant for up to 2,866,698 shares at a stated $15.00 exercise price; the potential dilution and exact amounts funded should be verified against subsequent filings.
- Customer and collection exposure: Two customers represented 17% and 11% of 2022 revenue. Two customers accounted for 42% and 16% of year-end receivables. The filing also notes that the largest customer’s activity fell sharply from 2021 levels.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2022. Identified weaknesses included inadequate internal-audit monitoring and insufficiently formalized control documentation and procedures. Management planned remediation during 2023; effectiveness had not yet been demonstrated.
- Litigation: Freight App is contesting a breach-of-contract suit brought by BG Strategic Advisors, LLC and has filed counterclaims. Discovery was complete and trial was scheduled for October 30, 2023 if unresolved. The filing does not quantify a potential loss.
- Other risks: The filing highlights freight-market cyclicality, fuel and interest-rate volatility, Mexican peso exposure, cross-border trade and political changes, competition, driver availability, cybersecurity and privacy, and customer concentration. It also notes the company has no patents or registered trademarks and describes a trademark settlement requiring abandonment of certain “Hub” identifiers.
- Unusual items and listing: FY21 included a $2.83 million loss on initial issuance of private warrants and a $0.50 million gain from warrant remeasurement; FY22 included a $0.13 million warrant fair-value loss. These noncash/financing-related items affect comparisons. Following a March 2023 10-for-1 reverse split, Nasdaq notified the company in April 2023 that it had regained compliance with the minimum bid-price requirement; continued listing compliance is not assured.
Most important facts for investors to verify
- Cash runway, operating cash burn, and the actual availability and remaining conditions of financing facilities, including subsequent funding and debt terms.
- Whether the major shipper relationship recovered as anticipated, and the aging, collection status, and concentration of receivables.
- Progress and testing of the internal-control remediation plan and any subsequent control findings.
- Status, potential exposure, and resolution of the BGSA litigation.
- Fully diluted share count and potential dilution from preferred shares, warrants, options, and convertible debt; the filing presents share information affected by reverse splits and multiple convertible securities.
- Whether Fr8fleet and Fr8Now can grow revenue while improving gross margins and reducing cash burn.