Business Context and Reporting Period
Company: Freight Technologies, Inc. (formerly Hudson Capital, Inc.; Ticker: FRGT)
Filing Type: Form 6-K (Unaudited Financial Results)
Reporting Period: Six months ended June 30, 2022
Filing Date: November 14, 2022
The Company operates Fr8App, a digital freight matching platform connecting shippers with carriers for cross-border (USA-Mexico) and domestic shipping. Following a merger consummated on February 14, 2022, the Company changed its name and ticker symbol in May 2022. The financial results reflect the combined operations of the Company and Fr8App.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|
| Net Revenue | $13,827,742 | $10,666,316 |
| Cost of Revenue | $13,078,035 | $9,698,511 |
| Gross Profit | $749,707 | $967,805 |
| Gross Margin | 5.4% | 9.1% |
| Operating Loss | $(3,574,269) | $(2,524,104) |
| Net Loss | $(4,277,860) | $(2,712,963) |
| Cash and Cash Equivalents (June 30, 2022) | $1,511,196 | N/A |
| Total Debt (June 30, 2022) | $4,781,422 | N/A |
| Working Capital (June 30, 2022) | $1,568,779 | N/A |
| Net Cash Used in Operating Activities | $(6,229,795) | $(3,741,851) |
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 29.6% year-over-year, driven by growth in the Private Fleet product and U.S. Domestic loads, alongside a 9.5% increase in cross-border traffic.
- Margin Compression: Gross margin declined from 9.1% to 5.4%. Cost of revenue grew 34.8%, outpacing revenue due to supply chain volatility, truck/driver shortages, and a >50% increase in diesel fuel prices.
- Expense Increases:
- General and Administrative (G&A) expenses rose 48.8% due to professional fees (audit, legal, investor relations) associated with the Merger and public company status.
- Sales and Marketing expenses surged 119.2% due to a large promotional payment targeting major U.S. shippers.
- Net Loss Expansion: Net loss increased 57.7% to $4.28 million, primarily due to higher operating costs and increased interest expense ($691,749 vs. $287,442) from higher short-term debt levels.
- Balance Sheet: Short-term borrowings increased from $1.73 million (Dec 31, 2021) to $4.04 million (June 30, 2022). Convertible notes and warrant liabilities present in the prior period were extinguished or reclassified.
Outlook, Risks, and Management Commentary
- Liquidity Needs: Management projects a need for additional capital to fund operations until the Company achieves cash self-sufficiency. There is no assurance that financing will be available on favorable terms.
- Recent Financing: Subsequent to June 30, 2022, the Company raised $3.7 million:
- July 12, 2022: $2.7 million via Series A4 Preferred Shares.
- October 27, 2022: $1.0 million via ordinary shares and pre-funded warrants.
- Market Trends: The Company anticipates continued evolution toward digital freight platforms. However, cross-border trade restrictions and capacity constraints remain significant factors.
- Risks: Key risks include the inability to secure additional financing, volatility in fuel prices, supply chain disruptions, and the accuracy of forward-looking statements regarding future growth and profitability.
Investor Verification Checklist
- Cash Burn Rate: Verify the sustainability of operations given the $6.23 million negative operating cash flow and reliance on external financing.
- Debt Obligations: Review the terms of the $4.78 million total debt and the $5 million short-term debt facility to assess refinancing risks.
- Margin Recovery: Monitor if gross margins can stabilize as diesel prices and driver shortages normalize.
- Revenue Mix: Confirm the sustainability of the growth in U.S. Domestic and Private Fleet revenue streams versus cross-border traffic.
- Post-Period Capital: Validate the utilization of the $3.7 million raised in July and October 2022 and its impact on the current liquidity position.