Freight (FRGT) 20-F2023 FY Annual report (foreign)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

or

For the fiscal year ended December 31, 2023

or

or

Date of event requiring this shell company report

For the transition period from ___________________________ to ___________________________

Commission file number 001-38172

FREIGHT TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

(Translation of Registrant’s name into English)

British Virgin Islands

(Jurisdiction of incorporation or organization)

2001 Timberloch Place, Suite 500

The Woodlands, TX 77380

(Address of principal executive offices)

Mr. Javier Selgas, Chief Executive Officer

2001 Timberloch Place, Suite 500

The Woodlands, TX 77380

Telephone: (773) 905-5076 Email: javi.selgas@fr8hub.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

The number of outstanding ordinary shares, par value $0.11 per share, is 21,919,240 as of December 31, 2023 (equal to 2,191,924 ordinary shares, par value $1.10 per share, following the February 5, 2024 10:1 reverse stock split).

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

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No

INTRODUCTION

In this annual report, except where the context otherwise requires and for purposes of this annual report only:

FORWARD-LOOKING INFORMATION

This annual report on Form 20-F and the documents incorporated by reference into this annual report on Form 20-F contain forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events, and we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “anticipates,” “believes,” “continue,” “could,” “design,” “estimates,” “expects,” “intends,” “may,” “plans,” “potentially,” “predict,” “pro forma” “seeks,” “should,” “will” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology.

All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning proposed new products or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. Forward-looking statements may also include any statements of the plans, strategies and objectives of management with respect to the approval and the closing of the Merger and other matters related to the Merger.

For a discussion of the factors that may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, and the effect of the Merger on the business of the Company and Fr8App, see the section titled “Item 3. Key Information — D. Risk Factors.” Those risks are not exhaustive. We operate in a rapidly evolving environment. New risk factors emerge from time to time, and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law.

These forward-looking statements include, but are not limited to, statements concerning the following:

You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur.

All forward-looking statements in this annual report on Form 20-F prospectus are current only as of the date on which the statements were made, or in the case of a document incorporated by reference, as of the date of that document. Except as required by law, we do not undertake any obligation to update publicly any forward-looking statements for any reason after the date of this annual report on Form 20-F or to conform these statements to actual results or to changes in expectations.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

The following table presents the selected consolidated financial information for our Company. For financial accounting and reporting purposes under U.S. GAAP, the Merger was accounted for as a reverse acquisition and recapitalization, with no goodwill or other intangible assets recorded. Consequently, the consolidated assets, liabilities and results of operations of the Company are the historical financial statements of Fr8App and Hudson Capital’s assets, liabilities and results of operations are consolidated with the assets, liabilities and results of operations of Fr8App beginning on the Merger date. Shares and earnings per share information prior to the Merger have been retroactively restated to reflect the exchange ratio established in the recapitalization.

All numbers except share and per share numbers are in thousands of United States Dollars ($’000’s). The selected consolidated statements of comprehensive income data for the years ended December 31, 2023, 2022 and 2021, and the consolidated balance sheets data as of December 31, 2023, 2022 and 2021, have been derived from our audited consolidated financial statements, which are included in this annual report beginning on page F-1 and are consistent with numbers reported in our prior 20F Filings.

Our historical results do not necessarily indicate results expected for any future periods. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” below. Our audited consolidated financial statements are prepared and presented in accordance with U.S. GAAP.

* - The number of shares outstanding was adjusted retroactively for all periods presented to reflect the 2.2-to-1 reverse stock split change which was effected on February 15, 2022, a 10-to-1 reverse stock split change which was effected on March 24, 2023, and a 10-to-1 reverse split which was effected on February 5, 2024.

Warrants to purchase ordinary shares are not included in the diluted loss per share calculations when their effect is antidilutive.

BALANCE SHEET

Not applicable.

Not applicable.

COVID-19 Pandemic

A global pandemic or spread of disease, real or perceived, as well as natural disasters in any country in which Fr8Tech operates could materially and adversely affect the demand for its services, its operations and financial conditions. 

The coronavirus (COVID-19) pandemic, or any other similar pandemics, may have an unexpected effects on Fr8Tech’s business, financial condition, and results of operations. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world implemented measures to reduce the spread of COVID-19. These measures adversely affected workforces, customers, supply chains, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn across numerous markets. COVID-19 has also caused widespread unemployment and border closings.

COVID-19 caused Fr8Tech and many other companies to experience significant volatility in their global and domestic supply chains and caused widespread disruptions and eventual displacements of industries, including the recent “near-shoring” phenomenon. The extent to which COVID-19 ultimately impacts the 3PL industry, Fr8Tech’s businesses, results of operations and financial condition will depend on future developments, which are highly uncertain and unpredictable, such as the severity and duration of another COVID-19 outbreak, related virus strains or other viruses and the effectiveness of government actions and social measures taken to mitigate their impact. Additionally, the extent to which any further outbreaks or pandemics ultimately impact Fr8Tech’s operations will depend on a number of factors, many of which will be outside of its control. The spread of COVID-19 continues to evolve, and accordingly, the ultimate consequences of it, and other potential outbreaks cannot be predicted with certainty.

Severe weather conditions and other natural or manmade disasters, including storms, floods, fires, earthquakes, epidemics, pandemics, conflicts, unrest, or terrorist attacks, may disrupt Fr8Tech’s businesses and result in decreased revenues. Customers may reduce shipments, or Fr8Tech’s costs to operate its business may increase, either of which could have a material adverse effect on Fr8Tech. Any such event affecting one of the countries in which Fr8Tech operates could result in a significant interruption in its business. Natural disasters such as major fires in Canada and the United States and other major weather or geological events around the globe could adversely affect the demand for its services, its operations and financial condition.

Risks Related to Fr8Tech’s Business

Fr8Tech’s limited operating history may make it difficult for you to evaluate the success of its business to date and to assess its future viability.

Fr8Tech’s wholly owned subsidiary Fr8App was founded in 2015 with a purpose to develop and offer solutions to the US-Mexico cross-border commercial freight market, and by extension, the US-Canada border. The first commercial version of Fr8App’s platform was launched in 2017. Through ongoing product development efforts, in 2019 we enhanced our initial solution by adding business intelligence and analytics as well as active freight brokerage support services. In 2020, management renewed focus on promoting freight services to Shippers and Carriers (each as defined below) to increase traffic on its freight matching platform. In December 2021, Fr8Tech launched its fixed fleet product under the Fr8Fleet brand name, and introduced a LTL product, under the Fr8Now brand name in 2023. Accordingly, consideration should be taken toward Fr8Tech’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development. Any predictions made about its future success or viability may not be as accurate if Fr8Tech had a longer operating history or a longer history of successfully developing and marketing its product offerings. Fr8Tech’s relatively limited operating history may make it difficult for to evaluate the success of its business and assess its future viability.

Fr8Tech may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving its business objectives. Fr8Tech’s transition from a company with a development focus to a company successfully marketing and monetizing its product offerings may take longer than anticipated, or may not be successful at all.

Fr8Tech’s early-stage operations could expose it to a high concentration of revenues in individual clients and increase the volatility of its revenues.

Fr8Tech works with a number of large corporate entities, primarily Shippers, in helping to fulfill their logistics needs. Many of these clients use Fr8Tech for a small portion of their overall logistics requirements. Shippers tend to be repeat customers, whose demand for Fr8Tech services can grow in an accelerated manner relative to the overall size Fr8Tech’s book of business. Fr8Tech’s largest single client in 2023, 2022 and 2021, was different each year and represented approximately 33%, 17% and 37% of total 2023, 2022 and 2021 annual revenues, respectively.     Changes in Fr8Tech’s customer base or in the demands from some of the larger customers may add volatility to results while the Company remains in its early growth stages.

A significant data breach or information technology system disruption could materially adversely affect Fr8Tech, including requiring Fr8Tech to increase spending on data and system security.

Fr8Tech relies heavily on information technology networks and systems, including the Internet and a number of internally-developed systems and applications, to manage or support a wide variety of important business processes and activities throughout its operations. For example, Fr8Tech relies on information technology to analyze its customer loads and input their information into its databases, identify different routes and their costs, track ongoing shipments, confirm receipts, transfer documents, and a number of other functions that are integral to the ongoing operation of Fr8Tech’s business.

In addition, the provision of service to Fr8Tech’s customers and the operation of its networks and systems involve the collection, storage and transmission of significant amounts of information and potentially sensitive or confidential data. Fr8Tech is subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and data security. The scope of the laws that may be applicable to us is often uncertain and may be conflicting, particularly with respect to foreign laws.

Fr8Tech’s information technology systems are susceptible to damage, disruptions or shutdowns due to programming errors, defects or other vulnerabilities, power outages, hardware failures, computer viruses, cyber-attacks, ransomware attacks, malware attacks, theft, misconduct by employees or other insiders, telecommunications failures, misuse, human errors or other catastrophic events. Hackers acting individually or in coordinated groups, may launch distributed denial of service attacks or other coordinated attacks that may cause service outages, gain inappropriate or block legitimate access to systems or information, or result in other interruptions in Fr8Tech’s business. In addition, the foregoing breaches in security could expose Fr8Tech and its customers to a risk of loss, disclosure or misuse of proprietary information and sensitive or confidential data.

Fr8Tech protects its software, web portal and platform solutions from third-party attacks and implements what it believes to be state-of-the art prophylactic controls around and throughout its software environment. However, there is no assurance that Fr8Tech’s web portal and platform solution will not sometimes malfunction or be subject to malicious attacks. Any unexpected malfunction of Fr8Tech’s system could cause major interruptions to its daily operations, including its ability to deliver its 3PL services to customers, to collect payments from its customers or pay its key suppliers. To date Fr8Tech is unaware of any data breach or system disruption that has had a material adverse effect on the Company. However, Fr8Tech cannot provide any assurances that such events and impacts will not be material in the future, and its efforts to deter, identify, mitigate and/or eliminate future breaches may require significant additional effort and expense and ultimately may not be successful.

Trade tensions or adverse regulatory or political changes in any country in which Fr8Tech operates could materially and adversely affect the demand for its services, its operations and financial conditions.

Fr8Tech has business operations in the U.S., Mexico and Canada. These three countries currently have a free trade agreement which directly impacts the amount of international trade across the US-Mexico and the US-Canada borders. The first such trade agreement, the North America Free Trade Agreement (“NAFTA”), went into effect in 1994 and was followed by tremendous increase in trade amongst all three countries. The United States-Mexico-Canada Agreement (“USMCA”), substituted NAFTA and entered into force on July 1, 2020. Unanticipated changes in trade agreements or sudden political changes in any of these three countries in which Fr8Tech operates could have a material adverse effect on customers’ demand for its services. Fr8Tech’s business can be greatly impacted by the laws, regulations and policies that affect trade among these three countries, including tariff and trade policies, export requirements and other restrictions and general political instability or unrest. Factors that result in general economic changes are also beyond Fr8Tech’s control, and it may be difficult for Fr8Tech to adjust its business model to mitigate the impact of any of these factors, if at all. In particular, Fr8Tech’s business could be affected by levels of political unrest, especially if it affects border traffic, industrial production, consumer spending and retail activity. Fr8Tech could be materially and adversely affected by adverse developments in these and other aspects of the economies in which Fr8Tech operates. If Fr8Tech is unable to implement its business strategies successfully or properly react to changes in market conditions as a result of trade wars or political changes in these countries, its financial condition, results of operations and cash flows could be materially and adversely affected.

Fr8Tech’s industry is rapidly evolving. It expects to continue to face significant competition, which could adversely affect Fr8Tech.

The 3PL and logistics industries are rapidly evolving, including demand for greater efficiency, increasing usage of artificial intelligence (“AI”) and increased visibility into logistics processes. Fr8Tech expects continued significant competition on a national and international level. Fr8Tech’s competitors include, among others, the postal services of the U.S. and other nations, various large and small motor carriers, express companies, freight forwarders, air couriers, large transportation and e-commerce companies that are making significant investments in their capabilities, and start-ups and other companies that combine technologies with crowdsourcing to focus on local market needs, some of whom may currently be its customers.

Competition may also come from other sources in the future as new technologies are developed and new methods of transportation are made widely available. Innovations in transportation technology, including driverless trucks, AI and logistics could adversely affect the demand for Fr8Tech’s 3PL and services. If Fr8Tech is unable to adapt to these changes, its business could be adversely affected.

Fr8Tech is directly affected by the cyclicality of the trucking industry and general economic conditions.

The trucking industry has historically been highly cyclical and especially susceptible to trends in economic activity, and has historically fluctuated in response to factors that are beyond Fr8Tech’s control, such as general economic conditions, interest rates, federal and state regulations, consumer spending and fuel costs. The industry is particularly sensitive to the consumer, industrial and manufacturing sectors of the economy, which generate a significant portion of the freight tonnage hauled by heavy-duty trucks. More recently, the USMCA region has been affected by the recent near-shoring phenomenon affecting international commerce. Since truck fleet owners and professional truck drivers are some of the key carriers Fr8Tech serves, Fr8Tech’s business activities are directly tied to the production and purchase of goods and other key macro-economic measurements. When individuals and companies purchase and produce fewer goods, Fr8Tech’s customers transport fewer goods. Downturns in consumer business cycles, such as the home construction, automobile, and manufactured goods sectors, can create excess capacity in the trucking industry and may have a material adverse effect on Fr8Tech’s business and operating results.

Fr8Tech could be affected by strikes or labor unrest at any border crossing that is relied upon by its customer base.

The cross-border and domestic trucking industries rely on many government-provided services. The cross-border sector relies on agencies such as the U.S. Customs and Border Protection that may be unionized and is subject to strikes or labor unrest that could be disruptive to cross-border freight on a short-term basis. Lower or inefficient cross-border crossings due to labor unrest or strikes could adversely affect Fr8Tech’s customers and Fr8Tech’s operating results and financial condition. Labor unrest in any of the USMCA countries could adversely affect Fr8Tech’s customers and Fr8Tech’s operating results and financial condition.

Fr8Tech could be affected by organized crime activities affecting shipment integrity at any border crossing that is relied upon by its customer base.

The cross-border trucking industry relies on carriers and freight intermediaries to provide safe passage where the integrity of shipments between destination points is essentially assured. Organized crime has a history of either outright theft of shipments or of using carrier capacity for transportation of goods that are not legitimate or that are illegal. Having any shipments in which Fr8Tech is involved be the target of organized crime activity could adversely affect Fr8Tech’s customers and Fr8Tech’s operating results and financial condition.

Fr8Tech is exposed to the effects of changing fuel and energy prices, including gasoline, jet fuel and diesel, and what interruptions in supplies of these commodities can bring to the demand for the shipping and commercial freight industry.

Changing fuel and energy costs have a significant impact on the expenses incurred by the shipping and commercial freight industry. On April 20, 2020, the price for oil traded at negative prices for the first time in modern history. In the event that this short-term distortion in fuel prices were to last, air freight costs would continue to drop, making it an attractive alternative to trucking. If air freight or some other form of freight became increasingly attractive to shippers in general, there could be a switch from truck freight to air freight, or some other, more economic means of freight. During July 2022, diesel prices in the United States were reaching historic highs with significant day to day volatility. Higher fuel charges may affect Carriers results and performance when they are unable to pass on their higher costs to Shippers. Changes in fuel prices, disruption in energy supplies as a result of war, actions by oil producers or other factors beyond Fr8Tech’s control, could in turn have a material adverse effect on Fr8Tech’s business.

Truck driver or other supply shortages within the transportation value chain could have material adverse effect on Fr8Tech’s business and operating results.

Fr8Tech’s freight brokerage support and customer services rely on Fr8Tech being able to assist with securing carrier services for Shippers at commercially feasible rates. Truck driver or other supply shortages within the transportation value chain could adversely affect Fr8Tech’s ability to secure carrier services at commercially favorable rates, which could, in turn, have a material adverse effect on Fr8Tech’s business and operating results

Fr8Tech currently does not hold any patents or own any registered trademarks.

Fr8Tech currently does not hold any patents or own any registered trademarks. Although Fr8Tech believes that the success of its business depends on the quality of its proprietary software solutions, technology, processes, and domain expertise, and has taken appropriate steps to protect its intellectual property, the measures taken may not be inadequate.

On September 6, 2018, Hub Group, Inc. (“Hub Group”) filed a Notice of Opposition with the Trademark Trial and Appeal Board (“TTAB”) against Fr8Tech’s U.S. Trademark Application Serial No. 87102800 (the “Trademark Application”) for its “Fr8HUB” unitary design mark (the “Mark”). On August 27, 2021 Fr8Tech and Hub Group entered into a binding Settlement Agreement and Release (the “Settlement”) fully resolving the TTAB proceeding. Under the terms of the Settlement, Fr8Tech agreed to irrevocably abandon the Trademark Application and permanently cease further commercial use of the terms “FreightHub,” “Fr8Hub” and “Hub,” as well as any confusingly similar marks (together the “Source Identifiers”), including abandoning any and all commercial and intellectual property rights to the Source Identifiers, refraining from filing additional trademark applications involving the Source Identifiers, and refraining from otherwise seeking to secure or enforce its rights to the Source Identifiers. There are no damages, penalties or payments arising under the Settlement. However, consumer or market confusion could result from Fr8Tech’s adoption of the identifiers “Freight App” and “Fr8Tech” and its abandonment of the terms “FreightHub” and “Fr8Hub” going forward. The duration or impact of such confusion, if any, is difficult to estimate. Hub Group has fully released any further legal claims concerning Fr8Tech’s use of the Source Identifiers through the date of the Settlement.

The impact of environmental laws and regulations and their enforcement could materially and adversely affect Fr8Tech’s business.

Motor carrier deregulation in the U.S. began in 1970 - 1971 with initiatives in the Nixon Administration and continued into the 1980s through the Carter administration. They were part of a sweeping reduction in price controls, entry controls, and collective vendor price setting in U.S. transportation. While these deregulations by and large had a positive impact on the transportation volumes over the years, changes of regulations in the trucking industry could adversely affect Fr8Tech’s business. Routes and pricing for commercial freight could be regulated. Controlled margins or prices for certain goods could be put into effect. Fr8Tech cannot predict the impact of any new regulations on the 3PL and transportation industries. The effect these potential regulations could have on the commercial freight business, and in turn, its business and operating results may be long-lasting.

Risks Related to Fr8Tech’s Financial Position and Need for Additional Capital

The audited consolidated financial statements for the year ended December 31, 2023 include an explanatory paragraph in our independent registered public accounting firm’s audit report stating that there are conditions that raise substantial doubt about our ability to continue as a going concern.

As of December 31, 2023, we had an accumulated deficit of $39.3 million, shareholder’s equity of $2.6 million and a working capital of $2.0 million. As of December 31, 2023, we had $2.8 million of short-term debt and $1.6 million of unrestricted cash on hand. For the year ended December 31, 2023, we recognized a net loss of $9.3 million and negative cash flows from operations of $5.8 million. Since inception, we have met our cash needs through proceeds from issuing convertible notes, debt, and issuance of preferred and ordinary shares, and we expect that we will need to meet future cash needs by raising debt and issuing ordinary and preferred shares and/or warrants. The Company has a revolving line of credit facility of up to $5 million. We currently project that we will need to draw on additional funds on our existing facilities and need additional capital to fund our current operations and capital investment requirements until the Company scales to a revenue level that permits cash self-sufficiency. As a result, we may need to raise additional capital or secure debt funding to support on-going operations until such time. Our independent registered public accounting firm, UHY LLP, has included an explanatory paragraph in its audit report that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2023, stating that there are conditions that raise substantial doubt about our ability to continue as a going concern.

Management continues to evaluate funding alternatives and currently seeks to raise additional funds through the issuance of equity or debt securities, from our existing or new investors or through obtaining credit from financial institutions. As we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or at all. On January 3, 2023, the Company placed a facility with an existing investor for approximately $6.6 million and extended the facility in April, 2023 to $9.9 million, out of which $9.6 million was funded as of December 31, 2023. The Company also has a revolving line of credit with a current maturity date of January 31, 2025 in the amount of $5.0 million. The Company withdrew $2.8 million from this credit line as of December 31, 2023.   

If we are unable to raise additional capital moving forward, our ability to operate in the normal course and continue to invest in our business may be materially and adversely impacted and we may be forced to scale back or discontinue some operations or divest some or all of our assets.

As a result of the above, in connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that our liquidity condition raises substantial doubt about our ability to continue as a going concern through twelve months from the date these consolidated financial statements are available to be issued. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern.

Fr8Tech has a history of significant operating losses and expects to incur losses in the future, and Fr8Tech may never achieve or maintain profitability.

Fr8Tech has a history of significant operating losses, and Fr8Tech has not been profitable since inception in 2015. Fr8Tech plans to continue to invest in improving Fr8Tech’s platform and services. Recurring losses from Fr8Tech’s operations could raise substantial doubt regarding its ability to continue as a going concern. If Fr8Tech fails to transition from a company with a development focus and in early growth strategies to fully commercializing its product offerings, it may not be able to fund its operations without raising additional capital, if at all. While Fr8Tech has been successful in raising capital in the past, there is no assurance that it can access additional capital in the future when needed, on favorable terms, or at all. If Fr8Tech fails to execute its business plan and strategies, it may incur losses for the foreseeable future, and be unable to fund its operations at some time in the future.

Historically, Fr8Tech’s existing credit losses have been minimal, less than 0.8% of sales on average over the past four years. Strain on Fr8Tech’s financial position could result from adverse credit events including non-payment from some of Fr8Tech’s larger shipper clients.

Fr8Tech undertakes a review of all Shipper clients and their financial condition, among other factors, prior to extending credit terms. Historically, some customers have paid Fr8Tech for services provided after their extended payment terms. While losses from lack of payment by any Shipper have been low throughout the Company’s history, it could suffer from either delays in payment or refusals to pay for services rendered from any of its Shipper clients. Not being paid on time by its Shippers can adversely affect the Company’s financial position and the results of its operations. Additionally, many Carriers expect Fr8Tech to make prompt and timely payment for their services provide to Fr8Tech and our customers. If Fr8Tech’s Shipper clients do not pay Fr8Tech on time, this may negatively affect Fr8Tech’s ability to make timely payments to its Carriers providers. Such a pattern of events could result in a loss of business or impact Fr8Tech’s ability to secure Carrier services in the future, which could be difficult to recover.

Raising additional capital may cause dilution to Fr8Tech’s existing shareholders, restrict its operations or cause it to relinquish valuable rights.

While Fr8Tech has been successful in raising capital in the past, there is no assurance that Fr8Tech can access additional capital in the future when needed, on favorable terms, or at all. To the extent that Fr8Tech raises additional capital through the sale of equity, convertible debt securities or other equity-based derivative securities, existing ownership interests may be diluted and the terms may include liquidation or other preferences that adversely affect existing shareholder rights. Any indebtedness Fr8Tech incurs would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on its ability to incur additional debt or equity, limitations on its ability to acquire or license intellectual property rights, limitations on the payment of dividends, and other operating restrictions that could adversely impact its ability to conduct its business. Furthermore, the issuance of additional securities, whether equity or debt by Fr8Tech, or the possibility of such issuance, may cause the market price of its common stock to decline and existing shareholders may not agree with its financing plans or the terms of such financings. If Fr8Tech raises additional funds through strategic partnerships and alliances, licensing arrangements or monetization transactions with third parties, it may have to relinquish valuable rights to its technologies, or product candidates, or grant licenses on terms unfavorable to Fr8Tech. Adequate additional financing may not be available to Fr8Tech on acceptable terms, or at all. If Fr8Tech is unable to raise additional funds when needed, it may be required to delay, limit, reduce or terminate its product development or future commercialization efforts, or the Company may need to grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself. Furthermore, the Company may not be able to continue operating as it has on a historical basis.

Risks Related to Fr8Tech’s Operations

A number of Fr8Tech’s personnel are based outside of the United States and regularly conduct business outside of the United States. Fr8Tech is subject to economic, political, regulatory and other risks associated with international operations.

As a number of personnel that support Fr8Tech’s operations are based outside of the United States, Fr8Tech’s business is subject to risks associated with conducting business outside of the United States. Accordingly, Fr8Tech’s future results could be harmed by a variety of factors, including, but not limited to:

Exchange rate fluctuations may materially affect Fr8Tech’s results of operations and financial condition.

Though a majority of Fr8Tech’s revenues are denominated in U.S. dollars, Fr8Tech does effect contracts in Mexico in which Fr8Tech bills for its services in Mexican pesos. Fr8Tech’s growing Fr8Fleet brand is targeted towards Mexican-based Shippers and, if successful, may cause the percentage of revenues denominated in Mexican pesos to increase over the next several years. Fr8Tech may execute contracts in Canadian dollars or other currencies at some point in the future. Fr8Tech also has a number of its personnel operating in Mexico and it pays ongoing payroll and key suppliers in Mexico, most of it in Mexican pesos. Unexpected exchange rate fluctuations between the U.S. dollar and the Mexican peso could adversely affect Fr8Tech’s results from operations.

Fr8Tech monitors and manages its exposures to changes in currency exchange rates and interest rates. It may use derivative instruments to mitigate the impact of changes in these rates on Fr8Tech’s financial position and results of operations; however, changes in exchange rates and interest rates cannot always be predicted or hedged and may have a material adverse effect on Fr8Tech.

Fr8Tech may be subject to claims by third parties asserting that its employees or Fr8Tech has misappropriated their intellectual property, or claiming ownership of what Fr8Tech regards as its own intellectual property.

Several current Fr8Tech employees have worked in the high technology, transportation and logistics industries for many years. Some of these employees may be subject to proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although Fr8Tech tries to ensure that its employees do not use the proprietary information or know-how of others in their work for Fr8Tech, Fr8Tech may be subject to claims that it or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If Fr8Tech fails to fully defend itself against any such potential claims, in addition to paying monetary damages, it may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and Fr8Tech could be required to obtain a license from such third parties to commercialize its technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if Fr8Tech is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

Risks Related to Employee Matters and Managing Growth

Fr8Tech’s management team is relatively new and its future success will depend on its ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.

Fr8Tech’s Chief Executive Officer joined the Company in September 2020 and our Chief Financial Officer joined the Company in January 2024. Our Chief Operating Officer joined the Company in August 2021. These three executives had not worked together prior to joining Fr8Tech. Fr8Tech’s ability to execute its business strategies and manage its growth will largely depend on its executive team and key employees, the loss of whose services may adversely impact the achievement of its objectives. While Fr8Tech has entered into employment agreements with certain of its executive officers and key employees, any of them could leave Fr8Tech’s employment at any time. Fr8Tech does not maintain “key person” insurance policies on the lives of these individuals or the lives of any of its other employees.  The loss of the services of one or more of its current employees might impede its objectives. Furthermore, replacing executive officers or other key employees may be difficult and may take an extended period of time because of the limited number of individuals in Fr8Tech’s industry with the breadth of skills and experience required to develop, gain marketing approval of and commercialize products successfully.

Recruiting and retaining other qualified employees, consultants and advisors for Fr8Tech’s business, including scientific, technical and experienced industry personnel, will also be critical to its success. There is currently a shortage of skilled executives in Fr8Tech’s industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. Fr8Tech may have to incur additional recruiting and training expenses to adequately staff its company. Fr8Tech may not be able to attract and retain personnel on favorable terms.

The trucking industry is highly fragmented and regulated.

The trucking industry in which Fr8Tech operates is a fragmented and disparate, comprised of truck fleet owners, independent truck drivers and owner-operators. Some truck fleet owners and owner-operators are small companies and may not be familiar with the industry trends or have exposure to new technologies or new methods of doing business or may not be willing to work with or pay for new technology. As a result, Fr8Tech may limited in establishing a consistently effective method for marketing its digital marketplace and mobile application platform to such industry participants.

The trucking industry is also highly regulated. The jurisdiction of the Department of Transportation (“DOT”), the Environmental Protection Agency (“EPA”), Department of Commerce (“DOC”), and Homeland Security Customs and Border Protection (“CBP”) and similar state agencies, extends to Fr8Tech’s customers in the trucking industry. DOT and EPA regulations are subject to varying interpretations which may evolve over time. If compliance with the current regulations is not actively enforced by these agencies, or enforcement continues to vary from region to region, that may affect some of Fr8Tech’s carriers’ businesses and in turn, its business could be materially and adversely affected. Fr8Tech cannot assure you that government agencies will not adopt new policies or regulations that could adversely affect its business, results of operations and financial condition.

Increased security requirements impose substantial costs on Fr8Tech and it could be the target of an attack or have a security breach, which could materially adversely affect Fr8Tech.

Fr8Tech operates in a particularly complex legal and regulatory environment. The legal environment of a cloud-based software business is evolving in the U.S. and other jurisdictions and Fr8Tech is subject to a variety of laws and regulations in the United States and abroad that involve matters central to its business.

Fr8Tech’s business is subject to a variety of U.S. and Mexican laws, rules and regulations, including those affecting “Motor Carriers, Owner-Operators and Transportation Brokers” issued by the US Federal Motor Carrier Safety Administration (“FMCSA”) of the DOT. Fr8Tech is subject to many U.S., Canadian and Mexican federal, state and local laws and regulations including those related to internet activities, privacy, rights of publicity, data protection, intellectual property, health and safety, competition, consumer protection, payments, transportation services, insurance coverage and taxation. These laws and regulations are constantly evolving and may be interpreted, applied, created or amended in a manner that could harm Fr8Tech’s business.

Many of these laws and regulations are still evolving and being tested in courts and could be interpreted in ways that could harm Fr8Tech’s business. These may involve privacy, data protection and personal information, content, intellectual property, data security, retention and deletion. In particular, Fr8Tech is subject to federal, state and foreign laws regarding privacy and protection of people’s data. Foreign data protection, privacy, content and other laws and regulations can impose different obligations or be more restrictive than those in the U.S. U.S. federal, state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change. As a result, the application, interpretation and enforcement of these laws and regulations are often uncertain, particularly in the new and evolving industry in which Fr8Tech operates and may be interpreted and applied inconsistently from country to country and inconsistently with its current policies and practices. Fr8Tech’s customers upload and store their data in Fr8Tech’s cloud-based platform. This presents legal challenges to Fr8Tech’s business and operations, such as consumer privacy rights or intellectual property rights. Both in the U.S. and abroad, Fr8Tech must monitor and comply with a wide variety of laws and regulations regarding the data stored and processed on its cloud-based platform as well as in the operation of its business. Fr8Tech cannot determine the effect that any new requirements will have on its cost structure or its operating results, and new rules or other future security requirements may increase its costs of operations and reduce operating efficiencies. Regardless of its compliance with security requirements or the steps Fr8Tech takes to secure the data on its platform, it could also be the target of an attack or security breaches could occur, which could materially adversely affect Fr8Tech’s business.

Fr8Tech’s growth plans may not succeed as quickly as anticipated, if at all.

Fr8Tech’s commercial freight marketplace and mobile application platform, which match the needs of Carriers offering transportation services and Shippers requiring commercial freight services, are relatively new. The success of Fr8Tech’s digital commercial freight matching brokerage services will depend on the adoption rate of the relatively new mobile application platform by Fr8Tech’s customers. Since many Carriers are small companies slow to adapt to new technologies, Fr8Tech may not be able to establish a consistently effective method for marketing its mobile application platform to such industry participants. Fr8Tech’s plan to commercialize and grow the usage of its platform and service offerings may not succeed as quickly as anticipated, if at all. Fr8Tech has also launched a fixed fleet product under Fr8Fleet. The success of the Fr8Fleet product offering and brand are uncertain if even achievable. Fr8Tech also launched an LTL (less-than-truckload) product in Mexico under the brand name Fr8Now, with minimal prior experience in this segment.   The ultimate success of the Fr8Now product offering and brand are uncertain if even achievable.

Fr8Tech expects to expand its organization, and as a result, it may encounter difficulties in managing its growth, which could disrupt its operations.

Fr8Tech expects to increase its business development efforts and grow its sales and carrier personnel, specifically targeting its key accounts and leveraging known customer preferences to increase adoption of Fr8Tech’s platform for both its Shippers and Carriers with live 24/7 tracking of shipments. Fr8Tech is establishing creative marketing campaigns in Mexico’s FTL domestic, cross-border and now LTL markets. As it expands its cross-cultural workforce both in the U.S. and Mexico, Fr8Tech may encounter difficulties in managing its growth. Fr8Tech also plans to invest in its technology team so it can continue to build out internal tools on its platform and to help support the various brands under Fr8Tech’s umbrella. Failure to manage its growth could disrupt its operations and materially and adversely affect its results of operations and financial condition.

We have identified material weaknesses in our internal control systems and may need to hire additional personnel and develop and maintain proper and effective internal control over financial reporting, or the accuracy and timeliness of its financial reporting could be adversely affected.

Fr8Tech is required, pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to furnish a report by management on, among other things, the effectiveness of the Company’s internal control over financial reporting. In particular, Fr8Tech is required to perform system and process evaluation and testing of its internal control over financial reporting to allow management to report on the effectiveness of its internal control over financial reporting. In 2023, management began the process of implementing a number of measures to address the material weakness that were identified.  A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The measures management took in 2023 to address the identified control weaknesses included adding personnel and hiring external consultants to document current processes and policies, outline and document improvements, and ultimately implement new and more effective processes and policies. We intend to complete the implementation of our remediation plan during 2024. We may not be able to fully remediate these weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time.

The Company’s independent registered public accounting firm will not be required to attest to the effectiveness of the Company’s internal control over financial reporting for so long as the Company remains a “smaller reporting company” as defined in applicable SEC regulations. Management will be required to disclose changes made in its internal controls and procedures on an annual basis. The Company’s audit committee also needs to be advised and regularly updated on management’s review of internal controls. In 2023, we began the process of compiling the system and processing documentation necessary to perform the evaluation of our internal controls over financial reporting necessary to comply with Section 404, however, we may not be able to complete our evaluation, testing and any required remediation in a timely fashion. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we identify or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of the Company’s ordinary shares could decline and/or the Company could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources.

Risks Related to our Ordinary Shares

We pay no dividends.

We have never paid cash dividends in the past, and currently do not intend to pay any cash dividends in the foreseeable future. We intend to retain earnings, if any, to finance the development and expansion of our business. Our future dividend policy will be subject to the discretion of our board of directors and will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions, and other factors. Therefore, we can give no assurance that any dividends of any kind will ever be paid to holders of our ordinary shares.

The trading price of our ordinary shares is likely to be volatile, which could result in substantial losses to our shareholders.

The trading price of our ordinary shares is likely to continue to be volatile and could fluctuate widely in response to a variety of factors, many of which are beyond our control. In addition to market and industry factors, the price and trading volume for our ordinary shares may be highly volatile for specific business reasons, including but not limited to:

Any of these factors may result in large and sudden changes in the volume and trading price of our ordinary shares. In addition, the stock market has at times experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies and industries. These fluctuations may include a so-called “bubble market” in which investors temporarily raise the price of the stocks of companies in certain industries, such as the e-commerce industry, to unsustainable levels. These market fluctuations may significantly affect the trading price of our ordinary shares. In the past, following periods of volatility in the market price of a company’s securities, shareholders have instituted securities class-action lawsuits against the company and named the company, management and/or the board of directors as defendants. The litigation process may utilize a material portion of our cash resources and divert management’s attention from the day-to-day operations of our Company, all of which could harm our business. If adversely determined, the class action suits may have a material adverse effect on our financial condition and results of operations

The number of ordinary shares we have outstanding and reported on a number of financial web-sites does not incorporate the effect from conversion of preferred shares, warrants, options or convertible debt and can lead to confusion on the Company’s valuation and hindering its stock value.

Fr8Tech’s capital structure has included and may include a number of securities, including preferred shares, warrant, options and convertible debt that are exchangeable or convertible into ordinary shares. The number of shares that is reported on a number of financial web-sites does not include the potential effect from the possible conversion or exchange of these securities for ordinary shares. Consequently, the valuation of the Company on financial web-sites is typically shown as lower than its correctly calculated value, which can lower the interest in the Company from larger investors. Therefore, the Company’s share value and appreciation might be hindered from what it might be otherwise and may have a negative impact on us, our ability to raise capital, and our shareholders.

We are vulnerable to predatory short selling practices.

We are vulnerable to predatory short sellers who publish false or negative reports on us alleging, among other things, market manipulation, false or misleading statements and misleading or deceptive conduct. While we will expend every reasonable effort to refute such negative reports, there is no guarantee that our efforts will be successful and in the event that our efforts are unsuccessful, this could result in a suspension on the trading of our shares, a decline in the trading price of our shares, investigations or inquiries by governmental and regulatory agencies, increased costs and expenses in responding to such investigations or inquiries and/or even a delisting of our shares from the national exchange. Any and all of the foregoing would have a negative impact on us and to our shareholders.

Investors in Fr8Tech must rely on the judgment of management regarding the use of Company resources, the different market segments the Company may develop, and the Company’s ability to develop certain relationships.

Our management has considerable discretion in the market segments it chooses to pursue. Investors may not have the opportunity, as part of their investment decision, to accurately assess the Company’s business development efforts, which ultimately may not improve our financial results or increase our ordinary shares price in the short-term. The Company may focus its resources on developing market segments that ultimately do not produce meaningful income in the short-term, that result in negative margins or that ultimately lose value for the Company.

Future sales or registrations or perceived potential sales or registrations of our ordinary shares, ordinary shares or other equity or equity-linked securities in the public market could cause the price of our ordinary shares to decline.

Sales of our ordinary shares or other equity or equity-linked securities in the public market, or the perception that these sales could occur, could cause the market price of our ordinary shares to decline significantly. As of December 31, 2023, we had 21,919,240 ordinary shares outstanding as public float (2,191,924 ordinary shares following the 10:1 reverse split on February 5, 2024), and preferred shares and warrants convertible into up to 32,447,406 additional ordinary shares (3,244,741 ordinary shares following the 10:1 reverse split on February 5, 2024). However, sale of ordinary shares or their perceived potential sale by any other substantial shareholder in the public market could cause the price of our ordinary shares to decline significantly.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ordinary shares and trading volume could decline.

The trading market for our ordinary shares may depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ordinary shares or publishes inaccurate or unfavorable research about our business, the market price for our ordinary shares could decline. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ordinary shares to decline significantly.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain NASDAQ corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of our ordinary shares and the ordinary shares.

We are exempted from certain corporate governance requirements of the NASDAQ by virtue of being a foreign private issuer. We are required to provide a brief description of the significant differences between our corporate governance practices and the corporate governance practices required to be followed by domestic U.S. companies listed on the NASDAQ. The standards applicable to us are considerably different than the standards applied to domestic U.S. issuers. For instance, we are not required to:

We have relied on and intend to continue to rely on some of these exemptions. As a result, our shareholders may not be provided with the benefits of certain corporate governance requirements of the NASDAQ.

As a foreign private issuer, we are exempt from certain disclosure requirements under the Exchange Act, which may afford less protection to our shareholders than they would enjoy if we were a domestic U.S. company.

As a foreign private issuer, we are exempt from, among other things, the rules prescribing the furnishing and content of proxy statements under the Exchange Act and the rules relating to selective disclosure of material nonpublic information under Regulation FD. In addition, our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit and recovery provisions contained in Section 16 of the Exchange Act. We are also not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic U.S. companies with securities registered under the Exchange Act. As a result, our shareholders may be afforded less protection than they would under the Exchange Act rules applicable to domestic U.S. companies.

Our shareholders may face difficulties in protecting their interests, and their ability to protect their rights through the U.S. federal courts may be limited because we are incorporated under British Virgin Islands law, we conduct most of our operations in Mexico and some of our directors and our executive officers reside outside the United States.

We are incorporated in the British Virgin Islands and conduct the majority of our operations in Mexico. One of our directors and some of our executive officers reside outside the United States   and a substantial portion of their assets may be located outside of the United States. As a result, it may be difficult or impossible for our shareholders to bring an action against us or against these individuals in the British Virgin Islands or in Mexico in the event that they believe that their rights have been infringed under the securities laws of the United States or otherwise. Even if shareholders are successful in bringing an action of this kind, the laws of the British Virgin Islands and Mexico may render them unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States or Mexico, although the courts of the British Virgin Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

Our corporate affairs will be governed by our Memorandum and Articles of Association, the BVI Act and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed by the common law of the British Virgin Islands and by the BVI Act. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. As a result of the foregoing, holders of our ordinary shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company and whose management, directors and/or major shareholders were also incorporated, resident, or otherwise established in a United States jurisdiction.

As a result of the foregoing, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

The laws of the British Virgin Islands provide limited protection for minority shareholders, so minority shareholders may have limited or no recourse if they are dissatisfied with the conduct of our affairs.

Under the laws of the British Virgin Islands, there is limited statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies (as summarized under “Item 10. Additional Information – B. Memorandum and articles of association — Material Differences in BVI Law and our Amended and Restated Memorandum and Articles of Association and Delaware Law”). The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the company and are entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of association of the company. As such, if those who control the company have disregarded the requirements of the BVI Act or the provisions of the company’s memorandum and articles of association, or oppose to do so, then the courts will likely grant relief. Generally, the areas in which the courts will intervene are the following: (i) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (ii) acts that constitute fraud on the minority where the wrongdoers control the company; (iii) acts that infringe on the personal rights of the shareholders, such as the right to vote or breach of a duty owed to the shareholder by the Company; and (iv) acts where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States.

British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of one avenue to protect their interests.

British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such an action may be brought, and the procedures and defenses that may be available in respect of any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce judgments of courts in the United States based on certain liability provisions of United States securities law or to impose liabilities, in original actions brought in the British Virgin Islands, based on certain liability provisions of the United States securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.

The requirements of being a public company may strain our resources and distract our management.

We are required to comply with various regulatory and reporting requirements, including those required by the U.S. Securities and Exchange Commission. Complying with these reporting and other regulatory requirements will be time-consuming and will result in increased costs to us, either or both of which could have a negative effect on our business, financial condition and results of operations.

As a public company, we will be subject to the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual and current reports with respect to our business and financial performance. The Sarbanes-Oxley Act requires that we maintain disclosure controls and procedures and internal control over financial reporting. To improve the effectiveness of our disclosure controls and procedures and our internal control over financing reporting, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s attention from other business concerns and we will incur significant legal, accounting and other expenses that we did not have as a private company prior to going public, which could have a material adverse effect on our business, financial condition and results of operations.

There could be adverse United States federal income tax consequences to United States investors if we were or were to become a passive foreign investment company (“PFIC”).

While we do not believe we are or will become a passive foreign investment company, or PFIC, there can be no assurance that we were not a PFIC in the past and will not become a PFIC in the future. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for United States federal income tax purposes if either: (1) 75% or more of our gross income in a taxable year is passive income, or (2) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of our ordinary shares, which is subject to change. See “Item 10. Additional Information— E. Taxation — Material United States Federal Income Tax Considerations — Passive Foreign Investment Company.”

Although we do not believe we were or will become a PFIC, it is not entirely clear how the contractual arrangements between us and our variable interest entities will be treated for purposes of the PFIC rules. If it were determined that we do not own the stock of our variable interest entities for United States federal income tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we may be treated as a PFIC. See “Item 10. Additional Information— E. Taxation — Material United States Federal Income Tax Considerations — Passive Foreign Investment Company.”

If we were or were to become a PFIC, such characterization could result in adverse United States federal income tax consequences to our shareholders that are United States investors. For example, if we are a PFIC, our United States investors will become subject to increased tax liabilities under United States federal income tax laws and regulations and will become subject to burdensome reporting requirements. We cannot assure you that we were not or will not become a PFIC for any taxable year. Further, if we are a PFIC for any year during which a U.S. investor holds our ordinary shares, we generally will continue to be treated as a PFIC with respect to that investor for all succeeding years during which they are a shareholder. You are urged to consult your own tax advisors concerning United States federal income tax consequence on the application of the PFIC rules. See “Item 10. Additional Information— E. Taxation — Material United States Federal Income Tax Considerations — Passive Foreign Investment Company.”

In the past, we have received written notifications from The Nasdaq Stock Market LLC informing us that we no longer meet certain continued listing requirements of the Nasdaq Global Market/Nasdaq Capital Market. There is no assurance that an active trading market for our ordinary shares will be sustained.

On January 28, 2020, we received written notification from The Nasdaq Stock Market LLC (“Nasdaq”) that it no longer meets Listing Rule 5450(v)(1)(A) which requires it to maintain a minimum $10,000,000 in stockholders’ equity for continued listing. The Company reported in its Form 6-K for the period ended June 30, 2019 that its stockholders’ equity was $9,490,313 and we regained compliance at the time.

On March 12, 2020, we received a letter from the Nasdaq indicating that, the closing bid price of the Company’s ordinary shares for the last 30 consecutive business days did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until August 31,2020, in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). The letter further provided that if, at any time during the 180-day period, the closing bid price of the Company’s ordinary shares is at least $1.00 for a minimum of ten consecutive business days, Nasdaq provided the Company with written confirmation that it achieved compliance with the minimum bid price requirement.

On April 16, 2020 we received a letter from the Nasdaq indicating the Company’s Market Value of Publicly Held Shares (MVPHS) did not meet the minimum value of $5,000,000 for the last 30 consecutive business days in contravention of the Nasdaq’s Listing Rules (“Rules”). However, the Rules also provide the Company a compliance period of 180 calendar days in which to regain compliance. We were informed that if at any time during this compliance period the Company’s MVPHS closes at $5,000,000 or more for a minimum of ten consecutive business days, the Nasdaq would provide the Company written confirmation of compliance and this matter would be closed. In the event the Company does not regain compliance with the Rules prior to the expiration of the compliance period, it will receive written notification that its securities are subject to delisting. Alternatively, the Company may consider applying to transfer the Company’s securities to The Nasdaq Capital Market (the “Capital Market”). In order to transfer, the Company must submit an on-line Transfer Application, pay the $5,000 application fee, and meet the Capital Market’s continued listing requirements. 

Although we transitioned to the Nasdaq Capital Market and have regained compliance with the continued listing requirements of the Nasdaq, we recently received another written notification from the Nasdaq on May 13, 2021 informing us that we no longer meet Nasdaq Listing Rule 5550(b)(1), which requires us to maintain a minimum $2,500,000 in stockholders’ equity for continued listing. We had reported in our last annual report on Form 20-F for the period ended December 31, 2020 that our stockholders’ equity was $631,145. Under the Nasdaq Rules, we had 45 calendar days (no later than June 28, 2021) to submit a plan to regain compliance. If our plan were accepted, we should be granted an extension of up to 180 calendar days from the date of written notification letter to evidence compliance. We submitted our plan and the Nasdaq granted us until November 9, 2021 to regain compliance. On September 28, 2021, we announced in a Form 6-K filed with the Securities and Exchange Commission that we had consummated a sale of an aggregate of 63,000 ordinary shares, par value $0.05 and a pre-funded warrant to purchase 65,000 ordinary shares to ATW Opportunities Master Fund, L.P. for an aggregate purchase price of $270,000 pursuant to a securities purchase agreement dated September 16, 2021 (the “Securities Purchase”). Because of the Securities Purchase, we regained compliance with the stockholders’ equity requirement. The Nasdaq shall continue to monitor our ongoing compliance with the stockholders’ equity requirement and, if at the time of its next periodic report we do not evidence compliance, we may be subject to delisting.

As part of the issuance of shares in the Merger, we announced in a Form 6-K filed with the Securities and Exchange Commission that we had pro forma projections showing capital for the Company in excess of $5,000,000 following the Merger.

On October 26, 2022, we received a notice from the Nasdaq informing us that our share price had traded below $1 and that we had 180 days to remedy the situation. We effected a 10:1 reverse stock split on February 5, 2024 and were informed on April 11, 2023 that we had regained compliance with Listing Rule 5550(a)(2), and the matter was closed.

On August 21, 2023, we received a notice from the Nasdaq informing us that our share price had traded below $1, and that we had 180 days to remedy the situation. We effected a 10:1 reverse stock split on February 5, 2024 and were informed on February 20, 2024 that we had regained compliance with Listing Rule 5550(a)(2), and the matter was closed.

We intend to take all reasonable actions to ensure compliance with the Nasdaq. However, there can be no assurance that we will maintain compliance with the Nasdaq Rules or will otherwise be in compliance with other Nasdaq listing criteria on a go-forward basis. If we are not able to maintain compliance, our ordinary shares might be delisted and you will likely experience a devaluation in the market price of your shares as well as face challenges in trading them forthwith.

NASDAQ may apply additional and more stringent criteria for our continued listing.

NASDAQ Listing Rule 5101 provides NASDAQ with broad discretionary authority over the initial and continued listing of securities in NASDAQ, and NASDAQ may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on NASDAQ inadvisable or unwarranted in the opinion of NASDAQ, even though the securities meet all enumerated criteria for initial or continued listing on NASDAQ. In addition, NASDAQ has used its discretion to deny initial or continued listing, or to apply additional and more stringent criteria in the instances, including, but not limited to: (i) where the company engaged an auditor that has not been subject to an inspection by PCAOB, an auditor that PCAOB cannot inspect, or an auditor that has not demonstrated sufficient resources, geographic reach, or experience to adequately perform the company’s audit; (ii) where a company planned a small public offering, which would result in insiders holding a large portion of the company’s listed securities, or where NASDAQ was concerned that an offering size was insufficient to establish the company’s initial valuation, and there would not be sufficient liquidity to support a public market for the company; and (iii) where the company did not demonstrate sufficient nexus to the U.S. capital market, including having no U.S. shareholders, operations, or members of the board of directors or management. For the any aforementioned concerns, we may be subject to the additional and more stringent criteria of NASDAQ for our continued listing.

Material weaknesses in our internal control over financial reporting may cause us to fail to timely and accurately report our financial results or result in a material misstatement of our consolidated financial statements.

We are in the process of implementing and evaluating the effectiveness of additional policies and procedures to address identified control deficiencies in the design and operation of our internal control over financial reporting, as further described in Item 15 of this Annual Report (“Controls and Procedures”). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. As we have yet to complete this work, management is unable to conclude on the effectiveness or lack of effectiveness of its internal controls as of December 31, 2023. Discovery of a material weakness and its possible effects on our results could have material and adverse effect on our stock price.

Item 4. Information on the Company

A. History and development of the Company.

Our History and Corporate Structure

History

Freight App, Inc. (formerly known as “Freight Hub, Inc.” and hereinafter referred to as “Fr8App”) was incorporated in 2015 as a Delaware corporation. It was founded with a view to develop and bring solutions to the relatively unorganized cross-border commercial freight market on the U.S.-Mexico border, and by extension, the U.S.-Canada border. In January 2019, Freight Hub México, S.A De C.V., a wholly-owned subsidiary of Fr8App was formed. In December 2021, Freight Hub Mexico, S.A De C.V. changed its name to Freight App de Mexico, S.A De C.V. (“Freight App Mexico”).

Freight logistics operations and our Fr8App marketplace solution, begins with parties connecting their transportation needs (“Shippers”) with those offering freight transportation services (“Carriers”). Within the demand and supply equation, Shippers seeking suitable means of transportation for their goods or products represent demand and Carriers with freight transportation capabilities represent supply. The Fr8App marketplace was designed to facilitate matching the two: demand with supply. The first commercial version of Fr8App’s products was launched in 2017. Fr8App’s initial commercial efforts focused on promoting the Fr8App marketplace to freight brokers in the logistics industry.

Fr8App continued its product development efforts throughout 2018 and added business intelligence and analytics to supplement its platform in 2019. Subsequently the firm offered a revised products package with active freight brokerage support, customer service and other enhanced features and functionality, which were fully launched during the second quarter of 2020. During the third quarter of 2020, a new management team renewed focus on promoting freight services to Shippers and Carriers and de-emphasize marketing to brokers in the logistics industry.

The Merger

Hudson Capital Inc. (“Hudson Capital”) was initially established as “China Internet Nationwide Financial Services Inc.”, a holding company incorporated under the laws of British Virgin Islands on September 28, 2015. On July 28, 2017, Hudson Capital announced the pricing and closing of its initial public offering (“IPO”) and its shares began trading on NASDAQ Global Market on August 8, 2017 under the symbol “CIFS.” In keeping with the board’s plan to diversity its operations, rebrand itself and seek new strategic options, Hudson Capital board members and management were completely changed and the corporate name was changed to “Hudson Capital, Inc.” on April 23, 2020 and the company began to trade under the new symbol, “HUSN” on May 8, 2020. The securities were also transferred to the Nasdaq Capital Market at the opening of business on July 16, 2020.

The Hudson Capital board considered multiple potential merger candidates before identifying Fr8App as the most able to complete a merger and offer the best potential value for its stockholders. Pursuant to such determination, Hudson Capital and Fr8App entered into an Agreement and Plan of Merger (as amended from time to time, the “Merger Agreement”) on October 10, 2020 with Hudson Capital Merger Sub I, Inc., its Delaware wholly-owned subsidiary (“Merger Sub I”), Hudson Capital Merger Sub II, Inc., a Delaware subsidiary of Merger Sub I (“Merger Sub II”), Fr8Tech and ATW Master Fund II, L.P., as the representative of the stockholders of Fr8App (the “Stockholders’ Representative”).

This Merger Agreement was terminated on December 13, 2021 and on December 29, 2021, a new merger agreement was entered into between, Hudson Capital, Merger Sub I, Fr8App and the Stockholders’ Representative (the “New Merger Agreement”). On February 14, 2022, a Certificate of Merger was filed with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of Delaware law, whereby in accordance with the New Merger Agreement, Merger Sub I merged with and into Fr8App, with Fr8App surviving the Merger and continuing as a direct wholly-owned subsidiary of the Company (the “Merger”). The Merger closed on February 14, 2022. On February 14, 2022, we effected another 2.2:1 reverse split of our ordinary shares and our ordinary shares began trading on a split adjusted basis on February 15, 2022.

Following the Merger, on March 25, 2022, we dissolved Merger Sub II and Hudson Capital Holding Co., Ltd. On March 30, 2022, we sold Hongkong Internet Financial Services Limited (“HKIFS”) in its entirety to a private investor. The divestment of HKIFS was effected through the sale of the entirety of the equity interest in HKIFS. As of the divestment date, there are no remaining or contingent obligations or benefits from HKIFS.

In connection with the Merger, the following unregistered, restricted securities were issued by Hudson Capital to shareholders of Fr8App, subject to customary adjustments for stock splits, dividends, rights offerings, pro rata distributions and fundamental transactions (the “Merger Consideration”):

* Issued at Merger is not adjusted for the March 24, 2023 reverse stock split or the February 5, 2024 reverse stock split.

** The amount of underlying ordinary shares are adjusted for the March 24, 2023 reverse stock split or the February 5, 2024 reverse stock split.

Also, in connection with the Merger, the Company’s Board accepted the resignations from the Hudson Capital board of directors, namely Warren Wang, Hon Man Yun, Ming Yi (Martin), Hong Chen and Xiaoyue Zhang, and from the positions of Chief Executive Officer and Chief Financial Officer of Warren Wang and Hon Man Yun, respectively, effective upon closing of the Merger. Javier Selgas, Nicholas H. Adler, William Samuels, and Marc Urbach were appointed new directors of the board. Each of the following executives was appointed to the respective office set opposite to his/her name:

Javier Selgas – Chief Executive Officer

Mike Flinker - President

Luisa Irene Lopez Reyes – Chief Operating Officer

Paul Freudenthaler – Secretary and Chief Financial Officer  

Hudson Capital continued as a British Virgin Islands (“BVI”) business company and on May 26, 2022 changed its name to Freight Technologies, Inc. and its symbol on the Nasdaq Capital Market to “FRGT”. Fr8App continues as a corporation incorporated in the State of Delaware and as a wholly-owned subsidiary of Freight Technologies, Inc.

With the divestment of HKIFS mentioned earlier, we are no longer involved in any of the businesses originally started by Hudson Capital. We are now, through Fr8Tech, a BVI business company, operating under three brands, Fr8App, Fr8Fleet and Fr8Now.

Reverse Stock Splits

On February 14, 2022, the Company effected a 2.2:1 reverse split and its ordinary shares begin trading on a split adjusted basis on February 15, 2022.

On March 24, 2023, the Company effected a 10:1 reverse stock split and its ordinary shares begin trading on a split adjusted basis.

On February 5, 2024, the Company effected a 10:1 reverse split and its ordinary shares begin trading on a split adjusted basis.

B. Business overview.

Freight App, Inc. (formerly known as “Freight Hub, Inc.” and hereinafter referred to as “Fr8App”) was incorporated in 2015 as a Delaware corporation. It was founded with a view to develop and bring solutions to the relatively unorganized cross-border commercial freight market on the U.S.-Mexico border, and by extension, the U.S.-Canada border. In January 2019, Freight Hub México, S.A De C.V., a wholly-owned subsidiary of Fr8App was formed. In December 2021, Freight Hub Mexico, S.A De C.V. changed its name to Freight App de México, S.A De C.V. (“Freight App Mexico”). As a result of the Merger, on February 14, 2022, Fr8App became our wholly-owned subsidiary.

The first commercial version of Fr8App’s products was launched in 2017. Fr8App’s initial commercial efforts focused on promoting the Fr8App marketplace to freight brokers in the logistics industry. Fr8App continued its product development efforts throughout 2018 and added business intelligence and analytics to supplement its platform in 2019. Subsequently the firm offered a revised products package with active freight brokerage support, customer service and other enhanced features and functionality, which were fully launched during the second quarter of 2020. During the third quarter of 2020, a new management team renewed focus on promoting freight services to Shippers and Carriers and de-emphasize marketing to brokers in the logistics industry.

Fr8Data and Fr8Radar are product features that are further described below and that play an integral role in Fr8App’s product offerings. During 2021, Fr8App launched the broker portal, an electronic feature to address reporting obligations to Mexican authorities called “Carta Porte”, an internal pricing tool, automated onboarding and a number of EDI Integrations with Shippers and API integrations with third-parties. Towards the end of 2021, Fr8App introduced its private fleet product, Fr8Fleet.

In addition to being the legal entity in the US, we consider Fr8App to be the brand name of a B2B freight-matching platform powered by Artificial Intelligence (“AI”) and Machine Learning. It is the evolution of our traditional North American transportation logistics technology platform, focusing on full truckload freight (“FTL”) for domestic and cross-border markets in Mexico, the US and Canada. Fr8App uses its proprietary technology platform to connect Carriers and Shippers and significantly improve matching and operation efficiency via innovative technologies such as freight-matching technology based on bidding, digital broker services, real-time tracking, transportation management, fleet management, and committed capacity solutions. Fr8App is a platform built to match individual loads in the FTL segment.

Fr8Fleet is our technology-driven solution for large corporate enterprise customers with a demand for regular and ongoing shipping and logistics. In contrast to Fr8App which is based on booking individual loads, Fr8Fleet is a dedicated capacity service, providing exclusive use of an entire truck to an enterprise, to ensure on-time delivery and reduced handling for pristine condition of goods. Real-time tracking offers complete transparency and assists users by providing regular updates on their shipments, and our platform allows for easy booking, tracking, and management.

Fr8Now is our newest brand and is our first foray into the less-than-truckload (“LTL”) business. Fr8Now was developed to be a trusted LTL shipping partner for businesses of all sizes with a focus on businesses in the country of Mexico. Our innovative technology provides an easy booking process, flexible options, and affordable pricing that are designed to make us the go-to choice for LTL shipping needs in Mexico. Fr8Now started its first LTL operations in the first quarter of 2023.

Fr8App’s technology product offerings include: (i) a computerized platform (the “Platform”) that maintains an online portal (the “Portal”) and a mobile application solution (the “App”) to provide 3PL services to companies actively involved in the freight transportation market; (ii) a Transport Management Solution (“TMS “) for customers to manage their own fleet; and, (iii) freight brokerage support and customer service based on the Platform. Fr8App believes it is the first digital commercial freight-matching broker to offer 3PL while targeting the domestic Mexican and the cross-border Mexico-U.S.-Canada markets (“Target Markets”). Fr8App serves cross-border traffic across the Mexico-U.S. border, the U.S.-Canada border, and domestic shipments within each of these three countries, with a primary focus on full truck-load freight. Its cutting-edge cloud-based Platform was designed to connect in real-time parties with commercial transportation needs.

The freight transportation supply chain begins with Shippers, whose transportations needs are addressed by Carriers. Shippers seeking suitable means of transportation for their supplies represent demand and Carriers with freight transportation capability represent supply. The digital freight matching technology on Fr8App’s Platform streamlines and simplifies cross-border shipping logistics by facilitating the matching of demand with supply. Shippers that use Fr8App’s Platform can connect with a wide network of reliable Carriers who can fulfill their logistics needs across North America. Use of Fr8App’s Platform brings the additional benefit of providing transparency on all shipment characteristics to allow for the identification of available and qualified freight capacity.

Fr8App’s Portal is the system’s front-end, a tool that Fr8App’s customers and providers use to summarize data on the Fr8App Platform such that it is in a usable and actionable format for business. This data is accessed online on a computer via a browser, or through a mobile application on a smart device. Once customers and providers (Shippers and Carriers, respectively) gain access to the Platform they can enter into transactions such as booking a shipment, administering the manner in which this load will be managed, and reviewing summary information on display within the Platform.

Fr8App’s Platform

Fr8App’s Platform contains the primary operating system. It is a digital marketplace that facilitates booking of freight transactions at the Shipper and Carrier levels. The matching of Shipper requirements and Carrier capacities can occur on the Platform automatically, without the need for human intervention. A Fr8App Platform user can be very involved in the process and actively control its shipment activities by inputting Shipper requirements and matching those with Carrier offerings and tracking shipments as they leave their point of origin and arrive at their ultimate destination. In short, managing his or her company’s logistics. Among other things, Fr8App’s Platform can provide a system user with a summary of all its freight activities through a combination of reports or visual displays on its screen. A system user can track the status of a given delivery on a visual display of the map with status updates on the load location and status from the moment the shipment leaves its origin through to its final destination. A system user can also set up routes that are physically different from one that the Platform might recommend if that system user has a preference for a given route over another, perhaps because of altitude or temperature differences on competing routes.

Shippers can use Fr8App’s Platform to post their freight needs, find available Carriers, enter into a freight contract with them, and monitor the transported goods while their shipment is in transit. Carriers can use Fr8App’s Platform (through the Portal or mobile App), to accept shipment requests, assign transportation jobs to available truck drivers instantaneously, or make themselves available on routes or route segments to avoid driving empty trucks from one location to another. Carriers can receive notifications every time a load or job request is entered by a Shipper that matches the criteria they are looking for on a given shipment type and shipment lane. Every time there is a match and a Carrier completes a shipment, the Platform’s algorithm takes this into account and creates a history that can be referred to when attempting to fulfill future Shipper requests. Fr8App’s mobile App is used by Carriers to give them visibility on Shipper needs, gives Carriers full visibility on all of their shipping options and helps them eliminate empty miles on the road, leading to a reduction in operating costs. Its specialized technology is designed to enhance supply chain visibility and operations, helping reduce Carrier’s carbon footprint and improving profitability and environmental sustainability.

Fr8App’s API

Fr8App’s Platform has a public application programming interface (“API”), that is accessible free of charge and has the ability to integrate with both Shippers’ and Carriers’ systems to automate the process of booking shipments and bringing visibility to the process. An API is an interface consisting of a series of computer instructions that allow one type of system to interact with another separate system by taking information from one system and making it legible and usable by another. It can be compared to something like a translator that takes instructions in English and translates them into Spanish so that users on both sides of the translation can work with the underlying instructions. In Fr8App’s service offering context, an API allows one of our customer’s freight tracking systems to provide information to Fr8App’s Platform and for our Platform to provide information to our customer’s system using a data structure or language that is legible by that customer’s computer system. An API is a tool allowing Fr8App to have a number of different customers and providers, each with different operating systems, to interact with and use Fr8App’s Platform and automate all the stages of any given shipment.

Fr8App’s Mobile App, FMS, TMS

Users can access the Platform through an internet browser on a computer or through the mobile application in a smartphone, using the same credentials.

Fr8App also offers a cloud-based TMS solution to maximize the efficiency of a company’s transportation operations. TMS can be used by a Shipper as its primary logistics tool, independent of using Fr8App’s Platform or Portal solutions. TMS can help Shippers manage their fleet as well as post requests for freight services on its Platform. The cloud-based TMS solution is available to Shippers wanting to actively manage their supporting Carriers or their own fleet of trucks. Fr8App also gives a TMS solution user the option to source additional freight capacity or offer its over-capacity on the Fr8App Platform.

Fr8FMS is Fr8App’s Fleet Management System, or “FMS”. It allows transportation companies and owner operators to handle their own fleet reducing their operational costs, and enables them to haul loads from Shippers in the platform´s marketplace.

Fr8Radar

Fr8Radar is a product feature that provides Shippers and Carriers track and trace visibility, via Fr8App´s mobile solution, or through the integrations with other third-party GPS providers or other technology companies providing track and trace solutions for the industry. Track and trace visibility through Fr8Radar allows Shippers to follow their freight operations in real time, using just one system, and not one for each GPS provider. Fr8Radar also enables low tech Carriers to provide real time position of each load to their customers.

Fr8Data

Fr8Data is the group of tools and reports developed to show Shippers and Carriers real time dashboards with all the detailed information of their shipments in real time, to increase control and make better business decisions. Fr8Data enables the analysis of historical data to find better matching between Shippers and Carriers and better pricing calculations based on real data saved in Fr8App´s platform. Fr8Data tools and analytics enable continual logistics and operational improvement to all system users: Shippers, Carriers and Fr8App itself.

Fr8App’s Brokerage Support and Customer Service

Finally, Fr8App offers customers freight brokerage support and customer service to assist with end-to-end fulfillment on the Platform. The brokerage and customer services offered are based on using the Platform to book freight to meet a Shipper’s needs and fulfills those needs with qualified Carriers on-boarded on the Platform. It facilitates and promotes comprehensive usage of the Platform’s utility, aided by experienced users and Fr8App’s in-house team of experts. In late 2021, we introduced Fr8Fleet, a private fleet management product whereby large corporate shippers are allowed to purchase fleet capacity over a period of time, in exchange for a fixed fee. Fr8App’s customer service group works with such clients to secure carrier capacity to fulfill their freight needs over their timeframe.

Industry Overview and Market Trends

According to the 34th Annual State of Logistics Report authored by Kearney, the U.S. domestic truck freight transportation market was estimated at $896 billion in 2022. Per Mordor Intelligence, the Mexican domestic freight market was estimated at approximately $43.1 billion, and the North American cross-border freight transportation market is estimated at $236 billion and expected to exceed $308 billion by 2030. Additionally, Mexico’s overall trade with the U.S. is estimated to grow at an CAGR of approximately 2.7% between 2021 and 2025. Fr8Tech expects the market to continue growing at rates at least equal to historic rates and likely higher than that rate given the recent near-shoring phenomenon. 

A primary contributor to the growth in the North American cross-border freight transportation markets has been the increased level of trade between the U.S., Mexico and Canada. Effective July 1, 2020, the three countries signed a new free trade deal called the United States, Mexico, Canada Agreement (“USMCA”), replacing the North American Free Trade Agreement (“NAFTA”), which was enacted on January 1, 1994. As of 2019, Mexico became the U.S.’s largest single trading partner, surpassing China. According to the United Nations, Mexico exported an extra $3.5 billion of goods into the U.S., in the first half of 2019, since the summer of 2018 when the trade war between the U.S. and China began. Fr8App believes the replacement of NAFTA with the USMCA creates a stable environment attractive to multi-national companies considering Mexico as a market from which to export to both the United States and Canada.

In early 2020, U.S. President Donald Trump used trade policy in a manner that displaced global supply chains across industries and around the world. Mexico has become a preferred destination for U.S. and multinational companies to location to diversify their sources of supply and production away from the geopolitical risks associated with the ongoing U.S.-China trade tension. The approval of the USMCA in combination with new perspectives as related to national security implications of foreign-based supply chains may bring about changes in Mexico’s freight market, in terms of globalization or regionalization and logistics integration, as well as, the role of 3PL operators. Fr8Tech believes the recent supply chain volatility is driving an increase in demand for large and small freight brokers to secure more abundant freight capacity, in real-time, which is readily available on Fr8Tech’s freight-matching platform and facilitated by its Fr8App Platform solution and Fr8Radar. Fr8Tech believes that the supply chain volatility was aggravated by a shortage of drivers thereby creating further demand for a more comprehensive approach to logistics management to meet supply chain requirements while minimizing increases in the related freight costs. Fr8Tech acts as an intermediary between the total system’s freight requirements and the related freight demand in a more efficient manner than if various of the parties requiring freight contracted these services on their own or managed their own proprietary fleets. Fr8Tech believes that its ability to secure available freight capacity, using the Fr8App Platform solution, amongst available truck drivers offers customers an organized, efficient solution to transporting goods domestically and internationally in favorable or unfavorable market environments. Additionally, Fr8Tech believes it is well positioned to benefit from the increasing trade across both the U.S.-Mexico and the U.S.-Canada borders caused by supply chain volatility and magnified by the COVID-19 pandemic as well as the increasing needs for reliable freight service within the country of Mexico.

In 2023, the U.S. imported more goods from Mexico than China for the first time in more than 20 years, a trend that accelerated through the first two months of 2024. This trend is direct result of, and is only expected to continue in the immediate future because of, global enterprises evolving their supply chains to adjust to, among other things: (i) ongoing trade tensions between the US and China; (ii) economic fallout from the disruptions caused by the COVID-19 pandemic, notably spikes in global logistics demand and costs; (iii) the enactment of the USMCA; and (iv) availability of skilled labor to perform critical functions. This evolution involves large manufacturers shifting their sources of supply and locations of production to be closer to end markets through on-shoring and near-shoring activities. To this end, manufacturers and suppliers are establishing operations in Mexico to serve the US and other markets in the North America and Central America, and trucking carries the vast majority of the goods and supplies necessary to enable this transition.

Traditional 3PLs rely on a network of offices staffed with individuals tasked with communicating with colleagues, customers and transportation companies to identify and secure freight services that meet their customers’ specific needs. The process is manual, inefficient, and lacks transparency. Cross-border transportation challenges can include tracking, visibility, trans-loading and potentially multiple hand-offs, multiple languages, international customs and regulatory inefficiencies. The ability to access real-time freight capacity and locate the right truck at the right time becomes critical to securing a reliable shipment service. Fr8App believes market conditions have created an increased demand for digital freight brokers who can help ease capacity constraints, open up new shipping lanes, and provide a benchmarking tool for both Shippers and Carriers.

Important Factors of the Trucking Industry

According to American Trucking Association several notable factors are influencing the outlook for the U.S. trucking industry:

Market Opportunity

According to Mordor Intelligence, the Mexican LTL market grew at a CAGR of 44.3% from 2016-2021, making it one of the fastest growing logistics segments in North America. That market is expected to register a compound annual growth rate of 5.4% between 2024 and 2030. And according to the same source, the US and Canadian 3PL markets are expected to grow at a 3.4% and 4.4% compound annual growth rate, respectively, over the same time period. According to ECDB, the e-commerce market within Mexico is expected to grow at compounded annual growth rate of more than 20% from 2024 to 2028. Fr8Tech believes this commercial freight market growth is driven by growing domestic economies and increasing trade flows, which are not only from one region to another, but are more decentralized and fragmented due to the growth of large on-line retailers such as Amazon and MercadoLibre.

Fr8Tech believes these factors are expected to intensify the complexity of logistics activities in the coming years in what has been a relatively fragmented Mexican transportation market on a historical basis. Fr8Tech believes the U.S. and Canadian markets remain relatively fragmented as well though they have each seen major logistics companies enter the industry over the past decade. Fr8Tech believes the evolution of supply chains is also susceptible to changes in consumer habits, driven further by e-commerce and international health issues, such as the COVID-19 pandemic. Rising consumer expectations have had an observable effect throughout the supply chain, driving the need for greater efficiency and speed. Technology in warehouses, onboard trucks, and on smartphones has led to automating critical processes, improving visibility into the shipment lifecycle, and enabling faster decisions. In addition to profitability, sustainability and reliability has likely become a consideration of every Shipper’s bottom line. Fr8Tech believes that an ability to respond to increasing market volatility in real-time, is a valuable asset contributing to a Shipper’s business success. Fr8Tech believes this consideration is further exacerbated by qualified driver shortages in the U.S. and Canada. Fr8Tech believes the TMS market to be in a development stage similar to the consumer transportation industry, or “taxicabs”, prior to the introduction of wider reaching platforms like Uber, Lyft and Cabify. Fr8Tech continues to invest in improving its TMS technology and expects these investments to help improve its Platform as well as the range of services Fr8Tech offers and will offer in the future to its Shippers and Carriers.

Fr8Tech believes the Mexican commercial freight market is also ripe for technological disruption as adoption of technology in this industry segment has lagged several others in the commercial transportation space. Fr8Tech believes there are significant complexities within the Mexican freight transportation market that give Fr8Tech a competitive advantage. As an example, there are standard ways in which a new carrier is evaluated as a potential business counterparty in the U.S, including industry databases, government registries and electronic tools for investigating a potential business supplier. However, there are no established vetting processes to navigate the commercial freight transportation market in Mexico. Fr8Tech continues to gain a deep understanding of these unique circumstances within the Mexican transportation industry, giving us a competitive advantage over future market entrants. Fr8Tech intends to leverage this competitive advantage into opportunistically selected routes carrying traffic throughout Mexico and into the U.S. and Canada.

Fr8Tech’s operations center in Mexico is located in Monterrey, which has a long standing history as a transportation hub within the domestic and cross border Mexican freight transportation market. Fr8Tech plans to leverage its presence in Monterrey to become a leader in international freight to and from Mexico, and into and across the U.S. and Canada.

The Fr8App Brands

Fr8App’s Platform provides visibility on freight transportation options not readily apparent with traditional 3PL solutions. The Platform allows Shippers and Carriers to book loads at the palm of their hands and assign jobs to drivers, in real-time, with the click of a button. Shippers and Carriers register on the Platform and are approved to transact after undergoing a rigorous vetting process.

The vetting process for Shippers includes the following:

Fr8Tech collections group performs a credit report analysis which includes a due diligence of the customer credit record, revenues of the customer for the latest 3 years, industry in which client operates, review of current insurance coverage, and payment terms negotiated. Fr8Tech has had immaterial bad debt expense in the past several years.

The vetting process for Carriers includes the following:

Fr8App’s Platform can automatically and instantaneously match Shippers with Carriers within the Fr8App network. Carriers are sent push notifications through the Platform every time a load or job request is entered by a Shipper that matches the criteria Carriers are looking for on a given shipment and lane.

By leveraging its technology, the increasing usage, and amount of traffic booked on its Platform, Fr8Tech can work with customers to optimize their supply chain, eliminate empty miles on the road, and reduce their carbon footprint. With its proprietary software, Fr8Tech offers smart solutions under its various brand names that create sustainable alternatives and offer benefits to both Shippers and Carriers, including:

Fr8Fleet

Fr8Fleet is our technology-driven solution for large corporate enterprise customers with a demand for regular and ongoing shipping and logistics. It was developed to accommodate demand from large corporate clients that have a need for ongoing logistics capacity. In contrast to Fr8App, which is based on booking individual loads, Fr8Fleet, our dedicated capacity services, provides exclusive use of an entire truck or a fleet of trucks to an enterprise, ensuring on-time delivery and reduced handling to maintain the pristine condition of goods. Real-time tracking from Fr8Radar offers complete transparency and assists users by providing regular updates on their shipments, and our platform allows for easy booking, tracking, and management.

Fr8Now

Fr8Now is our solution for Shipper-Carrier freight matching servicing the LTL business. Fr8Now was developed to be a trusted LTL shipping partner for businesses of all sizes with a focus on businesses within the domestic Mexican market. Our innovative technology provides an easy booking process, flexible options, and affordable pricing that are designed to make us the go-to choice for LTL shipping needs in Mexico. We believe we are one of the first entrants in this particular market segment in Mexico. Fr8Now started its first operations in the first quarter of 2023.

Fr8Tech’s Customers

Fr8Tech’s customers consist of Shippers and Carriers across North America. A Shipper will use Fr8Tech to request bids on a shipment or a series of shipments of certain characteristics and a Carrier will agree to the terms set forth on its Platform. Carriers have the option to carry out deliveries prior to receiving payment from Fr8App, and Shippers may start shipments before submitting their payment to Fr8Tech. Fr8Tech mitigates payment risks by pre-screening and approving all Shippers and Carriers prior to approving either party. Fr8Tech believes that Shippers value the features and benefits from its Platform by working with trusted Carriers that help alleviate driver shortages. Shippers also benefit from the cost transparency available on Fr8Tech’s Platform, as there are no hidden fees. Shippers can count on the safety and reliability of the Platform as Fr8Tech tracks cross border shipments. Lastly, Shippers can benefit by managing their logistics needs in one control center on Fr8Tech’s Platform.

As of December 31, 2023, one customer accounted for 66% of Fr8App’s accounts receivables. As of December 31, 2022 and 2021 each of two customers accounted for 42% and 16% of Fr8App’s accounts receivables, and for 35% and 15% of Fr8App’s accounts receivables, respectively.  

For the year ended December 31, 2023, one customer accounted for 33% of Fr8App’s revenues. For the year ended December 31, 2022, each of two customers accounted for 17% and 11% of Fr8App’s revenues. For the year ended December 31, 2021, one customer accounted for 37% of Fr8App’s revenues.

Fr8Tech believes Carriers value its ability to assist in minimizing empty (deadhead) miles and making every mile, a mile paid for. Carriers also benefit from the Platform’s transparency and know how much they are scheduled to make from fulfilling each job. Carriers receive faster payment for their services by using Fr8Tech’s Platform and avoid potentially expensive factoring companies. Lastly, Carriers can benefit from Fr8Tech’s Platform by using it as a tool to streamline workflows and increase overall efficiency.

Fr8Tech’s Growth Strategy

Fr8Tech intends to establish Fr8App as the top brand for digital freight marketplace in the Mexican domestic, U.S-Mexico and Mexico-U.S. cross-border markets. Fr8Tech intends to leverage Fr8App’s position within these markets to opportunistically expand its footprint across select routes in the U.S. and into Canada. Fr8Tech plans to expand its Fr8Fleet offering in Mexico and leverage its presence in that market to expand its customer base and market penetration with highly targeted Fr8fellt and LTL solutions. Fr8Tech’s growth strategy consists of the following:

Focus on Core Markets: Fr8Tech plans to expand its Shipper base and increase its Carrier ecosystem operating under the Fr8App brand throughout all three countries, with a continued focus on the Mexico-U.S. cross-border market, a select portion of the U.S. domestic market and a select segment of the Mexican domestic market. Ongoing investments in its Platform, internal sales tools, and targeted hiring in sales, operations and software development, Fr8Tech stands to benefit from well-trained labor force, mostly in Mexico, to manage its ongoing daily operations throughout North America. Using targeted marketing campaigns and sales outreach, Fr8Tech intends to reinforce the benefits of using its Platform and increase adoption among existing Shippers and Carriers, including those interested in our LTL offerings. With the use of business analytics and management solutions, the Company will continue to actively manage margins at the account level, minimize additional overhead expenses, and thus take advantage of the inherent operating leverage providing by the Fr8App Platform. By leveraging its customer base and long-standing industry relationships and building off existing Shipper feedback and experiences, Fr8Tech believes it will be able to add new accounts to its portfolio across the domestic trucking industry in Mexico, U.S.-Mexico cross-border trades and opportunistically select routes within the U.S. and the U.S.-Canada cross-border commercial freight transportation market. Lastly, by leveraging its infrastructure and network in the FTL business, Fr8Tech believes it will be uniquely suited to launch a selectively targeted LTL offering within select markets in Mexico through Fr8Now.

Investing in Customers, Carriers and Employees to Drive Organic Growth: Fr8Tech plans to continue to incorporate customer feedback and their user experiences to solve their biggest pain points across the logistics landscape. Dedicated API data exchanges, customized features, evolved dashboard reporting, and unique predictive analytics are just some of the ongoing investments into customer relationships. We will continue to build trust among all Carriers across our three brands by managing our Shipper base and FTL and LTL demands to provide a high level of fulfilment, and effective management of loads. We will monitor service levels across its Platform with on-time pick-up and delivery metrics. That same technology is used to manage Fr8Fleet and Fr8Now.

To deliver high performance and maximize value to our Shipper and Carrier customers, we plan to continue to invest in, train and enable in our sales and operations teams to provide real-time response to high-volume primary and spot load activity, as necessary, and to provide best-in-class sales service and carrier support. Fr8Tech will continue developing well-trained bilingual sales force and operations team through our “Fr8App University” Program.

Investing in Technology to Expand Capabilities and Extend Reach: Fr8Tech will continue to invest in its technology to improve and differentiate its Platform, as well as, expand its TMS offerings for Shippers. Fr8Tech plans on integrating more of its business customers through customized API’s and launching a fleet management system for Carriers. Within the geographies that Fr8Tech serves, Fr8App is also naturally suited for providing similar market participant matching solutions in other logistics markets, including maritime and trans-ocean freight, air freight, rail and inter-modal transportation. It can also be leveraged to provide similar automated matching capabilities to adjacent markets, such as last mile transportation, long-term storage and warehousing. Through thoughtful market analysis, strategic industry relationships and partnerships, and considerate planning, Fr8Tech will explore broadening its addressable market by either developing in-house solutions or partnering with other service providers to pursue attractive opportunities within such markets when possible.

Automation

Balancing Contractual and Spot Business, Domestic and Cross-Border

Primary markets are those with established regular routes that are contracted for over a period of time. Spot markets are negotiated at a specific point in time and, usually in response to a short-term need that was not originally planned by a Shipper or Carrier. Fr8Tech understands the importance of balancing its efforts and business between primary and spot markets. As Fr8Tech advances in serving the Mexican domestic and U.S.-Mexico cross-border market opportunities, it will leverage spot opportunities presented by regional or global situations or events, such as high market volatility resulting from conflicts, social or economic disruptions (like a pandemic), escalations in trade tensions or disputes, or other circumstances that generate short-term imbalances in the supply and demand for ground transportation freight services in the markets we serve. We are also mindful that longer term economic trends, such as shifts in consumer preferences or supply chain near-shoring and other macroeconomic factors can also create a shortage of supply and surplus in demand on either side of the equation. With periods of market stability, Fr8Tech will increasingly try to target higher volume, long-term contractual business directly from Shippers through its Fr8App brand, local traffic in Mexico through Fr8Fleet and Fr8Now.

Research and Development

The first commercial version of Fr8Tech’s products was launched in 2017. Fr8Tech continued its product development efforts throughout 2018, added initial business intelligence and analytics to supplement its basic products in 2019 and offered its revised products package with active freight brokerage support and customer service towards the end of 2019 and into early 2020.

The second generation of Fr8Tech products were brought to market during the second quarter of 2020 and consisted of: 1) the online Portal and Mobile App; 2) the TMS; and, 3) Fr8App’s Platform supplemented with freight brokerage support and customer service. The latest generation consists of improvements and refinements to the Fr8App Platform, the offering of capacity through Fr8Fleet and the Fr8Now brand that is servicing the LTL market in Mexico.

All products work under a similar business model whereby gross margins are primarily earned from revenue invoiced to Shippers less costs paid to Carriers per completed transaction under the Fr8App FTL and Fr8Now services and for provided capacity under Fr8Fleet. Under Fr8App FTL and Fr8Now, each shipment made through the Platform (Portal or App) is considered a transaction. Shippers and Carriers can navigate through and transact on the Platform without assistance, and if both do so the interaction between the two is automatically carried out on the system. If either requires or requests assistance through freight brokerage support or customer service, the Fr8Tech team actively intervenes and supports service matching through the Platform’s BackOffice. Such assistance typically allows for greater flexibility and optionality to the parties involved to negotiate and agree on rates and shipment details. Currently, the use of freight brokerage support and customer service occurs on nearly all transactions completed on the Platform and thus all of Fr8Tech’s revenue. Fr8Tech believes the industry is still anchored in communication through traditional channels (phone or email), and human attention is valued in the management of shipments.

Fr8Tech’s BackOffice

For traditional freight brokers, the Fr8Tech Platform is a valuable source to finding capacity for their clients quickly, when they have not achieved it through their traditional channels and methods. We anticipate that brokers will use the Portal to help augment their present offerings in the freight market over time and thereby providing Fr8Tech with an additional source of revenue.

Fr8Tech’s systems development team works in a development environment that is based on Scrum methodology. This methodology allows it to deliver new functionalities as frequently as it designs, which is presently every two weeks. By applying concepts such as Continuous Integration and Continuous Delivery (“CI/CD”), Fr8Tech believes its development process is highly robust. Following is a visual depiction of the Scrum Methodology:

Its technology has been designed with the goals of building a highly efficient, adaptable, scalable and secure platform with the potential to vastly improve operating margins of freight transactions. Following are some of the features of Fr8Tech’s technology infrastructure and development methodologies:

Fr8Tech has developed, will continue to enhance, and will develop new business intelligence capabilities around reporting, online analytical processing, analytics, data mining, process mining, complex event processing, business performance management, benchmarking, text mining, predictive analytics, and prescriptive analytics. All these enhanced functionalities will increase the utility and add value to all users of our Platform and in turn, help drive traffic to the Platform itself.

Sales and Marketing

Fr8Tech’s marketing approach centers on digital marketing as the primary channel to promote the company’s brands, including Fr8App, Fr8Fleet and Fr8Now. Fr8Tech uses a range of techniques, such as search engine optimization, social media, and email marketing to generate leads and gain brand presence. Fr8Tech’s strategy is focused on the long-term establishment of our brand as a reliable, best-in-class service provider in the logistics industry. We avoid relying on short-term advertising campaigns that can be expensive and only generate temporary presence, preferring to create valuable content, build relationships with our audience, and engage with them through the channels they use most. The company is firmly committed to digital marketing, and we are always exploring new ways to improve our approach and reach new audiences. By focusing on building a loyal customer base and establishing ourselves as a trusted logistics solution provider, we expect to be able to build a self-sustaining business over the long-term.

Fr8Tech targets its product offerings under the Fr8App and Fr8Fleet brands to high-volume contractual lanes from a variety of Shippers from small and mid-market companies to large multinational corporations. The sales and marketing efforts are mostly aim at direct contact with decision makers at potential Shippers. We also utilize trusted third-party information, such as sales prospecting tools, to generate and advance leads with prospective clients. Once Shippers are on-boarded, they may choose to transaction their shipping requirements on the marketplace themselves or solicit assistance from our operations and customer service teams.

Fr8Tech builds its Carrier network by marketing its Platform to reputable carriers, demonstrating the value of the marketplace, bringing high-volume consistent business from Shippers, maintaining an intuitive and engaging user platform, providing key operations support and making timely payments when shipments are completed. The Company builds its buying power as it continues to attract more Carriers to use the Platform. Carriers can operate under any or all of our brand names but typically gravitate towards one depending on their capacity, requirements and needs: either long-haul under Fr8App or set operating routes under Fr8Fleet. Fr8Tech is pursuing focused marketing campaigns in the Mexico domestic market to reinforce the benefits its Platform, the Portal and Fr8Radar, to increase visibility and ultimately adoption of its technology and solution.

Fr8Now targets potential clients through developing target communications and profiles on the internet as well as with Shipper clients that have expressed an interest in the LTL product.

Regulations

The Carriers with which Fr8App transacts cross-border business, are mostly legal corporate entities, LLCs, or their equivalents, in Mexico and Canada. The Carriers with which Fr8Fleet transacts its business are usually smaller entities, either owner-operators or companies with less than 20 trucks. Fr8App enters into contracts for the provision of services with Shippers and Carriers while the Shippers and Carriers are typically subject to rules and regulations for operating within their given industry and, as applicable, the freight industry within their respective countries of operation. Carriers are responsible for being duly certified and operating under good standing as required by their corporate residence and the locations over which they carry freight. For US carriers, the main regulator is the US Department of Transportation (“DOT”) and various state level equivalents. For Mexico Carriers, the relevant counterparty is the “Secretaria de Transporte”, and in Canada it is “Canadian Transportation Agency”. Nearly all of regulatory compliance burden within Fr8App’s scope of operations falls on the Carriers themselves. For example, Fr8App’s requirement in the U.S. is primarily for Carriers to remaining in good standing with the DOT, but they may also have additional requirements for maintaining a number of operating licenses, insurance requirements and special certifications (i.e., border-crossing).

The cost for Fr8Tech to comply with government regulation as a whole is relatively low. Government regulations and requirements over the freight trucking industry do impose a number of obligations on Carriers and Shippers that influence how Carrier freight services are secured on Fr8App. Regulatory changes could negatively impact or possible benefit Fr8Tech’s business model, but it can be difficult to predict exactly how any such changes would affect Company’s business model. For example, a change in trade regulations could increase or decrease freight volumes across a given border, but despite possible changes to our volume of business, how the Company’s business model operates may not be affected. A US policy to impose tariffs on particular goods could decrease cross-border traffic of those goods but may increase domestic freight traffic in both countries. In comparison, if regulations were scaled back and cross-border restrictions or requirements were eased, the value-add that Fr8Tech provides to our customers might be diminished or eliminated, and our business from that segment could be negatively affected.

While Fr8Tech does not anticipate any extensive changes in regulations affecting our industry, and more specifically how Fr8Tech operates and generates revenue, in the coming years, it is possible governments and regulatory agencies could implement such changes, and they could affect Fr8Tech’s business model in a material way.

Fr8Tech’s business is subject to a variety of U.S. and Mexican laws, rules and regulations, including those affecting “Motor Carriers, Owner-Operators and Transportation Brokers” issued by FMCSA of the DOT. Fr8Tech is subject to many U.S., Canadian and Mexican federal, state and local laws and regulations including those related to internet activities, privacy, rights of publicity, data protection, intellectual property, health and safety, competition, consumer protection, payments, transportation services, insurance coverage and taxation. These laws and regulations are constantly evolving and may be interpreted, applied, created or amended in a manner that could harm Fr8Tech’s business.

Many of these laws and regulations are still evolving and being tested in courts and could be interpreted in ways that could harm Fr8Tech. These may involve privacy, data protection of personal and/or confidential information, content creation and distribution, intellectual property, data security and data retention. In particular, it is subject to federal, state and foreign laws regarding privacy and protection of companies’ and individuals’ data. Foreign data protection, privacy, content and other laws and regulations can impose different obligations and could be more restrictive than those in the U.S. U.S. federal, state and foreign laws and regulations are in some cases enforced by private parties in addition to government entities, are continuously evolving, and can be subject to significant change. As a result, the application, interpretation and enforcement of these laws and regulations can be uncertain, particularly in the new and evolving industry in which we operate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices.

Fr8Tech’s customers upload and store data on its Platform. This presents legal challenges to its business and operations, such as ensuring consumer privacy rights or intellectual property rights. Both in the U.S. and abroad, Fr8Tech must monitor and comply with a wide variety of laws and regulations regarding the data stored and processed on its cloud-based platform as well as in the operation of its business.

Competition

The 3PL industry is rapidly evolving with demands for greater efficiency and increased visibility into the shipment lifecycle. Fr8App expects continued significant competition from domestic and international market participants. Fr8App’s competitors include the postal services of the U.S. and other nations, various motor carriers, express companies, freight forwarders, air couriers, large transportation and e-commerce companies that are making significant investments in their internal capabilities, and startups and other companies that combine technologies with crowdsourcing to focus on local market needs, some of with whom we share customers.

In Mexico, our Fr8App and Fr8Fleet brands compete with many logistics companies and freight brokers. We also buy from and sell transportation services to companies that compete with us. There are very few direct technology-based competitors that are focused on the domestic transportation market in Mexico and we have been unable to find a competitor similar to Fr8Now in the LTL segment in Mexico.

In contrast, the domestic U.S. 3PL industry is crowded with globally recognized competitors, some of whom offer transportation services as well as traditional 3PL services. Fr8App technology was developed in part to improve traditional 3PL solutions offered by established corporations such as XPS Logistics, Inc., C.H. Robinson Worldwide, Inc. and J.B. Hunt Transport Services, Inc. Traditional 3PL providers leverage their vast network of offices and employees to coordinate freight transportation domestically and internationally. Additionally, a wave of new entrants have entered the 3PL space with novel, real-time 3PL solutions; similar to Fr8App’s Portal and Platform. Companies such as Uber Freight, Convoy, NEXT Trucking, Nowports, and Cargo-Partner have each accessed the 3PL market with the support of private financing to disrupt established 3PL corporations.

Furthermore, both established and emerging competitors have direct access to U.S.-Canadian cross border trade routes, where Fr8App intends to serve on an opportunistic basis as well. According to the U.S. Bureau of Transportation Statistics, a total of $884 billion worth of goods moved across the U.S.-Canada border in 2023, the majority of which was transported by truck.

In the future, competition may also come from other sources in the future as new technologies are developed and new methods of transportations are made widely available. Innovations in transportation technology, including driverless trucks, artificial intelligence and logistics could adversely affect the demand for Fr8App’s 3PL services.

In relation to the LTL market in Mexico, there are several established players, including Penske Logistics, TIBA, Pak2Go, FedEx Estafeta and Transplace. According to Mordor Intelligence, the Mexican LTL market grew at a CAGR of 44.3% from 2016-2021, making it one of the fastest growing logistics segments in North America. The broader logistic sector in Mexico grew at 19% year-over-year in 2022 and is expected to outpace GDP growth in the years ahead at a 5.6% CAGR through 2030. We believe there is a large segment of business-to-business traffic that we can capture with the truck capacity already available in our Fr8Fleet program, and others willing to service LTL opportunities in Mexico.

Intellectual Property

On January 7, 2021, Fr8Tech filed a trademark application with the U.S. Patent and Trademark Office for the Fr8Technologies design mark. Fr8Tech currently does not hold any patents or own any registered trademarks. Fr8Tech believes that the success of its business depends on the quality of its proprietary software solutions, technology, processes, and domain expertise. While it considers its intellectual property rights to be valuable, Fr8Tech believes that its competitive position depends primarily on its ability to increase and eventually to maintain a leadership position by developing innovative proprietary solutions, technology, information, processes, insights and business intelligence to satisfy both Shippers and Carriers’ needs through its Platform.

Fr8Tech’s principal asset consists of its software, which it invests in on a monthly basis through development work by employees and externally contracted parties. Fr8App invested approximately $0.34 million, $0.4 million, and $0.5 million in software during the years ended December 31, 2023, 2022 and 2021, respectively. Fr8Tech expects to continue investing in its software commensurate with the expansion of its product offerings. Financing for investment in software has historically been provided for by the company’s operations and capital raising events.

Employees

As of December 31, 2023, we had a total of 78 employees, 70 of them based in Mexico, with the remaining in the U.S. and other virtual locations and 12 contract-based employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement. Fr8Tech considers its relationship with its employees to be good. Fr8Tech has three principal executives, including its CEO, CFO and COO. Fr8Tech has the following number of people including its executives in each of its departments: Finance, HR and Administration – 18; Carrier Sales & Support – 18; Shipper Sales & Marketing – 11; IT and Product Development – 6; Operations and Support – 25. Relationships with employees are stable and favorable. 

Fr8App’s Chief Executive Officer, Javier Selgas, initially joined Fr8Tech as Chief Technology Officer and has over a dozen years of experience in developing technology and digital marketing. Fr8Tech’s Chief Financial Officer, Donald Quinby, joined Fr8Tech in January of 2024 and has more than 20 years of experience in finance  and has held leading finance roles with several public companies. Fr8Tech’s Secretary, Paul Freudenthaler, has over 30 years of financial experience and has been Chief Financial Officer for several leading companies in both the U.S. and Mexico. Previously, Paul Freudenthaler served as Fr8Tech’s Chief Financial Officer from September 2020 until his resignation on January 19, 2024, after which he continued his position as Secretary and was newly appointed as a board director. Fr8Tech’s Chief Operating Officer, Luisa Lopez, has over 25 years of experience within the logistics and supply chain industry across North America.

Facilities

Fr8Tech’s U.S. headquarters office is located at 2001 Timberloch Place, Suite 500, The Woodlands, Texas 77380, and its Mexican headquarters office is in Monterrey, Mexico. The headquarters location consists of a rental office. The facilities in Monterrey consists of an office facility in Monterrey of approximately 262 m², with desks and chairs for approximately 31 staff, meeting rooms, executive offices, a terrace and small kitchenette. Fr8App evaluates its needs for facilities on an ongoing basis. There are no environmental issue affecting access and utilization of any of the company’s assets.

The following is a list of our principal subsidiaries and consolidated affiliated entities as of the date of this annual report on Form 20-F:

Facilities

We currently maintain two physical offices in The Woodlands, Texas and Monterrey, Mexico. In October 2020, the Company entered into a work-suites arrangement for a workspace in an office located in The Woodlands, Texas, on a month-to-month basis for $94 per month. The contract continues in effect.

In January 2020, we entered into a lease agreement for 7 workstations in Mexico for a term of 12 months, which expired on December 31, 2020. In November 2020, the Company entered into a lease agreement for 14 workstations in Mexico for a term of 12 months, which expired on October 31, 2021. In November 2021, the Company entered into a lease agreement for 62 workstations and two private offices in Mexico for a term of 12 months, which expired on October 31, 2022.

The Company entered into a lease agreement on November 2, 2022, for an office facility in Monterrey for a period of 12 months and renewed the lease on November 1, 2023 through November 1, 2024. In August 2023, the Company amended that lease to rent additional adjacent office space. Current monthly rent is approximately $12,000. The rental cost for the years ended December 31, 2023, 2022 and 2021, was approximately $100,500, $118,000 and $110,000, respectively. Certain employees located in the U.S., Spain, and elsewhere in Mexico work remotely. Employees in Monterrey, MX have the option to work remotely for part of the week.

Equipment

Fr8Tech’s principal asset consists of its software, which it invests in on a monthly basis through development work by information technology and development employees and externally contracted parties. Fr8App invested approximately $0.34 million, $0.4 million, and $0.5 million in software during the years ended December 31, 2023, 2022, and 2021, respectively. Fr8Tech expects to continue investing in its software in line with the expansion of its product offerings. Financing for investment in software has historically been provided for by the company’s operations.

Item 4A. Unresolved Staff Comments

Not applicable.

Item 5. Operating and Financial Review and Prospects

The following discussion of our financial condition and results of operations is based upon, and should be read in conjunction with, our audited consolidated financial statements and the related notes included in this annual report on Form 20-F. This annual report (this “Report”) contains forward-looking statements. See “Forward-Looking Information.” In evaluating our business, you should carefully consider the information provided under the caption “Item 3 Key Information — D. Risk Factors” in this annual report on Form 20-F. We caution you that our businesses and financial performance are subject to substantial risks, changes and uncertainties.

Overview

After February 14, 2022, when we consummated the Merger and after March 30, 2022, when we sold our wholly-owned Hong Kong subsidiary, HKIFS, which held and operated our financial advisory business, in its entirety to a private investor, we are no longer in the financial advisory business and no longer have any presence or holdings outside of North America. The sale was for a nominal amount of $1.

We are now, through our wholly-owned subsidiary, Fr8App, and Fr8App’s wholly-owned Mexico subsidiary, Freight App de México, S.A De C.V. (“Freight App Mexico”) solely involved in the freight management business. On May 26, 2022, we changed our name and ticker symbol from “Hudson Capital, Inc.” and “HUSN”, respectively, to “Freight Technologies, Inc.”, and “FRGT”, respectively.

Prior to February 14, 2022, Hudson was mainly in the business of providing financial services in the People’s Republic of China to meet the financial and capital needs of our clients, which comprise largely of small-to-medium sized enterprises (“SMEs”). Through wholly-owned subsidiaries, Hongkong Internet Financial Services Limited and CIFS (Xiamen) Financial Leasing Co., Ltd, the contractually controlled and managed company, Hongkong Shengqi Technology Limited, its wholly-owned subsidiary, Beijing Yingxin Yijia Network Technology Co., Ltd and its contractually controlled and managed company, Sheng Ying Xin (Beijing) Management Consulting Co., Ltd (“SYX” or “Sheng Ying Xin”), and SYX’s wholly-owned subsidiaries, Kashgar Sheng Yingxin Enterprise Consulting Co., Ltd. (“Kashgar SYX”), Fu Hui (Shenzhen) Commercial Factoring Co., Ltd (“FuhuiSZ”), Yingda Xincheng (Beijing) Insurance Broker Co., Ltd (“Yin Da Xin Cheng”), Fuhui (Xiamen) Commercial Factoring Co., Ltd (“FuhuiXM”), Zhizhen Investment & Research (Beijing) Information Consulting Co., Ltd. and Hangzhou Yuchuang Investment Partnership. Hudson primarily offered commercial payment advisory services, international corporate financing advisory services, intermediary bank loan advisory services and supply chain financing services.

Key Factors Affecting Our Results of Operations

The demand for our platform and our related services is dependent upon overall economic conditions in North America. General economic factors, including the amount of international trade across North America may affect our Shipper clients’ needs for our services. A slowdown in economic activity, an increase rise unemployment, a decline in real personal income, among other economic conditions, may affect individuals’ level of disposable income and the consequent effect on international trade. This may reduce Shippers’ needs to transport goods and their need to use our platform.

Trends

Fr8Tech believes the growing interest in digital freight matching platforms shows that traditional 3PL providers recognize the sweeping technological shifts in the industry. We are offering solutions that significantly improve end-to-end freight procurement transactions to market participants. During the last three years, the industry experienced significant swings in supply, demand and costs due to distortions in both domestic and global markets resulting from the global pandemic caused by the virus known as COVID-19 and its follow-on effects. This substantial supply chain volatility has led large and small freight brokers to, among other tactics, pivot toward more abundant and secure sources of freight capacity available in a digital marketplace and facilitated by software portals and platforms. Fr8Tech believes supply chain management will continue to evolve into increasingly digital forms and interactive marketplace platforms. As it does, Fr8Tech believes digital brokers, will play an increasingly integral role in easing capacity constraints, opening up new lanes, and providing a benchmarking tool for shippers.

In the short-term, Fr8Tech believes the COVID-19 pandemic has changed the current nature of global commerce and shipping. Cross-border travel and trade restrictions were put into effect and could return, even though economies and trade have fully reopened around the globe. Trucking capacity is not steadily available across borders. Contract carriers can still only go to certain pre-specified locations and companies continue to need to determine where specific available freight capacity is and how much it costs. The near-shoring phenomenon continues to point towards more freight crossing over the U.S. border with Mexico and a lesser extent, Canada. Fr8Tech believes that these conditions are creating a market opportunity for digital brokers to facilitate and improve the connections necessary that enable cross-border commerce.

Results of Operations

Comparison of the Years Ended December 31, 2023, December 31, 2022, and December 31, 2021

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

($’000’s)

Revenues

Fr8Tech’s revenues decreased to $17,061 for the year ended December 31, 2023 from $25,888 for the year ended December 31, 2022, a reduction of $8,827 and 34.1% on year-over-year basis. The year-over-year decrease was primarily driven by: 1) our decision to limit activity with low-margin, but high-volume customers; 2) the loss of one customer due to non-recurring issue with a particular Carrier; and, 3) reduced spot market activity across several accounts driven by challenges in securing sufficient carrier capacity in the first half of 2023 and US market rates that were significantly lower than in 2022. This was partially offset by a 67% increase in our Fr8Fleet revenue and the addition of more than 30 new customers in our spot market FTL and LTL businesses.

Fr8Tech’s revenues grew to $25,888 for the year ended December 31, 2022 from $21,474 for the year ended December 31, 2021, an increase of $4,414 and 20.6% on year-over-year basis. This year-over-year increase in the year ended December 31, 2022 shows the impact of Fr8Tech’s new offerings under the Fr8Fleet brand on its revenue. Revenues from Fr8Fleet were approximately $3,685 higher during the twelve months ended December 31, 2022 relative to the prior year’s results, while the Company’s Fr8App brand did not grow at rates as high as it has in past years due to the decrease in a single important client’s business volume beginning in the fall months of 2022. The Company has worked to repair this relationship and anticipates for the cross-border piece to resume by mid-2023.

Costs of Revenue

Fr8Tech’s cost of revenue, exclusive of depreciation and amortization, decreased to $15,710 for the year ended December 31, 2023 from $23,625 for the year ended December 31, 2022, a reduction of $7,916 and 33.5% on a year-over-year basis. This year-over-year decrease moved in similar fashion and magnitude with our revenue, with some differences due to varying margins in the traffic and in the traffic mix itself from quarter-to-quarter and year-to-year. Our gross margin decreased 0.8% to 7.9% in 2023 from 8.7% in 2022 primarily due to product mix. Fr8Fleet business, which grew 48% in 2023, incurred slightly lower margins than our spot market services due to higher initial service costs to develop that offering over the year.

Fr8Tech’s cost of revenue, exclusive of depreciation and amortization, grew to $23,625 for the year ended December 31, 2022 from $19,559 for the year ended December 31, 2021, an increase of $4,066 and 20.8% on a year-over-year basis. This year-over-year increase moved in similar fashion and magnitude with our revenue, with some differences due to varying margins in the traffic and in the traffic mix itself from quarter-to-quarter and year-to-year. Our margins improved in the second half of 2022 over the first half of 2022 as capacity on the carrier side started to return to a more normal level during the second half of 2022. Our brand mix also varied in 2022 versus 2021 as our Fr8Fleet brand represented nearly 15% of revenues during the year ended December 31, 2022 versus 0.3% during the year ended December 31, 2021.

Compensation and Employee Benefits

Fr8Tech’s compensation and employee benefits expenses were $5,964 for the year ended December 31, 2023 compared to $4,963 for the year ended December 31, 2022, which was a $1,001 or 20.2% increase on a year-over-year basis. The increase is due to stock compensation costs related to new grants issued during 2022 and 2023 and hiring of new employees, mostly in dedicated services, business intelligence and procurement. We anticipate that our compensation and employee benefits expenses will continue to increase on a year-over-year basis as we continue to invest in the expansion of our sales force to attract new users, in operations staff to support our Shipper and Carrier clients, and in IT and product development to continue to innovate and enhance our suite of solutions and services, albeit at a lesser rate than our expected increase in revenues. Total employees at December 31, 2023 and 2022 were 78 and 88, respectively. The reduction in the number of employees in 2023 took place towards the end of the year as a result of personnel changes management made, mostly on the sales team, and normal employee turnover. By March 2024, the Company had 93 employees globally.

Fr8Tech’s compensation and employee benefits expenses were $4,963 for the year ended December 31, 2022 compared to $3,712 for the year ended December 31, 2021, which was a $1,251 or 33.7% increase on a year-over-year basis. Fr8Tech anticipates that its compensation and employee benefits expenses will continue to increase on a year-over-year basis as we continue to invest in the expansion of our sales force (both shipper and carrier) and in the support staff required for the company to operate as a publicly-traded company, albeit at a lesser rate than our expected increase in revenues. We also incorporated some variable compensation plans during early 2021 to incentivize management and staff efforts in a manner consistent with our growth plans. These continued in place through 2022. Total employees at December 31, 2022 and 2021 were 88 and 82, respectively.

General and Administrative

General and administrative expenses were $3,163 for the year ended December 31, 2023 compared to $3,561 for the year ended December 31, 2022, which was a decrease of $398 or 11.2%, primarily due to lower outside legal counsel and public company costs.

General and administrative expenses were $3,561 for the year ended December 31, 2022 compared to $2,618 for the year ended December 31, 2021, which was an increase of $943 or 36.0%. The increase in expenses for the year ended December 31, 2022 is due to the incurrence of legal fees, higher insurance costs and other additional costs of being a public company that were not necessary during the year ended December 31, 2021.

Sales and Marketing

Sales and marketing expenses were $80 for the year ended December 31, 2023 compared to $557 for the year ended December 31, 2022, which was a decrease of $477 or 85.6%. The decrease in marketing expenses in 2023 was almost entirely due to a strategic alliance during 2022 with a US-based counterparty that was working with us to originate and manage US domestic business and that was paid for with the issuance of ordinary shares in 2022. We continue to use direct and online advertising and social media platforms for promotion and attracting new Shippers and Carriers to our Platform. We expect these costs increase support growth of our business across our three primary brands and potential new offerings.

Sales and marketing expenses were $557 for the year ended December 31, 2022 compared to $92 for the year ended December 31, 2021, which was an increase of $465 or a 505% increase. The increase in marketing expenses in 2022 was almost entirely due in large part to a strategic alliance with a US-based counterparty that worked with us to originate and manage US domestic business and that was paid for with the issuance of ordinary shares.

Depreciation and Amortization

Depreciation and amortization expenses represent the amortization of previously capitalized software development costs, as appropriate, and depreciation expenses related to Fr8App’s fixed assets. This expense increased to $405 for the year ended December 31, 2023, from $243 for the year ended December 31, 2022, an increase of $162 or 66.7% on a year-over-year basis, due to the completion of the application development stage of Fr8Tech platform which resulted in an increase of capitalized software amortization.

Depreciation and amortization expenses decreased to $243 for the year ended December 31, 2022, from $302 for the year ended December 31, 2021, a decrease of $59 or 19.5% on a year-over-year basis consistent with the levels of investment in Fr8App’s software and fixed assets as these decreased by nearly 22.7% on a year-over-year basis during 2022.

Other income and expenses

Interest expenses for the year ended December 31, 2023 decreased to $808 from $907 for the year ended December 31, 2022 due to a debt discount amortization for the year ended December 31, 2022, which was higher than interest expenses incurred in 2023 related to the convertible note that was issued in 2023.

During the year ended December 31, 2023, other income and expense also included expensing the fair value of warrants issued as an inducement for convertible note conversion and as an additional consideration for an increase in convertible note funding, in the total amount of $499 and a gain of $345 from a change in fair value of convertible note. During the year ended December 31, 2022, other income and expense included a $128 loss from the change in fair value of warrant liabilities. The convertible note issued during 2023 and warrants and related accounting treatment are more fully described in Notes 11 and 15, respectively, of our consolidated financial statements.

Interest expenses for the year ended December 31, 2022 decreased to $907 from $1,136 for the year ended December 31, 2021 due to the conversion of the notes payables at the Merger in February 2022, partially offset by interest expenses related to the increase in the short-term borrowing facility.

During the year ended December 31, 2022, other income and expense included a $128 loss from change in fair value of warrant liabilities.

Net Loss

Fr8Tech’s net loss for the year ended December 31, 2023 increased to $9,328 from $8,187 for the year ended December 31, 2022 or by $1,141 or 13.94% on a year-over-year basis, as a result of the items described above.

Fr8Tech’s net loss for the year ended December 31, 2022 decreased to $8,187 from $8,200 for the year ended December 31, 2021 or by $13 or 0.2% on a year-over-year basis, as a result of the items described above.

Fr8Tech has historically met its cash needs through a combination of cash flows from operating activities, term loans, promissory notes, bonds, convertible notes, private placement offerings and sales of equity. Fr8Tech’s cash requirements are generally for operating activities and debt repayments. Fr8Tech funded its early operations with a combination of debt and equity and we continue to work to position the Company to operate on a go-forward basis with a minimal amount of long-term debt and other borrowings. On January 3, 2023, Fr8Tech closed on a $6.6 million convertible note facility with a private investor, which was increased to $9.9 million in April 2023. The convertible note was mostly converted to equity during 2023. As of December 31, 2023 the fair value of remaining balance of the convertible debt was $242. We continue to incur short-term debt over the near-term that is collateralized by our accounts receivable. We expect to maintain our short-term debt facility of $5 million with a third party to continue to support ongoing operations. To further support investment in growth opportunities and ongoing operating, on March 11, 2024, the Company entered into a $750 1-year term note purchase agreement with Freight Opportunities, LLC bearing an 8% annual interest rate.

Our combined accounts receivable and unbilled receivable balance of $6,322 at December 31, 2023 declined by 8% on a year-over-year comparative basis, which was primarily due to lower unbilled receivables at year-end. Fr8Tech’s accounts payable, short-term borrowings and accrued expenses increased 5.9% on a year-over-year comparative basis, due mostly to interest accrued on the convertible note. At December 31, 2023, Fr8Tech has an accumulated net capital surplus of $2,627, $242 of long-term debt, and net working capital of $1,957.

In March 2019, we secured a revolving line of credit that is used to assist with managing our working capital needs. The maximum principal amount that may be drawn under the line of credit was increased since then to $5 million. The initial maturity date on this facility was March 7, 2020 and it has since been extended by mutual written consent of the lender and Fr8Tech to a maturity date of January 31, 2025. We plan to extend this facility on similar terms prior to its maturity. As of December 31, 2023 and 2022 the amount drawn under this facility was $2,820 and $3,347, respectively.

As shown in the accompanying consolidated financial statements as of December 31, 2023, we had an accumulated deficit of approximately $39.3 million, short-term debt of $2.8 million, unrestricted cash of approximately $1.6 million and a working capital of approximately $2.0 million. In addition, for the years ended December 31, 2023 and 2022, we reported operating losses and negative cash flows from operations.

We have spent most of our cash resources on funding our operating activities. Through December 31, 2023, we have financed our operations primarily with the proceeds from the sale and issuance of our ordinary and preferred shares as well as convertible promissory notes and debt.

The Company has facilities in place, including for future debt and securities placements with established investors with maturity dates beyond twelve months from the date these consolidated financial statements are available to be issued. However, since those facilities have conditions precedent for future fundings, and even though in some cases the capital providers of these facilities have been waived these same conditions in prior fundings, given that the funding is not unconditional, there can be no assurance that such financing would be available to us on favorable terms or at all.  

If we are unable to raise additional capital moving forward, our ability to operate in the normal course and continue to invest in our business may be materially and adversely impacted and we may be forced to scale back operations or divest some or all of our assets.

As a result of the above, in connection with our assessment of going concern considerations in accordance with FASB Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that our liquidity condition raises substantial doubt about our ability to continue as a going concern through twelve months from the date these consolidated financial statements are available to be issued. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern.

Cash flows ($’000’s)

Comparison of the Years ended December 31, 2023, December 31, 2022, and December 31, 2021

The following table summarizes our sources and uses of cash for the years ended December 31, 2023, December 31, 2022, and December 31, 2021:

Cash flows used in Operating Activities

Net cash used in operating activities represent the cash receipts and disbursements related to our activities other than investing and financing activities. We expect cash provided by operating activities to be our primary use of funds for the foreseeable future as the Company continues to fund its growing operations

Net cash flows used in operating activities is derived by adjusting our net loss for:

For the year ended December 31, 2023, net cash used in operating activities was $5,791 which consisted of a net loss of $9,328, adjusted for non-cash charges of $1,791 and net changes in our net operating assets and liabilities amounting to $1,746. The non-cash charges primarily consisted of share-based compensation costs of $1,154, interest accruals on convertible notes of $449, depreciation and amortization of $405, conversion inducement expense of $129, partially offset by a change in fair value of convertible note of $345. The change in our net operating assets and liabilities was primarily due to net decreases in accounts receivable and unbilled receivables of $1,115, prepaid assets and deposits of $300, and accounts payable of $182, partially offset by an increase of accrued expenses and income tax payable of $512. The changes in our accounts payable and accounts receivable balances are primarily the result of the overall decrease in business activities relative to the prior year.

For the year ended December 31, 2022, net cash used in operating activities was $8,470. The $8,470 of net cash used in operating activities consisted of a net loss of $8,187 adjusted for non-cash charges of $2,399 offset by net changes in our net operating assets and liabilities amounting to $2,681. The non-cash charges primarily consisted of share-based compensation costs of $1,004, amortization of costs and interest accruals on convertible notes of $540, $243 of depreciation and amortization, $483 for payment of professional services in exchange for stock and change in fair value of warrant liability of $128. The cash required to fund the change in our net operating assets and liabilities was primarily due to increases in accounts receivable of $2,603 and prepaid assets of $684, offset by a net increase in accounts payable, security deposit and accrued expenses of $605. The changes in our accounts payable and accounts receivable balances are a result of the Company’s overall increase in business activities relative to earlier periods.

For the year ended December 31, 2021, net cash used in operating activities was $5,930. The $5,930 of net cash used in operating activities consisted of a net loss of $8,200 adjusted for non-cash charges related to valuation of a warrant liability for $2,331, non-cash charges of $1,443, net changes in our net operating assets and liabilities amounting to $1,388 and interest accrued on long term borrowings and a gain on extinguishment of debt of $115. The non-cash charges primarily consisted of amortization of costs and interest accruals on convertible notes of $905, $302 for depreciation and amortization and $235 in share-based compensation costs. The cash required to fund the change in our net operating assets and liabilities was primarily due to increases in accounts receivable of $1,527 and prepaid and other assets of $592 offset by an increase in accounts payable and accrued expenses of $730. The changes in our accounts payable and accounts receivable balances are a result of the Company’s overall increase in business activities relative to earlier periods.

Cash flows used in Investing Activities

For the year ended December 31, 2023, net cash used in investing activities was $363. The cash flow used was driven mostly by purchase of property and equipment.

For the year ended December 31, 2022, net cash used in investing activities was $381. The cash flow used was driven mostly by software development costs capitalized.

For the year ended December 31, 2021, net cash used in investing activities was $470. The cash flow used was driven by mostly by capitalized software development costs.

Cash flows provided by Financing Activities

For the year ended December 31, 2023, net cash provided by financing activities was $6,801. The cash flow provided was driven primarily by net proceeds from the issuance of convertible note of $7,675, partially offset by a net repayment on borrowing facilities for $527, and repayment of insurance financing for $347.

For the year ended December 31, 2022, net cash provided by financing activities was $6,572. The cash flow provided was driven primarily by net proceeds from the issuance of ordinary and preferred shares of $5,165, a net draw on borrowing facilities for $1,615, repayment of insurance financing for $400, and proceeds from the exercise of stock options and warrants for $191.

For the year ended December 31, 2021, net cash provided by financing activities was $6,833. The cash flow provided was driven primarily by proceeds from convertible notes of $3,609, proceeds from notes payable of $2,620, a net draw on borrowing facilities for $432 and proceeds from the exercise of warrants for $191.

After HKIFS was sold in its entirety on March 30, 2022, there are no assets, liabilities or contingencies remaining from Hudson Capital Inc.’s financial services businesses or any other of Hudson businesses as of that date.

The first commercial version of Fr8Tech’s products was launched in 2017. Fr8Tech continued its product development efforts throughout 2018, added initial business intelligence and analytics to supplement its basic products in 2019 and offered its revised products package with active freight brokerage support and customer service towards the end of 2019 and into early 2020.

Fr8Tech’s principal assets consist of its software, which it invests in on a monthly basis through development work by employees and externally contracted parties. Fr8Tech invested approximately $0.34 million, $0.4 million and $0.5 million in software during the years ended December 31, 2023, 2022 and 2021, respectively. Fr8Tech expects to continue investing in its software in line with the expansion of its product offerings. Financing for investment in software has historically been provided for by the company’s operations.

The second generation of Fr8Tech products were brought to market during the second quarter of 2020 and consisted of: 1) the online Portal and Mobile App; 2) the TMS; and, 3) Fr8App’s Platform supplemented with freight brokerage support and customer service. The latest generation consists of improvements and refinements to the Fr8App Platform, the offering of capacity through Fr8Fleet and the Fr8Now brand that is servicing the LTL market in Mexico.

On January 7, 2021, Fr8App filed a trademark application with the U.S. Patent and Trademark Office for the Fr8Technologies design mark. Fr8App currently does not hold any patents or own any registered trademarks. Fr8App believes that the success of its business depends on the quality of its proprietary software solutions, technology, processes, and domain expertise. While it considers its intellectual property rights to be valuable, Fr8App believes that its competitive position depends primarily on its ability to increase and eventually to maintain a leadership position by developing innovative proprietary solutions, technology, information, processes, insights and business intelligence to satisfy both Shippers and Carriers’ needs through its Platform.

After HKIFS was sold in its entirety on March 30, 2022, the trend information of the Company on a going-forward basis in this Item 5D. pertains only and is limited to the industry in which its subsidiaries operate.

Fr8Tech believes the growing interest in digital freight matching platforms shows that traditional 3PL providers recognize the sweeping technological shifts in the industry. We are offering solutions that significantly improve end-to-end freight procurement transactions to market participants. During the last three years, the industry experienced significant swings in supply, demand and costs due to distortions in both domestic and global markets resulting from the global pandemic caused by the virus known as COVID-19 and its follow-on effects. This substantial supply chain volatility has led large and small freight brokers to, among other tactics, pivot toward more abundant and secure sources of freight capacity available in a digital marketplace and facilitated by software portals and platforms. Fr8Tech believes supply chain management will continue to evolve into increasingly digital forms and interactive marketplace platforms. As it does, Fr8Tech believes digital brokers, will play an increasingly integral role in easing capacity constraints, opening up new lanes, and providing a benchmarking tool for shippers.

In the short-term, Fr8Tech believes the COVID-19 pandemic has changed the current nature of global commerce and shipping. Cross-border travel and trade restrictions were put into effect and could return, even though economies and trade have fully reopened around the globe. Trucking capacity is not steadily available across borders. Contract carriers can still only go to certain pre-specified locations and companies continue to need to determine where specific available freight capacity is and how much it costs. The near-shoring phenomenon continues to point towards more freight crossing over the U.S. border with Mexico and a lesser extent, Canada. Fr8Tech believes that these conditions are creating a market opportunity for digital brokers to facilitate and improve the connections necessary that enable cross-border commerce

According to the 34th Annual State of Logistics Report authored by Kearney, the U.S. domestic truck freight transportation market was estimated at $896 billion in 2022. Per Mordor Intelligence, the Mexican domestic freight market was estimated at approximately $43.1 billion, and the North American cross-border freight transportation market is estimated at $236 billion and expected to exceed $308 billion by 2030. Additionally, Mexico’s overall trade with the U.S. is estimated to grow at an CAGR of approximately 2.7% between 2021 and 2025. Fr8Tech expects the market to continue growing at rates at least equal to historic rates and likely higher than that rate given the recent near-shoring phenomenon.

A primary contributor to the growth in the North American cross-border freight transportation markets has been the increased level of trade between the U.S., Mexico and Canada. Effective July 1, 2020, the three countries signed a new free trade deal called the United States, Mexico, Canada Agreement (“USMCA”), replacing the North American Free Trade Agreement (“NAFTA”), which was enacted on January 1, 1994. As of 2019, Mexico became the U.S.’s largest single trading partner, surpassing China. According to the United Nations, Mexico exported an extra $3.5 billion of goods into the U.S., in the first half of 2019, since the summer of 2018 when the trade war between the U.S. and China began. Fr8App believes the replacement of NAFTA with the USMCA creates a stable environment attractive to multi-national companies considering Mexico as a market from which to export to both the United States and Canada.

In early 2020, U.S. President Donald Trump used trade policy in a manner that displaced global supply chains across industries and around the world. Mexico has become a preferred destination for U.S. and multinational companies to location to diversify their sources of supply and production away from the geopolitical risks associated with the ongoing U.S.-China trade tension. The approval of the USMCA in combination with new perspectives as related to national security implications of foreign-based supply chains may bring about changes in Mexico’s freight market, in terms of globalization or regionalization and logistics integration, as well as, the role of 3PL operators. Fr8Tech believes the recent supply chain volatility is driving an increase in demand for large and small freight brokers to secure more abundant freight capacity, in real-time, which is readily available on Fr8Tech’s freight-matching platform and facilitated by its Fr8App Platform solution and Fr8Radar. Fr8Tech believes that the supply chain volatility was aggravated by a shortage of drivers thereby creating further demand for a more comprehensive approach to logistics management to meet supply chain requirements while minimizing increases in the related freight costs. Fr8Tech acts as an intermediary between the total system’s freight requirements and the related freight demand in a more efficient manner than if various of the parties requiring freight contracted these services on their own or managed their own proprietary fleets. Fr8Tech believes that its ability to secure available freight capacity, using the Fr8App Platform solution, amongst available truck drivers offers customers an organized, efficient solution to transporting goods domestically and internationally in favorable or unfavorable market environments. Additionally, Fr8Tech believes it is well positioned to benefit from the increasing trade across both the U.S.-Mexico and the U.S.-Canada borders caused by supply chain volatility and magnified by the COVID-19 pandemic as well as the increasing needs for reliable freight service within the country of Mexico.

Traditional 3PLs rely on a network of offices staffed with individuals tasked with communicating with colleagues, customers and transportation companies to identify and secure freight services that meet their customers’ specific needs. The process is manual, inefficient, and lacks transparency. Cross-border transportation challenges can include tracking, visibility, trans-loading and potentially multiple hand-offs, multiple languages, international customs and regulatory inefficiencies. The ability to access real-time freight capacity and locate the right truck at the right time becomes critical to securing a reliable shipment service. Fr8App believes market conditions have created an increased demand for digital freight brokers who can help ease capacity constraints, open up new shipping lanes, and provide a benchmarking tool for both Shippers and Carriers. We also believe that there are few, if any other competitors that offer additional value-added features to their products such as our Fr8Radar.

Important factors of the trucking industry:

According to American Trucking Association several notable factors are influencing the outlook for the U.S. trucking industry:

Market Opportunity

According to Mordor Intelligence, the Mexican LTL market grew at a CAGR of 44.3% from 2016-2021, making it one of the fastest growing logistics segments in North America. That market is expected to register a compound annual growth rate of 5.4% between 2024 and 2030. And according to the same source, the US and Canadian 3PL markets are expected to grow at a 3.4% and 4.4% compound annual growth rate, respectively, over the same time period. According to ECDB, the e-commerce market within Mexico is expected to grow at compounded annual growth rate of more than 20% from 2024 to 2028. Fr8Tech believes this commercial freight market growth is driven by growing domestic economies and increasing trade flows, which are not only from one region to another, but are more decentralized and fragmented due to the growth of large on-line retailers such as Amazon and MercadoLibre.

Fr8Tech believes these factors are expected to intensify the complexity of logistics activities in the coming years in what has been a relatively fragmented Mexican transportation market on a historical basis. Fr8Tech believes the U.S. and Canadian markets remain relatively fragmented as well though they have each seen major logistics companies enter the industry over the past decade. Fr8Tech believes the evolution of supply chains is also susceptible to changes in consumer habits, driven further by e-commerce and international health issues, such as the COVID-19 pandemic. Rising consumer expectations have had an observable effect throughout the supply chain, driving the need for greater efficiency and speed. Technology in warehouses, onboard trucks, and on smartphones has led to automating critical processes, improving visibility into the shipment lifecycle, and enabling faster decisions. In addition to profitability, sustainability and reliability has likely become a consideration of every Shipper’s bottom line. Fr8Tech believes that an ability to respond to increasing market volatility in real-time, is a valuable asset contributing to a Shipper’s business success. Fr8Tech believes this consideration is further exacerbated by qualified driver shortages in the U.S. and Canada. Fr8Tech believes the TMS market to be in a development stage similar to the consumer transportation industry, or “taxicabs”, prior to the introduction of wider reaching platforms like Uber, Lyft and Cabify. Fr8Tech continues to invest in improving its TMS technology and expects these investments to help improve its Platform as well as the range of services Fr8Tech offers and will offer in the future to its Shippers and Carriers.

Fr8Tech believes the Mexican commercial freight market is also ripe for technological disruption as adoption of technology in this industry segment has lagged several others in the commercial transportation space. Fr8Tech believes there are significant complexities within the Mexican freight transportation market that give Fr8Tech a competitive advantage. As an example, there are standard ways in which a new carrier is evaluated as a potential business counterparty in the U.S, including industry databases, government registries and electronic tools for investigating a potential business supplier. However, there are no established vetting processes to navigate the commercial freight transportation market in Mexico. Fr8Tech continues to gain a deep understanding of these unique circumstances within the Mexican transportation industry, giving us a competitive advantage over future market entrants. Fr8Tech intends to leverage this competitive advantage into opportunistically selected routes carrying traffic throughout Mexico and into the U.S. and Canada.

Fr8Tech’s operations center in Mexico is located in Monterrey, which has a longstanding history as a transportation hub within the domestic and cross border Mexican freight transportation market. Fr8Tech plans to leverage its presence in Monterrey to become a leader in international freight to and from Mexico, and into and across the U.S. and Canada.

The Fr8App Brand

Fr8App’s Platform provides visibility on freight transportation options not readily apparent with traditional 3PL solutions. The Platform allows Shippers and Carriers to book loads at the palm of their hands and assign jobs to drivers, in real-time, with the click of a button. Shippers and Carriers register on the Platform and are approved to transact after undergoing a rigorous vetting process.

The vetting process for Shippers includes the following:

Fr8Tech collections group performs a credit report analysis which includes a due diligence of the customer credit record, revenues of the customer for the latest 3 years, industry in which client operates, review of current insurance coverage, and payment terms negotiated. Fr8Tech has had immaterial bad debt expense in the past several years.

The vetting process for Carriers includes the following:

Fr8App’s Platform can automatically and instantaneously match Shippers with Carriers within the Fr8App network. Carriers are sent push notifications through the Platform every time a load or job request is entered by a Shipper that matches the criteria Carriers are looking for on a given shipment and lane.

By leveraging its technology, the increasing usage, and amount of traffic booked on its Platform, Fr8Tech can work with customers to optimize their supply chain, eliminate empty miles on the road, and reduce their carbon footprint. With its proprietary software, Fr8Tech offers smart solutions under its various brand names that create sustainable alternatives and offer benefits to both Shippers and Carriers, including:

Fr8Fleet

Fr8Fleet is our technology-driven solution for large corporate enterprise customers with a demand for regular and ongoing shipping and logistics. It was developed to accommodate demand from large corporate clients that have a need for ongoing logistics capacity. In contrast to Fr8App, which is based on booking individual loads, Fr8Fleet, our dedicated capacity services, provides exclusive use of an entire truck or a fleet of trucks to an enterprise, ensuring on-time delivery and reduced handling to maintain the pristine condition of goods. Real-time tracking from Fr8Radar offers complete transparency and assists users by providing regular updates on their shipments, and our platform allows for easy booking, tracking, and management.

Fr8Now

Fr8Now is our solution for Shipper-Carrier freight matching servicing the LTL business. Fr8Now was developed to be a trusted LTL shipping partner for businesses of all sizes with a focus on businesses within the domestic Mexican market. Our innovative technology provides an easy booking process, flexible options, and affordable pricing that are designed to make us the go-to choice for LTL shipping needs in Mexico. We believe we are one of the first entrants in this particular market segment in Mexico. Fr8Now started its first operations in the first quarter of 2023.

Fr8Tech’s Customers

Fr8Tech’s customers consist of Shippers and Carriers across North America. A Shipper will use Fr8Tech to request bids on a shipment or a series of shipments of certain characteristics and a Carrier will agree to the terms set forth on its Platform. Carriers have the option to carry out deliveries prior to receiving payment from Fr8App, and Shippers may start shipments before submitting their payment to Fr8Tech. Fr8Tech mitigates payment risks by pre-screening and approving all Shippers and Carriers prior to approving either party. Fr8Tech believes that Shippers value the features and benefits from its Platform by working with trusted Carriers that help alleviate driver shortages. Shippers also benefit from the cost transparency available on Fr8Tech’s Platform, as there are no hidden fees. Shippers can count on the safety and reliability of the Platform as Fr8Tech tracks cross border shipments. Lastly, Shippers can benefit by managing their logistics needs in one control center on Fr8Tech’s Platform.

Fr8Tech believes Carriers value its ability to assist in minimizing empty (deadhead) miles and making every mile, a mile paid for. Carriers also benefit from the Platform’s transparency and know how much they are scheduled to make from fulfilling each job. Carriers receive faster payment for their services by using Fr8Tech’s Platform and avoid potentially expensive factoring companies. Lastly, Carriers can benefit from Fr8Tech’s Platform by using it as a tool to streamline workflows and increase overall efficiency.

Our Growth Strategy

Fr8Tech intends to establish Fr8App as the top brand for digital freight marketplace in the Mexican domestic, U.S-Mexico and Mexico-U.S. cross-border markets. Fr8Tech intends to leverage Fr8App’s position within these markets to opportunistically expand its footprint across select routes in the U.S. and into Canada. Fr8Tech plans to expand its Fr8Fleet offering in Mexico and leverage its presence in that market to expand its customer base and market penetration with highly targeted Fr8fellt and LTL solutions. Fr8Tech’s growth strategy consists of the following:

Focus on Core Markets: Fr8Tech plans to expand its Shipper base and increase its Carrier ecosystem operating under the Fr8App brand throughout all three countries, with a continued focus on the Mexico-U.S. cross-border market, a select portion of the U.S. domestic market and a select segment of the Mexican domestic market. Ongoing investments in its Platform, internal sales tools, and targeted hiring in sales, operations and software development, Fr8Tech stands to benefit from well-trained labor force, mostly in Mexico, to manage its ongoing daily operations throughout North America. Using targeted marketing campaigns and sales outreach, Fr8Tech intends to reinforce the benefits of using its Platform and increase adoption among existing Shippers and Carriers, including those interested in our LTL offerings. With the use of business analytics and management solutions, the Company will continue to actively manage margins at the account level, minimize additional overhead expenses, and thus take advantage of the inherent operating leverage providing by the Fr8App Platform. By leveraging its customer base and long-standing industry relationships and building off existing Shipper feedback and experiences, Fr8Tech believes it will be able to add new accounts to its portfolio across the domestic trucking industry in Mexico, U.S.-Mexico cross-border trades and opportunistically select routes within the U.S. and the U.S.-Canada cross-border commercial freight transportation market. Lastly, by leveraging its infrastructure and network in the FTL business, Fr8Tech believes it will be uniquely suited to launch a selectively targeted LTL offering within select markets in Mexico through Fr8Now.

Investing in Customers, Carriers and Employees to Drive Organic Growth: Fr8Tech plans to continue to incorporate customer feedback and their user experiences to solve their biggest pain points across the logistics landscape. Dedicated API data exchanges, customized features, evolved dashboard reporting, and unique predictive analytics are just some of the ongoing investments into customer relationships. We will continue to build trust among all Carriers across our three brands by managing our Shipper base and FTL and LTL demands to provide a high level of fulfilment, and effective management of loads. We will monitor service levels across its Platform with on-time pick-up and delivery metrics. That same technology is used to manage Fr8Fleet and Fr8Now.

To deliver high performance and maximize value to our Shipper and Carrier customers, we plan to continue to invest in, train and enable in our sales and operations teams to provide real-time response to high-volume primary and spot load activity, as necessary, and to provide best-in-class sales service and carrier support. Fr8Tech will continue developing well-trained bilingual sales force and operations team through our “Fr8App University” Program.

Investing in Technology to Expand Capabilities and Extend Reach: Fr8Tech will continue to invest in its technology to improve and differentiate its Platform, as well as, expand its TMS offerings for Shippers. Fr8Tech plans on integrating more of its business customers through customized API’s and launching a fleet management system for Carriers. Within the geographies that Fr8Tech serves, Fr8App is also naturally suited for providing similar market participant matching solutions in other logistics markets, including maritime and trans-ocean freight, air freight, rail and inter-modal transportation. It can also be leveraged to provide similar automated matching capabilities to adjacent markets, such as last mile transportation, long-term storage and warehousing. Through thoughtful market analysis, strategic industry relationships and partnerships, and considerate planning, Fr8Tech will explore broadening its addressable market by either developing in-house solutions or partnering with other service providers to pursue attractive opportunities within such markets when possible.

Automation

Balancing Contractual and Spot Business, Domestic and Cross-Border

Primary markets are those with established regular routes that are contracted for over a period of time. Spot markets are negotiated at a specific point in time and, usually in response to a short-term need that was not originally planned by a Shipper or Carrier. Fr8Tech understands the importance of balancing its efforts and business between primary and spot markets. As Fr8Tech advances in serving the Mexican domestic and U.S.-Mexico cross-border market opportunities, it will leverage spot opportunities presented by regional or global situations or events, such as high market volatility resulting from conflicts, social or economic disruptions (like a pandemic), escalations in trade tensions or disputes, or other circumstances that generate short-term imbalances in the supply and demand for ground transportation freight services in the markets we serve. We are also mindful that longer term economic trends, such as shifts in consumer preferences or supply chain near-shoring and other macroeconomic factors can also create a shortage of supply and surplus in demand on either side of the equation. With periods of market stability, Fr8Tech will increasingly try to target higher volume, long-term contractual business directly from Shippers through its Fr8App brand, local traffic in Mexico through Fr8Fleet and Fr8Now.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the consolidated financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our consolidated financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 3 to our consolidated financial statements included elsewhere in this report.

Fair Value Measurements

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a hierarchy of inputs used when available. Observable inputs are what market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are those that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

The three levels of the fair value hierarchy are described below:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that are unobservable for the asset and liability in which there is little, if any, market activity.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include trade accounts receivable, unbilled receivables, accounts payable, accrued expenses, and debt at variable interest rates, approximate their fair values at December 31, 2023, 2022, and 2021, respectively, principally due to the short-term nature, maturities, or nature of interest rates of the above listed items.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable are recorded at the net invoiced amount, net of allowances for credit losses, and do not bear interest. Unbilled receivables, which are reflected separately on the accompanying consolidated balance sheets, include unbilled amounts for services rendered in the respective period but not yet billed to the customer until a future date, which typically occurs within one month, are recorded separately on the consolidated balance sheets. The allowance for credit losses is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. In accordance with Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, the Company also considers reasonable and supportable forecasts of future economic conditions and their expected impact on customer collections in determining the allowance for credit losses. The Company determines expected credit losses based on historical write-off experience, an analysis of the aging of outstanding receivables, customer payment patterns, and our expectations of changes in macro-economic conditions, that may impact the collectability of outstanding receivables. Balances are considered past due based on invoiced terms. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2023 and 2022 the allowance for credit losses was $282,058 and $171,009, respectively.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or circumstances exist that indicate the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets is measured by comparing the carrying amounts of the assets to the future undiscounted cash flows expected to be generated by the assets. If the asset or asset group is considered to be impaired, an impairment loss would be recorded to adjust the carrying amounts to the estimated fair value. Management has determined that no impairment of long-lived assets exists, and accordingly, no adjustments to the carrying amounts of the Company’s long-lived assets have been made for the years ended December 31, 2023, 2022, and 2021.

Capitalized Software

The Company complies with the guidance of ASC Topic 350-40, “Intangibles—Goodwill and Other—Internal Use Software”, in accounting for of its internally developed system projects that it utilizes to provide its services to customers. These system projects generally relate to software of the Company that is not intended for sale or otherwise marketed. Internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Once a project has reached the development stage, the Company capitalizes direct internal and external costs until the software is substantially complete and ready for its intended use. Costs for upgrades and enhancements are capitalized, whereas, costs incurred for maintenance are expensed as incurred. These capitalized software costs are amortized on a project-by- project basis over the expected economic life of the underlying software on a straight-line basis, which is generally three years. Amortization commences when the software is available for its intended use.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

Warrants classified as liabilities are recorded at fair value and are remeasured at each reporting date until settlement. Changes in fair value are recognized as a component of change in fair value of warrant liability in the consolidated statements of operations.

The fair value of the warrant liabilities is estimated using a Black-Scholes option pricing formula. The warrant volatility assumption within the Black-Scholes model represents a Level 3 measurement within the fair value measurement hierarchy. Warrants classified as equity instruments are initially recognized at fair value and are not subsequently remeasured.

The proceeds received from the sale of equity classified warrants and convertible note in a bundled transaction are allocated based on the relative fair values of warrants and convertible notes with no changes in fair value of warrants recognized after the issuance date and were recorded at the issuance date using a relative fair value allocation method. Equity classified warrants, which are issued as an inducement to the holder of convertible note to covert the note, are recognized as an expense equal to the fair value of the warrant in accordance with ASC 470-20, Debt with Conversion and Other Options.

When equity classified warrants are issued to the convertible note holder as an additional consideration for the holder to provide additional funding under the existing convertible note agreement, the additional funding is allocated based on the residual fair value allocation method in which the fair value of the additional funding is first allocated to the convertible note and the remaining proceeds are allocated to the equity classified warrant.

Foreign Operations

Operations outside the United States include a wholly-owned subsidiary in Mexico. Foreign operations are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange.

Revenue Recognition

The Company’s revenues are accounted for under FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company generates revenues primarily from shipments executed by the Company’s freight transportation brokerage services or dedicated capacity to shippers through the Company’s freight marketplace.

Freight Transportation Brokerage Services

The Company’s freight transportation brokerage services include Fr8App Full Truckload (“FTL”), providing a single customer the use of an entire truckload, and Fr8Now Less Than Truckload (“LTL), providing multiple customers the use of a partial truckload in each truck. Shippers contract with the Company to utilize the Company’s network of independent freight carriers to transport freight. Those shipments are the Company’s single performance obligations, arising under contracts the Company has entered into with customers that define the price for performance obligation and payment terms. The Company’s acceptance of the shipment request establishes enforceable rights and obligations for each contract. By accepting the shipper’s order, the Company has responsibility for transportation of the shipment from origin to destination. Under such contracts, revenue is recognized when performance obligations are satisfied, which generally represents the transit period from origin to destination by a third-party carrier which can vary based on origin and destination, or the capacity used. This is appropriate as the customer simultaneously receives and consumes the benefits as the Company performs its obligation. The Company determines revenue in-transit using the output method based on shipping milestones. Measure of revenue in-transit requires the application of judgment. Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services. Accessorial charges for fuel surcharge, loading and unloading, stop charges, and other immaterial charges are part of the consideration received for the single performance obligation of delivering shipments.

Dedicated Capacity Services

The Company provides customers with dedicated shipment capacity for a specific period of time under Fr8Fleet. The current arrangements under Fr8Fleet include an obligation to provide weekly shipping capacity. The Company’s performance obligation in this arrangement is to provide the shipping capacity and the transaction price is fixed. Under such contracts, revenue is recognized when performance obligations are satisfied, which generally represents when trucks are provided to the shipper over the term of the agreement. The Company utilizes the output method for revenue recognition based on direct measurements of the value transferred to the customer, which is the number of trucks provided to the customer per day. Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services.

Payment for the Company’s services is generally due within 30 to 45 days upon delivery of the shipment. Contracts entered into with customers do not contain material financing components.

The Company’s contracts with customers typically have a duration of one year or less and do not require any significant start-up costs, and as such, costs incurred to obtain contracts associated with these contracts are expensed as incurred.

Through the Company’s freight brokerage services and dedicated capacity, the Company is responsible for identifying and directing independent freight carriers to transport the shipper’s goods. The transportation of the loads is outsourced to third-party carriers. The Company is a principal in these arrangements, and therefore records revenue associated with these contracts on a gross basis. The Company controls the service and has primary responsibility to meet the customer’s requirements. The Company invoices and collects from its customers, maintains discretion over pricing, and is responsible for resolving customer claims. Additionally, the Company is responsible for selection of third-party transportation providers to the extent used to satisfy customer freight requirements.

At times, billing occurs subsequent to revenue recognition, resulting in an unbilled receivable which represents a contract asset. This contract asset is recorded as an unbilled receivable and presented on the consolidated balance sheets. The Company receives the unconditional right to bill when shipments are delivered to their destination.

Convertible Debt

The Company elected the fair value option (“FVO”) of accounting under ASC 825-10, Financial Instruments (“ASC 825”), to record its convertible note issued in 2023 at fair value at issuance and subsequently remeasures to fair value each reporting period. The primary reason for electing the fair value option was for simplification and cost-benefit considerations of accounting for the convertible notes at fair value versus bifurcation of the embedded derivatives. The convertible note accounted for under the FVO represents a financial instrument containing embedded features which would otherwise be required to be bifurcated from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements under ASC 815. The Company has elected to present interest expenses separately from changes in fair value and therefore interest associated with the convertible note is presented as interest expense in the consolidated statement of operations. All costs associated with the issuance of the convertible note accounted for using the FVO were expensed upon issuance. The fair value of the convertible note is determined using a binomial lattice model and classified as Level 3 in the fair value hierarchy.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are elective and are effective upon issuance. In December 2022, the FASB issued ASU 2022-06, “Reference rate reform (Topic 848): Deferral of the sunset date of Topic 848” which defers the expiration date for Topic 848 from December 31, 2022 until December 31, 2024. The Company is currently evaluating the potential impact of adopting this new accounting guidance, but does not expect the adoption of the standard to have a material impact on its consolidated financial statements.

In September 2022, the FASB issued ASU No. 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which is intended to enhance the transparency surrounding the use of supplier finance programs. The guidance requires companies that use supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The guidance becomes effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company does not have any supplier finance programs and does not believe the impact of adopting this accounting standard update will be material to the consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to reportable Segment Disclosures (ASU 2023-07),” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and by extending the disclosure requirements to entities with a single reportable segment. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the potential impact of adopting this accounting standard update on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued “ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments require (i) enhanced disclosures in connection with an entity’s effective tax rate reconciliation and (ii) income taxes paid disaggregated by jurisdiction. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The amendments are effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of adopting this accounting standard update on its consolidated financial statements and disclosures.

The following table sets forth information regarding our executive officers and directors as of the date of this annual report.

Executive Officers

Javier Selgas, Chief Executive Officer and director, was Fr8App’s Chief Technology Officer from March to September 2020, and was responsible for all of Fr8App’s technologies and products. From May 2017 to March 2020, Javier was the Country Manager in Osigu, a technology company in the healthcare space, leading its new operation in Spain. From February 2013 to May 2017, Javier also headed AJEgroup’s IT division in Asia Pacific region playing a key role in the continued development of strategic IT growth and supplier relationships, ensuring flexibility in response to an increasingly demanding corporation. Prior to joining AJEGroup, Javier dedicated his professional career as an IT consultant in big corporations such as Endesa and Ibermatica. Javier earned a Master’s Degree from Barcelona University, and a Bachelor of Science degree in Software Engineering from European University.

Donald Quinby, Chief Financial Officer. Donald Quinby joined Fr8Tech as Chief Financial Officer on January 19, 2024. Prior to joining the Company, Mr. Quinby held leading finance roles with several public companies. Since 2018, Mr. Quinby has been a Finance Director covering financial planning and analysis and investor relations at Nextracker Inc., a leader in utility scale solar tracker and software solutions. Prior to that, from 2016 to 2018, Mr. Quinby was a Finance Director for a smart-home residential solar business at Flex, preceded by being a Senior Manager of Financial Planning & Analysis for SunEdison’s Residential and Small Commercial solar business from 2015 to 2016. Mr. Quinby was a Senior Manager of Business Finance at Dolby Laboratories from 2009 to 2015. From 2004 to 2008, he was a Senior Manager, then director with KPMG, LLP’s Transaction Services, providing Mergers and Acquisitions advisory services on numerous deals for private equity and corporate clients. Mr. Quinby received an MBA from the University of California at Davis and a BA from Colby College. He has been a Chartered Financial Analyst charterholder since 2007.

Paul Freudenthaler, Secretary, joined Fr8Tech in September 2020. Prior to joining Fr8Tech, Paul served as the chief financial officer for several leading companies in both the U.S. and Mexico. From August 2015 to April 2016, he was the chief financial officer for EZ Corp., the Mexico division of Crediamigo, a payroll discount lender. From November 2016 to August 2020, Paul was the chief financial officer of Ascentium Capital, the largest independent small business lender in the U.S. Paul drove the growth and successful sale of Ascentium Capital from private equity investors to one of the largest banks in the United States. Paul was the chief financial officer for Old Mutual in Latin America from June 2012 to July 2015, Macquarie in Mexico City from June 2009 to May 2012 and Irwin Union Bank in the United States from August 2005 to August 2008. Paul’s experience includes successful public offerings and a number of acquisitions totaling well over $1 billion in both Mexico and the United States. Paul was born in Canada and grew up in Mexico City, before spending the following 30 years splitting his time among Mexico, the U.S. and Canada. Paul earned his MBA in Finance from The Wharton School of Business, a CPA License from Texas State Board of Public Accounting, and a Bachelor of Commerce in Accounting and Economics from the University of Calgary, Canada. Paul Freudenthaler resigned as Fr8Tech’s Chief Financial Officer on January 19, 2024, after which he continued serving as Secretary and began serving as Director.

Luisa Irene Lopez Reyes, Chief Operating Officer, joined Fr8App in August 2021. From December 2017 to July 2021, Luisa had the responsibility to start Landstar operations in Mexico and to develop business for domestic and cross border divisions. During October 2015 to November 2017 Luisa served as an Operations Director for School and Personnel Transportation Division for GRUPO TRAXION. Prior to running transportation business, Luisa has performed as an Operation Head in different transnational companies: Editorial Televisa 2015-2017, Danone Water Division 2014, PriceShoes 2009-2013, ConAgra Foods 2006-2009, Nestlé 2000-2006. During her professional career Luisa has received awards as the best logistics provider from WM and DHL trough innovation and IT platforms implementation achieving efficiencies in logistics processes. Luisa has a Business Coaching Master, Supply Chain Management Certification and a Bachelor’s Degree in PR.

Non-Employee Directors

Nicholas H. Adler, our current Chairman of the Board, is a practicing attorney in Nashville, Tennessee specializing in defense litigation, bankruptcy, foreclosure, and real estate matters. He has been a partner at Brock & Scott PLLC since 2012. Nick is admitted to practice law in New York and Tennessee as well as all Federal districts within Tennessee. After his graduation from law school, Nick practiced with a large international firm in New York specializing in securities regulation. Since 2005, his practice has focused on the representation of national and regional credit grantors in Tennessee. He is also active in real estate development and asset management in Nashville. Nick earned his B.A. in political science from Vanderbilt University and his J.D. from The Washington and Lee University School of Law.

William Samuels, a current member of our Board, is a practicing attorney in Manhattan, New York specializing in intellectual property law. He has been a partner at Warshaw Burstein, LLP since June 2020. Between October 2017 and May 2020, he was a partner at Scarinci & Hollenbeck LLC and prior to that, he was a partner at W.R. Samuels Law PLLC starting January 2010. He is Treasurer of the New York State Bar Intellectual Property Section and co-chair of that section’s Trademark Law Committee. He earned his BA in English Literature from Georgetown University, MA in English Literature from the University of Pennsylvania and J.D. from Emory University.

Marc Urbach, a current member of Fr8App’s board of directors, is the owner of Doorstep Delivery Logistics LLC and has been its Chief Executive Officer since August 2020, and consultant at OTS Ventures Inc. since January 2017. Prior to that, he was the President/CFO and board member of Ideanomics, Inc. (formerly known as YOU On Demand Holdings, Inc.) He has been an executive at various private and public companies in the past 25 years. He earned his B.S. in Accounting from Babson College.

Election of Officers

Our executive officers are appointed by, and serve at the discretion of, our board of directors.

Family Relationships

None of the directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has, during the past ten years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K. Our directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

Diversity Matrix of Board of Directors

The following table provides the diversity statistics of our Board of Directors required by Rule 5606 of the Nasdaq Listing Rules:

Executive Compensation

The following table sets forth the amount of compensation, including stock-based compensation, that was paid, earned and/or accrued during the fiscal years ended December 31, 2023 and 2022, to each of our officers and directors above.

Board of Directors

During 2023, our board of directors consisted of four directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director may vote with respect to any contract, proposed contract or arrangement in which he is interested, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered, provided (a) such director, if his interest in such contract or arrangement is material, has declared the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice and (b) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. The directors may exercise all the powers of the company to borrow money, to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of service.

Committees of the Board of Directors

We established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.

Audit Committee. Our audit committee consists of Messrs. Adler, Samuels and Urbach. Mr. Urbach is the chairman of our audit committee. We have determined that Messrs. Adler, Samuels and Urbach satisfy the “independence” requirements of NASDAQ Rule 5605 and Rule 10A-3 under the Exchange Act. Our board of directors has determined that Mr. Urbach qualifies as an audit committee financial expert and has the accounting or financial management expertise as required under Item 407(d)(5)(ii) and (iii) of Regulation S-K. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:

A copy of the audit committee’s current charter is available at our corporate website at: https://www.fr8technologies.com/governance/.

Compensation Committee. Our compensation committee consists of Messrs. Adler, Samuels and Urbach, with Mr. Adler as chair of the committee. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will be responsible for, among other things:

A copy of the compensation committee’s current charter is available at our corporate website at: https://www.fr8technologies.com/governance/.

Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Messrs. Adler and Samuels. The nominating and corporate governance committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:

A copy of the nominating and corporate governance committee’s current charter is available at our corporate website at: https://www.fr8technologies.com/governance/

Duties of Directors

Under British Virgin Islands law, our directors owe fiduciary duties to our Company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time, and the class rights vested thereunder in the holders of the shares. Our company has the right to seek damages if a duty owed by our directors is breached. A shareholder may in certain limited exceptional circumstances have the right to seek damages in our name if a duty owed by the directors is breached.

Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:

Terms of Directors and Officers

Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders. Each of our directors will hold office until the expiration of his or her term as provided in the written agreement with our company, if any, and until his or her successor has been elected or appointed. A director will cease to be a director if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found by our company to be or becomes of unsound mind, (iii) resigns his office by notice in writing to the company, or (iv) without special leave of absence from our board, is absent from three consecutive board meetings and our directors resolve that his office be vacated. Our officers are elected by and serve at the discretion of the board of directors.

Employment Agreements and Indemnification Agreements

Fr8Tech’s current Chief Executive Officer joined Fr8Tech in March 2020 as its Chief Technology Officer, and became the Chief Executive Officer in September 2020. Our Chief Financial Officer joined Fr8Tech in January 2024. Fr8Tech’s Chief Operating Officer joined Fr8Tech in August 2021. Set forth below are compensation arrangements based on their current employment agreements with Fr8Tech. All employment agreements were continued under the same terms at the time of the Merger and all options and equity compensation items adjusted consistent with the exchange ratio related the Merger.

Under his Employment Agreement with Fr8Tech, Mr. Javier Selgas serves as Fr8Tech’s Chief Executive Officer, receives an annual base salary of $250,000 and is eligible for benefits and a discretionary bonus payable in the first fiscal quarter after the end of each fiscal year. He received (i) an option grant for 8,884 ordinary shares of Fr8Tech at $4.336 per share, fully vested upon grant, and (ii) an option grant for 17,767 ordinary shares of Fr8Tech at an exercise price equivalent to the Applicable Per Share Merger Consideration upon the Closing of the Merger or $14.00 per share, vesting over four years starting in September 2021. In the event Mr. Selgas is terminated without cause or for good reason, he will be entitled to receive continued payment of his base salary for six months immediately following the termination date. He was awarded an additional stock option grant for 5,330 ordinary shares of Fr8Tech at $13.87 per share, vesting over four years starting in December 2021, and 90,000 shares of Fr8Tech ordinary shares at $2.850 per share, vesting over four years starting in August 2022.

Under his Employment Agreement with Fr8Tech, Mr. Donald Quinby receive an annual base salary of $250,000, paid in periodic installments, subject to payroll deductions and other tax withholdings in accordance with the Company’s customary payroll practices and applicable wage payment laws, but no less frequently than monthly. Mr. Quinby is eligible to receive a discretionary bonus based on performance as determined by our board of directors. Pursuant to his Employment Agreement with the Company, the Company will grant Mr. Quinby such number of options to purchase Company shares under its 2022 Stock Incentive Plan representing $220,000 in intrinsic value.

Under his Employment Agreement with Fr8Tech, Mr. Paul Freudenthaler served as Fr8Tech’s Chief Financial Officer, received an annual base salary of $250,000 and was eligible to receive a discretionary bonus payable in the first fiscal quarter after the end of each fiscal year. He received (i) an option grant for 4,441 ordinary shares of Fr8Tech at $4.336 per share, fully vested upon grant, and (ii) an option grant for 22,2090 ordinary shares of Fr8Tech at the Applicable Per Share Merger Consideration upon the Closing of the Merger or $14.00 per share, vesting over four years starting in September 2021. In the event Mr. Freudenthaler was terminated without cause or for good reason, he was entitled to receive continued payment of his base salary for six months immediately following the termination date. He was awarded an additional stock option grant for 5,330 ordinary shares of Fr8Tech at $13.87 per share, vesting over four years starting in December 2021, and 90,000 shares of Fr8Tech ordinary shares at $2.850 per share, vesting over four years starting in August 2022. On January 19, 2024, Mr. Freudenthaler resigned as Fr8Tech’s Chief Financial Officer, after which he continued serving as Secretary and began serving as a director. Mr. Freudenthaler’s Employment Agreement terminated upon his resignation. In connection with his appointment as director, Mr. Freudenthaler entered into a Board Services Agreement with the Company. Pursuant to such Board Services Agreement, the Company shall pay Mr. Freudenthaler a quarterly compensation of $4,000 for his services as Secretary.

Under her Employment Agreement with Fr8Tech, Ms. Luisa Irene Lopez Reyes serves as Fr8Tech’s and Freight App de Mexico’s Chief Operating Officer, receives an annual base salary of MXP$3,000,000 and is eligible to receive a discretionary bonus payable within the first 2-1/2 months after the end of the applicable fiscal year. She is entitled to receive (i) an option grant for 1,889 ordinary shares of Fr8Tech at $13.87 per share, fully vested upon grant, and (ii) an option grant for 9,445 ordinary shares of Fr8App at the Applicable Per Share Merger Consideration or $14.00 per share, vesting over four years starting on the one-year anniversary date of the Effective Date of the Merger. In the event that Ms. Reyes is terminated without cause or for good reason, she will be entitled to receive continued payment of her base salary for three months immediately following the termination date. She was awarded an additional share option grant for 30,000 ordinary shares of Fr8Tech at $2.85 per share, vesting over four years starting in August 2022.

Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.

We have entered into board services agreements and indemnification agreements with (i) each of our independent director appointees and (ii) our CEO and Secretary, who are non-independent members of the Company’s board of directors. These agreements set forth the services to be provided and compensation to be received by our independent directors and the indemnifications provided to them by the Company. Pursuant to these agreements, the directorship of our director appointees will last until the earlier of (i) the date on which the director resigns, or (ii) is removed in accordance with the Company’s governing documents and applicable law.

NASDAQ Requirements

Our ordinary shares are currently listed on the NASDAQ Capital Market and, for so long as our securities continue to be listed, we will remain subject to the rules and regulations established by NASDAQ Stock Market as being applicable to listed companies. NASDAQ has adopted, and from time-to-time adopts, amendments to its Marketplace Rule 5600 that imposes various corporate governance requirements on listed securities. Section (a)(3) of Marketplace Rule 5615 provides that foreign private issuers such as our company are required to comply with certain specific requirements of Marketplace Rule 5600, but, as to the balance of Marketplace Rule 5600, foreign private issuers are not required to comply if the laws of their home jurisdiction do not otherwise mandate compliance with the same or substantially similar requirement.

We currently comply with those specifically mandated provisions of Marketplace Rule 5600. In addition, we have elected to voluntarily comply with certain other requirements of Marketplace Rule 5600, notwithstanding that our home jurisdiction does not mandate compliance with the same or substantially similar requirements; although we may in the future determine to cease voluntary compliance with those provisions of Marketplace Rule 5600 that are not mandatory. However, we have elected not to comply with the following provisions of Marketplace Rule 5600, since the laws of the British Virgin Islands do not require compliance with the same or substantially similar requirements:

We may in the future determine to voluntarily comply with one or more of the foregoing provisions of Marketplace Rule 5600. For example, we have voluntarily decided to compose of the majority of our board of directors with independent directors as defined by the NASDAQ rules.

As of December 31, 2023, we had 78 employees, with 70 in Mexico, 8 in the US and the remainder elsewhere, working remotely. The following table sets forth the number of our employees by function as of the same date: 

As required by local regulations where our employees reside, we participate in various employee social security plans, including retirement plans, and medical insurance. We are required under Mexican law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.

We believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes.

Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares as of the date of this annual report by:

The calculations in the table below are based on ordinary shares outstanding as of May 7, 2024. Unless otherwise indicated, each person has sole investment and voting power with respect to all shares shown as beneficially owned. The term “beneficial owner” of securities refers to any person who, even if not the record owner of the securities, has or shares the underlying benefits of ownership. These benefits include the power to direct the voting or the disposition of the securities or to receive the economic benefit of ownership of the securities. A person also is considered to be the “beneficial owner” of securities that the person has the right to acquire within 60 days by option or other agreement. Beneficial owners include persons who hold their securities through one or more trustees, brokers, agents, legal representatives or other intermediaries, or through companies in which they have a “controlling interest”, which means the direct or indirect power to direct the management and policies of the entity. The Company’s directors and executive officers do not have different voting rights than other shareholders of the Company.