UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2024

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

For the transition period from ______, 20___, to _____, 20___.

Commission File Number 001-41204

Hour Loop, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		47-2869399
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

8201 164th Ave. NE Redmond, VA		98052-7615
(Address of Principal Executive Offices)		(Zip Code)

(206) 385-0488, ext. 100

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each Exchange on which Registered
Common Stock		HOUR		The Nasdaq Capital Market

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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 9, 2024, there were 35,132,480 shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding.

Hour Loop, Inc.

Contents

		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

Signatures		39

Item 1. Financial Statements.

HOUR LOOP, INC.

CONSOLIDATED BALANCE SHEETS

(In U.S. Dollars, except for share and per share data)

As of June 30, 2024 and December 31, 2023

(Unaudited)

	June 30,			December 31,
	2024			2023

ASSETS
Current assets
Cash	$	3,346,897		$	2,484,153
Accounts receivable, net		753,244			747,650
Inventory, net		14,658,081			14,276,555
Prepaid expenses and other current assets		467,770			504,973
Total current assets		19,225,992			18,013,331

Property and equipment, net		104,521			148,788
Deferred tax assets		732,919			1,304,215
Operating lease right-of-use lease assets		153,404			83,946
Total non-current assets		990,844			1,536,949
TOTAL ASSETS	$	20,216,836		$	19,550,280

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	5,688,328		$	3,812,954
Credit cards payable		2,283,931			4,404,445
Short-term loan		617,284			652,422
Operating lease liabilities-current		159,915			82,269
Income taxes payable		33,700			-
Accrued expenses and other current liabilities		1,083,990			1,972,512
Total current liabilities		9,867,148			10,924,602

Non-current liabilities
Operating lease liabilities-non-current		-			2,363
Due to related parties		4,170,418			4,170,418
Total non-current liabilities		4,170,418			4,172,781
Total liabilities		14,037,566			15,097,383
Commitments and contingencies		-

Stockholders’ equity
Preferred stock: $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding as of June 30, 2024 and December 31, 2023		-			-
Common stock: $0.0001 par value, 300,000,000 shares authorized, 35,108,804 and 35,082,464 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		3,510			3,508
Additional paid-in capital		5,763,648			5,727,650
Retained earnings (accumulated deficit)		462,342			(1,252,622	)
Accumulated other comprehensive loss		(50,230	)		(25,639	)
Total stockholders’ equity		6,179,270			4,452,897

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	20,216,836		$	19,550,280

The accompanying footnotes are an integral part of these unaudited consolidated financial statements.

HOUR LOOP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In U.S. Dollars, except for share and per share data)

For the Three and Six Months Ended June 30, 2024 and 2023

(Unaudited)

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2024			2023			2024			2023

Revenues, net	$	28,070,707		$	22,417,448		$	52,751,829		$	43,485,057
Cost of revenues		(12,445,297	)		(11,059,899	)		(22,674,213	)		(22,511,806	)
Gross profit		15,625,410			11,357,549			30,077,616			20,973,251

Operating expenses
Selling and marketing		12,843,697			10,245,912			24,017,888			19,752,883
General and administrative		1,844,517			1,958,849			3,584,360			3,679,839
Total operating expenses		14,688,214			12,204,761			27,602,248			23,432,722

Income (loss) from operations		937,196			(847,212	)		2,475,368			(2,459,471	)

Other (expenses) income
Other expense		(4,777	)		(1,063	)		(5,933	)		(3,943	)
Interest expense		(61,984	)		(62,392	)		(124,096	)		(123,488	)
Other income		59,477			20,317			87,511			36,352
Total other expenses, net		(7,284	)		(43,138	)		(42,518	)		(91,079	)

Income (loss) before income taxes		929,912			(890,350	)		2,432,850			(2,550,550	)
Income tax (expense) benefit		(280,762	)		120,982			(717,886	)		545,938

Net income (loss)		649,150			(769,368	)		1,714,964			(2,004,612	)

Other comprehensive loss
Foreign currency translation adjustments		(8,058	)		(9,192	)		(24,591	)		(7,853	)

Total comprehensive income (loss)	$	641,092		$	(778,560	)	$	1,690,373		$	(2,012,465	)

Basic and diluted income (loss) per common share	$	0.02		$	(0.02	)	$	0.05		$	(0.06	)
Weighted-average number of common shares outstanding		35,108,804			35,055,293			35,102,203			35,056,510

The accompanying footnotes are an integral part of these unaudited consolidated financial statements.

HOUR LOOP, INC.

CONSOLIDATED STATEMENTS OF CHANGES OF STOCKHOLDERS’ EQUITY

(In U.S. Dollars, except for share data)

For the Three and Six Months Ended June 30, 2024 and 2023

(Unaudited)

For the three months ended June 30, 2024 and 2023

							(Accumulated			Accumulated
	Shares of		Common		Additional		Deficit)			Other			Total
	Common		Stock		Paid-In		Retained			Comprehensive			Stockholders’
	Stock		Amount		Capital		Earnings			Loss			Equity

BALANCE AT March 31, 2024		35,108,804	$	3,510	$	5,763,648	$	(186,808	)	$	(42,172	)	$	5,538,178

Currency translation adjustments		-		-		-		-			(8,058	)		(8,058	)

Net income		-		-		-		649,150			-			649,150

BALANCE AT June 30, 2024		35,108,804	$	3,510	$	5,763,648	$	462,342		$	(50,230	)	$	6,179,270

BALANCE AT March 31, 2023		35,052,833	$	3,506	$	5,691,652	$	(58,172	)	$	(21,703	)	$	5,615,283

Stock-based compensation		17,943		1		18,000		-			-			18,001

Currency translation adjustments		-		-		-		-			(9,192	)		(9,192	)

Net loss		-		-		-		(769,368	)		-			(769,368	)

BALANCE AT June 30, 2023		35,070,776	$	3,507	$	5,709,652	$	(827,540	)	$	(30,895	)	$	4,854,724

For the six months ended June 30, 2024 and 2023

							(Accumulated			Accumulated
	Shares of		Common		Additional		Deficit)			Other			Total
	Common		Stock		Paid-In		Retained			Comprehensive			Stockholders’
	Stock		Amount		Capital		Earnings			Loss			Equity

BALANCE AT DECEMBER 31, 2023		35,082,464	$	3,508	$	5,727,650	$	(1,252,622	)	$	(25,639	)	$	4,452,897

Stock-based compensation		26,340		2		35,998		-			-			36,000

Currency translation adjustments		-		-		-		-			(24,591	)		(24,591	)

Net income		-		-		-		1,714,964			-			1,714,964

BALANCE AT June 30, 2024		35,108,804	$	3,510	$	5,763,648	$	462,342		$	(50,230	)	$	6,179,270

BALANCE AT DECEMBER 31, 2022		35,047,828	$	3,506	$	5,675,320	$	1,177,072		$	(23,042	)	$	6,832,856
Balance		35,047,828	$	3,506	$	5,675,320	$	1,177,072		$	(23,042	)	$	6,832,856

Stock-based compensation		22,948		1		34,332		-			-			34,333

Currency translation adjustments		-		-		-		-			(7,853	)		(7,853	)

Net loss		-		-		-		(2,004,612	)		-			(2,004,612	)
Net income (loss)								(2,004,612	)					(2,004,612	)

BALANCE AT June 30, 2023		35,070,776	$	3,507	$	5,709,652	$	(827,540	)	$	(30,895	)	$	4,854,724
Balance		35,070,776	$	3,507	$	5,709,652	$	(827,540	)	$	(30,895	)	$	4,854,724

The accompanying footnotes are an integral part of these unaudited consolidated financial statements.

HOUR LOOP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In U.S. Dollars)

For the Six Months Ended June 30, 2024 and 2023

(Unaudited)

	Six Months			Six Months
	Ended			Ended
	June 30,			June 30,
	2024			2023

Cash flows from operating activities
Net income (loss)	$	1,714,964		$	(2,004,612	)
Reconciliation of net income (loss) to net cash used in operating activities:
Depreciation expenses		70,920			68,634
Amortization of operating lease right-of-use lease assets		98,773			179,774
Deferred tax assets		571,296			(545,938	)
Stock-based compensation		36,000			34,333
Inventory allowance		645,379			1,054,242
Changes in operating assets and liabilities:
Accounts receivable		(5,594	)		30,045
Inventory		(1,026,905	)		3,329,545
Prepaid expenses and other current assets		37,203			(130,528	)
Accounts payable		1,875,374			(1,549,988	)
Credit cards payable		(2,120,514	)		(2,884,424	)
Accrued expenses and other current liabilities		(888,522	)		(813,678	)
Operating lease liabilities		(92,899	)		(191,845	)
Income taxes payable		33,700			-
Net cash provided by (used in) operating activities		949,175			(3,424,440	)

Cash flows from investing activities:
Purchases of property and equipment		(34,593	)		(5,881	)
Net cash used in investing activities		(34,593	)		(5,881	)

Effect of changes in foreign currency exchange rates		(51,838	)		(13,597	)

Net change in cash		862,744			(3,443,918	)

Cash at beginning of the period		2,484,153			4,562,589

Cash at end of the period	$	3,346,897		$	1,118,671

Supplemental disclosures of cash flow information:
Cash paid for interest	$	9,883		$	167,017
Cash paid for income tax	$	109,260		$	-
Noncash investing and financing activities:
Operating lease right-of-use of assets and operating lease liabilities recognized	$	172,903		$	28,407

The accompanying footnotes are an integral part of these unaudited consolidated financial statements.

HOUR LOOP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Nature of Operations and Summary of Significant Accounting Policies

Hour Loop, Inc. (“Hour Loop” or the “Company”) is a technology-enabled consumer products company that uses machine learning and data analytics to design, develop, market and sell products. Hour Loop predominantly operates through online retail channels such as Amazon, Walmart, and Hourloop.com. The Company, as an Internet marketplace seller, sells products in multiple categories, including home/garden décor, toys, kitchenware, apparel, and electronics. The Company has only one segment, which is online retail (e-commerce).

The Company was incorporated on January 13, 2015 under the laws of the state of Washington. On April 7, 2021, the Company was converted from a Washington corporation to a Delaware corporation.

In 2019, Hour Loop formed Flywheel Consulting Ltd. (“Flywheel”), a wholly owned subsidiary located in Taiwan, to provide business operating consulting services exclusively to Hour Loop.

Basis of Presentation - The unaudited consolidated financial statements and accompanying notes of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).

These unaudited consolidated financial statements have been prepared in accordance with rules and regulations of the Securities and Exchange Commission (“SEC”) and U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, we have included all adjustments considered necessary for a fair presentation and such adjustments are of a normal recurring nature. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2023 and notes thereto and other pertinent information contained in our Annual Report on Form 10-K as filed with the SEC on March 26, 2024.

Principles of Consolidation - The unaudited consolidated financial statements include the accounts of Hour Loop and Flywheel. All material inter-company accounts and transactions were eliminated in consolidation.

Foreign Currency and Currency Translation - The assets and liabilities of Flywheel, having a functional currency other than the U.S. dollar, are translated into U.S. dollars at exchange rates in effect at period-end, with resulting translation gains or losses included within other comprehensive income or loss. Revenues and expenses are translated into U.S. dollars at average monthly rates of exchange in effect during each period. All of the Company’s foreign operations use their local currency as their functional currency. Currency gains or losses resulting from transactions executed in currencies other than the functional currency are included in General and administrative in the consolidated statement of operations and other comprehensive income.

The relevant exchange rates are listed below:

	June 30, 2024		December 31, 2023		June 30, 2023

Period NTD: USD exchange rate	$	32.400	$	30.655	$	31.090
Period Average NTD: USD exchange rate	$	32.334	$	31.221	$	30.770

Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Significant estimates, include but not limited to, estimates associated with the collectability of accounts receivable, useful life of property and equipment, impairment of long-lived assets, valuation allowance for deferred tax assets, inventory valuation and inventory provision.

Reclassification - Certain amounts in the consolidated financial statements for the three and six months ended June 30, 2023 have been reclassified to conform to the current interim review presentation. These reclassifications had no impact on consolidated net earnings, consolidated financial position, or consolidated cash flows. Proposed changes involve presenting foreign currency gain or loss as a General and administrative expense, segregating accounts payable into separate categories: accounts payable and credit cards payable and reclassifying inventory allowance in the consolidated cash flows.

Cash and Cash Equivalents - The Company considers all highly liquid financial instruments purchased with original maturities of three months or less to be cash. Our cash is held in the bank and covered by the Federal Deposit Insurance Corporation (“FDIC”), subject to applicable limits. Deposits are insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category. Cash equivalents and marketable securities are comprised of time deposits, money market funds, highly liquid government bonds, corporate debt securities, mortgage-backed and asset-backed securities, and marketable equity securities. Our cash and cash equivalents primarily consisted of cash and money market funds. Such amounts are recorded at fair value.

Accounts Receivable and Allowance for Credit Losses - Accounts receivable are stated at historical cost less allowance for credit loss. On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance for credit losses in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 326. Credit losses are provided based on a past history of write-offs, collections, current credit conditions, current economic conditions, reasonable and supportable forecasts of future economic conditions. The evaluation is performed on a collective basis where similar characteristics exist, primarily based on similar services or products offerings. We adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements and primarily resulted in new/enhanced disclosures only. A receivable is considered past due if the Company has not received payments based on agreed-upon terms. The Company generally does not require any security or collateral to support its receivables. The collection is primarily through Amazon and the collection period is usually less than 7 days. The Company performs on-going evaluations of its customers and maintains an allowance for credit losses as the Company deems necessary or appropriate. As of June 30, 2024 and December 31, 2023, the Company did not deem it necessary to have an allowance for credit loss.

Inventory and Cost of Goods Sold - The Company’s inventory consists mainly of finished goods. Inventories are stated at the lower of cost or net realizable value. Cost is principally determined on a first-in-first-out basis. The Company’s costs include the amounts it pays manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from its manufacturers to its warehouses, as applicable. The merchandise with terms of FOB shipping point from vendors was recorded as the inventory-in-transit when inventory left the shipping dock of the vendors but not yet reached the receiving dock of the Company. Management continually evaluates its estimates and judgments including those related to merchandise inventory.

The “Cost of revenues” line item in the unaudited consolidated statements of operations is principally inventory sold to customers during the reporting period.

Policy for inventory allowance: The Company writes down the cost of obsolete and slow-moving inventories to the estimated net realizable value, based on inventory obsolescence trends, historical experience, forecasted consumer demand and application of the specific identification method. As of June 30, 2024 and December 31, 2023, $645,379 and $675,886, respectively, was written down from the cost of inventories to their net realizable values. Full inventory allowance is recorded for the inventory SKU not sold for more than one year.

Property and Equipment - Property and equipment are recorded at cost and depreciated or amortized over the estimated useful life of the asset using the straight-line method. The Company elected to expense any individual property and equipment items under $2,500.

The majority of the Company’s property and equipment is computers, and the estimated useful life is 3 years.

Impairment of Long-lived Assets- In accordance with ASC 360-10-35-17, if the carrying amount of an asset or asset group (in use or under development) is evaluated and found not to be fully recoverable (the carrying amount exceeds the estimated gross, undiscounted cash flows from use and disposition), then an impairment loss must be recognized. The impairment loss is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value. The Company did not record any impairment charges for the three and six months ended June 30, 2024 and 2023.

Leases - Leases are classified at lease commencement date as either a finance lease or an operating lease. A lease is a finance lease if it meets any of the following criteria: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (b) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (c) the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset or (e) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. When none of the foregoing criteria is met, the lease shall be classified as an operating lease.

The Company typically utilizes operating leases for its office space requirements. This means that the Company leases office space, categorizing the lease arrangement as an operating lease. Under this arrangement, The Company does not hold ownership of the leased assets but instead pays rent for the right to use them.

For a lessee, a lease is recognized as an operating lease right-of-use asset with a corresponding liability at lease commencement date. The lease liability is calculated at the present value of the lease payments not yet paid by using the lease term and discount rate determined at lease commencement. The operating lease right-of-use asset is calculated as the lease liability, increased by any initial direct costs, and prepaid lease payments, reduced by any lease incentives received before lease commencement. The operating lease right-of-use asset itself is amortized on a straight-line basis unless another systematic method better reflects how the underlying asset will be used by and benefits the lessee over the lease term.

Fair Value Measurement - Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, due to related parties and short-term debt at fair value or cost, which approximates fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest As of June 30, 2024 and December 31, 2023, the Company held cash equivalents in a money market fund, Dreyfus Government Cash Management. The value of the money market fund was $92,183 and $101,510 as of June 30, 2024 and December 31, 2023, respectively. These funds were classified as Level 1 assets within the fair value hierarchy and accounted for at fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

	i.	Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.

	ii.	Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

	iii.	Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Revenue Recognition - The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). The Company adopted ASC Topic 606 as of January 1, 2019. The standard did not affect the Company’s consolidated financial position, or cash flows. There were no changes to the timing of revenue recognition as a result of the adoption.

The Company recognizes revenue in accordance with ASC Topic 606, which provided a five-step model for recognizing revenue from contracts with customers as follows:

	●	Identify the contract with a customer.

	●	Identify the performance obligations in the contract.

	●	Determine the transaction price.

	●	Allocate the transaction price to the performance obligations in the contract.

	●	Recognize revenue when or as performance obligations are satisfied.

The Company evaluated principal versus agent considerations to determine whether it is appropriate to record platform fees paid to Amazon as an expense or as a reduction of revenue. Platform fees are recorded as sales and distribution expenses and are not recorded as a reduction of revenue because the Company as principal owns and controls all the goods before they are transferred to the customer. The Company can, at any time, direct Amazon, similarly, other third-party logistics providers (“Logistics Providers”), to return the Company’s inventories to any location specified by the Company. It is the Company’s responsibility to make any returns made by customers directly to Logistics Providers and the Company retains the back-end inventory risk. Further, the Company is subject to credit risk (i.e., credit card chargebacks), establishes prices of its products, can determine who fulfills the goods to the customer (Amazon or the Company) and can limit quantities or stop selling the goods at any time. Based on these considerations, the Company is the principal in this arrangement.

The Company derives its revenue from the sale of consumer products. The Company sells its products directly to consumers through online retail channels. The Company considers customer order confirmations to be a contract with the customer. For each contract, the promise to transfer products is identified as the sole performance obligation. Transaction prices are evaluated for potential refunds or adjustments, determining the net consideration expected. Revenues for the three and six months ended June 30, 2024 and 2023 were recognized at a point in time. Customer confirmations are executed at the time an order is placed through third-party online channels. For all of the Company’s sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment date. As a result, the Company has a present and unconditional right to payment and record the amount due from the customer in accounts receivable.

The customer can return the products within 30 days after the products are delivered and estimated sales returns are calculated based on the expected returns. The rates of sales returns were 5.94% and 6.77% of gross sales for six months ended June 30, 2024 and 2023, respectively.

From time to time, the Company offers price discounts on certain selected items to stimulate the sales of those items. Revenue is measured as the amount of consideration for which the Company expects to be entitled in exchange for transferring goods. Consistent with this policy, the Company reduces the amount of these discounts from the gross revenue to calculate the net revenue recorded on the statement of operations.

A performance obligation, defined as the promise to transfer a distinct good, is the unit of account in ASC Topic 606. The Company treats shipping and handling as fulfillment activities, not separate performance obligations. Costs for shipping and handling were $11,886,764 and $10,312,496 for the six months ended June 30, 2024 and 2023, respectively, recorded as selling and marketing expenses.

Segment Information – The Company has only one segment, which is online retail (e-commerce).

The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker has been identified as the chief executive officer of the Company who reviews financial information of separate operating segments based on U.S. GAAP. The chief operating decision maker now reviews results analyzed by customers. This analysis is only presented at the revenue level with no allocation of direct or indirect costs. Consequently, the Company has determined that it has only one operating segment.

Income Taxes - Income tax expense includes U.S. (federal and state) and foreign income taxes.

The Company also complied with state tax codes and regulations, including with respect to California franchise taxes. Management has evaluated its tax positions and has concluded that the Company had taken no uncertain tax positions that could require adjustment or disclosure in the financial statements to comply with provisions set forth in ASC section 740, Income Taxes.

Deferred tax assets represent amounts available to reduce income taxes payable in future periods. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe they will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative loss experience and expectations of future earnings, capital gains and investment in such jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.

Presentation of Sales Taxes - Governmental authorities impose sales tax on all of the Company’s sales to nonexempt customers. The Company collects sales tax from customers and remits the entire amount to the governmental authorities. The Company’s accounting policy is to exclude the tax collected and remitted from revenues and cost of revenues.

The Company assesses sales tax payable including any related interest and penalties and accrues these estimates on its financial statements. Pursuant to the Wayfair decision, each state enforces sales tax collection at different dates. The Company collects and remits sales tax in accordance with state regulations. The Company estimates that as of June 30, 2024 and December 31, 2023, it owed $288,466 and $288,466, respectively, in sales taxes along with penalties and interest resulting from late filings.

Concentration of Credit Risks - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with various domestic and foreign financial institutions of high credit quality. The Company performs periodic evaluations of the relative credit standing of all of the aforementioned institutions.

The Company maintains reserves for potential credit losses on customer accounts when deemed necessary. Significant customers are those which represent more than 10% of the Company’s total net revenue or gross accounts receivable balance at the balance sheet date. During the three and six months ended June 30, 2024 and 2023, the Company had no customer that accounted for 10% or more of total net revenues. In addition, as of June 30, 2024 and December 31, 2023, the Company had no customer that accounted for 10% or more of gross accounts receivable. As of June 30, 2024 and December 31, 2023, all of the Company’s accounts receivable were held by the Company’s sales platform agent, Amazon, which collects money on the Company’s behalf from its customers. Therefore, the Company’s accounts receivable are comprised of receivables due from Amazon and the reimbursement from Amazon to the Company usually takes less than 7 days.

The Company’s business is reliant on one key vendor which currently provides the Company with its sales platform, logistics and fulfillment operations, including certain warehousing for the Company’s net goods, and invoicing and collection of its revenue from the Company’s end customers. During the six months ended June 30, 2024 and 2023, approximately 99% and 100%, respectively, of the Company’s revenue was through or with the Amazon sales platform.

Foreign Currency Exchange Risk - The Company is exposed to foreign currency exchange risk through its foreign subsidiary in Taiwan. The Company does not hedge foreign currency translation risk in the net assets and income reported from these sources.

Advertising and Promotion Expenses – Our policy is to recognize advertising costs as they are incurred. Advertising and promotion expenses were $1,953,155 and $1,567,126 for the six months ended June 30, 2024 and 2023, respectively.

Commitments and Contingencies - Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Related Parties - The Company accounts for related party transactions in accordance with FASB ASC Topic 850 (Related Party Disclosures). A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

Earnings per Share - The Company computes basic earnings per common share using the weighted-average number of shares of common stock outstanding during the period. For the period in which the Company reports net losses, diluted net loss per share attributable to stockholders is the same as basic net loss per share attributable to stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. There were no dilutive securities or other items that would affect earnings per share for the three and six months ended June 30, 2024 and 2023. Therefore, the diluted earnings per share is the same as the basic earnings per share.

Shares Issued for Services – Stock-based compensation cost for all equity-classified stock awards expected to vest is measured at fair value on the date of grant and recognized over the service period.

NOTE 2 - Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07 on Improvements to Reportable Segment Disclosures for entities that are managed as a single reportable segment that governs when an entity is expected to conclude that consolidated net income is the measure of segment profit or loss consistent with U.S. GAAP. The ASU is effective for annual periods beginning after January 1, 2024. The Company will adopt and apply the guidance in fiscal year 2024. There is no material impact expected to our results of operations, cash flows and financial condition at the time of adoption; however the Company is still assessing the disclosure impact. In December 2023, the FASB issued ASU 2023-09 on Improvements to Income Tax Disclosures that require greater disaggregation of income tax disclosures to the income rate tax rate reconciliation and income taxes paid. The ASU is effective for annual periods beginning after December 15, 2024. The Company will adopt and apply the guidance in fiscal year 2025. There is no material impact expected to our results of operations, cash flows and financial condition at the time of adoption; however the Company is still assessing the disclosure impact.

NOTE 3 - Inventory

Inventory was comprised of the following as of June 30, 2024 and December 31, 2023, respectively:

Schedule of Inventory

	June 30, 2024			December 31, 2023

Inventory	$	11,355,032		$	13,377,530
Inventory-in-transit		3,948,428			1,574,911
Allowance		(645,379	)		(675,886	)
Total	$	14,658,081		$	14,276,555

As of June 30, 2024 and December 31, 2023, $645,379 and $675,886, was written down from the cost of inventories to their net realizable values, respectively. Full inventory allowance is recorded for the inventory SKU not sold for more than one year.

The allowance of inventory is recorded under cost of goods sold in the income statement.

NOTE 4 - Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets was comprised of the following as of June 30, 2024 and December 31, 2023, respectively:

	June 30, 2024		December 31, 2023

Advance to suppliers	$	277,656	$	49,298
Prepaid expenses-insurance		52,445		5,302
Prepaid expenses-other		82,766		56,437
Lease refundable deposit		49,890		81,522
Tax receivable		-		305,253
Other current assets		5,013		7,161
Total	$	467,770	$	504,973

As of June 30, 2024 and December 31, 2023, there was a tax receivable of $-0- and $305,253, respectively, due to prepaid income taxes.

NOTE 5 - Property and Equipment

Property and equipment were comprised of the following as of June 30, 2024 and December 31, 2023, respectively:

Schedule of Property and Equipment

	June 30, 2024			December 31, 2023

Property and equipment	$	383,392		$	368,729
Accumulated depreciation and amortization		(278,871	)		(219,941	)
Total property and equipment, net	$	104,521		$	148,788

For the six months ended June 30, 2024 and 2023, the Company purchased $34,593 and $5,881, for fixtures and equipment, respectively.

For the six months ended June 30, 2024 and 2023, the Company had $70,920 and $68,634, for depreciation, respectively.

For the six months ended June 30, 2024 and 2023, the Company had no disposal or pledge, respectively.

NOTE 6 - Accounts Payable and Credit Cards Payable

	June 30, 2024		December 31, 2023

Accounts payable	$	5,688,328	$	3,812,954
Credit cards payable		2,283,931		4,404,445

The Company’s accounts payable represent amounts owed to suppliers or other creditors for goods or services purchased but not yet paid for. As of June 30, 2024 and December 31, 2023, there were accounts payable of $5,688,328 and $3,812,954, respectively.

The Company’s credit cards payable consisted of outstanding balances on credit cards held by the Company. As of June 30, 2024 and December 31, 2023, there were credit cards payable of $2,283,931 and $4,404,445, respectively.

NOTE 7 - Short-Term Loan

Line of Credit

On August 18, 2022, Flywheel entered into a line of credit agreement in the amount of $6,940,063 with Taishin International Bank. The line of credit initially matured on August 30, 2023. On August 11, 2023, the line of credit was extended for an additional year, revising the maturity date to August 30, 2024.

On May 28, 2024, the term of the loan was revised such that maturity date was extended to November 24, 2024. The line of credit bears interest at a rate of 3.33% per annum.

As of June 30, 2024 and December 31, 2023, the outstanding balance under the Taishin International Bank line of credit was $617,284 and $652,422, respectively.

NOTE 8 - Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were comprised of the following as of June 30, 2024 and December 31, 2023, respectively:

	June 30, 2024		December 31, 2023

Sales tax payable	$	288,466	$	288,466
Refund liability		-		708,629
Accrued payroll		263,136		297,059
Accrued bonus		175,108		399,067
Accrued expenses		227,259		215,485
Accrued interest		114,060		29,712
Other payables		15,961		34,094
Total	$	1,083,990	$	1,972,512

The Company made an assessment of sales tax payable, including any related interest and penalties, and accrued those estimates on the financial statements. Of the sales tax payable, $78,947 and $78,947 are related to interest and penalties as of June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024 and December 31, 2023, the Company has accounted for refund liability in the amount of $-0- and $708,629, respectively, in a proactive approach towards potential future refunds.

A bonus expense is accrued on an annual basis, when the Company’s financial or operational performance meets the required performance level. The Company has $175,108 and $399,067 accrued for bonuses as of June 30, 2024 and December 31, 2023, respectively.

NOTE 9 - Leases

The Company had four operating leases (Flywheel’s office leases in Taiwan) as of June 30, 2024. The leased assets in Flywheel are presented as operating lease right-of-use assets.

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the operating lease liabilities recorded in the statements of financial position as of June 30, 2024:

Schedule of Operating Leases Cost

	Flywheel			Flywheel			Flywheel			Flywheel
	August 2022			February 2023			March 2024			June 2024
Initial lease term	to July 2024			to March 2025			to June 2025			to May 2025

Initial recognition of operating lease right-of-use assets	$	147,547		$	28,652		$	123,107		$	48,131
Weighted-average remaining lease term at June 30, 2024		0.08			0.67			1			0.92
Weighted-average discount rate at June 30, 2024		2.50	%		3.20	%		3.20	%		3.33	%

Operating lease liabilities-current as of June 30, 2024 and December 31, 2023 were $159,915 and $82,269, respectively. Operating lease liabilities-non-current as of June 30, 2024 and December 31, 2023 were $-0- and $2,363, respectively. The operating lease right-of-use assets balance as of June 30, 2024 and December 31, 2023, were $153,404 and $83,946, respectively.

For the six months ended June 30, 2024 and 2023, the amortization of the operating lease right-of-use asset was $98,773 and $179,774, respectively. These amounts were recorded in general and administrative expenses. Additionally, for the six months ended June 30, 2024 and 2023, the Company made lease payments of $92,899 and $191,845, respectively, which were included in the operating cash flows statement.

The future minimum lease payment schedule for all operating leases as of June 30, 2024, is as disclosed below.

For the Period Ending June 30	Amount

2024	$	88,886
2025		73,638
2026		-
2027		-
2028		-
2029 and thereafter		-
Total minimum lease payments		162,524
Less: effect of discounting		(2,609	)
Present value of the future minimum lease payment		159,915
Less: operating lease liabilities-current		(159,915	)
Total operating lease liabilities-non-current	$	-

NOTE 10 - Related Party Balances and Transactions

From time to time, the Company receives loans and advances from its stockholders to fund its operations. Stockholder loans and advances are non-interest bearing and payable on demand. As of June 30, 2024 and December 31, 2023, the Company had $4,170,418 and $4,170,418, respectively, due to related parties (Sam Lai, the Company’s Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer and a significant stockholder of the Company; and Maggie Yu, the Company’s Senior Vice President, a member of the Company’s Board of Directors and a significant stockholder of the Company). The loan is memorialized in a Loan Agreement dated October 15, 2021. The annual interest rate was 2% and the initial repayment date was December 31, 2022.

On December 28, 2022, the Company, Mr. Lai and Ms. Yu agreed to extend the term of the loan for another two years, with a revised maturity date of December 31, 2024. The annual interest rate is 5.5%. The Company had accrued interest of $114,060 as of June 30, 2024.

On December 30, 2020, the Company and its then-sole stockholders (Sam Lai and Maggie Yu) entered into a loan agreement in the original principal amount of $1,041,353. The loan was later modified on September 16, 2021, and converted into an interest-bearing (2%) loan with a repayment date of December 31, 2021. On January 18, 2022 and January 27, 2023, the Company repaid the loan principal and accrued interest in full.

For the six months ended June 30, 2024 and 2023, the Company made repayments to related parties of $-0- and $-0-, respectively.

NOTE 11 – Disaggregation of Revenue

Revenue was comprised of the following for the three and six months ended June 30, 2024 and 2023, respectively:

Schedule of Revenue

	2024			2023			2024			2023
	For the three months ended June 30,						For the six months ended June 30,
	2024			2023			2024			2023

Revenue-America	$	29,285,554		$	23,541,026		$	54,745,245		$	45,799,594
Revenue-International		889,278			750,364			1,758,973			1,465,055
Revenue-Other		208,704			153,758			329,260			242,593
Revenue		208,704			153,758			329,260			242,593
Sales returns		(1,912,838	)		(1,545,703	)		(3,375,923	)		(3,218,025	)
Discounts		(399,991	)		(481,997	)		(705,726	)		(804,160	)
Total	$	28,070,707		$	22,417,448		$	52,751,829		$	43,485,057

NOTE 12 - Income Tax

Effective Tax Rate Reconciliation, for the six months ended June 30, 2024
		%			$
Pretax book income	2,432,850		21.00	%		510,898
Permanent differences	42,336		0.37	%		8,891
State income tax	146,590		8.15	%		198,186
Other deferred adjustment	-		0.00	%		(89	)
Total tax expense			29.51	%		717,886

Effective Tax Rate Reconciliation, for the six months ended June 30, 2023
			%			$
Pretax book loss	(2,550,550	)		21.93	%		(559,248	)
Permanent differences	81,179			-0.70	%		17,800
Other deferred adjustment	-			0.18	%		(4,490	)
Total tax benefits				21.40	%		(545,938	)

Schedule of Tax Expense Summary

	Current		Deferred		Total
Tax Expense Summary, for the six months ended June 30, 2024	Income Tax Expense		Income Tax Expense		Income Tax Expense
Federal	$	-	$	488,916	$	488,916
State		146,590		82,380		228,970
Total tax expense	$	146,590	$	571,296	$	717,886

	Current		Deferred			Total
Tax Expense Summary, for the six months ended June 30, 2023	Income Tax Benefit		Income Tax Expense			Income Tax Benefit
Federal	$	-	$	(464,349	)	$	(464,349	)
State		-		(81,589	)		(81,589	)
Total tax benefit	$	-	$	(545,938	)	$	(545,938	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at June 30, 2024 and December 31, 2023 were as follows:

	Deferred Tax		Deferred Tax
	Assets		Assets
Deferred Tax Assets Summary	June 30, 2024		December 31, 2023
Federal	$	612,920	$	1,101,836
State		119,999		202,379
Total	$	732,919	$	1,304,215

	Deferred Tax		Deferred Tax
	Assets		Assets
Deferred Tax Assets Summary	June 30, 2024		December 31, 2023
Operating lease right of use lease assets	$	1,635	$	172
Inventories allowance		162,064		169,725
Net loss carry forward		569,220		1,134,318
Total	$	732,919	$	1,304,215

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Based on management’s evaluation, there was no provision necessary for material uncertain tax position for the Company on June 30, 2024 and December 31, 2023.

For the six months ended June 30, 2024 and 2023, the Company reported net operating income (loss) of $1,714,964 and $(2,004,612), respectively. The net operating loss carryforward is not subject to any expiration period under federal regulations, while at the state level, the expiration period usually ranges up to 20 years, or there may be no expiration period at all.

The Company expects to generate sufficient taxable income in future periods against which the deferred tax assets can be utilized. Accordingly, a valuation allowance may not be needed.

NOTE 13 - Stockholders’ Equity

Preferred Stock

As of June 30, 2024 and December 31, 2023, the Company had 10,000,000 shares of preferred stock, $0.0001 par value per share, authorized. The Company did not have any preferred shares issued and outstanding as of June 30, 2024 and December 31, 2023. The holders of the preferred stock are entitled to receive dividends, if and when declared by the Board of Directors.

Common Stock

As of June 30, 2024 and December 31, 2023, the Company had 300,000,000 shares of common stock, $0.0001 par value per share, authorized. As of June 30, 2024 and December 31, 2023, there were 35,108,804 and 35,082,464 shares of common stock issued and outstanding, respectively.

Share Issuances for Stock Compensation

On January 4, 2023, the Company issued 1,001 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Douglas Branch, and Alan Gao, with a fair market value of $2.9985 per share as compensation for the services as executives or directors to the Company pursuant to the terms of their respective Executive Employment Agreements or Director Agreements with the Company.

On April 3, 2023, the Company issued 1,365, 1,365, 1,365, 1,365, 1,365 and 606 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Douglas Branch, Alan Gao and Hillary Bui, respectively, with a fair market value of $2.1985 per share as compensation for the services as executives or directors of the Company pursuant to the terms of their respective Executive Employment Agreements or Director Agreements with the Company.

On June 30, 2023, the Company issued 1,752 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Douglas Branch, Alan Gao and Hillary Bui, with a fair market value of $1.7125 per share as compensation for the services as executives or directors of the Company pursuant to the terms of their respective Executive Employment Agreements or Director Agreements with the Company.

On October 2, 2023, the Company issued 1,948 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Douglas Branch, Alan Gao and Hillary Bui, with a fair market value of $1.5400 per share as compensation for the services as executives or directors of the Company pursuant to the terms of their respective Executive Employment Agreements or Director Agreements with the Company.

SEC Form 10-Q filed by Hour Loop Inc.