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What changed in Hour Loop, Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Hour Loop, Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+270 added−279 removedSource: 10-K (2024-03-26) vs 10-K (2023-03-31)

Top changes in Hour Loop, Inc's 2023 10-K

270 paragraphs added · 279 removed · 206 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

80 edited+42 added−43 removed23 unchanged
Biggest changeCONSOLIDATED STATEMENTS OF CASH FLOWS (In US Dollars) For the years Ended December 31, 2022 and 2021 2022 2021 Cash flows from operating activities Net (loss) income $ (1,477,623 ) $ 4,783,773 Adjustments to reconcile of net (loss) income to net cash (used in) provided by operating activities: Depreciation expenses 79,084 448 Noncash lease expenses 310,161 73,343 Noncash forgiven borrowing - (27,012 ) Inventory allowance 657,543 (246,593 ) Stockbased Compensation 91,013 - Changes in operating assets and liabilities: Accounts receivable (226,388 ) 90,716 Inventory (12,417,208 ) (2,433,382 ) Prepaid expenses and other current assets (352,113 ) (602,911 ) Deferred Tax Assets (503,832 ) (45,488 ) Accounts payable 2,343,995 6,335,002 Accrued expenses and other current liabilities 175,436 (102,312 ) Operating lease liabilities (283,244 ) (61,527 ) Net cash (used in) provided by operating activities (11,603,176 ) 7,764,057 Cash flows from investing activities: Purchases of property and equipment (339,518 ) (16,115 ) Net cash used in investing activities (339,518 ) (16,115 ) Cash flows from financing activities: Payments to related parties 138,854 3,023 Repayments from related parties (1,024,188 ) - Capital contribution - 2,800 Distribution to stockholders - (2,132,000 ) Proceeds from Issuance of shares 5,580,192 - Prepaid expenses and other current assets 576,168 - Proceeds from Short-term debt 652,316 - Net cash provided by (used in) financing activities 5,923,342 (2,126,177 ) Effect of changes in foreign currency exchange rates (10,631 ) 2,743 Net (decrease) increase in cash and cash equivalents (6,029,983 ) 5,624,508 Cash and cash equivalents at beginning of the year 10,592,572 4,968,064 Cash and cash equivalents at end of the year $ 4,562,589 $ 10,592,572 Supplemental disclosures of cash flow information: Cash paid for interest $ 4,300 $ - Cash paid for income tax $ 470,601 $ 743,000 Noncash investing and financing activities: Right-of-use of assets and operating lease liabilities recognized $ 701,526 $ - Noncash distribution to stockholders $ - $ (4,170,418 ) Noncash from related parties $ - $ 4,170,418 See accompanying notes to consolidated financial statements.
Biggest changeCONSOLIDATED STATEMENTS OF CASH FLOWS (In US Dollars) For the years Ended December 31, 2023 and 2022 2023 2022 Cash flows from operating activities Net loss $ (2,429,694 ) $ (1,477,623 ) Reconciliation of net loss to net cash used in operating activities: Depreciation expenses 138,001 79,084 Amortization of Operating lease right-of-use lease assets 387,446 310,161 Deferred tax assets (754,895 ) (503,832 ) Stock-based compensation 52,332 91,013 Inventory allowance 675,886 657,543 Changes in operating assets and liabilities: Accounts receivable (395,271 ) (226,388 ) Inventory 3,849,088 (12,417,208 ) Prepaid expenses and other current assets 236,270 (352,113 ) Accounts payable (2,838,767 ) 1,445,824 Credit cards payable (827,087 ) 898,171 Accrued expenses and other current liabilities 229,540 175,436 Operating lease liabilities (386,224 ) (283,244 ) Net cash used in operating activities (2,063,375 ) (11,603,176 ) Cash flows from investing activities: Purchases of property and equipment (14,823 ) (339,518 ) Net cash used in investing activities (14,823 ) (339,518 ) Cash flows from financing activities: Payments to related parties - (1,024,188 ) Repayments from related parties - 138,854 Proceeds from Issuance of shares - 6,156,360 Proceeds from Short-term debt - 652,316 Net cash provided by financing activities - 5,923,342 Effect of changes in foreign currency exchange rates (238 ) (10,631 ) Net change in cash (2,078,436 ) (6,029,983 ) Cash at beginning of year 4,562,589 10,592,572 Cash at end of year $ 2,484,153 $ 4,562,589 Supplemental disclosures of cash flow information: Cash paid for interest $ 406,103 $ 4,300 Cash paid for income tax $ 1,696 $ 470,601 Noncash investing and financing activities: Operating lease right-of-use of assets and operating lease liabilities recognized $ 27,249 $ 701,526 F-7 HOUR LOOP, INC.
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.
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
IPO Proceeds On January 11, 2022, we closed our initial public offering of 1,725,000 shares of common stock, which included the full exercise of the underwriter’s over-allotment option, at a public offering price of $ 4.00 per share, for aggregate gross proceeds of $ 6,900,000 , prior to deducting underwriting discounts, commissions, and other offering expenses.
IPO Proceeds On January 11, 2022, we closed our initial public offering (the “IPO”) of 1,725,000 shares of common stock, which included the full exercise of the underwriter’s over-allotment option, at a public offering price of $ 4.00 per share, for aggregate gross proceeds of $ 6,900,000 , prior to deducting underwriting discounts, commissions, and other offering expenses.
Accrued interest expense has been recorded in the accrued expenses on the balance sheet. On August 18, 2022, Flywheel signed a line of credit agreement in the amount of $ 6,940,063 with Taishin International Bank. The line of credit matures on August 30, 2023 and bears interest at a rate of 2.6 % per annum.
Accrued interest expense has been recorded in the accrued expenses on the balance sheet. On August 18, 2022, Flywheel signed a line of credit agreement in the amount of $ 6,940,063 with Taishin International Bank. The line of credit matures on August 30, 2023 and bears interest at a rate of 3.2% per annum.
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 lives is 3 years.
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.
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 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 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.
On June 30, 2022, the Company issued and vested 1,049 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 $ 2.8605 per share as compensation for the past 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 June 30, 2022, the Company issued 1,049 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 $ 2.8605 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 September 30, 2022, the Company issued and vested 1,050 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 $ 2.8565 per share as compensation for the past 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 September 30, 2022, the Company issued 1,050 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 $ 2.8565 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 May 20, 2022, the Company issued and vested 916 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 $ 3.2745 per share as compensation for the past 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 May 20, 2022, the Company issued 916 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 $ 3.2745 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.
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, apparels, and electronics. The Company has only one segment, which is online retail (e-commerce).
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).
Our common stock began trading on The Nasdaq Capital Market on January 7, 2022, under the symbol “HOUR”. EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”), acted as sole book-running manager for the offering. The net proceeds of the offering, after deducting expenses of $ 743,640 , were $ 6,156,360 .
Our common stock began trading on The Nasdaq Capital Market on January 7, 2022, under the symbol “HOUR”. EF Hutton, division of Benchmark Investments, LLC, acted as sole book-running manager for the offering. The net proceeds of the offering, after deducting expenses of $ 743,640 , were $ 6,156,360 .
On February 1, 2022, the Company issued and vested 1,750 , 1,750 , and 709 shares of Company common stock to Michael Lenner, Douglas Branch, and Alan Gao, respectively, with a fair market value of $ 4.00 per share as compensation for the past services as directors to the Company pursuant to the terms of their Director Agreements with the Company.
On February 1, 2022, the Company issued 1,750 , 1,750 , and 709 shares of Company common stock to Michael Lenner, Douglas Branch, and Alan Gao, respectively, with a fair market value of $ 4.00 per share as compensation for the services as directors to the Company pursuant to the terms of their Director Agreements with the Company.
Actual results could differ from these estimates. Significant estimates, but not limited to, estimates associated with the collectability of allowance for accounts receivable, accounts receivable, useful life of Property and equipment, impairment long lived assets, valuation allowance for Deferred tax assets and inventory valuation.
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.
F-18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOUR LOOP, INC.
F-22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOUR LOOP, INC.
Dated: March 31, 2023 By: /s/ Sam Lai Sam Lai Chief Executive Officer and Interim Chief Financial Officer POWER OF ATTORNEY Each person whose signature appears below hereby appoints Sam Lai as attorney-in-fact with full power of substitution to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to the annual report on Form 10-K, which amendments may make such changes in the report as the attorney-in-fact acting deems appropriate and to file any such amendment to the annual report on Form 10-K with the Securities and Exchange Commission.
Dated: March 26, 2024 By: /s/ Sam Lai Sam Lai Chief Executive Officer and Interim Chief Financial Officer POWER OF ATTORNEY Each person whose signature appears below hereby appoints Sam Lai as attorney-in-fact with full power of substitution to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to the annual report on Form 10-K, which amendments may make such changes in the report as the attorney-in-fact acting deems appropriate and to file any such amendment to the annual report on Form 10-K with the Securities and Exchange Commission.
F-6 HOUR LOOP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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.
NOTE 16 - Subsequent Events 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 past 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 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.
Signature Title Date /s/ Sam Lai Chief Executive Officer, Interim Chief Financial Officer and Chairman of the Board (principal executive officer, March 31, 2023 Sam Lai principal financial officer and principal accounting officer) /s/ Sau Kuen (Maggie) Yu Director March 31, 2023 Sau Kuen (Maggie) Yu /s/ Douglas Branch Director March 31, 2023 Douglas Branch /s/ Michael Lenner Director March 31, 2023 Michael Lenner /s/ Minghui (Alan) Gao Director March 31, 2023 Minghui (Alan) Gao / s/ Hilary (Hui-Chong) Bui Director March 31, 2023 Hilary ( Hui-Chong) Bui 71
Signature Title Date /s/ Sam Lai Chief Executive Officer, Interim Chief Financial Officer and Chairman of the Board (principal executive officer, March 26, 2024 Sam Lai principal financial officer and principal accounting officer) /s/ Sau Kuen (Maggie) Yu Director March 26, 2024 Sau Kuen (Maggie) Yu /s/ Douglas Branch Director March 26, 2024 Douglas Branch /s/ Michael Lenner Director March 26, 2024 Michael Lenner /s/ Minghui (Alan) Gao Director March 26, 2024 Minghui (Alan) Gao / s/ Hilary (Hui-Chong) Bui Director March 26, 2024 Hilary (Hui-Chong) Bui 71
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 Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”).
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 FASB Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”).
(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.
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.
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.
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. F-11 HOUR LOOP, INC.
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.
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. F-12 HOUR LOOP, INC.
The Company estimates that as of December 31, 2022 and 2021, it owed $ 288,466 and $ 620,963 , respectively, in sales taxes along with penalties and interest resulting from late filing. Concentrations of Risks - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable.
The Company estimates that as of December 31, 2023 and 2022, 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 accounts receivable.
The 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.
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. F-10 HOUR LOOP, INC.
Basis of Presentation - The 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 (“US GAAP”). Principles of Consolidation - The consolidated financial statements include the accounts of Hour Loop and Flywheel. All material inter-company accounts and transactions were eliminated in consolidation.
Basis of Presentation - The audited 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 (“US GAAP”). Principles of Consolidation - The audited consolidated financial statements include the accounts of Hour Loop and Flywheel.
F-14 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 December 31, 2022: Schedule of Operating Leases Cost Flywheel Flywheel Flywheel January 2022 to June 2022 August 2022 Initial lease term December 2023 to May 2024 to July 2024 Initial recognition of right-of-use assets $ 488,262 $ 105,632 $ 147,547 Weighted-average remaining lease term at December 31, 2022 1.0 1.42 1.58 Weighted-average discount rate at December 31, 2022 8.11 % 8.11 % 2.50 % Operating lease liabilities-current as of December 31, 2022 and 2021 were $ 385,216 and $ - , respectively.
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 December 31, 2023: Schedule of Operating Leases Cost Flywheel Flywheel Flywheel June 2022 August 2022 February 2023 Initial lease term to May 2024 to July 2024 to March 2025 Initial recognition of Operating lease right-of-use assets $ 105,632 $ 147,547 $ 28,652 Weighted-average remaining lease term at December 31, 2023 0.42 0.58 1.17 Weighted-average discount rate at December 31, 2023 8.11 % 2.50 % 3.20 % Operating lease liabilities-current as of December 31, 2023 and 2022 were $ 82,269 and $ 385,216 , respectively.
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.
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.
Share Issuance for Stock Compensation On February 1, 2022, the Company issued and vested 1,772 shares of Company common stock to each of Sam Lai, our Chief Executive Officer, and Maggie Yu, our Senior Vice President, with a fair market value of $ 4.00 per share as compensation for the past services to the Company pursuant to the terms of their Executive Employment Agreements with the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Share Issuances for Stock Compensation On February 1, 2022, the Company issued 1,772 shares of Company common stock to each of Sam Lai, our Chief Executive Officer, and Maggie Yu, our Senior Vice President, with a fair market value of $ 4.00 per share as compensation for the services to the Company pursuant to the terms of their Executive Employment Agreements with the Company.
As of December 31, 2022 and 2021, the outstanding balance under the Bank of America line of credit was $- 0 - and $- 0 -, respectively. Also, the Company had accrued interest expense of $ 27,996 as of December 31, 2022 that due on June 18, 2024 .
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 As of December 31, 2023 and 2022, the outstanding balance under the Bank of America line of credit was $- 0 - and $- 0 -, respectively. Also, the Company had accrued interest expense of $ 27,996 as of December 31, 2023 that is due on June 18, 2024 .
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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.
F-13 NOTE 8 - Short-Term Debt Line of Credit On June 19, 2019, the Company signed a line of credit agreement in the amount of $ 785,000 with Bank of America. The line of credit matures on June 18, 2024 and bears interest at a rate of 8.11 % per annum.
NOTE 7 - Short-Term Loan Line of Credit On June 18, 2019, the Company signed a line of credit agreement in the amount of $ 785,000 with Bank of America. The line of credit matures on June 18, 2024 and bears interest at a rate of 8.11% per annum. F-15 HOUR LOOP, INC.
There were no dilutive securities or other items that would affect EPS for the year ended December 31, 2022 and 2021. Therefore, the diluted earnings per share is the same as basic earnings per share.
There were no dilutive securities or other items that would affect earnings per share for the years ended December 31, 2023 and 2022. Therefore, the diluted earnings per share is the same as the basic earnings per share. F-13 HOUR LOOP, INC.
NOTE 9 - 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 11 - 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.
For the periods ended December 31, 2022 and 2021, the Company had $ 79,084 and $ 448 , for depreciation, respectively. For the periods ended December 31, 2022 and 2021, the Company had no disposal or pledge, respectively.
For the years ended December 31, 2023 and 2022, the Company had $ 138,001 and $ 79,084 , for depreciation, respectively. For the years ended December 31, 2023 and 2022, the Company had no disposal or pledge, respectively.
As of December 31, 2022 and 2021, the Company had $ 4,329,460 and $ 5,214,794 due to related parties (Sam Lai and Maggie Yu, Mr. Lai is the Company’s Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer. Ms. Yu is the Company’s Senior Vice President and a member of the Company’s Board of Directors), respectively.
As of December 31, 2023 and 2022, the Company had $ 4,170,418 and $ 4,170,418 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), respectively.
Share issuance for Stock Compensation - 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Share 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.
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 years ended December 31, 2022 and 2021.
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 years ended December 31, 2023 and 2022. Leases - Leases are classified at lease commencement date as either a finance lease or an operating lease.
The Company makes an assessment of sales tax payable including any related interest and penalties and accrues these estimated on the financial statements. Pursuant to the Wayfair decision, each state enforced sales tax collection at different dates. The company collects and remits sales tax in accordance with the state regulations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In US Dollars, except for shares data) For the years Ended December 31, 2022 and 2021 Shares Amount Capital Earnings (Loss) Income Equity Common Stock Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Total Stockholders’ Shares Amount Capital Earnings (Loss) Equity BALANCE AT DECEMBER 31,2020 33,300,000 $ 3,330 $ 1,491 $ 4,173,340 $ (3,181 ) $ 4,174,980 Contribution - - 2,800 - - 2,800 Distribution - - - (6,302,418 ) - (6,302,418 ) Currency translation adjustments - - - - (4,690 ) (4,690 ) Net Income - - - 4,783,773 - 4,783,773 BALANCE AT DECEMBER 31,2021 33,300,000 $ 3,330 $ 4,291 $ 2,654,695 $ (7,871 ) $ 2,654,445 Issuance of shares 1,725,000 172 5,580,020 - - 5,580,192 Stock-based compensation 22,828 4 91,009 - - 91,013 Currency translation adjustments - - - - (15,171 ) (15,171 ) Net loss - - - (1,477,623 ) - (1,477,623 ) BALANCE AT DECEMBER 31,2022 35,047,828 $ 3,506 $ 5,675,320 $ 1,177,072 $ (23,042 ) $ 6,832,856 See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In US Dollars, except for shares data) For the years Ended December 31, 2023 and 2022 Common Stock Common Stock Additional Paid-In Retained Earnings (Accumulated Accumulated Other Comprehensive Total Stockholders’ Shares Amount Capital Deficit) (Loss) Equity BALANCE AT DECEMBER 31, 2021 33,300,000 $ 3,330 $ 4,291 $ 2,654,695 $ (7,871 ) $ 2,654,445 Issuance of shares 1,725,000 172 5,580,020 - - 5,580,192 Stock-based compensation 22,828 4 91,009 - - 91,013 Currency translation adjustments - - - - (15,171 ) (15,171 ) Net loss - - - (1,477,623 ) - (1,477,623 ) 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 34,636 2 52,330 - - 52,332 Currency translation adjustments - - - - (2,597 ) (2,597 ) Net loss - - - (2,429,694 ) - (2,429,694 ) BALANCE AT DECEMBER 31, 2023 35,082,464 $ 3,508 $ 5,727,650 $ (1,252,622 ) $ (25,639 ) $ 4,452,897 Balance 35,082,464 $ 3,508 $ 5,727,650 $ (1,252,622 ) $ (25,639 ) $ 4,452,897 F-6 HOUR LOOP, INC.
In order to strengthen the Company’s liquidity in the foreseeable future, the Company has taken the following measures: i. Taking various cost control measures to tighten the costs of operations. ii. Implementing various strategies to enhance sales and profitability. Management represents that there is sufficient working capital to sustain operations longer than twelve months.
Management is confident that these borrowings can be renewed upon expiration. In order to strengthen the Company’s liquidity in the foreseeable future, the Company has taken the following measures: i. Taking various cost control measures to tighten the costs of operations; and ii. Implementing various strategies to enhance sales and profitability.
As of December 31, 2022 and 2021, the Company did not deem it necessary to have an allowance for bad debt or doubtful accounts. Inventory and Cost of Goods Sold - The Company’s inventory consists mainly 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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 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. Customer confirmations are executed at the time an order is placed through third-party online channels.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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.
Meanwhile, other costs incurred in the IPO totaled 576,168 , the main nature of which was professional fees. As a result, common stock increased by $ 173 , and additional paid-in capital increased by $ 5,580,020 . NOTE 15 - Commitments and Contingencies As of December 31, 2022 and 2021, the Company had no material or significant commitments outstanding.
Meanwhile, other costs incurred in the IPO totaled $ 576,168 , the main nature of which was professional fees. As a result, common stock increased by $ 172 , and additional paid-in capital increased by $ 5,580,020 . F-21 HOUR LOOP, INC.
F-12 NOTE 5 - Property and Equipment Property and equipment was comprised of the following as of December 31, 2022 and 2021: Schedule of Property and Equipment December 31, December 31, 2022 2021 Property and equipment $ 353,574 $ 16,115 Accumulated depreciation and amortization (79,379 ) (448 ) Total property and equipment, net $ 274,195 $ 15,667 For the periods ended December 31, 2022 and 2021, the Company purchased $ 339,518 and $ 16,115 , for fixtures, and equipment, respectively.
NOTE 6 - Property and Equipment Property and equipment were comprised of the following as of December 31, 2023 and 2022, respectively: Schedule of Property and Equipment December 31, December 31, 2023 2022 Property and equipment $ 368,729 $ 353,574 Accumulated depreciation and amortization (219,941 ) (79,379 ) Total property and equipment, net $ 148,788 $ 274,195 For the years ended December 31, 2023 and 2022, the Company purchased $ 14,823 and $ 339,518 , for fixtures and equipment, respectively.
F-7 The relevant exchange rates are listed below: Schedule of Foreign Currency Exchange Rates December 31, December 31, 2022 2021 Period NTD: USD exchange rate 30.660 27.630 Period Average NTD: USD exchange rate 30.618 27.706 Use of Estimates - The preparation of financial statements in conformity with US 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.
Use of Estimates - The preparation of financial statements in conformity with US 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.
NOTE 6 - Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets was comprised of the following as of December 31, 2022 and 2021: Schedule of Prepaid Expenses and Other Current Assets December 31, December 31, 2022 2021 Advance to suppliers $ 182,105 $ 78,875 Prepaid expenses-IPO cost - 576,168 Prepaid expenses-other 55,731 120,899 Lease refundable deposit 80,235 70,554 Tax Receivable 413,895 114,640 Other current assets 9,277 4,162 Total $ 741,243 $ 965,298 As of December 31, 2022 and 2021, there is a tax receivable of $ 413,895 and $ 114,640 due to prepaid income taxes, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 5 - Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets was comprised of the following as of December 31, 2023 and 2022, respectively: Schedule of Prepaid Expenses and Other Current Assets December 31, December 31, 2023 2022 Advance to suppliers $ 49,298 $ 182,105 Prepaid expenses-other 61,739 55,731 Lease refundable deposit 81,522 80,235 Tax receivable 305,253 413,895 Other current assets 7,161 9,277 Total $ 504,973 $ 741,243 As of December 31, 2023 and 2022, there was a tax receivable of $ 305,253 and $ 413,895 , respectively, due to prepaid income taxes.
Currency gains or losses resulting from transactions executed in currencies other than the functional currency are included in other income (expense) in the consolidated statement of operations and other comprehensive income. The Company is exposed to foreign currency exchange risk through its foreign subsidiary in Taiwan, which reports its earnings in Taiwan dollars.
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 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 approximate fair value because of the immediate or short-term maturity of these financial instruments.
The carrying amounts reported in the consolidated balance sheets for cash, 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.
During the periods ended December 31, 2022 and 2021, the Company had no customer that accounted for 10% or more of total net revenues. In addition, as of December 31, 2022 and 2021, the Company had no customer that accounted for 10% or more of gross accounts receivable .
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 years ended December 31, 2023 and 2022, the Company had no customer that accounted for 10% or more of total net revenues.
The annual interest rate is 2% and the repayment date is December 31, 2022. The Company had accrued the interest of $ 120,003 on December 31, 2022. On December 28, 2022, the Company and the stockholders agreed to extend the tenor of the loan for another 2 years, with the Maturity Date as December 31, 2024.
The loan is memorialized in a Loan Agreement dated October 15, 2021. The annual interest rate is 2% and the repayment date is 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 .
Operating lease liabilities-non-current as of December 31, 2022 and 2021 were $ 64,945 and $ - , respectively. The right-of-use assets balance as of December 31, 2022 and 2021, were $ 450,721 and $ 30,111 , respectively. The future minimum lease payment schedule for all operating leases as of December 31, 2022, is also disclosed as below.
Operating lease liabilities-non-current as of December 31, 2023 and 2022 were $ 2,363 and $ 64,945 , respectively. The Operating lease right-of-use assets balance as of December 31, 2023 and 2022, were $ 83,946 and $ 450,721 , respectively.
The Company generally does not require any security or collateral to support its receivables. The collection is primarily through Amazon and collection period is usually less than 7 days. The Company performs on-going evaluations of its customers and maintains an allowance for bad and doubtful receivables.
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.
Going Concern Consideration As of December 31, 2022, the Company had a negative cash flow from operating activities of 11,603,176 , and net loss of 1,477,623 . These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Going Concern Consideration For the year ended December 31, 2023, the Company had negative cash flows of $ 2,063,375 from its operations and had net loss of $ 2,429,694 . These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company did no t have any preferred shares outstanding as of December 31, 2022 and 2021. The holders of the preferred stock in preference, are entitled to receive dividends, if and when declared by the Board of Directors.
The holders of the preferred stock are entitled to receive dividends, if and when declared by the Board of Directors. Common Stock As of December 31, 2023 and 2022, the Company had 300,000,000 shares of common stock, $ 0.0001 par value per share, authorized.
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.
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.
The Company maintains cash 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. F-10 The Company’s accounts receivables are derived from sales contracts with a large number of customers.
The Company maintains cash 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.
From time-to-time, the Company is subject to various litigation and other claims in the normal course of business. The Company establishes liabilities in connection with legal actions that management deems to be probable and estimable. As of December 31, 2022 and 2021, the Company had no pending legal proceedings.
The Company establishes liabilities in connection with legal actions that management deems to be probable and estimable. As of December 31, 2023 and 2022, the Company had no pending legal proceedings. No amounts have been accrued in the audited consolidated financial statements with respect to any such matters.
As of December 31, 2022 and 2021, 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 15 to 20 days.
In addition, as of December 31, 2023 and 2022, the Company had no customer that accounted for 10% or more of gross accounts receivable . As of December 31, 2023 and 2022, 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.
NOTE 7 - Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities were comprised of the following as of December 31, 2022 and 2021: Schedule of Accrued Expenses and Other Current Liabilities December 31, December 31, 2022 2021 Sales tax payable $ 288,466 $ 620,963 Accrued payroll 295,673 122,585 Accrued bonus 468,209 353,692 Accrued expenses 182,294 116,679 Other payables 349,288 68,242 Total $ 1,583,930 $ 1,282,161 The Company made an assessment of sales tax payable including any related interest and penalties and accrued these estimates on the financial statements.
NOTE 9 - Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities were comprised of the following as of December 31, 2023 and 2022, respectively: Schedule of Accrued Expenses and Other Current Liabilities December 31, December 31, 2023 2022 Sales tax payable $ 288,466 $ 288,466 Refund liability 708,629 285,009 Accrued payroll 297,059 295,673 Accrued bonus 399,067 468,209 Accrued expenses 215,485 182,294 Accrued interest 29,712 159,042 Other payables 34,094 64,279 Total $ 1,972,512 $ 1,742,972 The Company made an assessment of sales tax payable, including any related interest and penalties, and accrued those estimates on the financial statements.
Most of the borrowings of the Company as of December 31, 2022 are from the related parties, which will not repayable within the next 12 months and are subject to renewal and the management is confident that these borrowings can be renewed upon expiration.
Therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business. Most of the Company’s borrowings as of December 31, 2023 were from the related parties, which will not be repayable within the next 12 months and are subject to renewal.
CONSOLIDATED BALANCE SHEETS (In US Dollars, except for shares data) December 31, 2022 and 2021 December 31, December 31, 2022 2021 ASSETS Current assets Cash and cash equivalents $ 4,562,589 $ 10,592,572 Accounts receivable, net 352,379 125,991 Inventory, net 18,801,529 7,041,864 Prepaid expenses and other current assets 741,243 965,298 Total current assets 24,457,740 18,725,725 Property and equipment, net 274,195 15,667 Deferred tax assets 549,320 45,488 Right-of-use lease assets 450,721 30,111 TOTAL ASSETS $ 25,731,976 $ 18,816,991 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Short-term loan $ 652,316 $ - Accounts payable 11,883,253 9,539,258 Accrued expenses and other current liabilities 1,583,930 1,282,161 Due to related parties - 5,214,794 Income taxes payable - 126,333 Operating lease liabilities-current 385,216 - Total current liabilities 14,504,715 16,162,546 Non-current liabilities Operating lease liabilities-non-current 64,945 - Due to related parties 4,329,460 - Total non-current liabilities 4,394,405 - Total liabilities 18,899,120 16,162,546 Commitments and contingencies - - Stockholders’ equity Preferred stock: $ 0.0001 par value, 10,000,000 shares authorized, none issued and outstanding as of December 31, 2022 and 2021 - - Common stock: $ 0.0001 par value, 300,000,000 shares authorized, 35,047,828 and 33,300,000 shares issued and outstanding as of December 31, 2022 and 2021, respectively 3,506 3,330 Additional paid-in capital 5,675,320 4,291 Retained earnings 1,177,072 2,654,695 Accumulated other comprehensive loss (23,042 ) (7,871 ) Total stockholders’ equity 6,832,856 2,654,445 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 25,731,976 $ 18,816,991 See accompanying notes to consolidated financial statements.
Dollars, except for share data) December 31, December 31, 2023 2022 ASSETS Current assets Cash $ 2,484,153 $ 4,562,589 Accounts receivable, net 747,650 352,379 Inventory, net 14,276,555 18,801,529 Prepaid expenses and other current assets 504,973 741,243 Total current assets 18,013,331 24,457,740 Property and equipment, net 148,788 274,195 Deferred tax assets 1,304,215 549,320 Operating lease right-of-use lease assets 83,946 450,721 Total non-current assets 1,536,949 1,274,236 TOTAL ASSETS $ 19,550,280 $ 25,731,976 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 3,812,954 $ 6,651,721 Credit cards payable 4,404,445 5,231,532 Short-term loan 652,422 652,316 Operating lease liabilities-current 82,269 385,216 Accrued expenses and other current liabilities 1,972,512 1,742,972 Total current liabilities 10,924,602 14,663,757 Non-current liabilities Operating lease liabilities-non-current 2,363 64,945 Due to related parties 4,170,418 4,170,418 Total non-current liabilities 4,172,781 4,235,363 Total liabilities 15,097,383 18,899,120 Commitments and contingencies - - Stockholders’ equity Preferred stock: $ 0.0001 par value, 10,000,000 shares authorized, none issued and outstanding as of December 31, 2023 and 2022 - - Common stock: $ 0.0001 par value, 300,000,000 shares authorized, 35,082,464 and 35,047,828 shares issued and outstanding as of December 31, 2023 and 2022, respectively 3,508 3,506 Additional paid-in capital 5,727,650 5,675,320 (Accumulated deficit) retained earnings (1,252,622 ) 1,177,072 Accumulated other comprehensive loss (25,639 ) (23,042 ) Total stockholders’ equity 4,452,897 6,832,856 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 19,550,280 $ 25,731,976 F-4 HOUR LOOP, INC.
F-9 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.
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.
Deposits are insured up to at least $ 250,000 per depositor, per FDIC-insured bank, per ownership category. Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable are stated at historical cost less allowance for doubtful accounts.
Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable are stated at historical cost less allowance for doubtful accounts.
On December 30, 2020 the Company and the stockholders (Sam Lai and Maggie Yu) entered into a loan agreement of $ 1,041,353 and later modified on September 16, 2021, converted it into a interest-bearing ( 2 %) loan with a repayment date of December 31, 2021.
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.
NOTE 14 - Stockholders’ Equity In 2021, the Company made distribution to stockholders of $ 6,302,418 and capital contribution of $ 2,800 . Preferred Stock As of December 31, 2022 and 2021, the Company had 10,000,000 shares of preferred stock, $ 0.0001 par value per share, authorized.
Accordingly, a valuation allowance may not be needed. NOTE 14 - Stockholders’ Equity Preferred Stock As of December 31, 2023 and 2022, the Company had 10,000,000 shares of preferred stock, $ 0.0001 par value per share, authorized. The Company did no t have any preferred shares issued and outstanding as of December 31, 2023 and 2022.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In US Dollars, except for shares data) For the years Ended December 31, 2022 and 2021 2022 2021 Revenues, net $ 95,930,091 $ 62,792,981 Cost of revenues (46,942,770 ) (27,984,335 ) Gross profit 48,987,321 34,808,646 Operating expenses Selling and marketing 42,221,425 25,098,497 General and administrative 8,685,254 4,236,000 Total operating expenses 50,906,679 29,334,497 (Loss) income from operations (1,919,358 ) 5,474,149 Other (expenses) income Other expense (17,520 ) (12,299 ) Interest expense (144,479 ) (56,509 ) Other income 141,571 87,637 Total other (expenses) income, net (20,428 ) 18,829 (Loss) income before income taxes (1,939,786 ) 5,492,978 Income tax benefit (expense) 462,163 (709,205 ) Net (loss) income (1,477,623 ) 4,783,773 Other comprehensive loss Foreign currency translation adjustments (15,171 ) (4,690 ) Total comprehensive (loss) income $ (1,492,794 ) 4,779,083 Basic and diluted (loss) income per common share $ (0.04 ) 0.14 Weighted-average number of common shares outstanding 34,991,666 33,300,000 See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In US Dollars, except for shares data) For the years Ended December 31, 2023 and 2022 2023 2022 Revenues, net $ 132,124,202 $ 95,930,091 Cost of revenues (65,606,947 ) (46,942,770 ) Gross profit 66,517,255 48,987,321 Operating expenses Selling and marketing 61,135,227 42,221,425 General and administrative 8,385,451 8,681,682 Total operating expenses 69,520,678 50,903,107 Loss from operations (3,003,423 ) (1,915,786 ) Other (expenses) income Other expense (9,542 ) (9,950 ) Interest expense (248,779 ) (144,479 ) Other income 101,290 13 0 ,429 Total other expenses (157,031 ) (24,000 ) Loss before income taxes (3,160,454 ) (1,939,786 ) Income tax benefit 730,760 462,163 Net loss (2,429,694 ) (1,477,623 ) Other comprehensive loss Foreign currency translation adjustments (2,597 ) (15,171 ) Total comprehensive loss $ (2,432,291 ) (1,492,794 ) Basic and diluted loss per common share $ (0.07 ) (0.04 ) Weighted-average number of common shares outstanding 35,066,592 34,991,666 F-5 HOUR LOOP, INC.
On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance or if any accounts should be written off based on a past history of write-offs, collections and current credit conditions. A receivable is considered past due if the Company has not received payments based on agreed-upon terms.
On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance for credit losses in accordance with ASC Topic 326, credit losses based on a past history of write-offs, collections, current credit conditions, current economic conditions, reasonable and supportable forecasts of future economic conditions.
NOTE 11 - Income Tax The components of income taxes provision (benefit) are as follows: Schedule of Effective Income Tax Rate Reconciliation December 31, December 31, 2022 2021 Federal rate 21.00 % 21.00 % Blended state tax rate 3.83 % 4.05 % Effective tax rate 24.83 % 25.05 % F-15 Schedule of Components of Income Tax Provision (Benefit) Current Deferred Total Income Tax Income Tax Income Tax Tax Expense Summary Expense Benefit Benefit Federal 30,928 (426,457 ) (395,529 ) State 10,741 (77,375 ) (66,634 ) Total Tax Expense (Benefit) 41,669 (503,832 ) (462,163 ) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 2022: Schedule of Deferred Tax Assets and Liabilities 2022 2021 Deferred Tax Deferred Tax Assets Assets Deferred Tax Assets summary December 31, 2022 December 31, 2021 Federal 464,594 38,137 State 84,726 7,351 Total 549,320 45,488 2022 2021 Deferred Tax Deferred Tax Assets Assets Deferred Tax Assets summary December 31, 2022 December 31, 2021 Right of use lease assets (139 ) (780 ) Inventories allowance 209,131 46,268 Net loss carry forward 340,328 - Total 549,320 45,488 The Company files income tax return in the U.S. federal jurisdiction and Washington state jurisdictions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 2023 and 2022 were as follows: Schedule of Deferred Tax Assets and Liabilities Deferred Tax Deferred Tax Assets Assets Deferred Tax Assets summary December 31, 2023 December 31, 2022 Federal $ 1,101,836 $ 464,594 State 202,379 84,726 Total $ 1,304,215 $ 549,320 Deferred Tax Deferred Tax Assets Assets Deferred Tax Assets summary December 31, 2023 December 31, 2022 Operating lease right of use lease assets $ 172 $ (139 ) Inventories allowance 169,725 209,131 Net loss carry forward 1,134,318 340,328 Total $ 1,304,215 $ 549,320 The Company files income tax return in the U.S. federal jurisdiction and various state jurisdictions.
When none of the foregoing criteria is met, the lease shall be classified as an operating lease. For a lessee, a lease is recognized as a right-of-use asset with a corresponding liability at lease commencement date.
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 a Operating lease right-of-use asset with a corresponding liability at lease commencement date.
The Company had shipping and handling costs of $ 21,145,605 and $ 11,756,555 for the periods ended of December 31, 2022 and 2021, respectively, which were recorded in selling, advertising and marketing expenses.
Costs for shipping and handling were $ 31,187,009 and $ 21,145,605 for the years ended December 31, 2023 and 2022, 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.
During the periods ended December 31, 2022 and 2021, approximately 100 % of the Company’s revenue was through or with the Amazon sales platform. Selling and Marketing – Selling, advertising and marketing costs are expensed as incurred in accordance with ASC 720-35.
During the years ended December 31, 2023 and 2022, approximately 96 % and 100 % 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.
F-8 The “Cost of revenues” line item in the consolidated statements of operations is principally inventory sold to customers during the reporting period. The Company had inventory allowance balances of $ 842,263 and $ 184,720 as of December 31, 2022 and 2021, respectively. Full inventory allowance is recorded for the inventory SKU not sold for more than one year.
As of December 31, 2023 and 2022, $ 675,886 and $ 842,263 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.
Schedule of Operating Lease Liabilities 2022 For the Year Ending December 31, Amount 2023 $ 399,962 2024 68,648 2025 - 2026 and thereafter - Total minimum lease payments 468,610 Less: effect of discounting (18,449 ) Present value of the future minimum lease payment 450,161 Less: operating lease liabilities-current (385,216 ) Total operating lease liabilities-non-current $ 64,945 For the periods ended December 31, 2022 and 2021, the Company had $ 310,161 and $ 73,343 , for lease expenses, respectively.
Schedule of Operating Lease Liabilities For the Year Ending December 31, Amount 2024 $ 83,358 2025 2,449 2026 - 2027 and thereafter - Total minimum lease payments 85,807 Less: effect of discounting (1,175 ) Present value of the future minimum lease payment 84,632 Less: operating lease liabilities-current (82,269 ) Total operating lease liabilities-non-current $ 2,363 F-17 HOUR LOOP, INC.
Common Stock As of December 31, 2022 and 2021, the Company had 300,000,000 shares of common stock, $ 0.0001 par value per share, authorized. As of December 31, 2022 and 2021, there were 35,047,828 and 33,300,000 shares of common stock outstanding, respectively.
As of December 31, 2023 and 2022, there were 35,082,464 and 35,047,828 shares of common stock issued and outstanding, respectively. F-20 HOUR LOOP, INC.
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 is a promise in a contract to transfer a distinct good to the customer and is the unit of account in ASC Topic 606.
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.
The annual interest rate is 5.5% . For the periods ended December 31, 2022, the Company had payments to related parties $ 138,854 and repayments from related parties $ 1,024,188 , respectively. NOTE 10 - Leases The Company had three operating leases (Flywheel’s office leases in Taiwan) as of December 31, 2022.
For the years ended on December 31, 2023 and 2022, the Company made repayments to related parties of $- 0 - and $ 1,024,188 , respectively.
Based on management evaluation, there is no provision necessary for material uncertain tax position for the Company at December 31, 2022 and 2021. The company expects to generate sufficient taxable income in future periods against which the Deferred Tax Assets can be utilized, a valuation allowance may not be needed.
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.
Among which, $ 78,947 and $ 68,197 are related interest and penalties as of December 31, 2022 and 2021, respectively. A bonus expense is accrued whenever company’s financial or operational performance meets the required performance level. The Company has $ 468,209 and $ 353,692 accrued for bonus as of December 31, 2022 and 2021, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 As of December 31, 2023, and 2022, the Company has accounted for Refund Liability, $ 708,629 and $ 285,009 , 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 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 5.78 % and 4.92 % of gross sales for the periods ended December 31, 2022 and 2021, respectively.
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeLegal remedies available to an investor in “penny stocks” may include the following: ● If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. ● If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.
Biggest changeThe broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction. 28 Legal remedies available to an investor in “penny stocks” may include the following: ● If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. ● If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing controls, and implement new operational and financial systems, procedures and controls to manage our business effectively.
These provisions include: ● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ● the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; 34 ● limiting the liability of, and providing indemnification to, our directors and officers; ● providing that a special meeting of the stockholders may only be called by a majority of the board of directors; ● providing that directors may be removed prior to the expiration of their terms by the affirmative vote of the holders of not less than 2/3 of the voting power of the issued and outstanding stock entitled to vote; and ● advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
These provisions include: ● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ● the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; ● limiting the liability of, and providing indemnification to, our directors and officers; ● providing that a special meeting of the stockholders may only be called by a majority of the board of directors; ● providing that directors may be removed prior to the expiration of their terms by the affirmative vote of the holders of not less than 2/3 of the voting power of the issued and outstanding stock entitled to vote; and ● advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
We may not be able to maintain and enhance our product listings if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, results of operations and growth prospects; ● We experience significant fluctuations in our operating results and growth rate; ● We face risks related to successfully optimizing and operating our fulfillment and customer service operations; ● The variability in our retail business places increased strain on our operations; ● Continued increases in Amazon Marketplace fulfillment and storage fees could have an adverse impact on our profit margin and results of operations; ● A change in one or more of the Company’s vendors’ policies or the Company’s relationship with those vendors could adversely affect the Company’s results of operations; ● Our revenue is dependent upon maintaining our relationship with Amazon and failure to do so, or any restrictions on our ability to offer products on the Amazon Marketplace, could have an adverse impact on our business, financial condition and results of operations; ● Loss of key personnel or the inability to attract, train and retain qualified employees could adversely affect the Company’s results of operations; ● We may face difficulties in meeting our labor needs to effectively operate our business; 16 ● Our business could be adversely affected by increased labor costs, including costs related to an increase in minimum wage and health care; ● Breach of data security could harm our business and standing with our customers; ● Our hardware and software systems are vulnerable to damage, theft or intrusion that could harm our business; ● Our inability or failure to protect our intellectual property rights, or any claimed infringement by us of third-party intellectual rights, could have a negative impact on our operating results; ● The Company’s business is influenced by general economic conditions; ● Disruption of global capital and credit markets may have a material adverse effect on the Company’s liquidity and capital resources; ● The Company is dependent upon access to capital for its liquidity needs; ● We may complete a future significant strategic transaction that may not achieve intended results or could increase the number of our outstanding shares or amount of outstanding debt or result in a change of control; ● Historically, we have experienced declines, and we may continue to experience fluctuation in our level of sales and results from operations; ● The ability of the Company to satisfy its liabilities and to continue as a going concern will continue to be dependent on the implementation of several items, the success of which is not certain; ● Parties with whom the Company does business may be subject to insolvency risks or may otherwise become unable or unwilling to perform their obligations to the Company; ● Failure to comply with legal and regulatory requirements could adversely affect the Company’s results of operations; ● Litigation may adversely affect our business, financial condition and results of operations; ● The effects of natural disasters, terrorism, acts of war, and public health issues may adversely affect our business; ● A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business; ● The loss of key senior management personnel or the failure to hire and retain highly skilled and other key personnel could negatively affect our business; ● The ability of Sam Lai, our Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer, and Maggie Yu, our Senior Vice President, who are husband and wife, to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs; ● Government regulation is evolving and unfavorable changes could harm our business; ● We are subject to product liability claims when people or property are harmed by the products we sell; ● We could face prior period sales tax and corporate tax liabilities, penalties and collection obligations; 17 ● There can be no assurance that we will be able to comply with continued listing standards of The Nasdaq Capital Market (“Nasdaq”); ● High state income tax rates could impact our financials negatively; ● The market price of our common stock may be volatile, and you could lose all or part of your investment; and ● Our current accounting and inventory tracking systems could impair our ability to file accurate and timely financial statements.
We may not be able to maintain and enhance our product listings if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, results of operations and growth prospects; ● We experience significant fluctuations in our operating results and growth rate; ● We face risks related to successfully optimizing and operating our fulfillment and customer service operations; ● The variability in our retail business places increased strain on our operations; 14 ● Continued increases in Amazon Marketplace fulfillment and storage fees could have an adverse impact on our profit margin and results of operations; ● A change in one or more of the Company’s vendors’ policies or the Company’s relationship with those vendors could adversely affect the Company’s results of operations; ● Our revenue is dependent upon maintaining our relationship with Amazon and failure to do so, or any restrictions on our ability to offer products on the Amazon Marketplace, could have an adverse impact on our business, financial condition and results of operations; ● Loss of key personnel or the inability to attract, train and retain qualified employees could adversely affect the Company’s results of operations; ● We may face difficulties in meeting our labor needs to effectively operate our business; ● Our business could be adversely affected by increased labor costs, including costs related to an increase in minimum wage and health care; ● Breach of data security could harm our business and standing with our customers; ● Our hardware and software systems are vulnerable to damage, theft or intrusion that could harm our business; ● Our inability or failure to protect our intellectual property rights, or any claimed infringement by us of third-party intellectual rights, could have a negative impact on our operating results; ● The Company’s business is influenced by general economic conditions; ● Disruption of global capital and credit markets may have a material adverse effect on the Company’s liquidity and capital resources; ● The Company is dependent upon access to capital for its liquidity needs; ● We may complete a future significant strategic transaction that may not achieve intended results or could increase the number of our outstanding shares or amount of outstanding debt or result in a change of control; ● Historically, we have experienced declines, and we may continue to experience fluctuation in our level of sales and results from operations; ● The ability of the Company to satisfy its liabilities and to continue as a going concern will continue to be dependent on the implementation of several items, the success of which is not certain; ● Parties with whom the Company does business may be subject to insolvency risks or may otherwise become unable or unwilling to perform their obligations to the Company; ● Failure to comply with legal and regulatory requirements could adversely affect the Company’s results of operations; ● Litigation may adversely affect our business, financial condition and results of operations; ● The effects of natural disasters, terrorism, acts of war, and public health issues may adversely affect our business; 15 ● A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business; ● The loss of key senior management personnel or the failure to hire and retain highly skilled and other key personnel could negatively affect our business; ● The ability of Sam Lai, our Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer, and Maggie Yu, our Senior Vice President, who are husband and wife, to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs; ● Government regulation is evolving and unfavorable changes could harm our business; ● We are subject to product liability claims when people or property are harmed by the products we sell; ● We could face prior period sales tax and corporate tax liabilities, penalties and collection obligations; ● There can be no assurance that we will be able to comply with continued listing standards of The Nasdaq Capital Market (“Nasdaq”); ● High state income tax rates could impact our financials negatively; ● The market price of our common stock may be volatile, and you could lose all or part of your investment; and ● Our current accounting and inventory tracking systems could impair our ability to file accurate and timely financial statements.
Factors that could cause fluctuations in the market price of our common stock include, but are not limited to, the following: ● actual or anticipated changes or fluctuations in our results of operations; 29 ● the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; ● announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships, or capital commitments; ● industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC; ● rumors and market speculation involving us or other companies in our industry; ● price and volume fluctuations in the overall stock market from time to time; ● changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; ● the expiration of market stand-off or contractual lock-up agreements and sales of shares of our common stock by us or our stockholders; ● failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors; ● actual or anticipated developments in our business, or our competitors’ businesses, or the competitive landscape generally; ● litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; ● developments or disputes concerning our intellectual property rights, our products, or third-party proprietary rights; ● announced or completed acquisitions of businesses or technologies by us or our competitors; ● new laws or regulations or new interpretations of existing laws or regulations applicable to our business; ● any major changes in our management or our board of directors, particularly with respect to Mr.
Factors that could cause fluctuations in the market price of our common stock include, but are not limited to, the following: ● actual or anticipated changes or fluctuations in our results of operations; ● the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; ● announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships, or capital commitments; ● industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC; 27 ● rumors and market speculation involving us or other companies in our industry; ● price and volume fluctuations in the overall stock market from time to time; ● changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; ● the expiration of market stand-off or contractual lock-up agreements and sales of shares of our common stock by us or our stockholders; ● failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors; ● actual or anticipated developments in our business, or our competitors’ businesses, or the competitive landscape generally; ● litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; ● developments or disputes concerning our intellectual property rights, our products, or third-party proprietary rights; ● announced or completed acquisitions of businesses or technologies by us or our competitors; ● new laws or regulations or new interpretations of existing laws or regulations applicable to our business; ● any major changes in our management or our board of directors, particularly with respect to Mr.
A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results and retroactively affect previously reported results. As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), we are permitted to rely on exemptions from certain disclosure requirements.
A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results and retroactively affect previously reported results. 29 As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), we are permitted to rely on exemptions from certain disclosure requirements.
In addition, any infringement or other intellectual property claim made against us could be time-consuming to address, result in costly litigation, cause product delays, require us to enter into royalty or licensing agreements or result in our loss of ownership or use of the intellectual property. The Company’s business is influenced by general economic conditions.
In addition, any infringement or other intellectual property claim made against us could be time-consuming to address, result in costly litigation, cause product delays, require us to enter into royalty or licensing agreements or result in our loss of ownership or use of the intellectual property. 20 The Company’s business is influenced by general economic conditions.
As a result, our ability to fund through public or private equity offerings, debt financings, and through other means at acceptable terms, if at all, may be disrupted, in the event our financing needs for the foreseeable future are not able to be met by our balances of cash, cash equivalents and cash generated from operations. 26 In addition, the continuation of the COVID-19 pandemic and various governmental responses in the United States has adversely affected and may continue to adversely affect our business operations, including our ability to carry on business development activities, restrictions in business-related travel, delays or disruptions in our on-going projects, and unavailability of the employees of the Company or third parties with whom we conduct business, due to illness or quarantines, among others.
As a result, our ability to fund through public or private equity offerings, debt financings, and through other means at acceptable terms, if at all, may be disrupted, in the event our financing needs for the foreseeable future are not able to be met by our balances of cash, cash equivalents and cash generated from operations. 24 In addition, the continuation of the COVID-19 pandemic and various governmental responses in the United States has adversely affected and may continue to adversely affect our business operations, including our ability to carry on business development activities, restrictions in business-related travel, delays or disruptions in our on-going projects, and unavailability of the employees of the Company or third parties with whom we conduct business, due to illness or quarantines, among others.
Additionally, any party who brings an action, and the party against whom such action is brought under Section 7.4 of our bylaws, which could include, but is not limited to former and current stockholders, Company directors, officers, affiliates, legal counsel, expert witnesses and other parties, would be able to recover fees under this provision. 25 In the event you initiate or assert a claim against us, in accordance with the dispute resolution provisions contained in our Bylaws, and you do not, in a judgment prevail, you will be obligated to reimburse us for all reasonable costs and expenses incurred in connection with such claim, including, but not limited to, reasonable attorney’s fees and expenses and costs of appeal, if any.
Additionally, any party who brings an action, and the party against whom such action is brought under Section 7.4 of our bylaws, which could include, but is not limited to former and current stockholders, Company directors, officers, affiliates, legal counsel, expert witnesses and other parties, would be able to recover fees under this provision. 23 In the event you initiate or assert a claim against us, in accordance with the dispute resolution provisions contained in our Bylaws, and you do not, in a judgment prevail, you will be obligated to reimburse us for all reasonable costs and expenses incurred in connection with such claim, including, but not limited to, reasonable attorney’s fees and expenses and costs of appeal, if any.
In some cases, we also may not have sufficient notice to enable us to build systems and adopt processes to properly comply with new reporting or collection obligations by the effective date. 28 Our tax expense and liabilities are also affected by other factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special or extraterritorial tax regimes, changes in foreign currency exchange rates, changes in our stock price, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, and changes in our tax assets and liabilities and their valuation.
In some cases, we also may not have sufficient notice to enable us to build systems and adopt processes to properly comply with new reporting or collection obligations by the effective date. 26 Our tax expense and liabilities are also affected by other factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special or extraterritorial tax regimes, changes in foreign currency exchange rates, changes in our stock price, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, and changes in our tax assets and liabilities and their valuation.
Securities litigation, if instituted against us, could result in substantial costs and divert our management’s attention and resources from our business. This could materially adversely affect our business, financial condition, results of operations, and prospects. 30 Our common stock may be subject to the “penny stock” rules in the future.
Securities litigation, if instituted against us, could result in substantial costs and divert our management’s attention and resources from our business. This could materially adversely affect our business, financial condition, results of operations, and prospects. Our common stock may be subject to the “penny stock” rules in the future.
We also use and rely on other services from third parties, such as our telecommunications services, and those services may be subject to outages and interruptions that are not within our control. 18 We experience significant fluctuations in our operating results and growth rate. We are not always able to accurately forecast our growth rate.
We also use and rely on other services from third parties, such as our telecommunications services, and those services may be subject to outages and interruptions that are not within our control. We experience significant fluctuations in our operating results and growth rate. We are not always able to accurately forecast our growth rate.
We also could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources. As an emerging growth company, our auditor will not be required to attest to the effectiveness of our internal controls.
We also could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources. 30 As an emerging growth company, our auditor will not be required to attest to the effectiveness of our internal controls.
We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures.
We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs. 31 The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures.
Failure to comply with such laws and regulations may result in damage to our reputation, financial condition and market price of our stock. 24 The certificate of incorporation and bylaws provides that state or federal court located within the state of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Failure to comply with such laws and regulations may result in damage to our reputation, financial condition and market price of our stock. 22 The certificate of incorporation and bylaws provides that state or federal court located within the state of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our results of operations and cash flows could be adversely effected by additional taxes of this nature imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations or failure to provide information about our customers, suppliers, and other third parties for tax reporting purposes to various government agencies.
Our results of operations and cash flows could be adversely affected by additional taxes of this nature imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations or failure to provide information about our customers, suppliers, and other third parties for tax reporting purposes to various government agencies.
Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq. See “Management—Board Committees and Director Independence—Controlled Company and Director Independence”. 27 Government regulation is evolving and unfavorable changes could harm our business.
Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq. See “Management—Board Committees and Director Independence—Controlled Company and Director Independence”. 25 Government regulation is evolving and unfavorable changes could harm our business.
To date, we have generated practically all of our revenue as a third-party seller on Amazon Marketplace. In 2022 and 2021, 100% and 100%, respectively, of our net revenue was through or with the Amazon sales platform. Therefore, we depend entirely on our relationship with Amazon for growth.
To date, we have generated practically all of our revenue as a third-party seller on Amazon Marketplace. In 2023 and 2022, 99% and 100%, respectively, of our net revenue was through or with the Amazon sales platform. Therefore, we depend entirely on our relationship with Amazon for growth.
Our ability to accurately estimate unit costs in a timely manner is dependent on our inventory tracking systems. The Company plans on operationalizing an inventory tracking system in the next nine months. The Company plans to start conducting the period end review and accounting month end close using the accounting system over the next nine months.
Our ability to accurately estimate unit costs in a timely manner is dependent on our inventory tracking systems. The Company plans on operationalizing an inventory tracking system in the next nine months. The Company plans to start conducting the period end review and accounting month end close using the accounting system in the near future.
No individual vendor exceeded 15% of purchases in the year ended December 31, 2022. 20 Our revenue is dependent upon maintaining our relationship with Amazon and failure to do so, or any restrictions on our ability to offer products on the Amazon Marketplace, could have an adverse impact on our business, financial condition and results of operations.
No individual vendor exceeded 15% of purchases in the year ended December 31, 2024. 18 Our revenue is dependent upon maintaining our relationship with Amazon and failure to do so, or any restrictions on our ability to offer products on the Amazon Marketplace, could have an adverse impact on our business, financial condition and results of operations.
A large number of jurisdictions regulate our operations, and the extent, nature, and scope of such regulations is evolving and expanding as the scope of our businesses expand.
A large number of jurisdictions regulate our operations, and the extent, nature, and scope of such regulations is evolving and expanding as the scope of our businesses expands.
Therefore, the ability of the Company to meet its liabilities and to continue as a going concern is dependent on, among other things, improved profitability, the continued implementation of its business strategy, the availability of future funding, implementation of one or more corporate initiatives to reduce costs at the parent company level and other strategic alternatives, including selling all or part of the remaining business or assets of the Company, and overcoming the impact of the COVID-19 pandemic.
Therefore, the ability of the Company to meet its liabilities and to continue as a going concern is dependent on, among other things, improved profitability, the continued implementation of its business strategy, the availability of future funding, implementation of one or more corporate initiatives to reduce costs at the parent company level and other strategic alternatives, including selling all or part of the remaining business or assets of the Company.
The ability of Sam Lai, our Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer, and Maggie Yu, our Senior Vice President, who are husband and wife, to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs. As of March 31, 2023, Mr.
The ability of Sam Lai, our Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer, and Maggie Yu, our Senior Vice President, who are husband and wife, to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs. As of March 26, 2024, Mr.
The “controlled company” exception to the Nasdaq rules provides that a company of which more than 50% of the voting power is held by an individual, group or another company, a “controlled company,” need not comply with certain requirements of the Nasdaq corporate governance rules. As of March 31, 2023, Mr.
The “controlled company” exception to the Nasdaq rules provides that a company of which more than 50% of the voting power is held by an individual, group or another company, a “controlled company,” need not comply with certain requirements of the Nasdaq corporate governance rules. As of March 26, 2024, Mr.
Sam Lai, our Chairman of the Board, Chief Executive Officer, and Interim Chief Financial Officer, and Maggie Yu, our Senior Vice President, who are husband and wife, beneficially owned an aggregate of 33,311,576 shares of our common stock, which represents approximately 95% of the voting power of our outstanding common stock.
Sam Lai, our Chairman of the Board, Chief Executive Officer, and Interim Chief Financial Officer, and Maggie Yu, our Senior Vice President and member of the Board, who are husband and wife, beneficially owned an aggregate of 33,325,984 shares of our common stock, which represents approximately 95% of the voting power of our outstanding common stock.
Sam Lai, our Chairman of the Board, Chief Executive Officer, and Interim Chief Financial Officer, and Maggie Yu, our Senior Vice President, who are husband and wife, beneficially owned an aggregate of 33,311,576 shares of our common stock, which represents approximately 95% of the voting power of our outstanding common stock.
Sam Lai, our Chairman of the Board, Chief Executive Officer, and Interim Chief Financial Officer, and Maggie Yu, our Senior Vice President and member of the Board, who are husband and wife, beneficially owned an aggregate of 33,325,984 shares of our common stock, which represents approximately 95% of the voting power of our outstanding common stock.
We face risks related to system interruption and lack of redundancy We experience occasional system interruptions and delays that make the websites on which we engage in online retailing unavailable or slow to respond and prevent us from efficiently accepting or fulfilling orders or providing services to third parties, which may reduce our net sales and the attractiveness of our products and services.
We experience occasional system interruptions and delays that make the websites on which we engage in online retailing unavailable or slow to respond and prevent us from efficiently accepting or fulfilling orders or providing services to third parties, which may reduce our net sales and the attractiveness of our products and services.
These procedures are done outside of the accounting system using spreadsheets. The manual nature of these procedures could lead to delay as well as errors in our financial reporting. These errors could include incorrect unit cost data for FIFO inventory valuation. The Company currently values inventory by using estimates of the number of units and cost per unit.
The manual nature of these procedures could lead to delay as well as errors in our financial reporting. These errors could include incorrect unit cost data for FIFO inventory valuation. The Company currently values inventory by using estimates of the number of units and cost per unit.
The Company believes that its future prospects depend, to a significant extent, on the services of its executive officers. Our future success will also depend on our ability to attract and retain qualified key personnel. The loss of the services of certain of the Company’s executive officers and other key management personnel could adversely affect the Company’s results of operations.
Loss of key personnel or the inability to attract, train and retain qualified employees could adversely affect the Company’s results of operations. The Company believes that its future prospects depend, to a significant extent, on the services of its executive officers. Our future success will also depend on our ability to attract and retain qualified key personnel.
As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act has imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel must devote a substantial amount of time to these compliance initiatives.
In addition, the Sarbanes-Oxley Act has imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel must devote a substantial amount of time to these compliance initiatives.
The protection of our supplier (vendor), employee and business data is critical to us. Our business, like that of most companies, involves confidential information about our employees, our suppliers and our Company. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of all such data, including confidential information.
Our business, like that of most companies, involves confidential information about our employees, our suppliers and our Company. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of all such data, including confidential information.
Further, if we are unable to comply with the security standards established by banks and the credit card industry, we may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect our retail operations.
Further, if we are unable to comply with the security standards established by banks and the credit card industry, we may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect our retail operations. We face risks related to system interruption and lack of redundancy.
We collect and remit sales tax in accordance with the state regulations. We estimate that as of December 31, 2022, we owe $288,466 in sales taxes along with penalties and interest. The Company has made significant progress filing historical sales tax returns and target to complete filings for all jurisdictions in 2023.
We collect and remit sales tax in accordance with the state regulations. We estimate that as of December 31, 2023, we owe $288,466 in sales taxes along with penalties and interest. The Company has made some progress filing historical sales tax returns and targets completion of filings for all jurisdictions in 2024.
We have never paid dividends on our common stock and have no plans to do so in the future. Holders of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors.
Holders of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors. To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future.
In addition, failure to optimize inventory in our fulfillment operations increases our net shipping cost by requiring long-zone or partial shipments. We may be unable to adequately staff our fulfillment and customer service operations.
There can be no assurance that we will be able to operate our operations effectively. 17 In addition, failure to optimize inventory in our fulfillment operations increases our net shipping cost by requiring long-zone or partial shipments. We may be unable to adequately staff our fulfillment and customer service operations.
If we complete an acquisition, investment or other strategic transaction, we may require additional financing that could result in an increase in the number of our outstanding shares or the aggregate principal amount of our debt. A strategic transaction may result in a change in control of our company or otherwise materially and adversely affect our business.
If we complete an acquisition, investment or other strategic transaction, we may require additional financing that could result in an increase in the number of our outstanding shares or the aggregate principal amount of our debt.
Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities.
Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities. 32 We have never paid dividends on our common stock and have no plans to do so in the future.
Our profit is dependent reimbursements from Amazon and any change in Amazon’s policy regarding reimbursement could adversely impact our ability to generate profits Amazon reimburses us for any lost and damaged merchandise. These reimbursements form a substantial portion of our profits. Any change in Amazon policy regarding these reimbursements could impact our profit adversely.
Amazon reimburses us for any lost and damaged merchandise. These reimbursements form a substantial portion of our profits. Any change in Amazon policy regarding these reimbursements could impact our profit adversely. Additionally, we are dependent on Amazon’s ability to track and process these reimbursements. Any deficiencies in Amazon’s ability to process these reimbursements could impact our profits.
As we continue to add fulfillment and customer service capability or add new businesses with different requirements, our fulfillment and customer service operations become increasingly complex and operating them becomes more challenging. There can be no assurance that we will be able to operate our operations effectively.
As we continue to add fulfillment and customer service capability or add new businesses with different requirements, our fulfillment and customer service operations become increasingly complex and operating them becomes more challenging.
Any adverse change in our relationship with Amazon, including restrictions on the ability to offer products or termination of the relationship, could adversely affect our continued growth and financial condition and results of operations.
Any adverse change in our relationship with Amazon, including restrictions on the ability to offer products or termination of the relationship, could adversely affect our continued growth and financial condition and results of operations. Our profit is dependent reimbursements from Amazon and any change in Amazon’s policy regarding reimbursement could adversely impact our ability to generate profits.
Our failure to properly handle such inventory or to accurately forecast product demand may result in us being unable to secure sufficient storage space or to optimize our fulfillment operations or cause other unexpected costs and other harm to our business and reputation. 19 We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers.
Our failure to properly handle such inventory or to accurately forecast product demand may result in us being unable to secure sufficient storage space or to optimize our fulfillment operations or cause other unexpected costs and other harm to our business and reputation.
A downturn in the economy affects retailers disproportionately, as consumers may prioritize reductions in discretionary spending, which could have a direct impact on purchases of our products and services and adversely impact our results of operations.
Consumer purchases of discretionary items generally decline during recessionary periods and other periods where disposable income is adversely affected. A downturn in the economy affects retailers disproportionately, as consumers may prioritize reductions in discretionary spending, which could have a direct impact on purchases of our products and services and adversely impact our results of operations.
Our current accounting and inventory tracking systems could impair our ability to file accurate and timely financial statements The capabilities of our inventory systems to track prior period costs at an item level have not been operationalized for the purposes of calculating inventory value.
The capabilities of our inventory systems to track prior period costs at an item level have not been operationalized for the purposes of calculating inventory value. This could hinder our ability to accurately track inventory value and could impact our ability to provide accurate financial statements in a timely manner.
These factors include general economic conditions; competition; actions taken by our competitors; consumer trends and preferences; access to third party marketplaces; and new product introductions and changes in our product mix.
A variety of factors has historically affected, and will continue to affect, our sales results and profit margins. These factors include general economic conditions; competition; actions taken by our competitors; consumer trends and preferences; access to third party marketplaces; and new product introductions and changes in our product mix.
The inability to negotiate acceptable terms with these companies or performance problems or other difficulties experienced by these companies or by our own transportation systems could negatively impact our operating results and customer experience.
We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. The inability to negotiate acceptable terms with these companies or performance problems or other difficulties experienced by these companies or by our own transportation systems could negatively impact our operating results and customer experience.
Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different from our historical tax accruals.
Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different from our historical tax accruals. Our current accounting and inventory tracking systems could impair our ability to file accurate and timely financial statements.
If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile. 32 If we are unable to implement and maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and have an adverse effect on the value of our securities.
If we are unable to implement and maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and have an adverse effect on the value of our securities.
We also will have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential investors, which could make it more difficult for our stockholders to sell their shares. 33 We incur significant increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.
We also will have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential investors, which could make it more difficult for our stockholders to sell their shares.
General economic conditions impacting discretionary consumer spending include, among others, wages and employment, consumer debt, reductions in net worth, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, consumer confidence and other macroeconomic factors. 22 Consumer purchases of discretionary items generally decline during recessionary periods and other periods where disposable income is adversely affected.
The Company’s performance is subject to general economic conditions and their impact on levels of discretionary consumer spending. General economic conditions impacting discretionary consumer spending include, among others, wages and employment, consumer debt, reductions in net worth, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, consumer confidence and other macroeconomic factors.
If we are unable to attract and retain adequate numbers of qualified team members, our operations and support functions could suffer. Those factors, together with increased wage and benefit costs, could adversely affect our results of operations. We may face difficulties in meeting our labor needs to effectively operate our business. We are heavily dependent upon our labor workforce.
Those factors, together with increased wage and benefit costs, could adversely affect our results of operations. We may face difficulties in meeting our labor needs to effectively operate our business. We are heavily dependent upon our labor workforce. Our compensation packages are designed to provide benefits commensurate with our level of expected service.
There is no assurance that we will achieve positive levels of sales and earnings growth, and any decline in our future growth or performance could have a material adverse effect on our business and results of operations. 23 The ability of the Company to satisfy its liabilities and to continue as a going concern will continue to be dependent on the implementation of several items, the success of which is not certain.
There is no assurance that we will achieve positive levels of sales and earnings growth, and any decline in our future growth or performance could have a material adverse effect on our business and results of operations.
Economic, industry and market conditions, including as a result of the COVID-19 pandemic, could result in increased risks to the Company associated with the potential financial distress or insolvency of such third parties. The Company is not currently able to accurately determine the extent and scope of the impact of the COVID-19 pandemic on such third parties.
Economic, industry and market conditions could result in increased risks to the Company associated with the potential financial distress or insolvency of such third parties.
Until such time, however, we cannot predict if investors will find our securities less attractive because we may rely on these exemptions.
Until such time, however, we cannot predict if investors will find our securities less attractive because we may rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile.
Increased labor costs, whether due to competition, unionization, increased minimum wage, state unemployment rates, health care, or other employee benefits costs may adversely impact our operating expenses. Additionally, there is no assurance that future health care legislation will not adversely impact our results or operations. 21 Breach of data security could harm our business and standing with our customers.
Additionally, there is no assurance that future health care legislation will not adversely impact our results or operations. 19 Breach of data security could harm our business and standing with our customers. The protection of our supplier (vendor), employee and business data is critical to us.
In addition to our executive officers, the Company’s business is dependent on our ability to attract, train and retain qualified team members. Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, health care costs and changing demographics.
Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, health care costs and changing demographics. If we are unable to attract and retain adequate numbers of qualified team members, our operations and support functions could suffer.
Customer complaints or negative publicity about our products, delivery times, or marketing strategies, even if not accurate, especially on blogs, social media websites and third-party market sites, could rapidly and severely diminish consumer view of our product listings and result in harm to our brands.
Further, we rely on the business continuity plans of these third parties to operate during pandemics, like the COVID-19 pandemic, and we have limited ability to influence their plans, prevent delays, and/or cost increases due to reduced availability and capacity and increased required safety measures. 16 Customer complaints or negative publicity about our products, delivery times, or marketing strategies, even if not accurate, especially on blogs, social media websites and third-party market sites, could rapidly and severely diminish consumer view of our product listings and result in harm to our brands.
Our certificate of incorporation provide that we will indemnify and hold harmless our officers and directors against claims arising from our activities, to the maximum extent permitted by Delaware law. If we were called upon to perform under our indemnification obligations, then the portion of our assets expended for such purpose would reduce the amount otherwise available for our business.
If we were called upon to perform under our indemnification obligations, then the portion of our assets expended for such purpose would reduce the amount otherwise available for our business.
A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future. 31 Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including changes to our previously filed financial statements, which could cause our stock price to decline.
Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including changes to our previously filed financial statements, which could cause our stock price to decline. We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance.
These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance.
Historically, we have experienced declines, and we may continue to experience fluctuation in our level of sales and results from operations. A variety of factors has historically affected, and will continue to affect, our sales results and profit margins.
A strategic transaction may result in a change in control of our company or otherwise materially and adversely affect our business. 21 Historically, we have experienced declines, and we may continue to experience fluctuation in our level of sales and results from operations.
This could hinder our ability to accurately track inventory value and could impact our ability to provide accurate financials in a timely manner. The Company uses Quickbooks Online as both its accounting system and inventory tracking system. The Company currently does not conduct the period end review and accounting month end close using this accounting system.
The Company uses Quickbooks Online as both its accounting system and inventory tracking system. The Company currently does not conduct the period end review and accounting month end close using this accounting system. These procedures are done outside of the accounting system using spreadsheets.
Our business could be adversely affected by increased labor costs, including costs related to an increase in minimum wage and health care. Labor is one of the primary components in the cost of operating our business.
Changes in any of these factors, including a shortage of available workforce, could interfere with our ability to adequately service our customers and could result in increasing labor costs. Our business could be adversely affected by increased labor costs, including costs related to an increase in minimum wage and health care.
Therefore, any return investors in our common stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock. See “Dividend Policy.” We will indemnify and hold harmless our officers and directors to the maximum extent permitted by Delaware law.
We intend to retain future earnings, if any, to provide funds for operation of our business. Therefore, any return investors in our common stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock.
Additionally, we are dependent on Amazon’s ability to track and process these reimbursements. Any deficiencies in Amazon’s ability to process these reimbursements could impact our profits. Loss of key personnel or the inability to attract, train and retain qualified employees could adversely affect the Company’s results of operations.
The loss of the services of certain of the Company’s executive officers and other key management personnel could adversely affect the Company’s results of operations. In addition to our executive officers, the Company’s business is dependent on our ability to attract, train and retain qualified team members.
Our compensation packages are designed to provide benefits commensurate with our level of expected service. However, we face the challenge of filling many positions at wage scales that are appropriate to the industry and competitive factors.
However, we face the challenge of filling many positions at wage scales that are appropriate to the industry and competitive factors. We also face other risks in meeting our labor needs, including competition for qualified personnel, overall unemployment levels.
The Company’s primary source of liquidity is available cash and cash equivalents, which is limited.
The ability of the Company to satisfy its liabilities and to continue as a going concern will continue to be dependent on the implementation of several items, the success of which is not certain. The Company’s primary source of liquidity is available cash and cash equivalents, which is limited.
Removed
Further, we rely on the business continuity plans of these third parties to operate during pandemics, like the COVID-19 pandemic, and we have limited ability to influence their plans, prevent delays, and/or cost increases due to reduced availability and capacity and increased required safety measures.
Added
Labor is one of the primary components in the cost of operating our business. Increased labor costs, whether due to competition, unionization, increased minimum wage, state unemployment rates, health care, or other employee benefits costs may adversely impact our operating expenses.
Removed
We also face other risks in meeting our labor needs, including competition for qualified personnel, overall unemployment levels, and increased costs associated with complying with regulations relating to COVID-19. Changes in any of these factors, including a shortage of available workforce, could interfere with our ability to adequately service our customers and could result in increasing labor costs.
Added
A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
Removed
The Company’s performance is subject to general economic conditions and their impact on levels of discretionary consumer spending.
Added
We incur significant increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives. As a public company, we incur significant legal, accounting and other expenses.
Removed
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.
Added
See “Dividend Policy.” We will indemnify and hold harmless our officers and directors to the maximum extent permitted by Delaware law. Our certificate of incorporation provides that we will indemnify and hold harmless our officers and directors against claims arising from our activities, to the maximum extent permitted by Delaware law.
Removed
To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to provide funds for operations of our business.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe virtual office arrangement expires on August 31, 2023. Terms of the virtual office arrangement provide for a rent payment of $35.695 per month. We also lease a warehouse located at Floor 35, No. 1123-1139, Fangshan Beier Road, Xiangbei Industry District, Xiamen, China, where we lease approximately 1680 square meter from an unaffiliated third party.
Biggest changeThe virtual office arrangement expires on August 31, 2024. Terms of the virtual office arrangement provide for a rent payment of $59 per month. We also lease a warehouse located at Qiaojiao Road, No. 1, Qiaojiao Middle Road, Tangxia Town, Dongguan City, Guangdong, China, who handle our storage and warehousing from an unaffiliated third party.
This service expires in January, 2023. The terms of this service provide for a base payment that is charged based on our usage. Flywheel, our wholly owned subsidiary, had three new office leases in Taiwan in 2022.
This service expires in January 2024. The terms of this service provide for a base payment that is charged based on our usage. Flywheel, our wholly owned subsidiary, had three office leases in Taiwan in 2023.
The respective lease terms are January 1, 2022 to December 31, 2023, June 1, 2022 to May 31, 2024, and August 1, 2022 to July 31, 2024, and the total contract amounts are $534,910, $114,016 and $157,973, respectively. We believe that these facilities are adequate for our current and near-term future needs. 35
The respective lease terms are June 1, 2022 to May 31, 2024, August 1, 2022 to July 31, 2024, and February 9, 2023 to March 8, 2025 and the total contract amounts are $114,016, $157,973, and $28,652 respectively. We believe that these facilities are adequate for our current and near-term future needs.
Removed
This lease expires in January, 2022. Terms of this lease provide for a base rent payment of RMB21,840 (approximately US$3,116) per month. In January, 2022, we partnered with FBABEEE located at 1st Floor, Building B, No. 2, Hongye North 17 Road, Tangxia Town, Dongguan City,Guangdong, China, who handle our storage and warehousing from an unaffiliated third party.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeTo the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Biggest changeTo the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRecent Sales of Unregistered Securities In connection with our conversion from a Washington corporation to a Delaware corporation on April 7, 2021, we issued 5,000,000 (pre-stock splits) shares of common stock to each of Sam Lai, our Chief Executive Officer, and Maggie Yu, our Senior Vice President (for an aggregate of 10,000,000 (pre-stock splits) shares of common stock). 36 On September 22, 2021, our board of directors and stockholders approved a forward stock split in a ratio of 4.44-for-1 (“Forward Stock Split”) and on September 27, 2021, we filed a certificate of amendment to our Certificate of Incorporation implementing the Forward Stock Split in a ratio of 4.44-for-1, effective September 27, 2021.
Biggest changeRecent Sales of Unregistered Securities In connection with our conversion from a Washington corporation to a Delaware corporation on April 7, 2021, we issued 5,000,000 (pre-stock splits) shares of common stock to each of Sam Lai, our Chief Executive Officer, and Maggie Yu, our Senior Vice President (for an aggregate of 10,000,000 (pre-stock splits) shares of common stock).
The transfer agent’s address is 50 West Liberty Street, Suite 880, Reno, Nevada 89501, and its telephone number is (775) 322-0626. ITEM 6. RESERVED
The transfer agent’s address is 50 West Liberty Street, Suite 880, Reno, Nevada 89501, and its telephone number is (775) 322-0626. 35 ITEM 6. RESERVED
On February 1, 2022, the Company issued and vested 1,750, 1,750, and 709 shares of Company common stock to Michael Lenner, Douglas Branch, and Alan Gao, respectively, with a fair market value of $4.00 per share as compensation for the past services as directors to the Company pursuant to the terms of their Director Agreements with the Company.
On February 1, 2022, the Company issued 1,750, 1,750, and 709 shares of Company common stock to Michael Lenner, Douglas Branch, and Alan Gao, respectively, with a fair market value of $4.00 per share as compensation for the services as directors to the Company pursuant to the terms of their Director Agreements with the Company.
Holders As of March 31, 2023, there were 35,047,828 shares of common stock issued and outstanding, and we had approximately 6 holders of record of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
Holders As of March 26, 2024, there were 35,095,298 shares of common stock issued and outstanding, and we had approximately 6 holders of record of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed The Nasdaq Capital Market and its stock symbol is “HOUR.” The closing price of our common stock on Nasdaq on March 30, 2023 was $2.004.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed The Nasdaq Capital Market and its stock symbol is “HOUR.” The closing price of our common stock on Nasdaq on March 25, 2024 was $1.5399.
On February 1, 2022, the Company issued and vested 1,772 shares of Company common stock to each of Sam Lai, our Chief Executive Officer, and Maggie Yu, our Senior Vice President, with a fair market value of $4.00 per share as compensation for the past services to the Company pursuant to the terms of their Executive Employment Agreements with the Company.
Therefore, on December 3, 2021, following the Reverse Stock Split, Sam Lai, our Chief Executive Officer, and Maggie Yu, our Senior Vice President, each held 16,650,000 shares of common stock (for an aggregate of 33,300,000 shares of common stock). 34 On February 1, 2022, the Company issued 1,772 shares of Company common stock to each of Sam Lai, our Chief Executive Officer, and Maggie Yu, our Senior Vice President, with a fair market value of $4.00 per share as compensation for the services to the Company pursuant to the terms of their Executive Employment Agreements with the Company.
As of March 31, 2023, there were 5,994,000 shares authorized for issuance under the 2021 Plan, and 5,994,000 shares available for issuance under the 2021 Plan.
As of March 26, 2024, there were 7,045,435 shares authorized for issuance under the 2021 Plan, and 7,045,435 shares available for issuance under the 2021 Plan.
Removed
Therefore, on December 3, 2021, following the Reverse Stock Split, Sam Lai, our Chief Executive Officer, and Maggie Yu, our Senior Vice President, each held 16,650,000 shares of common stock (for an aggregate of 33,300,000 shares of common stock).
Added
On September 22, 2021, our board of directors and stockholders approved a forward stock split in a ratio of 4.44-for-1 (“Forward Stock Split”) and on September 27, 2021, we filed a certificate of amendment to our Certificate of Incorporation implementing the Forward Stock Split in a ratio of 4.44-for-1, effective September 27, 2021.
Added
On May 20, 2022, the Company issued 916 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 $3.2745 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.
Added
On June 30, 2022, the Company issued 1,049 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 $2.8605 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.
Added
On September 30, 2022, the Company issued 1,050 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 $2.8565 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.
Added
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.
Added
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.
Added
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.
Added
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 $1.54 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.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. Reserved 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 46 Item 8. Financial Statements and Supplementary Data 46 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 46 Item 9A. Controls and Procedures 47 Item 9B.
Biggest changeItem 6. Reserved 36 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 44 Item 8. Financial Statements and Supplementary Data 44 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 44 Item 9A. Controls and Procedures 44

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOther (expense) Income Other (expense) income for the year ended December 31, 2022 was $(20,428), as compared to $18,829 for the year ended December 31, 2021. Other expense for 2022 related mainly to Interest expense to related parties, while other income for 2021 related mainly due to a local government grant received by Flywheel in 2021.
Biggest changeThe increase in revenues in 2023 over the same period in 2022 drove the increase in platform fees and higher Amazon fees. 38 Other Expense Other expense for the year ended December 31, 2023 was $157,031, as compared to $24,000 for the year ended December 31, 2022. The increase was mainly due to accrued interest from due to related parties.
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, 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 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 following trends are reasonably likely to result in changes in our liquidity over the near to long term: ● An increase in working capital requirements to finance the rapid growth in our current business, ● An increase in fees paid to Amazon and other partners as our sales grows ● The cost of being a public company; 40 ● Marketing and advertising expenses for attracting new customers; and ● Capital requirements for the development of additional infrastructure Since inception, we have generated liquidity from the profitability of our ongoing business and from debt to fund our operations.
The following trends are reasonably likely to result in changes in our liquidity over the near to long term: ● An increase in working capital requirements to finance the rapid growth in our current business, ● An increase in fees paid to Amazon and other partners as our sales grows ● The cost of being a public company; ● Marketing and advertising expenses for attracting new customers; and ● Capital requirements for the development of additional infrastructure Since inception, we have generated liquidity from the profitability of our ongoing business and from debt to fund our operations.
Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Unless the context otherwise requires, “Hour Loop,” “we,” “us,” “our,” or the “Company” refers to Hour Loop, Inc. and its consolidated subsidiaries. 37 Overview Our Business We are an online retailer engaged in e-commerce retailing in the U.S. market.
Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Unless the context otherwise requires, “Hour Loop,” “we,” “us,” “our,” or the “Company” refers to Hour Loop, Inc. and its consolidated subsidiaries. Overview Our Business We are an online retailer engaged in e-commerce retailing in the U.S. market.
Management has evaluated its tax positions and has concluded that the Company had taken no uncertain tax. 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.
Management has evaluated its tax positions and has concluded that the Company had taken no uncertain tax. 43 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.
For 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.
For a 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.
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments.
The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, accounts payable and other current liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments.
To date, we have generated practically all of our revenue as a third-party seller on www.amazon.com and only a negligible amount of revenue from our operations on our website at www.hourloop.com and as a third-party seller on www.walmart.com . We manage more than 100,000 stock-keeping units (“SKUs”). Product categories include home/garden décor, toys, kitchenware, apparels, and electronics.
To date, we have generated practically all of our revenue as a third-party seller on www.amazon.com and only a negligible amount of revenue from our operations on our website at www.hourloop.com and as a third-party seller on www.walmart.com . We manage more than 100,000 stock-keeping units (“SKUs”). Product categories include home/garden décor, toys, kitchenware, apparel, and electronics.
As a result, the Company has a present and unconditional right to payment and record the amount due from the customer in accounts receivable. 44 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.
As a result, the Company has a present and unconditional right to payment and record the amount due from the customer in accounts receivable. 42 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.
Our primary strategy is to bring most of our vendors product selections to the customers. We have advanced software that assists us in identifying product gaps so we can keep such products in stock year-round including the entirety of the last quarter (holiday season) of the calendar year (“Q4”).
Our primary strategy is to bring most of our vendors’ product selections to the customers. We have advanced software that assists us in identifying product gaps so we can keep such products in stock year-round including the entirety of the last quarter (holiday season) of the calendar year (“Q4”).
Pursuant to the Wayfair decision, each state enforces sales tax collection at different dates. We collect and remit sales tax in accordance with state regulations. We estimate that as of December 31, 2022, we owed $288,466 in sales taxes, along with penalties and interest.
Pursuant to the Wayfair decision, each state enforces sales tax collection at different dates. We collect and remit sales tax in accordance with state regulations. We estimate that as of December 31, 2023, we owed $288,466 in sales taxes, along with penalties and interest.
A performance obligation is a promise in a contract to transfer a distinct good to the customer and is the unit of account in ASC Topic 606. A contract’s transaction price is recognized as revenue when the performance obligation is satisfied. Each of the Company’s contracts have a single distinct performance obligation, which is the promise to transfer individual goods.
A performance obligation is a promise in a contract to transfer a distinct good to the customer and is the unit of account in ASC Topic 606. A contract’s transaction price is recognized as revenue when the performance obligation is satisfied. Each of the Company’s contracts has a single distinct performance obligation, which is the promise to transfer individual goods.
Foreign Currency and Currency Translation In case of a functional currency other than the U.S. dollar, the functional currency amounts are translated into U.S. dollars at exchange rates in effect at year-end, with resulting translation gains or losses included within other comprehensive income or loss.
Foreign Currency and Currency Translation In case of a functional currency other than the U.S. dollar, the functional currency amounts are translated into U.S. dollars at exchange rates in effect at quarter-end, with resulting translation gains or losses included within other comprehensive income or loss.
Yu entered into a loan agreement of $1,041,353 and converted it into a retroactive interest-bearing (2%) loan with a repayment date of December 31, 2021. On January 18, 2022, the Company repaid the loan in full. Together, Mr. Lai and Ms. Yu hold over 95% of the Company’s outstanding shares. Mr.
Yu entered into a loan agreement of $1,041,353 and converted it into a retroactive 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. Together, Mr. Lai and Ms. Yu hold over 95% of the Company’s outstanding shares. Mr.
The following table shows a summary of our cash flows for the years ended December 31, 2022 and 2021.
The following table shows a summary of our cash flows for the years ended December 31, 2023 and 2022.
A receivable is considered past due if the Company has not received payments based on agreed-upon terms. The Company performs on-going evaluations of its customers and maintains an allowance for bad and doubtful receivables.
A receivable is considered past due if the Company has not received payments based on agreed-upon terms. The Company performs on-going evaluations of its customers and maintains an allowance for bad debt and doubtful receivables as the Company deems necessary or appropriate.
Off-balance sheet financing arrangements We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
As noted in our consolidated financial statements, as of December 31, 2022, we had retained earnings of $1,177,072. Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table shows a comparison of our 2022 and 2021 income statements.
As noted in our consolidated financial statements, as of December 31, 2023, we had retained earnings of $(1,252,622). 37 Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table shows a comparison of our 2023 and 2022 income statements.
Net Cash Provided by (Used in) Financing Activities For the fiscal year ended December 31, 2022, cash provided by financing activities amounted to $5,923,342, as compared to cash used in financing activities of $2,126,177 for 177 the fiscal year ended December 31, 2021.
Net Cash (Used in) Provided by Financing Activities For the fiscal year ended December 31, 2023, cash used in financing activities amounted to $-0-, as compared to cash provided by financing activities of $5,923,342 for the fiscal year ended December 31, 2022.
The loan is subordinated. The annual interest rate is 2% and the repayment date is December 31, 2022. The Company had accrued interest of $120,003 as of December 31, 2022. On December 28, 2022, the Company, Mr. Lai and Ms. Yu agreed to extend the term of the loan, with the new maturity date of December 31, 2024.
The loan is subordinated. The original annual interest rate was 2% and the original 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, with the new maturity date of December 31, 2024. As amended, the annual interest rate of the loan is 5.5%.
Cost of Goods Sold Cost of goods sold for the year ended December 31, 2022 totaled $46,942,770, as compared to $27,984,335 for the year ended December 31, 2021. Cost of goods sold includes the cost of the merchandise sold and shipping costs, as well as estimated losses due to damage to goods.
Cost of Goods Sold Cost of goods sold for the year ended December 31, 2023 totaled $65,606,947, as compared to $46,942,770 for the year ended December 31, 2022. Cost of goods sold includes the cost of the merchandise sold and shipping costs, as well as estimated losses due to damage to goods.
Net Cash Used in Investing Activities For the fiscal year ended December 31, 2022, $339,518 in cash was used in investing activities, as compared to $16,115 cash used in investing activities for the fiscal year ended December 31, 2021.
Net Cash Used in Investing Activities For the fiscal year ended December 31, 2023, $14,823 in cash was used in investing activities, as compared to $339,518 cash used in investing activities for the fiscal year ended December 31, 2022.
From 2013 to 2022, sales grew from $0 to $95,930,091. 38 Competitive advantage Among more than 2 million active third-party sellers on Amazon, we believe we have two main competitive advantages: ● First, we have strong operations and sales teams experienced in listing, shipment, advertising, reconciliation and sales.
Competitive advantage Among more than 2 million active third-party sellers on Amazon, we believe we have two main competitive advantages: ● First, we have strong operations and sales teams experienced in listing, shipment, advertising, reconciliation and sales.
As of December 31, 2022, the Company had $4,329,460 due to related parties. While stockholder payables are non-interest bearing and payable on demand, the Company and stockholders entered into loan agreements for loans with terms over one year. December 2020 Loan On December 30, 2020 and later modified on September 16, 2021, the Company, Mr. Lai and Ms.
While stockholder payables are generally non-interest bearing and payable on demand, the Company and stockholders entered into loan agreements for loans with terms over one year. December 2020 Loan On December 30, 2020 and later modified on September 16, 2021, the Company, Mr. Lai and Ms.
Actual results could materially differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid financial instruments purchased with original maturities of three months or less to be cash and cash equivalents. The carrying amount of cash and cash equivalents approximates fair value.
Actual results could materially differ from those estimates. 41 Cash The Company considers all highly liquid financial instruments purchased with original maturities of three months or less to be cash. The carrying amount of cash approximates fair value. Inventory and Cost of Goods Sold Inventories are stated at the lower of cost or net realizable value.
The advantages of selling via a wholesale model: ● Purchase lower unit quantities with wholesale orders than private label products. ● Selling wholesale is less time intensive and easier to scale than sourcing products via retail arbitrage. ● More brands will want to work with us because we can provide broader Amazon presence.
The advantages of selling via a wholesale model: ● Purchase lower unit quantities with wholesale orders than private label products. ● Selling wholesale is less time intensive and easier to scale than sourcing products via retail arbitrage. ● More brands will want to work with us because we can provide broader Amazon presence. 36 The challenges of selling via a wholesale model: ● Fierce competition on listing for Buy Box on amazon.com (as described below). ● Developing and maintaining relationships with brand manufacturers.
Year Ended December 31, 2022 December 31, 2021 Statement of Cash Flows Net cash (used in) provided by operating activities $ (11,603,176 ) $ 7,764,057 Net cash (used in) investing activities $ (339,518 ) $ (16,115 ) Net cash provided by (used in) financing activities $ 5,923,342 $ (2,126,177 ) Effect of changes in foreign currency rates $ (10,631 ) $ 2,743 Net (decrease) increase in cash $ (6,029,983 ) $ 5,624,508 Cash - beginning of the period $ 10,592,572 $ 4,968,064 Cash - end of the period $ 4,562,589 $ 10,592,572 Net Cash (used in) provided by from Operating Activities For the fiscal year ended December 31, 2022, cash (used in) provided by operating activities amounted to $(11,603,176), as compared to $7,764,057 for the year ended December 31, 2021.
Year Ended December 31, 2023 December 31, 2022 Statement of Cash Flows Net cash used in operating activities $ (2,063,375 ) $ (11,603,176 ) Net cash used in investing activities $ (14,823 ) $ (339,518 ) Net cash (used in) provided by financing activities $ - $ 5,923,342 ) Effect of changes in foreign currency rates $ (238 ) $ (10,631 ) Net decrease in cash $ (2,078,436 ) $ (6,029,983 ) Cash - beginning of the period $ 4,562,589 $ 10,592,572 Cash - end of the period $ 2,484,153 $ 4,562,589 39 Net Cash used in from Operating Activities For the fiscal year ended December 31, 2023, cash used in by operating activities amounted to $2,063,375, as compared to $11,603,176 for the year ended December 31, 2022.
In the past, where the Company has not collected these taxes, the Company has made estimates of amounts owed and accrued these on the financial statements. The Company has made significant progress of filing historical sales tax returns and target to complete filings for all jurisdictions in 2023.
In the past, where the Company has not collected these taxes, the Company has made estimates of amounts owed and accrued these on the financial statements. The Company has made some progress of filing historical sales tax returns and targets completion of filings for all jurisdictions in 2024. Income Taxes Income tax expense includes U.S.
Property and Equipment Property, plant, and equipment are recorded at cost and depreciated or amortized over the estimated useful life of the asset using the straight-line method.
Cost of goods sold is comprised of the book value of inventory sold to customers during the reporting period. Property and Equipment Property, plant, and equipment are recorded at cost and depreciated or amortized over the estimated useful life of the asset using the straight-line method.
For the Year Ending December 31, Amount 2023 $ 399,962 2024 68,648 2025 - 2026 and thereafter - Total minimum lease payments 468,610 Less: effect of discounting (18,449 ) Present value of the future minimum lease payment 450,161 Less: operating lease liabilities-current (385,216 ) Total operating lease liabilities-non-current $ 64,945 Sales Taxes We make an assessment of sales tax payable, including any related interest and penalties, and accrue these estimates on the financial statements.
For the Year Ending December 31, Amount 2024 $ 83,358 2025 2,449 2026 - 2027 and thereafter - Total minimum lease payments 85,807 Less: effect of discounting (1,175 ) Present value of the future minimum lease payment 84,632 Less: operating lease liabilities-current (82,269 ) Total operating lease liabilities-non-current $ 2,363 Sales Taxes We make an assessment of sales tax payable, including any related interest and penalties, and accrue these estimates on the financial statements.
As amended, the annual interest rate of the loan is 5.5%. Leases The Company has three operating leases (Flywheel has three offices lease in Taiwan). The respective lease terms are January 1, 2022 to December 31, 2023, June 1, 2022 to May 31, 2024, and August 1, 2022 to July 31, 2024, respectively.
Leases The Company has three operating leases (Flywheel has three offices lease in Taiwan). The respective lease terms are June 1, 2022 to May 31, 2024, August 1, 2022 to July 31, 2024 and February 9, 2023 to March 8, 2025, respectively.
As of December 31, 2022, there was an outstanding balance of deferred interest of $27,996. Taishin International Bank On August 18, 2022, Flywheel, signed a line of credit agreement in the amount of $6,940,063 with Taishin International Bank (“Taishin”). The line of credit matures on August 30, 2023.
Taishin International Bank On August 18, 2022, Flywheel, entered into a line of credit agreement in the amount of $6,940,063 with Taishin International Bank (“Taishin”). The line of credit matured on August 30, 2023. As of December 31, 2023, the outstanding balance under the Taishin line of credit was $652,422, and bears interest at a rate of 3.2% per annum.
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. Cost of goods sold is comprised of the book value of inventory sold to customers during the reporting period.
Cost is principally determined on a first-in first-out basis. The Company’s costs include the amounts it pays manufacturers for products, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from its manufacturers to its warehouses.
We had cash of $4,562,589 and $10,592,572 as of December 31, 2022 and 2021, respectively. Our primary uses of cash have been for inventory, payments to Amazon related to sales and shipping of products, for services provided, payments for marketing and advertising and salaries paid to our employees.
Our primary uses of cash have been for inventory, payments to Amazon related to sales and shipping of products, for services provided, payments for marketing and advertising and salaries paid to our employees. We have received funds from the sales of products that we sell online.
Total Comprehensive (Loss) Income Total comprehensive (Loss) income for the year ended December 31, 2022 was $(1,492,794), as compared to $4,779,083 for the year ended December 31, 2021, representing a decrease in total comprehensive income of $6,271,877. The decrease was driven by an increase in our Cost of goods sold and Operating Expenses for the year ended December 31, 2022.
Total Comprehensive Loss Total comprehensive loss for the year ended December 31, 2023 was $2,432,291, as compared to $1,492,794 for the year ended December 31, 2021. The increase in total comprehensive loss was driven by an increase in the Company’s operating expenses in 2023, compared to 2022.
The BofA Note matures on June 18, 2024 and bears interest at a rate of 8.11% per annum. The monthly payment is $15,963, consisting of $11,398 of principal and $4,565 of interest. As of December 31, 2022, the aggregate principal amount of the BofA Note outstanding was $-.
The monthly payment is $15,963, consisting of $11,398 of principal and $4,565 of interest. As of December 31, 2023, the aggregate principal amount of the BofA Note outstanding was $-0-. As of December 31, 2023,there was an outstanding balance of deferred interest of $27,996.
It is expected that COVID-19 might have some impact, though it is not anticipated to be significant. Liquidity and Capital Resources Cash Flows for the Years Ended December 31, 2022 and 2021 Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements.
Liquidity and Capital Resources Cash Flows for the Years Ended December 31, 2023 and 2022 Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had cash of $2,484,153 and $4,562,589 as of December 31, 2023 and 2022, respectively.
Our Financial Position For the fiscal years ended December 31, 2022 and 2021, we generated net revenues of $95,930,091 and $62,792,981, respectively, and reported net (loss) income of $(1,477,623) and $4,783,773, respectively, and cash flow (used in) provided by operating activities of $(11,603,176) and $7,791,069, respectively.
During these times, we avoid matching their prices. This strategy allows us to stay profitable. Our Financial Position For the fiscal years ended December 31, 2023 and 2022, we generated net revenues of $132,124,202 and $95,930,091, respectively, and reported net loss of $2,429,694 and $1,477,623, respectively, and cash flow used in operating activities of $2,063,375 and $11,603,176, respectively.
The Company has made significant progress filing historical sales tax returns and target to complete filings for all jurisdictions in 2023. 43 Critical Accounting Policies The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported.
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. 41 COVID-19 In March 2020, the World Health Organization recognized the novel strain of coronavirus (COVID-19) as a pandemic.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual Obligations Except as set forth below, we do not have any long-term capital lease obligations, operating lease obligations or long-term liabilities.
Year Ended December 31, 2022 December 31, 2021 Statement of Operations Data Total revenues $ 95,930,091 $ 62,792,981 Total cost of goods sold (46,942,770 ) (27,984,335 ) Gross profit 48,987,321 34,808,646 Total operating expenses 50,906,679 29,334,497 (Loss) Income from operations (1,919,358 ) 5,474,149 Total other non-operating income (20,428 ) 18,829 Income tax provisions 462,163 (709,205 ) Net (Loss) income (1,477,623 ) 4,783,773 Other comprehensive loss (15,171 ) (4,690 ) Total comprehensive (Loss) income $ (1,492,794 ) $ 4,779,083 39 Revenue We generated $95,930,091 in 2022 as compared to $$62,792,981 in revenue in 2021.
Year Ended December 31, 2023 December 31, 2022 Statement of Operations Data Total revenues $ 132,124,202 $ 95,930,091 Total cost of goods sold (65,606,947 ) (46,942,770 ) Gross profit 66,517,255 48,987,321 Total operating expenses 69,520,678 50,903,107 Loss from operations (3,003,423 ) (1,915,786 ) Total other non-operating income (157,031 ) (24,000 ) Income tax provisions 730,760 462,163 Net loss (2,429,694 ) (1,477,623 ) Other comprehensive loss (2,597 ) (15,171 ) Total comprehensive loss $ (2,432,291 ) $ (1,492,794 ) Revenue We generated $132,124,202 in 2023, as compared to $95,930,091 in revenue in 2022.
The Company was founded in 2013 by Sam Lai and Maggie Yu. With their vision, leadership, and software development skills, the Company grew rapidly.
(“Flywheel”), to provide business operating consulting services, exclusively to Hour Loop. On April 7, 2021, Hour Loop converted from a Washington corporation to a Delaware corporation. The Company was founded in 2013 by Sam Lai and Maggie Yu. With their vision, leadership, and software development skills, the Company grew rapidly. From 2013 to 2023, sales grew from $0 to $132,124,202.
The growth in revenue was $33,137,110 or 52.77%. We attribute this growth to our continued growth and maturity in our operating model, which was enhanced by a favorable e-commerce environment. Our total orders in 2022 were approximately 3,879,711, as compared to 2,210,629 orders in 2021. This represented an increase of 75.50%.
This represents an increase in revenues of $36,194,111 or 37.73%. We attribute this increase to our continued growth and maturity in our operating model, despite the overall e-commerce traffic slowdown and intense competition. Our total orders in 2023 were approximately 5,749,107, as compared to 3,879,711 orders in 2022, representing an increase of 48.18%.
Formation We were originally incorporated under the laws of the State of Washington on January 13, 2015. In 2019, we formed a wholly owned subsidiary, Flywheel Consulting Ltd. (“Flywheel”), to provide business operating consulting services, exclusively to Hour Loop. On April 7, 2021, Hour Loop converted from a Washington corporation to a Delaware corporation.
Amazon accounted for nearly 37.6% of all e-commerce in the United States and that makes Amazon the biggest ecommerce giant currently in the market. Formation We were originally incorporated under the laws of the State of Washington on January 13, 2015. In 2019, we formed a wholly owned subsidiary, Flywheel Consulting Ltd.
Contractual Obligations Except as set forth below, we do not have any long-term capital lease obligations, operating lease obligations or long-term liabilities. Bank of America Loan On June 18, 2019, the Company issued a Promissory Note (the “BofA Note”) in the amount of $785,000 to Bank of America (the “Lender”) for a loan in the amount of $785,000.
Bank of America Loan On June 18, 2019, the Company issued a Promissory Note (the “BofA Note”) in the amount of $785,000 to Bank of America for a loan in the amount of $785,000. The BofA Note matures on June 18, 2024 and bears interest at a rate of 8.11% per annum.
Consumers spent $960.15 billion online with U.S. merchants in 2021, which is around 14.63% of total retail sales for the year compared to 14.60% in 2020. Amazon accounted for nearly 40% of all e-commerce in the United States and that makes Amazon the biggest ecommerce giant currently in the market.
Market Description/Opportunities Total U.S. retail sales increased 2% to $7.24 trillion in 2023 from $7.09 trillion in 2022. Consumers spent $1,118.68 billion online with U.S. merchants in 2023, which is around 15.45% of total U.S. retail sales for the year compared to 14.66% in 2022.
This increase in revenue was offset by a corresponding increase in cost of goods sold and an increase in operating expenses of $21,572,182.
Despite the increase in revenue to $132,124,202 for the year ended December 31, 2023, as compared to $95,930,091 for the year ended December 31, 2022, the revenue increase was offset by a corresponding increase in cost of goods sold of $18,664,177 and an increase in operating expenses of $18,617,571.
The cash provided by financing activities in 2022 related to the proceeds of the Company’s initial public offering of $6,156,360. The cash used in financing activities in 2021 was mainly due to a distribution to stockholders of $6,302,418, offset by $4,170,418 in long-term debt obtained from related parties.
The cash provided by financing activities in 2022 related to the proceeds of the Company’s initial public offering of $6,156,360. Off-balance sheet financing arrangements We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements.
Removed
The challenges of selling via a wholesale model: ● Fierce competition on listing for Buy Box on amazon.com (as described below). ● Developing and maintaining relationships with brand manufacturers. Market Description/Opportunities Total retail sales increased 18% to $6.56 trillion in 2021 from $5.56 trillion in 2020.
Added
This surge in orders has played a pivotal role in driving the overall revenue growth. The substantial increase in order quantity indicates a rising demand for our products, leading to a corresponding increase in revenue generated from these sales. As a result, the increase in orders has directly contributed to the overall growth in the Company’s revenue during the period.
Removed
During these times, we avoid matching their prices. This strategy allows us to stay profitable.
Added
The 48.18% increase in orders reflects strong customer demand, but our pricing strategy, including competitive pricing pressure and discounts offered during the period, resulted in lower prices for products sold. As a consequence, even with the significant order volume increase, the revenue growth was slightly shy of fully matching this proportion.
Removed
The increase in cost of goods sold was due to a greater number of items sold as a result of greater number of orders in 2022. Operating Expense Operating expenses for the year ended December 31, 2022 totaled $50,906,679, a $21,572,182 increase from the $29,334,497 of operating expenses for the year ended December 31, 2021.
Added
The rise in the cost of goods sold can be attributed to an increase in the overall cost of doing business, particularly with increased product costs and other expenses within the supply chain.
Removed
This change was caused by an increase in platform fees paid to Amazon, higher employee compensation and IPO related costs. The Amazon fees are proportional to the revenue. The increase in revenue in 2022 over 2021 drove this increase in platform fees.
Added
Operating Expense Operating expenses for the year ended December 31, 2023 totaled $69,520,678, representing a $18,617,571, or 36.57%, increase from the $50,903,107 of operating expenses for the year ended December 31, 2022. This change was caused by an increase in platform fees and fees paid to Amazon. The Amazon fees are proportional to revenues.
Removed
Impacts to Results of Operations from COVID-19 The Company’s services, operating results and financial performance could be adversely affected by the overall impacts of the pandemic. Management has determined that there is no material uncertainty that casts substantial doubt on the Company’s ability to continue as a going concern.
Added
In 2023, Amazon made strategic adjustments to its Fulfillment by Amazon (“FBA”) fees and costs, which had a direct impact on our operating expenses.
Removed
We have received funds from the sales of products that we sell online.
Added
This was driven by our net loss of $2,429,694 and as we continue to invest in inventory growth while at the same time, pay off accounts payable for the year ended December 31, 2022, as compared to $1,477,623 for the same period in 2022.
Removed
This was driven by our net (loss) income of $(1,477,623), as compared to $4,783,773 in 2021. The decrease in net income was driven by an increase in revenue from $95,930,091 in 2022, as compared to $62,792,981 in 2021.
Added
On August 11, 2023, the term of the loan was extended for an additional year, revising the maturity date to August 30, 2024. The annual interest rate remains at 3.2%.
Removed
This COVID-19 outbreak has severely restricted the level of economic activity around the world.
Added
Also, Flywheel has accrued interest expense of $1,715 as of December 31, 2023. 40 Affiliated Loans From time to time, the Company receives loans and advances from its stockholders to fund its operations. As of December 31, 2023, the Company had $4,170,418 due to related parties.
Removed
In response to this COVID-19 outbreak, the governments of many countries, states, cities, and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes.
Added
The Company has made some progress filing historical sales tax returns and targets completion of filings for all jurisdictions in 2024. Critical Accounting Policies The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). U.S.
Removed
The Company’s services, operating results and financial performance could be adversely affected by the overall impacts of the pandemic. Management has determined that there is no material uncertainty that casts substantial doubt on the Company’s ability to continue as a going concern. It is expected that COVID-19 might have some impact, though it is not anticipated to be significant.
Added
(federal and state) and foreign income taxes. The Company also complied with state tax regulations, including those relating to California franchise tax.
Removed
As of December 31, 2022, the outstanding balance under the Taishin line of credit was $652,316, and bears interest at a rate of 2.6% per annum. Also, Flywheel has accrued interest expense of $1,440 as of December 31, 2022.
Removed
PPP Loan On April 7, 2020, the Company issued a promissory note (the “PPP Note”) in the amount of $27,012 under the Paycheck Protection Program (“PPP”) to JP Morgan Chase Bank, N.A. (the “Lender”).
Removed
The PPP, established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.
Removed
The PPP Note was set to mature on April 7, 2022, and bore interest at a rate of 0.98% per annum, payable monthly commencing October 5, 2020, following an initial deferral period as specified under the PPP loan. The PPP Note could be prepaid at any time prior to maturity with no prepayment penalties.
Removed
The Paycheck Protection Program Flexibility Act (the “Flexibility Act”), signed on June 5, 2020, amended certain provisions of the PPP, including the deferral period and repayment terms. The Flexibility Act extends the deferral period of payments of PPP loan principal, interest, and fees to the date when the U.S.
Removed
Small Business Administration makes a final decision on the borrower’s application for forgiveness, or 10 months after the last day of the covered period if a borrower has not applied for forgiveness (whichever is earlier). This extension applies regardless of the terms of the PPP and does not require an amendment of the PPP.
Removed
As such, the Company did not make any payments on the PPP Note during 2020. Under the terms of the PPP loan, up to the entire amount of principal and accrued interest may be forgiven to the extent PPP loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S.
Removed
On May 6, 2021, the entire amount of principal and accrued interest on the PPP Note was forgiven. 42 Conversion of S Corporation to C Corporation On June 30, 2021, the Company completed a corporate reorganization to convert its status from a S corporation to a C corporation with an effective date of July 27, 2021.
Removed
Retained earnings in the amount of $4,170,418 were distributed by the Company to the S corporation stockholders ($2,085,209 to each of Mr. Lai and Ms. Yu) on July 27, 2021. Affiliated Loans From time to time, the Company receives loans and advances from its stockholders to fund its operations.
Removed
Inventory and Cost of Goods Sold Inventories are stated at the lower of cost or net realizable value. Cost is principally determined on a first-in first-out basis.
Removed
Income Taxes Prior to 2021, the Company, with the stockholders’ consent, elected to be taxed as an “S corporation” under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and comparable state income tax law.
Removed
As an S corporation, the Company was generally not subject to corporate income taxes, and the Company’s net income or loss is reported on the individual tax return of the stockholders of the Company. On July 27, 2021, the Company’s tax status changed to a C corporation.

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