What changed in Hour Loop, Inc's 10-K — 2023 vs 2024

Item 1. Financial Statements. HOUR LOOP, INC. CONSOLIDATED BALANCE SHEETS (In U.S.

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.

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.

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.

CONSOLIDATED 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.

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.

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).

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.

All material inter-company accounts and transactions were eliminated in consolidation. Foreign Currency and Currency Translation - The assets and liabilities of Flywheel, having a functional currency other than the U.S. dollar, are translated into U.S. dollars at exchange rates in effect at period-end, with resulting translation gains or losses included within other comprehensive income or loss.

Revenues and expenses are translated into U.S. dollars at average monthly rates of exchange in effect during each period. All of the Company’s foreign operations use their local currency as their functional currency.

Currency gains or losses resulting from transactions executed in currencies other than the functional currency are included in General and administrative in the consolidated statement of operations and other comprehensive income.

The relevant exchange rates are listed below: Schedule of Foreign Currency Exchange Rates December 31, December 31, 2023 2022 Period NTD: USD exchange rate 30.655 30.660 Period Average NTD: USD exchange rate 31.221 30.618 F-8 HOUR LOOP, INC.

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.

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.

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.

Management believes that there is sufficient working capital to sustain operations longer than twelve months, and the majority shareholders are committed to provide additional funding when needed.

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.

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

Reclassification - Certain amounts in the consolidated financial statements for the prior financials have been reclassified to conform to the current interim review presentation. These reclassifications had no impact on consolidated net earnings, consolidated financial position, or consolidated cash flows.

Proposed changes involve presenting accrued interest as a current liability, foreign currency gain or loss as a General and administrative and segregating account payable into separate categories: accounts payable and credit cards payable. 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. Our cash is held in the bank and covered by the Federal Deposit Insurance Corporation (“FDIC”), subject to applicable limits. Deposits are insured up to $ 250,000 per depositor, per FDIC-insured bank, per ownership category.

Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable are stated at historical cost less allowance for doubtful accounts.

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.

The evaluation is performed on a collective basis where similar characteristics exist, primarily based on similar services or products offerings. We adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements and primarily resulted in new/enhanced disclosures only.

A receivable is considered past due if the Company has not received payments based on agreed-upon terms. The Company generally does not require any security or collateral to support its receivables. The collection is primarily through Amazon and the collection period is usually less than 7 days.

The Company performs on-going evaluations of its customers and maintains an allowance for credit losses as the Company deems necessary or appropriate. As of December 31, 2023 and 2022, the Company did not deem it necessary to have an allowance for bad debt or doubtful accounts. F-9 HOUR LOOP, INC.

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’s costs include the amounts it pays manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from its manufacturers to its warehouses, as applicable.

The merchandise with terms of FOB shipping point from vendors was recorded as the inventory-in-transit when inventory left the shipping dock of the vendors but not yet reached the receiving dock of the Company. Management continually evaluates its estimates and judgments including those related to merchandise inventory.

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

Policy for inventory allowance: The Company writes down the cost of obsolete and slow-moving inventories to the estimated net realizable value, based on inventory obsolescence trends, historical experience, forecasted consumer demand and application of the specific identification method.

As of 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.

Property and Equipment - Property and equipment are recorded at cost and depreciated or amortized over the estimated useful life of the asset using the straight-line method. The Company elected to expense any individual property and equipment items under $ 2,500 . The majority of the Company’s property and equipment is computers, and the estimated useful life is 3 years.

Impairment of Long lived assets - In accordance with ASC 360-10-35-17, if the carrying amount of an asset or asset group (in use or under development) is evaluated and found not to be fully recoverable (the carrying amount exceeds the estimated gross, undiscounted cash flows from use and disposition), then an impairment loss must be recognized.

The impairment loss is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value. The Company did not record any impairment charges for the years ended December 31, 2023 and 2022. Leases - Leases are classified at lease commencement date as either a finance lease or an operating lease.

A lease is a finance lease if it meets any of the following criteria: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (b) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (c) the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset or (e) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

When none of the foregoing criteria is met, the lease shall be classified as an operating lease. The Company typically utilizes operating leases for its office space requirements. This means that the Company leases office space, categorizing the lease arrangement as an operating lease.