Hour Loop(US:HOUR)2025-05-12 20:10PART I - FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited consolidated financial statements for Q1 2025 show decreased net income and total assets, with a shift to negative operating cash flow Consolidated Balance Sheets Total assets decreased to $19.08 million as of March 31, 2025, while total liabilities also decreased, leading to an increase in stockholders' equity Consolidated Balance Sheet Highlights (in U.S. Dollars) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash | $1,260,122 | $2,119,581 | | Inventory, net | $15,889,482 | $14,640,632 | | Total current assets | $18,158,531 | $18,738,654 | | TOTAL ASSETS | $19,077,473 | $19,966,964 | | Liabilities & Equity | | | | Accounts payable | $6,859,536 | $4,176,305 | | Credit cards payable | $2,404,365 | $3,389,880 | | Due to related parties | $2,660,418 | $4,192,995 | | Total liabilities | $13,261,750 | $14,807,222 | | Total stockholders' equity | $5,815,723 | $5,159,742 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $19,077,473 | $19,966,964 | Consolidated Statements of Operations and Comprehensive Income (Loss) Net revenues increased to $25.84 million in Q1 2025, but gross profit and net income decreased, resulting in lower basic and diluted EPS Q1 2025 vs. Q1 2024 Performance (in U.S. Dollars) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenues, net | $25,837,090 | $24,681,122 | | Gross profit | $14,145,298 | $14,452,206 | | Income from operations | $920,865 | $1,538,172 | | Net income | $654,517 | $1,065,814 | | Basic and diluted EPS | $0.02 | $0.03 | Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $5.82 million by March 31, 2025, primarily due to net income and stock-based compensation, partially offset by currency translation loss - Stockholders' equity at March 31, 2025 was $5,815,723, up from $5,159,742 at December 31, 202414 - The change in equity for Q1 2025 was driven by net income of $654,517, stock-based compensation of $15,000, and a currency translation loss of $13,53614 Consolidated Statements of Cash Flows Operating activities shifted to a net cash outflow of $23,891 in Q1 2025, leading to a decrease in total cash to $1.26 million at period-end Cash Flow Summary (in U.S. Dollars) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(23,891) | $492,943 | | Net cash used in investing activities | $(720) | $(17,798) | | Net cash used in financing activities | $(839,000) | $0 | | Net change in cash | $(859,459) | $437,927 | | Cash at end of period | $1,260,122 | $2,922,080 | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, including the company's single e-commerce segment, 99% revenue reliance on Amazon, and inventory valuation methods - The company operates as a technology-enabled consumer products company, primarily selling through online retail channels like Amazon, which constitutes a single e-commerce segment19 - Approximately 99% of the company's revenue for the three months ended March 31, 2025 and 2024 was generated through the Amazon sales platform56 Inventory Breakdown (in U.S. Dollars) | Component | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Inventory | $12,499,473 | $12,716,062 | | Inventory-in-transit | $3,887,356 | $2,484,863 | | Allowance | $(497,347) | $(560,293) | | Total | $15,889,482 | $14,640,632 | Revenue Disaggregation (in U.S. Dollars) | Region/Type | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue-U.S. | $26,602,547 | $25,459,691 | | Revenue-International | $951,439 | $869,695 | | Revenue-Other | $302,255 | $120,556 | | Sales returns & Discounts | $(2,019,151) | $(1,768,820) | | Total Net Revenue | $25,837,090 | $24,681,122 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 revenue growth driven by order volume, decreased net income due to higher costs, and strategic adjustments to inventory policy amid tariff uncertainty - The company operates a wholesale (reselling) model, primarily as a third-party seller on Amazon, managing over 100,000 SKUs105106 - Competitive advantages are cited as strong operations teams and a proprietary software system for data analysis and identifying product gaps112 - In response to tariff volatility, the company expanded its inventory holding policy to 3-6 months, suspended container exports from China, and implemented measured price increases on select goods114115116117 Results of Operations Q1 2025 net revenues increased 4.68% to $25.8 million due to higher order volume, but increased cost of goods sold led to a 38.9% decrease in comprehensive income Q1 2025 vs Q1 2024 Key Metrics | Metric | Q1 2025 | Q1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $25,837,090 | $24,681,122 | +4.68% | | Total Orders | 1,229,792 | 1,123,204 | +9.49% | | Cost of Goods Sold | $11,691,792 | $10,228,916 | +14.3% | | Total Comprehensive Income | $640,981 | $1,049,281 | -38.9% | Liquidity and Capital Resources Cash decreased to $1.26 million as of March 31, 2025, with operating cash flow turning negative, primarily due to working capital changes and debt repayments Cash and Cash Flow Summary (in U.S. Dollars) | Metric | As of/For the Three Months Ended March 31, 2025 | As of/For the Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Cash | $1,260,122 | $2,922,080 | | Net cash (used in) provided by operating activities | $(23,891) | $492,943 | | Net cash used in financing activities | $(839,000) | $0 | - The company has no off-balance sheet financing arrangements135 Contractual Obligations Key contractual obligations include a $603,227 line of credit maturing in May 2025 and $2.66 million in related-party loans extended to December 2025 - Flywheel subsidiary has a line of credit with Taishin International Bank, with an outstanding balance of $603,227 and a maturity date of May 23, 2025137138 - The company owes $2,660,418 to related parties (key executives/stockholders), with the loan term extended to December 31, 2025, at a 5.5% interest rate139140 Critical Accounting Policies and Estimates This section details critical accounting policies, including revenue recognition at shipment, inventory valuation at lower of cost or net realizable value, and the company's single e-commerce segment - Revenue is recognized when control of the product is transferred to the customer, typically at the shipment date, and the company has determined it is the principal in its transactions on third-party platforms159160 - Inventory is stated at the lower of cost (FIFO basis) or net realizable value, with an allowance recorded for SKUs not sold for more than one year146148 - The company has determined it has only one operating segment: online retail (e-commerce)165166 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company for the current reporting period - Not applicable177 Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of March 31, 2025178 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting179 PART II - OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings expected to materially affect its business or financial position - To the knowledge of management, there are no pending legal proceedings against the company that would have a material effect on the business182 Risk Factors As a smaller reporting company, Hour Loop is not required to disclose material changes to risk factors in this quarterly report - The Company is a smaller reporting company and is not required to disclose material changes to its risk factors in this quarterly report183 Unregistered Sales of Equity Securities and Use of Proceeds On April 1, 2025, the company issued 1,750 shares of common stock to five executives and directors as compensation, exempt from registration - On April 1, 2025, the Company issued 1,750 shares of common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Alan Gao and Hillary Bui as compensation for services, with the issuance exempt from registration under Section 4(a)(2) of the Securities Act184 Defaults Upon Senior Securities No defaults on any material payments occurred during the period covered by this report - No defaults in any material payments occurred during the covered period185 Mine Safety Disclosures This section is not applicable to the company - Not applicable186 Other Information No other material information is reported, with no changes to board nominee procedures or Rule 10b5-1 trading plans by directors or officers - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the last fiscal quarter188 Exhibits This section lists exhibits filed with Form 10-Q, including officer certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1) and various Inline XBRL data files190