Hour Loop(US:HOUR)2024-05-06 12:21PART I - FINANCIAL INFORMATION Financial Statements (unaudited) For the first quarter of 2024, Hour Loop, Inc. reported a significant turnaround, posting a net income of $1.07 million compared to a net loss of $1.24 million in the same period last year. This was driven by a 17.2% increase in net revenues to $24.7 million. The balance sheet shows total assets of $16.7 million and total liabilities of $11.2 million as of March 31, 2024. Cash flow from operations improved dramatically to a positive $0.49 million from a negative $3.29 million year-over-year Consolidated Balance Sheets As of March 31, 2024, the company's total assets decreased to $16.7 million from $19.6 million at the end of 2023, primarily due to a reduction in inventory and credit cards payable. Total liabilities also decreased significantly to $11.2 million from $15.1 million, while stockholders' equity increased to $5.5 million from $4.5 million, reflecting the quarter's net income Consolidated Balance Sheet Highlights (in U.S. Dollars) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,922,080 | $2,484,153 | | Inventory, net | $11,618,489 | $14,276,555 | | Total current assets | $15,506,968 | $18,013,331 | | Total Assets | $16,745,490 | $19,550,280 | | Liabilities & Equity | | | | Accounts payable | $3,420,221 | $3,812,954 | | Credit cards payable | $1,861,435 | $4,404,445 | | Due to related parties | $4,170,418 | $4,170,418 | | Total liabilities | $11,207,312 | $15,097,383 | | Total stockholders' equity | $5,538,178 | $4,452,897 | | Total Liabilities & Equity | $16,745,490 | $19,550,280 | Consolidated Statements of Operations and Comprehensive Income (Loss) The company achieved a significant turnaround in profitability for the three months ended March 31, 2024. Net revenues grew 17.2% year-over-year to $24.7 million. Gross profit increased substantially to $14.5 million from $9.6 million. The company reported net income of $1.07 million, a stark contrast to the net loss of $1.24 million in the prior-year period, resulting in an EPS of $0.03 versus ($0.04) Statement of Operations Summary (in U.S. Dollars) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Revenues, net | $24,681,122 | $21,067,609 | | Gross profit | $14,452,206 | $9,615,702 | | Income (loss) from operations | $1,538,172 | $(1,612,259) | | Net income (loss) | $1,065,814 | $(1,235,244) | | Basic and diluted EPS | $0.03 | $(0.04) | Consolidated Statements of Cash Flows For the first quarter of 2024, net cash provided by operating activities was $492,943, a significant improvement from the $3,289,076 used in the same period in 2023. This positive shift was primarily driven by the return to profitability and favorable changes in working capital, particularly a smaller increase in inventory and a decrease in credit card payables compared to the prior year. The company's cash and cash equivalents increased to $2.9 million at the end of the period Statement of Cash Flows Summary (in U.S. Dollars) | Cash Flow Activity | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $492,943 | $(3,289,076) | | Net cash used in investing activities | $(17,798) | $(3,379) | | Net change in cash and cash equivalents | $437,927 | $(3,287,798) | | Cash and cash equivalents at end of period | $2,922,080 | $1,274,791 | Notes to Unaudited Consolidated Financial Statements Key notes highlight that the company operates as a single e-commerce segment, heavily reliant on the Amazon platform, which accounted for approximately 99% of revenue in Q1 2024. The company has outstanding loans from related parties totaling $4.17 million with a 5.5% interest rate, maturing at the end of 2024. Inventory allowance for obsolete items was $0.64 million. The company also has an outstanding balance of $625,978 on a line of credit with Taishin International Bank - The company operates as a technology-enabled consumer products company, primarily selling through online retail channels like Amazon, Walmart, and its own website. It functions as a single segment: online retail (e-commerce)18 - The business is highly dependent on the Amazon sales platform, which provided approximately 99% of revenue for the three months ended March 31, 202465 - As of March 31, 2024, the company had an outstanding loan of $4,170,418 due to its CEO and a board member. The loan has a 5.5% annual interest rate and matures on December 31, 202499100 - The company has a line of credit with Taishin International Bank, with an outstanding balance of $625,978 as of March 31, 2024. The line of credit matures on August 30, 2024, and bears a 3.2% annual interest rate8788 - An inventory allowance of $637,058 was recorded as of March 31, 2024, for obsolete and slow-moving inventory74 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 17.15% revenue growth in Q1 2024 to a 23.1% increase in total orders, reflecting continued growth in its operating model despite competitive pressures. The company turned a profit of $1.07 million compared to a loss of $1.24 million in Q1 2023. Operating expenses rose by 15.02%, mainly due to higher platform fees proportional to revenue. The company's liquidity improved, with cash from operations turning positive. Key financial obligations include a $4.17 million loan from affiliated parties and a line of credit from Taishin Bank Overview Hour Loop operates as an online retailer primarily on Amazon, using a wholesale/reselling business model. The company manages over 100,000 SKUs across various categories. Its competitive advantages are its experienced operations and sales teams and a proprietary software system that optimizes operations and identifies product gaps. The company has grown sales from $0 in 2013 to over $132 million in 2023 - The company's business model is wholesale reselling, primarily as a third-party seller on Amazon, with minor operations on Walmart.com and its own website131132 - Key competitive advantages include strong operations teams and a proprietary software system for data analysis and operational optimization138 - Sales grew from $0 in 2013 to $132,124,202 in 2023135 Results of Operations For Q1 2024, revenues increased by 17.15% to $24.7 million, driven by a 23.1% increase in order volume. Despite the higher order count, revenue growth was tempered by competitive pricing and discounts. Cost of goods sold decreased, contributing to a significant rise in gross profit. Operating expenses increased by 15.02% due to higher platform fees associated with increased sales and changes in Amazon's FBA fee structure - Revenues increased by $3.6 million (17.15%) YoY, attributed to a 23.1% increase in total orders (1,123,204 in Q1 2024 vs. 912,444 in Q1 2023)141 - Operating expenses rose by $1.7 million (15.02%) YoY, primarily due to increased platform fees proportional to revenue and adjustments in Amazon's FBA fees144 Q1 2024 vs Q1 2023 Performance | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total revenues | $24,681,122 | $21,067,609 | | Gross profit | $14,452,206 | $9,615,702 | | Income (loss) from operations | $1,538,172 | $(1,612,259) | | Net income (loss) | $1,065,814 | $(1,235,244) | Liquidity and Capital Resources The company's liquidity improved, with cash increasing to $2.9 million as of March 31, 2024. Net cash from operating activities was positive at $0.49 million, a significant reversal from a $3.29 million use of cash in the prior-year quarter. The company has no outstanding principal on its Bank of America loan but has a $625,978 balance on its Taishin Bank line of credit and a $4.17 million loan from affiliated parties, both maturing in 2024 - Cash provided by operating activities was $492,943 for Q1 2024, compared to cash used of $(3,289,076) in Q1 2023, driven by net income and working capital changes153 - The company has a $4,170,418 loan from its principal stockholders, with an amended interest rate of 5.5% and a maturity date of December 31, 2024163165 - The outstanding balance under the Taishin International Bank line of credit was $625,978 as of March 31, 2024, with the facility maturing on August 30, 2024161162 - The company has four operating leases for offices in Taiwan with total future minimum lease payments of $171,323167168 Critical Accounting Policies and Estimates The company's critical accounting policies include revenue recognition under ASC Topic 606, where it acts as the principal in sales transactions on platforms like Amazon. Inventory is valued at the lower of cost or net realizable value, with a specific policy for writing down obsolete and slow-moving stock. The company also details its policies for leases, accounts receivable, and fair value measurement, noting no material impairment charges were recorded - Revenue is recognized when control of the product is transferred to the customer, typically at the shipment date. The company is considered the principal in its transactions on the Amazon platform187188 - The company writes down the cost of obsolete and slow-moving inventories. A full inventory allowance is recorded for any SKU not sold for more than one year. As of March 31, 2024, this allowance was $637,058176 - The company's business is highly reliant on Amazon, which accounted for approximately 99% of revenue in Q1 2024. All accounts receivable are held by Amazon200201 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company for this reporting period - Not applicable208 Controls and Procedures Management, including the CEO and Interim CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024. There were no material changes to the company's internal control over financial reporting during the quarter - The CEO and Interim CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2024209 - No changes occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting210 PART II - OTHER INFORMATION Legal Proceedings The company reports that it is not currently involved in any legal proceedings that would have a material effect on its business, financial position, or results of operations - There are no pending legal proceedings against the company that are expected to have a material effect on its business or financials212 Risk Factors As a smaller reporting company, Hour Loop is not required to disclose material changes to the risk factors previously reported in its Annual Report on Form 10-K - As a smaller reporting company, no disclosure of material changes to risk factors is required213 Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable for the reporting period - Not applicable214 Defaults Upon Senior Securities The company reports that there have been no defaults on any material payments during the quarter - No material payment defaults occurred during the covered period215 Other Information The company states there have been no material changes to the procedures for security holders to recommend board nominees. Additionally, no director or officer adopted or terminated any Rule 10b5-1 trading arrangements during the last fiscal quarter - No director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the last fiscal quarter219 Exhibits The report lists several exhibits filed, including the Policy on Insider Trading, certifications by the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - Exhibits filed include certifications under Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as XBRL data files220