# Hour Loop, Inc. (HOUR) 10-Q SEC filing - Q2 FY2026
- Filed: Aug 11, 2026, 4:32 PM EDT
- Fiscal quarter: Q2 FY2026
- Calendar quarter: Q2 2026
- Accession: 0001493152-26-037151
- OpenCapital page: https://www.opencapital.sh/filings/0001493152-26-037151
- Markdown URL: https://www.opencapital.sh/filings/0001493152-26-037151.md
- Official SEC filing index: https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/0001493152-26-037151-index.htm
## Filing documents
- [10-Q (form10-q.htm)](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/form10-q.htm)
- [EX-10.3 (ex10-3.htm)](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/ex10-3.htm)
- [EX-31.1 (ex31-1.htm)](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/ex31-1.htm)
- [EX-31.2 (ex31-2.htm)](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/ex31-2.htm)
- [EX-32.1 (ex32-1.htm)](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/ex32-1.htm)
---
## 10-Q
SEC source: [form10-q.htm](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/form10-q.htm)
**UNITED
STATES**
**SECURITIES
AND EXCHANGE COMMISSION**
**Washington
D.C. 20549**
**FORM10-Q**
☒ **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
**For
the quarterly period ended June 30, 2026**
☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
**For
the transition period from ______, 20___, to _____, 20___.**
**Commission
File Number 001-41204**
**Hour
Loop, Inc.**
(Exact
Name of Registrant as Specified in its Charter)
**Delaware** **47-2869399**
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer
Identification Number)
| 8201 164th Ave. NE Redmond, WA | 98052-7615 |
| --- | --- |
| (Address of Principal Executive Offices) | (Zip Code) |
**(206)385-0488, ext. 100**
(Registrant’s
Telephone Number, Including Area Code)
**N/A**
(Former
name, former address and former fiscal year, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Act:
**Title of each class** **Trading Symbol(s)** **Name of each Exchange on which Registered**
Common Stock HOUR The Nasdaq Capital Market
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As
of August 11, 2026, there were 35,199,820 shares of common stock, par value $0.0001 per share, of the registrant issued and
outstanding.
**Hour
Loop, Inc.**
**Form
10-Q**
**Contents**
| | | **Page** |
| --- | --- | --- |
| **PART I - FINANCIAL INFORMATION** | | |
| Item 1. | [Financial Statements](#sa_001) | 3 |
| Item 2. | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#sh_001) | 19 |
| Item 3. | [Quantitative and Qualitative Disclosures About Market Risk](#sh_002) | 32 |
| Item 4. | [Controls and Procedures](#sh_003) | 32 |
| **[PART II - OTHER INFORMATION](#sh_004)** | | |
| Item 1. | [Legal Proceedings](#sh_005) | 33 |
| Item 1A. | [Risk Factors](#sh_006) | 33 |
| Item 2. | [Unregistered Sales of Equity Securities and Use of Proceeds](#sh_007) | 33 |
| Item 3. | [Defaults Upon Senior Securities](#sh_008) | 33 |
| Item 4. | [Mine Safety Disclosures](#sh_009) | 33 |
| Item 5. | [Other Information](#sh_010) | 33 |
| Item 6. | [Exhibits](#sh_011) | 34 |
| **[Signatures](#sh_012)** | | 35 |
**Item
1. Financial Statements.**
**HOUR
LOOP, INC.**
**CONSOLIDATED
BALANCE SHEETS**
**(In
U.S. Dollars, except for share and per share data)**
**As
of June 30, 2026 and December 31, 2025**
**(Unaudited)**
| Line item | June 30, 2026 | December 31, 2025 |
| --- | --- | --- |
| ASSETS | | |
| Current assets | | |
| Cash | $985,404 | $3,792,033 |
| Accounts receivable, net | 2,706,742 | 235,959 |
| Inventory, net | 20,852,287 | 18,298,935 |
| Prepaid expenses and other current assets | 1,143,145 | 619,261 |
| Total current assets | 25,687,578 | 22,946,188 |
| Property and equipment, net | 75,791 | 95,917 |
| Deferred tax assets | 293,089 | 609,964 |
| Operating lease right-of-use lease assets | 124,861 | 169,368 |
| Total non-current assets | 493,741 | 875,249 |
| TOTAL ASSETS | $26,181,319 | $23,821,437 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
| Current liabilities | | |
| Accounts payable | $8,454,369 | $6,200,526 |
| Credit cards payable | 3,666,375 | 3,707,976 |
| Short-term loan | 628,931 | 637,348 |
| Operating lease liabilities-current | 91,142 | 92,362 |
| Income taxes payable | 172,762 | 51,147 |
| Accrued expenses and other current liabilities | 833,051 | 2,226,387 |
| Due to related parties | 3,410,418 | 3,810,418 |
| Total current liabilities | 17,257,048 | 16,726,164 |
| Non-current liabilities | | |
| Operating lease liabilities-non-current | 38,357 | 83,271 |
| Deferred tax liabilities | 546 | 18,143 |
| Total non-current liabilities | 38,903 | 101,414 |
| Total liabilities | 17,295,951 | 16,827,578 |
| Commitments and contingencies | - | |
| Stockholders’ equity | | |
| Preferred stock: $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding as of June 30, 2026 and December 31, 2025 | - | - |
| Common stock: $0.0001 par value, 300,000,000 shares authorized, 35,191,890 and 35,176,320 shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively | 3,519 | 3,518 |
| Additional paid-in capital | 5,892,681 | 5,862,683 |
| Retained earnings | 2,984,841 | 1,109,674 |
| Accumulated other comprehensive income | 4,327 | 17,984 |
| Total stockholders’ equity | 8,885,368 | 6,993,859 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $26,181,319 | $23,821,437 |
*The
accompanying footnotes are an integral part of these unaudited consolidated financial statements.*
**HOUR
LOOP, INC.**
**CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**
**(In
U.S. Dollars, except for share and per share data)**
**For
the Three and Six Months Ended June 30, 2026 and 2025**
**(Unaudited)**
| Line item | 2026 / Three Months Ended June 30, | 2025 / Three Months Ended June 30, | 2026 / Six Months Ended June 30, | 2025 / Six Months Ended June 30, |
| --- | --- | --- | --- | --- |
| Revenues, net | $33,944,191 | $27,103,106 | $63,874,533 | $52,940,196 |
| Cost of revenues | (15,976,053) | (11,605,754) | (29,888,620) | (23,297,546) |
| Gross profit | 17,968,138 | 15,497,352 | 33,985,913 | 29,642,650 |
| Operating expenses | | | | |
| Selling and marketing | 14,518,903 | 11,715,571 | 27,117,544 | 22,962,568 |
| General and administrative | 2,164,849 | 2,160,930 | 4,441,855 | 4,138,366 |
| Total operating expenses | 16,683,752 | 13,876,501 | 31,559,399 | 27,100,934 |
| Income from operations | 1,284,386 | 1,620,851 | 2,426,514 | 2,541,716 |
| Other (expense) income | | | | |
| Other expense | (448) | (2,300) | (2,256) | (1,999) |
| Interest expense | (46,335) | (43,782) | (80,273) | (90,837) |
| Other income | 20,073 | 7,912 | 46,831 | 69,737 |
| Total other (expense) income, net | (26,710) | (38,170) | (35,698) | (23,099) |
| Income before income taxes | 1,257,676 | 1,582,681 | 2,390,816 | 2,518,617 |
| Income tax expense | (205,991) | (405,680) | (515,649) | (687,099) |
| Net income | 1,051,685 | 1,177,001 | 1,875,167 | 1,831,518 |
| Other comprehensive income (loss) | | | | |
| Foreign currency translation adjustments | 3,959 | 154,939 | (13,657) | 141,403 |
| Total comprehensive income | $1,055,644 | $1,331,940 | $1,861,510 | $1,972,921 |
| Basic and diluted earnings per common share | $0.03 | $0.04 | $0.05 | $0.06 |
| Weighted-average number of common shares outstanding | 35,191,368 | 35,160,095 | 35,187,524 | 35,155,795 |
*The
accompanying footnotes are an integral part of these unaudited consolidated financial statements.*
**HOUR
LOOP, INC.**
**CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY**
**(In
U.S. Dollars, except for share data)**
**For
the Three and Six Months Ended June 30, 2026 and 2025**
**(Unaudited)**
*For
the three months ended June 30, 2026 and 2025*
| Line item | Shares / Common Stock | Amount / Common Stock | Capital / Additional Paid-In | Earnings / Retained | Loss (Income) / Accumulated Other Comprehensive | Equity / Total Stockholders’ |
| --- | --- | --- | --- | --- | --- | --- |
| BALANCE AT MARCH 31, 2026 | 35,183,890 | $3,518 | $5,877,682 | $1,933,156 | $368 | $7,814,724 |
| Stock-based compensation | 8,000 | 1 | 14,999 | - | - | 15,000 |
| Currency translation adjustments | - | - | - | - | 3,959 | 3,959 |
| Net income | - | - | - | 1,051,685 | - | 1,051,685 |
| BALANCE AT JUNE 30, 2026 | 35,191,890 | $3,519 | $5,892,681 | $2,984,841 | $4,327 | $8,885,368 |
| BALANCE AT MARCH 31, 2025 | 35,151,440 | $3,515 | $5,817,685 | $59,342 | $(64,819) | $5,815,723 |
| Stock-based compensation | 8,750 | 1 | 15,000 | - | - | 15,001 |
| Currency translation adjustments | - | - | - | - | 154,939 | 154,939 |
| Net income | - | - | - | 1,177,001 | - | 1,177,001 |
| BALANCE AT JUNE 30, 2025 | 35,160,190 | $3,516 | $5,832,685 | $1,236,343 | $90,120 | $7,162,664 |
*For
the six months ended June 30, 2026 and 2025*
| Line item | Common Stock / Shares | Common Stock / Amount | Additional Paid-In / Capital | Retained Earnings (Accumulated / Deficit) | Accumulated Other Comprehensive / Loss (Income) | Total Stockholders’ / Equity |
| --- | --- | --- | --- | --- | --- | --- |
| BALANCE AT DECEMBER 31, 2025 | 35,176,320 | $3,518 | $5,862,683 | $1,109,674 | $17,984 | $6,993,859 |
| Stock-based compensation | 15,570 | 1 | 29,998 | - | - | 29,999 |
| Currency translation adjustments | - | - | - | - | (13,657) | (13,657) |
| Net income | - | - | - | 1,875,167 | - | 1,875,167 |
| BALANCE AT JUNE 30, 2026 | 35,191,890 | $3,519 | $5,892,681 | $2,984,841 | $4,327 | $8,885,368 |
| BALANCE AT DECEMBER 31, 2024 | 35,143,460 | $3,514 | $5,802,686 | $(595,175) | $(51,283) | $5,159,742 |
| BALANCE | 35,143,460 | $3,514 | $5,802,686 | $(595,175) | $(51,283) | $5,159,742 |
| Stock-based compensation | 16,730 | 2 | 29,999 | - | - | 30,001 |
| Currency translation adjustments | - | - | - | - | 141,403 | 141,403 |
| Net income | - | - | - | 1,831,518 | - | 1,831,518 |
| BALANCE AT JUNE 30, 2025 | 35,160,190 | $3,516 | $5,832,685 | $1,236,343 | $90,120 | $7,162,664 |
| BALANCE | 35,160,190 | $3,516 | $5,832,685 | $1,236,343 | $90,120 | $7,162,664 |
*The
accompanying footnotes are an integral part of these unaudited consolidated financial statements.*
**HOUR
LOOP, INC.**
**CONSOLIDATED
STATEMENTS OF CASH FLOWS**
**(In
U.S. Dollars)**
**For
the Six Months Ended June 30, 2026 and 2025**
**(Unaudited)**
| Line item | Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 |
| --- | --- | --- |
| Cash flows from operating activities | | |
| Net income | $1,875,167 | $1,831,518 |
| Reconciliation of net income to net cash used in operating activities: | | |
| Depreciation expenses | 24,700 | 23,517 |
| Amortization of operating lease right-of-use lease assets | 42,575 | 122,018 |
| Deferred tax assets | 316,875 | 546,952 |
| Deferred tax liabilities | (17,597) | 19,464 |
| Stock-based compensation | 29,999 | 30,001 |
| Inventory allowance | 370,981 | 416,196 |
| Unrealized foreign exchange gain | (26,655) | 237,028 |
| Changes in operating assets and liabilities: | | |
| Accounts receivable | (2,470,783) | 1,172,592 |
| Inventory | (2,924,333) | (6,716,310) |
| Prepaid expenses and other current assets | (523,884) | (197,393) |
| Accounts payable | 2,253,843 | 4,407,785 |
| Credit cards payable | (41,601) | (409,341) |
| Accrued expenses and other current liabilities | (2,543,336) | (2,283,745) |
| Operating lease liabilities | (44,130) | (125,712) |
| Income taxes payable | 121,615 | - |
| Net cash used in operating activities | (3,556,564) | (925,430) |
| Cash flows from investing activities: | | |
| Purchases of property and equipment | (5,705) | (801) |
| Net cash used in investing activities | (5,705) | (801) |
| Cash flows from financing activities: | | |
| Payments to related parties | (884,000) | (839,000) |
| Proceeds from related parties | 1,634,000 | - |
| Net cash provided by (used in) financing activities | 750,000 | (839,000) |
| Effect of changes in foreign currency exchange rates | 5,640 | (28,996) |
| Net change in cash | (2,806,629) | (1,794,227) |
| Cash at beginning of period | 3,792,033 | 2,119,581 |
| Cash at end of period | $985,404 | $325,354 |
| Supplemental disclosures of cash flow information: | | |
| Cash paid for interest | $10,743 | $11,095 |
| Cash paid for income tax | $397,770 | $52,841 |
| Non-cash investing and financing activities: | | |
| Operating lease right-of-use of assets and operating lease liabilities recognized | - | 134,648 |
*The
accompanying footnotes are an integral part of these unaudited consolidated financial statements.*
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
### **NOTE 1 - Nature of Operations and Summary of Significant Accounting Policies**
Hour
Loop, Inc. (“Hour Loop” or the “Company”) is a technology-enabled consumer products company that uses machine
learning and data analytics to design, develop, market and sell products. Hour Loop predominantly operates through online retail channels
such as Amazon, Walmart, and *Hourloop.com*. The Company, as an Internet marketplace seller, sells products in multiple categories,
including home/garden décor, toys, kitchenware, apparel, and electronics. The Company has only one segment, which is online retail
(e-commerce).
The
Company was incorporated on January 13, 2015 under the laws of the state of Washington. On April 7, 2021, the Company was converted from
a Washington corporation to a Delaware corporation.
In
2019, Hour Loop formed Flywheel Consulting Ltd. (“Flywheel”), a wholly owned subsidiary located in Taiwan, to provide business
operating consulting services exclusively to Hour Loop.
**Basis
of Presentation** - These unaudited consolidated financial statements have been prepared in accordance with rules and regulations of
the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the
unaudited consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial
statements. In the opinion of management, the Company has included all adjustments considered necessary for a fair presentation
and such adjustments are of a normal recurring nature. These unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 2025 and notes thereto and other pertinent information contained
in the Company’s Annual Report on Form 10-K as filed with the SEC on March 24, 2026.
**Principles
of Consolidation** - The unaudited consolidated financial statements include the accounts of Hour Loop and Flywheel. All material inter-company
accounts and transactions were eliminated in consolidation.
**Foreign
Currency and Currency Translation** - The assets and liabilities of Flywheel, having a functional currency other than the U.S. dollar,
are translated into U.S. dollars at exchange rates in effect at period-end, with resulting translation gains or losses included within
other comprehensive income or loss. Revenues and expenses are translated into U.S. dollars at average monthly rates of exchange in effect
during each period. All of the Company’s foreign operations use their local currency as their functional currency. Currency gains
or losses resulting from transactions executed in currencies other than the functional currency are included in General and administrative
in the consolidated statement of operations and other comprehensive income.
The
relevant exchange rates are listed below:
Schedule
of Foreign Currency Exchange Rates
| Line item | June 30, 2026 | December 31, 2025 | June 30, 2025 |
| --- | --- | --- | --- |
| Period NTD: USD exchange rate | $31.800 | $31.380 | $29.250 |
| Period Average NTD: USD exchange rate | $31.573 | $31.330 | $29.603 |
**Use
of Estimates** - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Significant
estimates include, but are 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.
**Cash
and Cash Equivalents** - The Company considers all highly liquid financial instruments purchased with original maturities of three
months or less to be cash. The Company’s cash is held in the bank and covered by the Federal Deposit Insurance Corporation (“FDIC”),
subject to applicable limits. Deposits are insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category. Cash
equivalents and marketable securities are comprised of time deposits, money market funds, highly liquid government bonds, corporate debt
securities, mortgage-backed and asset-backed securities, and marketable equity securities. The Company’s cash and cash equivalents
primarily consisted of cash and money market funds. Such amounts are recorded at fair value.
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
**Accounts
Receivable and Allowance for Credit Losses** - Accounts receivable are stated at historical cost less allowance for credit loss. On
a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance for credit losses in accordance
with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic
326. Credit losses are provided based on a past history of write-offs, collections, current credit conditions, current economic conditions,
reasonable and supportable forecasts of future economic conditions. The evaluation is performed on a collective basis where similar characteristics
exist, primarily based on similar services or products offerings. The Company 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 seven days. The Company performs on-going evaluations of its customers and maintains an allowance for credit losses as the Company
deems necessary or appropriate. As of June 30, 2026 and December 31, 2025, the Company did not deem it necessary to have an allowance
for credit loss.
**Inventory
and Cost of Goods Sold** - The Company’s inventory consists mainly of finished goods. Inventories are stated at the lower of
cost or net realizable value. Cost is principally determined on a first-in-first-out basis. The Company’s costs include the amounts
it pays manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs
associated with transporting the product from its manufacturers to its warehouses, as applicable. The merchandise with terms of FOB shipping
point from vendors was recorded as the inventory-in-transit when inventory left the shipping dock of the vendors but not yet reached
the receiving dock of the Company. Management continually evaluates its estimates and judgments including those related to merchandise
inventory.
The
“Cost of revenues” line item in the unaudited consolidated statements of operations is principally inventory sold to customers
during the reporting period.
Policy
for inventory allowance: The Company writes down the cost of obsolete and slow-moving inventories to the estimated net realizable value,
based on inventory obsolescence trends, historical experience, forecasted consumer demand and application of the specific identification
method. As of June 30, 2026 and December 31, 2025, $370,981 and $447,841, respectively, were written down from the cost of inventories
to their net realizable values. Full inventory allowance is recorded for the inventory stock-keeping unit (“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 three years.
**Impairment
of Long-lived Assets**- In accordance with ASC 360-10-35-17, if the carrying amount of an asset or asset group (in use or under development)
is evaluated and found not to be fully recoverable (the carrying amount exceeds the estimated gross, undiscounted cash flows from use
and disposition), then an impairment loss must be recognized. The impairment loss is measured as the excess of the carrying amount over
the asset’s (or asset group’s) fair value. The Company did not record any impairment charges for the three and six months
ended June 30, 2026 and 2025.
**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.
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
The
Company typically utilizes operating leases for its office space requirements. This means that the Company leases office space, categorizing
the lease arrangement as an operating lease. Under this arrangement, the Company does not hold ownership of the leased assets but instead
pays rent for the right to use them.
For
a lessee, a lease is recognized as an operating lease right-of-use asset with a corresponding liability at lease commencement date. The
lease liability is calculated at the present value of the lease payments not yet paid by using the lease term and discount rate determined
at lease commencement. The operating lease right-of-use asset is calculated as the lease liability, increased by any initial direct costs,
and prepaid lease payments, reduced by any lease incentives received before lease commencement. The operating lease right-of-use asset
itself is amortized on a straight-line basis unless another systematic method better reflects how the underlying asset will be used by
and benefits the lessee over the lease term.
**Fair
Value Measurement** - Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
at the measurement date. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable,
accounts payable, due to related parties and short-term debt at fair value or cost, which approximates fair value because of the short
period of time between the origination of such instruments and their expected realization and their current market rates of interest.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes
the inputs to valuation methodologies used to measure fair value:
i. Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
ii. Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
iii. Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
**Revenue
Recognition** - The Company accounts for revenues in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company
adopted ASC Topic 606 as of January 1, 2019. The standard did not affect the Company’s consolidated financial position, or cash
flows. There were no changes to the timing of revenue recognition as a result of the adoption.
The
Company recognizes revenues 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 revenues when or as performance obligations are satisfied.
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
The
Company evaluated principal versus agent considerations to determine whether it is appropriate to record platform fees paid to Amazon
as an expense or as a reduction of revenue. Platform fees are recorded as sales and distribution expenses and are not recorded as a reduction
of revenues because the Company as principal owns and controls all the goods before they are transferred to the customer. The Company
can, at any time, direct Amazon, similarly, other third-party logistics providers (“Logistics Providers”), to return the
Company’s inventories to any location specified by the Company. It is the Company’s responsibility to make any returns made
by customers directly to Logistics Providers and the Company retains the back-end inventory risk. Further, the Company is subject to
credit risk (i.e., credit card chargebacks), establishes prices of its products, can determine who fulfills the goods to the customer
(Amazon or the Company) and can limit quantities or stop selling the goods at any time. Based on these considerations, the Company is
the principal in this arrangement.
The
Company derives its revenues from the sale of consumer products. The Company sells its products directly to consumers through online
retail channels. The Company considers customer order confirmations to be a contract with the customer. For each contract, the promise
to transfer products is identified as the sole performance obligation. Transaction prices are evaluated for potential refunds or adjustments,
determining the net consideration expected. Revenues for the three and six months ended June 30, 2026 and 2025 were recognized at a point
in time. Customer confirmations are executed at the time an order is placed through third-party online channels. For all of the Company’s
sales and distribution channels, revenues are recognized when control of the product is transferred to the customer (i.e., when the Company’s
performance obligation is satisfied), which typically occurs at shipment date. As a result, the Company has a present and unconditional
right to payment and record the amount due from the customer in accounts receivable.
The
customer can return 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 6.90% and 6.92% of gross sales for the six months ended June 30, 2026 and 2025, respectively.
From
time to time, the Company offers price discounts on certain selected items to stimulate the sales of those items. Revenues are 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 revenues to calculate the net revenues recorded on the statement
of operations.
A
performance obligation, defined as the promise to transfer a distinct good, is the unit of account in ASC Topic 606. The Company
treats shipping and handling as fulfillment activities, not separate performance obligations. Costs for shipping and handling were
$13,887,211 and $11,659,356 for the six months ended June 30, 2026 and 2025, 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” to determine reportable operating segments. The management approach considers the
internal organization and reporting used by the Company’s chief operating decision maker (“CODM”) for making operating
decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s CODM has
been identified as the chief executive officer of the Company who reviews financial information of separate operating segments based
on U.S. GAAP. The CODM now reviews results analyzed by customers. This analysis is only presented at the revenue level with no allocation
of direct or indirect costs. Consequently, the Company has determined that it has only one operating segment.
**Income
Taxes** - Income tax expense includes U.S. (federal and state) and foreign income taxes.
The
Company also complied with state tax codes and regulations, including with respect to California franchise taxes. Management has evaluated
its tax positions and has concluded that the Company had taken no uncertain tax positions that could require adjustment or disclosure
in the financial statements to comply with provisions set forth in ASC Section 740, *Income Taxes*.
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
Deferred
tax assets represent amounts available to reduce income taxes payable in future periods. Deferred tax assets are evaluated for future
realization and reduced by a valuation allowance to the extent the Company believe they will not be realized. The Company considers many
factors when assessing the likelihood of future realization of its deferred tax assets, including recent cumulative loss experience and
expectations of future earnings, capital gains and investment in such jurisdiction, the carry-forward periods available to the Company’s
for tax reporting purposes, and other relevant factors.
**Presentation
of Sales Taxes** - Governmental authorities impose sales tax on all of the Company’s sales to nonexempt customers. The Company
collects sales tax from customers and remits the entire amount to the governmental authorities. The Company’s accounting policy
is to exclude the tax collected and remitted from revenues and cost of revenues.
**Concentration
of Credit Risks -** Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of
cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with various domestic and foreign
financial institutions of high credit quality. The Company performs periodic evaluations of the relative credit standing of all of the
aforementioned institutions.
The
Company maintains reserves for potential credit losses on customer accounts when deemed necessary. Significant customers are those which
represent more than 10% of the Company’s total net revenues or gross accounts receivable balance at the balance sheet date. During
the three and six months ended June 30, 2026 and 2025, the Company had no customer that accounted for 10% or more of total net revenues.
In addition, as of June 30, 2026 and December 31, 2025, the Company had no customer that accounted for 10% or more of gross accounts
receivable. As of June 30, 2026 and December 31, 2025, 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 disbursement from Amazon to the Company usually takes approximately
14 days.
The
Company’s business is reliant on one key vendor which currently provides the Company with its sales platform, logistics and fulfillment
operations, including certain warehousing for the Company’s net goods, and invoicing and collection of its revenues from the Company’s
end customers. During the six months ended June 30, 2026 and 2025, approximately 97% and 99%, respectively, of the Company’s revenues
were through or with the Amazon sales platform.
**Foreign
Currency Exchange Risk** - The Company is exposed to foreign currency exchange risk through its foreign subsidiary in Taiwan. The Company
does not hedge foreign currency translation risk in the net assets and income reported from these sources.
**Advertising
and Promotion Expenses** – The Company’s policy is to recognize advertising costs as they are incurred. Advertising and
promotion expenses were $2,823,018 and $964,824 for the six months ended June 30, 2026 and 2025, respectively.
**Commitments
and Contingencies** - Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other
sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred
in connection with loss contingencies are expensed as incurred.
**Related
Parties** - The Company accounts for related party transactions in accordance with FASB ASC Topic 850 (Related Party Disclosures).
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls,
is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company may
deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of
the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence
the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing
its own separate interests is also a related party.
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
**Earnings
per Share -** The Company computes basic earnings per common share using the weighted-average number of shares of common stock outstanding
during the period. For the period in which the Company reports net losses, diluted net loss per share attributable to stockholders is
the same as basic net loss per share attributable to stockholders, because potentially dilutive common shares are not assumed to have
been issued if their effect is anti-dilutive. There were no dilutive securities or other items that would affect earnings per share for
the three and six months ended June 30, 2026 and 2025. Therefore, the diluted earnings per share is the same as the basic earnings per
share.
**Shares
Issued for Services** – Stock-based compensation cost for all equity-classified stock awards expected to vest is measured at
fair value on the date of grant and recognized over the service period.
### **NOTE 2 - Recently Issued Accounting Pronouncements**
In
November 2024, the FASB issued ASU 2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures,
which requires the disaggregation of certain expenses in the notes of the financials, to provide enhanced transparency into the expense
captions presented on the face of the income statement. ASU 2024-03 is effective for annual reporting periods beginning after December
15, 2026 and interim periods beginning after December 15, 2027 and may be applied either prospectively or retrospectively. There is no
material impact expected to the Company’s results of operations, cash flows and financial condition at the time of adoption, however
the Company is still assessing the disclosure impact.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit
Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient to
assume that conditions as of the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses
for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. ASU 2025-05 is effective
for annual reporting periods beginning after December 15, 2025 and interim periods within those annual reporting periods, with early adoption
permitted, and should be applied prospectively. There is no material impact expected to the Company’s consolidated financial statements
and related disclosures at the time of adoption.
Except
for the above-mentioned pronouncements, there are no recently issued accounting standards that will have a material impact on the consolidated
financial position, statements of operations and cash flows.
### **NOTE 3 - Inventory**
Inventory
was comprised of the following as of June 30, 2026 and December 31, 2025, respectively:
Schedule of Inventory
| Line item | June 30, 2026 | December 31, 2025 |
| --- | --- | --- |
| Inventory | $17,553,739 | $16,061,329 |
| Inventory-in-transit | 3,669,529 | 2,685,447 |
| Allowance | (370,981) | (447,841) |
| Total | $20,852,287 | $18,298,935 |
As
of June 30, 2026 and December 31, 2025, $370,981 and $447,841 were written down from the cost of purchased inventory to their net realizable
values, respectively. Full inventory allowance is recorded for the inventory SKU not sold for more than one year.
The
allowance of inventory is recorded under cost of goods sold in the statements of operations.
### **NOTE 4 - Prepaid Expenses and Other Current Assets**
Prepaid
expenses and other current assets were comprised of the following as of June 30, 2026 and December 31, 2025, respectively:
Schedule
of Prepaid Expenses and Other Current Assets
| Line item | June 30, 2026 | December 31, 2025 |
| --- | --- | --- |
| Advance to suppliers | $372,415 | $193,115 |
| Prepaid expenses-insurance | 22,500 | 45,000 |
| Prepaid expenses-other | 122,504 | 79,880 |
| Lease refundable deposit | 84,698 | 59,780 |
| Tax receivable | 528,554 | 223,030 |
| Other current assets | 12,474 | 18,456 |
| Total | $1,143,145 | $619,261 |
As
of June 30, 2026 and December 31, 2025, there was a tax receivable of $528,554 and $223,030, respectively, due to income taxes prepaid
by the Company.
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
### **NOTE 5 - Property and Equipment**
Property
and equipment were comprised of the following as of June 30, 2026 and December 31, 2025, respectively:
Schedule
of Property and Equipment
| Line item | June 30, 2026 | December 31, 2025 |
| --- | --- | --- |
| Property and equipment | $460,059 | $460,477 |
| Accumulated depreciation and amortization | (384,268) | (364,560) |
| Total property and equipment, net | $75,791 | $95,917 |
For
the six months ended June 30, 2026 and 2025, the Company purchased $5,705 and $801 of fixtures and office equipment, respectively.
For
the six months ended June 30, 2026 and 2025, the Company had $24,700 and $23,517, recorded for depreciation, respectively.
For
the six months ended June 30, 2026 and 2025, the Company had no disposal or pledge on property and equipment.
### **NOTE 6 - Accounts Payable and Credit Cards Payable**
Schedule
of Accounts Payable and Credit Cards Payable
| Line item | June 30, 2026 | December 31, 2025 |
| --- | --- | --- |
| Accounts payable | $8,454,369 | $6,200,526 |
| Credit cards payable | 3,666,375 | 3,707,976 |
The
Company’s accounts payable represent amounts owed to suppliers or other creditors for goods or services purchased but not yet paid
for. As of June 30, 2026 and December 31, 2025, there were accounts payable of $8,454,369 and $6,200,526, respectively.
The
Company’s credit cards payable consisted of outstanding balances on credit cards held by the Company. As of June 30, 2026 and December
31, 2025, there were credit cards payable of $3,666,375 and $3,707,976, respectively.
### **NOTE 7 - Short-Term Loan**
**Line
of Credit**
On
August 18, 2022, Flywheel entered into a line of credit agreement in the amount of $6,940,063 with Taishin International Bank (“Taishin”).
As amended, the line of credit matures on November 13, 2026 and bears interest at a rate of 3.42% per annum.
As
of June 30, 2026 and December 31, 2025, the outstanding balance under the Taishin line of credit was $628,931 and $637,348, respectively.
### **NOTE 8 - Accrued Expenses and Other Current Liabilities**
Accrued
expenses and other current liabilities were comprised of the following as of June 30, 2026 and December 31, 2025, respectively:
Schedule
of Accrued Expenses and Other Current Liabilities
| Line item | June 30, 2026 | December 31, 2025 |
| --- | --- | --- |
| Sales tax payable | $4,917 | $16,069 |
| Refund liability | - | 729,320 |
| Accrued payroll | 317,502 | 354,362 |
| Accrued bonus | 223,270 | 782,612 |
| Accrued expenses | 197,606 | 268,155 |
| Accrued interest | 69,526 | - |
| Other payables | 20,230 | 75,869 |
| Total | $833,051 | $2,226,387 |
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
As
of June 30, 2026 and December 31, 2025, the Company has accrued $0 and $729,320, respectively, in a proactive approach towards potential
future refunds.
A
bonus expense is accrued on an annual basis, when the Company’s financial or operational performance meets the required performance
level. The Company has $223,270 and $782,612 accrued for bonuses as of June 30, 2026 and December 31, 2025, respectively.
### **NOTE 9 - Leases**
The
Company had two operating leases (Flywheel’s office leases in Taiwan) as of June 30, 2026. The leased assets in Flywheel are presented
as operating lease right-of-use assets.
The
table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years
to the operating lease liabilities recorded in the statements of financial position as of June 30, 2026:
Schedule
of Operating Leases Cost
| Initial lease term | Flywheel / June 2025 / to June 2027 | Flywheel / December 2025 / to November 2028 |
| --- | --- | --- |
| Initial recognition of operating lease right-of-use assets | $127,226 | $79,971 |
| Weighted-average remaining lease term at June 30, 2026 | 1.00 | 2.42 |
| Weighted-average discount rate at June 30, 2026 | 3.33% | 3.33% |
Operating
lease liabilities-current as of June 30, 2026 and December 31, 2025 were $91,142 and $92,362, respectively. Operating lease liabilities-non-current
as of June 30, 2026 and December 31, 2025 were $38,357 and $83,271, respectively. The operating lease right-of-use assets balance as
of June 30, 2026 and December 31, 2025, were $124,861 and $169,368, respectively.
For
the six months ended June 30, 2026 and 2025, the amortization of the operating lease right-of-use asset was $42,575 and $122,018, respectively.
These amounts were recorded in general and administrative expenses. Additionally, for the six months ended June 30, 2026 and 2025, the
Company made lease payments of $44,130 and $125,712, respectively, which were included in the operating cash flows statements.
The
future minimum lease payment schedule for all operating leases as of June 30, 2026, is as disclosed below.
**Schedule
of Operating Lease Liabilities**
| For the Year Ending June 30, | Amount |
| --- | --- |
| 2026 (remainder) | $46,397 |
| 2027 | 60,520 |
| 2028 | 26,535 |
| 2029 and thereafter | - |
| Total minimum lease payments | 133,452 |
| Less: effect of discounting | (3,953) |
| Present value of the future minimum lease payment | 129,499 |
| Less: operating lease liabilities-current | (91,142) |
| Total operating lease liabilities-non-current | $38,357 |
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
### **NOTE 10 - Related Party Balances and Transactions**
From
time to time, the Company receives loans and advances from its stockholders to fund its operations. Stockholder loans and advances are
payable on demand. As of June 30, 2026 and December 31, 2025, the Company had $3,410,418 and $3,810,418, respectively, due to related
parties (Sam Lai, the Company’s Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer and a significant
stockholder of the Company; and Maggie Yu, the Company’s Senior Vice President, a member of the Company’s Board of Directors
and a significant stockholder of the Company). The loan is memorialized in a subordinated Loan Agreement. As amended, the loan matures
on December 31, 2026 and has an annual interest rate of 4.75%.
As
of June 30, 2026, this amount included $3,410,418 in stockholder payables and $0 accrued for bonuses. As of December 31, 2025, this amount
included $2,660,418 in stockholder payables and $1,150,000 accrued for bonuses.
For
the six months ended June 30, 2026 and 2025, the Company made repayments to related parties of $884,000 and $839,000, respectively.
In
April 2026, due to changes in Amazon’s Disbursement Policy under which daily remittances are delayed by seven days, Sam Lai and
Maggie Yu advanced funds to the Company to provide liquidity support. The advances bear interest at an annual rate of 4.75%. For the
six months ended June 30, 2026, total advances received from related parties were $1,634,000.
### **NOTE 11 – Disaggregation of Revenues**
Revenues
were comprised of the following for the three and six months ended June 30, 2026 and 2025, respectively:
Schedule of Revenue
| Line item | 2026 / Three Months Ended June 30, | 2025 / Three Months Ended June 30, |
| --- | --- | --- |
| Revenues-U.S. | $34,773,245 | $28,308,512 |
| Revenues-International | 1,706,449 | 1,138,830 |
| Revenues-Other | 404,851 | 37,367 |
| Revenue | 404,851 | 37,367 |
| Sales returns | (2,597,429) | (2,198,454) |
| Discounts | (342,925) | (183,149) |
| Total | $33,944,191 | $27,103,106 |
| Line item | 2026 / Six Months Ended June 30, | 2025 / Six Months Ended June 30, |
| --- | --- | --- |
| Revenues-U.S. | $65,372,658 | $54,911,059 |
| Revenues-International | 3,266,977 | 2,090,269 |
| Revenues-Other | 665,354 | 339,621 |
| Revenue | 665,354 | 339,621 |
| Sales returns | (4,779,490) | (3,966,013) |
| Discounts | (650,966) | (434,740) |
| Total | $63,874,533 | $52,940,196 |
### **NOTE 12 - Income Tax**
The
components of income taxes expense are as follows:
Schedule of Effective Tax Rate Reconciliation
_Effective Tax Rate Reconciliation for the Six Months Ended June 30, 2026_
| | | | |
| --- | --- | --- | --- |
| Pretax book income | $2,390,816 | 21.00% | 502,071 |
| Permanent differences | 43,855 | 0.39% | 9,210 |
| Prior year federal permanent differences true-up | 110,378 | 0.97% | 23,179 |
| State income tax | 127,407 | 4.19% | 100,171 |
| Other deferred adjustment | - | -4.98% | (118,982) |
| Total tax expense | | 21.57% | 515,649 |
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
_Effective Tax Rate Reconciliation for the Six Months Ended June 30, 2025_
| | | | |
| --- | --- | --- | --- |
| Pre-tax book income | $2,518,617 | 21.00% | 528,910 |
| Permanent differences | 38,692 | 0.32% | 8,125 |
| Prior year federal permanent differences true-up | 117,653 | 0.98% | 24,707 |
| State income tax | 114,662 | 4.37% | 110,143 |
| Other deferred adjustment | - | 0.60% | 15,214 |
| Total tax expense | | 27.28% | 687,099 |
Schedule of Tax Expense Summary
| Tax Expense Summary, for the Six Months Ended June 30, 2026 | Deferred Income Tax / Expense / (Benefit) | Total / Income Tax / Expense |
| --- | --- | --- |
| Federal | $299,758 | 388,722 |
| State | (480) | 126,927 |
| Total tax expense | $299,278 | 515,649 |
| Tax Expense Summary, for the Six Months Ended June 30, 2025 | Current Income Tax Expense | Deferred Income Tax Expense | Total Income Tax Expense |
| --- | --- | --- | --- |
| Federal | $99,163 | $473,274 | $572,437 |
| State | 21,521 | 93,141 | 114,662 |
| Total tax expense | $120,684 | 566,415 | $687,099 |
Income
taxes paid were $397,770 and
$52,841 for the six months ended June 30, 2026 and 2025, respectively. Such payments consisted of U.S. federal and state income tax payments.
The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of June 30, 2026 and December
31, 2025 were as follows:
Schedule
of Deferred Tax Assets
| Deferred Tax Assets Summary | June 30, 2026 | December 31, 2025 |
| --- | --- | --- |
| Federal | $220,706 | $520,464 |
| State | 71,837 | 71,357 |
| Foreign (non-U.S.) | 546 | 18,143 |
| Total | $293,089 | $609,964 |
| Deferred Tax Assets Summary | June 30, 2026 | December 31, 2025 |
| --- | --- | --- |
| Operating lease right of use lease assets | $1,166 | $1,574 |
| Inventories allowance | 93,207 | 112,518 |
| Net loss carry forward | 198,716 | 495,872 |
| Total | $293,089 | $609,964 |
The
Company files income tax return in the U.S. federal jurisdiction and various state jurisdictions. Based on management’s evaluation,
there is no provision necessary for material uncertain tax position for the Company as of June 30, 2026 and December 31, 2025.
For
the six months ended June 30, 2026 and for the year ended December 31, 2025, the Company reported net operating income of $1,875,167 and $1,704,849, respectively. The net operating loss carryforward is not subject to any expiration period under federal
regulations, while at the state level, the expiration period usually ranges up to 20 years, or there may be no expiration period at all.
The
Company expects to generate sufficient taxable income in future periods against which the deferred tax assets can be utilized. Accordingly,
a valuation allowance may not be needed.
**HOUR
LOOP, INC.**
**NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
### **NOTE 13 - Stockholders’ Equity**
**Preferred
Stock**
As
of June 30, 2026 and December 31, 2025, the Company had 10,000,000 shares of preferred stock, $0.0001 par value per share, authorized.
The Company did not have any preferred shares issued and outstanding as of June 30, 2026 and December 31, 2025. The holders of the preferred
stock are entitled to receive dividends, if and when declared by the Board of Directors.
**Common
Stock**
As
of June 30, 2026 and December 31, 2025, the Company had 300,000,000 shares of common stock, $0.0001 par value per share, authorized.
As of June 30, 2026 and December 31, 2025, there were 35,191,890 and 35,176,320 shares of common stock issued and outstanding, respectively.
**Share
Issuances for Stock Compensation**
On
January 2, 2025, the Company issued 1,596 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Alan Gao and
Hillary Bui, with a fair market value of $1.8799 per share as compensation for the services as executives or directors of the Company
pursuant to the terms of their respective Executive Employment Agreements or Director Agreements with the Company.
On
April 1, 2025, the Company issued 1,750 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Alan Gao and Hillary
Bui, with a fair market value of $1.7140 per share as compensation for the services as executives or directors of the Company pursuant
to the terms of their respective Executive Employment Agreements or Director Agreements with the Company.
On
July 2, 2025, the Company issued 2,275 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Alan Gao and Hillary
Bui, with a fair market value of $1.3185 per share as compensation for the services as executives or directors of the Company pursuant
to the terms of their respective Executive Employment Agreements or Director Agreements with the Company.
On
October 3, 2025, the Company issued 951 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Alan Gao and Hillary
Bui, with a fair market value of $3.1530 per share as compensation for the services as executives or directors of the Company pursuant
to the terms of their respective Executive Employment Agreements or Director Agreements with the Company.
On
January 5, 2026, the Company issued 1,514 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Alan Gao and
Hillary Bui, with a fair market value of $1.9815 per share as compensation for the services as executives or directors of the Company
pursuant to the terms of their respective Executive Employment Agreements or Director Agreements with the Company.
On
April 6, 2026, the Company issued 1,600 shares of Company common stock to each of Sam Lai, Maggie Yu,
Michael Lenner, Alan Gao and Hillary Bui, with a fair market value of $1.8745 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.
### **NOTE 14 - Commitments and Contingencies**
As
of June 30, 2026 and December 31, 2025, the Company had no material or significant commitments outstanding.
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 June 30, 2026 and December 31,
2025, the Company had no pending material legal proceedings. No amounts have been accrued in the unaudited consolidated financial statements
with respect to any such matters.
### **NOTE 15 - Subsequent Events**
*Director
Equity Issuances*
On
July 1, 2026, the Company issued 1,586 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Alan Gao and Hillary
Bui, with a fair market value of $1.8910 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.
*Fourth
Amendment to Loan Agreement*
On August 10, 2026, the Company entered
into the Fourth Amendment (the “Fourth Amendment”) to Loan Agreement by and among the Company, 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
Sau Kuen Yu (the Company’s Senior Vice President, a member of the Company’s Board of Directors and a significant stockholder
of the Company). Pursuant to the terms of the Fourth Amendment, the Company agreed to repay the loan in the principal amount of $3,410,418 to Mr. Lai and Ms. Yu through monthly settlements of $200,000, commencing August 31, 2026. As amended by the Fourth Amendment, the loan
matures on December 31, 2026 and bears interest at an annual rate of 4.75%. The parties also agreed to discuss quarterly and make reasonable
efforts, subject to the Company’s normal cash reserve and expansion plan, if any, to explore the possibility of early or delayed
repayments.
The
Company has evaluated subsequent events from the balance sheet date through August 11, 2026, the date at which the financial statements
were available to be issued, and determined that, apart from the events mentioned above, there are no other subsequent events to disclose.
**ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
*The
Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a safe harbor for forward-looking
statements made by or on behalf of Hour Loop, Inc. (“we,” “us,” “our,” “Hour Loop” or
the “Company”). The Company and its representatives may from time to time make written or oral statements that are “forward-looking,”
including statements contained in this report and other filings with the Securities and Exchange Commission (“SEC”) and in
our reports and presentations to stockholders or potential stockholders. In some cases, forward-looking statements can be identified
by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,”
“continue” or similar expressions. Such forward-looking statements include risks and uncertainties and there are important
factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These
factors, risks and uncertainties can be found in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2025, as the same may be updated from time to time, including in Part II, Item 1A, “Risk Factors,”
of this Quarterly Report on Form 10-Q.*
*Although
we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to
foresee or identify all factors that could have a material effect on our future financial performance. The forward-looking statements
in this report are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light
of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate
under the circumstances.*
*Except
as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions
to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this
report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any
statement is based.*
**Overview**
*Our
Business*
We
are an online retailer engaged in e-commerce retailing in the U.S. market. We have operated as a third-party seller on *www.amazon.com* (“Amazon”) since 2013, and on *www.walmart.com* (“Walmart”) since 2020. We have also sold merchandise on
our website at *www.hourloop.com* since 2013. To date, we have generated practically all of our revenues as a third-party seller
on Amazon and only a negligible amount of revenues from our operations on our website at *www.hourloop.com* and as a third-party
seller on Walmart. We manage more than 100,000 stock-keeping units (“SKUs”). Product categories include home/garden décor,
toys, kitchenware, apparel, and electronics. 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 fourth quarter (holiday season) of the calendar year. In upcoming years, we plan to expand our business rapidly by increasing
the number of business managers, vendors and SKUs.
*Business
Model*
There
are three main types of business models on Amazon: wholesale, private label and retail arbitrage. Our business model is wholesale, also
known as reselling, which refers to buying products in bulk directly from the brand or manufacturer at a wholesale price and making a
profit by selling the product on Amazon. We sell merchandise on Amazon and the sales are fulfilled by Amazon. We pay Amazon fees for
allowing us to sell on their platform. Our relationship with Walmart is also similar. We pay Walmart fees for allowing us to sell our
merchandise on their platform. As stated above, to date, we have generated only a negligible amount of revenues as a third-party seller
on Walmart.
The
advantages of selling via a wholesale model include the following:
- 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
challenges of selling via a wholesale model include the following:
- Fierce competition on listing for Buy Box on Amazon (as described below).
- Developing and maintaining relationships with brand manufacturers.
*Formation*
We
were founded in 2013 by Sam Lai, our Chairman of the Board, Chief Executive Officer, interim Chief Financial Officer and significant
stockholder, and Maggie Yu, our Senior Vice President, a member of our Board of Directors and a significant stockholder. Mr. Lai and
Ms. Yu are husband and wife. With their vision, leadership, and software development skills, the Company grew rapidly. From 2013 to 2025,
net sales grew from $0 to $142,440,236.
*Competitive
Advantage*
Among
the approximately 1.9 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. By delivering high quality results and enhancing procedures through the process, our teams are competitive.
- Second, we believe our proprietary software system gives us an advantage over our competition. The system is highly customized to our business model; it collects and processes large amounts of data every day to optimize our operation and sales. Through advanced software, we can identify product gaps and keep them in stock all year round.
With
respect to our advertising strategy, we advertise those products that we estimate will have greater demand based on our experience. This
lets us allocate our advertising budget in a fashion that delivers positive value. We advertise our products on Amazon and allocate our
advertising dollars prudently. This is accomplished by advertising items that deliver the most return for our advertising spending. We
monitor the items being advertised by our competitors. On the operations side, we constantly refine our processes based on learnings
from historical data. The combination of managing the business operations effectively, along with allocating our advertising budget to
high value items, allows us to grow profitably. In cases where advertising is fierce, we allocate spending appropriately. Our strategy
for competing with larger competitors is to monitor their pricing and not compete with them when their pricing is low or at a loss. Competitors
sell at low prices or at a loss due to a variety of reasons, including, but not limited to, their desire to liquidate inventory or achieve
a short-term increase in revenue. During these times, we avoid matching their prices. This strategy allows us to stay profitable.
*Tariff
Impact and Response Measures*
In
the first quarter of 2026, the global trade environment shifted significantly following the U.S. Supreme Court’s February 20, 2026
ruling that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the imposition of tariffs, thereby
invalidating the reciprocal tariff regime in place throughout 2025. Shortly thereafter, on February 24, 2026, President Donald Trump
invoked Section 122 of the Trade Act of 1974, as amended, imposing a temporary 10% global import surcharge on most goods entering the
United States for an initial period of 150 days. Concurrently, the suspension of the “de minimis” exemption for low-value
shipments ($800 or less) remained in effect, requiring formal entry and duty payment on all parcels. On March 11, 2026, the Office of
the U.S. Trade Representative initiated new Section 301 investigations into manufacturing overcapacity and forced labor across 16 economies,
including China, which may result in additional, non-timebound tariff measures.
Our
proactive inventory positioning in 2025 provided a temporary buffer during the early months of 2026. However, the Section 122 surcharge
and the loss of de minimis treatment have materially increased landed costs and compliance requirements. In response, the Company has
undertaken supply chain diversification initiatives, adjusted logistics and customs processes, and implemented selective price increases
to mitigate margin pressure. We continue to monitor ongoing trade policy developments, including the potential outcomes of the Section
301 investigations, and remain prepared to adopt further pricing or sourcing adjustments to preserve supply chain continuity and financial
resilience in this evolving regulatory environment.
*Pricing
Strategy and Policies*
In
an ideal world, we would like to price our products at key stone pricing or double wholesale cost. However, we operate in a hypercompetitive
environment and we must stay competitive. Therefore, we must draw a good balance between gross margin and revenue. Our main objectives
focus on increasing volume and maximizing profits, which is achieved with a customized auto pricing system we developed internally, in
combination with well-trained business managers’ judgment on pricing skills, as well as constant monitoring. One principal feature
of the pricing system is that it automatically syncs public data of competing offers from Amazon regularly, so business managers can
set and adjust pricing based on accurate data, and thus be able to set optimal selling prices for products. In addition, the system is
constantly improved with new features and optimizations.
At
a high level, our automated pricing tool helps us stay competitive while our business managers mainly focus on increasing gross margins.
Our proprietary repricing tool analyzes sales trends, projected sales, inventory age, inventory cost, potential profits, Fulfillment
by Amazon (“FBA”) fees, competing offers, and seasonality and determines an urgency level. Then, depending on the level of
urgency, it automatically adjusts prices accordingly.
Business
managers, after establishing the bases for prices, begin to develop pricing strategies for each product, while taking current market
conditions and Company goals (e.g., increasing short-term or long-term profits) and strategies into consideration. Furthermore, business
managers consider different marketing segments, such as costs and competition, in order to develop effective pricing strategies and policies.
The
following subsections provide more insight into various pricing strategies we have developed over the years. Our internal training mainly
focuses on competition-based and value-based pricing policies.
| 1. | Competition-Based Pricing Policy: 15% of our products are toys, which are extremely popular and competitive. In this type of environment, where volume is high but gross margin is low, our main strategy is to purchase large quantities, so we can increase sales volume and price competitively while maintaining an average return on investment (“ROI”) of at least 15%. We use the competition-based pricing policy to match competitors’ prices, which means constantly winning Buy Box (as described below). Our pricing system is capable of automatically matching all Buy Box. |
| --- | --- |
| 2. | Promotional Pricing Policy: To boost lagging sales, we adapted our own promotional pricing policy, which involves offering modest discounts on products with inventory age over 45 days, which proves to be cost-effective at reducing the number of low turn-over SKUs. |
| 3. | Value-Based Pricing Policy: We incorporate a value-based pricing strategy when inventories are constrained, which can happen when customer demand suddenly spikes due to external factors, supply shortage, or seasonal spikes. We set prices to reflect the value perceived by customers, especially on products under gift categories when consumer demands are higher. Contrary to a typical seller, we opt to maintain high gross margin instead of marking down prices and running special deals during the high-demand season during the fourth quarter. Therefore, business managers can achieve increases in both sales and high average ROI of 40%. |
Buy
Box on *amazon.com* is the top right section on a product page where customers can directly add items to their shopping carts. Since
many sellers on Amazon can sell the same product, they must compete to “win the Buy Box” for a certain product. Winning the
Amazon Buy Box simply means that you were chosen for the Buy Box placement. When you win this placement, customers have a button to directly
add your product to their carts, giving you an advantage over competing sellers. For a seller to be eligible for the Buy Box, they must
meet a set of performance-based requirements, including order defect rate, customer shopping experience, time and experience on the Amazon
selling platform, and status as a professional seller.
Beginning
in 2026, the Company also faced additional cost pressures from Amazon’s labeling service discontinuation and changes to the commingled
inventory policy. Prior to 2026, the Company contracted with Amazon to provide labeling and packaging (such as polybagging and bubble
wrapping) services for the Company. Effective January 1, 2026, Amazon ceased providing these services for its sellers. Accordingly, sellers,
including the Company, are now responsible for all inventory preparation prior to delivery at Amazon fulfillment centers. In response,
the Company has, among other things, (i) engaged external fulfillment partners to manage labeling and preparation, resulting in an incremental
increase in variable fulfillment costs per unit; and (ii) integrated FNSKU labeling and Amazon-compliant packaging directly into the
manufacturing process at the source, which resulted in increases to cost of revenues and selling and marketing expenses. Labeling-related
costs are expected to have an impact going forward. Although the impact is not considered material, the Company has disclosed the level
of impact for transparency; however, the Company also successfully secured more advertising fund support and negotiated better vendor
discounts. These measures helped offset rising costs and ensured that overall profitability remained stable for the six months ended
June 30, 2026.
**Recent
Developments**
*Addendum
No. 7 to Lai Employment Agreement*
On
May 15, 2026, the Company entered into Addendum No. 7 (the “Lai Addendum”) to Executive Employment Agreement, as amended,
with Sam Lai (the “Lai Agreement”), the Company’s Chairman of the Board, Chief Executive Officer, interim Chief Financial
Officer, and majority stockholder. Pursuant to the terms of the Lai Addendum, Mr. Lai’s 2026 bonus targets and payments were revised
as follows:
- If the Company grows its net profits (excluding taxes and executives’ bonuses) to at least $1,000,000 during the 2026 fiscal year, Mr. Lai will receive a bonus equal to 50% of Base Salary (as defined in the Lai Agreement).
- If the Company grows its net profits (excluding taxes and executives’ bonuses) to at least $2,000,000 during the 2026 fiscal year, Mr. Lai will receive a bonus equal to 100% of Base Salary.
The
satisfaction of the above conditions will be determined at the end of the 2026 fiscal year. For the avoidance of doubt, only one of the
above bonus amounts, if at all, will be payable.
In
addition, pursuant to the terms of the Lai Addendum, Mr. Lai is entitled to receive a guaranteed bonus of $100,000 on December 22, 2026.
*Addendum
No. 7 to Yu Employment Agreement*
Also
on May 15, 2026, the Company entered into Addendum No. 7 (the “Yu Addendum”) to Executive Employment Agreement, as amended,
with Sau Kuen (Maggie) Yu (the “Yu Agreement”), the Company’s Senior Vice President, Director and majority stockholder.
Pursuant to the terms of the Yu Addendum, Ms. Yu’s 2026 bonus targets and payments were revised as follows:
- If the Company grows its net profits (excluding taxes and executives’ bonuses) to at least $1,000,000 during the 2026 fiscal year, Ms. Yu will receive a bonus equal to 50% of Base Salary.
- If the Company grows its net profits (excluding taxes and executives’ bonuses) to at least $2,000,000 during the 2026 fiscal year, Ms. Yu will receive a bonus equal to 100% of her Base Salary.
The
satisfaction of the above conditions will be determined at the end of the 2026 fiscal year. For the avoidance of doubt, only one of the
above bonus amounts, if at all, will be payable.
In
addition, pursuant to the terms of the Yu Addendum, Ms. Yu is entitled to receive a guaranteed bonus of $100,000 on December 22, 2026.
Mr.
Lai and Ms. Yu are husband and wife, and together, they beneficially own 33,363,314 shares of the Company’s common stock, representing
approximately 94.8% of the voting power of the Company’s outstanding common stock, with each of Mr. Lai and Ms. Yu beneficially
holding 33,363,314 shares of the Company’s common stock, as each of them is deemed to indirectly beneficially own the other’s
16,681,657 shares.
*Director
Equity Issuances*
On
July 1, 2026, the Company issued 1,586 shares of Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Alan Gao and Hillary
Bui, with a fair market value of $1.8910 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.
*Fourth Amendment to Loan Agreement*
On August 10, 2026, the Company entered
into the Fourth Amendment (the “Fourth Amendment”) to Loan Agreement by and among the Company, 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
Sau Kuen Yu (the Company’s Senior Vice President, a member of the Company’s Board of Directors and a significant stockholder
of the Company). Pursuant to the terms of the Fourth Amendment, the Company agreed to repay the loan in the principal amount of $3,410,418
to Mr. Lai and Ms. Yu through monthly settlements of $200,000, commencing August 31, 2026. As amended by the Fourth Amendment, the loan
matures on December 31, 2026 and bears interest at an annual rate of 4.75%. The parties also agreed to discuss quarterly and make reasonable
efforts, subject to the Company’s normal cash reserve and expansion plan, if any, to explore the possibility of early or delayed
repayments.
**Our
Financial Position**
For
the three months ended June 30, 2026 and 2025, we generated net revenues of $33,944,191 and $27,103,106, respectively, and reported net
income of $1,051,685 and $1,177,001, respectively, and cash flow used in operating activities of $1,337,564 and $901,539, respectively.
For
the six months ended June 30, 2026 and 2025, we generated net revenues of $63,874,533 and $52,940,196, respectively, and reported net
income of $1,875,167 and $1,831,518, respectively, and cash flow used in operating activities
of $3,556,564 and $925,430, respectively.
As
noted in our unaudited consolidated financial statements, as of June 30, 2026, we had retained earnings of $2,984,841.
**Results
of Operations**
The
following table shows a comparison of our unaudited income statements for the three and six months ended June 30, 2026 and 2025.
| Line item | Three Months Ended June 30, 2026 | Three Months Ended June 30, 2025 |
| --- | --- | --- |
| Statement of Operations Data | | |
| Revenues, net | $33,944,191 | $27,103,106 |
| Cost of revenues | (15,976,053) | (11,605,754) |
| Gross profit | 17,968,138 | 15,497,352 |
| Total operating expenses | 16,683,752 | 13,876,501 |
| Income from operations | 1,284,386 | 1,620,851 |
| Total other (expenses) income, net | (26,710) | (38,170) |
| Income tax expense | (205,991) | (405,680) |
| Net income | 1,051,685 | 1,177,001 |
| Other comprehensive income | 3,959 | 154,939 |
| Total comprehensive income | $1,055,644 | $1,331,940 |
| Line item | Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 |
| --- | --- | --- |
| Statement of Operations Data | | |
| Revenues, net | $63,874,533 | $52,940,196 |
| Cost of revenues | (29,888,620) | (23,297,546) |
| Gross profit | 33,985,913 | 29,642,650 |
| Total operating expenses | 31,559,399 | 27,100,934 |
| Income from operations | 2,426,514 | 2,541,716 |
| Total other (expenses) income, net | (35,698) | (23,099) |
| Income tax expense | (515,649) | (687,099) |
| Net income | 1,875,167 | 1,831,518 |
| Other comprehensive (loss) income | (13,657) | 141,403 |
| Total comprehensive income | $1,861,510 | $1,972,921 |
***For
the three months ended June 30, 2026 compared to the three months ended June 30, 2025***
*Revenues,
Net*
The
Company generated $33,944,191 in revenues, net in the three months ended June 30, 2026, as compared to $27,103,106 in revenues, net in
the same period in 2025. This represents an increase in revenues, net of $6,841,085, or 25.2%. We attribute this increase to our continued
growth and maturity in our operating model, despite an overall e-commerce traffic slowdown and intense competition.
Our
total orders in the three months ended June 30, 2026 were approximately 1,497,189, as compared to 1,253,975 orders in the three months
ended June 30, 2025, representing an increase of 19.4%. The growth in order volume was the primary driver of revenue expansion. In addition,
the higher average order value contributed to revenue growth exceeding the pace of order growth. While competitive pricing strategies
and promotional discounts moderated unit pricing, the combination of increased order volume and sustained customer engagement resulted
in meaningful revenue gains.
*Cost
of Revenues*
Cost
of revenues for the three months ended June 30, 2026 totaled $15,976,053, as compared to $11,605,754 for the three months ended June
30, 2025. In the same period last year, the Company intentionally maintained a higher gross margin in response to tariff
concerns by preserving lower-cost inventory and gradually adjusting retail prices to help customers adapt to higher price levels. Cost of revenues includes the cost of the merchandise sold and shipping costs, as well
as estimated losses due to damage to goods. In 2026, Amazon implemented changes to its Fulfillment by Amazon (FBA) fee structure.
Beginning January 15, 2026, fulfillment fees for certain product categories were adjusted, with increases for higher-priced
standard-size items and reductions for select bulky items. In addition, effective April 17, 2026, Amazon introduced a 3.5% fuel and
logistics surcharge applicable to FBA in the United States and Canada, as well as cross-border Remote Fulfillment programs. These
changes, together with revised inventory and return handling policies, are expected to increase operating costs for sellers. The
Company has assessed that the impact is not material; however, the level of impact has been disclosed for transparency.
*Total
Operating Expenses*
Total
operating expenses for the three months ended June 30, 2026 totaled $16,683,752, representing a $2,807,251, or 20.2%, increase from the
$13,876,501 of total operating expenses for the three months ended June 30, 2025. This change was primarily caused by an increase in
selling and marketing expenses in line with the growth in revenues.
*Total
Other (Expenses) Income, Net*
Total
other expenses, net, for the three months ended June 30, 2026 was $26,710, compared to total other expenses, net, of $38,170 for the
three months ended June 30, 2025.
*Total
Comprehensive Income*
Total
comprehensive income for the three months ended June 30, 2026 was $1,055,644, as compared to $1,331,940 for the three months ended June
30, 2025. The decrease in total comprehensive income was primarily attributable to lower income from operations for the three months
ended June 30, 2026.
***For
the six months ended June 30, 2026 compared to the six months ended June 30, 2025***
*Revenues,
Net*
The
Company generated $63,874,533 in revenues, net in the six months ended June 30, 2026, as compared to $52,940,196 in revenues, net in
the same period in 2025. This represents an increase in revenues, net of $10,934,337, or 20.7%. We attribute this increase to our continued
growth and maturity in our operating model, despite an overall e-commerce traffic slowdown and intense competition.
Our
total orders in the six months ended June 30, 2026 were approximately 2,856,283, as compared to 2,483,767 orders in the six months ended
June 30, 2025, representing an increase of 15.0%. The growth in order volume was the primary driver of revenue expansion. In addition,
the higher average order value contributed to revenue growth exceeding the pace of order growth.
*Cost
of Revenues*
Cost
of revenues for the six months ended June 30, 2026 totaled $29,888,620, as compared to $23,297,546 for the six months ended June 30,
2025. The increase was in line with the growth in revenues and also reflects the changes to Amazon’s FBA fee structure and the
fuel and logistics surcharge described above.
*Total
Operating Expenses*
Total
operating expenses for the six months ended June 30, 2026 totaled $31,559,399, representing a $4,458,465, or 16.5%, increase from the
$27,100,934 of total operating expenses for the six months ended June 30, 2025. This change was primarily caused by an increase in selling
and marketing expenses in line with the growth in revenues.
*Total
Other (Expenses) Income, Net*
Total
other expenses, net, for the six months ended June 30, 2026 was $35,698, compared to total other expenses, net, of $23,099 for the six
months ended June 30, 2025.
*Total
Comprehensive Income*
Total
comprehensive income for the six months ended June 30, 2026 was $1,861,510, as compared to $1,972,921 for the six months ended June 30,
2025. The decrease in total comprehensive income was primarily attributable to the foreign currency translation adjustments, which reflected
a loss of $13,657 for the six months ended June 30, 2026, compared to a gain of $141,403 for the six months ended June 30, 2025.
**Liquidity
and Capital Resources**
Liquidity
is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had cash of $985,404
and $3,792,033 as of June 30, 2026 and December 31, 2025, 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. We have received funds from the sales of products that we sell online.
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 grow;
- The cost of being a public company;
- Marketing and advertising expenses for attracting new customers;
- Capital requirements for the development of additional infrastructure; and
- Increased costs and inventory carrying requirements associated with import tariffs and global trade policy uncertainty.
We
generate liquidity from the profitability of our ongoing business, and from debt to fund our operations.
The
following table shows a summary of our cash flows for the six months ended June 30, 2026 and 2025.
| Line item | Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 |
| --- | --- | --- |
| Statement of Cash Flows | | |
| Net cash used in operating activities | $(3,556,564) | $(925,430) |
| Net cash used in investing activities | $(5,705) | $(801) |
| Net cash provided by (used in) financing activities | $750,000 | $(839,000) |
| Effect of changes in foreign currency exchange rates | $5,640 | $(28,996) |
| Net decrease in cash | $(2,806,629) | $(1,794,227) |
| Cash - beginning of the period | $3,792,033 | $2,119,581 |
| Cash - end of the period | $985,404 | $325,354 |
*Net
Cash Used in Operating Activities*
For
the six months ended June 30, 2026, net cash used in operating activities amounted to $3,556,564, as compared to $925,430 of net cash
used in operating activities for the six months ended June 30, 2025. The increase in net cash used in operating activities was primarily
driven by higher inventory purchases during 2026 and an increase in accounts receivable resulting from changes in Amazon’s Disbursement
Policy, under which daily remittances are now delayed by seven days. As part of our strategy to ensure product availability and mitigate
supply chain risks under evolving trade policies and in light of discontinuation of Amazon’s labeling service, we invested more
heavily in inventory.
Despite
the increase in revenues to $63,874,533 for the six months ended June 30, 2026, as compared to $52,940,196 for the six months ended June
30, 2025, the increase in revenues was offset by a corresponding increase in cost of revenues of $6,591,074 and an increase in operating
expenses of $4,458,465.
*Net
Cash Used in Investing Activities*
For
the six months ended June 30, 2026, $5,705 in net cash was used in investing activities, compared to $801 in net cash used in investing
activities for the six months ended June 30, 2025. The increase primarily reflects higher purchases of property and equipment for the
six months ended June 30, 2026.
*Net
Cash Provided by (Used in) Financing Activities*
For
the six months ended June 30, 2026, net cash provided by financing activities amounted to $750,000, as compared to net cash used in financing
activities of $839,000 for the six months ended June 30, 2025. The net cash inflow for the six months ended June 30, 2026 was primarily
due to advances of $1,634,000 received from related parties, partially offset by repayments of $884,000 made to related parties. The
cash outflow for the six months ended June 30, 2025 was primarily due to repayments made to related parties.
**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 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.
*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”).
As amended, the line of credit matures on November 13, 2026 and bears interest at a rate of 3.42% per annum. As of June 30, 2026 and December
31, 2025, the outstanding balance under the Taishin line of credit was $628,931 and $637,348, respectively.
*Affiliated
Loans*
From
time to time, we receive loans and advances from our stockholders to fund our operations. As of June 30, 2026, we had a total of $3,410,418
due to related parties, which included $3,410,418 in stockholder payables and $0 accrued for bonuses. As of December 31, 2025, we had
a total of $3,810,418 due to related parties, which included $2,660,418 in stockholder payables and $1,150,000 accrued for bonuses. While
stockholder payables are generally non-interest bearing and payable on demand, we and our stockholders have entered into loan agreements
for loans with terms over one year.
July
2021 Loan
On
July 27, 2021, the Company, Mr. Lai and Ms. Yu entered into a loan agreement with a principal amount of $4,170,418. The loan is subordinated.
As amended, the loan matures on December 31, 2026 and has an annual interest rate of 4.75%.
*Leases*
We
have two operating leases (Flywheel has two office leases in Taiwan). The respective lease terms are June 10, 2025 to July 9, 2027, and
December 1, 2025 to November 30, 2028, respectively.
| For the Year Ending June 30, | Amount |
| --- | --- |
| 2026 (remainder) | $46,397 |
| 2027 | 60,520 |
| 2028 | 26,535 |
| 2029 and thereafter | - |
| Total minimum lease payments | 133,452 |
| Less: effect of discounting | (3,953) |
| Present value of the future minimum lease payment | 129,499 |
| Less: operating lease liabilities-current | (91,142) |
| Total operating lease liabilities-non-current | $38,357 |
**Use
of Estimates** - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Significant
estimates include, but are 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.
**Cash
and Cash Equivalents** - The Company considers all highly liquid financial instruments purchased with original maturities of three
months or less to be cash. The Company’s cash is held in the bank and covered by the Federal Deposit Insurance Corporation (“FDIC”),
subject to applicable limits. Deposits are insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category. Cash
equivalents and marketable securities are comprised of time deposits, money market funds, highly liquid government bonds, corporate debt
securities, mortgage-backed and asset-backed securities, and marketable equity securities. The Company’s cash and cash equivalents
primarily consisted of cash and money market funds. Such amounts are recorded at fair value.
**Accounts
Receivable and Allowance for Credit Losses** - Accounts receivable are stated at historical cost less allowance for credit loss. On
a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance for credit losses in accordance
with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic
326. Credit losses are provided based on a past history of write-offs, collections, current credit conditions, current economic conditions,
reasonable and supportable forecasts of future economic conditions. The evaluation is performed on a collective basis where similar characteristics
exist, primarily based on similar services or products offerings. The Company 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 seven days. The Company performs on-going evaluations of its customers and maintains an allowance for credit losses as the Company
deems necessary or appropriate. As of June 30, 2026 and December 31, 2025, the Company did not deem it necessary to have an allowance
for credit loss.
**Inventory
and Cost of Goods Sold** - The Company’s inventory consists mainly of finished goods. Inventories are stated at the lower of
cost or net realizable value. Cost is principally determined on a first-in-first-out basis. The Company’s costs include the amounts
it pays manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs
associated with transporting the product from its manufacturers to its warehouses, as applicable. The merchandise with terms of FOB shipping
point from vendors was recorded as the inventory-in-transit when inventory left the shipping dock of the vendors but not yet reached
the receiving dock of the Company. Management continually evaluates its estimates and judgments including those related to merchandise
inventory.
The
“Cost of revenues” line item in the unaudited consolidated statements of operations is principally inventory sold to customers
during the reporting period.
Policy
for inventory allowance: The Company writes down the cost of obsolete and slow-moving inventories to the estimated net realizable value,
based on inventory obsolescence trends, historical experience, forecasted consumer demand and application of the specific identification
method. As of June 30, 2026 and December 31, 2025, $370,981 and $447,841, respectively, were written down from the cost of inventories
to their net realizable values. Full inventory allowance is recorded for the inventory SKU not sold
for more than one year.
**Property
and Equipment** - Property and equipment are recorded at cost and depreciated or amortized over the estimated useful life of the asset
using the straight-line method. The Company elected to expense any individual property and equipment items under $2,500.
The
majority of the Company’s property and equipment is computers, and the estimated useful life is three years.
**Impairment
of Long-lived Assets**- In accordance with ASC 360-10-35-17, if the carrying amount of an asset or asset group (in use or under development)
is evaluated and found not to be fully recoverable (the carrying amount exceeds the estimated gross, undiscounted cash flows from use
and disposition), then an impairment loss must be recognized. The impairment loss is measured as the excess of the carrying amount over
the asset’s (or asset group’s) fair value. The Company did not record any impairment charges for the three and six months
ended June 30, 2026 and 2025.
**Leases
-** Leases are classified at lease commencement date as either a finance lease or an operating lease. A lease is a finance lease if
it meets any of the following criteria: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease
term, (b) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (c)
the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the sum of the
lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds
substantially all of the fair value of the underlying asset or (e) the underlying asset is of such a specialized nature that it is expected
to have no alternative use to the lessor at the end of the lease term. When none of the foregoing criteria is met, the lease shall be
classified as an operating lease.
The
Company typically utilizes operating leases for its office space requirements. This means that the Company leases office space, categorizing
the lease arrangement as an operating lease. Under this arrangement, the Company does not hold ownership of the leased assets but instead
pays rent for the right to use them.
For
a lessee, a lease is recognized as an operating lease right-of-use asset with a corresponding liability at lease commencement date. The
lease liability is calculated at the present value of the lease payments not yet paid by using the lease term and discount rate determined
at lease commencement. The operating lease right-of-use asset is calculated as the lease liability, increased by any initial direct costs,
and prepaid lease payments, reduced by any lease incentives received before lease commencement. The operating lease right-of-use asset
itself is amortized on a straight-line basis unless another systematic method better reflects how the underlying asset will be used by
and benefits the lessee over the lease term.
**Fair
Value Measurement** - Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
at the measurement date. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable,
accounts payable, due to related parties and short-term debt at fair value or cost, which approximates fair value because of the short
period of time between the origination of such instruments and their expected realization and their current market rates of interest.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes
the inputs to valuation methodologies used to measure fair value:
i. Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
ii. Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
iii. Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
**Revenue
Recognition** - The Company accounts for revenues in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company
adopted ASC Topic 606 as of January 1, 2019. The standard did not affect the Company’s consolidated financial position, or cash
flows. There were no changes to the timing of revenue recognition as a result of the adoption.
The
Company recognizes revenues 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 revenues when or as performance obligations are satisfied.
The
Company evaluated principal versus agent considerations to determine whether it is appropriate to record platform fees paid to Amazon
as an expense or as a reduction of revenue. Platform fees are recorded as sales and distribution expenses and are not recorded as a reduction
of revenues because the Company as principal owns and controls all the goods before they are transferred to the customer. The Company
can, at any time, direct Amazon, similarly, other third-party logistics providers (“Logistics Providers”), to return the
Company’s inventories to any location specified by the Company. It is the Company’s responsibility to make any returns made
by customers directly to Logistics Providers and the Company retains the back-end inventory risk. Further, the Company is subject to
credit risk (i.e., credit card chargebacks), establishes prices of its products, can determine who fulfills the goods to the customer
(Amazon or the Company) and can limit quantities or stop selling the goods at any time. Based on these considerations, the Company is
the principal in this arrangement.
The
Company derives its revenues from the sale of consumer products. The Company sells its products directly to consumers through online
retail channels. The Company considers customer order confirmations to be a contract with the customer. For each contract, the promise
to transfer products is identified as the sole performance obligation. Transaction prices are evaluated for potential refunds or adjustments,
determining the net consideration expected. Revenues for the three and six months ended June 30, 2026 and 2025 were recognized at a point
in time. Customer confirmations are executed at the time an order is placed through third-party online channels. For all of the Company’s
sales and distribution channels, revenues are recognized when control of the product is transferred to the customer (i.e., when the Company’s
performance obligation is satisfied), which typically occurs at shipment date. As a result, the Company has a present and unconditional
right to payment and record the amount due from the customer in accounts receivable.
The
customer can return 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 6.90% and 6.92% of gross sales for the six months ended June 30, 2026 and 2025, respectively.
From
time to time, the Company offers price discounts on certain selected items to stimulate the sales of those items. Revenues are 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 revenues to calculate the net revenues recorded on the statement
of operations.
A
performance obligation, defined as the promise to transfer a distinct good, is the unit of account in ASC Topic 606. The Company
treats shipping and handling as fulfillment activities, not separate performance obligations. Costs for shipping and handling were
$13,887,211 and $11,659,356 for the six months ended June 30, 2026 and 2025, 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” to determine reportable operating segments. The management approach considers the
internal organization and reporting used by the Company’s chief operating decision maker (“CODM”) for making operating
decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s CODM has
been identified as the chief executive officer of the Company who reviews financial information of separate operating segments based
on U.S. GAAP. The CODM now reviews results analyzed by customers. This analysis is only presented at the revenue level with no allocation
of direct or indirect costs. Consequently, the Company has determined that it has only one operating segment.
**Income
Taxes** - Income tax expense includes U.S. (federal and state) and foreign income taxes.
The
Company also complied with state tax codes and regulations, including with respect to California franchise taxes. Management has evaluated
its tax positions and has concluded that the Company had taken no uncertain tax positions that could require adjustment or disclosure
in the financial statements to comply with provisions set forth in ASC Section 740, *Income Taxes*.
Deferred
tax assets represent amounts available to reduce income taxes payable in future periods. Deferred tax assets are evaluated for future
realization and reduced by a valuation allowance to the extent the Company believe they will not be realized. The Company considers many
factors when assessing the likelihood of future realization of its deferred tax assets, including recent cumulative loss experience and
expectations of future earnings, capital gains and investment in such jurisdiction, the carry-forward periods available to the Company’s
for tax reporting purposes, and other relevant factors.
**Presentation
of Sales Taxes** - Governmental authorities impose sales tax on all of the Company’s sales to nonexempt customers. The Company
collects sales tax from customers and remits the entire amount to the governmental authorities. The Company’s accounting policy
is to exclude the tax collected and remitted from revenues and cost of revenues.
**Concentration
of Credit Risks -** Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of
cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with various domestic and foreign
financial institutions of high credit quality. The Company performs periodic evaluations of the relative credit standing of all of the
aforementioned institutions.
The
Company maintains reserves for potential credit losses on customer accounts when deemed necessary. Significant customers are those which
represent more than 10% of the Company’s total net revenues or gross accounts receivable balance at the balance sheet date. During
the three and six months ended June 30, 2026 and 2025, the Company had no customer that accounted for 10% or more of total net revenues.
In addition, as of June 30, 2026 and December 31, 2025, the Company had no customer that accounted for 10% or more of gross accounts
receivable. As of June 30, 2026 and December 31, 2025, 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 disbursement from Amazon to the Company usually takes approximately
14 days.
The
Company’s business is reliant on one key vendor which currently provides the Company with its sales platform, logistics and fulfillment
operations, including certain warehousing for the Company’s net goods, and invoicing and collection of its revenues from the Company’s
end customers. During the six months ended June 30, 2026 and 2025, approximately 97% and 99%, respectively, of the Company’s revenues
were through or with the Amazon sales platform.
**Foreign
Currency Exchange Risk** - The Company is exposed to foreign currency exchange risk through its foreign subsidiary in Taiwan. The Company
does not hedge foreign currency translation risk in the net assets and income reported from these sources.
**Advertising
and Promotion Expenses** – The Company’s policy is to recognize advertising costs as they are incurred. Advertising and
promotion expenses were $2,823,018 and $964,824 for the six months ended June 30, 2026 and 2025, respectively.
**Commitments
and Contingencies** - Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other
sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred
in connection with loss contingencies are expensed as incurred.
**Related
Parties** - The Company accounts for related party transactions in accordance with FASB ASC Topic 850 (Related Party Disclosures).
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls,
is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company may
deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of
the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence
the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing
its own separate interests is also a related party.
**Earnings
per Share -** The Company computes basic earnings per common share using the weighted-average number of shares of common stock outstanding
during the period. For the period in which the Company reports net losses, diluted net loss per share attributable to stockholders is
the same as basic net loss per share attributable to stockholders, because potentially dilutive common shares are not assumed to have
been issued if their effect is anti-dilutive. There were no dilutive securities or other items that would affect earnings per share for
the three and six months ended June 30, 2026 and 2025. Therefore, the diluted earnings per share is the same as the basic earnings per
share.
**Shares
Issued for Services** – Stock-based compensation cost for all equity-classified stock awards expected to vest is measured at
fair value on the date of grant and recognized over the service period.
**ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
Not
applicable.
**ITEM
4. CONTROLS AND PROCEDURES**
*Evaluation
of Disclosure Controls and Procedures*
Disclosure
controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed
under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time period specified in the
SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated
and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure. Our management evaluated, with the participation of our chief executive officer and chief financial
officer, the effectiveness of our disclosure controls and procedures as of June 30, 2026, pursuant to Rule 13a-15(b) under the Exchange
Act. Based upon that evaluation, our chief executive officer and our chief financial officer concluded that, as of June 30, 2026, our
disclosure controls and procedures were effective.
We
do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and
procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there
are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure
controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all
our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
*Changes
in Internal Control Over Financial Reporting*
There
were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
**PART
II - OTHER INFORMATION**
**ITEM
1. LEGAL PROCEEDINGS**
From
time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To 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
1A. RISK FACTORS**
As
a smaller reporting company, we are not required to disclose material changes to the risk factors that were contained in our Annual Report
on Form 10-K for the year ended December 31, 2025, as updated from time to time.
**ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**
On July 1, 2026, the Company issued 1,586 shares of
Company common stock to each of Sam Lai, Maggie Yu, Michael Lenner, Alan Gao and Hillary Bui, with a fair market value of $1.8910 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.
These
shares were issued pursuant to an exemption from the registration requirements of the Securities Act available to us by Section 4(a)(2)
promulgated thereunder.
**ITEM
3. DEFAULTS UPON SENIOR SECURITIES**
There
have been no defaults in any material payments during the covered period.
**ITEM
4. MINE SAFETY DISCLOSURES**
Not
applicable.
**ITEM
5. OTHER INFORMATION**
(a)
On August 10, 2026, the Company entered into the Fourth Amendment (the “Fourth Amendment”) to Loan Agreement by and
among the Company, 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 Sau Kuen Yu (the Company’s Senior Vice President, a member of the
Company’s Board of Directors and a significant stockholder of the Company). Pursuant to the terms of the Fourth Amendment, the
Company agreed to repay the loan in the principal amount of $3,410,418 to Mr. Lai and Ms. Yu through monthly settlements of
$200,000, commencing August 31, 2026. As amended by the Fourth Amendment, the loan matures on December 31, 2026 and bears interest
at an annual rate of 4.75%. The parties also agreed to discuss quarterly and make reasonable efforts,
subject to the Company’s normal cash reserve and expansion plan, if any, to explore the possibility of early or delayed repayments.
The foregoing description of the Fourth Amendment is qualified in its entirety by reference to the complete terms and conditions of the
Fourth Amendment, a copy of which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q, and is incorporated by reference herein.
(b)
There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since
we last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.
(c)
During the registrant’s last fiscal quarter, no director or officer adopted or terminated: (i) any contract, instruction or written
plan for the purchase or sale of securities of the registrant intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)
(a “Rule 10b5-1 trading arrangement”); and/or (ii) any “non-Rule 10b5-1 trading arrangement” as defined in Item
408(c) of Regulation S-K.
**ITEM
6. EXHIBITS**
| Exhibit Number | Description of Document |
| --- | --- |
| 10.1† | Addendum No. 7 to Executive Employment Agreement, dated as of May 15, 2026, between the registrant and Sam Lai (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on May 18, 2026). |
| 10.2† | Addendum No. 7 to Executive Employment Agreement, dated as of May 15, 2026, between the registrant and Sau Kuen Yu (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on May 18, 2026). |
| 10.3* | Fourth Amendment to Loan Agreement, dated August 10, 2026, by and among the registrant, Sam Lai and Sau Kuen Yu. |
| 31.1* | Rule 13a-14(a) Certification of Principal Executive Officer. |
| 31.2* | Rule 13a-14(a) Certification of Principal Financial Officer. |
| 32.1** | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Principal Executive Officer and Principal Financial Officer. |
| 101.INS* | Inline XBRL Instance Document |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
\* Filed herewith.
\*\* Furnished herewith.
† Management contracts, compensation plans and arrangements.
**SIGNATURES**
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
**HOUR LOOP, INC.**
Dated: August 11, 2026 By: */s/ Sam Lai*
Sam Lai
Chief Executive Officer and Interim Chief Financial Officer (principal executive officer, principal financial officer and principal accounting officer)
---
## EX-10.3
SEC source: [ex10-3.htm](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/ex10-3.htm)
**Exhibit
10.3**
**FOURTH
AMENDMENT TO**
**LOAN
AGREEMENT**
This
FOURTH AMENDMENT TO LOAN AGREEMENT (the “4th Amendment”) is made on August 10, 2026, by and among Hour
Loop, Inc. (the “Borrower”), Sam Lai, and Sau Kuen Yu (together as “Lenders”). Borrower and Lenders shall collectively
be known herein as the “Parties”.
**WHEREAS**,
the Parties have entered into a Loan Agreement, dated as of September 16, 2021 (the “Agreement”), pursuant to which
the Lenders have agreed to grant to the Borrower a loan (the “Loan”) of estimated amount to be $4,038,208; and
**WHEREAS**,
the principal amount is then determined to be $4,170,418.
The accrued and unpaid interest amount is $120,002.92 (the “Interest Payable”) as of December 31, 2022; and
**WHEREAS**,
the Parties have entered into an AMENDMENT TO LOAN AGREEMENT, dated as of December 28, 2022 (the “Amendment”) with agreed
tenor of 2 year, pursuant to which the principal amount, $4,170,418, should be payable as of December 31, 2024; and
**WHEREAS,** the principal repayment is then determined to be $1,000,000 and the accrued and unpaid interest amount is $229,372.99 as of
December 31, 2024, in which the Lenders agreed the deposits from the Borrower could be settled before January
31, 2025 subject to the Borrower’s normal cash reserve as Amendment states; and
**WHEREAS**,
the Parties have entered into a SECOND AMENDMENT TO LOAN AGREEMENT, dated as of December 24, 2024 (the “2nd Amendment”)
with agreed tenor of 1 year, pursuant to which the principal amount, $3,170,418, should be payable as of December 31, 2025; and
**WHEREAS**,
the Parties have entered into a THIRD AMENDMENT TO LOAN AGREEMENT, dated as of December 22, 2025 (the “3rd Amendment”),
with an agreed tenor of 1 year, pursuant to which the principal amount was $2,660,418, of which the Parties made six repayments totaling
$600,000 between January 29, 2026 and March 27, 2026, leaving a remaining principal balance of $2,060,418 as of March 27, 2026; and
**WHEREAS**,
as set forth in the transaction schedule attached hereto as Schedule A and incorporated herein by reference, between April 1, 2026, and
August 10, 2026, Lenders made a series of advances to Borrower (collectively, the “Advances”), against which Borrower made
corresponding repayments, resulting in an increase to the outstanding principal amount of the Loan of $1,350,000 as of August 10, 2026;
and
**WHEREAS**,
after giving effect to the foregoing, the Parties agree that the outstanding principal amount of the Loan as of August 10, 2026 is $3,410,418
(comprised of the $2,060,418 remaining under the 3rd Amendment plus $1,350,000 in additional advances set forth in Schedule A) (the “Outstanding
Principal Balance”), and the Parties desire to amend the Agreement to reflect the Outstanding Principal Balance and the other terms
set forth below;
**WHEREAS**,
during the period from April 1, 2026 through August 10, 2026, interest continued to accrue on the outstanding principal amount of the
Loan at the annual rate of four-point-seventy-five percent (4.75%) simple interest in accordance with the Agreement, and such accrued
interest shall be calculated and paid separately from the Principal Amount; and
**WHEREAS**, the Parties have agreed to modify certain terms and conditions in the 3rd Amendment
subject to the Borrower’s expansion plan.
**NOW,
THEREFORE**, it is agreed as follows:
1. Definition. Except as otherwise expressly defined herein, all terms used herein shall have the meanings ascribed thereto in the Agreement.
| 2. | 4th Amendment. The parties hereto expressly agree that the terms and conditions of the Agreement be amended as follows: |
| --- | --- |
(1) Principal Amount: The Principal Amount of the Loan is $3,410,418.
(2) Tenor: The tenor of the Loan, as amended hereby, shall continue through the Maturity Date of December 31, 2026.
(3) Repayments: The Principal Amount shall be repaid through monthly settlements of $200,000, commencing August 31, 2026, and continuing on the last day of each calendar month thereafter, with any remaining outstanding balance of the Principal Amount due and payable in full on the Maturity Date.
Notwithstanding
the foregoing, the Parties agree to discuss quarterly and make reasonable efforts, subject to the Borrower’s normal cash reserve
and expansion plan (if any), to explore the possibility of early or delayed repayments.
(4) Interest rate: The Loan shall bear interest at an annual rate of four-point-seventy-five percent (4.75%) simple interest. Interest shall be paid annually.
Notwithstanding
the foregoing, the Parties agree to discuss annually and make reasonable efforts, subject to the Borrower’s normal cash reserve
and expansion plan (if any), to explore the possibility of early or delayed payment of interest.
3. Cross Reference. The Agreement as amended hereby shall, from and after the date hereof, be read as a single integrated document incorporating the amendments effected hereby and each reference to the terms, “Agreement”, “hereof”, “hereunder” and words of similar import contained in the Agreement shall, as applicable, from and after the date hereof, be deemed to be references to the Agreement, as amended by this 4th Amendment and each such reference (and each reference to the term “Agreement”) in all other documents related thereto shall be deemed to be a reference to the Agreement as amended hereby.
4. Entire Agreement. The Agreement as amended by this 4th Amendment constitutes the complete and exclusive understanding and agreement between the Parties regarding its subject matter and supersedes all prior or contemporaneous agreements or understandings, whether written or oral, relating to its subject matter.
5. Governing Law. This 4th Amendment shall be governed by, and interpreted in accordance with, the laws of the State of Washington.
6. Continuing Effect. The terms and conditions of the Agreement, except as expressly amended, supplemented and modified herein, shall remain unchanged and in full force and effect.
**IN
WITNESS WHEREOF**, the Parties hereto have executed this 4th Amendment on the date first above written.
Borrower: Hour Loop, Inc.
By: */s/ Sam Lai* Print: Sam Lai, CEO Date: 8/10/2026
(Name , Title)
Lender’s Signature: */s/ Sam Lai* Print: Sam Lai Date: 8/10/2026
Lender’s Signature: */s/ Sau Kuen Yu* Print: Sau Kuen Yu Date: 8/10/2026
**Schedule
A — Loan Advances and Repayments**
*(December
31, 2025 through August 10, 2026)*
| Date | Advance (Debit) | Repayment (Credit) | Outstanding Principal Balance |
| --- | --- | --- | --- |
| 12/31/2025 | — | — | $2,660,418 |
| 1/29/2026 | — | $100,000 | $2,560,418 |
| 1/29/2026 | — | $100,000 | $2,460,418 |
| 2/26/2026 | — | $100,000 | $2,360,418 |
| 2/26/2026 | — | $100,000 | $2,260,418 |
| 3/26/2026 | — | $100,000 | $2,160,418 |
| 3/27/2026 | — | $100,000 | $2,060,418 |
| 4/1/2026 | — | $20,000 | $2,040,418 |
| 4/2/2026 | $600,000 | — | $2,640,418 |
| 4/2/2026 | $270,000 | — | $2,910,418 |
| 4/2/2026 | — | $6,000 | $2,904,418 |
| 4/3/2026 | $256,000 | — | $3,160,418 |
| 4/7/2026 | — | $10,000 | $3,150,418 |
| 4/8/2026 | $10,000 | — | $3,160,418 |
| 4/8/2026 | $350,000 | — | $3,510,418 |
| 4/16/2026 | — | $15,000 | $3,495,418 |
| 4/17/2026 | $15,000 | — | $3,510,418 |
| 4/21/2026 | $100,000 | — | $3,610,418 |
| 5/26/2026 | — | $17,000 | $3,593,418 |
| 5/27/2026 | $17,000 | — | $3,610,418 |
| 5/28/2026 | — | $100,000 | $3,510,418 |
| 5/28/2026 | — | $100,000 | $3,410,418 |
| 6/4/2026 | — | $16,000 | $3,394,418 |
| 6/5/2026 | $16,000 | — | $3,410,418 |
| 7/7/2026 | — | $25,000 | $3,385,418 |
| 7/8/2026 | $25,000 | — | $3,410,418 |
| 8/7/2026 | $300,000 | — | $3,710,418 |
| 8/10/2026 | — | 300,00 | $3,410,418 |
---
## EX-31.1
SEC source: [ex31-1.htm](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/ex31-1.htm)
**Exhibit
31.1**
**CERTIFICATIONS**
I,
Sam Lai, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 of Hour Loop, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; and
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; and
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
August 11, 2026
*/s/ Sam Lai*
Sam Lai
Chief Executive Officer and Interim Chief Financial Officer (principal financial officer)
---
## EX-31.2
SEC source: [ex31-2.htm](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/ex31-2.htm)
**Exhibit
31.2**
**CERTIFICATIONS**
I,
Sam Lai, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 of Hour Loop, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; and
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; and
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
August 11, 2026
*/s/ Sam Lai*
Sam Lai
Chief Executive Officer and Interim Chief Financial Officer (principal financial officer)
---
## EX-32.1
SEC source: [ex32-1.htm](https://www.sec.gov/Archives/edgar/data/1874875/000149315226037151/ex32-1.htm)
**Exhibit
32.1**
**CERTIFICATION**
**PURSUANT
TO 18 U.S.C. SECTION 1350,**
**AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**
In
connection with the Quarterly Report on Form 10-Q of Hour Loop, Inc. (the “Company”) for the quarter ended June 30, 2026
as filed with the Securities and Exchange Commission (the “Report”), I, Sam Lai, Chief Executive Officer and Interim Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of
the Company.
Date: August 11, 2026 */s/ Sam Lai*
Sam Lai
Chief Executive Officer and Interim Chief Financial Officer (principal executive officer and principal financial officer)
*This
certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not,
except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it
by reference.*