# Hour Loop, Inc: Form 10-Q for the period ended Mar 31, 2023

- Company: [Hour Loop, Inc](/companies/hour.md) (CIK 1874875)
- Form: 10-Q
- Filed: 2023-05-12
- Accepted by EDGAR: May 12, 2023, 12:15 ET
- Period: 2023-03-31
- Accession: 0001493152-23-016503
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1874875/000149315223016503/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1874875/000149315223016503/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $21.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $11.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $9.6m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$1.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $56.6k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | −$425.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$1.2m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.04 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$3.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $3.4k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $1.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $16.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $17.6m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $7.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $12.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $5.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,027 characters.

*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. (“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 the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, 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 the future financial performance of the Company. 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* since 2013. We have also sold merchandise on our website at *www.hourloop.com* since 2013. We expanded our operations to other marketplaces such as Walmart, eBay and Etsy in the third quarter of 2020, 2022, and 2023, respectively. To date, we have generated practically all of our revenue as a third-party seller on *www.amazon.com* and only a negligible amount of revenue from our operations on our website at *www.hourloop.com* and as a third-party seller on other marketplaces. 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). In future years, we plan to expand our business rapidly by increasing the number of 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 other marketplaces is similar. We pay other marketplaces fees for allowing us to sell our merchandise on its platform. As stated above, to date, we have generated only a negligible amount of revenues as a third-party seller on other marketplaces.

The advantages of selling via a wholesale model include the following:

- Purchasing 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; and
- We believe more brands 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.com (as described below); and
- Developing and maintaining relationships with brand manufacturers.

### Market Description/Opportunities

Total U.S.retail sales increased 8% to $7.10 trillion in 2022 from $6.56 trillion in 2021. Consumers spent $1,032.82 billion online with U.S. merchants in 2022, which is around 14.55% of total retail sales for the year compared to 13.52% in 2021. Amazon accounted for nearly 40% of all e-commerce in the United States, which makes Amazon the biggest ecommerce giant currently in the U.S. market.

### Formation

We were originally incorporated under the laws of the State of Washington on January 13, 2015. In 2019, we formed a wholly owned subsidiary, Flywheel Consulting Ltd. (“Flywheel”), to provide business operating consulting services, exclusively to Hour Loop. On April 7, 2021, Hour Loop converted from a Washington corporation to a Delaware corporation. The Company was founded in 2013 by Sam Lai and Maggie Yu. With their vision, leadership, and software development skills, the Company grew rapidly. From 2013 to 2022, sales grew from $0 to $95,930,091.

### Competitive Advantage

Among more than 2 million active third-party sellers on Amazon, we believe we have two main competitive advantages:

- First, we have strong operations and sales teams experienced in listing, shipment, advertising, reconciliation and sales. 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. We 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 lessons learned from historical data. The combination of managing the business operations effectively along with allocating our advertising budget to high value items allows us to generate more revenue. In cases where the advertising is fierce, we allocate the 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.

### Our Financial Position

For the three months ended March 31, 2023 and 2022, we generated net revenues of $21,067,609 and $12,353,983, respectively, and reported a net loss of $1,235,244 and $644,888, respectively, and cash flow provided by operating activities of $3,130,034 and $7,924,471, respectively. As noted in our unaudited condensed consolidated financial statements, as of March 31, 2023, we had retained earnings of $(58,172).

### Results of Operations

The following table shows a comparison of our unaudited income statements for the three months ended March 31, 2023 and 2022.

| Statement of Operations Data | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Total revenues | $21,067,609 | $12,353,983 |
| Total cost of goods sold | (11,451,907) | (5,897,269) |
| Gross profit | 9,615,702 | 6,456,714 |
| Total operating expenses | 11,220,157 | 7,202,066 |
| Loss from operations | (1,604,455) | (745,352) |
| Total other non-operating expense | (55,745) | (82,069) |
| Income tax provision | 424,956 | 182,533 |
| Net loss | (1,235,244) | (644,888) |
| Other comprehensive income (loss) | 1,339 | (2,416) |
| Total comprehensive loss | $(1,233,905) | $(647,304) |

#### Revenue

We generated $21,067,609 in revenues in the three months ended March 31, 2023, as compared to $12,353,983 in revenues in the same period in 2022. This represents an increase in revenues of $8,713,626, or 70.53%. We attribute this increase to our continued growth and maturity in our operating model, despite the overall e-commerce traffic slowdown and intense competition. Our total orders in the three months ended March 31, 2023 were approximately 912,444, as compared to 527,560 orders in the three months ended March 31, 2022, representing an increase of 72.96%.

#### Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2023, totaled $11,451,907, as compared to $5,897,269 for the three months ended March 31, 2022. Cost of goods sold includes the cost of the merchandise sold and shipping costs, as well as estimated losses due to damage to goods. The increase in cost of goods sold was due to a greater number of items sold as a result of the greater number of orders in the current period.

#### Operating Expenses

Operating expenses for the three months ended March 31, 2023, totaled $11,220,157, a $4,018,091, or 55.79%, increase from the $7,202,066 of operating expenses for the three months ended March 31, 2022. This change was caused by an increase in platform fees paid to Amazon, a significant increase in the number of employees and increased legal and professional fees. The Amazon fees are proportional to revenues. The increase in revenues in the three months ended March 31, 2023 over the same period in 2022 drove the increase in platform fees.

#### Other Expense

Other expense for the three months ended March 31, 2023, was $55,745, compared to $82,069 for the three months ended March 31, 2022. The increase was mainly due to accrued interest from due to related parties.

#### Total Comprehensive Loss

Total comprehensive loss for the three months ended March 31, 2023, was $1,233,905, as compared with $647,304 for the three months ended March 31, 2022. The increase in total comprehensive loss was driven by an increase in our operating expenses in the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

### 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 $1,274,791 and $7,664,095 as of March 31, 2023 and 2022, 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 grows;
- The cost of being a public company;
- Marketing and advertising expenses for attracting new customers; and
- Capital requirements for the development of additional infrastructure.

Since inception, we have generated liquidity from revenues generated by our ongoing business, from debt and from the Company’s initial public offering to fund our operations.

The following table shows a summary of our cash flows for the three months ended March 31, 2023 and 2022.

| Statement of Cash Flows | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(3,130,034) | $(7,924,471) |
| Net cash used in investing activities | $(3,379) | $(125,468) |
| Net cash (provided by) used in financing activities | $(159,042) | $5,132,172 |
| Effect of changes in foreign currency rates | $4,657 | $(10,710) |
| Net decrease in cash | $(3,287,798) | $(2,928,477) |
| Cash - beginning of the period | $4,562,589 | $10,592,572 |
| Cash - end of the period | $1,274,791 | $7,664,095 |

#### Net Cash Used in Operating Activities

For the three months ended March 31, 2023, cash used in operating activities amounted to $3,130,034, as compared to $7,924,471 of cash used in operating activities for the three months ended March 31, 2022. This was driven by our net loss of $1,235,244 for the three months ended March 31, 2023, as compared to $644,888 for the same period in 2022.

Despite the increase in revenue to $21,071,895 for the three months ended March 31, 2023, as compared to $12,353,983 for the three months ended March 31, 2022, the revenue increase was offset by a corresponding increase in cost of goods sold of $5,554,638 and an increase in operating expenses of $4,108,091.

#### Net Cash Used in Investing Activities

For the three months ended March 31, 2023, $3,379 in cash was used in investing activities, compared to $125,468 in cash used in investing activities for the three months ended March 31, 2022.

#### Net Cash (Used in) Provided by Financing Activities

For the three months ended March 31, 2023, cash used in financing activities amounted to $(159,042), as compared to cash provided by financing activities of $5,132,172 for the three months ended March 31, 2022. The cash used in financing activities in the three months ended March 31, 2023 was mainly due to repayments from 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.

#### Bank of America Loan

On June 18, 2019, the Company issued a Promissory Note (the “BofA Note”) in the amount of $785,000 to Bank of America for a loan in the amount of $785,000. The BofA Note matures on June 18, 2024 and bears interest at a rate of 8.11% per annum. The monthly payment is $15,963, consisting of $11,398 of principal and $4,565 of interest. As of March 31, 2023, the aggregate principal amount of the BofA Note outstanding was $-. As of March 31, 2023, there was an outstanding balance of deferred interest of $27,996.

#### Taishin International Bank

On August 18, 2022, Flywheel, entered into a line of credit agreement in the amount of $6,940,063 with Taishin International Bank (“Taishin”). The line of credit matures on August 30, 2023. As of March 31, 2023, the outstanding balance under the Taishin line of credit was $657,895, and bears interest at a rate of 3.2% per annum. Also, Flywheel has accrued interest expense of $1,788 as of March 31, 2023.

#### Affiliated Loans

From time to time, the Company receives loans and advances from its stockholders to fund its operations. As of March 31, 2023, the Company had $4,226,996 due to related parties. While stockholder payables are non-interest bearing and payable on demand, the Company and stockholders entered into loan agreements for loans with terms over one year.

#### December 2020 Loan

On December 30, 2020 and later modified on September 16, 2021, the Company, Mr. Lai and Ms. Yu entered into a loan agreement of $1,041,353 and converted it into a retroactive interest-bearing (2%) loan with a repayment date of December 31, 2021. On January 18, 2022, the Company repaid the loan in full. Together, Mr. Lai and Ms. Yu hold over 95% of the Company’s outstanding shares. Mr. Lai is the Company’s Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer. Ms. Yu is the Company’s Senior Vice President and a member of the Company’s Board of Directors.

#### 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. The original annual interest rate was 2% and the original repayment date was December 31, 2022. On December 28, 2022, the Company, Mr. Lai and Ms. Yu agreed to extend the term of the loan, with the new maturity date of December 31, 2024. As amended, the annual interest rate of the loan is 5.5%. The Company had accrued interest of $56,578 as of March 31, 2023.

#### Leases

The Company has four operating leases (Flywheel has four offices lease in Taiwan). The respective lease terms are January 1, 2022 to December 31, 2023, June 1, 2022 to May 31, 2024, August 1, 2022 to July 31, 2024 and February 9, 2023 to March 8, 2025, respectively.

| For the Year Ending March 31, | Amount |
| --- | ---: |
| 2023 | $313,653 |
| 2024 | 84,057 |
| 2025 | 2,470 |
| 2026 | - |
| 2027 and thereafter | - |
| Total minimum lease payments | 400,180 |
| Less: effect of discounting | (12,552) |
| Present value of the future minimum lease payment | 387,628 |
| Less: operating lease liabilities—current | (340,677) |
| Total operating lease liabilities—non-current | $46,951 |

#### Sales Taxes

We make an assessment of sales tax payable, including any related interest and penalties, and accrue these estimates on the financial statements. Pursuant to the Wayfair decision, each state enforces sales tax collection at different dates. We collect and remit sales tax in accordance with state regulations. We estimate that as of March 31, 2023, we owed $288,477 in sales taxes, along with penalties and interest. The Company has made significant progress filing historical sales tax returns and targets completion of filings for all jurisdictions in 2023.

### Critical Accounting Policies and Estimates

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates.

#### Cash and Cash Equivalents

The Company considers all highly liquid financial instruments purchased with original maturities of three months or less to be cash and cash equivalents. The carrying amount of cash and cash equivalents approximates fair value.

#### Inventory and Cost of Goods Sold

Inventories are stated at the lower of cost or net realizable value. Cost is principally determined on a first-in first-out basis. The Company’s costs include the amounts it pays manufacturers for products, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from its manufacturers to its warehouses.

Cost of goods sold is comprised of the book value of inventory sold to customers during the reporting period.

#### Property and Equipment

Property, plant, and equipment are recorded at cost and depreciated or amortized over the estimated useful life of the asset using the straight-line method.

#### 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 and other current liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments.

#### Revenue Recognition

The Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). 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 revenue in accordance with ASC Topic 606, which provided a five-step model for recognizing revenue from contracts with customers as follows:

- Identify the contract with a customer.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations in the contract.
- Recognize revenue when or as performance obligations are satisfied.

The Company derives its revenue from the sale of consumer products. The Company sells its products directly to consumers through online retail channels. The Company considers customer order confirmations to be a contract with the customer. Customer confirmations are executed at the time an order is placed through third-party online channels. For all of the Company’s sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment date. As a result, the Company has a present and unconditional right to payment and record the amount due from the customer in accounts receivable.

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 revenue because the Company 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 Logistic 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. The customer can return the products within 30 days after the products are delivered and estimated sales returns are calculated based on the expected returns. Based on these considerations, the Company is the principal in this arrangement.

*Performance Obligations*. A performance obligation is a promise in a contract to transfer a distinct good to the customer and is the unit of account in ASC Topic 606. A contract’s transaction price is recognized as revenue when the performance obligation is satisfied. Each of the Company’s contracts has a single distinct performance obligation, which is the promise to transfer individual goods. For consumer product sales, the Company has elected to treat shipping and handling as fulfillment activities, and not a separate performance obligation. The Company bills customers for charges for shipping and handling on certain sales and such charges are recorded as part of net revenue.

For each contract, the Company considers the promise to transfer products to be the only identified performance obligation. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled.

#### Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at historical cost less allowance for doubtful accounts. On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance or if any accounts should be written off based on a past history of write-offs, collections and current credit conditions. A receivable is considered past due if the Company has not received payments based on agreed-upon terms. The Company performs on-going evaluations of its customers and maintains an allowance for bad debt and doubtful receivables as the Company deems necessary or appropriate.

#### Leases

The Company has elected the adoption under ASC Topic 842, Leases, which allows the Company to apply the transition provision at the Company’s adoption date instead of at the earliest comparative period presented in the financial statements. The Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing leases upon adoption.

#### Sales Taxes

The Company makes an assessment of sales tax payable including any related interest and penalties. The Company’s accounting policy is to exclude the tax collected and remitted from revenues and cost of revenues. Pursuant to the Wayfair decision, each state enforces sales tax collection at different dates. The Company collects and remits sales tax in accordance with state regulations. In the past, where the Company has not collected these taxes, the Company has made estimates of amounts owed and accrued these on the financial statements. The Company has made significant progress of filing historical sales tax returns and targets completion of filings for all jurisdictions in 2023.

#### Income Taxes

Prior to 2021, the Company, with the stockholders’ consent, elected to be taxed as an “S corporation” under the provisions of the Internal Revenue Code of 1986, as amended, and comparable state income tax law. As an S corporation, the Company was generally not subject to corporate income taxes, and the Company’s net income or loss is reported on the individual tax return of the stockholders of the Company. On July 27, 2021, the Company’s tax status changed to a C corporation. Per ASC 740-10-45-19, when deferred tax accounts are recognized or derecognized as required by paragraphs 740-10-25-32 and 740-10-40-6 due to a change in tax status, the effect of recognizing or derecognizing the deferred tax liability of asset shall be included in income from continuing operations.

The Company also complied with state tax regulations, including those relating to California franchise tax. Management has evaluated its tax positions and has concluded that the Company had taken no uncertain tax.

#### Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

#### Related Parties

The Company accounts for related party transactions in accordance with 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 a period in which the Company reports net losses, diluted net loss per share attributable to stockholders is the same as basic net loss per share attributable to stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

#### Foreign Currency and Currency Translation

In case of a functional currency other than the U.S. dollar, the functional currency amounts are translated into U.S. dollars at exchange rates in effect at quarter-end, with resulting translation gains or losses included within other comprehensive income or loss.

## Controls and procedures

As filed, 959 characters.

The Company’s Chief Executive Officer and Interim Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2023. Based upon such evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that, as of March 31, 2023, the Company’s disclosure controls and procedures were effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

#### Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 240 characters.

As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as updated from time to time.

Filed May 12, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-016503. Last ingested by Listed: Oct 24, 2026, 15:06 ET. No prices; not investment advice.