UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
For the transition period from ____________ to ____________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
Tel: (786) 389-9771
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and formal 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 | ||
| The |
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.
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).
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 definition 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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if this 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 November 14, 2024, the Company
had
LQR HOUSE INC.
FORM 10-Q
TABLE OF CONTENTS
i
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY
As a company with less than $1.235 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act,”) as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other exemptions from requirements that are otherwise applicable to public companies that are not emerging growth companies. These provisions include:
| ● | Reduced disclosure about our executive compensation arrangements; | |
| ● | Exemptions from non-binding shareholder advisory votes on executive compensation or golden parachute; and | |
| ● | Exemption from auditor attestation requirement in the assessment of our internal control over financial reporting. |
We will remain an emerging growth company until the earliest of (i) the last day of the year in which we have total annual gross revenue of $1.235 billion or more; (ii) the last day of the year following the fifth anniversary of the first sale of the common equity securities pursuant to an effective registration under the Securities Act; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
ii
ITEM 1 – FINANCIAL STATEMENTS
LQR HOUSE INC.
CONDENSED CONSOLDIATED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities, at fair value | ||||||||
| Accounts receivable | ||||||||
| Accounts receivable, related party | ||||||||
| Advances to related party | ||||||||
| Subscription receivable | ||||||||
| Deposits in escrow | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Investments, at cost | ||||||||
| Intangible assets, net | ||||||||
| Right of use asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable, related party | ||||||||
| Accrued expenses | ||||||||
| Right of use liability, current portion | ||||||||
| Total current liabilities | ||||||||
| Right of use liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost ( | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
1
LQR HOUSE INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue - services | $ | $ | $ | $ | ||||||||||||
| Revenue - product | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenue - services | ||||||||||||||||
| Cost of revenue - product | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Realized gain/(loss) on securities | ||||||||||||||||
| Dividend income | ||||||||||||||||
| Total other income | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements
2
LQR HOUSE INC.
unaudited condensed consolidated STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Total Shareholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Recapitalization | - | |||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at March 31, 2023 | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock pursuant to private placement | - | |||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||
| Repurchase of shares | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of common stock pursuant to IPO | - | |||||||||||||||||||||||||||
| Offering costs | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Conversion of note payable into common stock | - | |||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||
| Buyback of common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Vesting of restricted stock units | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at September 30, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Vesting of restricted stock units | - | - | ||||||||||||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at March 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Corrective issuance from stock dividend | - | - | ||||||||||||||||||||||||||
| Vesting of restricted stock units | - | - | ||||||||||||||||||||||||||
| Common stock issued per investment in equity security | - | |||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Issuance of common stock pursuant to public offerings | - | |||||||||||||||||||||||||||
| Offering costs | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Vesting of restricted stock units | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at September 30, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
3
LQR HOUSE INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization | ||||||||
| Vesting of restricted stock units | ||||||||
| Gain on sale of marketable securities | ( | ) | ||||||
| Issuance of common stock for services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable, related party | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable, related party | ( | ) | ( | ) | ||||
| Accrued expenses | ||||||||
| Right of use liability, net | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of marketable securities | ( | ) | ||||||
| Sales of marketable securities | ||||||||
| Net repayments from related party | ||||||||
| Return of deposits in escrow | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from note payable | ||||||||
| Issuance of common stock and pursuant to private placement | ||||||||
| Issuance of common stock and pursuant to IPO, net of offering costs | ||||||||
| Repurchase and buyback of shares | ( | ) | ( | ) | ||||
| Offering costs | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Common stock issued per investment in equity security | $ | $ | ||||||
| Reclassification of deposit in escrow to investment in equity security | $ | $ | ||||||
| Conversion of note payable and accrued interest into common stock | $ | $ | ||||||
| Subscription receivable | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
4
LQR HOUSE INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
LQR House Inc. (“LQR” or the “Company”) was incorporated on January 11, 2021, in the state of Delaware. On February 3, 2023, the Company changed its state of incorporation to the State of Nevada by merging into LQR House Inc., a Nevada corporation. The Company operates primarily in the beverage alcohol industry, owning specialty brands, providing marketing and distribution services.
Country Wine & Spirits (“CWS”) Platform
On November 1, 2023, LQR
House Acquisition Corp. (the “Buyer”), a subsidiary of the Company, and SSquared Spirits LLC (the “Seller”) entered
into a Domain Name Transfer Agreement (“Agreement”). Pursuant to the Agreement, the Seller irrevocably sold, assigned, transferred,
and conveyed to the Buyer (a) all right, title, and interest in and to the domain name www.cwspirits.com (the “Domain Name”,
or “CWS Platform”), including its current registration and (b) any other rights (including, but not limited to, trademark
rights associated with the Domain Name in any jurisdiction, all Internet traffic through the Domain Name and all Website Content (as defined
in the Agreement) the Seller may have in the Domain Name, together with any goodwill associated therewith in exchange for the payment
by the Buyer of the purchase price of $
The Company’s Chief
Executive Officer, Sean Dollinger, owns
Stock Dividend in the Form of Stock Split
In February 2024, the Board
of Directors declared a
2. GOING CONCERN
The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.
The accompanying unaudited
condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The Company has not generated profits since inception, has sustained
net losses of $
The Company’s ability to continue as a going concern until it reaches profitability is dependent upon its ability to generate cash from operating activities and to raise additional capital to fund operations. Management plans to raise additional capital to fund operations through debt and/or equity financings. Our failure to raise additional capital could have a negative impact on not only our financial condition but also our ability to execute our business plan. No assurance can be given that the Company will be successful in these efforts. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company may not be able to obtain financing on acceptable terms, or at all.
5
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). The Company’s fiscal year end is December 31.
The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act and has elected to comply with certain reduced public company reporting requirements, however, the Company may adopt accounting standards based on the effective dates for public entities when early adoption is permitted.
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, LQR House Acquisition Corp. All inter-company transactions and balances have been eliminated on consolidation.
Unaudited Interim Financial Information
The unaudited condensed consolidated interim financial statements and related notes have been prepared in accordance with U.S. GAAP for interim financial information, within the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the results for the interim periods presented and of the financial condition as of the date of the interim balance sheet. The financial data and the other information disclosed in these notes to the interim financial statements related to the nine month periods are unaudited. Unaudited interim results are not necessarily indicative of the results for the full fiscal year.
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2023 included in the Form 10-K filed with the SEC on April 1, 2024.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. Significant estimates and assumptions reflected in these financial statements include, but are not limited to the cost method investments and stock-based compensation. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company maintains its
cash with a major financial institution located in the United States of America which it believes to be credit worthy. Balances are
insured by the Federal Deposit Insurance Corporation up to $
Concentrations
The Company’s ability to derive revenue is reliant on its relationship with KBROS, LLC (“KBROS”) who currently handles product for the CWS Platform and fulfills the products sold by clientele using our marketing services. The discontinuance of such relationship or termination of the CWS Platform agreements would have a material negative impact on the Company’s operations.
6
Furthermore, the Company relies and expects to continue to rely on a small number of vendors. The loss of one of these vendors may have a negative short-term impact on the Company’s operations. However, the Company believes there are acceptable substitute vendors that can be utilized longer term.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents.
Marketable Securities
The Company has investments in mutual funds. The investments are classified as available-for-sale and are held at fair value. The investments have a readily determinable fair value and as such, are recognized as Level 1 financial instruments.
Under Accounting Standards Codification (“ASC”) No. 321 and Accounting Standards Update (“ASU”) 2016-01, equity securities are measured at fair value and any changes in fair value are recorded to earnings.
Investments, at Cost
In accordance with FASB ASC Subtopic 321-10-35-2, Investments – Others – Cost Method Investments, investments where the Company does not have a significant influence are accounted for at cost. The Company reviews all material investments on an annual basis to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of the investment. In the event the fair value of the investment declines below the cost basis, the Company records an impairment.
As of September 30, 2024, the Company determined that its investments were accounted using the cost method, and there were no other-than-temporary declines in fair value below their respective carrying values. See Note 6.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. 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 on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| ● | Level 1—Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
| ● | Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
The carrying values of the Company’s accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short maturity of these instruments. The Company believes the carrying amount of its advances to related parties approximate fair value due to its short-term maturity.
The Company’s investments are accounted for under the cost method. See above and Note 6.
7
Revenue Recognition
In accordance with FASB ASC 606, Revenue from Contracts with Customers¸ the Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer; |
| ● | Identification of the performance obligations in the contract; |
| ● | Determination of the transaction price; |
| ● | Allocation of the transaction price to the performance obligations in the contract; and |
| ● | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers in an amount that reflects the consideration expected to be received in exchange for transferring goods or services to customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance.
The Company derives its revenue from marketing services, sales via the CWS Platform, distribution of its SWOL Tequila product and subscription-based membership revenue. Revenue is reported net of discounts.
Marketing Services
The Company contracts with third-party alcoholic beverage brands to utilize access to the CWS Platform. The Company and the brands enter into a commercial relationship. The Company performs services such as creating a marketing campaign strategy, developing promotional materials and advertising promotional materials through the CWS Platform. Revenue is recognized over a period time, as the marketing services are being continually provided on a daily and monthly basis over the life of an agreed upon campaign. Marketing campaigns generally range from one to three months.
CWS Platform
Cwsspirits.com is an e-commerce platform that sells wine and spirits. The Company is responsible for contracting with CWS and customers to fulfill orders through the website. The Company, though not legally able to own alcohol inventory, does take on financial inventory risk. The Company is solely responsible for any risk of loss of the end customer and paying to replenish the loss order. Additionally, the Company enters into minimum guaranteed purchase commitments with its vendor that require the Company to pay for shortfalls in minimum purchases. The Company establishes the price and selection of products to be sold on the CWS Platform, and directs all marketing activities pertaining to the Platform. As such, the Company is the primary obligor for transactions with customers on the CWS Platform and records gross revenue. Revenue is recognized at the point in time when products are delivered to the end customer, when LQR has fulfilled its performance obligation, net of returns.
Product Sales
The Company wholly owns SWOL
Tequila, a tequila made in limited batches from a third-party producer located in Mexico. The Company facilitates all efforts to get the
product delivered to CWS for retail distribution in the United States, including advancing costs for production, shipping and other importing
and delivery charges. The Company is entitled to payment of cost plus an additional
Vault
Vault is the exclusive membership
program for CWS Platform customers. Through the CWS Platform, users can sign up for membership where they will have access to all products
available through the CWS Platform combined with special membership benefits including discounted products, free shipping and promotional
offers. Prior to the acquisition of the CWS Platform, the Company marketed this membership program on the CWS Platform and was entitled
to
8
Disaggregation of Revenue
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Disaggregation of Revenues | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| CWS Platform | $ | $ | $ | $ | ||||||||||||
| SWOL product sales | ||||||||||||||||
| Revenue - product | ||||||||||||||||
| Marketing | ||||||||||||||||
| Vault | ||||||||||||||||
| Revenue - services | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Cost of Revenue
Cost of revenue consists of all direct costs attributable to performing marketing services and the Company’s product sales. Cost of revenue includes product costs, packaging, shipping and other importing and delivery charges, as well as affiliate payouts and contracted marketing services. Cost of revenue also includes customer service personnel and amortization of the Company’s marketing license asset in 2023.
Sales and Marketing
Sales and marketing costs primarily consist of advertising, promotional expenses and marketing consulting and advisory services. Sales and marketing costs also include sales commissions.
Stock-Based Compensation
Stock-based compensation is accounted for in accordance with ASC Topic 718-10, Compensation-Stock Compensation (“ASC 718-10”). The Company measures all equity-based awards granted to employees, independent contractors and advisors based on the fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award.
The Company classifies equity-based compensation expense in its statement of operations in the same manner in which the award recipient’s payroll or contractor costs are classified or in which the award recipient’s service payments are classified.
Net Loss per Share
Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive as of September 30, 2024 and 2023, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of September 30, 2024 include the Company’s outstanding restricted stock units (See Note 7).
Recently Issued and Adopted Accounting Pronouncements
Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
9
4. ACQUISITION OF CWS PLATFORM
On November 1, 2023, LQR
House Acquisition Corp. (the “Buyer”), a subsidiary of the Company, and SSquared Spirits LLC (the “Seller”, or
“SSquared”) entered into a Domain Name Transfer Agreement (“Agreement”). Pursuant to the Agreement, the Seller
irrevocably sold, assigned, transferred, and conveyed to the Buyer (a) all right, title, and interest in and to the domain name www.cwspirits.com
(the “Domain Name”, or “CWS Platform”), including its current registration and (b) any other rights (including,
but not limited to, trademark rights associated with the Domain Name in any jurisdiction, all Internet traffic through the Domain Name
and all Website Content (as defined in the Agreement) the Seller may have in the Domain Name, together with any goodwill associated therewith
in exchange for the payment by the Buyer of the purchase price of $
Under Regulation S-X 3-05,
management determined that the CWS Platform acquisition constituted a business combination as the revenue producing activity (e-commerce
sales) is expected to be similar both pre and post-domain name acquisition. As such, the Company recorded an intangible asset of $
Management assessed the fair
value of the Domain Name and CWS Platform in determining to allocate the $
The Company has consolidated the results of operations of the CWS Platform since November 1, 2023.
Unaudited Pro Forma Financial Information
The following unaudited pro
forma financial information presents the Company’s financial results as if the CWS Platform acquisition had occurred as of January
1, 2023. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have
been had the acquisitions been completed on this date. In addition, the unaudited pro forma financial information is not indicative of,
nor does it purport to project, the Company’s future financial results.
| Nine Months Ended | ||||
| September 30, | ||||
| 2023 | ||||
| Revenues | $ | |||
| Net loss | ( | ) | ||
| Net loss per common share | $ | ( | ) | |
10
5. OTHER ASSETS
Prepaid Expenses
The Company determined it
was no longer pursuing the website development services as per its October 2023 agreement with X-Media. As such, the Company recognized
an expense of $
Deposits in Escrow
As of December 31, 2023,
the Company had $
6. INVESTMENTS, AT COST
The Company’s investments at cost includes a minority stake in the common shares of Cannon Estate Winery Ltd and DRNK Beverage Corp. These investments are primarily held for strategic purposes.
Cannon Estate Winery Ltd.
On May 19, 2024, the Company
and a majority shareholder and a director (the “Seller”) of Cannon Estate Winery Ltd., a British Columbia corporation (“Cannon”)
consummated an acquisition of approximately
The Company recorded an
investment of $
DRNK Beverage Corp.
On June 7, 2024, the Company
consummated an acquisition of approximately
The Company accounted for
the investment in DRNK under the cost method as it owns
7. STOCKHOLDERS’ EQUITY
On February 13, 2024, the
Company filed a Certificate of Amendment to the Articles of Incorporation of the Company with the Secretary of State of the State of Nevada
increasing its authorized shares to
In
February 2024, the Board of Directors declared a
11
Share Buyback
On
September 1, 2023, the board of directors of the Company authorized a share buyback program for up to
In January 2024, the Company
purchased a total of
Other
In May 2024, the Company
issued
During the quarter ended
September 30, 2024, the Company issued
Restricted Stock Units
In
August 2023 the Company granted
8. RELATED PARTY TRANSACTIONS
KBROS and Ssquared Spirits LLC
The Company’s founder
and Chief Executive Officer, who is a stockholder and member of the board of directors has an economic interest in Ssquared Spirits LLC,
the seller of the CWS Platform acquisition. The spouse of the Company’s former Chief Executive Officer and director, is the President
and controlling stockholder of KBROS, the managing member and director of Ssquared Spirits LLC, and a minority shareholder with the Company.
In 2022, the former Chief Executive Officer resigned from the Company. See Note 4 for the CWS Platform acquisition from SSquared. KBROS
acts as the Company’s Product Handler, whereby they are entitled to compensation of $
See Note 9 for funding commitment with KBROS.
Country Wine & Spirits, Inc. (“CWS”)
CWS
has 6 brick and mortar locations for the sale of beer, wine, spirits and create value in retail locations throughout Southern California
and specializes in logistics of shipping and helping brands reach customers. To date CWS has distributed all of the alcohol ordered by
customers through the CWS Platform, via our Product Handler agreement with KBROS. The President of CWS is also the
As
of September 30, 2024 and December 31, 2023, the Company had $
12
During
the year ended December 2023, the Company paid certain costs pertaining to alcoholic products on behalf of CWS in order finance the purchase
of brand product for which the Company was promoting through marketing services. As of both September 30, 2024 and December 31, 2023,
$
Veg House Illinois
During
the year ended December 31, 2023, the Company paid $
Accounts Payable, Related Party
As
of September 30, 2024 and December 31, 2023, the Company had accounts payable of $
Performance Bonus
During
the nine months ended September 30, 2024, the Company paid its Chief Executive Officer a performance bonus of $
9. COMMITMENTS AND CONTINGENCIES
Lease
In February 2023, the Company
entered into a lease agreement for office space in Miami, Florida. The agreement matures in February 2025 and requires monthly payments
of $
As of September 30, 2024,
the outstanding right of use liability was $
Funding Commitment Agreement
On November 1, 2023, the
Company entered into a Funding Commitment Agreement with KBROS, the Product Handler pursuant to the Product Handling Agreement as defined
in Note 4. Pursuant to this agreement, the Company commits to provide annual funding to the Product Handler from time to time in the minimum
amount of $
Contingencies
The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matters will have a material adverse effect on its business, financial condition or results of operations.
10. SUBSEQUENT EVENTS
On October 15, 2024,
the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with David E. Lazar
(“Lazar”), pursuant to which he will acquire
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The closing of the transaction
shall take place in two stages. On October 16, 2024, Lazar paid $
On the final closing date,
Lazar will pay the Company $
The Company agreed in the Purchase Agreement not to issue any additional shares of common stock or securities convertible into common stock for a period of 180 days from the date of the final closing without the consent of Lazar. The Company also agreed in the Purchase Agreement not to effect any variable rate transaction, including an at-the-market offering, until April 15, 2025.
The Warrant to be issued by the Company on the final closing date will contain anti-dilution provisions, pursuant to which if on or after the date of issuance of the Warrant and prior to April 15, 2025, the Company issues any shares of Common Stock or Common Stock equivalents at a price that is less than the current exercise price of the Warrant, subject to certain exceptions set forth in the Warrant, the exercise price of the Warrant will be reduced to the New Issuance Price (as defined below).
In the Purchase Agreement,
the Company is required to call a meeting of stockholders no later than December 16, 2024 for purposes of obtaining Stockholder Approval.
In the event such actions are not approved at such meeting, then the Company must call four subsequent meetings every 70 days in order
to solicit such approvals. If such approvals are not obtained at the fourth meeting, the Company shall issue Lazar the Warrant with an
adjusted exercise equal to the Minimum Price as defined under Nasdaq Rule 5635(d)(1)(A) plus $
On October 14, 2024, Jay Dhaliwal informed the Board of Directors of the Company (the “Board”) of his resignation as a member of the Board effective immediately. Mr. Dhaliwal’s resignation as a director was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
On October 15, 2024, prior to the transactions contemplated by the Purchase Agreement, the current members of the Board appointed David Lazar to serve as the President of the Company effective October 15, 2024 until his earlier resignation or removal.
On October 15, 2024, prior to the transactions contemplated by the Purchase Agreement, the current members of the Board approved an increase in the size of the Board and appointed David Lazar and Avraham Ben-Tzvi to the Board effective as of October 15, 2024. The initial term as director for Messrs. Ben-Tzvi and Lazar will expire at the Company’s 2024 annual meeting of stockholders. At the time of the election, none of the new directors were appointed to any committees of the Board of Directors. The Board has determined that Mr. Ben-Tzvi qualifies as an “independent director” as defined under Nasdaq Rule 5605(a)(2) and satisfies the independent requirements of Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended. The Board appointed Mr. Lazar as the President of the Company, and thereby does not deem him independent.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information included in our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “Commission”, or the “SEC”) on April 1, 2024. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the SEC.
Business Overview
Our company, LQR House Inc., a Nevada corporation (“LQR”, “LQR House”, or the “Company”), intends to become a prominent force in the wine and spirits e-commerce, sector epitomized by its flagship alcohol marketplace, CWSpirits.com (“CWS Platform”). This platform delivers a diverse range of spirits, wines, and champagnes from esteemed retail partners like Country Wine & Spirits. Beyond its role in the e-commerce sector, LQR is a marketing agency with a specialized focus on the alcohol industry. We also intend to integrate the supply, sales, and marketing facets of the alcoholic beverage space into one easy to use platform and become the one-stop-shop for everything related to alcohol. To date, our primary business includes the development of premium limited batch spirit brands and marketing internal and external brands through our ownership of the CWS Platform, a U.S.-based e-commerce portal. Additionally, we are in the process of establishing an exclusive wine club. We believe that the marketing and brand management services we provide to our wholly owned and third-party clients will increase brand recognition thereof, and drive sales thereof through our e-commerce platform.
In May 2024, we acquired a minority stake of common shares of Cannon Estate Winery Ltd., a British Columbia corporation, an owner of Cannon Estate Winery.
In June 2024, we acquired a minority stake of common shares of DRNK Beverage Corp., a British Columbia corporation, operating in the non-alcoholic and ready-to-drink beverage markets.
The Services and Brands We Market
The CWS Platform is an American online retailer specializing in alcohol products, striving to become the most trusted and convenient destination for online alcohol purchases. Combining the personalized service of a neighborhood alcohol shop with the efficiency of e-commerce, we offer a wide selection of products, including our exclusive brand, SWOL Tequila, all at competitive prices with fast shipping and around-the-clock convenience. At the heart of our brand is a commitment to exceptional customer service, driving us to continuously innovate our operations for an enhanced shopping experience. From user-friendly website navigation and a top-rated mobile app to detailed order tracking and personalized product recommendations, we are revolutionizing the online alcohol shopping experience, ensuring customer satisfaction remains paramount in all our endeavors.
The following products and services constitute the core elements of our business model and allow us to serve various types of customers in the alcohol industry, including individual consumers, wholesalers, and third-party alcohol brands:
| ● | SWOL Tequila is a limited-edition blend of tequila made in exclusive batches of up to 10,000 bottles which was originally owned by Dollinger Innovations and transferred over to us pursuant to the Tequila Asset Purchase Agreement. Pursuant to the Tequila Asset Purchase Agreement, we purchased all of the right, title and interest in the trademarks SWOL and all associated trade dress and intellectual property rights and all labels, logos and other branding bearing the SWOL marks or any mark substantially similar to the same. Tequila bearing the “SWOL” trademark is produced by Casa Cava de Oro S.A., an authentic tequila distillery in Jalisco, Mexico, imported into the United States through Rilo Import & Export (“Rilo”) by Country Wine & Spirits LLC (“CWS”) and sold to retail customers in the United States via the CWS Platform and in CWS’s physical locations. |
| ● | Vault is the exclusive membership program for the CWS Platform, which is offered and managed by the Company. We receive the subscriptions fees generated by this program. Through the CWS Platform, users can sign up for this exclusive membership where they will have access to all products available through CWS combined with special membership benefits. |
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| ● | Soleil Vino will be a wine subscription service marketed on the CWS Platform that will offer a selection of vintage and limited production wines. Through the CWS Platform, users will be able to sign up for this exclusive membership where they will have access to curated selections of wine from around the world. With Soleil Vino, we intend to create a premium wine subscription service on the market with high qualities and diverse selections of wine offerings. Pursuant to an asset purchase agreement, dated May 31, 2021, between us and Dollinger Holdings LLC, we purchased all of the right, title and interest in all trademarks regardless of registration status for Soleil Vino and all associated trade dress and intellectual property rights, all labels, logos and other branding bearing the Soleil Vino marks or any mark substantially similar to the same, and all website and all related digital and social media content including but not limited to influencer networks, http://www.soleilvino.com, and all related content, and all related sales channels was transferred. |
| ● | LQR House Marketing is a marketing service in which we utilize our marketing expertise to help our wholly owned brands and third-party clients market their products to consumers. For example, by engaging us for our marketing services, our clients gain the ability to advertise and sell their brand on the CWS Platform. |
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
| ● | our ability to acquire new customers and users or retain existing customers and users; |
| ● | our ability to offer competitive pricing; |
| ● | our ability to broaden product or service offerings; |
| ● | industry demand and competition; |
| ● | our ability to leverage technology and use and develop efficient processes; |
| ● | our ability to attract and maintain a network of influencers with a relevant audience; |
| ● | our ability to attract and retain talented employees and contractors; and |
| ● | market conditions and our market position. |
Our Growth Strategies
The key elements of our strategy to expand our business include the following:
| ● | Collaborative Marketing. We intend to develop leading brands for up-and-coming companies and start-ups and align with celebrities and influencers with significant followings to enhance their online marketing presence. |
| ● | Expand Our Brand. We intend to continue expanding and developing our existing SWOL brand by purchasing and selling larger amounts of SWOL products to accelerate brand recognition and increasing our marketing presence. |
| ● | Opportunistic Acquisitions. We intend to pursue opportunistic acquisitions with existing alcohol brands and companies that have distribution licenses and physical storage locations and acquire technology that complements our business. |
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Results of Operations
Comparison of Three Months Ended September 30, 2024 and September 30, 2023
The following table sets forth key components of our results of operations during the three months ended September 30, 2024 and September 30, 2023.
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Var. $ | Var. % | |||||||||||||
| Revenue - services | $ | 30,918 | $ | 101,414 | $ | (70,496 | ) | (70 | )% | |||||||
| Revenue - product | 593,546 | 69,097 | 524,449 | 759 | % | |||||||||||
| Total revenues | 624,464 | 170,511 | 453,953 | 266 | % | |||||||||||
| Cost of revenue - services | 45,870 | 97,504 | (51,634 | ) | (53 | )% | ||||||||||
| Cost of revenue - product | 640,645 | 65,388 | 575,257 | 880 | % | |||||||||||
| Total cost of revenue | 686,515 | 162,892 | 523,623 | 321 | % | |||||||||||
| Gross profit (loss) | (62,051 | ) | 7,619 | (69,670 | ) | (914 | )% | |||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 1,522,785 | 4,803,821 | (3,281,036 | ) | (68 | )% | ||||||||||
| Sales and marketing | 1,919,125 | 574,026 | 1,345,099 | 234 | % | |||||||||||
| Total operating expenses | 3,441,910 | 5,377,847 | (1,935,937 | ) | (36 | )% | ||||||||||
| Loss from operations | (3,503,961 | ) | (5,370,228 | ) | 1,866,267 | (35 | )% | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | - | (171,000 | ) | 171,000 | (100 | )% | ||||||||||
| Other income | 774 | - | 774 | |||||||||||||
| Realized gain/(loss) on securities | 81,241 | - | 81,241 | |||||||||||||
| Dividend income | 58,566 | - | 58,566 | 100 | % | |||||||||||
| Total other income | 140,581 | (171,000 | ) | 311,581 | 100 | % | ||||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | (3,363,380 | ) | $ | (5,541,228 | ) | $ | 2,177,848 | (39 | )% | ||||||
Revenue
For the three months ended September 30, 2024 and 2023, service revenues were $30,918 and $101,414, respectively. Service revenues are earned as we contract with third-party alcoholic beverage brands to utilize access to the CWS Platform, as well as vault memberships. Service revenues decreased by $70,496 as more focus was emphasized on the CWS Platform.
For the three months ended September 30, 2024, product revenues were $593,546 compared to $69,097 in the similar 2023 period. The increase was due to $575,115 in revenues generated from the CWS Platform after the acquisition in November 2023.
17
Cost of Revenue and Gross Profit (Loss)
For the three months ended September 30, 2024 and 2023, service cost of revenues were $45,870 and $97,504, respectively. Cost of service revenues decreased by $51,634 in 2024, due to decrease in service revenue in the third quarter. In 2023, cost of revenues included amortization of the marketing license, which was impaired as of December 31, 2023.
Product cost of revenues was $640,645 and $65,388 during the three months ended September 30, 2024 and 2023. The increase was due to product and shipping costs associated with the CWS Platform acquisition in November 2023.
Gross profit (loss) was ($62,051) and $7,619 for the three months ended September 30, 2024 and 2023. The Company has incurred gross losses in 2024 as it transitions its strategies from marketing to the CWS Platform. Management is exploring various strategies, including customer acquisition and new partnerships, to increase volume in order to achieve better gross margins in 2024.
General and Administrative
For the three months ended September 30, 2024 and 2023, general and administrative expenses were $1,522,785 and $4,803,821, respectively. General and administrative expenses decreased by $3,281,036. In 2023, the Company recorded $2,552,500 in non-cash stock-based compensation expense due to the issuance of common shares for services. During the three months ended September 30, 2024 the Company recorded $720,842 in non-cash stock-based compensation expense due to vesting of restricted stock units.
Sales and Marketing
For the three months ended September 30, 2024 and 2023, sales and marketing expenses were $1,919,125 and $574,026 respectively. The increase of $1,345,099 was primarily due to advertising and marketing and investor relation campaigns beginning in late 2023 and continuing in the third quarter of 2024. During the three months ended September 30, 2024 bonus expenses were recorded $200,000 under sales and marketing.
Net Loss
Net loss for the three months ended September 30, 2024 and 2023 was $3,363,380 and $5,541,228, respectively.
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Comparison of Nine Months Ended September 30, 2024 and 2023
The following table sets forth key components of our results of operations during the nine months ended September 30, 2024 and September 30, 2023.
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Var. $ | Var. % | |||||||||||||
| Revenue - services | $ | 114,689 | $ | 395,212 | $ | (280,523 | ) | (71 | )% | |||||||
| Revenue - product | 1,548,786 | 116,884 | 1,431,902 | 1,225 | % | |||||||||||
| Total revenues | 1,663,475 | 512,096 | 1,151,379 | 225 | % | |||||||||||
| Cost of revenue - services | 152,101 | 296,331 | (144,230 | ) | (49 | )% | ||||||||||
| Cost of revenue - product | 1,805,112 | 105,519 | 1,699,593 | 1,611 | % | |||||||||||
| Total cost of revenue | 1,957,213 | 401,850 | 1,555,363 | 387 | % | |||||||||||
| Gross profit (loss) | (293,738 | ) | 110,246 | (403,984 | ) | (366 | )% | |||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 4,486,641 | 8,684,826 | (4,198,185 | ) | (48 | )% | ||||||||||
| Sales and marketing | 3,470,348 | 674,213 | 2,796,135 | 415 | % | |||||||||||
| Total operating expenses | 7,956,989 | 9,359,039 | (1,402,050 | ) | (15 | )% | ||||||||||
| Loss from operations | (8,250,727 | ) | (9,248,793 | ) | 998,066 | (11 | )% | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | - | (171,000 | ) | 171,000 | (100 | )% | ||||||||||
| Other income | 774 | - | 774 | |||||||||||||
| Realized gain/(loss) on securities | 81,241 | - | 81,241 | |||||||||||||
| Dividend income | 168,646 | - | 168,646 | 100 | % | |||||||||||
| Total other income | 250,661 | (171,000 | ) | 421,661 | 100 | % | ||||||||||
| Provision for income taxes | - | - | - | |||||||||||||
| Net loss | $ | (8,000,066 | ) | $ | (9,419,793 | ) | $ | 1,419,727 | (15 | )% | ||||||
Revenue
For the nine months ended September 30, 2024 and 2023, service revenues were $114,689 and $395,212 respectively. Service revenues are earned as we contract with third-party alcoholic beverage brands to utilize access to the CWS Platform, as well as vault memberships. Service revenues decreased by $280,523 as more focus was emphasized on the CWS Platform.
For the nine months ended September 30, 2024 product revenues were $1,548,786 compared to $116,884 in the similar 2023 period. The increase was due to $1,523,546 in revenues generated from the CWS Platform after the acquisition in November 2023.
Cost of Revenue and Gross Profit (Loss)
For the nine months ended September 30, 2024 and 2023, service cost of revenues were $152,101 and $296,331 respectively. Cost of revenues services decreased by $144,230 in 2024, corresponding to the decreased revenues. In 2023, cost of revenues included amortization of the marketing license, which was impaired as of December 31, 2023.
Product cost of revenues related was $1,805,112 and $105,519 during the nine months ended September 30, 2024 and 2023 The increase was due to product and shipping costs associated with the CWS Platform acquisition in November 2023.
Gross profit (loss) was ($293,738) and $110,246 for the nine months ended September 30, 2024 and 2023. The Company has incurred gross losses in 2024 as it transitions its strategies from marketing contracts to product revenues via the CWS Platform. Management is exploring various strategies to increase customer acquisition, including an emphasis in organic search optimization to achieve higher revenue volumes. The Company is continuing to explore new partnerships for added revenue sources and is working towards reducing its product cost of revenues.
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General and Administrative
For the nine months ended September 30, 2024 and 2023, general and administrative expenses were $4,486,641 and $8,684,826 respectively. General and administrative expenses decreased by $4,198,185. In 2023, the Company recorded $5,552,500 in non-cash stock-based compensation expense due to the issuance of common shares for services. During nine months ended September 30, 2024 the Company recorded $2,162,527 in non-cash stock-based compensation expense due to vesting of restricted stock units.
Sales and Marketing
For the nine months ended September 30, 2024 and 2023, sales and marketing expenses were $3,470,348 and $674,213 respectively. The increase of $2,796,135 was primarily due to advertising and marketing and investor relation campaigns beginning in late 2023 and continuing throughout 2024. During the nine months ended September 30, 2024 bonus expenses were recorded $400,000 under sales and marketing.
Net Loss
Net loss for the nine months ended September 30, 2024 and 2023 was $8,000,066 and $9,419,793, respectively.
Liquidity and Capital Resources
As of September 30, 2024 and December 31, 2023, we had cash and cash equivalents of $247,913 and $7,064,348 respectively. As of September 30, 2024, we also had $3,439,467 in marketable securities. To date, we have financed our operations primarily through issuances of common stock and sales of our products and services.
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated profits since inception, has sustained net losses of $8,000,066 and $9,419,793 for the nine months ended September 30, 2024 and 2023, and has negative cash flows from operations of $3,565,293 for the nine months ended September 30, 2024. The Company requires additional capital to operate and expects losses to continue for the foreseeable future. These factors raise substantial doubts about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern until it reaches profitability is dependent upon its ability to generate cash from operating activities and to raise additional capital to fund operations. Management is exploring various strategies, including customer acquisition and new partnerships, to increase volume in order to achieve better gross margins and profitability. The Company continues to seek investment and acquisition opportunities which will help achieve its strategies.
Management plans to raise additional capital to fund operations through debt and/or equity financings. Our failure to raise additional capital could have a negative impact on not only our financial condition but also our ability to execute our business plan. No assurance can be given that the Company will be successful in these efforts. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company may not be able to obtain financing on acceptable terms, or at all.
Cash Flow Activities
The following table presents selected captions from our condensed statement of cash flows for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (3,565,293 | ) | $ | (4,568,848 | ) | ||
| Net cash provided by (used in) investing activities | $ | (2,688,227 | ) | $ | 137,426 | |||
| Net cash provided by (used in) financing activities | $ | (562,915 | ) | $ | 6,287,692 | |||
| Net change in cash and cash equivalents | $ | (6,816,435 | ) | $ | 1,856,270 | |||
Net Cash Used in Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2024 was $3,565,293, primarily due to our net loss of $8,000,066 partially offset by non-cash charges of $2,081,286 and changes in our operating assets and liabilities of $2,353,487.
Net cash used in operating activities for the nine months ended September 30, 2023 was $4,568,848, primarily due to our net loss of $9,419,793 partially offset by non-cash charges of $5,828,378 and changes in our operating assets and liabilities of $977,433.
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Net Cash Provided by (Used in) Investing Activities
Net cash provided by (used in) investing activities for the nine months ended September 30, 2024 and 2023 were ($2,688,227) and $137,426, respectively. In 2024, the Company purchased marketable securities of $7,727,850, and sold securities of $4,369,623. The Company also received $670,000 back from an investment it was no longer pursuing. In 2023, the Company had repayments from CWS.
Net Cash Provided By (Used in) Financing Activities
Net cash provided by (used in) financing activities for the nine months ended September 30, 2024 and 2023 was ($562,915) and $6,287,692 respectively. In 2024, the Company repurchased shares of common stock. In 2023, the Company received $5,449,156 in proceeds from share issuances.
Contractual Obligations and Related Party Transactions
Funding Commitment Agreement
On November 1, 2023, the Company entered into a Funding Commitment Agreement with KBROS, LLC, the Product Handler pursuant to the Product Handling Agreement as defined in Note 4. Pursuant to this agreement, the Company commits to provide annual funding to the Product Handler from time to time in the minimum amount of $2,500,000 to enable the Product Handler to purchase inventory from Company-approved vendors (“Vendors”) and for other purposes set forth in the Product Handling Agreement. The Company may combine all of the Company’s advances to Product Handler or on Product Handler’s behalf, whether under this agreement or any other agreement. The Company may, without notice to Product Handler, elect not to advance funding for any inventory sold by particular Vendors with respect to which the Company reasonably feels insecure. This agreement concerns funding commitment, and not the purchase of Products from Product Handler or Vendors.
Related Party Transactions
See Note 8 to the accompanying unaudited condensed consolidated financial statements for further disclosure.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.
As of September 30, 2024, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are ineffective at a reasonable assurance level.
Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, it is difficult to effectively segregate accounting duties which comprise a material weakness in internal controls. This lack of segregation of duties leads management to conclude that the Company’s disclosure controls and procedures are effective to give reasonable assurance that the information required to be disclosed in reports that the Company files under the Exchange Act is recorded, processed, summarized and reported as and when required.
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over our Exchange Act reporting disclosures.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item. In any event, there have been no material changes in our risk factors as previously disclosed in our Annual Report on Form 10-K filed with the SEC on April 1, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None
(c) In August 2023, the Company’s Board of Directors approved a share buyback program under which the Company can repurchase up to 20% of its common stock in open market and privately negotiated purchases, in compliance with Rule 10b-18 under the Exchange Act. The Company engaged and entered into an agreement with Dominari Securities LLC (“Dominari”) on August 28, 2023, to effect the share buyback program. The share buyback program commenced in September 2023. Dominari shall determine, in its sole discretion, the timing, amount, prices and manner of purchase of securities during such period. The share buyback program does not obligate the Company to acquire any particular amount of common stock, and the program may be suspended or discontinued at any time.
In January 2024, the Board of Directors of the Company authorized an increase of the share buyback program to $5,000,000.
| Maximum | ||||||||||||||||
| approximate | ||||||||||||||||
| Total number of | dollar | |||||||||||||||
| shares | value of | |||||||||||||||
| purchased | shares that | |||||||||||||||
| as part of the | may yet be | |||||||||||||||
| Total number | Average | publicly | purchased | |||||||||||||
| Period | of shares | price paid | announced | under the | ||||||||||||
| (In millions, except share and per share data) | purchased | per share (2) | plan (1) | plan (1) | ||||||||||||
| January 1 - 31, 2024 | 190,628 | $ | 2.9 | - | $ | 3,559,148 | ||||||||||
| February 1 - 29, 2024 | - | - | - | 3,559,148 | ||||||||||||
| March 1 - 31, 2024 | - | - | - | 3,559,148 | ||||||||||||
| April 1 - 30, 2024 | - | - | - | 3,559,148 | ||||||||||||
| May 1 - 31, 2024 | - | - | - | 3,559,148 | ||||||||||||
| June 1 - 30, 2024 | - | - | - | 3,559,148 | ||||||||||||
| July 1 - 31, 2024 | - | - | - | 3,559,148 | ||||||||||||
| August 1 - 31, 2024 | - | - | - | 3,559,148 | ||||||||||||
| September 1 - 30, 2024 | - | - | - | 3,559,148 | ||||||||||||
| 190,628 | $ | 2.9 | - | 3,559,148 | ||||||||||||
| (1) | On August 25, 2023, the Company announced that the Board of Directors authorized an up to 20% share buyback program, which does not have an expiration date. In January 2024, the Board of Directors of the Company authorized an increase of the share buyback program to $5,000,000. From the inception of the share buyback program on September 8, 2023, through December 19, 2023, the Company has purchased a total of 865,070 shares of the Company’s common stock at an average price of $1.7 per share for a total purchase price of $1,440,852. In January 2024, the Company purchased a total of 190,628 shares of the Company’s common stock at an average price of $2.9 per share. |
| (2) | Average price paid per share excludes costs associated with the repurchases. |
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
The following exhibits are included as part of this report:
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| † | Executive compensation plan or arrangement. |
| # | Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing. |
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LQR House Inc. | ||
| November 14, 2024 | By: | /s/ Sean Dollinger |
| Sean Dollinger, Chief Executive Officer | ||
| November 14, 2024 | By: | /s/ Kumar Abhishek |
| Kumar Abhishek, Chief Financial Officer |
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