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 May 9, 2025, 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)
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Accounts receivable, related party | ||||||||
| Subscription receivable | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Investments, at cost | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable, related party | ||||||||
| Accrued expenses | ||||||||
| Accrued expenses, related party | ||||||||
| Total current 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
3
LQR HOUSE INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| 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): | ||||||||
| Other income | ||||||||
| Total other income (expense) | ||||||||
| 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
4
LQR HOUSE INC.
unaudited condensed consolidated STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balances at December 31, 2023 | ( | ) | ||||||||||||||||||||||||||
| Vesting of restricted stock units | - | - | ||||||||||||||||||||||||||
| Repurchase of common stock | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at March 31, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Balances at December 31, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Vesting of restricted stock units | - | - | ||||||||||||||||||||||||||
| Issuance of common stock pursuant to directors agreements | ||||||||||||||||||||||||||||
| Issuance of common stock pursuant to ATM agreement | - | |||||||||||||||||||||||||||
| Exercise of warrants | - | |||||||||||||||||||||||||||
| Effect of stock split | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at March 31, 2025 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
5
LQR HOUSE INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Vesting of restricted stock units | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Accounts receivable, related party | ||||||||
| Prepaid expenses | ( |
) | ||||||
| Accounts payable | ( |
) | ( |
) | ||||
| Accounts payable, related party | ( |
) | ||||||
| Accrued expenses | ( |
) | ||||||
| Accrued expenses, related party | ( |
) | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of marketable securities | ( |
) | ||||||
| Return of deposits in escrow | ||||||||
| Net cash used in investing activities | ( |
) | ||||||
| Cash flows from financing activities: | ||||||||
| Issuance of common stock pursuant to exercise of warrants | ||||||||
| Issuance of common stock pursuant to ATM agreement | ||||||||
| Repurchase and buyback of common stock | ( |
) | ||||||
| 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: | ||||||||
| Subscription receivable | $ | $ | ||||||
| Issuance of common stock for accrued expenses | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
6
LQR HOUSE INC.
UNAUDITED CONDENSED CONSOLIDATED NOTES TO 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
Reverse Stock Split
On April 16, 2025, the Company filed a Certificate of Change to its Articles of Incorporation with the Secretary of
State of the State of Nevada to effect 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 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.
7
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, 2024 included in the Form 10-K filed with the SEC on March 31, 2025.
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.
8
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.
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 March 31, 2025, the
Company’s investment in DRNK Beverage Corp continues to be recorded at its impaired carrying value of $
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. |
9
There were no transfers between Level 1, Level 2, or Level 3 fair value classifications during the three months ended March 31, 2025.
Available-for-sale investments are classified as Level 1, as they are valued based on quoted prices in active markets for identical instruments.
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 5 to our unaudited condensed consolidated financial statements.
Accounts Receivable
Accounts receivable are derived from services and products delivered to customers and are stated at their net realizable value. Each month, the Company reviews its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Intangible Assets
Intangible assets are amortized over the respective estimated lives on a straight-line basis, unless the lives are determined to be indefinite and reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable. The Company owns domain names indefinitely. Costs to renew domains are expensed as incurred.
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Related Parties
Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company. The Company discloses related party transactions that are outside of normal compensatory agreements, such as salaries. The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
10
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 produced in limited batches by a third-party manufacturer in Mexico. The Company handles all logistics to deliver the
product to CWS for retail distribution in the United States, including advancing production, shipping, and other import-related expenses.
Under historical agreements, the Company is entitled to receive payment for these costs, 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 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
11
Disaggregation of Revenue
The following is a summary of the disaggregation of revenue for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| Disaggregation of Revenues | 2025 | 2024 | ||||||
| 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 sales and performing marketing services. Cost of revenue includes product costs, packaging, shipping and other importing and delivery charges, as well as 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.
For the three months ended March 31, 2025 and 2024, Advertising costs were approximately $
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.
12
Segment Information
In accordance with ASC 280, Segment Reporting (“ASC 280”), we identify our operating segments according to how our business activities are managed and evaluated. ASC 280 establishes standards for companies to report financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the Company’s chief operating decision maker (“CODM”), or group, in deciding how to allocate resources and assess performance.
The CODM has been identified
as the Chief Executive Officer, who reviews the operating results for the Company as a whole to make decisions about allocating resources
and assessing financial performance. Accordingly, management has determined that the Company only has
The key measures of segment profit or loss reviewed by our CODM are revenue and operating costs. These metrics are reviewed and monitored by the CODM to manage and forecast cash. The CODM also reviews operating costs to manage, maintain and enforce all contractual agreements to ensure costs are aligned with all agreements and budget.
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 March 31, 2025 and 2024, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of March 31, 2025 include the Company’s outstanding restricted stock units (See Note 7).
Recently Issued and Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis, primarily disclosure of significant segment expense categories and amounts for each reportable segment. The new standard is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-07 in the annual financial statements for the year ended December 31, 2024, and for interim periods beginning in 2025. The adoption of ASU 2023-07 did not have a significant impact on the Company’s consolidated financial statements.
Management does not believe that any 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.
13
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”, “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”, “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 $
In connection with the Company’s purchase of the Domain Name, on November 1, 2023, the Company entered into a product handling agreement (“Product Handling Agreement”) with KBROS LLC (“KBROS”). Pursuant to the Product Handling Agreement:
Commencing as of the Effective Date of this Agreement, Product Handler shall provide to the Company the following services relating to the purchase and delivery (“Handling”) of spirits and other beverage products (referred to herein as “Product” and the “Products”) purchased by customers of the Company through or in relation to websites associated with the Domain:
| ● | Purchase of Products to be delivered to customers of the Company, delivery of such Products, and related receipt of returns of Products and delivery of replacements of the Products from time to time, necessary for the operation of the Business by the Company, pursuant to orders for the Products by the Company’s customers generated as the result of sales, promotion and marketing of the Products through the Website (sale, promotion and marketing of the Products through the Website is collectively referred to herein as “Processing”); |
| ● | Procurement and maintenance of all certificates, licenses, authorizations and registrations required to import, possess, promote, sell, distribute and receive payment for the Products and compliance with all laws, rules and regulations applicable thereto and to the operation of the Website and conduct of sales and Processing of the Products, as reasonably deemed necessary by the Company; |
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) was 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.
14
5. 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 $
Chase Mocktails Ltd (f/k/a DRNK Beverage Corp.)
On June 7, 2024, the Company
consummated an acquisition of approximately
As of December 31, 2024,
the Company recognized an impairment expense of $
As of March 31, 2025, the
investment continues to be carried at its impaired value of $
6. ACCRUED EXPENSES
Accrued expenses consist of the followings:
| March, 31 | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accrued retention and settlement payments | $ | $ | ||||||
| Accrued professional and other fees | ||||||||
| Taxes payable | ||||||||
| Other accrued | ||||||||
| Total accrued expenses | $ | $ | ||||||
| Accrued retention and settlement payments, related parties | ||||||||
| Total accrued expenses, related parties | $ | $ | ||||||
As of December 31, 2024, the Company had accrued
expenses totaling $
15
7. STOCKHOLDERS’ EQUITY (DEFICIT)
Amendment to Articles of Incorporation or Bylaws
On
April 16, 2025, the Company filed a Certificate of Change to its Articles of Incorporation with the Secretary of State of the State of
Nevada to effect a
Pursuant
to the Reverse Split, every
As a result of the Reverse Split, the par value per share remained unchanged. All share and per share amounts in these financial statements have been retroactively adjusted to reflect the Reverse Split for all periods presented, unless otherwise indicated.
In connection with Reverse
Split, the Company amended its Articles of Incorporation to reduce the number of authorized shares of common stock to
2025 Stock Transactions
During the three months ended
March 31, 2025, the Company issued
Issuance of shares in pursuance of director’s agreement
On October 15, 2024, the Company entered into
a Director Agreement with Avraham Ben-Tzvi, a then-member of the Board of Directors. Mr. Ben-Tzvi ceased to serve on the Board effective
December 19, 2024. In recognition of his service, the Company issued
On April 2, 2025, David Lazar resigned as President
and as a member of the Company’s Board of Directors, effective the same date (the “Separation Date”). In connection
with his resignation, the Company entered into a Separation Agreement with Mr. Lazar, pursuant to which the Company agreed to pay $
Warrants
During the three months ended March 31, 2025, the Company issued
Restricted Stock Units
In August 2023, the Company granted
In December, 2024, the Company granted
The Company recorded stock-based compensation
expense of $
16
The following table summarizes RSU activity for the three months ended March 31, 2025:
| Restricted Stock Units | ||||||||
| Number of shares | Weighted Average Fair Value | |||||||
| Unvested as of December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Unvested as of March 31, 2025 | $ | |||||||
Share Buyback
In January 2024, the Company purchased a total of
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.
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 $
In October, 2024, the Company
entered into a settlement and release agreement with KBROS, and its controlling stockholder. As of December 31, 2024, $
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 March 31, 2025 and December 31, 2024, the Company had $
17
Accounts Payable, Related Party
As
of March 31, 2025 and December 31, 2024, the Company had accounts payable of $
Performance Bonus
During
the three months ended March 31, 2025, the Company paid its Chief Executive Officer and KABROS a performance bonus of $
Lease
The Company historically leased space from a related party entity, which is now month-to-month.
9. COMMITMENTS AND CONTINGENCIES
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 committed to provide annual funding to the Product Handler from time to time in the
minimum amount of $
For further details regarding the settlement agreement, see Note 8.
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
Reverse Stock Split
On April 16, 2025, the Company
filed a Certificate of Change to the Articles of Incorporation with the Secretary of State of the State of Nevada that provides for a
Supplementary distribution agreement
On April 1, 2025, the Company entered into a Supplementary Distribution Agreement (the “Supplementary Distribution Agreement”) with Of The Earth Distribution Corp., a Canadian corporation (the “Distributor”), pursuant to which the Company granted to Distributor the exclusive right to distribute, market, and sell SWOL Tequila products within Thailand and Greece until June 28, 2029. The Supplementary Distribution Agreement also amends Supplier Agreement between the Company and the Distributor, dated June 28, 2024, by providing the Distributor exclusive distribution rights to sell SWOL Tequila in all of Canada without any territorial limitations. The Supplementary Distribution Agreement does not impose any minimum purchase requirements.
Change in Independent Registered Public Accounting Firm
On April 23, 2025, the Board of Directors and Audit Committee of the Company accepted the resignation of dbbmckennon “Former Auditor”) as the Company’s independent registered public accounting firm, effective immediately. The Former Auditor’s reports on the Company’s consolidated financial statements for the fiscal years ended December 31, 2024 and 2023 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except for an explanatory paragraph relating to substantial doubt about the Company’s ability to continue as a going concern and an emphasis of matter paragraph.
During the fiscal years ended December 31, 2024 and 2023, and through the date of resignation, there were no disagreements with the Former Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures that, if not resolved to the satisfaction of the Former Auditor, would have caused it to make reference to the subject matter of the disagreement in connection with its reports. There were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K, except for the material weaknesses in internal control over financial reporting previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Also on April 23, 2025, the Company engaged Enrome LLP (“New Auditor”) as its independent registered public accounting firm for the fiscal year ending December 31, 2025. During the two most recent fiscal years and through the date of engagement, neither the Company nor anyone on its behalf consulted with Enrome LLP regarding the application of accounting principles to a specific transaction or the type of audit opinion that might be rendered on the Company’s financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis are 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 March 31, 2025. 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. (the “Company”), intends to become the full-service digital marketing and brand development face of the alcoholic beverage space. 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. 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 partner.
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 (which became Chase Mocktails Ltd.), operating in the non-alcoholic and ready-to-drink beverage markets. As of December 31, 2024, the Company has recorded an impairment based on its evaluation of the investee. Refer to Note 5 to our unaudited condensed consolidated financial statements for further disclosure.
Recent Developments
On September 13, 2024, the Company entered into an at-the-market offering agreement (“ATM Agreement”) with H.C. Wainwright & Co., LLC, as sales agent (“HCW”), relating to the sale of common stock. During the first quarter of 2025 ended March 31, 2025, the Company issued an aggregate of 413,520 shares of common stock pursuant to such ATM Agreement for net proceeds of $5,178,821. The Company paid the sales agent compensation with respect to the sale of such shares in the amount of $161,608.
On April 1, 2025, we entered into a Supplementary Distribution Agreement (the “Supplementary Distribution Agreement”) with Of The Earth Distribution Corp., a Canadian corporation (the “Distributor”), pursuant to which the Company granted to Distributor the exclusive right to distribute, market, and sell SWOL Tequila products within Thailand and Greece until June 28, 2029. The Supplementary Distribution Agreement also amends Supplier Agreement between the Company and the Distributor, dated June 28, 2024, by providing the Distributor exclusive distribution rights to sell SWOL Tequila in all of Canada without any territorial limitations.
On April 2, 2025, David Lazar resigned as President and as member of our Board of Directors (the “Board”), effective immediately. In connection with such resignation, the Company issued Mr. Lazar 2,857 shares of common stock (on post-split basis), in accordance with his separation agreement with the Company.
On April 16, 2025, the Board approved and recommended for stockholder approval at the 2025 Annual Meeting of Stockholders, the proposal to adopt a Certificate of Amendment to our Articles of Incorporation (the “Certificate of Amendment”), to increase the number of authorized shares of common stock of the Company from 10,000,000 shares to 350,000,000 shares, each share of common stock having a par value of $0.0001. The Board also set the date for the Company’s 2025 Annual Meeting of Stockholders for May 30, 2025. The Certificate of Amendment will become effective upon stockholder approval.
On April 21, 2025, the Company effected a one-for-thirty-five reverse stock split of its issued, outstanding and authorized common stock (the “Reverse Stock Split”). The Reverse Stock Split became effective at 12:01 a.m. Eastern Time on April 21, 2025, and our common stock began trading on a post-split basis on April 21, 2025. No fractional shares were issued in connection with the Reverse Stock Split and fractional amounts were rounded up to the next highest whole number at the participant level.
On April 23, 2025, the Audit Committee of the Board accepted the resignation of dbbmckennon and approved the engagement of Enrome LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2025, effective immediately.
The Services and Brands We Market
LQR House is an American online retailer of alcohol products.
The CWS Platform is an American online retailer specializing in selling 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.
19
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. |
| ● | 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. |
ability to make profitable investments in complimentary business.
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 March 31, 2025 and March 31, 2024
The following table sets forth key components of our results of operations during the three months ended March 31, 2025 and March 31, 2024.
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2025 | 2024 | Var. $ | Var. % | |||||||||||||
| Revenue - services | $ | 77,356 | $ | 43,791 | $ | 33,565 | 77 | % | ||||||||
| Revenue - product | 351,984 | 437,303 | (85,319 | ) | -20 | % | ||||||||||
| Total revenues | 429,340 | 481,094 | (51,754 | ) | -11 | % | ||||||||||
| Cost of revenue - services | 1,400 | 37,208 | (35,808 | ) | -96 | % | ||||||||||
| Cost of revenue - product | 397,782 | 523,383 | (125,601 | ) | -24 | % | ||||||||||
| Total cost of revenue | 399,182 | 560,591 | (161,409 | ) | -29 | % | ||||||||||
| Gross profit (loss) | 30,158 | (79,497 | ) | 109,655 | -138 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 2,023,161 | 1,606,461 | 416,700 | 26 | % | |||||||||||
| Sales and marketing | 406,853 | 786,415 | (379,562 | ) | -48 | % | ||||||||||
| Total operating expenses | 2,430,014 | 2,392,876 | 37,138 | 2 | % | |||||||||||
| Loss from operations | (2,399,856 | ) | (2,472,373 | ) | 72,517 | -3 | % | |||||||||
| Other income (expense): | ||||||||||||||||
| Other income | 10,206 | 44,981 | (34,775 | ) | -77 | % | ||||||||||
| Total other income | 10,206 | 44,981 | (34,775 | ) | 100 | % | ||||||||||
| Provision for income taxes | - | - | - | |||||||||||||
| Net loss | $ | (2,389,650 | ) | $ | (2,427,392 | ) | $ | 37,742 | -2 | % | ||||||
Revenue
For the three months ended March 31, 2025 and 2024, service revenues were $77,356 and $43,791, 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 increased by $33,565 primarily driven by a higher volume of marketing services provided.
For the three months ended March 31, 2025, product revenues were $351,984 compared to $437,303 in the similar 2024 period. The decrease by $85,319 compared to 2024 was primarily attributable to a decrease in sales volume through the CWS Platform during the quarter. The reduction in revenue reflects lower customer traffic and order activity on cwsspirits.com, which the Company believes was driven by seasonal fluctuations and less promotional activity compared to the prior year period.
21
Cost of Revenue and Gross Profit (Loss)
For the three months ended March 31, 2025 and 2024, service cost of revenues were $1,400 and $37,208, respectively. Cost of service revenues decreased by $35,808 in 2025 due to our ability to support marketing campaigns via dedicated personnel and ceased certain digital ad costs to support campaigns.
Product cost of revenues was $397,782 and $523,383 during the three months ended March 31, 2025 and 2024. The decrease was primarily due to the decline in product revenue during the period, resulting from lower sales volume on the CWS Platform.
Gross profit (loss) was $30,158 and ($79,497) for the three months ended March 31, 2025 and 2024. 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 2025.
General and Administrative
For the three months ended March 31, 2025 and 2024, general and administrative expenses were $2,023,161 and $1,606,461, respectively. The increase was primarily attributable to higher professional fees and personnel-related costs incurred during the current period. In addition, the Company recognized approximately $868,000 in non-cash stock-based compensation expense in 2025, compared to approximately $720,000 in the prior-year period.
Sales and Marketing
For the three months ended March 31, 2025 and 2024, sales and marketing expenses were $406,853 and $786,415 respectively. The decrease was primarily due to the absence of website development costs in the current period. In the first quarter of 2024, the Company recorded significant expenses related to a website development agreement with X-Media entered into in October 2023, which was fully written off during 2024. The absence of similar charges in 2025 contributed to the decline in sales and marketing expenses.
Net Loss
Net loss for the three months ended March 31, 2025 and 2024 was $2,389,650 and $2,427,392, respectively.
22
Liquidity and Capital Resources
As of March 31, 2025 and December 31, 2024, we had cash and cash equivalents of $7,889,597 and $5,386,789 respectively. To date, we have financed our operations primarily through issuances of common stock and sales of our products and services.
During the three months ended March 31, 2025, the Company raised an aggregate of $9,230,236 in net proceeds through issuance of commons stock. The Company issued 413,520 shares of common stock pursuant to at-the-market offering agreement, dated September 13, 2024, between the Company and H.C. Wainwright & Co., LLC, for net proceeds of $5,178,821. Additionally, the Company received net proceeds of $4,051,415 from the issuance of 210,463 shares of common stock pursuant to exercise of warrants.
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 $2,389,650 and $2,427,392 for the three months ended March 31, 2025 and 2024, and has negative cash flows from operations of $6,619,374 for the three months ended March 31, 2025. 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.
The Company’s ability to continue as a going concern for the next twelve months is dependent upon its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, or to obtain 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.
Cash Flow Activities
The following table presents selected captions from our condensed statement of cash flows for the three months ended March 31, 2025 and 2024:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash used in operating activities | $ | (6,619,373 | ) | $ | (1,374,040 | ) | ||
| Net cash used in investing activities | $ | - | $ | (3,360,986 | ) | |||
Net cash provided by (used in) financing activities | $ | 9,122,181 | $ | (547,415 | ) | |||
| Net change in cash and cash equivalents | $ | 2,502,808 | $ | (5,282,441 | ) | |||
Net Cash Used in Operating Activities
Net cash used in operating activities for the three months ended March 31, 2025 was $6,619,373, primarily due to our net loss of $2,389,650 partially offset by non-cash charges of $868,189 and changes in our operating assets and liabilities of $5,097,912.
23
Net Cash Used in Investing Activities
Net cash used in investing activities for the three months ended March 31, 2025 and 2024 were $0 and $3,360,986, respectively. In 2024, the Company invested $4,030,986 in mutual fund investments, and received $670,000 back from an investment it was no longer pursuing.
Net Cash Provided By (Used in) Financing Activities
Net cash provided by (used in) financing activities for the three months ended March 31, 2025 and 2024 was $9,122,181 and ($547,515) respectively. In 2025, the Company received $4,051,415 from exercise of warrants and $5,070,767 from issuance of shares pursuant to ATM Agreement. In 2024, the Company paid $547,515 for repurchase of shares.
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, 2024.
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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 Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and 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 March 31, 2025, 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. We also lack of effective board oversight and formal accounting controls for the timely and accurate closing of financial information.
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 March 31, 2025 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 March 31, 2025.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
In addition to the issuances of unregistered securities described in the Current Reports on Form 8-K filed by the Company with the SEC, during the first quarter of 2025 ended March 31, 2025 the Company issued the following equity securities which were not registered under the Securities Act.
On January 2, 2025, the Company issued 3,334 shares of common stock (on post-split basis) to the entity owned and controlled by its former member of the Board, Avraham Ben-Tzvi, in accordance with his director agreement with the Company.
On January 3, 2025, the Company issued 22 shares of common stock (on post-split basis) to James O’Brien, its member of the Board, due to conversion of 156 restricted stock units granted to him on August 9, 2023 into shares of common stock.
On January 3, 2025, the Company issued 446 shares of common stock (on post-split basis) to Sean Dollinger, its Chief Executive Officer and member of the Board due to conversion of 15,625 restricted stock units granted to him on August 9, 2023 into shares of common stock.
On March 31, 2025, the Company issued 179 shares of common stock (on post-split) basis to each of the following members of the Board: Hong Chun Yeung, Jing Lu, Lijun Chen, Yilin Lu, due to conversion of 179 restricted stock units granted to each of them in accordance with their directors agreements on December 19, 2024 into shares of common stock.
On March 31, 2025, the Company issued 4 shares of common stock to James O’Brien, its member of the Board, due to conversion of 4 restricted stock units granted to him on August 9, 2023 into shares of common stock.
On March 31, 2025, the Company issued 89 shares of common stock to Sean Dollinger, its Chief Executive Officer and member of the Board due to conversion of 89 restricted stock units granted to him on August 9, 2023 into shares of common stock.
Unless otherwise noted, the securities above were issued pursuant to the registration requirements of the Securities Act provided by Section 4(a)(2) and/or Rule 506 of Regulation D promulgated under the Securities Act, in light of the fact that none of the issuances involved a public offering of securities and no solicitation or advertisements for such securities were made by any party.
Purchases of Equity Securities by Issuer and Its Affiliates
None.
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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. | ||
| May 13, 2025 | By: | /s/ Sean Dollinger |
| Sean Dollinger, Chief Executive Officer | ||
| May 13, 2025 | By: | /s/ Kumar Abhishek |
| Kumar Abhishek, Chief Financial Officer |
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