LQR House Inc.

Previous wording

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 Registration Statement and the audited financial statements and the other information set forth in the Registration Statement. 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.

Current wording

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 audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. 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.

Previous wording

The CWS Platform is a leading 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 revolution izing the online alcohol shopping experience, ensuring customer satisfaction remains paramount in all our endeavors.

Current wording

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.

Previous wording

For the years ended December 31, 2023 and 2022, service revenues were $474,048 and $470,359, 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 beginning in late 2022. Service revenues increased by $3,689 as we slightly grew our marketing customer base with beverage brands.

Current wording

For the years ended December 31, 2024 and 2023, service revenues were $117,965 and $474,048, 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 $356,083 as more focus was emphasized on the CWS Platform.

Previous wording

For the year ended December 31, 2023, product revenues were $646,574 compared to $130,772 in 2022. The increase was due to $485,571 in revenues generated from the CWS Platform after the acquisition in November 2023.

Current wording

For the year ended December 31, 2024, product revenues were $2,383,695 compared to $646,574 in the similar 2023. The increase of $1,737,121 in revenues is due to product sales via the CWS Platform after the acquisition in November 2023.

Previous wording

Product cost of revenues was $563,775 and $134,490 in the years ended December 31, 2023 and 2022, respectively. The increase was due to product and shipping costs associated with the CWS Platform acquisition in November 2023.

Current wording

Product cost of revenues was $2,635,984 and $563,775 in the years ended December 31, 2024 and 2023, respectively. The increase was due to product and shipping costs associated with the product sales via the CWS Platform, which was acquired in November 2023.

Previous wording

For the years ended December 31, 2023 and 2022, general and administrative expenses were $11,426,747 and $985,011, respectively. In 2023, the Company recorded $5,552,500 in non-cash stock-based compensation expense due to the issuance of common shares for services and $1,091,648 pertaining to the issuance of restricted stock units. General and administrative expenses also increased due to professional fees, personnel costs and other public company expenses as our operations scaled upon the IPO.

Current wording

For the years ended December 31, 2024 and 2023, general and administrative expenses were $14,556,220 and $11,426,747, respectively. General and administrative expenses increased by $3,129,473 in 2024 as compared to 2023. In 2024, the Company recorded $2,533,256 in non-cash stock-based compensation expense pertaining to the issuance of restricted stock units as compared to $1,091,648 recorded in 2023. General and administrative expenses also increased due to personnel costs as the Company entered into several settlement, bonus and retention agreements totaling $8,021,000 in late 2024 most of which were paid to insiders and related parties of the Company.

Previous wording

For the years ended December 31, 2023 and 2022, sales and marketing expenses were $2,480,001 and $655,151, respectively. The increase of $1,824,850 was primarily due to advertising and marketing and investor relation campaigns the Company entered into in the third and fourth quarter of 2023.

Current wording

For the years ended December 31, 2024 and 2023, sales and marketing expenses were $3,617,924 and $2,480,001, respectively. The increase of $1,137,923 was primarily due to advertising and marketing and investor relation campaigns the Company entered into in late 2023, which extended throughout 2024. Lastly, The Company determined it was no longer pursuing the website development services as per its October 2023 agreement with X-Media. As such, the full amount of the prepaid was written of during the year, representing an expense of $2,150,000. The amount was included in sales and marketing expenses in the consolidated statements of operations.

Previous wording

Upon the acquisition of the CWS Platform, the Company determined that the license under the CWS Agreement was no longer applicable as the Company now maintained ownership over the Platform and the relevant marketing efforts. As such, the Company recorded an impairment of the remaining carrying value of $1,875,000.

Current wording

Upon the acquisition of the CWS Platform, the Company determined that the license under the CWS Agreement was no longer applicable as the Company now maintained ownership over the Platform and the relevant marketing efforts. As such, during the year ended December 31, 2023, the Company recorded an impairment of the remaining carrying value of $1,875,000.

Previous wording

Net loss for the years ended December 31, 2023 and 2022 was $15,747,724 and $1,842,175, respectively.

Current wording

Net loss for the years ended December 31, 2024 and 2023 was $22,754,178 and $15,747,724, respectively.

Previous wording

As of December 31, 2023 and 2022, we had cash and cash equivalents of $7,064,348 and $7,565, respectively. To date, we have financed our operations primarily through issuances of common stock and sales of our products and services.

Current wording

As of December 31, 2024 and 2023, we had cash and cash equivalents of $5,386,789 and $7,064,348, respectively. To date, we have financed our operations primarily through issuances of common stock and sales of our products and services.

Previous wording

The accompanying 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 $15,747,724 and $1,842,175 for the years ended December 31, 2023 and 2022, and has negative cash flows from operations for the years ended December 31, 2023 and 2022.

Current wording

The accompanying 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 $22,754,178 and $15,747,724 for the years ended December 31, 2024 and 2023, and has negative cash flows from operations $6,618,417 and $9,113,855 for the years ended December 31, 2024 and 2023 respectively. 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.

Previous wording

The Company has raised funds from the IPO (Note 1) and an additional $16.6 million from its public offerings in October and November 2023 (see Note 9). However, the Company expects that its cash and cash equivalents as of the date of issuance of these unaudited interim condensed financial statements may not be sufficient to fund its operating expenses and acquisition plans for at least one year. 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 financing to support current negative cash flow trends. No assurance can be given that the Company will be successful in these efforts.

Current wording

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.

Previous wording

Net cash used in operating activities for the year ended December 31, 2022 was $918,197, primarily due to our net loss of $1,842,175, partially offset by non-cash charges of $567,875 and $356,103 in cash provided by operating assets and liabilities.

Current wording

Net cash used in operating activities for the year ended December 31, 2024 was $6,618,417, primarily due to our net loss of $22,754,178, partially offset by non-cash charges of $7,204,922 and $8,930,839 in cash provided by operating assets and liabilities.

Previous wording

Net Cash Provided Used In Investing Activities

Current wording

Net Cash Provided by (Used In) Investing Activities

Previous wording

Net cash used in investing activities for the years ended December 31, 2023 and 2022 were $5,342,574 and $190,339, respectively, pertaining to repayments from (advances to) CWS of $137,426 and ($190,339), and deposits in escrow of $5,470,000 and acquisition of CWS Platform of $10,000 in 2023.

Current wording

In 2023, the Company had repayments from CWS of $137,426, and deposits in escrow of $5,470,000 and acquisition of CWS Platform of $10,000 in 2023.

Previous wording

Net cash provided in financing activities for the years ended December 31, 2023 and 2022 was $21,513,212 and $0, respectively. In 2023, the Company received $955,000 in proceeds from the private placement offering, $950,000 from notes, $4,507,228 in net proceeds pursuant to the IPO and $16,619,836 in net proceeds from the October and November offerings. The Company paid $1,458,852 for the repurchase of shares, and $60,000 for the cancellation of warrants.

Current wording

In 2023, the Company received $955,000 in proceeds from the private placement offering, $950,000 from notes, $4,507,228 in net proceeds pursuant to the IPO and $16,619,836 in net proceeds from the October and November offerings. The Company paid $1,458,852 for the repurchase of shares, and $60,000 for the cancellation of warrants.

Previous wording

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 $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.

Current wording

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 $2,500,000 to enable the Product Handler to purchase inventory from Company-approved vendors (“Vendors”). 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 a funding commitment, and not the purchase of products from Product Handler or Vendors.

Previous wording

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. Significant estimates and assumptions reflected in these financial statements include, but are not limited to the valuation of assets acquired and liabilities assumed pursuant to business combinations (see Note 4 to the financial statements) and stock-based compensation as it applies to the private company valuation of common stock. 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 report, 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. We believe our most critical accounting policies and estimates relate to the following:

Current wording

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 report, 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. We believe our most critical accounting policies and estimates relate to the following: