LQR House Inc.

NOTES TO CONSOLDATED 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 $10,000. See Note 4.

The Company’s Chief Executive Officer, Sean Dollinger, owns 50% of the equity of the Seller, and the other 50% is owned by a minority shareholder of the Company, who is considered a related party. A Special Committee of the Company’s Board of Directors consisting of all independent directors approved the terms of the Agreement on November 1, 2023. See Note 8.

Stock Dividend in the Form of Stock Split

In February 2024, the Board of Directors declared a 50% stock dividend for distribution to all of the Company’s shareholders of record at the close of business on February 12, 2024. On March 1, 2024,1,609,817 shares were issued per the dividend. As a result of the stock dividend, a 3:2 stock split was effected. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the stock split.

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 consolidated financial statements are issued.

The accompanying 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 $22,754,178 and $15,747,724 during the years ended December 31, 2024 and 2023, respectively, and had cash used in operations of $6,618,417 during the year ended December 31, 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. See Note 12 for capital raised subsequent to December 31, 2024.

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.

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.

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 $250,000. At times, the Company maintains balances in excess of the federally insured limits.

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.

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 held investments in mutual funds. The investments were classified as available-for-sale and are held at fair value. The investments have a readily determinable fair value and as such, were recognized as Level 1 financial instruments.

Investments, at Cost

In accordance with FASB ASC Subtopic 321,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 December 31, 2024, the Company recognized an impairment expense of $4,500,000 related to its investment in DRNK Beverage Corp, which was recorded within other income (expense) in the consolidated statements of operations. This impairment was triggered by company specific information and progress of the investee against expectations. The impairment also reflects the ongoing challenges in the marketplace and the reduced prospects for recovery of the carrying value of the investment. The Company continues to monitor the situation and will assess the need for any further adjustments in future periods.

See Note 6 for further detail.

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:

The carrying values of the Company’s accounts receivable and accounts payable 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.

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.

Revenue Recognition

In accordance with FASB ASC 606,Revenue from Contracts with Customers¸ the Company determines revenue recognition through the following steps:

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 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. 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 20% for each bottle of SWOL Tequila sold via wholesale channels. Revenue is recognized when the product is delivered, fulfilling the Company’s performance obligation. Due to regulatory restrictions surrounding the delivery and custodianship of alcoholic beverages, CWS assumes ownership at the time of delivery, with no recourse or right of return.

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 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 50% of the revenue from the subscriptions as the agent of the transaction. Upon the acquisition of the CWS Platform, the Company records gross revenue as it is the principal in the transaction. The Company records a reserve for chargebacks and cancellations at the time of the transaction based on historical experience.

Disaggregation of Revenue

The following is a summary of the disaggregation of revenue for the years ended December 31, 2024 and 2023:

Cost of Revenue

Cost of revenue consists of all direct costs attributable to prost sales and performing marketing services. Cost of revenue includes product costs, packaging, shipping and other importing and delivery charges, as well 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. Advertising costs were approximately $628,000 in 2024, and nominal in 2023.

Deferred Offering Costs

The Company complies with the requirements of FASB ASC 340-10-S99-1 with regards to offering costs. Prior to the completion of an offering, offering costs are capitalized. The deferred offering costs are charged to additional paid-in capital or as a discount to debt, as applicable, upon the completion of an offering or to expense if the offering is not completed. As of December 31, 2024 and 2023, the Company has no deferred offering costs.

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.

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 hasone operating and reportable segment.

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.

Income Taxes

The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is unlikely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.

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 December 31, 2024 and December 31, 2023, diluted net loss per share is the same as basic net loss per share. Potentially dilutive items outstanding as of December 31, 2024 include the Company’s outstanding restricted stock units and warrants to purchase common stock (See Note 8).

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.

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 $10,000.

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:

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 $10,000 for the purchase price consideration of the domain name.

Management assessed the fair value of the Domain Name and CWS Platform in determining to allocate the $10,000 to the domain name. In making such determination, management considered the related party nature of the transaction, the current environment for direct-to-consumer alcoholic beverage companies and the related competition in which they operate, and the fact that the initial and continued operation of the CWS platform is completely dependent on the relationship between the Company, our CEO and a minority shareholder, who co-owned SSquared and operates KBROS, LLC (“KBROS”, or “Product Handler”), the Company’s contracted product handler. Without such relationship, which can be terminated in certain circumstances, the underlying CWS Platform would be unable to operate as intended until a suitable alterative product handler would be identified. Therefore, no fair value in excess of the consideration provided was considered.

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. The pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition:

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 $1,350,000 as of December 31, 2024, representing the remaining unamortized prepaid amount. The amount was included in sales and marketing expenses in the consolidated statements of operations.

Deposits in Escrow

As of December 31, 2023, the Company had $5,470,000 in deposits held in escrow for potential investments. In the first quarter of 2024, the Company received $670,000 back from an investment it was no longer pursuing. The remaining $4,800,000 was transferred to an investment in the common stock of a third-party entity, DRNK Beverage Corp. which became Chase Mocktails Ltd. See below.

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 9.99% of common shares of Cannon by the Company pursuant to a Share Exchange Agreement (“Cannon Agreement”) between the Company and the Seller. Pursuant to the Cannon Agreement, the Seller transferred and delivered to the Company 113,085 of the common shares of Cannon (the “Cannon Shares”), and in exchange the Company issued and delivered to the Seller 750,000 shares of the Company’s common stock.

The Company recorded an investment of $817,500, which is the fair value of the 750,000 shares issued to Cannon at a fair value per share of $1.09 on May 19, 2024. The Company accounted for the investment in Cannon under the cost method as it owns 9.99% of Cannon’s common shares and does not exert significant influence.

Chase Mocktails Ltd (f/k/a DRNK Beverage Corp.)

On June 7, 2024, the Company consummated an acquisition of approximately 8.58% of common shares of DRNK Beverage Corp. (“DRNK”) which became Chase Mocktails Ltd., pursuant to a Subscription Agreement (“DRNK Agreement”). Pursuant to the Agreement, the Company subscribed for and purchased from DRNK 1,920,000 common shares of DRNK at a price of $2.50 per share for an aggregate amount of $4,800,000. Upon the closing of the DRNK Agreement, the Company reclassified $4,800,000 which was held as a deposit in escrow to investments.

As of December 31, 2024, the Company recognized an impairment expense of $4,500,000 related to its investment in DRNK based on impairment indicators on DRNK’s financial performance and DRNK’s progress as compared to initial expectations. In determining the impairment, management used a market approach using projected revenue information obtained from DRNK and market multiples for companies in similar industry segments.

As a result of this adjustment, the carrying value of the investment has been reduced to $300,000, and the impairment charge of $4,500,000 has been recorded within other income (expense) in the consolidated statements of operations.

7. ACCRUED EXPENSES

Accrued expenses consist of the following:

From October to December 2024, the Company entered into several settlement, bonus and retention agreements, of which $6,484,729 were accrued and unpaid as of December 31, 2024. Through the issuance date of these financial statements, approximately $5,600,000 of the accrued balances have been paid.

The following is a summary of the amounts incurred, paid and accrued with respect to the agreements noted above:

The Company entered into bonus and retention agreements reflect to retain key talent and incentivize critical personnel, including executives, directors, other related entities (see Note 9) and vendors. These were designed to ensure continuity in leadership, governance and support the Company’s long-term goals with key consultants and vendors, even though the Company is not currently profitable

8. STOCKHOLDERS’ EQUITY (DEFICIT)

Dual Class Share Structure

On March 29, 2023, the Company amended its articles of incorporation to institute a dual class share structure consisting of Class A Common Stock, and Class B Common Stock, and any number of classes of preferred stock. Class A Common Stock was entitled totwenty (20) votes per share on proposals requiring or requesting stockholder approval, and Class B Common Stock was entitled toone (1) vote on any such matter. A share of Class A Common Stock could have been voluntarily converted into a share of Class B Common Stock. A transfer of a share of Class A Common Stock would have resulted in its automatic conversion into Common Stock upon such transfer, subject to certain exceptions, including that the transfer of shares of Class A Common Stock to another holder of Class A Common Stock would not have resulted in such automatic conversion. Class B Common Stock was not convertible. Other than as to voting and conversion rights, Class A Common Stock and Class B Common Stock had the same rights and preferences and ranked equally, shared ratably and were identical in all respects as to all matters.

Due to this amendment, the Company’s authorized capital stock became 350,000,000 shares, consisting of: (i)300,000,000 shares of common stock, par value $0.0001 per share, of which 20,000,000 shares were designated Class A Common Stock, $0.0001 par value per share, and 280,000,000 shares were designated as Class B Common Stock, $0.0001 par value per share; and (ii)50,000,000 shares of preferred stock, $0.0001 par value per share. All 153,340 shares of common stock issued and outstanding at the time of the amendment became shares of Class B Common Stock.

Single Common Stock Structure

On June 5, 2023, the Company further amended its articles of incorporation to amend the share structure by (i) eliminating a dual class share structure consisting of the Class A Common Stock and Class B Common Stock and establishing a single common stock structure consisting of shares of common stock only, with 350,000,000 authorized shares being all designated as common stock with a par value of $0.0001 per share (the “Single Common Stock Structure”), entitled to one(1) vote per share; and by (ii) eliminating all authorized shares of preferred stock. All shares of Class B Common Stock issued and outstanding at the time of the amendment became shares of common stock. The accompanying financial statements reflect the single common stock structure in place as of December 31, 2024 and 2023.

The Company filed on November 28, 2023 a Certificate of Change to the Articles of Incorporation of the Company with the Secretary of State of the State of Nevada (the “Certificate of Change”) that provides for a 1-for-60 reverse stock split (the “Split”) of its shares of common stock, par value $0.0001 per share (the “Common Stock”) that became effective on November 30, 2023. No fractional shares were issued in connection with the Split and fractional amounts were rounded up to one whole share.

2024 Stock Transactions

In May 2024, the Company issued 750,000 shares of common stock pursuant to the Cannon Agreement for a fair value of $817,500. See Note 6.

On October 15, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with David E. Lazar (“Lazar”), pursuant to which the Company issued 1,101,818 shares of common stock at a price of $0.55 per share for proceeds of $606,000.

In December 2024, the Company issued 4,352,727 shares of common stock to several accredited investors at a price of $0.55 per share and five-year warrants to purchase an aggregate of 10,909,090 shares of common stock at the exercise price of $0.55 per share (the “Warrant”) pursuant to the Securities Purchase Agreement (“Lazar Purchase Agreement”), dated October 15, 2024 by and between the Company and David E. Lazar. These investors obtained the rights to the issuance of such securities pursuant to the assignment of rights of a purchaser by David Lazar as provided for in the Lazar Purchase Agreement. The Company received net proceeds of $2,394,000 pursuant to the transaction.

In December 2024, the Company entered into a Securities Purchase Agreement with various investors, pursuant to which the Company issued 636,400 shares of common stock at a price of $0.55 per share for aggregate gross proceeds of $350,020.

In December 2024, the Company issued 2,077,800 shares of common stock pursuant to the cashless exercise of warrants.

During the year ended December 31, 2024, the Company issued an aggregate of 1,485,575 shares of common stock pursuant to an at-the-market public offering for net proceeds of $1,543,079.

As of December 31, 2024, the Company had 15,252,580 shares issued and 15,061,952 shares outstanding.

2023 Stock Transactions

2023 Private Placement

From April to June 2023, the Company conducted a private placement of and entered into certain subscription agreements with several accredited investors. Pursuant to the agreements, the Company issued 23,875 shares of common stock at $60 per share for a total of $955,000.

Advisor and Consulting Agreements

In June 2023, the Company entered into advisor agreements with certain advisors, pursuant to which the advisors will provide business and corporate advice in connection with the Offering to the Company. In consideration for the advisor’s services, the Company issued 12,500 shares of common stock to six individuals and entities, for an aggregate of 75,000 shares. The Company recorded an expense of $3,000,000, or fair value of $40 per share, pertaining to these issuances, which is included in general and administrative expense in the statements of operations. The fair value was determined based on recent sales of stock under the 2023 Private Placement disclosure noted above.

In August 2023, the board of directors approved the issuance of an aggregate total of 62,501 shares of the Company’s common stock under the LQR House Inc. Stock Option and Incentive Plan (“2021 Plan”) to certain consultants with whom the Company entered into independent contractor agreements, in consideration for their providing consulting services to the Company. The Company recognized stock-based compensation expense of $2,552,500, or $40.80 per share based on the fair value of the Company’s common stock at the time of the agreements, for the year ended December 31, 2023. The amount was included in general and administrative expenses in the statements of operations.

Initial Public Offering

In the IPO, which closed on August 11, 2021, the Company issued and sold 28,750 shares of common stock, including the exercise of the over-allotment option, at a public offering price of $200 per share. Total gross proceeds to the Company from the IPO were $5.75 million. The aggregate net proceeds to the Company from the IPO were approximately $4.5 million after deducting underwriting discounts and commissions and total offering expenses.

In connection to the IPO, the Company agreed to issue the underwriters five-year warrants to purchase an aggregate of 1,437 shares of the Company’s common stock with an exercise price of $200 per share. The warrants are immediately exercisable.

Follow-On Public Offerings

On October 16, 2023, the Company completed a subsequent closing of the public offering and issued 710,526 shares of common stock for gross proceeds of $5.4 million, or $7.60 per share. The Company received $4.9 million in net proceeds. In connection with the October follow-on offering, the Company issued to the underwriters five-year warrants to purchase an aggregate of 35,526 shares of the Company’s common stock with an exercise price of $7.60 per share.

On November 13, 2023, the Company completed an additional closing of the public offering and issued 3,928,572 shares of common stock for gross proceeds of $11.0 million, or $2.80 per share. The Company received $5.3 million in net proceeds, as $4.8 million of the gross proceeds which were deposited in escrow for a potential investment. In connection with the November follow-on offering, the Company issued to the underwriters five-year warrants to purchase an aggregate of 196,428 shares of the Company’s common stock with an exercise price of $2.80 per share.

On December 27, 2023, the underwriters exercised their over-allotment option from the November offering and the Company issued an additional 589,286 shares of common stock for gross proceeds of $1.65 million, or $2.80 per share. The Company received $1.56 million in net proceeds.

Debt Settlement for Shares

On September 27, 2023, the Company issued 63,766 shares of common stock as settlement for outstanding principal on notes of $950,000 and accrued interest of $171,000 (see Note 5).

Cancellations

Stock cancellations

In June 2023, the Company entered into a Cancellation Agreement with four stockholders, who each owned 18,750 shares of common stock or an aggregate of 75,000 shares. The stockholders purchased these shares from the founder, Sean Dollinger, pursuant to a stock purchase agreement on January 12, 2023, between Mr. Dollinger and each of these four stockholders. The Company repurchased the shares for $18,000.

Warrant cancellations

On December 16, 2023, the Company cancelled all outstanding warrants issued to the underwriter for consideration of $60,000.

Share Buyback

On September 1, 2023, the board of directors of the Company authorized a share buyback program for up to 20% of the Company’s common stock and approved an agreement entered by and between the Company and Dominari Securities LLC (“Dominari”) on August 28, 2023 to effect the share buyback program. From September 8, 2023 through December 22, 2023, the Company confirmed the acquisition of 865,070 shares of common stock for a total of $1,440,852, which was initially recorded as treasury stock on the balance sheet and statement of stockholders’ equity (deficit). On December 22, 2023, the 865,070 shares were sent to the Company’s transfer agent for retirement.

In January 2024, the Company purchased a total of 190,628 shares of the Company’s common stock for $547,415, which was recorded as treasury stock on the balance sheet and statement of stockholders’ equity (deficit).

Warrants

On December 30, 2024, the Company issued five-year warrants to several accredited investors to purchase an aggregate of 10,909,090 shares of common stock at the exercise price of $0.55 per share (the “Warrant Shares”). The warrants are immediately exercisable. These warrants can also be exercised, in whole or in part, by means of a “cashless exercise” in which the holder shall be entitled to receive the number of Warrant Shares equal to the quotient obtained by dividing a) the volume weighted-average price of the stock on the trading day preceding the exercise notice less the exercise price multiplied by the Warrant Shares by b) the volume weighted-average price.

On December 30, 2024,2,077,800 shares were issued pursuant to the immediate cashless exercise of the warrants. As of December 31, 2024,7,366,209 warrants remained outstanding.

Restricted Stock Units

In August 2023, the Company granted 31,250 restricted stock units (the Director RSU’s) which were to vest in eight equal quarterly installments commencing on October 1, 2023. On August 30, 2023, the Board authorized deferring the vesting of the Director RSUs until such date that the 2021 Plan is amended. The RSUs had a grant-date fair value of $6,266,533. During the year ended December 31, 2023, the Company recognized stock-based compensation expense of $1,091,648, which is included in general and administrative expenses in the statement of operations. As of December 31, 2023, there were 29,250 Director RSUs outstanding after cancellations.

On December 19, 2024, the Company granted 50,000 restricted stock units (the 2024 Director RSU’s) to each newly elected independent director (see Note 8) which shall vest in eight (8) equal quarterly installments commencing in the first quarter of 2025, provided that such directors remain in continuous service of the Company on such dates. The RSUs had a grant-date fair value of $318,000.

During the year ended December 31, 2024,3,000 restricted stock units were forfeited following the resignation of three directors.

During the year ended December 31, 2024, the Company recognized stock-based compensation expense of $2,533,256 in the statement of operations pertaining to the vesting of director RSUs. Total unrecognized compensation cost related to non-vested restricted stock units amounted to $1,953,482 as of December 31, 2024, which is expected to be recognized over approximately 2 years. As of December 31, 2024,209,845 RSUs remained unvested.

The following table summarizes RSU activity for the year ended December 31, 2024:

9. 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 $40,000 per month plus reimbursement for shipping and handling fees incurred by them for orders fulfilled through the CWS Platform, and bonus for reaching certain revenue milestones. Pursuant to the Product Handling Agreement, the Company incurred $480,000, to KBROS for the year ended December 31, 2024, which is included in cost of revenue in the consolidated statements of operations. During the year ended December 31, 2024, the Company paid $200,000 in incentive compensation, which is included in sales and marketing expenses in the consolidated statements of operations.

In October, 2024, the Company entered into a settlement and release agreement with KBROS, and its controlling stockholder, for an aggregate amount equal to $4,100,000, which is included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2024, $3,600,000 remained unpaid and was included as accrued expenses on the consolidated balance sheet. Of this amount, $1,800,000 was paid in 2025 and $1,800,000 remained unpaid as of issuance date of these consolidated financial statements.

See Note 11 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 100% owner of KBROS, the Product Handler.

As of December 31, 2024 and 2023, the Company had $149,510 and $172,493, respectively, in accounts receivable, related party with CWS pertaining to product revenues*.* In the event that CWS fails to repay the trade receivables, the Company believes it can offset the outstanding receivables against regular payables due to KBROS.

Accounts Payable, Related Party

As of December 31, 2024 and 2023, the Company had accounts payable of $21,175 and $58,589, respectively, with related parties, including KBROS, the Company’s founder and Chief Executive Officer, and officers and directors.

Board of Directors

In October 2024, Jay Dhaliwal resigned from the Board of Directors, and pursuant to his resignation 500 RSU’s were cancelled which were unvested at time of resignation.

In December 2024, two directors, James Huber and Gary Herman resigned from the Board of Directors, and pursuant to their resignation unvested 1,250 RSU’s to each director, were cancelled.

On December 19, 2024, after the Annual Meeting, the Board appointed Mr. Lijun Chen and Dr. Jing Lu to fill the vacancies on the Board resulting from the resignations of Mr. Huber and Mr. Herman, effective as of December 19, 2024. The initial terms as director for Mr. Chen and Dr. Lu will expire at the Company’s 2025 annual meeting of stockholders. Mr. Chen was also appointed to serve as the Chairman of the Board, a member of the Audit Committee of the Board and a member of the Nominating and Corporate Governance Committee of the Board. Dr. Lu was appointed to serve as a member of the Compensation Committee of the Board, a Chairperson of the Nominating and Corporate Governance Committee of the Board and a Member of the Audit Committee of the Board.

On December 19, 2024 and immediately after the Annual Meeting, the Board appointed newly elected director James O’Brien to serve as Chairman of the Compensation Committee of the Board.

In connection with such director appointments and the election of Mr. Yilin Lu and Mr. Hong Chun Yeung as directors of the Company on December 19, 2024, the Company entered into an independent director agreement with each of the newly elected and appointed directors: Mr. Yilin Lu, Mr. Hong Chun Yeung, Mr. Lijun Chen and Dr. Jing Lu (each, the “Director Agreement”). Pursuant to the Director Agreement, each of the abovementioned directors will be entitled to receive from the Company an annual cash fee of $36,000, to be paid in monthly installments, for their services as a director of the Board. Each of these directors shall also receive equity compensation in the form of 50,000 restricted stock units (“RSUs”), vesting in eight (8) equal quarterly installments commencing in the first quarter of 2025, provided that such directors remain in continuous service of the Company on such dates.

Performance Bonus

During the year ended December 31, 2024, the Company paid its Chief Executive Officer and KBROS a performance bonus of $200,000 each for achieving certain revenue levels through the CWS Platform.

Retention Agreements

See Note 7 for a summary reconciliation of related and non-related party retention agreements. See below for a detailed description.

In October 2024, the Company entered into a retention agreement with its Chief Financial Officer whereby a retention bonus of $550,000 was awarded for continued services. This amount was included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2024, $250,000 remained unpaid and was included within accrued expenses, related party on the consolidated balance sheet, which has been paid as of the date of issuance of these consolidated financial statements.

In October 2024, the Company entered into a retention agreement with its Chief Executive Officer, and entities affiliated with the CEO, whereby a retention bonus of $850,000 was awarded for continued services. This amount was included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2024, $800,000 remained unpaid and was included within accrued expenses, related party on the consolidated balance sheet, which has been paid in January 2025.

In October 2024, the Company entered into a retention agreement with its Chief Marketing Officer, Jaclyn Hoffman, whereby a retention bonus of $285,000 was awarded for continued services. This amount was included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2024, $255,000 remained unpaid and was included within accrued expenses, related party on the consolidated balance sheet. Of this amount, $100,000 was paid in January 2025, and $155,000 remained unpaid as of issuance date of these consolidated financial statements.

In October 2024, the Company entered into a retention agreement with its director Alexandra Hoffman whereby a retention bonus of $600,000 was awarded for continued services. This amount was included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2024, $500,000 remained unpaid and was included within accrued expenses, related party on the consolidated balance sheet. This amount was paid in January 2025.

During the year ended December 31, 2024, the Company paid an aggregate of $120,000 to four former directors as per their respective settlement agreements.

Lease

The Company historically leased space from a related party entity, which is now month-to-month. As part of the retention and settlement agreements above, the Company agreed to pay this entity $40,000.

10. INCOME TAXES

For the years ended December 31, 2024 and 2023, the Company did not record a current or deferred income tax expense or benefit due to current and historical losses incurred by the Company. The Company’s losses before income taxes consist solely of losses from domestic operations.

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The following table presents the deferred tax assets and liabilities by source:

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company assessed the need for a valuation allowance against its net deferred tax assets and determined a full valuation allowance is required due, cumulative losses through December 31, 2024, and no history of generating taxable income. Therefore, valuation allowances of $7,213,981 and $2,714,847, respectively, were recorded as of December 31, 2024 and 2023. Valuation allowance increased by $4,499,134 and $1,949,039 during the years ended December 31, 2024 and 2023, respectively. Deferred tax assets were calculated using the Company’s combined effective tax rate, which it estimated to be approximately 28.0%. The effective rate is reduced to 0% for 2024 and 2023 due to the full valuation allowance on its net deferred tax assets.

The Company’s ability to utilize net operating loss carryforwards will depend on its ability to generate adequate future taxable income. At December 31, 2024 and 2023, the Company had net operating loss carryforwards available to offset future taxable income in the amounts of approximately $25,808,400 and $9,712,000, respectively, which can be carried forward indefinitely. Certain changes in ownership can result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year. As of December 31, 2024, management has not determined the extent of any such limitations, if any.

The Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions. The Company will recognize interest and penalties related to any uncertain tax positions through its income tax expense.

The Company is subject to taxation in the U.S. and various state jurisdictions. The Company is not presently subject to any income tax audit in any taxing jurisdiction, though all tax years from 2021 on remain open to examination.

11. 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 $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.

For further details regarding the settlement agreement, see Note 9.

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.

12. SUBSEQUENT EVENTS

Through the issuance date, the Company has issued common shares pursuant to the exercise of 7,366,209 warrants for proceeds of approximately $4,050,000.

Through the issuance date, the Company has issued 13,816,082 shares of common stock pursuant to its ATM Agreement for net proceeds of $5,014,022.