LQR House Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 001-41778 LQR House Inc. (Exact name of registrant as specified in its charter) Nevada 86-1604197 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 6800 Indian Creek Dr. Suite 1E Miami Beach , FL 33141 (786) 389-9771 (Address of principal executive offices, including zip code) Tel: (786) 389-9771 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0.0001 par value per share LQR The Nasdaq Stock Market LLC 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. Yes ☒ No ☐ 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). Yes ☒ No ☐ 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 ☐ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if this registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of November 16, 2023, the Company had 201,919,966 shares of common stock, $0.0001 par value, issued and 201,840,656 shares of common stock, $0.0001 par value, outstanding. LQR HOUSE, INC. FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION 1 ITEM 1. Financial Statements – Unaudited 1 Balance Sheets as of September 30, 2023 and December 31, 2022 1 Statements of Operations for the Three and Nine Months ended September 30, 2023 and 2022 2 Statements of Stockholders’ Equity for the Three and Nine Months ended September 30, 2023 and 2022 3 Statements of Cash Flows for the Nine Months ended September 30, 2023 and 2022 4 Notes to Financial Statements 5 ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 ITEM 3 Quantitative and Qualitative Disclosures about Market Risk 22 ITEM 4. Controls and Procedures 22 PART II. OTHER INFORMATION 23 ITEM 1. Legal Proceedings 23 ITEM 1A. Risk Factors 23 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 23 ITEM 3. Defaults upon Senior Securities 24 ITEM 4. Mine Safety Disclosures 24 ITEM 5. Other Information 24 ITEM 6. Exhibits 24 SIGNATURES 25 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 PART I – FINANCIAL INFORMATION ITEM 1 – FINANCIAL STATEMENTS LQR HOUSE, INC. BALANCE SHEETS (UNAUDITED) September 30, December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 1,863,835 $ 7,565 Accounts receivable, related party 141,285 224,692 Advances to related party 177,340 314,766 Prepaid expenses 1,296,423 - Total current assets 3,478,883 547,023 Intangible assets, net 1,895,833 2,083,333 Right of use asset 11,117 - Total assets $ 5,385,833 $ 2,630,356 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 465,063 $ 287,457 Accounts payable, related party 60,611 104,002 Accrued expenses 128,530 199,256 Right of use liability, current portion 9,676 - Total current liabilities 663,880 590,715 Right of use liability 2,534 - Total liabilities 666,414 590,715 Stockholders’ equity: Common stock, $ 0.0001 par value, 350,000,000 shares authorized, 16,356,056 and 16,276,746 shares issued and outstanding as of September 30, 2023 and 9,200,405 shares issued and outstanding as December 31, 2022, respectively 1,636 920 Additional paid-in capital 18,035,941 5,843,622 Treasury stock, at cost ( 79,310 shares) ( 93,464 ) - Accumulated deficit ( 13,224,694 ) ( 3,804,901 ) Total stockholders’ equity 4,719,419 2,039,641 Total liabilities and stockholders’ equity $ 5,385,833 $ 2,630,356 See the accompanying notes to the unaudited financial statements. 1 LQR HOUSE, INC. STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenue - services $ 101,414 $ 129,567 $ 395,212 $ 232,792 Revenue - product 69,097 - 116,884 - Total revenues 170,511 129,567 512,096 232,792 Cost of revenue - services 97,504 62,500 296,331 579,519 Cost of revenue - product 65,388 27,040 105,519 27,040 Total cost of revenue 162,892 89,540 401,850 606,559 Gross profit (loss) 7,619 40,027 110,246 ( 373,767 ) Operating expenses: General and administrative 4,803,821 351,738 8,684,826 853,327 Sales and marketing 574,026 139,513 674,213 472,390 Total operating expenses 5,377,847 491,251 9,359,039 1,325,717 Loss from operations ( 5,370,228 ) ( 451,224 ) ( 9,248,793 ) ( 1,699,484 ) Other income (expense): Interest expense ( 171,000 ) - ( 171,000 ) - Total other expense ( 171,000 ) - ( 171,000 ) - Net loss $ ( 5,541,228 ) $ ( 451,224 ) $ ( 9,419,793 ) $ ( 1,699,484 ) Weighted average common shares outstanding - basic and diluted 11,692,728 9,048,738 9,582,500 8,945,683 Net loss per common share - basic and diluted $ ( 0.47 ) $ ( 0.05 ) $ ( 0.98 ) $ ( 0.19 ) See the accompanying notes to the unaudited financial statements. 2 LQR HOUSE, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) Common Stock Additional Paid-in Treasury Stock Accumulated Total Stockholders’ Shares Amount Capital Shares Amount Deficit Equity Balances at December 31, 2021 8,937,905 $ 894 $ 5,525,773 - $ - $ ( 1,962,726 ) $ 3,563,941 Vesting of restricted stock units 87,500 9 65,616 - - - 65,625 Net loss - - - - - ( 701,128 ) ( 701,128 ) Balances at March 31, 2022 9,025,405 903 5,591,389 - - ( 2,663,854 ) 2,928,438 Vesting of restricted stock units - - 65,625 - - - 65,625 Net loss - - - - - ( 547,132 ) ( 547,132 ) Balances at June 30, 2022 9,025,405 903 5,657,014 - - ( 3,210,986 ) 2,446,931 Vesting of restricted stock units 175,000 17 186,608 - - - 186,625 Net loss - - - - - ( 451,224 ) ( 451,224 ) Balances at September 30, 2022 9,200,405 $ 920 $ 5,843,622 - - $ ( 3,662,210 ) $ 2,182,332 Balances at December 31, 2022 9,200,405 $ 920 $ 5,843,622 - $ - $ ( 3,804,901 ) $ 2,039,641 Recapitalization (Note 5) 29 - - - - - - Net loss - - - - - ( 322,074 ) ( 322,074 ) Balances at March 31, 2023 9,200,434 920 5,843,622 - - ( 4,126,975 ) 1,717,567 Issuance of common stock pursuant to private placement 955,000 96 954,904 - - - 955,000 Issuance of common stock for services 3,000,000 300 2,999,700 - - - 3,000,000 Repurchase of shares ( 3,000,000 ) ( 300 ) ( 17,700 ) - - - ( 18,000 ) Net loss - - - - - ( 3,556,491 ) ( 3,556,491 ) Balances at June 30, 2023 10,155,434 1,016 9,780,526 - - ( 7,683,466 ) 2,098,076 Issuance of common stock pursuant to IPO 1,150,000 115 5,749,885 - - - 5,750,000 Offering costs - - ( 1,255,843 ) - - - ( 1,255,843 ) Conversion of note payable into common stock 2,550,622 255 1,120,745 - - - 1,121,000 Issuance of common stock for services 2,500,000 250 2,552,250 - - - 2,552,500 Buyback of common shares - - ( 79,310 ) ( 93,464 ) - ( 93,464 ) Vesting of restricted stock units - - 88,378 - - - 88,378 Net loss - - - - - ( 5,541,228 ) ( 5,541,228 ) Balances at September 30, 2023 16,356,056 1,636 18,035,941 ( 79,310 ) $ ( 93,464 ) ( 13,224,694 ) 4,719,419 See the accompanying notes to the unaudited financial statements. 3 LQR HOUSE, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 9,419,793 ) $ ( 1,699,484 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 187,500 187,500 Vesting of restricted stock units 88,378 317,875 Issuance of common stock for services 5,552,500 - Changes in operating assets and liabilities: Accounts receivable, related party 83,407 ( 10,421 ) Prepaid expenses ( 1,296,422 ) ( 118,380 ) Accounts payable 177,606 146,720 Accounts payable, related party ( 43,391 ) 98,827 Accrued expenses 100,274 41,900 Right of use liability, net 1,093 - Net cash used in operating activities ( 4,568,848 ) ( 1,035,463 ) Cash flows from investing activities: Net repayments from (advances to) related party 137,426 ( 74,086 ) Net cash provided by (used in) investing activities 137,426 ( 74,086 ) Cash flows from financing activities: Proceeds from note payable 950,000 - Issuance of common stock pursuant to private placement 955,000 - Issuance of common stock pursuant to IPO, net of offering costs 4,494,156 - Repurchase and buyback of shares ( 111,464 ) - Net cash provided by financing activities 6,287,692 - Net change in cash and cash equivalents 1,856,270 ( 1,109,549 ) Cash and cash equivalents at beginning of period 7,565 1,116,101 Cash and cash equivalents at end of period $ 1,863,835 $ 6,552 Supplemental disclosure of cash flow information: Cash paid for income taxes $ - $ - Cash paid for interest $ - $ - Supplemental disclosure of non-cash financing activities: Conversion of note payable and accrued interest into common stock $ 1,121,000 $ - See the accompanying notes to the unaudited financial statements. 4 LQR HOUSE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. NATURE OF OPERATIONS LQR House Inc. (“LQR” or the “Company”) was incorporated on January 11, 2021, in the state of Delaware. The Company operates primarily in the beverage alcohol industry owning specialty brands, providing marketing and distribution services. As of September 30, 2023, the Company has not achieved its planned level of operations. The Company’s activities since inception have been limited and consisted of formation activities, commencement of operations and capital raising activities. To date, the Company has only generated limited amounts of revenue and the Company is dependent on external capital, including funds from the initial public offering (described below) to execute its planned operations. Reorganization and Reverse Stock Split 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. On February 3, in accordance with our reincorporation to Nevada, the Company’s authorized capital stock changed from 100,000,000 shares of common stock, $ 0.001 par value, to 350,000,000 shares, consisting of 300,000,000 shares of common stock, par value $ 0.0001 per share, and 50,000,000 shares of preferred stock, par value $ 0.0001 per share. At the same time, the Company also completed a 6-for-1 reverse stock split of its outstanding common stock through the merger by issuing one share of common stock for every six previously outstanding shares of common stock of the predecessor Delaware company. The accompanying financial statements and related disclosures have been presented to retroactively reflect the Reorganization. Initial Public Offering On August 9, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”), relating to the Company’s initial public offering (the “Offering” or “IPO”) of 1,150,000 shares (the “Shares”) of the Company’s common stock which included the exercise by the underwriters in full of the over-allotment option to purchase an additional 150,000 shares of the Company’s common stock, at an offering price of $ 5.00 per share. The closing of the IPO took place on August 11, 2023. Total gross proceeds, including the exercise of the over-allotment option, was $ 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. 2. GOING CONCERN 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 $ 9,419,793 and has negative cash flows from operations of $ 4,568,848 for the nine months ended September 30, 2023. Management’s Plans The Company has raised funds from the IPO (Note 1) and an additional $ 15.0 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. 5 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). The Company’s fiscal year end is December 31. The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act and has elected to comply with certain reduced public company reporting requirements, however, the Company may adopt accounting standards based on the effective dates for public entities when early adoption is permitted. Unaudited Interim Financial Information The unaudited 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 financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s prospectus that forms a part of the Company’s Registration Statement on Form S-1 ( File No. 333-272660 ) which was declared effective on August 9, 2023. 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 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. Significant Risks and Uncertainties The Company is subject to customary risks and uncertainties including, but not limited to, the need for protection of proprietary technology, dependence on key personnel, costs of services provided by third parties and limited operating history. Variable Interest Entities The Company evaluates its relationships with other entities to identify whether they are variable interest entities as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”), and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is consolidated. The Company evaluated whether it was the primary beneficiary in its common control asset acquisitions and related party agreements and determined it is not the primary beneficiary of any entities. 6 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 from marketing services is reliant on its relationship and marketing license agreement with Ssquared Spirits LLC, a related party entity, and CWS who fulfills sales for the products sold by clientele using our marketing services. The discontinuance of such relationships or termination of the marketing license agreement 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. Fair Value Measurements Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: ● Level 1—Quoted prices in active markets for identical assets or liabilities. ● Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. ● Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The carrying values of the Company’s accounts receivable 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. 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. Prepaid Expenses Prepaid expenses consist of prepaid advertising, marketing and investor relations costs. The agreements have terms ranging from three months to one year. Prepaids are amortized to the respective expenses over the life of the agreements. 7 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: ● 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, distribution of its SWOL Tequila product to CWS, 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 alcoholic beverage website (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. Product Sales The Company wholly owns SWOL Tequila, a tequila made in limited batches from a third-party producer located in Mexico. The Company facilitates all efforts to get the product delivered to CWS for retail distribution in the United States, including advancing costs for production, shipping and other importing and delivery charges. The Company is entitled to payment of cost plus an additional 20 % on each bottle of SWOL Tequila sold to CWS. Revenue is recognized at the point in which the products are delivered to CWS, when LQR has fulfilled its performance obligation. Due to certain restrictions on the delivery and custodianship of alcoholic beverage, CWS is require to take ownership of the product at time of delivery, and there is no recourse or right of return. The Company records gross revenue as it’s the primary obligor in the transaction. 8 Vault Vault is the exclusive membership program for CWS 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. The Company markets this membership program on the CWS Platform and is entitled to 50 % of the revenue from the subscriptions. Members are charged monthly membership fees, and the Company recognizes the 50 % fee it is entitled to from CWS as net revenue. The Company records revenue on transactions when the user initially subscribes or renews their membership, as the Company is the agent of the transaction and do not typically provide significant post transaction services to the user or bear responsibility for the promised goods or services included in the membership. The Company records a reserve for chargebacks and cancellations at the time of the transaction based on historical experience. During the three and nine months ended September 30, 2023, revenue from Vault memberships totaled $ 7,489 and $ 24,401 , respectively. Contract Balances Accounts receivable represent amounts owed from marketing and product sales invoiced, but not yet received. Contract liabilities represent obligations to transfer services to a customer for which the Company has already received consideration. Payments for marketing services are generally received upfront in advance of the Company satisfying the related performance obligation and are recorded as a deferred revenue liability. The deferred revenue is reduced as the services are performed and the revenue is recognized. As of September 30, 2023 and December 31, 2022, the Company had $ 0 in deferred revenue. Cost of Revenue Cost of revenue consists of all direct costs attributable to performing marketing services and the Company’s product sales. Cost of revenue includes affiliate payouts, contracted marketing services, direct advertising costs for marketing campaigns, product costs, packaging, shipping and other importing and delivery charges. Cost of revenue also includes customer service personnel and amortization of the Company’s marketing license asset (see Note 4). 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. 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 September 30, 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. 9 Net Loss per Share Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive as of September 30, 2023, diluted net loss per share is the same as basic net loss per share. Potentially dilutive items outstanding as of September 30, 2023 and 2022 are as follows: September 30, 2023 2022 Restricted stock units 1,270,000   - Common stock warrants 57,500 - Total potentially dilutive shares 1,327,500 - Recently Issued and Adopted Accounting Pronouncements Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances. 4. INTANGIBLE ASSETS CWS Exclusive Marketing Agreement On April 1, 2021, the Company, CWS, and another related entity, Ssquared Spirits LLC (“Ssquared”), entered into an exclusive marketing agreement (the “CWS Agreement”). Pursuant to this agreement, CWS and Ssquared granted the Company the exclusive right to promote and market spirits and other beverage products through the CWS website (cwspirtis.com) for sale to customers located within Canada, Mexico and the United States. The Company has the sole right to manage and make decisions with regard to user facing content on the website, including the placement and removal of products and the creation and management of promotional initiatives. The term of the CWS Agreement is ten years. Pursuant to the agreement, the Company issued 1,666,667 shares of common stock to the members of Ssquared. The Company capitalized the fair value of the consideration transferred, $ 2,500,000 (or $ 1.50 per share), as an intangible asset which will be amortized over the term agreement of ten ( 10 ) years. During the three and nine months ended September 30, 2023 and 2022, the Company amortized $ 62,500 , $ 62,500 , $ 187,500 and $ 187,500 , respectively, which is included in cost of revenue – services in the statement of operations. As of September 30, 2023 and December 31, 2022, the unamortized balance was $ 1,895,833 and $ 2,083,333 , respectively. Annual amortization expense is expected to be $ 250,000 . 5. NOTE PAYABLE In August and September 2023, the Company entered into several loan agreements for aggregate proceeds of $ 950,000 . The loans bore interest at 18 % and were payable on demand, regardless of whether paid before the anniversary of the loan agreements. On September 27, 2023, the Company entered into debt settlement agreements with the noteholders in full settlement of the loan amounts, including interest, using the closing price of $ 0.4395 of the Company’s common stock on September 27, 2023. As such, a total amount of $ 1,121,000 , including principal of $ 950,000 and accrued interest of $ 171,000 , was converted into 2,550,622 shares of the Company’s common stock. 10 6. STOCKHOLDERS’ EQUITY Reorganization Prior to the Reorganization described in Note 1, the Company was authorized to issue up to 100,000,000 shares of common stock, par value $ 0.001 per share. Upon the Reorganization in the first quarter of 2023 (see Note 1), the Company was authorized to issue 300,000,000 shares of common stock and 50,000,000 shares of preferred stock, par value $ 0.0001 per share. Amendment to Articles of Incorporation 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 to twenty (20) votes per share on proposals requiring or requesting stockholder approval, and Class B Common Stock was entitled to one (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 9,200,434 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 September 30, 2023. 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 955,000 shares of common stock at $ 1.00 per share for a total of $ 955,000 . 11 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 500,000 shares of common stock to six individuals and entities, for an aggregate of 3,000,000 shares. The Company recorded an expense of $ 3,000,000 , or fair value of $ 1.00 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 an issuance of and the Company issued an aggregate total of 2,500,000 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 $ 1.02 per share based on the fair value of the Company’s common stock at the time of the agreements, for the nine months ended September 30, 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 1,150,000 shares of common stock, including the exercise of the over-allotment option, at a public offering price of $ 5.00 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 57,500 shares of the Company’s common stock with an exercise price of $ 5.00 per share. The warrants are immediately exercisable. Debt Settlement for Shares On September 27, 2023, the Company issued 2,550,622 shares of common stock as settlement for outstanding principal on notes of $ 950,000 and accrued interest of $ 171,000 (see Note 5). Cancellations In June 2023, the Company entered into a Cancellation Agreement with four stockholders, who each owned 750,000 shares of common stock or an aggregate of 3,000,000 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. As of the date these financial statements were available to be issued these shares were either cancelled or pending cancellation with the transfer agent. The Company repurchased the shares for $ 18,000 . Share Buyback On September 1, 2023, the board of directors of the Company authorized a share buyback program for up to 20 % or up to $ 2.0 million 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. The Company confirmed the acquisition of 79,310 shares of common stock on September 8, 2023 for a total of $ 93,464 , which was recorded as treasury stock on the balance sheet and statement of changes in stockholders’ equity. The repurchase of shares of common stock occurred in accordance with Rule 10b-18. 12 As of September 30, 2023, the Company had 16,356,056 shares issued and 16,276,746 shares outstanding. As of December 31, 2022, the Company had 9,200,405 shares issued and outstanding. Restricted Stock Units In August 2023 the Company granted 1,250,000 restricted stock units (the Director RSU’s) which were to vest in eight (8) equal quarterly installments commencing on October 1, 2023. On August 21, 2023, Jay Dhaliwal was added to the Board on and was granted 20,000 Director RSUs which Director RSUs were to vest in eight (8) 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 $ 1,612,900 . During the nine months ended September 30, 2023, the Company recognized stock-based compensation expense of $ 88,378 , which is included in general and administrative expenses in the statement of operations. 7. RELATED PARTY TRANSACTIONS CWS and Ssquared Spirits LLC The Company’s founder and controlling stockholder has an economic interest in Ssquared Spirits LLC, the e-commerce affiliate of CWS. The spouse of the Company’s former Chief Executive Officer and director, is the President and controlling stockholder of CWS and the managing member and director of Ssquared Spirits LLC. In 2022, the former Chief Executive Officer resigned from the Company. SWOL Tequila As of September 30, 2023 and December 31, 2022, the Company had $ 116,884 and $ 224,692 , respectively, in accounts receivable, related party with CWS pertaining to SWOL product revenues. Vault During the nine months ended September 30, 2023, revenue from Vault memberships totaled $ 24,401 , which is included in accounts receivable, related party as of September 30, 2023. Advances to CWS During the nine months ended September 30, 2023 and 2022, the Company paid certain costs pertaining to alcoholic products on behalf of CWS in order finance the purchase of brand product for which the Company was promoting through marketing services. The advances totaled $ 7,340 and $ 59,068 , respectively, during the nine months ended September 30, 2023 and 2022. As of September 30, 2023 and December 31, 2022, $ 7,340 and $ 314,766 , respectively, remained unpaid and outstanding from CWS. The advances are non-interest bearing, unsecured and due on demand. The advances owed as of December 31, 2022 were collected in the nine months ended September 30, 2023. Veg House Illinois During the nine months ended September 30, 2023, the Company paid $ 170,000 to a contractor for assistance in completion of the food hall bar owned by a related party under common management with the Company’s CEO, Veg House Illinois, Inc. Accounts Payable, Related Party As of September 30, 2023 and December 31, 2022, the Company had accounts payable of $ 60,611 and $ 104,002 , respectively, with related parties, including the Company’s founder and Chief Executive Officer, and officers and directors. Board of Directors In September 2023, two directors resigned from the Board of Directors, and agreed to cancel 50,000 RSU’s each. The cancellation was formalized in October 2023. 13 8. COMMITMENTS AND 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. Underwriting Agreement On December 1, 2022, the Company entered into an engagement agreement with Boustead Securities, LLC to assist in the private placement of securities (“pre-IPO Financing”) and the initial public offering or other registered securities offerings (“IPO”) in the United States listing on NASDAQ. This agreement was terminated on May 23, 2023. In connection with the termination of Boustead Securities, LLC, the Company agreed to pay Boustead Securities, LLC, $ 259,292 for out-of-pocket expenses. 9. SUBSEQUENT EVENTS Follow-On Offering On October 13, 2023, the Company entered into an underwriting agreement with EF Hutton relating to the Company’s public offering of 28,421,053 shares of the Company’s common stock pursuant to the Registration Statements on the Form S-1 (Registration Nos. 333-274903 and 333-274978) (“Follow-on Offering”), at an offering price of $ 0.19 per share. The closing of the Follow-on Offering took place on October 16, 2023. Total gross proceeds were $ 5.4 million. The aggregate net proceeds to the Company from the Follow-on Offering were approximately $ 4.9 million after deducting underwriting discounts and commissions and estimated offering expenses. In connection with the Follow-on Offering, the Company issued to the underwriters five-year warrants to purchase an aggregate of 1,421,053 shares of the Company’s common stock with an exercise price of $ 0.19 per share. Second Follow-On Offering On November 9, 2023, the Company entered into an underwriting agreement with EF Hutton relating to the Company’s public offering of 157,142,857 shares of the Company’s common stock pursuant to the Registration Statement on the Form S-1 (Registration No. 333-275363) (“Second Follow-on Offering”), at an offering price of $ 0.07 per share. The closing of the Second Follow-on Offering took place on November 13, 2023. Total gross proceeds were $ 11 million. The aggregate net proceeds to the Company from the Second Follow-on Offering were approximately $ 10.1 million after deducting underwriting discounts and commissions and estimated offering expenses. In connection with the Second Follow-on Offering, the Company issued to the underwriters five-year warrants to purchase an aggregate of 7,857,143 shares of the Company’s common stock with an exercise price of $ 0.07 per share. Domain Name Purchase On November 1, 2023, LQR Acquisition Corp. (the “LQRAC”), a Nevada corporation and a wholly-owned subsidiary of the Company formed in October 2023, and Ssquared entered into the Domain Name Transfer Agreement, pursuant to which, Ssquared irrevocably sold, assigned, transferred, and conveyed to LQRAC (a) all right, title, and interest in and to the CWS Platform, including its current registration with GoDaddy.com, and (b) any other rights (including, but not limited to, trademark rights associated with the CWS Platform in any jurisdiction, all internet traffic through the CWS Platform and all Website Content (as defined in the Domain Transfer Agreement) Ssquared may have in the CWS Platform for a purchase price of $ 10,000 . Our Chief Executive Officer, Sean Dollinger, is a 50 % equity owner of Ssquared. The terms of the Domain Name Transfer Agreement were approved by the Special Committee of the Board (described below). 14 In connection with the transfer of the CWS Platform as described above, on November 1, 2023 we also entered into the Management Agreement with KBROS which has a 10 -year term. Pursuant to the Management Agreement, KBROS will provide us with management services for the CWS Platform relating to the sale of spirits and other beverage products through the CWS Platform, including, but not limited to (1) performance of all functions necessary for the operation of the CWS Platform other than the promotion and marketing of the products, which is our responsibility; (2) 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 CWS Platform; (3) fulfillment of orders placed through the CWS Platform; (4) maintenance at its expense of an inventory of products sufficient to fulfill all orders placed through the CWS Platform; (5) maintenance of financial records; and (6) other services set forth in the Management Agreement. In its turn, the Company shall provide marketing services; and respond and handle all complaints, charge backs, refunds and disputes for customers of the website. In consideration for rendering the services, the Company will pay KBROS a monthly fee of $ 40,000 . KBROS is entitled to additional monthly payments in an amount equal to $ 100,000 for each $ 1,000,000 of gross revenue generated through sales made on or through the CWS Platform (or any successor website) (“Website Revenue”) for such calendar month; provided, that, within fifteen (15) days of the filing of each of the Company’s quarterly reports with the SEC, the Website Revenue will be subject to adjustment to reflect the actual amount reported in the applicable quarterly report. However, in no event shall the total amount of any additional payments paid to the KBROS exceed Five Million Dollars ($ 5,000,000 ) in any one fiscal year. The Management Agreement can be terminated by us at any time during the term with 30 days written notice and by either party in case of material breach by the other party, the bankruptcy of the other party or other events described in the Management Agreement. Special Board Committee On October 18, 2023, the Company’s board of directors established a Special Committee to assist in the evaluation, supervision and negotiation of all matters relating to certain transactions and to consider and make recommendations to our board of directors with respect to potential transactions between the Company and the entities owned and/or controlled by Sean Dollinger, its Chief Executive Officer. The Special Committee consists of Gary Herman, James Huber, and James O’Brien, and is created for a term of 6 months which is subject to extension by our board of directors. Amendment to the Bylaws On November 13, 2023, the board of directors of the Company approved an amendment to the by-laws of the Company changing the quorum requirement for any meetings of stockholders to a minimum requirement of 33 1/3% of issued and outstanding shares as required in accordance with NASDAQ Listing Rule 5620. Management has evaluated subsequent events through November 16, 2023, the date the financial statements were available to be issued. Based on this evaluation, no additional material events were identified which require adjustment or disclosure in these financial statements. 15 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information 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. Business Overview Our company, LQR House Inc., 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 an exclusive agreement with a U.S.-based e-commerce portal. Additionally, we are in the process of establishing an exclusive wine club. We believe that the marketing and brand management services we provide to our wholly owned and third-party clients will increase brand recognition thereof, and drive sales thereof through our e-commerce platform partner. The Services and Brands We Market 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 Añejo Tequila made in exclusive batches of up to 10,000 bottles and represents the first installment under our “SWOL” trademark with application number 2345291 and registration number 2141431 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 by 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 the 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, LQR House Inc. 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. 16 ● 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; and ● ability to monitor cash expenditures 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. 17 Results of Operations Comparison of Three Months Ended September 30, 2023 and 2022 The following table sets forth key components of our results of operations during the three months ended September 30, 2023 and 2022. Three Months Ended September 30, 2023 2022 Amount % of Revenues Amount % of Revenues Revenue - services $ 101,414 59 % $ 129,567 100 % Revenue - product 69,097 41 % - 0 % Total revenues 170,511 100 % 129,567 100 % Cost of revenue - services 97,504 57 % 62,500 48 % Cost of revenue - product 65,388 38 % 27,040 21 % Total cost of revenue 162,892 96 % 89,540 69 % Gross profit 7,619 4 % 40,027 31 % Operating expenses: General and administrative 4,803,821 2,817 % 351,738 271 % Sales and marketing 574,026 337 % 139,513 108 % Total operating expenses 5,377,847 3,154 % 491,251 379 % Loss from operations (5,370,228 ) (3,149 )% (451,224 ) (348 )% Total other expense 171,000 100 % - 0 % Net loss $ (5,541,228 ) (3,250 )% $ (451,224 ) (348 )% Revenue For the three months ended September 30, 2023 and 2022, service revenues were $101,414 and $129,567, 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 decreased by $28,153 due to the Company’s focused efforts on the IPO in August 2023. For the three months ended September 30, 2023, product revenues were $69,097 compared to $0 in the similar 2022 period, due to a SWOL tequila batch that was delivered to CWS. Cost of Revenue For the three months ended September 30, 2023 and 2022, service cost of revenues was $97,504 and $62,500, respectively. Cost of revenues increased by $35,004 in 2023 due to increased spend to dedicated personnel to support campaigns. Product cost of revenues related to the SWOL batch was $65,388 and $27,040 in the three months ended September 30, 2023 and 2022, respectively. General and Administrative For the three months ended September 30, 2023 and 2022, general and administrative expenses were $4,803,821 and $351,738, respectively. In September 2023, the Company recorded $2,552,500 in non-cash stock-based compensation expense due to the issuance of common shares for services. General and administrative expenses also increased due to professional fees, investor relations, personnel costs and other public company expenses as our operations scaled upon the IPO. Sales and Marketing For the three months ended September 30, 2023 and 2022, sales and marketing expenses were $574,026 and $139,513, respectively. The increase of $434,513 was primarily due to advertising and marketing campaigns the Company entered into in the third quarter of 2023. Other Expense For the three months ended September 30, 2023 and 2022, other expense was $171,000 and $0, respectively. The other expense during three months ended September 30, 2023 was due to interest on the Company’s note payable issued in August and September 2023. Net Loss Net loss for the three months ended September 30, 2023 and 2022 was $5,541,228 and $451,224, respectively. 18 Comparison of Nine Months Ended September 30, 2023 and 2022 The following table sets forth key components of our results of operations during the nine months ended September 30, 2023 and 2022. Nine Months Ended September 30, 2023 2022 Amount % of Revenues Amount % of Revenues Revenue - services $ 395,212 77 % $ 232,792 100 % Revenue - product 116,884 23 % - 0 % Total revenues 512,096 100 % 232,792 100 % Cost of revenue - services 296,331 58 % 579,519 249 % Cost of revenue - product 105,519 21 % 27,040 12 % Total cost of revenue 401,850 78 % 606,559 261 % Gross profit (loss) 110,246 22 % (373,767 ) -161 % Operating expenses: General and administrative 8,684,826 1,696 % 853,327 367 % Sales and marketing 674,213 132 % 472,390 203 % Total operating expenses 9,359,039 1,828 % 1,325,717 569 % Loss from operations (9,248,793 ) (1,806 )% (1,699,484 ) (730 )% Total other expense 171,000 33 % - Net loss $ (9,419,793 ) (1,839 )% $ (1,699,484 ) (730 )% Revenue For the nine months ended September 30, 2023 and 2022, service revenues were $395,212 and $232,792, 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 $162,420 as we grew our marketing customer base with beverage brands. For the nine months ended September 30, 2023, product revenues were $116,884 compared to $0 in the similar 2022 period, due to a SWOL batch that was delivered to CWS. Cost of Revenue For the nine months ended September 30, 2023 and 2022, service cost of revenues was $296,331 and $579,519, respectively. Cost of revenues decreased by $283,188 in 2023 due to our ability to support marketing campaigns via dedicated personnel and ceased certain digital ad costs to support campaigns. Product cost of revenues related to the SWOL batch was $105,519 and $27,040 in the nine months ended September 30, 2023 and 2022, respectively. General and Administrative For the nine months ended September 30, 2023 and 2022, general and administrative expenses were $8,684,826 and $853,327, 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. General and administrative expenses also increased due to professional fees, investor relations, personnel costs and other public company expenses as our operations scaled upon the IPO. Sales and Marketing For the nine months ended September 30, 2023 and 2022, sales and marketing expenses were $674,213 and $472,390, respectively. The increase of $201,823 was primarily due to advertising and marketing campaigns the Company entered into in the third quarter of 2023. Other Expense For the nine months ended September 30, 2023 and 2022, other expense was $171,000 and $0, respectively. The other expense during nine months ended September 30, 2023 was due to interest on the Company’s notes payable issued in August and September 2023. Net Loss Net loss for the nine months ended September 30, 2023 and 2022 was $9,419,793 and $1,699,484, respectively, primarily due to the higher operating expenses incurred. 19 Liquidity and Capital Resources As of September 30, 2023, and December 31, 2022, we had cash and cash equivalents of $1,863,835 and $7,565, respectively. To date, we have financed our operations primarily through issuances of common stock and sales of our products and services. 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 $9,419,793 and has negative cash flows from operations of $4,568,848 for the nine months ended September 30, 2023 and 2022. The Company has raised $4.5 million from the IPO and an additional $15.0 million from its public offerings in October and November 2023. 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. Cash Flow Activities The following table presents selected captions from our condensed statement of cash flows for the nine months ended September 30, 2023 and 2022: Nine Months Ended June 30, 2023 2022 Net cash used in operating activities $ (4,568,848 ) $ (1,035,463 ) Net cash provided by (used in) investing activities 137,426 (74,086 ) Net cash provided by financing activities 6,287,692 - Net change in cash and cash equivalents $ 1,856,270 $ (1,109,549 ) Net Cash Used in Operating Activities Net cash used in operating activities for the nine months ended September 30, 2023 was $4,568,848, primarily due to our net loss of $9,419,793 and $977,433 in cash used in operating assets and liabilities, partially offset by non-cash charges of $5,828,378. Net cash used in operating activities for the nine months ended September 30, 2022 was $1,035,463, primarily due to our net loss of $1,699,484, partially offset by non-cash charges of $505,375 and $158,645 in cash used in operating assets and liabilities. Net Cash Provided by (Used in) Investing Activities Net cash provided by (used in) investing activities for the nine months ended September 30, 2023 and 2022 were $137,426 and ($74,086), respectively, pertaining to payments from CWS, partially offset by advances to Veg House Illinois in 2023. 20 Net Cash Provided By Financing Activities Net cash used in financing activities for the nine months ended September 30, 2023 and 2022 was $6,287,692 and $0, respectively. In 2023, the Company received $905,000 in proceeds from the private placement offering, $950,000 from notes and $4,494,156 in net proceeds pursuant to the IPO. The Company paid $114,464 for the shares buyback program and repurchase of shares. Contractual Obligations During the nine months ended September 30, 2023 and 2022, we had no significant cash requirements for capital expenditures or other cash needs under any contractual or other obligations . 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. We believe our most critical accounting policies and estimates relate to the following: 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 our 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. Service 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. Product revenue is recognized at the point in the products are delivered to CWS, when LQR House has fulfilled its performance obligation. 21 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. We disclose related party transactions that are outside of normal compensatory agreements, such as salaries. We follow ASC 850, Related Party Disclosures , for the identification of related parties and disclosure of related party transactions. 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. We classify stock-based compensation expense in its statement of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. 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 Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved. As of September 30, 2023, 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 the 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 comprises a material weakness in internal controls. This lack of segregation of duties leads management to conclude that the Company’s disclosure controls and procedures are effective to give reasonable assurance that the information required to be disclosed in reports that the Company files under the Exchange Act is recorded, processed, summarized and reported as and when required. To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over our Exchange Act reporting disclosures. Changes in Internal Control over Financial Reporting There have been no changes in our internal control procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our fiscal quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 22 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 Exchange Act, 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, please see below for a risk factor in connection with the Company’s share buyback program. Our share buyback program that was approved by the Board in August 2023 could affect our stock price and increase its volatility, and may reduce the market liquidity for our stock. The share buyback program may also materially impact the Company’s liquidity. Repurchases pursuant to the share buyback program entered into in August 2023, or any other share buyback program we adopt in the future, could affect our stock price and increase its volatility and may reduce the market liquidity for our stock. The existence of a share buyback program could also cause our stock price to be higher than it would be in the absence of such a program. Additionally, these repurchases will diminish our cash and may subject us to additional taxes, which could impact our ability to pursue possible future strategic opportunities and acquisitions and would result in lower overall returns on our cash balances. There can be no assurance that any share repurchases will, in fact, occur, or, if they occur, that they will enhance stockholder value. Although share buyback programs are intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the effectiveness of these repurchases. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Private Placement From April to September 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 955,000 shares of common stock at $1.00 per share for a total of $955,000. Underwriter’s Warrants In connection to the IPO, the Company agreed to issue the underwriters five-year warrants to purchase an aggregate of 57,500 shares of the Company’s common stock with an exercise price of $5.00 per share. On October 16, 2023, the Company granted warrants to purchase a total of 1,421,053 shares of common stock to the designees of the underwriters in the Follow-on Offering. On November 13, 2023, the Company granted a warrant to purchase a total of 7,857,143 shares of common stock to the designee of the underwriters in the Second Follow-on Offering. Share Buyback Program In August 2023, the Company’s Board approved a share buyback program under which the Company can repurchase up to 20% or up to $2 million of its Common Stock in open market and privately negotiated purchases, in compliance with Rule 10b-18 under the Exchange Act. The Company engaged and entered into an agreement with Dominari Securities LLC (“Dominari”) on August 28, 2023, to effect the share buyback program. The share buyback program is expected to commence on, or about, September 8, 2023. Dominari shall determine, in its sole discretion, the timing, amount, prices and manner of purchase of securities during such period. The share buyback program does not obligate the Company to acquire any particular amount of common stock, and the program may be suspended or discontinued at any time. On September 8, 2023, 79,310 shares of the Company were purchased at a cost average of $1.1553 per share in accordance with Rule 10b-18. Period (In millions, except share and per share data) Total number of shares purchased Average price paid per share (2) Total number of shares purchased as part of the publicly announced plan (1) Maximum approximate dollar value of shares that may yet be purchased under the plan (1) September 8 – 21, 2023 79,310 $ 1.1553 — $ 1,906,536 Total 79,310 $ 1.1553 — $ 1,906,536 (1) On August 25, 2023 the Company announced that the Board authorized an up to 20% or up to $2.0 million share buyback program, which does not have an expiration date. From the inception of the share buyback program on September 8, 2023, through September 21, 2023, the Company has purchased a total of 79,310 shares of the Company’s common stock at an average price of $1.1553 per share for a total purchase price of $93,464. (2) Average price paid per share excludes costs associated with the repurchases. 23 Other On September 27, 2023, the Company issued 2,550,622 shares of common stock as settlement for outstanding principal on notes of $950,000 and accrued interest of $171,000. In August 2023, the board of directors approved an issuance of and the Company issued an aggregate total of 2,500,000 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. In August, 2023 the Company granted 1,250,000 restricted stock units (the Director RSU’s) which were to vest in eight (8) equal quarterly installments commencing on October 1, 2023. On August 21, 2023, Jay Dhaliwal was added to the Board on and was granted 20,000 Director RSUs which Director RSUs were to vest in eight (8) 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. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURE Not Applicable. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS The following exhibits are included as part of this report: Exhibit No. Description 3.1 First Amendment to the By-laws of the Company dated November 13, 2023 10.1 Form of Independent Contractor Agreement 2023 (incorporated by reference to Exhibit 10.35 of the Company’s Registration Statement on Form S-1 (File No. 333-274903) filed with the SEC as of October 6, 2023). 10.2 Services Agreement, dated October 15, 2023, by and between X-Media Inc. and LQR House Inc. (incorporated by reference to Exhibit 10.1 of the Company’s current report on the form 8-K filed with the SEC on October 17, 2023) 10.3 Consulting Agreement between the Company and IR Agency LLC dated October 27, 2023 (incorporated by reference to Exhibit 10.1 of the Company’s current report on the form 8-K filed with the SEC on November 2, 2023) 10.4 Domain Name Transfer Agreement between LQR House Acquisition Corp. and SSquared Spirits LLC dated November 1, 2023 (incorporated by reference to Exhibit 10.1 of the Company’s current report on the form 8-K filed with the SEC on November 6, 2023) 10.5† Amendment to the Employment Agreement by and between the Company and Sean Dollinger dated November 1, 2023 (incorporated by reference to Exhibit 10.2 of the Company’s current report on the form 8-K filed with the SEC on November 6, 2023) 10.6 Management Agreement between the Company and KBROS, LLC dated November 1, 2023 (incorporated by reference to Exhibit 10.3 of the Company’s current report on the form 8-K filed with the SEC on November 6, 2023) 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act 32.1# Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act 32.2# Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) † 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. 24 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LQR HOUSE, INC. November 16, 2023 By: /s/ Sean Dollinger Sean Dollinger, Chief Executive Officer November 16, 2023 By: /s/ Kumar Abhishek Kumar Abhishek, Chief Financial Officer 25