LQR House Inc. 10-Q

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