What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-16 · 177 added, 259 removed, 43 unchanged (91% of the section changed)

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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:

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.

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.

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

The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related

notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information included

in our Annual Report on Form 10-K, filed with the U.S.

Securities and Exchange Commission (the “Commission”, or the “SEC”)

on April 1, 2024.

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.

Our company, LQR House Inc.

(“LQR”, “LQR House”,

or the “Company”), intends to become a prominent force in the wine and spirits e-commerce, sector epitomized by its flagship alcohol marketplace, CWSpirits.com (“CWS

This platform delivers a diverse range of spirits, wines, and champagnes from esteemed retail partners like Country

Wine & Spirits.

Beyond its role in the e-commerce sector, LQR is a marketing agency with a specialized focus on the alcohol industry.

We also intend to integrate the supply, sales, and marketing facets of the alcoholic beverage space into one easy to use platform

and become the one-stop-shop for everything related to alcohol.

To date, our primary business includes the development of premium

limited batch spirit brands and marketing internal and external brands through our ownership of the CWS Platform, 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.

Services and Brands We Market

The CWS Platform is an American online

retailer specializing in alcohol products, striving to become the most trusted and convenient destination for online alcohol purchases.

Combining the personalized service of a neighborhood alcohol shop with the efficiency of e-commerce, we offer a wide selection of products,

including our exclusive brand, SWOL Tequila, all at competitive prices with fast shipping and around-the-clock convenience.

of our brand is a commitment to exceptional customer service, driving us to continuously innovate our operations for an enhanced shopping

From user-friendly website navigation and a top-rated mobile app to detailed order tracking and personalized product recommendations,

we are revolutionizing the online alcohol shopping experience, ensuring customer satisfaction remains paramount in all our endeavors.

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:

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.

to the Tequila Asset Purchase Agreement, we purchased all of the right, title and interest in the trademarks SWOL and all

associated trade dress and intellectual property rights and all labels, logos and other branding bearing the SWOL marks or any mark

substantially similar to the same.

Tequila bearing the “SWOL” trademark is produced by Casa Cava de Oro S.A., an

authentic tequila distillery in Jalisco, Mexico, imported into the United States through Rilo Import & Export

(“Rilo”) by Country Wine & Spirits LLC (“CWS”) and sold to retail customers in the United States via the

CWS Platform.

is the exclusive membership program for the CWS Platform, which is offered and managed by the Company.

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to all products available through CWS combined with special membership benefits.

Vino will be a wine subscription service marketed on the CWS Platform that will offer a selection of vintage and limited production

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.

Soleil Vino will be a wine subscription service marketed on the CWS Platform that will offer a selection of vintage and limited production wines.

Through the CWS Platform, users will be able to sign up for this exclusive membership where they will have access to curated selections of wine from around the world.

With Soleil Vino, we intend to create a premium wine subscription service on the market with high qualities and diverse selections of wine offerings.

Pursuant to an asset purchase agreement, dated May 31, 2021, between us and Dollinger Holdings LLC, we purchased all of the right, title and interest in all trademarks regardless of registration status for Soleil Vino and all associated trade dress and intellectual property rights, all labels, logos and other branding bearing the Soleil Vino marks or any mark substantially similar to the same, and all website and all related digital and social media content including but not limited to influencer networks, http://www.soleilvino.com, and all related content, and all related sales channels was transferred.

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:

For example, by engaging us for our marketing services, our clients gain the ability

to advertise and sell their brand on the CWS Platform.

Factors Affecting Our Financial Performance

operating results are primarily affected by the following factors:

ability to acquire new customers and users or retain existing customers and users;

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conditions and our market position.

● ability to monitor cash expenditures

Our Growth Strategies

The key elements of our strategy to expand our

business include the following:

Growth Strategies

key elements of our strategy to expand our business include the following:

● Collaborative

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.

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.

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.

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.

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.

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.

of Operations

of Three Months Ended March 31, 2024 and March 31, 2023

following table sets forth key components of our results of operations during the three months ended March 31, 2024 and March 31,

Three Months Ended

September 30,

Revenue - services

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Total cost of revenue

Operating expenses:

General and administrative

Sales and marketing

Total operating expenses

Loss from operations

Total other expense

$ (5,541,228 )

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 for the three months ended September 30, 2023 and

2022 was $5,541,228 and $451,224, respectively.

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,

Revenue - services

Revenue - product

Total revenues

Cost of revenue - services

Cost of revenue - product

Total cost of revenue

Gross profit (loss)

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Loss from operations

Total other expense

Other income:

Dividend income

Total other income

Provision for income taxes

$ (2,427,392 )

$ (2,105,318 )

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,

the three months ended March 31, 2024 and 2023, service revenues were $43,791 and $150,563, respectively.

Service revenues

are earned as we contract with third-party alcoholic beverage brands to utilize access to the CWS Platform, as well as vault memberships.

Service revenues decreased by $106,772 as more focus was emphasized on the CWS Platform.

the three months ended March 31, 2024 product revenues were $437,303 compared to $0 in the similar 2023 period.

The increase was

due to $485,571 in revenues generated from the CWS Platform after the acquisition in November 2023.

For the three months ended March 31,

2024 and 2023, service cost of revenues were $37,208 and $102,997, respectively.

Cost of revenues services decreased by $65,789 in 2024,

corresponding to the decreased revenues.

In 2023, cost of revenues included amortization of the marketing license, which was impaired

as of December 31, 2023.

cost of revenues related to the SWOL batch was $523,383 in the three months ended March 31, 2024.

The increase was due to product and

shipping costs associated with the CWS Platform acquisition in November 2023.

and Administrative

For the three months ended March 31,

2024 and 2023, general and administrative expenses were $1,606,461 and $321,317, 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

Sales and Marketing

For the nine months ended September 30,

General and administrative expenses increased

due to professional fees, personnel costs and other public company expenses as our operations scaled upon our initial public offering

in August 2023.

In 2024, the Company recorded $720,842 in non-cash stock-based compensation expense due to vesting of restricted stock

and Marketing

For the three months ended March 31,

2024 and 2023, sales and marketing expenses were $786,415 and $48,323 respectively.

The increase of $738,092 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 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.

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

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.

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

and marketing and investor relation campaigns beginning in late 2023 and continuing in the first quarter of 2024.

Net loss for the three months ended March 31,

2024 and 2023 was $2,427,392 and $322,074 respectively.

and Capital Resources

of March 31, 2024 and December 31, 2023, we had cash and cash equivalents of $1,781,907 and $7,064,348 respectively.

31, 2024, we also had $4,030,986 in mutual fund investments.

To date, we have financed our operations primarily through issuances of

common stock and sales of our products and services.

accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the

realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has not generated profits since

inception, has sustained net losses of $2,427,392 and $322,074 for the three months ended March 31, 2024 and 2023, and has negative cash

flows from operations of $1,374,040 for the three months ended March 31, 2024.

The Company requires additional capital to operate and

expects losses to continue for the foreseeable future.

These factors raise substantial doubts about the Company’s ability to continue

as a going concern.

Company’s ability to continue as a going concern until it reaches profitability is dependent upon its ability to generate cash

from operating activities and to raise additional capital to fund operations.

Management plans to raise additional capital to fund operations

through debt and/or equity financings.

The Company has raised funds from the initial public offering in August 2023 and an additional

$16.6 million from its public offerings in October and November 2023.

Our failure to raise additional capital could have a negative

impact on not only our financial condition but also our ability to execute our business plan.

No assurance can be given that the Company

will be successful in these efforts.

The unaudited condensed consolidated financial statements do not include any adjustments that might

result from the outcome of this uncertainty.

The Company may not be able to obtain financing on acceptable terms, or at all.

Flow Activities

following table presents selected captions from our condensed statement of cash flows for the three months ended March 31, 2024 and 2023:

Three Month Ended

Net cash used in operating activities

$ (1,374,040 )

$ (1,035,463 )

Net cash provided by (used in) investing activities

Net cash provided by financing activities

$ (3,360,986 )

Net cash used in financing activities

Net change in cash and cash equivalents

$ (5,282,441 )

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.

Cash Used in Operating Activities

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.

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.

three months ended March 31, 2024 was $1,374,040, primarily due to our net loss of $2,427,392 partially offset by non-cash charges

of $720,842 and changes in our operating assets and liabilities of $332,510.

cash used in operating activities for the three months ended March 31, 2023 was $233,433, primarily due to our net loss of $322,074 partially

offset by non-cash charges of $62,500 and changes in our operating assets and liabilities of $26,141.

Cash Provided by (Used in) Investing Activities

cash provided by (used in) investing activities for the three months ended March 31, 2024 and 2023 were ($3,360,986) and $308,708, respectively.

In 2024, the Company invested $4,030,986 in mutual fund investments, and received $670,000 back from an investment it was no longer

In 2023, the Company had repayments from CWS.

Cash Provided By Financing Activities

cash used in financing activities for the three months ended March 31, 2024 and 2023 was $547,415 and $59,259, respectively.

2024, the Company repurchased shares of common stock.

Cash used in 2023 pertained to deferred offering costs.

Obligations and Related Party Transactions

Commitment Agreement

On November 1, 2023, the Company entered into

a Funding Commitment Agreement with KBROS, LLC, the Product Handler pursuant to the Product Handling Agreement as defined in Note 4.

to this agreement, the Company commits to provide annual funding to the Product Handler from time to time in the minimum amount of $2,500,000

to enable the Product Handler to purchase inventory from Company-approved vendors (“Vendors”) and for other purposes set forth

in the Product Handling Agreement.

The Company may combine all of the Company’s advances to Product Handler or on Product Handler’s

behalf, whether under this Agreement or any other agreement.

The Company may, without notice to Product Handler, elect not to advance

funding for any inventory sold by particular Vendors with respect to which the Company reasonably feels insecure.

This agreement concerns

funding commitment, and not the purchase of Products from Product Handler or Vendors.

Party Transactions

Note 7 to the accompanying unaudited condensed consolidated financial statements for further disclosure.

Off-Balance Sheet

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.

Accounting Policies

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

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;

of the transaction price to the performance obligations in the contract;

● 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.

revenue is recognized at the point in the products are delivered to CWS, when LQR House has fulfilled its performance obligation.

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.

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.

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.

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.

have been no material changes in our critical accounting policies from those disclosed in our 2023 Annual Report on Form

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis