What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2024-05-15 · 248 added, 152 removed, 68 unchanged (85% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion

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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

Business Overview

Our company, LQR House Inc., a Nevada corporation

(“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 Platform”).

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.

In May 2024, we acquired a minority stake of common

shares of Cannon Estate Winery Ltd., a British Columbia corporation, an owner of Cannon Estate Winery.

In June 2024, we acquired a minority stake of common shares

of DRNK Beverage Corp., a British Columbia corporation, operating in the non-alcoholic and ready-to-drink beverage markets.

The Services and Brands We Market

The CWS Platform is an American online

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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.

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.

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 tequila made in exclusive batches of up to

10,000 bottles 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 Import & Export (“Rilo”) by Country Wine & Spirits

LLC (“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.

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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.

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;

ability to offer competitive pricing;

ability to broaden product or service offerings;

demand and competition;

ability to leverage technology and use and develop efficient processes;

ability to attract and maintain a network of influencers with a relevant audience;

ability to attract and retain talented employees and contractors;

conditions and our market position.

Growth Strategies

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

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;

market conditions and our market position.

Our Growth Strategies

The 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.

● 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.

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,

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.

Results of Operations

Comparison of Three Months Ended June 30,

2024 and June 30, 2023

The following table sets forth key components

of our results of operations during the three months ended June 30, 2024 and June 30, 2023.

Three Months Ended

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$ (3,556,491 )

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,

For the three months ended June 30,

2024 and 2023, service revenues were $39,980 and $143,235, 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 $103,255 as more focus

was emphasized on the CWS Platform.

For the three months ended June 30, 2024, product

revenues were $517,937 compared to $47,787 in the similar 2023 period.

The increase was due to $512,748 in revenues generated from the

CWS Platform after the acquisition in November 2023.

Cost of Revenue and Gross Profit (Loss)

For the three months ended

June 30, 2024 and 2023, service cost of revenues were $69,023 and $95,830, respectively.

Cost of service revenues decreased by

$26,807 in 2024 due to decrease in service revenue in the second quarter.

In 2023, cost of revenues included amortization of the

marketing license, which was impaired as of December 31, 2023.

Product cost of revenues was $641,084 and $40,131

during the three months ended June 30, 2024 and 2023.

The increase was due to product and shipping costs associated with the CWS Platform

acquisition in November 2023.

Gross profit (loss) was ($152,190) and $55,061 for the three months

ended June 30, 2024 and 2023.

The Company has incurred gross losses in 2024 as it transitions its strategies from marketing to the CWS

Management is exploring various strategies, including customer acquisition and new partnerships, to increase volume in order

to achieve better gross margins in 2024.

General and Administrative

For the three months ended June 30, 2024 and 2023, general and

administrative expenses were $1,357,395 and $3,559,688, respectively.

General and administrative expenses decreased by $2,202,293.

2023, t he Company recorded $3,000,000 in non-cash stock-based compensation expense due to the issuance of common shares for services.

During the three months ended June 30, 2024 the Company recorded $720,842 in non-cash stock based compensation expense due to vesting

of restricted stock units.

Sales and Marketing

For the three months ended June 30, 2024 and 2023, sales and marketing

expenses were $764,807 and $51,864 respectively.

The increase of $712,943 was primarily due to advertising and marketing and investor

relation campaigns beginning in late 2023 and continuing in the second quarter of 2024.

During the three months ended June 30, 2024 bonus

expenses were recorded $200,000 under sales and marketing.

Net loss for the three months ended June

30, 2024 and 2023 was $2,209,293 and $3,556,491, respectively.

Comparison of Six Months Ended June 30,

2024 and 2023

The following table sets forth key components

of our results of operations during the six months ended June 30, 2024 and June 30, 2023.

Six Months Ended

Revenue - services

Revenue - product

Total revenues

Cost of revenue - services

Cost of revenue - product

Total cost of revenue

Gross profit (loss)

Operating expenses:

General and administrative

Sales and marketing

Total operating expenses

Loss from operations

Other income:

Dividend income

Total other income

Provision for income taxes

$ (4,636,685 )

$ (3,878,565 )

For the six months ended June 30, 2024 and 2023, service revenues

were $83,771 and $293,798 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 $210,027 as more focus was emphasized

on the CWS Platform.

For the six months ended June 30, 2024 product

revenues were $955,240 compared to $47,787 in the similar 2023 period.

The increase was due to $948,431 in revenues generated from the

CWS Platform after the acquisition in November 2023.

Cost of Revenue and Gross Profit (Loss)

For the six months ended June 30, 2024

and 2023, service cost of revenues were $106,231 and $198,827 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.

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,

Cost of revenues services decreased by $92,596 in 2024, corresponding

to the decreased revenues.

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

Product cost of revenues related was $1,164,467

and $40,131 during the six months ended June 30, 2024 and 2023 The increase was due to product and shipping costs associated with the

CWS Platform acquisition in November 2023.

Gross profit (loss) was ($231,687) and $102,627

for the six months ended June 30, 2024 and 2023.

The Company has incurred gross losses in 2024 as it transitions its strategies from marketing

contracts to product revenues via the CWS Platform.

Management is exploring various strategies to increase customer acquisition, including

an emphasis in organic search optimization to achieve higher revenue volumes.

The Company is continuing to explore new partnerships for

added revenue sources and is working towards reducing its product cost of revenues.

General and Administrative

the six months ended June 30, 2024 and 2023, general and administrative expenses were $2,963,856 and $3,881,005 respectively.

General and administrative expenses decreased by $917,149.

In 2023, t he

Company recorded $3,000,000 in non-cash stock-based compensation expense due to the issuance of common shares for services.

months ended June 30, 2024 the Company recorded $1,441,684 in non-cash stock-based compensation expense due to vesting of restricted stock

Sales and Marketing

For the six months ended June 30, 2024

and 2023, sales and marketing expenses were $1,551,222 and $100,187 respectively.

The increase of $1,451,035 was primarily due to advertising

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,

and marketing and investor relation campaigns beginning in late 2023 and continuing throughout 2024.

Net loss for the six months ended June 30,

2024 and 2023 was $4,636,685 and $3,878,565, 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.

Liquidity and Capital Resources

As of June 30, 2024

and December 31, 2023, we had cash and cash equivalents of $622,825 and $7,064,348 respectively.

As of June 30, 2024, we also had $4,015,742

in marketable securities.

To date, we have financed our operations primarily through issuances of common stock and sales of our products

and services.

The 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 $4,636,685

and $3,878,565 for the six months ended June 30, 2024 and 2023, and has negative cash flows from operations of $2,548,366 and 892,464

for the six months ended June 30, 2024 and 2023.

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.

The Company’s ability to continue as a

going concern until it reaches profitability is dependent upon its ability to generate cash from operating activities and to raise additional

capital to fund operations.

Management is exploring various strategies, including customer acquisition and new partnerships, to increase

volume in order to achieve better gross margins and profitability.

The Company continues to seek investment and acquisition opportunities

which will help achieve its strategies.

Management plans to raise additional capital to fund operations through debt and/or equity financings.

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.

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

Cash Flow Activities

The following table presents selected captions

from our condensed statement of cash flows for the six months ended June 30, 2024 and 2023:

Six Month Ended

Net cash used in operating activities

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$ (3,345,742 )

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

$ (6,441,523 )

Cash Used in Operating Activities

Net Cash Used in Operating Activities

Net cash used in operating activities for the

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

six months ended June 30, 2024 was $2,548,366, primarily due to our net loss of $4,636,685 partially offset by non-cash charges

of $1,441,684 and changes in our operating assets and liabilities of $646,635.

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

Net cash used in operating activities for the

six months ended June 30, 2023 was $892,464, primarily due to our net loss of $3,878,565 partially offset by non-cash charges of $3,125,000

and changes in our operating assets and liabilities of $138,899.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by (used in) investing activities

for the six months ended June 30, 2024 and 2023 were ($3,345,742) and $187,426, respectively.

In 2024, the Company invested $4,015,742

in mutual fund investments, and received $670,000 back from an investment it was no longer pursuing.

In 2023, the Company had repayments

Net Cash Provided By (Used in) Financing Activities

Net cash provided by (used in) financing activities

for the six months ended June 30, 2024 and 2023 was ($547,415) and $797,530 respectively.

In 2024, the Company repurchased shares

of common stock.

In 2023, the Company received $905,000 in proceeds from share issuances.

Contractual Obligations and Related Party Transactions

Funding Commitment Agreement

On November 1, 2023, the Company entered into

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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.

Related Party Transactions

See Note 8 to the accompanying unaudited condensed

consolidated financial statements for further disclosure.

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.

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.

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.

been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year

ended December 31, 2023.

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.

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