LQR House Inc. 10-Q

ITEM 1 – FINANCIAL STATEMENTS LQR HOUSE INC. CONDENSED CONSOLDIATED BALANCE SHEETS (Unaudited) September 30, December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 247,913 $ 7,064,348 Marketable securities, at fair value 3,439,468 - Accounts receivable 2,842 - Accounts receivable, related party 182,156 172,493 Advances to related party 177,340 177,340 Subscription receivable 70,194 - Deposits in escrow - 5,470,000 Prepaid expenses 63,550 2,189,955 Total current assets 4,183,463 15,074,136 Investments, at cost 5,617,500 - Intangible assets, net 10,000 10,000 Right of use asset 2,534 8,402 Total assets $ 9,813,497 $ 15,092,538 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 183,417 $ 265,229 Accounts payable, related party - 58,589 Accrued expenses 520,029 138,585 Right of use liability, current portion 2,534 7,324 Total current liabilities 705,980 469,727 Right of use liability - 2,534 Total liabilities 705,980 472,261 Commitments and contingencies (Note 9) Stockholders’ equity: Common stock, $ 0.0001 par value, 350,000,000 shares authorized, 5,704,015 and 5,513,387 shares issued and outstanding as of September 30, 2024 and 4,829,438 shares issued and outstanding as of December 31, 2023, respectively 569 482 Additional paid-in capital 37,207,053 34,172,420 Treasury stock, at cost ( 190,628 shares) ( 547,415 ) - Accumulated deficit ( 27,552,690 ) ( 19,552,625 ) Total stockholders’ equity 9,107,517 14,620,277 Total liabilities and stockholders’ equity $ 9,813,497 $ 15,092,538 See the accompanying notes to the unaudited condensed consolidated financial statements 1 LQR HOUSE INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Revenue - services $ 30,918 $ 101,414 $ 114,689 $ 395,212 Revenue - product 593,546 69,097 1,548,786 116,884 Total revenues 624,464 170,511 1,663,475 512,096 Cost of revenue - services 45,870 97,504 152,101 296,331 Cost of revenue - product 640,645 65,388 1,805,112 105,519 Total cost of revenue 686,515 162,892 1,957,213 401,850 Gross profit (loss) ( 62,051 ) 7,619 ( 293,738 ) 110,246 Operating expenses: General and administrative 1,522,785 4,803,821 4,486,641 8,684,826 Sales and marketing 1,919,125 574,026 3,470,348 674,213 Total operating expenses 3,441,910 5,377,847 7,956,989 9,359,039 Loss from operations ( 3,503,961 ) ( 5,370,228 ) ( 8,250,727 ) ( 9,248,793 ) Other income (expense): Interest expense - ( 171,000 ) - ( 171,000 ) Other income 774 - 774 - Realized gain/(loss) on securities 81,241 - 81,241 - Dividend income 58,566 - 168,646 - Total other income 140,581 ( 171,000 ) 250,661 ( 171,000 ) Provision for income taxes - - - - Net loss $ ( 3,363,380 ) $ ( 5,541,228 ) $ ( 8,000,066 ) $ ( 9,419,793 ) Weighted average common shares outstanding - basic and diluted 5,391,227 293,569 5,012,823 251,439 Net loss per common share - basic and diluted $ ( 0.62 ) $ ( 18.88 ) $ ( 1.60 ) $ ( 37.46 ) See the accompanying notes to the unaudited condensed consolidated financial statements 2 LQR HOUSE INC. unaudited condensed consolidated STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Common Stock Treasury Stock Additional Paid-In Accumulated Total Shareholder’s Shares Amount Shares Amount Capital Deficit Equity Balances at December 31, 2022 230,011 23 - $ - $ 5,844,519 $ ( 3,804,901 ) $ 2,039,641 Recapitalization 1 - - - - - - Net loss - - - - - ( 322,074 ) ( 322,074 ) Balances at March 31, 2023 230,012 23 - - 5,844,519 ( 4,126,975 ) 1,717,567 Issuance of common stock pursuant to private placement 23,875 2 - - 954,998 - 955,000 Issuance of common stock for services 75,000 8 - - 2,999,992 - 3,000,000 Repurchase of shares ( 75,000 ) ( 8 ) - - ( 17,992 ) - ( 18,000 ) Net loss - - - - - ( 3,556,491 ) ( 3,556,491 ) Balances at June 30, 2023 253,887 $ 25 - $ - $ 9,781,517 $ ( 7,683,466 ) $ 2,098,076 Issuance of common stock pursuant to IPO 28,750 3 - - 5,749,997 - 5,750,000 Offering costs - - - - ( 1,255,843 ) - ( 1,255,843 ) Conversion of note payable into common stock 63,766 7 - - 1,120,993 - 1,121,000 Issuance of common stock for services 62,500 6 - - 2,552,494 - 2,552,500 Buyback of common shares - - ( 1,983 ) ( 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 408,903 $ 41 ( 1,983 ) $ ( 93,464 ) $ 18,037,536 $ ( 13,224,694 ) $ 4,719,419 Balances at December 31, 2023 4,829,438 $ 482 - $ - $ 34,172,420 $ ( 19,552,625 ) $ 14,620,277 Vesting of restricted stock units - - - - 720,842 - 720,842 Repurchase of common stock - - ( 190,628 ) ( 547,415 ) - - ( 547,415 ) Net loss - - - - - ( 2,427,392 ) ( 2,427,392 ) Balances at March 31, 2024 4,829,438 482 ( 190,628 ) ( 547,415 ) 34,893,262 ( 21,980,017 ) 12,366,312 Corrective issuance from stock dividend 2,417 - - - - - - Vesting of restricted stock units - - - - 720,842 - 720,842 Common stock issued per investment in equity security 750,000 75 - - 817,425 - 817,500 Net loss - - - - - ( 2,209,293 ) ( 2,209,293 ) Balances at June 30, 2024 5,581,855 557 ( 190,628 ) ( 547,415 ) 36,431,529 ( 24,189,310 ) 11,695,361 Issuance of common stock pursuant to public offerings 122,160 12 - - 70,182 - 70,194 Offering costs - - - - ( 15,500 ) - ( 15,500 ) Vesting of restricted stock units - - - - 720,842 - 720,842 Net loss - - - - - ( 3,363,380 ) ( 3,363,380 ) Balances at September 30, 2024 5,704,015 $ 569 ( 190,628 ) $ ( 547,415 ) $ 37,207,053 $ ( 27,552,690 ) $ 9,107,517 See the accompanying notes to the unaudited condensed consolidated financial statements 3 LQR HOUSE INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2024 2023 Cash flows from operating activities: Net loss $ ( 8,000,066 ) $ ( 9,419,793 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization - 187,500 Vesting of restricted stock units 2,162,527 88,378 Gain on sale of marketable securities ( 81,241 ) - Issuance of common stock for services - 5,552,500 Changes in operating assets and liabilities: Accounts receivable ( 2,842 ) - Accounts receivable, related party ( 9,663 ) 83,407 Prepaid expenses 2,123,871 ( 1,296,422 ) Accounts payable ( 81,812 ) 177,606 Accounts payable, related party ( 58,589 ) ( 43,391 ) Accrued expenses 381,444 100,274 Right of use liability, net 1,078 1,093 Net cash used in operating activities ( 3,565,293 ) ( 4,568,848 ) Cash flows from investing activities: Purchases of marketable securities ( 7,727,850 ) - Sales of marketable securities 4,369,623 - Net repayments from related party - 137,426 Return of deposits in escrow 670,000 - Net cash provided by (used in) investing activities ( 2,688,227 ) 137,426 Cash flows from financing activities: Proceeds from note payable - 950,000 Issuance of common stock and pursuant to private placement - 955,000 Issuance of common stock and pursuant to IPO, net of offering costs - 4,494,156 Repurchase and buyback of shares ( 547,415 ) ( 111,464 ) Offering costs ( 15,500 ) - Net cash provided by (used in) financing activities ( 562,915 ) 6,287,692 Net change in cash and cash equivalents ( 6,816,435 ) 1,856,270 Cash and cash equivalents at beginning of period 7,064,348 7,565 Cash and cash equivalents at end of period $ 247,913 $ 1,863,835 Supplemental disclosure of cash flow information: Cash paid for income taxes $ - $ - Cash paid for interest $ - $ - Supplemental disclosure of non-cash financing activities: Common stock issued per investment in equity security $ 817,500 $ - Reclassification of deposit in escrow to investment in equity security $ 4,800,000 $ - Conversion of note payable and accrued interest into common stock $ - $ 1,121,000 Subscription receivable $ 70,194 $ - See the accompanying notes to the unaudited condensed consolidated financial statements 4 LQR HOUSE INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS LQR House Inc. (“LQR” or the “Company”) was incorporated on January 11, 2021, in the state of Delaware. On February 3, 2023, the Company changed its state of incorporation to the State of Nevada by merging into LQR House Inc., a Nevada corporation. The Company operates primarily in the beverage alcohol industry, owning specialty brands, providing marketing and distribution services. Country Wine & Spirits (“CWS”) Platform On November 1, 2023, LQR House Acquisition Corp. (the “Buyer”), a subsidiary of the Company, and SSquared Spirits LLC (the “Seller”) entered into a Domain Name Transfer Agreement (“Agreement”). Pursuant to the Agreement, the Seller irrevocably sold, assigned, transferred, and conveyed to the Buyer (a) all right, title, and interest in and to the domain name www.cwspirits.com (the “Domain Name”, or “CWS Platform”), including its current registration and (b) any other rights (including, but not limited to, trademark rights associated with the Domain Name in any jurisdiction, all Internet traffic through the Domain Name and all Website Content (as defined in the Agreement) the Seller may have in the Domain Name, together with any goodwill associated therewith in exchange for the payment by the Buyer of the purchase price of $ 10,000 . See Note 4. The Company’s Chief Executive Officer, Sean Dollinger, owns 50 % of the equity of the Seller, and the other 50 % is owned by a minority shareholder of the Company. A Special Committee of the Company’s Board of Directors consisting of all independent directors approved the terms of the Agreement on November 1, 2023. See Note 7. Stock Dividend in the Form of Stock Split In February 2024, the Board of Directors declared a 50 % stock dividend for distribution to all of the Company’s shareholders of record at the close of business on February 12, 2024. On March 1, 2024, 1,609,817 shares were issued per the dividend. As a result of the stock dividend, a 3:2 stock split was effected. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the stock split. 2. GOING CONCERN The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. 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 $ 8,000,066 and $ 9,419,793 for the nine months ended September 30, 2024 and 2023, and has negative cash flows from operations of $ 3,565,293 for the nine months ended September 30, 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. The Company’s ability to continue as a going concern until it reaches profitability is dependent upon its ability to generate cash from operating activities and to raise additional capital to fund operations. Management plans to raise additional capital to fund operations through debt and/or equity financings. Our failure to raise additional capital could have a negative impact on not only our financial condition but also our ability to execute our business plan. No assurance can be given that the Company will be successful in these efforts. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company may not be able to obtain financing on acceptable terms, or at all. 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. Principles of Consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, LQR House Acquisition Corp. All inter-company transactions and balances have been eliminated on consolidation. Unaudited Interim Financial Information The unaudited condensed consolidated 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 consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2023 included in the Form 10-K filed with the SEC on April 1, 2024. Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to the cost method investments and stock-based compensation. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. Concentrations of Credit Risk The Company maintains its cash with a major financial institution located in the United States of America which it believes to be credit worthy. Balances are insured by the Federal Deposit Insurance Corporation up to $ 250,000 . At times, the Company maintains balances in excess of the federally insured limits. Concentrations The Company’s ability to derive revenue is reliant on its relationship with KBROS, LLC (“KBROS”) who currently handles product for the CWS Platform and fulfills the products sold by clientele using our marketing services. The discontinuance of such relationship or termination of the CWS Platform agreements would have a material negative impact on the Company’s operations. 6 Furthermore, the Company relies and expects to continue to rely on a small number of vendors. The loss of one of these vendors may have a negative short-term impact on the Company’s operations. However, the Company believes there are acceptable substitute vendors that can be utilized longer term. Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Marketable Securities The Company has investments in mutual funds. The investments are classified as available-for-sale and are held at fair value. The investments have a readily determinable fair value and as such, are recognized as Level 1 financial instruments. Under Accounting Standards Codification (“ASC”) No. 321 and Accounting Standards Update (“ASU”) 2016-01, equity securities are measured at fair value and any changes in fair value are recorded to earnings. Investments, at Cost In accordance with FASB ASC Subtopic 321-10-35-2, Investments – Others – Cost Method Investments , investments where the Company does not have a significant influence are accounted for at cost. The Company reviews all material investments on an annual basis to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of the investment. In the event the fair value of the investment declines below the cost basis, the Company records an impairment. As of September 30, 2024, the Company determined that its investments were accounted using the cost method, and there were no other-than-temporary declines in fair value below their respective carrying values. See Note 6. 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, accounts payable, and accrued liabilities approximate their fair values due to the short maturity of these instruments. The Company believes the carrying amount of its advances to related parties approximate fair value due to its short-term maturity. The Company’s investments are accounted for under the cost method. See above and Note 6. 7 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, sales via the CWS Platform, distribution of its SWOL Tequila product and subscription-based membership revenue. Revenue is reported net of discounts. Marketing Services The Company contracts with third-party alcoholic beverage brands to utilize access to the CWS Platform. The Company and the brands enter into a commercial relationship. The Company performs services such as creating a marketing campaign strategy, developing promotional materials and advertising promotional materials through the CWS Platform. Revenue is recognized over a period time, as the marketing services are being continually provided on a daily and monthly basis over the life of an agreed upon campaign. Marketing campaigns generally range from one to three months. CWS Platform Cwsspirits.com is an e-commerce platform that sells wine and spirits. The Company is responsible for contracting with CWS and customers to fulfill orders through the website. The Company, though not legally able to own alcohol inventory, does take on financial inventory risk. The Company is solely responsible for any risk of loss of the end customer and paying to replenish the loss order. Additionally, the Company enters into minimum guaranteed purchase commitments with its vendor that require the Company to pay for shortfalls in minimum purchases. The Company establishes the price and selection of products to be sold on the CWS Platform, and directs all marketing activities pertaining to the Platform. As such, the Company is the primary obligor for transactions with customers on the CWS Platform and records gross revenue. Revenue is recognized at the point in time when products are delivered to the end customer, when LQR has fulfilled its performance obligation, net of returns. Product Sales The Company wholly owns SWOL Tequila, a tequila 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 required 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. Vault Vault is the exclusive membership program for CWS Platform customers. Through the CWS Platform, users can sign up for membership where they will have access to all products available through the CWS Platform combined with special membership benefits including discounted products, free shipping and promotional offers. Prior to the acquisition of the CWS Platform, the Company marketed this membership program on the CWS Platform and was entitled to 50 % of the revenue from the subscriptions as the agent of the transaction. Upon the acquisition of the CWS Platform, the Company records gross revenue as it is the principal in the transaction. The Company records a reserve for chargebacks and cancellations at the time of the transaction based on historical experience. 8 Disaggregation of Revenue The following is a summary of the disaggregation of revenue for the three and nine months ended September 30, 2024 and 2023: Three Months Ended Nine Months Ended September 30, September 30, Disaggregation of Revenues 2024 2023 2024 2023 CWS Platform $ 575,115 $ - $ 1,523,546 $ - SWOL product sales 18,431 69,097 25,240 116,884 Revenue - product 593,546 69,097 1,548,786 116,884 Marketing 15,384 93,925 70,359 370,812 Vault 15,534 7,489 44,330 24,400 Revenue - services 30,918 101,414 114,689 395,212 Total revenues $ 624,464 $ 170,511 $ 1,663,475 $ 512,096 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 product costs, packaging, shipping and other importing and delivery charges, as well as affiliate payouts and contracted marketing services. Cost of revenue also includes customer service personnel and amortization of the Company’s marketing license asset in 2023. Sales and Marketing Sales and marketing costs primarily consist of advertising, promotional expenses and marketing consulting and advisory services. Sales and marketing costs also include sales commissions. 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. 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, 2024 and 2023, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of September 30, 2024 include the Company’s outstanding restricted stock units (See Note 7). 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. 9 4. ACQUISITION OF CWS PLATFORM On November 1, 2023, LQR House Acquisition Corp. (the “Buyer”), a subsidiary of the Company, and SSquared Spirits LLC (the “Seller”, or “SSquared”) entered into a Domain Name Transfer Agreement (“Agreement”). Pursuant to the Agreement, the Seller irrevocably sold, assigned, transferred, and conveyed to the Buyer (a) all right, title, and interest in and to the domain name www.cwspirits.com (the “Domain Name”, or “CWS Platform”), including its current registration and (b) any other rights (including, but not limited to, trademark rights associated with the Domain Name in any jurisdiction, all Internet traffic through the Domain Name and all Website Content (as defined in the Agreement) the Seller may have in the Domain Name, together with any goodwill associated therewith in exchange for the payment by the Buyer of the purchase price of $ 10,000 . Under Regulation S-X 3-05, management determined that the CWS Platform acquisition constituted a business combination as the revenue producing activity (e-commerce sales) is expected to be similar both pre and post-domain name acquisition. As such, the Company recorded an intangible asset of $ 10,000 for the purchase price consideration of the domain name. Management assessed the fair value of the Domain Name and CWS Platform in determining to allocate the $ 10,000 to the domain name. In making such determination, management considered the related party nature of the transaction, the current environment for direct-to-consumer alcoholic beverage companies and the related competition in which they operate, and the fact that the initial and continued operation of the CWS platform is completely dependent on the relationship between the Company, our CEO and a minority shareholder, who co-owned SSquared and operates KBROS, LLC (“KBROS”, or “Product Handler”), the Company’s contracted product handler. Without such relationship, which can be terminated in certain circumstances, the underlying CWS Platform would be unable to operate as intended until a suitable alterative product handler would be identified. Therefore, no fair value in excess of the consideration provided was considered. The Company has consolidated the results of operations of the CWS Platform since November 1, 2023. Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the Company’s financial results as if the CWS Platform acquisition had occurred as of January 1, 2023. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisitions been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the Company’s future financial results. The pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition: Nine Months Ended September 30, 2023 Revenues $ 2,329,114 Net loss ( 9,685,986 ) Net loss per common share $ ( 38.52 ) 10 5. OTHER ASSETS Prepaid Expenses The Company determined it was no longer pursuing the website development services as per its October 2023 agreement with X-Media. As such, the Company recognized an expense of $ 1,250,000 as of September 30, 2024, representing the remaining unamortized prepaid amount. The amount was included in sales and marketing expenses in the consolidated statements of operations. Deposits in Escrow As of December 31, 2023, the Company had $ 5,470,000 in deposits held in escrow for potential investments. In the first quarter of 2024, the Company received $ 670,000 back from an investment it was no longer pursuing. The remaining $ 4,800,000 was transferred to an investment in the common stock of a third-party entity, DRNK Beverage Corp. See below. 6. INVESTMENTS, AT COST The Company’s investments at cost includes a minority stake in the common shares of Cannon Estate Winery Ltd and DRNK Beverage Corp. These investments are primarily held for strategic purposes. Cannon Estate Winery Ltd. On May 19, 2024, the Company and a majority shareholder and a director (the “Seller”) of Cannon Estate Winery Ltd., a British Columbia corporation (“Cannon”) consummated an acquisition of approximately 9.99 % of common shares of Cannon by the Company pursuant to a Share Exchange Agreement (“Cannon Agreement”) between the Company and the Seller. Pursuant to the Cannon Agreement, the Seller transferred and delivered to the Company 113,085 of the common shares of Cannon (the “Cannon Shares”), and in exchange the Company issued and delivered to the Seller 750,000 shares of the Company’s common stock. The Company recorded an investment of $ 817,500 , which is the fair value of the 750,000 shares issued to Cannon at a fair value per share of $ 1.09 on May 19, 2024. The Company accounted for the investment in Cannon under the cost method as it owns 9.99 % of Cannon’s common shares and does not exert significant influence. DRNK Beverage Corp. On June 7, 2024, the Company consummated an acquisition of approximately 8.58 % of common shares of DRNK Beverage Corp. (“DRNK”) pursuant to a Subscription Agreement (“DRNK Agreement”). Pursuant to the Agreement, the Company subscribed for and purchased from DRNK 1,920,000 common shares of DRNK at a price of $ 2.50 per share for an aggregate amount of $ 4,800,000 . Upon the closing of the DRNK Agreement, the Company reclassified $ 4,800,000 which was held as a deposit in escrow to investments on the consolidated balance sheet. The Company accounted for the investment in DRNK under the cost method as it owns 8.58 % of DRNK’s common shares and does not exert significant influence. 7. STOCKHOLDERS’ EQUITY On February 13, 2024, the Company filed a Certificate of Amendment to the Articles of Incorporation of the Company with the Secretary of State of the State of Nevada increasing its authorized shares to 350,000,000 shares of common stock. In February 2024, the Board of Directors declared a 50 % stock dividend for distribution to all of the Company’s shareholders of record at the close of business on February 12, 2024. On March 1, 2024, 1,609,817 shares were issued per the dividend. As a result of the stock dividend, a 3:2 stock adjustment was effected similar to a forward stock split. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the stock dividend. 11 Share Buyback On September 1, 2023, the board of directors of the Company authorized a share buyback program for up to 20 % of the Company’s common stock and approved an agreement entered by and between the Company and Dominari Securities LLC (“Dominari”) on August 28, 2023 to effect the share buyback program. From September 8, 2023 through December 22, 2023, the Company confirmed the acquisition of 865,070 shares of common stock for a total of $ 1,440,852 , which was initially recorded as treasury stock on the balance sheet and statement of stockholders’ equity. On December 22, 2023, the 865,070 shares were sent to the Company’s transfer agent for retirement. In January 2024, the Company purchased a total of 190,628 shares of the Company’s common stock for $ 547,415 , which was recorded as treasury stock on the balance sheet and statement of stockholders’ equity. Other In May 2024, the Company issued 750,000 shares of common stock pursuant to the Cannon Agreement for a fair value of $ 817,500 . See Note 6. During the quarter ended September 30, 2024, the Company issued 122,160 shares of common stock pursuant to an at-the-market public offering for proceeds of $ 70,194 , which were received in October 2024. As of September 30, 2024, the Company recognized a subscription receivable pertaining to this issuance. Restricted Stock Units In August 2023 the Company granted 31,250 restricted stock units (the Director RSU’s) which were to vest in eight equal quarterly installments commencing on October 1, 2023. On August 21, 2023, Jay Dhaliwal was added to the Board and was granted 500 Director RSUs which were to vest in eight equal quarterly installments commencing on October 1, 2023. On August 30, 2023, the Board authorized deferring the vesting of the Director RSUs until such date that the 2021 Plan is amended. The RSUs had a grant-date fair value of $ 6,266,533 . During the three and nine months ended September 30, 2024, the Company recognized stock-based compensation expense of $ 720,842 and $ 2,162,527 which is included in general and administrative expenses in the consolidated statement of operations. As of September 30, 2024 and December 31, 2023, there were 29,250 Director RSUs outstanding after cancellations. 8. RELATED PARTY TRANSACTIONS KBROS and Ssquared Spirits LLC The Company’s founder and Chief Executive Officer, who is a stockholder and member of the board of directors has an economic interest in Ssquared Spirits LLC, the seller of the CWS Platform acquisition. The spouse of the Company’s former Chief Executive Officer and director, is the President and controlling stockholder of KBROS, the managing member and director of Ssquared Spirits LLC, and a minority shareholder with the Company. In 2022, the former Chief Executive Officer resigned from the Company. See Note 4 for the CWS Platform acquisition from SSquared. KBROS acts as the Company’s Product Handler, whereby they are entitled to compensation of $ 40,000 per month plus reimbursement for shipping and handling fees incurred by them for orders fulfilled through the CWS Platform, and bonus for reaching certain revenue milestones. Pursuant to the Product Handling Agreement, the Company incurred $ 120,000 and $ 360,000 , respectively, to KBROS for the three and nine months ended September 30, 2024, which is included in cost of revenue in the consolidated statements of operations. During the nine months ended September 30, 2024, the Company paid $ 200,000 in incentive compensation, which is included in sales and marketing expenses in the consolidated statements of operations. See Note 9 for funding commitment with KBROS. Country Wine & Spirits, Inc. (“CWS”) CWS has 6 brick and mortar locations for the sale of beer, wine, spirits and create value in retail locations throughout Southern California and specializes in logistics of shipping and helping brands reach customers. To date CWS has distributed all of the alcohol ordered by customers through the CWS Platform, via our Product Handler agreement with KBROS. The President of CWS is also the 100 % owner of KBROS, the Product Handler. As of September 30, 2024 and December 31, 2023, the Company had $ 182,156 and $ 172,493 , respectively, in accounts receivable, related party with CWS pertaining to product revenues. 12 During the year ended December 2023, 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. As of both September 30, 2024 and December 31, 2023, $ 7,340 remained unpaid and outstanding from CWS. The advances are non-interest bearing, unsecured and due on demand. Veg House Illinois During the year ended December 31, 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., which stand outstanding as on September 30, 2024. Accounts Payable, Related Party As of September 30, 2024 and December 31, 2023, the Company had accounts payable of $ 0 and $ 58,589 , respectively, with related parties, including KBROS, the Company’s founder and Chief Executive Officer, and officers and directors. Performance Bonus During the nine months ended September 30, 2024, the Company paid its Chief Executive Officer a performance bonus of $ 200,000 for achieving certain revenue levels through the CWS Platform. 9. COMMITMENTS AND CONTINGENCIES Lease In February 2023, the Company entered into a lease agreement for office space in Miami, Florida. The agreement matures in February 2025 and requires monthly payments of $ 850 . The Company adopted ASC 842 on January 1, 2022 and recognized a right of use asset and liability of $ 19,007 using a discount rate of 8.0 %. As of September 30, 2024, the outstanding right of use liability was $ 2,534 . Funding Commitment Agreement On November 1, 2023, the Company entered into a Funding Commitment Agreement with KBROS, the Product Handler pursuant to the Product Handling Agreement as defined in Note 4. Pursuant to this agreement, the Company 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”). The Company may, without notice to Product Handler, elect not to advance funding for any inventory sold by particular Vendors with respect to which the Company reasonably feels insecure. This agreement concerns a funding commitment, and not the purchase of Products from Product Handler or Vendors. 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. 10. SUBSEQUENT EVENTS On October 15, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with David E. Lazar (“Lazar”), pursuant to which he will acquire 5,454,545 shares (the “Shares”) of common stock, of the Company at a price of $ 0.55 per share for aggregate gross proceeds of $ 3.0 million (the “Purchase Price”), and a five-year warrant to acquire up to 10,909,090 shares of common stock at the exercise price of $ 0.55 per share (the “Warrant”). Pursuant to the terms of the Purchase Agreement, all of the proceeds from sale of the Shares and Warrants are required to be used to pay the Company’s obligations under a number of settlement agreements with operating partners, venders, certain employees, consultants and officers and directors of the Company. 13 The closing of the transaction shall take place in two stages. On October 16, 2024, Lazar paid $ 606,000 at the first closing of the transactions under the Purchase Agreement in exchange for 1,101,818 Shares. On the final closing date, Lazar will pay the Company $ 2,394,000 in exchange for 4,352,727 shares of Common Stock and the Warrant. The final closing is subject to the satisfaction of certain closing conditions described in the Purchase Agreement, including stockholder approval of the Purchase Agreement, the Warrant and transactions related thereto (“Stockholder Approval”). The final closing is required to occur the business day after the Stockholder Approval has been obtained by the Company. The Company agreed in the Purchase Agreement not to issue any additional shares of common stock or securities convertible into common stock for a period of 180 days from the date of the final closing without the consent of Lazar. The Company also agreed in the Purchase Agreement not to effect any variable rate transaction, including an at-the-market offering, until April 15, 2025. The Warrant to be issued by the Company on the final closing date will contain anti-dilution provisions, pursuant to which if on or after the date of issuance of the Warrant and prior to April 15, 2025, the Company issues any shares of Common Stock or Common Stock equivalents at a price that is less than the current exercise price of the Warrant, subject to certain exceptions set forth in the Warrant, the exercise price of the Warrant will be reduced to the New Issuance Price (as defined below). In the Purchase Agreement, the Company is required to call a meeting of stockholders no later than December 16, 2024 for purposes of obtaining Stockholder Approval. In the event such actions are not approved at such meeting, then the Company must call four subsequent meetings every 70 days in order to solicit such approvals. If such approvals are not obtained at the fourth meeting, the Company shall issue Lazar the Warrant with an adjusted exercise equal to the Minimum Price as defined under Nasdaq Rule 5635(d)(1)(A) plus $ 0.25 and the anti-dilution provisions of the Warrant shall be deleted. On October 14, 2024, Jay Dhaliwal informed the Board of Directors of the Company (the “Board”) of his resignation as a member of the Board effective immediately. Mr. Dhaliwal’s resignation as a director was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. On October 15, 2024, prior to the transactions contemplated by the Purchase Agreement, the current members of the Board appointed David Lazar to serve as the President of the Company effective October 15, 2024 until his earlier resignation or removal. On October 15, 2024, prior to the transactions contemplated by the Purchase Agreement, the current members of the Board approved an increase in the size of the Board and appointed David Lazar and Avraham Ben-Tzvi to the Board effective as of October 15, 2024. The initial term as director for Messrs. Ben-Tzvi and Lazar will expire at the Company’s 2024 annual meeting of stockholders. At the time of the election, none of the new directors were appointed to any committees of the Board of Directors. The Board has determined that Mr. Ben-Tzvi qualifies as an “independent director” as defined under Nasdaq Rule 5605(a)(2) and satisfies the independent requirements of Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended. The Board appointed Mr. Lazar as the President of the Company, and thereby does not deem him independent. 14