LQR House Inc. 10-Q

ITEM 1 – FINANCIAL STATEMENTS LQR HOUSE INC. CONDENSED CONSOLDIATED BALANCE SHEETS (Unaudited) March 31, December 31, 2025 2024 ASSETS Current assets: Cash and cash equivalents $ 7,889,597 $ 5,386,789 Accounts receivable 48,740 28,040 Accounts receivable, related party 149,510 149,510 Subscription receivable 108,054 - Prepaid expenses 279,595 240,729 Total current assets 8,475,496 5,805,068 Investments, at cost 1,117,500 1,117,500 Intangible assets, net 10,000 10,000 Total assets $ 9,602,996 $ 6,932,568 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 135,131 $ 530,643 Accounts payable, related party 28,411 21,175 Accrued expenses 394,250 927,711 Accrued expenses, related party 1,743,392 5,971,000 Total current liabilities 2,301,184 7,450,529 Commitments and contingencies (Note 9) Stockholders’ equity: Common stock, $ 0.0001 par value, 10,000,000 shares authorized, 1,066,798 and 1,061,351 shares issued and outstanding as of March 31, 2025 and 435,788 and 430,341 shares issued and outstanding as of December 31, 2024, respectively 107 44 Additional paid-in capital 52,545,573 42,336,213 Treasury stock, at cost ( 5,447 shares) ( 547,415 ) ( 547,415 ) Accumulated deficit ( 44,696,453 ) ( 42,306,803 ) Total stockholders’ equity 7,301,812 ( 517,961 ) Total liabilities and stockholders’ equity $ 9,602,996 $ 6,932,568 See the accompanying notes to the unaudited condensed consolidated financial statements 3 LQR HOUSE INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2025 2024 Revenue - services $ 77,356 $ 43,791 Revenue - product 351,984 437,303 Total revenues 429,340 481,094 Cost of revenue - services 1,400 37,208 Cost of revenue - product 397,782 523,383 Total cost of revenue 399,182 560,591 Gross profit (loss) 30,158 ( 79,497 ) Operating expenses: General and administrative 2,023,161 1,606,461 Sales and marketing 406,853 786,415 Total operating expenses 2,430,014 2,392,876 Loss from operations ( 2,399,856 ) ( 2,472,373 ) Other income (expense): Other income 10,206 44,981 Total other income (expense) 10,206 44,981 Provision for income taxes - - Net loss $ ( 2,389,650 ) $ ( 2,427,392 ) Weighted average common shares outstanding - basic and diluted 621,437 132,719 Net loss per common share - basic and diluted $ ( 3.85 ) $ ( 18.29 ) See the accompanying notes to the unaudited condensed consolidated financial statements 4 LQR HOUSE INC. unaudited condensed consolidated STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Common Stock Treasury Stock Additional Paid-In Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balances at December 31, 2023 137,984 14 - - 34,172,888 ( 19,552,625 ) 14,620,277 Vesting of restricted stock units - - - - 720,842 - 720,842 Repurchase of common stock - - ( 5,447 ) ( 547,415 ) - - ( 547,415 ) Net loss - - - - - ( 2,427,392 ) ( 2,427,392 ) Balances at March 31, 2024 137,984 $ 14 ( 5,447 ) $ ( 547,415 ) $ 34,893,730 $ ( 21,980,017 ) $ 12,366,312 Balances at December 31, 2024 435,788 $ 44 ( 5,447 ) $ ( 547,415 ) $ 42,336,213 $ ( 42,306,803 ) $ ( 517,961 ) Vesting of restricted stock units 808 - - - 695,508 - 695,508 Issuance of common stock pursuant to directors agreements 6,191 1 283,678 283,679 Issuance of common stock pursuant to ATM agreement 413,520 41 - - 5,178,779 - 5,178,821 Exercise of warrants 210,463 21 - - 4,051,394 - 4,051,415 Effect of stock split 28 - - - - - - Net loss - - - - - ( 2,389,650 ) ( 2,389,650 ) Balances at March 31, 2025 1,066,798 $ 107 ( 5,447 ) $ ( 547,415 ) $ 52,545,573 $ ( 44,696,453 ) $ 7,301,812 See the accompanying notes to the unaudited condensed consolidated financial statements 5 LQR HOUSE INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2025 2024 Cash flows from operating activities: Net loss $ ( 2,389,650 ) $ ( 2,427,392 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 172,680 - Vesting of restricted stock units 695,509 720,842 Changes in operating assets and liabilities: Accounts receivable ( 20,700 ) - Accounts receivable, related party - 827 Prepaid expenses ( 38,866 ) 300,781 Accounts payable ( 395,512 ) ( 75,227 ) Accounts payable, related party 7,236 ( 13,589 ) Accrued expenses ( 533,462 ) 119,353 Accrued expenses, related party ( 4,116,608 ) 365 Net cash used in operating activities ( 6,619,373 ) ( 1,374,040 ) Cash flows from investing activities: Purchases of marketable securities - ( 4,030,986 ) Return of deposits in escrow - 670,000 Net cash used in investing activities - ( 3,360,986 ) Cash flows from financing activities: Issuance of common stock pursuant to exercise of warrants 4,051,415 - Issuance of common stock pursuant to ATM agreement 5,070,767 - Repurchase and buyback of common stock - ( 547,415 ) Net cash provided by (used in) financing activities 9,122,181 ( 547,415 ) Net change in cash and cash equivalents 2,502,808 ( 5,282,441 ) Cash and cash equivalents at beginning of period 5,386,789 7,064,348 Cash and cash equivalents at end of period $ 7,889,597 $ 1,781,907 Supplemental disclosure of cash flow information: Cash paid for income taxes $ - $ - Cash paid for interest $ - $ - Supplemental disclosure of non-cash financing activities: Subscription receivable $ 108,054 $ - Issuance of common stock for accrued expenses $ 111,000 $ - See the accompanying notes to the unaudited condensed consolidated financial statements 6 LQR HOUSE INC. UNAUDITED CONDENSED CONSOLIDATED NOTES TO 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, who is considered a related party. 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 8. Reverse Stock Split On April 16, 2025, the Company filed a Certificate of Change to its Articles of Incorporation with the Secretary of State of the State of Nevada to effect a 1-for-35 reverse stock split (the “Reverse Split”) of its common stock, par value $ 0.0001 per share. The Reverse Split became effective on April 21, 2025. In connection with Reverse Split, the Company amended its Articles of Incorporation to reduce the number of authorized shares of common stock to 10,000,000 . 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 reverse 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 sustained net losses of $ 2,389,650 and $ 2,427,392 for the three months ended March 31, 2025 and 2024, and has negative cash flows from operations of $ 6,619,373 and $ 1,374,040 for the three months ended March 31, 2025 and March 31, 2024, respectively. 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. 7 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, 2024 included in the Form 10-K filed with the SEC on March 31, 2025. 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. 8 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. 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 March 31, 2025, the Company’s investment in DRNK Beverage Corp continues to be recorded at its impaired carrying value of $ 300,000 , after reflecting an impairment expense of $ 4,500,000 recognized as of December 31, 2024. That impairment was triggered by company-specific information and the investee’s performance relative to expectations, as well as general market challenges. No additional impairments or observable price changes were identified during the three months ended March 31, 2025. The Company continues to monitor the situation and will assess the need for any further adjustments in future periods. 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. 9 There were no transfers between Level 1, Level 2, or Level 3 fair value classifications during the three months ended March 31, 2025. Available-for-sale investments are classified as Level 1, as they are valued based on quoted prices in active markets for identical instruments. 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 5 to our unaudited condensed consolidated financial statements. Accounts Receivable Accounts receivable are derived from services and products delivered to customers and are stated at their net realizable value. Each month, the Company reviews its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Intangible Assets Intangible assets are amortized over the respective estimated lives on a straight-line basis, unless the lives are determined to be indefinite and reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable. The Company owns domain names indefinitely. Costs to renew domains are expensed as incurred. Impairment of Long-Lived Assets The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. Related Parties Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company. The Company discloses related party transactions that are outside of normal compensatory agreements, such as salaries. The Company follows ASC 850, Related Party Disclosures , for the identification of related parties and disclosure of related party transactions. 10 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 produced in limited batches by a third-party manufacturer in Mexico. The Company handles all logistics to deliver the product to CWS for retail distribution in the United States, including advancing production, shipping, and other import-related expenses. Under historical agreements, the Company is entitled to receive payment for these costs, plus an additional 20 % for each bottle of SWOL Tequila sold via wholesale channels. Revenue is recognized when the product is delivered, fulfilling the Company’s performance obligation. Due to regulatory restrictions surrounding the delivery and custodianship of alcoholic beverages, CWS assumes ownership at the time of delivery, with no recourse or right of return. 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 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. 11 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 March 31, Disaggregation of Revenues 2025 2024 CWS Platform $ 330,341 $ 435,683 SWOL product sales 21,643 1,620 Revenue - product 351,984 437,303 Marketing 62,402 30,351 Vault 14,954 13,440 Revenue - services 77,356 43,791 Total revenues $ 429,340 $ 481,094 Cost of Revenue Cost of revenue consists of all direct costs attributable to sales and performing marketing services. Cost of revenue includes product costs, packaging, shipping and other importing and delivery charges, as well as 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. For the three months ended March 31, 2025 and 2024, Advertising costs were approximately $ 206,000 and $ 167,000 , respectively. 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. 12 Segment Information In accordance with ASC 280, Segment Reporting (“ASC 280”), we identify our operating segments according to how our business activities are managed and evaluated. ASC 280 establishes standards for companies to report financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the Company’s chief operating decision maker (“CODM”), or group, in deciding how to allocate resources and assess performance. The CODM has been identified as the Chief Executive Officer, who reviews the operating results for the Company as a whole to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that the Company only has one operating and reportable segment. The key measures of segment profit or loss reviewed by our CODM are revenue and operating costs. These metrics are reviewed and monitored by the CODM to manage and forecast cash. The CODM also reviews operating costs to manage, maintain and enforce all contractual agreements to ensure costs are aligned with all agreements and budget. 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 March 31, 2025 and 2024, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of March 31, 2025 include the Company’s outstanding restricted stock units (See Note 7). Recently Issued and Adopted Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis, primarily disclosure of significant segment expense categories and amounts for each reportable segment. The new standard is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-07 in the annual financial statements for the year ended December 31, 2024, and for interim periods beginning in 2025. The adoption of ASU 2023-07 did not have a significant impact on the Company’s consolidated financial statements. Management does not believe that any 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. 13 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”, “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”, “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 . In connection with the Company’s purchase of the Domain Name, on November 1, 2023, the Company entered into a product handling agreement (“Product Handling Agreement”) with KBROS LLC (“KBROS”). Pursuant to the Product Handling Agreement: Commencing as of the Effective Date of this Agreement, Product Handler shall provide to the Company the following services relating to the purchase and delivery (“Handling”) of spirits and other beverage products (referred to herein as “Product” and the “Products”) purchased by customers of the Company through or in relation to websites associated with the Domain: ● Purchase of Products to be delivered to customers of the Company, delivery of such Products, and related receipt of returns of Products and delivery of replacements of the Products from time to time, necessary for the operation of the Business by the Company, pursuant to orders for the Products by the Company’s customers generated as the result of sales, promotion and marketing of the Products through the Website (sale, promotion and marketing of the Products through the Website is collectively referred to herein as “Processing”); ● Procurement and maintenance of all certificates, licenses, authorizations and registrations required to import, possess, promote, sell, distribute and receive payment for the Products and compliance with all laws, rules and regulations applicable thereto and to the operation of the Website and conduct of sales and Processing of the Products, as reasonably deemed necessary by the Company; 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) was 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. 14 5. 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. Chase Mocktails Ltd (f/k/a 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. As of December 31, 2024, the Company recognized an impairment expense of $ 4,500,000 related to its investment in DRNK based on impairment indicators on DRNK’s financial performance and DRNK’s progress as compared to initial expectations. In determining the impairment, management used a market approach using projected revenue information obtained from DRNK and market multiples for companies in similar industry segments. As of March 31, 2025, the investment continues to be carried at its impaired value of $ 300,000 . No further impairment indicators or observable price changes were identified during the three-month period ended March 31, 2025. The Company continues to monitor this investment and will assess the need for any future adjustments as conditions warrant. 6. ACCRUED EXPENSES Accrued expenses consist of the followings: March, 31 December 31, 2025 2024 Accrued retention and settlement payments $ 53,729 $ 513,729 Accrued professional and other fees 109,628 62,450 Taxes payable 195,293 263,087 Other accrued 35,600 88,445 Total accrued expenses $ 394,250 $ 927,711 Accrued retention and settlement payments, related parties 1,743,392 5,971,000 Total accrued expenses, related parties $ 1,743,392 $ 5,971,000 As of December 31, 2024, the Company had accrued expenses totaling $ 6,484,729 related to various settlement, bonus, and retention agreements executed between October and December 2024. During the three months ended March 31, 2025, the Company paid approximately $ 4,687,000 of these previously accrued balances. The remaining balance of approximately $ 1,797,000 remains accrued as of March 31, 2025, and is expected to be settled in future periods. 15 7. STOCKHOLDERS’ EQUITY (DEFICIT) Amendment to Articles of Incorporation or Bylaws On April 16, 2025, the Company filed a Certificate of Change to its Articles of Incorporation with the Secretary of State of the State of Nevada to effect a 1-for-35 reverse stock split (the “Reverse Split”) of its common stock, par value $ 0.0001 per share. The Reverse Split became effective on April 21, 2025. Pursuant to the Reverse Split, every 35 shares of the Company’s authorized, issued and outstanding common stock were automatically converted into one share of common stock. No fractional shares were issued as a result of the Reverse Split; instead, fractional shares were rounded up to the nearest whole share at the individual stockholder level. As a result of the Reverse Split, the par value per share remained unchanged. All share and per share amounts in these financial statements have been retroactively adjusted to reflect the Reverse Split for all periods presented, unless otherwise indicated. In connection with Reverse Split, the Company amended its Articles of Incorporation to reduce the number of authorized shares of common stock to 10,000,000 . 2025 Stock Transactions During the three months ended March 31, 2025, the Company issued 413,520 shares of common stock (on a post-reverse split basis) pursuant to an at-the-market public offering for net proceeds of $ 5,178,821 . Of the total proceeds, $ 108,054 was received in April 2025. As of March 31, 2025, the Company recorded a subscription receivable in respect of this issuance. Issuance of shares in pursuance of director’s agreement On October 15, 2024, the Company entered into a Director Agreement with Avraham Ben-Tzvi, a then-member of the Board of Directors. Mr. Ben-Tzvi ceased to serve on the Board effective December 19, 2024. In recognition of his service, the Company issued 3,334 shares of its common stock, par value $ 0.0001 per share (on a post-reverse split basis), to Mr. Ben-Tzvi on January 2, 2025. On January 28, 2025, Mr. Ben-Tzvi entered into a Lock-Up Agreement with the Company in connection with the share issuance, under which he agreed not to transfer, sell, pledge, or otherwise dispose of the shares for a period of twelve (12) months. The Lock-Up Agreement also prohibits hedging transactions, registration demands, and deposit of the shares into depositary facilities during the lock-up period. The Company has instructed its transfer agent to enforce applicable restrictions. For the three months ended March 31, 2025, the Company recognized $ 172,679 of stock-based compensation expense related to this issuance. The fair value of the shares was measured as of the grant date, January 2, 2025, in accordance with ASC 718, Compensation – Stock Compensation . On April 2, 2025, David Lazar resigned as President and as a member of the Company’s Board of Directors, effective the same date (the “Separation Date”). In connection with his resignation, the Company entered into a Separation Agreement with Mr. Lazar, pursuant to which the Company agreed to pay $ 415,000 in cash and issue 2,857 shares of the Company’s common stock, par value $ 0.0001 per share (on a post-split basis), as consideration for the covenants and agreements set forth therein. As of December 31, 2024, the Company recorded a total expense of $ 526,000 related to this agreement, consisting of $ 415,000 in accrued cash compensation and $ 111,000 in non-cash stock-based compensation, based on the fair value of the Shares as of the measurement date. The shares were issued on April 2, 2025, and are subject to a Lock-up Agreement under which Mr. Lazar has agreed not to transfer, sell, pledge, or otherwise dispose of the shares for a period of one year from the date of issuance. The expense associated with the issuance of the Shares was fully recognized in the year ended December 31, 2024. No additional expense related to this agreement was recognized during the three months ended March 31, 2025. Warrants During the three months ended March 31, 2025, the Company issued 210,463 shares of common stock (on a post-reverse split basis) upon the exercise of warrants, resulting in aggregate gross proceeds of $ 4,051,415 . Restricted Stock Units In August 2023, the Company granted 893 restricted stock units (the Director RSU’s) on post-split basis, 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 amendment to the plan was approved on December 19, 2024 and vesting resumed thereafter. In December, 2024, the Company granted 1,429 restricted stock units (the 2024 Director RSU’s) on post-split basis to each four newly elected independent director, for a total of 5,716 RSUs, which shall vest in eight (8) equal quarterly installments commencing in the first quarter of 2025, provided that such directors remain in continuous service of the Company on such dates. The RSUs had a grant-date fair value of $ 318,000 . The Company recorded stock-based compensation expense of $ 695,509 in the statements of operations for the three months ended March 31, 2025. Total unrecognized compensation cost related to non-vested restricted common stock amounted to $ 1,257,881 as of March 31, 2025, which is expected to be recognized over weighted average remaining vesting period of 1.67years. As of March 31, 2025, 5,188 RSUs remained unvested. 16 The following table summarizes RSU activity for the three months ended March 31, 2025: Restricted Stock Units Number of shares Weighted Average Fair Value Unvested as of December 31, 2024 5,996 $ 381.50 Granted - - Vested ( 808 ) 861.35 Forfeited - Unvested as of March 31, 2025 5,188 $ 306.70 Share Buyback In January 2024, the Company purchased a total of 5,447 shares of the Company’s common stock (on post-split basis) for $ 547,415 , which was recorded as treasury stock on the balance sheet and statement of stockholders’ equity. As of March 31, 2025, no warrants remain outstanding. 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. 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, for the three month ended March 31, 2025 and 2024, the Company incurred $ 40,000 through January 2025 and $ 120,000 , respectively, to KBROS, which is included in cost of revenue in the consolidated statements of operations. During the three months ended March 31, 2025, the Company paid $ 100,000 in incentive compensation, which is included in sales and marketing expenses in the consolidated statements of operations. In October, 2024, the Company entered into a settlement and release agreement with KBROS, and its controlling stockholder. As of December 31, 2024, $ 3,000,000 remained unpaid and was included as accrued expenses on the consolidated balance sheet. Of this amount, $ 1,800,000 was paid during the three months ended March 31, 2025 and $ 1,200,000 remained unpaid as of March 31, 2025. 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 March 31, 2025 and December 31, 2024, the Company had $ 149,510 , in accounts receivable, related party with CWS pertaining to product revenues. In the event that CWS fails to repay the trade receivables, the Company believes it can offset the outstanding receivables against regular payables due to KBROS. 17 Accounts Payable, Related Party As of March 31, 2025 and December 31, 2024, the Company had accounts payable of $ 28,411 and $ 21,175 , respectively, with related parties, including KBROS, the Company’s founder and Chief Executive Officer, and officers and directors. Performance Bonus During the three months ended March 31, 2025, the Company paid its Chief Executive Officer and KABROS a performance bonus of $ 100,000 each. Lease The Company historically leased space from a related party entity, which is now month-to-month. 9. COMMITMENTS AND CONTINGENCIES 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 committed 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. For further details regarding the settlement agreement, see Note 8. 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 Reverse Stock Split On April 16, 2025, the Company filed a Certificate of Change to the Articles of Incorporation with the Secretary of State of the State of Nevada that provides for a 1-for-35 reverse stock split of its shares of common stock, par value $ 0.0001 per share that became effective at 12:01 a.m. on April 21, 2025. Supplementary distribution agreement On April 1, 2025, the Company entered into a Supplementary Distribution Agreement (the “Supplementary Distribution Agreement”) with Of The Earth Distribution Corp., a Canadian corporation (the “Distributor”), pursuant to which the Company granted to Distributor the exclusive right to distribute, market, and sell SWOL Tequila products within Thailand and Greece until June 28, 2029. The Supplementary Distribution Agreement also amends Supplier Agreement between the Company and the Distributor, dated June 28, 2024, by providing the Distributor exclusive distribution rights to sell SWOL Tequila in all of Canada without any territorial limitations. The Supplementary Distribution Agreement does not impose any minimum purchase requirements. Change in Independent Registered Public Accounting Firm On April 23, 2025, the Board of Directors and Audit Committee of the Company accepted the resignation of dbbmckennon “Former Auditor”) as the Company’s independent registered public accounting firm, effective immediately. The Former Auditor’s reports on the Company’s consolidated financial statements for the fiscal years ended December 31, 2024 and 2023 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except for an explanatory paragraph relating to substantial doubt about the Company’s ability to continue as a going concern and an emphasis of matter paragraph. During the fiscal years ended December 31, 2024 and 2023, and through the date of resignation, there were no disagreements with the Former Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures that, if not resolved to the satisfaction of the Former Auditor, would have caused it to make reference to the subject matter of the disagreement in connection with its reports. There were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K, except for the material weaknesses in internal control over financial reporting previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. Also on April 23, 2025, the Company engaged Enrome LLP (“New Auditor”) as its independent registered public accounting firm for the fiscal year ending December 31, 2025. During the two most recent fiscal years and through the date of engagement, neither the Company nor anyone on its behalf consulted with Enrome LLP regarding the application of accounting principles to a specific transaction or the type of audit opinion that might be rendered on the Company’s financial statements. 18