LQR House Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis are intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information included in our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “Commission”, or the “SEC”) on March 31, 2025. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the SEC. Business Overview Our company, LQR House Inc. (the “Company”), intends to become the full-service digital marketing and brand development face of the alcoholic beverage space. We also intend to integrate the supply, sales, and marketing facets of the alcoholic beverage space into one easy to use platform and become the one-stop-shop for everything related to alcohol. To date, our primary business includes the development of premium limited batch spirit brands and marketing internal and external brands through our ownership of the CWS Platform. Additionally, we are in the process of establishing an exclusive wine club. We believe that the marketing and brand management services we provide to our wholly owned and third-party clients will increase brand recognition thereof, and drive sales thereof through our e-commerce platform partner. Since May 2024, we own a minority stake of common shares of Cannon Estate Winery Ltd., a British Columbia corporation, an owner of Cannon Estate Winery. Since June 2024, we own a minority stake of common shares of DRNK Beverage Corp., a British Columbia corporation (which became Chase Mocktails Ltd.), operating in the non-alcoholic and ready-to-drink beverage markets. Since April 2025, we have a wholly owned subsidiary SWOL Holdings Inc. In July 2025, we also formed a wholly owned subsidiary, YHC Online Limited, in Hong Kong. Recent Developments On September 13, 2024, the Company entered into an at-the-market offering agreement (“ATM Agreement”) with H.C. Wainwright & Co., LLC, as sales agent (“HCW”), relating to the sale of common stock. During the three months ended September 30, 2025, the Company issued an aggregate of 11,073,489 shares of common stock pursuant to such ATM Agreement for net proceeds of $31,642,347. The Company paid the sales agent compensation with respect to the sale of such shares in the amount of $980,716. The ATM Agreement expired pursuant to its terms in September 2025, and no further sales will be made under the program. On April 1, 2025, we 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. On April 2, 2025, David Lazar resigned as President and as member of our Board of Directors (the “Board”), effective immediately. On April 21, 2025, the Company effected a one-for-thirty-five reverse stock split of its issued, outstanding and authorized common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, the total number of authorized common stock of the Company decreased to 10,000,000 shares. The Reverse Stock Split became effective at 12:01 a.m. Eastern Time on April 21, 2025, and our common stock began trading on a post-split basis on April 21, 2025. No fractional shares were issued in connection with the Reverse Stock Split and fractional amounts were rounded up to the next highest whole number at the participant level. 18 On June 2, 2025, the Company held LQR House Inc. 2025 Annual Meeting of Stockholders (the “Annual Meeting”) at which meeting: (1) the Company’s stockholders approved an amendment to the Articles of Incorporation to authorize the Company to effect the increase of authorized shares of common stock of the Company from 10,000,000 to 350,000,000 shares, (2) the stockholders re-elected Sean Dollinger, Yilin Lu, Lijun Chen, Jing Lu, and Hong Chun Yeung to serve as directors of the Board until the Company’s 2026 annual meeting of stockholders, or until such persons’ successors are duly elected and qualified, or until such persons’ earlier resignation, death, or removal. Following the Annual Meeting, on June 2, 2025, the Company filed the Certificate of Amendment with the Secretary of State of Nevada and effected the increase of the number of authorized shares of common stock of the Company from 10,000,000 shares to 350,000,000 shares, each share of common stock having a par value of $0.0001. Following the Annual Meeting, the Board approved appointment of Lijun Chen as the Chairman of the Board. The Board also approved that the Audit Committee of the Board shall consist of Hong Chun Yeung (Chair), Lijun Chen and Jing Lu, the Compensation Committee of the Board shall consist of Jing Lu (Chair), Yilin Lu, Lijun Chen, and Nominating and Corporate Governance Committee of the Board shall consist of Jing Lu (Chair), Lijun Chen, Yilin Lu. On or about July 11, 2025, the Company, along with over two dozen parties including several officers and directors of the Company, was named as a defendant in an action before the Eight Judicial District, Clark County, Nevada titled Kingbird Ventures, LLC (“Kingbird”) v. Sean Dollinger, et al. The complaint sought damages in an unspecified amount by a recent shareholder of the Company. Along with the complaint, Kingbird filed a motion for the Court to appoint a receiver over the Company and for an injunction. On September 22, 2025, the Company entered into two settlement agreements with Kingbird and other parties named therein to resolve all matters related to this litigation (collectively, the “Settlement Agreements”). The First Settlement Agreement resolved the direct claims asserted by Kingbird against the Company and other defendants and provided for dismissal of such claims with prejudice, mutual releases among the parties, and customary provisions, including no admission of liability and confidentiality. The Second Settlement Agreement resolved stockholder derivative claims brought on behalf of the Company against certain current and former officers and directors and provides for dismissal of those claims with prejudice, subject to court approval, along with mutual releases and customary provisions. Following execution of the Settlement Agreements, the actions were dismissed with prejudice. Pursuant to the Settlement Agreements, a total payment of $7.5 million has been made in September 2025. As of the date of this quarterly report, there is still a cash payment obligation approximately $5.5 million pursuant to the terms of the Settlement Agreements. On August 6, 2025, the Board appointed Yilin Lu to serve as a President of the Company and replaced him on the Compensation Committee and Nominating and Corporate Governance Committee with Hong Chun Yeung. On October 15, 2025, Dr. Jing Lu resigned from the Company’s Board of Directors and all associated committees. The resignation was not due to any disagreement with the Company, its management, or operations. On October 20, 2025, the Board appointed Mr. Kah Loong Randy Yeo as a new independent director. Mr. Yeo was also designated as Chair of the Nominating and Corporate Governance Committee and as a member of the Audit and Compensation Committees. The Services and Brands We Market LQR House is an American online retailer of alcohol products. The CWS Platform is an American online retailer specializing in selling alcohol products, striving to become the most trusted and convenient destination for online alcohol purchases. Combining the personalized service of a neighborhood alcohol shop with the efficiency of e-commerce, we offer a wide selection of products, including our exclusive brand, SWOL Tequila, all at competitive prices with fast shipping and around-the-clock convenience. At the heart of our brand is a commitment to exceptional customer service, driving us to continuously innovate our operations for an enhanced shopping experience. From user-friendly website navigation and a top-rated mobile app to detailed order tracking and personalized product recommendations, we are revolutionizing the online alcohol shopping experience, ensuring customer satisfaction remains paramount in all our endeavors. 19 The following products and services constitute the core elements of our business model and allow us to serve various types of customers in the alcohol industry, including individual consumers, wholesalers, and third-party alcohol brands: ● SWOL Tequila is a limited-edition blend of tequila made in exclusive batches of up to 10,000 bottles which was originally owned by Dollinger Innovations and transferred over to us pursuant to the Tequila Asset Purchase Agreement. Pursuant to the Tequila Asset Purchase Agreement, we purchased all of the right, title and interest in the trademarks SWOL and all associated trade dress and intellectual property rights and all labels, logos and other branding bearing the SWOL marks or any mark substantially similar to the same. Tequila bearing the “SWOL” trademark is produced by Casa Cava de Oro S.A., an authentic tequila distillery in Jalisco, Mexico, imported into the United States through Rilo Import & Export (“Rilo”) by Country Wine & Spirits LLC (“CWS”) and sold to retail customers in the United States via the CWS Platform and in CWS’s physical locations. ● Vault is the exclusive membership program for the CWS Platform, which is offered and managed by the Company. We receive the subscriptions fees generated by this program. Through the CWS Platform, users can sign up for this exclusive membership where they will have access to all products available through CWS combined with special membership benefits. ● LQR House Marketing is a marketing service in which we utilize our marketing expertise to help our wholly owned brands and third-party clients market their products to consumers. For example, by engaging us for our marketing services, our clients gain the ability to advertise and sell their brand on the CWS Platform. Principal Factors Affecting Our Financial Performance Our operating results are primarily affected by the following factors: ● our ability to acquire new customers and users or retain existing customers and users; ● our ability to offer competitive pricing; ● our ability to broaden product or service offerings; ● industry demand and competition; ● our ability to leverage technology and use and develop efficient processes; ● our ability to attract and maintain a network of influencers with a relevant audience; ● our ability to attract and retain talented employees and contractors; and ● market conditions and our market position. ● ability to make profitable investments in complimentary business. Our Growth Strategies The key elements of our strategy to expand our business include the following: ● Collaborative Marketing. We intend to develop leading brands for up-and-coming companies and start-ups and align with celebrities and influencers with significant followings to enhance their online marketing presence. ● Expand Our Brand. We intend to continue expanding and developing our existing SWOL brand by purchasing and selling larger amounts of SWOL products to accelerate brand recognition and increasing our marketing presence. ● Opportunistic Acquisitions. We intend to pursue opportunistic acquisitions with existing alcohol brands and companies that have distribution licenses and physical storage locations and acquire technology that complements our business. 20 Results of Operations Comparison of Three Months Ended September 30, 2025 and September 30, 2024 The following table sets forth key components of our results of operations during the three months ended September 30, 2025 and September 30, 2024. Three Months Ended September 30, 2025 2024 Var. $ Var. % Revenue - services $ 19,960 $ 30,918 $ (10,958 ) -35 % Revenue - product 317,328 593,546 (276,218 ) -47 % Total revenues 337,288 624,464 (287,176 ) -46 % Cost of revenue - services 23,852 45,870 (22,018 ) -48 % Cost of revenue - product 312,204 640,645 (328,441 ) -51 % Total cost of revenue 336,056 686,515 (350,459 ) -51 % Gross profit (loss) 1,232 (62,051 ) 63,283 102 % Operating expenses: General and administrative 3,470,033 1,522,785 1,947,248 128 % Sales and marketing 358,711 1,919,125 (1,560,414 ) -81 % Total operating expenses 3,828,744 3,441,910 386,834 11 % Loss from operations (3,827,512 ) (3,503,961 ) (323,551 ) 9 % Other income (expense): Realized gain/(loss) on securities - 81,241 (81,241 ) -100 % Legal settlement expense (13,000,000 ) - (13,000,000 ) 100 % Dividend income - 58,566 (58,566 ) -100 % Other income (1,401 ) 774 (2,175 ) -281 % Total other income (expense) (13,001,401 ) 140,581 (13,141,982 ) -9348 % Provision for income taxes Net loss $ (16,828,913 ) $ (3,363,380 ) $ (13,465,533 ) 400 % Revenue For the three months ended September 30, 2025 and 2024, service revenues were $19,960 and $30,918, respectively. Service revenues are earned as we contract with third-party alcoholic beverage brands to utilize access to the CWS Platform, as well as vault memberships. The decrease of $10,958, or approximately 35%, was primarily due to a lower volume of marketing services provided during the current period compared to the prior year. For the three months ended September 30, 2025, product revenues were $317,328 compared to $593,546 in the similar 2024 period. The decrease by $276,218 compared to 2024 was primarily attributable to a decrease in sales volume through the CWS Platform during the quarter. The reduction in revenue reflects lower customer traffic and order activity on cwsspirits.com, which the Company believes was driven by less promotional activity compared to the prior year period. Cost of Revenue and Gross Profit (Loss) For the three months ended September 30, 2025 and 2024, service cost of revenues were $23,852 and $45,870, respectively. Cost of service decreased by $22,018 in 2025. A decrease of approximately 48% was primarily due to overall decline in service-related activity compared to the prior year. Product cost of revenues was $312,204 and $640,645 during the three months ended September 30, 2025 and 2024. The decrease was primarily due to the decline in product revenue during the period, resulting from lower sales volume on the CWS Platform. Gross profit was $1,232 for the three months ended September 30, 2025, compared to a gross loss of $62,051 for the same period in 2024. The gross loss in 2024 was primarily attributable to the Company’s strategic transition from marketing services toward a focus on the CWS Platform. In 2025, management continues to explore initiatives aimed at improving gross margin performance, including customer acquisition efforts and the formation of new strategic partnerships to drive higher transaction volume through the platform. 21 General and Administrative For the three months ended September 30, 2025 and 2024, general and administrative expenses were $3,470,033 and $1,522,785, respectively. The increase of $1,947,248 was primarily attributable to higher professional fees, primarily legal fees, incurred during the current period. Sales and Marketing For the three months ended September 30, 2025 and 2024, sales and marketing expenses were $358,711 and $1,919,125, respectively. The decrease was primarily attributable to the absence of website development costs in the current period. In the third quarter of 2024, the Company incurred significant expenses related to advertising, marketing, and investor relations campaigns, which did not recur in 2025. In addition, bonus expenses of $200,000 were recorded under sales and marketing during the three months ended September 30, 2024. The absence of similar charges in 2025 further contributed to the decline in sales and marketing expenses. Other Income (Expense) Other income (expense) for the three months ended September 30, 2025, reflected a net expense of approximately $13.0 million, compared to net other income of $0.1 million in the same period of 2024. The variance is primarily attributable to the recognition of a $13.0 million legal settlement expense related to the resolution of the litigation, as discussed in Note 10 – Contingencies. During the quarter, the Company made a cash payment of $7.5 million and recorded the remaining $5.5 million obligation under accrued expenses on the balance sheet. The settlement represents a non-recurring, non-operational charge and is presented within “Other expense” to distinguish it from the Company’s ongoing business operations. Comparatively, in the prior year period, other income primarily consisted of dividend income of $58,566 and realized gains on securities of $81,241. No similar gains were recognized in the current period. Net Loss Net loss for the three months ended September 30, 2025 and 2024 was $16,828,913 and $3,363,380, respectively. Comparison of Nine Months Ended September 30, 2025 and September 30, 2024 The following table sets forth key components of our results of operations during the nine months ended September 30, 2025 and September 30, 2024. Nine Months Ended September 30, 2025 2024 Var. $ Var. % Revenue - services $ 112,635 $ 114,689 $ (2,054 ) -2 % Revenue - product 1,152,521 1,548,786 (396,265 ) -26 % Total revenues 1,265,156 1,663,475 (398,319 ) -24 % Cost of revenue - services 25,252 152,101 (126,849 ) -83 % Cost of revenue - product 1,124,008 1,805,112 (681,104 ) -38 % Total cost of revenue 1,149,260 1,957,213 (807,953 ) -41 % Gross profit (loss) 115,896 (293,738 ) 409,634 139 % Operating expenses: General and administrative 7,700,806 4,486,641 3,214,165 72 % Sales and marketing 846,240 3,470,348 (2,624,108 ) -76 % Total operating expenses 8,547,046 7,956,989 590,057 7 % Loss from operations (8,431,150 ) (8,250,727 ) (180,423 ) 2 % Other income (expense): Realized gain/(loss) on securities - 81,241 (81,241 ) -100 % Legal settlement expense (13,000,000 ) - (13,000,000 ) 100 % Dividend income - 168,646 (168,646 ) -100 % Other income 10,205 774 9,431 1218 % Total other income (expense) (12,989,795 ) 250,661 (13,240,456 ) -5282 % Provision for income taxes - - - Net loss $ (21,420,945 ) $ (8,000,066 ) $ (13,420,879 ) 168 % 22 Revenue For the nine months ended September 30, 2025 and 2024, service revenues were $112,635 and $114,689, respectively. Service revenues are earned as we contract with third-party alcoholic beverage brands to utilize access to the CWS Platform, as well as vault memberships. The decrease of $2,054, or approximately 2% was immaterial. For the nine months ended September 30, 2025, product revenues were $1,152,521 compared to $1,548,786 in the similar 2024 period. The decrease by $396,265 compared to 2024 was primarily attributable to a decrease in sales volume through the CWS Platform during the quarter. The reduction in revenue reflects lower customer traffic and order activity on cwsspirits.com, which the Company believes was driven by less promotional activity compared to the prior year period. Cost of Revenue and Gross Profit (Loss) For the nine months ended September 30, 2025 and 2024, service cost of revenues were $25,252 and $152,101, respectively. Cost of service revenues decreased by $126,849 in 2025. The decrease was primarily attributable to lower operating costs associated with service delivery, the significant reduction in cost of service revenues reflects improved cost management and operational efficiencies implemented during the current period. Product cost of revenues was $1,124,008 and $1,805,112 during the nine months ended September 30, 2025 and 2024. The decrease of $681,104 was primarily due to the decline in product revenue during the period, resulting from lower sales volume on the CWS Platform. Gross profit (loss) was $115,896 and ($293,738) for the nine months ended September 30, 2025 and 2024. The gross loss in 2024 was primarily attributable to the Company’s strategic transition from marketing services toward a focus on the CWS Platform. In 2025, management continues to explore initiatives aimed at improving gross margin performance, including customer acquisition efforts and the formation of new strategic partnerships to drive higher transaction volume through the platform. General and Administrative For the nine months ended September 30, 2025 and 2024, general and administrative expenses were $7,700,806 and $4,486,641, respectively. The increase of $3,214,165 was primarily attributable to higher professional fees, which were primarily legal costs, incurred during the current period. Sales and Marketing For the nine months ended September 30, 2025 and 2024, sales and marketing expenses were $846,240 and $3,470,348 respectively. The decrease was primarily due to the absence of website development costs in the current period. In 2024, the Company incurred significant expenses related to advertising, marketing, and investor relations campaigns, which did not recur in 2025. Additionally, bonus expenses of $200,000 were recorded under sales and marketing during the nine months ended September 30, 2025, compared to $400,000 in the prior-year period, further contributing to the overall decrease. Other Income (Expense) Other income (expense) for the nine months ended September 30, 2025, reflected a net expense of approximately $12,989,795, compared to net other income of $250,661 in the same period of 2024. The variance is primarily attributable to the recognition of a $13.0 million legal settlement expense related to the resolution of the litigation, as discussed in Note 10 – Contingencies. During the nine months ended September 30, 2025, the Company made a cash payment of $7.5 million and recorded the remaining $5.5 million obligation under accrued expenses on the balance sheet. The settlement represents a non-recurring, non-operational charge and is presented within “Other expense” to distinguish it from the Company’s ongoing business operations. Comparatively, in the prior year period, other income primarily consisted of dividend income of $168,646 and realized gains on securities of $81,241. No similar gains were recognized in the current period. Net Loss Net loss for the nine months ended September 30, 2025 and 2024 was $21,420,945 and $8,000,066, respectively. 23 Liquidity and Capital Resources As of September 30, 2025 and December 31, 2024, we had cash and cash equivalents of $10,039,230 and $5,386,789 respectively. To date, we have financed our operations primarily through issuances of common stock and sales of our products and services. During the nine months ended September 30, 2025, the Company raised an aggregate of $47,252,830 in net proceeds through issuance of commons stock. The Company issued 13,434,601 shares of common stock pursuant to at-the-market offering agreement, dated September 13, 2024, between the Company and H.C. Wainwright & Co., LLC, for net proceeds of $43,201,415. Additionally, the Company received net proceeds of $4,051,415 from the issuance of 210,463 shares of common stock pursuant to exercise of warrants. The ATM offering program expired pursuant to its terms in September 2025, and no further sales will be made under the program. 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 $15,920,945 and $8,000,066 for the nine months ended September 30, 2025 and 2024, and has negative cash flows from operations of $19,519,325 for the nine months ended September 30, 2025. The Company requires additional capital to operate and expects losses to continue for the foreseeable future. To further support its financial position and support future growth initiatives, the Company may also pursue additional capital through public or private equity offerings, debt financing, or other strategic funding sources, including entering into a new At-the-Market agreement with a new sales agent. Based on the current operational outlook, the proceeds from a potential new ATM offering, the availability of additional potential capital sources, and existing cash on hand available as of September 30, 2025, the Company believes that the substantial doubt about the Company’s ability to continue as a going concern has been alleviated. Management believes that the Company has sufficient capital to meet its financial obligations for the next 12 months as of the date of these unaudited condensed consolidated financial statements. However, there can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to secure additional funding, it may be forced to curtail or suspend its business plans. Cash Flow Activities The following table presents selected captions from our condensed statement of cash flows for the nine months ended September 30, 2025 and 2024: Nine Months Ended September 30, 2025 2024 Net cash used in operating activities $ (19,519,325 ) $ (3,565,293 ) Net cash used in investing activities $ (23,081,064 ) $ (2,688,227 ) Net cash provided by (used in) financing activities $ 47,252,830 $ (562,915 ) Net change in cash and cash equivalents $ (851,047 ) $ (6,816,435 ) Net Cash Used in Operating Activities Net cash used in operating activities for the nine months ended September 30, 2025 was $19,519,325, primarily due to our net loss of $21,420,945 and cash used in our operating assets and liabilities of $31,348, partially offset by non-cash charges of $1,932,968. Net cash used in operating activities for the nine months ended September 30, 2024 was $3,565,293, primarily due to our net loss of $8,000,066 partially offset by non-cash charges of $2,081,286 and changes in our operating assets and liabilities of $2,353,487. 24 Net Cash Used in Investing Activities Net cash used in investing activities was $23,081,064 and $2,688,227 for the nine months ended September 30, 2025 and 2024, respectively. Cash used during the current period was primarily attributable to payments made in anticipation of entering into joint venture agreements. As of September 30, 2025, these agreements had not been finalized, and the related payments were recorded as Prepaid investments on the consolidated balance sheet. In 2024, the Company purchased marketable securities of $7,727,850 and sold securities of $4,369,623. The Company also received $670,000 back from an investment it was no longer pursuing. Net Cash Provided By (Used in) Financing Activities Net cash provided by (used in) financing activities for the nine months ended September 30, 2025 and 2024 was $47,252,830 and ($562,915) respectively. In 2025, the Company received $4,051,415 from exercise of warrants and $43,201,415 from issuance of shares pursuant to ATM Agreement. In 2024, the Company repurchased shares of common stock. Contractual Obligations and Related Party Transactions Related Party Transactions See Note 9 to the accompanying unaudited condensed consolidated financial statements for further disclosure. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Critical Accounting Policies This discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our unaudited condensed consolidated financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information required under this item.