What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-15 compared with 2025-11-14 · 174 added, 444 removed, 6 unchanged (99% of the section changed)

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

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

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.

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

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”)

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.

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

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

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.

The following products and services constitute

the core elements of our business model and allow us to serve various types of customers in the alcohol industry, including individual

consumers, wholesalers, and third-party alcohol brands:

Tequila is a limited-edition blend of 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.

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.

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.

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:

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

to offer competitive pricing;

to broaden product or service offerings;

demand and competition;

to leverage technology and use and develop efficient processes;

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

to attract and retain talented employees and contractors;

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

We intend to develop leading brands for up-and-coming companies and start-ups and align with celebrities

and influencers with significant followings to enhance their online marketing presence.

We intend to continue expanding and developing our existing SWOL brand by purchasing and selling larger amounts

of SWOL products to accelerate brand recognition and increasing our marketing presence.

Opportunistic

Acquisitions.

We intend to pursue opportunistic acquisitions with existing alcohol brands and companies that have distribution

licenses and physical storage locations and acquire technology that complements our business.

Results of Operations

Comparison of Three Months Ended September

30, 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,

Revenue - services

Revenue - product

Total revenues

Cost of revenue - services

Cost of revenue - product

Total cost of revenue

Gross profit (loss)

Operating expenses:

General and administrative

Sales and marketing

Total operating expenses

Loss from operations

Other income (expense):

Realized gain/(loss) on securities

Legal settlement expense

(13,000,000 )

Dividend income

Total other income (expense)

(13,001,401 )

(13,141,982 )

Provision for income taxes

$ (16,828,913 )

$ (3,363,380 )

$ (13,465,533 )

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

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.

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.

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

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

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 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,

Revenue - services

Revenue - product

Total revenues

Cost of revenue - services

Cost of revenue - product

Total cost of revenue

Gross profit (loss)

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

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 consolidated financial statements and

the other information included in our Annual Report on Form 10-K, filed with the SEC on April 15, 2026.

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.

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.

our wholly owned subsidiary SWOL Holdings Inc., we develop and market SWOL Tequila.

Through our wholly owned subsidiary YHC Online Limited,

we entered into joint venture agreements in December 2025 to cooperate in the creation and monetization of multi-channel network content

for digital platforms;

subsequent to March 31, 2026, all such joint venture agreements were terminated.

See Note 7 — Investment

in Joint Ventures and Note 15 — Subsequent Events.

Reincorporation

in Delaware and Increase in Authorized Shares

March 2, 2026, the Company’s stockholders approved the reincorporation of the Company from the State of Nevada to the State of

Delaware, which was effected on the same date.

In connection with the special meeting, stockholders also approved an increase in the

number of authorized shares of common stock from 350,000,000 to 1,500,000,000 shares, par value $0.0001 per share.

At-the-Market

March 11, 2026, the Company entered into a sales agreement with A.G.P./Alliance Global Partners, pursuant to which the Company may sell

shares of its common stock having an aggregate offering price of up to $50,273,610 from time to time in at-the-market transactions.

sales agent is entitled to a commission of 3.0% of gross proceeds per share sold.

No shares had been sold under the agreement as of March

of Joint Venture Agreements

April 2026, all four joint venture agreements entered into in December 2025 by YHC Online Limited were terminated.

In connection with

the terminations, all amounts previously funded, aggregating $18,494,000, were returned to the Company in full.

of Distribution and Marketing Service Agreements

April 2026, both distribution and marketing service agreements entered into during 2025 with two Hong Kong entities were terminated.

In connection with the terminations, all amounts previously paid under the agreements, aggregating $3,279,000, were returned to the Company

Five Continents Securities Limited Share Purchase Agreement

April 11, 2026, the Company entered into a share purchase agreement with Fusion Five Continents Securities Limited, a New Zealand limited

company, and with its controlling shareholder, pursuant to which the Company agreed to acquire all of the issued and outstanding shares

of the company in multiple closings, at a total consideration of $126,880,000, payable in Tether (USDT).

The initial tranche, representing

24% of the outstanding shares, closed on April 11, 2026 for $28,080,000.

The remaining 76% of outstanding shares are to be acquired at

a second closing for $98,800,000, subject to receipt of required regulatory approvals.

The Company expects to require additional financing

to fund the second tranche consideration of $98,800,000.

Failure to secure adequate financing could delay or prevent the consummation

of the second closing.

The acquisition, if fully consummated, would represent a significant use of capital, and the Company’s ability

to meet its other operational and liquidity needs during the interim period will depend on its ability to raise additional funds.

of Operations

of Three Months Ended March 31, 2026 and March 31, 2025

following table sets forth key components of our results of operations during the three months ended March 31, 2026 and 2025.

of revenue - services

of revenue - product

cost of revenue

(loss) profit

and administrative

and marketing

operating expenses

General and administrative

Sales and marketing

Total operating expenses

Loss from operations

Other income (expense):

Realized gain/(loss) on securities

Legal settlement expense

(13,000,000 )

Dividend income

Total other income (expense)

(12,989,795 )

(13,240,456 )

Provision for income taxes

$ (21,420,945 )

$ (8,000,066 )

$ (13,420,879 )

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

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

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

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 for the nine months ended September

30, 2025 and 2024 was $21,420,945 and $8,000,066, respectively.

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 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,

from operations

income (expense):

revenues were $12,572 for the three months ended March 31, 2026, compared to $77,356 for the three months ended March 31, 2025, a decrease

of $64,784, or approximately 84%.

The decrease was primarily attributable to a significant reduction in marketing service engagements

through the CWS Platform and lower Vault membership subscription revenue during the period as the Company continued to realign its service

revenues were $210,111 for the three months ended March 31, 2026, compared to $351,984 for the three months ended March 31, 2025, a decrease

of $141,873, or approximately 40%.

The decline reflects continued lower customer traffic and order activity through the CWS Platform,

consistent with management’s strategic decision to reduce customer acquisition spending and focus on profitability with the existing

customer base rather than pursuing top-line growth.

Revenue and Gross Profit (Loss)

the three months ended March 31, 2026 and 2025, service cost of revenues were $13,553 and $1,400, respectively.

The increase reflects

a fixed cost retainer that commenced in July 2025, which has no corresponding expense in the 2025 period.

The increase in service cost

of revenue, combined with the significant decline in service revenues, resulted in a service gross loss of $981 in the 2026 period compared

to service gross profit of $75,956 in the 2025 period.

cost of revenues was $231,366 and $397,782 during the three months ended March 31, 2026 and 2025, respectively.

The decrease of $166,416,

or approximately 42%, was primarily due to the decline in product revenue during the period, resulting from lower sales volume on the

CWS Platform.

loss was $22,236 for the three months ended March 31, 2026, compared to gross profit of $30,158 for the same period in 2025.

was primarily attributable to the decline in service revenues and the increase in service cost of revenue described above, partially

offset by the improvement in product gross loss.

and Administrative

and administrative expenses increased $757,739, or 37%, to $2,780,900 in the 2026 period from $2,023,161 in the 2025 period.

was primarily due to $1,150,000 of charges recorded, comprising $1,050,000 of indemnification payments and $100,000 of related legal

obligations, with no comparable amounts in the 2025 period.

and Marketing

and marketing expenses were $105,000 for the three months ended March 31, 2026, compared to $406,853 for the three months ended March

31, 2025, a decrease of $301,853, or approximately 74%.

The decrease was primarily attributable to reduced advertising and promotional

expenditures as the Company continued to execute its strategy of minimizing marketing spend.

income for the three months ended March 31, 2026 was $1,993,167, compared to $10,206 in the same period in 2025, increased of $1,982,961

primarily due to $1,944,603 of proceeds received under the Company’s directors and officers insurance policy, with no comparable

amounts in the 2025 period.

loss for the three months ended March 31, 2026 was $914,969, compared to $2,389,650 for the three months ended March 31, 2025, an improvement

of $1,474,681, or approximately 62%.

The improvement was primarily due to $1,944,603 of insurance proceeds received, partially offset

by $1,050,000 of indemnity-related charges included in general and administrative expenses and the decrease in gross profit discussed

and Capital Resources

of March 31, 2026 and December 31, 2025, we had cash and cash equivalents of $4,444,975 and $5,975,408, respectively.

To date, we have

financed our operations primarily through issuances of common stock and sales of our products and services.

conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The indicators include:

losses incurred since inception, including a net loss of $914.969 for the three months ended March 31, 2026;

(ii) an accumulated deficit

of $68,744,390 as of March 31, 2026;

and (iii) net cash used in operating activities of $1,450,433 for the three months ended March 31,

Management is actively monitoring its liquidity position and evaluating various strategies to address these conditions.

2 — Going Concern.

fund future operations, the Company intends to pursue one or more of the following:

additional equity or debt financings, proceeds from

its at-the-market offering program, strategic partnerships, or other capital raising transactions.

However, there can be no assurance

that any such financing will be available on terms acceptable to the Company, or at all.

If adequate capital cannot be secured, the Company

may be required to curtail operations or take other measures to conserve cash.

the three months ended March 31, 2026, the Company did not raise any capital through issuances of common stock.

Subsequent to March 31,

2026, the Company received aggregate proceeds of $21,773,000 from April 9, 2026 to April 13, 2026 in connection with the termination

of its joint venture agreements and distribution and marketing service agreements.

See note 15 — Subsequent Events.

March 11, 2026, the Company entered into a sales agreement with A.G.P./Alliance Global Partners, pursuant to which the Company may sell

shares of its common stock having an aggregate offering price of up to $50,273,610 from time to time in at-the-market transactions.

of March 31, 2026, no shares had been sold under the agreement.

following table presents selected captions from our consolidated statement of cash flows for the three months ended March 31, 2026 and

Net cash used in operating activities

1 unchanged sentence

$ (6,619,373 )

Net cash used in investing activities

$ (23,081,064 )

$ (2,688,227 )

Net cash provided by (used in) financing activities

cash (used in) provided by financing activities

Net change in cash and cash equivalents

$ (1,530,433 )

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.

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

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.

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.

Cash Used in Operating Activities

cash used in operating activities for the three months ended March 31, 2026 was $1,450,433, compared to $6,619,373 for the three months

ended March 31, 2025, a decrease in cash used of $5,168,940, or approximately 78%.

The significant reduction was primarily attributable

to the non-recurrence of $4,116,608 in cash payments made during Q1 2025 to settle accrued and other payables to related parties, representing

retention, bonus, and settlement obligations that had been accrued in prior periods, with no comparable outflows arising during the three

months ended March 31, 2026.

primary driver of cash used in operating activities during the three months ended March 31, 2026 was the net loss of $914,969, reflecting

the Company’s continued investment in its operations and corporate infrastructure.

Non-cash items included depreciation of $17,027

relating to the Company’s fixed assets.

No stock-based compensation was recognized during the three months ended March 31, 2026,

compared to $868,189 during the three months ended March 31, 2025, as all restricted stock units had been fully vested or forfeited as

of December 31, 2025.

most significant working capital movements during the three months ended March 31, 2026 were as follows:

to/from related party decreased by $494,478, reflecting net advances made to or payments received from related parties during the period.

and other payables increased by $86,975, driven by legal, audit, and consulting fees accrued during the quarter in connection with the

Company’s SEC reporting obligations and ongoing corporate activities, which remained outstanding as of March 31, 2026.

and other payables — related party decreased by $191,372, reflecting cash payments made during the quarter to settle outstanding

obligations to related parties that had been accrued in prior periods.

payable increased by $58,945, reflecting the timing of vendor invoice settlements remaining outstanding as of March 31, 2026.

Cash (Used in) Provided by Financing Activities

the three months ended March 31, 2026, cash used in financing activities totaled $80,000, attributable to deferred offering costs related

to the SWOL IPO.

During the three months ended March 31, 2025, net cash provided by financing activities was $9,122,181, consisting of

$4,051,415 from the exercise of outstanding warrants and $5,070,767 from the issuance of common stock pursuant to the Company’s

at-the-market offering program.

Sheet Arrangements

have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,

changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Accounting Policies and Estimates

preparation of our 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.

There have been no material changes to our critical accounting policies and estimates from those disclosed

in our Annual Report on Form 10-K for the year ended December 31, 2025.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

reporting company, we are not required to provide the information required by this Item.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis