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 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. 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. Through 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. Recent Developments Reincorporation in Delaware and Increase in Authorized Shares On 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 Offering On 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. The 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 31, 2026. 23 Termination of Joint Venture Agreements In 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. Termination of Distribution and Marketing Service Agreements In 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 in full. Fusion Five Continents Securities Limited Share Purchase Agreement On 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. Results of Operations Comparison of Three Months Ended March 31, 2026 and March 31, 2025 The following table sets forth key components of our results of operations during the three months ended March 31, 2026 and 2025. Three Months Ended March 31, 2026 2025 Var. $ Var. % Revenue - services $ 12,572 $ 77,356 $ (64,784 ) -84 % Revenue - product 210,111 351,984 (141,873 ) -40 % Total revenues 222,683 429,340 (206,657 ) -48 % Cost of revenue - services 13,553 1,400 12,153 868 % Cost of revenue - product 231,366 397,782 (166,416 ) -42 % Total cost of revenue 244,919 399,182 (154,263 ) -39 % Gross (loss) profit (22,236 ) 30,158 (52,394 ) -174 % Operating expenses: General and administrative 2,780,900 2,023,161 757,739 37 % Sales and marketing 105,000 406,853 (301,853 ) -74 % Total operating expenses 2,885,900 2,430,014 455,886 19 % Loss from operations (2,908,136 ) (2,399,856 ) (508,280 ) 21 % Other income (expense): Other income 1,993,167 10,206 1,982,961 19429 % Total other income 1,993,167 10,206 1,982,961 19429 % Income tax expense - - - Net loss $ (914,969 ) $ (2,389,650 ) $ 1,474,681 -62 % Revenue Service 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 offerings. 24 Product 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. Cost of Revenue and Gross Profit (Loss) For 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. Product 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. Gross 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. The decrease 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. General and Administrative General and administrative expenses increased $757,739, or 37%, to $2,780,900 in the 2026 period from $2,023,161 in the 2025 period. The increase 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. Sales and Marketing Sales 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. Other Income Other 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. Net Loss Net 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 above. Liquidity and Capital Resources As 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. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The indicators include: (i) net 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, 2026. Management is actively monitoring its liquidity position and evaluating various strategies to address these conditions. See Note 2 — Going Concern. To 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. During 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. 25 On 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. As of March 31, 2026, no shares had been sold under the agreement. The following table presents selected captions from our consolidated statement of cash flows for the three months ended March 31, 2026 and 2025: Cash Flows Three Months Ended March 31, 2026 2025 Net cash used in operating activities $ (1,450,433 ) $ (6,619,373 ) Net cash (used in) provided by financing activities $ (80,000 ) $ 9,122,181 Net change in cash and cash equivalents $ (1,530,433 ) $ 2,502,808 Net Cash Used in Operating Activities Net 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. The 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. The most significant working capital movements during the three months ended March 31, 2026 were as follows: Due to/from related party decreased by $494,478, reflecting net advances made to or payments received from related parties during the period. Accrued 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. Accrued 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. Accounts payable increased by $58,945, reflecting the timing of vendor invoice settlements remaining outstanding as of March 31, 2026. Net Cash (Used in) Provided by Financing Activities For 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. 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 and Estimates The 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. 26 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this Item.