Business Overview

LQR House Inc. is an American online retailer of alcohol products that aims to become the full-service digital marketing and brand development face of the alcoholic beverage space. The company’s primary business includes the development of premium limited batch spirit brands and marketing internal and external brands through its ownership of the CWS Platform, an online retailer specializing in selling alcohol products. Additionally, LQR House is in the process of establishing an exclusive wine club.

In May 2024, the company acquired a minority stake in Cannon Estate Winery Ltd., a British Columbia-based winery. In June 2024, the company acquired a minority stake in DRNK Beverage Corp., a British Columbia-based non-alcoholic and ready-to-drink beverage company. However, the company has recorded an impairment on its investment in DRNK Beverage Corp. based on its evaluation of the investee.

The Services and Brands We Market

The key elements of LQR House’s business model include:

• SWOL Tequila: A limited-edition blend of tequila made in exclusive batches of up to 10,000 bottles.
• Vault: The exclusive membership program for the CWS Platform, which offers users access to products and special benefits.
• Soleil Vino: A wine subscription service that will offer a selection of vintage and limited production wines.
• LQR House Marketing: A marketing service that utilizes the company’s expertise to help its wholly owned brands and third-party clients market their products to consumers.

Principal Factors Affecting Our Financial Performance

LQR House’s operating results are primarily affected by the following factors:

• Ability to acquire new customers and users or retain existing customers and users
• Ability to offer competitive pricing
• Ability to broaden product or service offerings
• Industry demand and competition
• Ability to leverage technology and use and develop efficient processes
• Ability to attract and maintain a network of influencers with a relevant audience
• Ability to attract and retain talented employees and contractors
• Market conditions and market position
• Ability to make profitable investments in complementary businesses

Our Growth Strategies

The key elements of LQR House’s strategy to expand its business include:

• Collaborative Marketing: Developing leading brands for up-and-coming companies and start-ups and aligning with celebrities and influencers to enhance their online marketing presence.
• Expand Our Brand: Continuing to expand and develop the existing SWOL brand by purchasing and selling larger amounts of SWOL products to accelerate brand recognition and increasing marketing presence.
• Opportunistic Acquisitions: Pursuing acquisitions of existing alcohol brands and companies with distribution licenses and physical storage locations, as well as acquiring complementary technology.

Results of Operations

Comparison of Years Ended December 31, 2024 and 2023

Revenue:

• Service revenues decreased by $356,083 as the company focused more on the CWS Platform.
• Product revenues increased by $1,737,121 due to product sales via the CWS Platform after its acquisition in November 2023.

Cost of Revenue and Gross Profit (Loss):

• Service cost of revenues decreased by $172,972 due to the decrease in service revenue.
• Product cost of revenues increased due to product and shipping costs associated with the CWS Platform.
• The company incurred gross losses in 2024 as it transitions its strategies from marketing to the CWS Platform.

Operating Expenses:

• General and administrative expenses increased by $3,129,473, primarily due to non-cash stock-based compensation and personnel costs related to settlement, bonus, and retention agreements.
• Sales and marketing expenses increased by $1,137,923, mainly due to advertising, marketing, and investor relation campaigns.
• The company recognized a $4,500,000 impairment expense related to its investment in DRNK Beverage Corp.

Net Loss:

• Net loss increased from $15,747,724 in 2023 to $22,754,178 in 2024.

Liquidity and Capital Resources

• As of December 31, 2024, the company had cash and cash equivalents of $5,386,789.
• The company has financed its operations primarily through issuances of common stock and sales of its products and services.
• During 2024, the company issued 1,518,188 shares of common stock through an at-the-market offering, raising $1,599,814 in net proceeds.
• The company has substantial doubts about its ability to continue as a going concern due to its history of net losses and negative cash flows from operations.
• Management is exploring various strategies, including customer acquisition and new partnerships, to increase volume and achieve better gross margins and profitability.

Cash Flow Activities

• Net cash used in operating activities decreased from $9,113,855 in 2023 to $6,618,417 in 2024, primarily due to the company’s net loss.
• Net cash provided by (used in) investing activities was $675,674 in 2024, compared to $(5,342,574) in 2023, mainly due to the purchase and sale of marketable securities.
• Net cash provided by financing activities was $4,265,184 in 2024, compared to $21,513,212 in 2023, primarily from proceeds from private placements and public offerings.

Contractual Obligations

• In November 2023, the company entered into a Funding Commitment Agreement with KBROS, the Product Handler, to provide annual funding of at least $2,500,000 to enable the Product Handler to purchase inventory.
• In October 2024, the company entered into a settlement and release agreement with KBROS for an aggregate amount of $4,100,000, of which $3,600,000 remained unpaid as of December 31, 2024.
• The company no longer maintains its funding commitment pursuant to the October 2024 settlement agreement.

Critical Accounting Policies and Significant Judgements and Estimates

The company’s critical accounting policies and estimates relate to the following:

• Revenue Recognition: The company recognizes revenue when performance obligations are satisfied through the transfer of control of promised goods to customers.
• Related Parties: The company discloses related party transactions that are outside of normal compensatory agreements.
• Acquisitions, Goodwill and Other Intangible Assets: The company allocates the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values, and evaluates goodwill and indefinite-lived intangibles for impairment annually.
• Investments, 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.
• Stock-Based Compensation: 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 over the requisite service period.