Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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 audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. 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., 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, a proprietary limited-edition tequila brand. 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.

In May 2024, we acquired a minority stake of common shares of Cannon Estate Winery Ltd., a British Columbia corporation, an owner of Cannon Estate Winery, pursuant to a Share Exchange Agreement under which the Company issued 21,429 shares of common stock (750,000 shares of its common stock on pre-reverse split basis) with a fair value of $817,500 in exchange for 113,085 common shares of Cannon. During the year ended December 31, 2025, the Company determined the investment was fully impaired and recorded an impairment charge of $817,500. The carrying value of this investment was nil as of December 31, 2025.

In June 2024, we acquired 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. During the year ended December 31, 2024, the Company recorded an impairment charge of $4,500,000 based on its evaluation of the investee. During the year ended December 31, 2025, the Company recorded an additional impairment charge of $300,000, fully writing down the remaining carrying value. The carrying value of this investment was nil as of December 31, 2025.

In December 2025, YHC Online Limited ("YHC"), a wholly-owned subsidiary of the Company, entered into four separate joint venture agreements with Bancroft Equity, Emerald Wealth Inc., Meridian Financial, and Sequoia Equity (collectively, the "Joint Ventures"). Each Joint Venture is engaged in the creation and monetization of multi-channel network ("MCN") content for digital platforms, including TikTok, with each entity targeting a specific geographic market. YHC holds a 20% minority ownership interest in each Joint Venture, with the majority partner in each retaining full operational control. The following table summarizes the key terms of each agreement as of December 31, 2025:

Co-Venturer

Jurisdiction

Target Market

JV Entity

Total Commitment

Funded

Bancroft Equity Limited

Hong Kong

UK & Europe

Crofty Network Limited

5,000,000

3,590,000

Emerald Wealth Inc.

South Dakota

Greater China

EMYHC MCN Holdings Limited

6,000,000

4,380,000

Meridian Financial Solutions Inc.

Wyoming

Southeast Asia

Fastone Singapore Pte. Ltd.

8,000,000

6,700,000

Sequoia Equity Group Inc.

South Dakota

Middle East

Not yet formed(1)

5,000,000

3,824,000

Total

24,000,000

18,494,000

(1)

As of December 31, 2025, the joint venture entity for the Middle East arrangement had not yet been formed. Amounts of $3,824,000 advanced to Sequoia Equity Group Inc. are presented as advance for investment in joint venture on the consolidated balance sheet.

Each agreement provides YHC with a put right, exercisable after the first anniversary of the respective agreement, to require the co-venturer to repurchase YHC's interest at YHC's total funded investment amount. As the agreements were executed in late 2025 and operations had not yet commenced as of December 31, 2025, no revenue was generated by any Joint Venture during the year ended December 31, 2025.

None of the co-venturers is a related party to the Company. In March 2026, all four agreements were terminated and all amounts previously funded, aggregating $18,494,000, were returned to YHC in full.

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.

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.

●

Soleil Vino will be a wine subscription service marketed on the CWS Platform that will offer a selection of vintage and limited production wines. Through the CWS Platform, users will be able to sign up for this exclusive membership where they will have access to curated selections of wine from around the world. With Soleil Vino, we intend to create a premium wine subscription service on the market with high qualities and diverse selections of wine offerings. Pursuant to an asset purchase agreement, dated May 31, 2021, between us and Dollinger Holdings LLC, we purchased all of the right, title and interest in all trademarks regardless of registration status for Soleil Vino and all associated trade dress and intellectual property rights, all labels, logos and other branding bearing the Soleil Vino marks or any mark substantially similar to the same, and all website and all related digital and social media content including but not limited to influencer networks, http://www.soleilvino.com, and all related content, and all related sales channels was transferred.

●

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.

Results of Operations

Comparison of Year Ended December 31, 2025 and Year Ended December 31, 2024

		Year Ended December 31,
		2025				2024				Var. $				Var. %
Revenue - services		$	112,640			$	117,965			$	(5,325	)			-5	%
Revenue - product			1,452,183				2,383,695				(931,512	)			-39	%
Total revenues			1,564,823				2,501,660				(936,837	)			-37	%
Cost of revenue - services			47,129				178,851				(131,722	)			-74	%
Cost of revenue - product			1,348,395				2,635,984				(1,287,589	)			-49	%
Total cost of revenue			1,395,524				2,814,835				(1,419,311	)			-50	%
Gross profit (loss)			169,299				(313,175	)			482,474				-154	%
Operating expenses:
General and administrative			10,954,346				14,556,220				(3,601,874	)			-25	%
Sales and marketing			643,608				3,617,924				(2,974,316	)			-82	%
Total operating expenses			11,597,954				18,174,144				(6,576,190	)			-36	%
Loss from operations			(11,428,655	)			(18,487,319	)			7,058,664				-38	%
Other income (expense):
Impairment of investment			(1,127,500	)			(4,500,000	)			3,372,500				-75	%
Legal settlement expense			(13,000,000	)			-				(13,000,000	)			100	%
Gain on sale of marketable securities			-				5,674				(5,674	)			-100	%
Other income			33,537				227,467				(193,930	)			-85	%
Total other expenses, net			(14,093,963	)			(4,266,859	)			(9,827,104	)			230	%
Income tax expense			-				-				-
Net loss		$	(25,522,618	)		$	(22,754,178	)		$	(2,768,440	)			12	%

Revenues

Total revenues for the year ended December 31, 2025 were $1,564,823, a decrease of $936,837, or approximately 37%, compared to $2,501,660 for the year ended December 31, 2024. The decrease was primarily driven by a significant decline in product revenues, which fell from $2,383,695 in 2024 to $1,452,183 in 2025, a decrease of $931,512, or approximately 39%. The decline in product revenues reflects a strategic decision by management to reduce customer acquisition spending and marketing expenditures through the CWS Platform in order to minimize losses and focus on profitability with the existing customer base, rather than pursuing top-line growth at the expense of continued operating losses. As a result of reduced marketing spend, new customer acquisition and order volume through the CWS Platform declined during the year. Service revenues decreased by $5,325, or approximately 5%, from $117,965 in 2024 to $112,640 in 2025. The decrease was primarily attributable to a reduction in marketing service engagements and lower Vault membership subscription revenue during the period as the Company realigned its service offerings.

Cost of Revenue and Gross Profit

Total cost of revenue for the year ended December 31, 2025 was $1,395,524, a decrease of $1,419,311, or approximately 50%, compared to $2,814,835 for the year ended December 31, 2024. Cost of revenue for services decreased from $178,851 in 2024 to $47,129 in 2025, reflecting the reduction in marketing service engagements during the year. Cost of revenue for product decreased from $2,635,984 in 2024 to $1,348,395 in 2025, primarily driven by the significant decline in CWS Platform product sales volume.

The elevated cost of revenue in 2024 was primarily attributable to higher CWS Platform product sales volume, which resulted in correspondingly higher product fulfillment and procurement costs, as well as higher service delivery costs associated with a greater number of active marketing service engagements during that year. These factors combined to produce a gross loss of $(313,175) in 2024, as total cost of revenue exceeded total revenues.

As a result of the proportionate decrease in product fulfillment costs relative to revenues driven by lower sales volume in 2025, the Company achieved a gross profit of $169,299 for the year ended December 31, 2025, compared to a gross loss of $(313,175) for the year ended December 31, 2024, an improvement of $482,474.

Operating Expenses

Total operating expenses for the year ended December 31, 2025 were $11,597,954, a decrease of $6,576,190, or approximately 36%, compared to $18,174,144 for the year ended December 31, 2024.

General and administrative expenses decreased from $14,556,220 in 2024 to $10,954,346 in 2025, a decrease of $3,601,874, or approximately 25%. The primary driver of this decrease was the non-recurrence of approximately $8,021,000 in retention, bonus, and settlement agreements recorded in 2024, most of which were paid to insiders and related parties of the Company, with no comparable amounts incurred during 2025. This decrease was partially offset by Legal and professional fees, including consulting and accounting fees, increased by $4,018,951, from $2,508,728 in 2024 to $6,527,679 in 2025. This increase was driven primarily by a significant increase in legal fees from $815,482 in 2024 to $4,622,571 in 2025, an increase of $3,807,089, attributable to legal costs associated with the Company's litigation and corporate development activities. Consulting fees remained relatively consistent at $1,470,066 in 2025 compared to $1,446,790 in 2024, while accounting fees increased modestly from $246,456 to $435,042.

Sales and marketing expenses decreased from $3,617,924 in 2024 to $643,608 in 2025, a decrease of $2,974,316, or approximately 82%. The decrease was primarily attributable to a non-recurring write-off of approximately $2,150,000 recorded in 2024 in connection with the termination of the Company's website development agreement with X-Media, with no comparable charge incurred during 2025. The remainder of the decrease of approximately $824,000 reflects a reduction in advertising, promotional, and marketing campaign expenditures as the Company transitioned its marketing investment strategy toward the distribution and marketing arrangements entered into during 2025, as described in Note 8.

Loss from Operations

Loss from operations for the year ended December 31, 2025 was $(11,428,655), compared to $(18,487,319) for the year ended December 31, 2024, an improvement of $7,058,664, or approximately 38%. The improvement reflects the combined effect of higher gross profit and lower operating expenses during the year.

Other Income (Expense)

Total other expense for the year ended December 31, 2025 was $(14,093,963), compared to $(4,266,859) for the year ended December 31, 2024, an increase in net expense of $9,827,104. The increase was primarily attributable to a legal settlement expense of $13,000,000 recognized during the year ended December 31, 2025, with no comparable charge in 2024. This was partially offset by a lower impairment charge on investments of $1,127,500 in 2025, compared to $4,500,000 in 2024. Other income decreased from $227,467 in 2024 to $33,537 in 2025. The 2024 other income consisted primarily of dividend income and gains on the sale of marketable securities.

Net Loss

Net loss for the year ended December 31, 2025 was $(25,522,618), compared to $(22,754,178) for the year ended December 31, 2024, an increase in net loss of $2,768,440, or approximately 12%. The increased net loss was primarily driven by the $13,000,000 legal settlement expense recorded in 2025, partially offset by improvements in gross profit and reductions in operating expenses.

Liquidity and Capital Resources

As of December 31, 2025, we had cash and cash equivalents of $5,975,408 compared to $5,386,789 as of December 31, 2024. As of December 31, 2025, we had a working capital surplus of $14,135,897 and total stockholders' equity of $29,332,638, compared to a working capital deficit of $(1,645,461) and total stockholders' equity deficit of $(517,961) as of December 31, 2024. The improvement in our balance sheet reflects significant equity financing activities completed during 2025.

The following table presents selected captions from our consolidated statement of cash flows for the years ended December 31, 2025 and 2024:

		Year Ended
		December 31,
		2025				2024
Net cash used in operating activities		$	(33,817,140	)		$	(6,618,417	)
Net cash (used in) provided by investing activities		$	(18,834,541	)		$	675,674
Net cash provided by financing activities		$	53,240,300			$	4,265,184
Net change in cash and cash equivalents		$	588,619			$	(1,677,559	)

Net Cash Used in Operating Activities

During the year ended December 31, 2025, we used net cash of $(33,817,140) in operating activities, compared to $(6,618,417) used in operating activities during the year ended December 31, 2024, an increase of cash used by $27,198,723.

The primary driver of cash used in operating activities was the net loss of $25,522,618, which included the $13,000,000 Kingbird legal settlement paid in cash during 2025. Non-cash items partially offsetting the net loss included share based compensation of $1,932,967, impairment of investments of $1,127,500, depreciation of $28,378, bad debts of $64,530, and provision for expected credit losses of $67,948.

The most significant working capital movements were as follows:

Accounts receivable - related party increased by $150,721, reflecting higher amounts owed by Country Wine & Spirits in connection with CWS Platform product revenues, against which a provision for expected credit losses of $67,948 was recorded. The outstanding balance was subsequently offset against payables due to KBROS LLC in early 2026.

Advance payment to distributor increased by $3,279,000, reflecting amounts paid to two Hong Kong distributors - $529,000 and $2,750,000 in 2025 - for market access and distribution rights in the Asian market, recorded as advance payment to distributor. Subsequent to December 31, 2025, both arrangements were terminated and the full $3,279,000 was returned to the Company in April 2026.

Due to/from related party decreased by $2,357,737, reflecting net advances made to the Company's CEO ($50,000) and President ($2,314,450) during 2025, partially offset by amounts due to a related party credit card of $6,713. The amounts due from related parties were received back in April 2026.

Accounts payable decreased by $454,124, reflecting settlement of outstanding vendor payables during the year.

Accrued and other payables - related party decreased by $5,210,025, representing cash payments made during 2025 to settle retention, bonus, and settlement obligations that had been accrued in 2024 in connection with agreements entered into with executives, directors, and related parties. These were non-recurring cash outflows with no comparable amounts expected in future periods.

During the year ended December 31, 2024, we used net cash of $(6,618,417) in operating activities.

The primary driver was the net loss of $22,754,178. Non-cash items added back to reconcile net loss to cash used in operating activities included impairment of investments of $4,500,000 relating to the write-down of the DRNK Beverage Corp. investment, share based compensation of $2,533,256, write-off of advances to related party of $177,340, and gain on sale of marketable securities of $(5,674).

The most significant working capital movements during 2024 were as follows:

Accounts receivable - related party decreased by $22,983, reflecting collections on amounts owed by Country Wine & Spirits in connection with CWS Platform product revenues.

Prepaid expenses decreased by $1,949,226, as prepaid balances established in prior periods - primarily prepaid marketing and service costs - were amortized into expense during 2024.

Accrued and other payables - related party increased by $5,971,000, representing the accrual during the fourth quarter of 2024 of retention, bonus, and settlement obligations entered into with executives, directors, and related parties of the Company. These obligations were designed to retain key personnel and ensure continuity of leadership and governance. The cash settlement of substantially all of these obligations was deferred to 2025.

Accrued and other payables increased by $789,126, reflecting accrued professional fees, legal fees, and other vendor obligations at December 31, 2024 compared to the prior year.

Accounts payable increased by $265,414, reflecting higher outstanding vendor payables at year end.

Accounts payable - related party decreased by $37,414, reflecting payments made on outstanding related party payables during the year.

Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities was $(18,834,541) for the year ended December 31, 2025, compared to net cash provided by investing activities of $675,674 for the year ended December 31, 2024. The increase in cash used in investing activities was primarily attributable to the Company's funding of an aggregate of $18,494,000 through YHC Online Limited, a wholly-owned subsidiary, in connection with four joint venture agreements entered into in December 2025, comprising $14,670,000 funded to three formed joint venture entities and $3,824,000 advanced to Sequoia Equity Group Inc. toward a planned fourth joint venture, established to cooperate in the creation and monetization of multi-channel network ("MCN") content for digital platforms, including TikTok, targeting specific geographic markets. Additional investing outflows during 2025 included purchases of property and equipment of $340,541. Subsequent to December 31, 2025, in April 2026, all four agreements were terminated and the full amount of $18,494,000 previously funded was returned to the Company.

During the year ended December 31, 2024, net cash provided by investing activities of $675,674 consisted of proceeds of $7,764,197 from the sale of marketable securities and $670,000 from the return of deposits held in escrow, partially offset by purchases of marketable securities of $7,758,523.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $53,240,300 for the year ended December 31, 2025, compared to $4,265,184 for the year ended December 31, 2024. During 2025, the Company raised significant capital through: (i) issuance of common stock pursuant to its at-the-market ("ATM") offering program, generating proceeds of $43,199,134; (ii) issuance of common stock pursuant to registered direct offerings, generating net proceeds of $6,078,701; and (iii) exercise of warrants, generating proceeds of $4,051,415. Additionally, the Company incurred $88,950 in deferred offering costs during the year ended December 31, 2025 in connection with the registration of securities of SWOL Holdings Inc., its wholly-owned subsidiary, which are reflected as a use of cash in financing activities in the consolidated statement of cash flows.

During the year ended December 31, 2024, net cash provided by financing activities of $4,265,184 consisted of net proceeds of $1,543,079 from the sale of common stock pursuant to the at-the-market offering program and gross proceeds of $3,350,020 from the sale of securities pursuant to private placement agreements, partially offset by offering costs of $80,500 and repurchases of common stock of $547,415.

We have incurred net losses since inception and have financed our operations primarily through equity offerings. We expect to continue to incur losses for the foreseeable future as we execute on our growth strategy. Management plans to raise additional capital to fund operations through public or private equity offerings, debt financings, or other capital sources. However, there can be no assurance that we will be able to raise additional capital on terms acceptable to us, or at all. These conditions raise substantial doubt about our ability to continue as a going concern.

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 that are material to our investors.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.