YHC 10-Q
LQR House Inc. (YHC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
For the transition period from ____________ to ____________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 5306 Six Forks Rd Ste 107 PMB1290 | ||
| Raleigh, NC 27609 | ||
| (Address of principal executive offices) (Zip Code) | (Address of principal executive offices) (Zip Code) |
(Address of principal executive offices, including zip code)
Tel:
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if this registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 19, 2026, the Company had 1,303,911 shares of common stock, $0.0001 par value, issued and
LQR HOUSE INC.
FORM 10-Q
TABLE OF CONTENTS
i
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY
As a company with less than $1.235 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act,”) as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other exemptions from requirements that are otherwise applicable to public companies that are not emerging growth companies. These provisions include:
| ● | Reduced disclosure about our executive compensation arrangements; |
| ● | Exemptions from non-binding shareholder advisory votes on executive compensation or golden parachute; and |
| ● | Exemption from auditor attestation requirement in the assessment of our internal control over financial reporting. |
We will remain an emerging growth company until the earliest of (i) the last day of the year in which we have total annual gross revenue of $1.235 billion or more; (ii) the last day of the year following the fifth anniversary of the first sale of the common equity securities pursuant to an effective registration under the Securities Act; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
ii
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LQR HOUSE INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | As of | |||||||
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | (Unaudited) | (Audited) | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Cash held on behalf of clients | ||||||||
| Accounts receivable | ||||||||
| Accounts receivable, related party | ||||||||
| Short-term investment - Broker dealer | ||||||||
| Digital assets | ||||||||
| Digital assets - External trust company | ||||||||
| Advance for investment in joint venture | ||||||||
| Advance payment to distributor | ||||||||
| Prepaid expenses | ||||||||
| Due from related party | ||||||||
| Other receivable | ||||||||
| Security deposit | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Right- of- use asset | ||||||||
| Deferred offering costs | ||||||||
| Investment in joint ventures | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued and other payables | ||||||||
| Accrued and other payables, related party | ||||||||
| Contract liabilities | ||||||||
| Payables - Client funds | ||||||||
| Payable - Broker dealer | ||||||||
| Payable - External trust company | ||||||||
| Due to related parties | ||||||||
| Lease liability | ||||||||
| Total current liabilities | ||||||||
| Notes payable | ||||||||
| Lease liability, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 17) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost ( | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Total LQR House Inc. stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
1
LQR HOUSE INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenue - services | $ | $ | $ | $ | ||||||||||||
| Revenue - product | ||||||||||||||||
| Revenue - brokerage | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenue - services | ||||||||||||||||
| Cost of revenue - product | ||||||||||||||||
| Cost of revenue - brokerage | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Loss on disposition of assets | ( | ) | ( | ) | ||||||||||||
| Gain on remeasurement of previously held equity interest | ||||||||||||||||
| Other income | ||||||||||||||||
| Total other income | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Net income attributable to non-controlling interest | ||||||||||||||||
| Net income (loss) attributable to LQR House Inc. | ( | ) | ( | ) | ||||||||||||
| Other comprehensive loss, net of tax: | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Less: comprehensive income attributable to non-controlling interest | ||||||||||||||||
| Comprehensive income (loss) attributable to LQR House Inc. | ( | ) | ( | ) | ||||||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Net income (loss) per common share attributable to LQR House Inc. - basic and diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
2
LQR HOUSE INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Stock | Treasury Stock | Additional Paid-In |
Accumulated | Accumulated Other Comprehensive |
Total LQR House Inc. Stockholders’ Equity |
Non-controlling | Total stockholders’ Equity |
|||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | (deficit) | Interest | (deficit) | |||||||||||||||||||||||||||||||
| Balances as of December 31, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Vesting of restricted stock units | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to directors agreement | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to ATM | - | |||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | - | |||||||||||||||||||||||||||||||||||||||
| Effect of stock split | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances as of March 31, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to ATM | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to consultant agreement | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances as of June 30, 2025 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Balances as of December 31, 2025 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances as of March 31, 2026 | ’ | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to ATM | - | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to LQR House Inc. | - | - | ||||||||||||||||||||||||||||||||||||||
| Non-controlling interest recognized on acquisition of Fusion Five | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest | - | - | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances as of June 30, 2026 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
3
LQR HOUSE INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Depreciation | ||||||||
| Vesting of restricted stock units | ||||||||
| Loss on disposal of property and equipment | ||||||||
| Gain on remeasurement of previously held equity interest | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable, related party | ( | ) | ||||||
| Prepaid expenses | ||||||||
| Other receivable | ( | ) | ||||||
| Short-term investment - Broker dealer | ||||||||
| Digital Assets - External trust company | ||||||||
| Due to related party | ||||||||
| Accounts payable | ||||||||
| Accounts payable, related party | ||||||||
| Accrued and other payables | ( | ) | ||||||
| Accrued and other payables, related party | ( | ) | ( | ) | ||||
| Contract liabilities | ||||||||
| Payables - Client funds | ( | ) | ||||||
| Payable - Broker dealer | ( | ) | ||||||
| Payable – External trust company | ( | ) | ||||||
| Lease liability, net | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Prepaid joint venture agreement | ( | ) | ||||||
| Proceeds from disposal of property and equipment | ||||||||
| Cash held on behalf of clients acquired in business combination | ||||||||
| Purchases of digital assets | ( | ) | ||||||
| Proceeds from conversion of digital assets to cash | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Deferred offering costs | ( | ) | ||||||
| Due from related party | ( | ) | ||||||
| Issuance of common stock pursuant to exercise of warrants | ||||||||
| Issuance of common stock pursuant to ATM | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ||||||
| Net change in cash, cash equivalents | ( | ) | ( | ) | ||||
| Cash, cash equivalents and cash held on behalf of clients at beginning of period | ||||||||
| Cash, cash equivalents and cash held on behalf of clients at end of period | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash flow information: | ||||||||
| Proceeds from promissory note, received in digital assets (USDT) | $ | $ | ||||||
| Return of advance for investment in joint venture, received in USDT | $ | $ | ||||||
| Return of investment in joint venture, received in USDT | $ | $ | ||||||
| Return of advance payment to distributor, received in USDT | $ | $ | ||||||
| Collection of amounts due from related party, received in USDT | $ | $ | ||||||
| Digital assets (USDT) applied toward the acquisition of Fusion Five Continents Securities Limited | $ | $ | ||||||
| Issuance of common stock for accrued expenses | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
4
LQR HOUSE INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
LQR House Inc. (“LQR” or the “Company”) was incorporated on
The Company operates in the beverage alcohol industry, owning specialty brands, providing marketing and distribution services. Through its wholly owned subsidiary LQR House Acquisition Corp., the Company operates CWSpirits.com (the “CWS Platform”), an e-commerce marketplace for spirits, wines, and champagnes serving customers throughout the United States through partnerships with licensed retail partners, including Country Wine & Spirits.
Through its wholly owned subsidiary SWOL Holdings Inc., incorporated in the State of Nevada on January 22, 2025, the Company develops and markets SWOL Tequila, a proprietary tequila brand. The Company also provides digital marketing services to alcohol industry brands.
Through its wholly-owned subsidiary YHC Online Limited, incorporated in Hong Kong in July 2025, the Company entered into joint venture agreements in December 2025 to cooperate in the creation and monetization of multi-channel network (“MCN”) content for digital platforms. In April 2026, all joint venture agreements were terminated and all amounts previously funded were returned in the form of digital assets and, together with digital assets from other sources, applied toward the consideration for the acquisition of Fusion Five Continents Securities Limited. See Note 8 — Investment in Joint Ventures and Note 4 — Business Combination.
On June 1, 2026, the Company obtained a controlling financial interest in Fusion Five Continents Securities Limited (“Fusion Five”), a New Zealand financial services company operating an AI-powered cross-border securities trading platform with proprietary USDT-based funding and settlement capabilities that enable clients internationally to buy and sell securities electronically and to fund their accounts using stablecoin deposits for the trading of Hong Kong and United States equities, through the acquisition of an aggregate
Reincorporation 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
Reverse Stock Split
On July 9, 2026, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a one-for-one hundred (
The Reverse Stock Split occurred after June 30, 2026 but before the date these condensed consolidated financial statements were available to be issued. In accordance with ASC 260, Earnings Per Share, all share and per-share amounts presented in these condensed consolidated financial statements and accompanying notes, for all periods presented, have been retroactively adjusted to reflect the Reverse Stock Split. See Note 18 — Subsequent Events.
2. GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred net losses since inception. For the six months ended June 30, 2026, the Company had net cash used in operating activities of $
5
Management Plans
Between July 1, 2026 and July 8, 2026, the Company issued an aggregate of
LQR Company entered into an at-the-market Sales Agreement with A.G.P./Alliance Global Partners on March 11, 2026, under which it could offer and sell shares of common stock having an aggregate offering price of up to $
Based on the above factors, management believes that the Company’s current cash position, together with the availability of its at-the-market equity facility, will be sufficient to fund the Company’s operations and minimum obligations for at least the next 12 months from the date these unaudited condensed consolidated financial statements are available to be issued.
Notwithstanding the above, there can be no assurance that the Company will successfully complete the remaining closings of the acquisition of Fusion Five, obtain the required regulatory approvals, raise sufficient additional capital to fund the subsequent acquisition closings, or sustain profitability from its operations. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). The Company’s fiscal year end is December 31.
The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act and has elected to comply with certain reduced public company reporting requirements; however, the Company may adopt accounting standards based on the effective dates for public entities when early adoption is permitted.
Unaudited Interim Financial Information
The unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP for interim financial information, within the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements have been prepared on a basis consistent with the audited financial statements and, in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the results for the interim periods presented and of the financial condition as of the date of the interim balance sheet. The financial data and the other information disclosed in these notes to the unaudited condensed consolidated financial statements related to the three-month periods are unaudited. Unaudited interim results are not necessarily indicative of the results for the full fiscal year.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2025 included in the Form 10-K filed with the SEC on April 15, 2026.
6
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, LQR House Acquisition Corp., SWOL Holdings Inc., and YHC Online Limited, and its majority-owned subsidiary, Fusion Five Continents Securities Limited, which has been consolidated from June 1, 2026, the date the Company obtained a controlling financial interest. All intercompany transactions, balances, revenues, and expenses between the Company and its subsidiaries have been eliminated in consolidation. Non-controlling interest represents the
Fusion Five’s fiscal year ends March 31, which differs from the Company’s fiscal year end of December 31 by three months, within the threshold permitted by ASC 810-10-45-12 without adjustment. The Company consolidates Fusion Five’s results using Fusion Five’s actual financial information for the calendar periods corresponding to the Company’s reporting periods, rather than Fusion Five’s own fiscal periods; accordingly, no lag exists between the periods reflected in the accompanying condensed consolidated financial statements and the periods presented for the Company’s other operations.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, the allowance for credit losses on accounts receivable, the valuation allowance against deferred tax assets, stock-based compensation, the fair value of equity instruments issued in connection with financing transactions, and the fair values of the consideration transferred, the identifiable assets acquired, the liabilities assumed, the previously held equity interest, and the non-controlling interest in connection with the business combination, including the fair value and useful life of the identifiable intangible asset. Actual results could differ materially from those estimates.
Concentrations of Credit Risk
The Company maintains its cash with a major financial institution located in the United States of America which it believes to be credit worthy. Balances are insured by the Federal Deposit Insurance Corporation up to $
Financial instruments that potentially expose the Company’s majority-owned subsidiary, Fusion Five Continents Securities Limited (“Fusion Five”), to concentrations of credit risk consist principally of cash held on behalf of clients, short-term investments – broker dealer, and digital assets – external trust company. Fusion Five seeks to mitigate credit risk by maintaining balances with regulated financial institutions and intermediaries and by monitoring counterparty credit quality. Such balances may exceed applicable deposit insurance limits and remain subject to the credit risk of the relevant institution or intermediary.
Cash held on behalf of clients is segregated and deposited in financial institutions as required by rules mandated by Fusion Five’s primary regulators. These financial institutions are of sound credit ratings; therefore, Fusion Five believes that there is no significant credit risk related to cash held on behalf of clients.
Fusion Five’s securities are transacted on a cash basis. Fusion Five’s credit risk is limited in that substantially all of the contracts entered into are settled directly at securities clearing organizations. In connection with its clearing activities, Fusion Five is obligated to settle transactions with brokers and other financial institutions even if its clients fail to meet their obligations to Fusion Five. Clients are required to complete their transactions by the settlement date, generally one or two business days after the trade date. Fusion Five has established procedures to reduce this risk by generally requiring that clients deposit sufficient cash and/or securities into their account prior to placing an order.
Fusion Five’s exposure to credit risk associated with its brokerage and other activities is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. There was no revenue from clients which individually represented greater than 10% of Fusion Five’s total revenue for the three or six months ended June 30, 2026. Concentrations of credit risk can be affected by changes in political, industry, or economic factors.
7
Concentrations
The Company’s ability to derive revenue is reliant on its relationship with KBROS, LLC (“KBROS”) who currently handles product for the CWS Platform and fulfills the products sold by clientele using our marketing services. The discontinuance of such relationship or termination of the CWS Platform agreements would have a material negative impact on the Company’s operations.
Fusion Five’s operations depend on third-party service providers, including its Execution Broker, trustee, payment processor, and technology provider. A termination or disruption of these relationships, failure by a service provider to comply with applicable laws and regulations, or deterioration in the financial condition of a material counterparty could adversely affect Fusion Five’s operations and its ability to provide trading access and process client transactions. Substantially all of Fusion Five’s customer securities transactions are executed through a single third-party broker (the “Execution Broker”), and Fusion Five is dependent on this broker for execution services.
Stablecoin and Settlement Risk
Client funding and settlement processes at Fusion Five may involve USDT stablecoin before conversion to fiat currency by a third-party trust company. This activity exposes Fusion Five to liquidity, redemption, custody, blockchain transfer, counterparty, regulatory, cybersecurity, and operational risks. Fusion Five does not present USDT held for the benefit of clients as its own digital asset when it does not obtain beneficial ownership or control of the stablecoin.
Regulatory Requirements
Fusion Five is registered as a financial service provider on the New Zealand Financial Service Providers Register (“FSPR”). Based on Fusion Five’s current registered activities and regulatory status, Fusion Five was not subject to a specific minimum regulatory capital requirement in New Zealand as of June 30, 2026.
Cash and Cash Equivalents
Cash and cash equivalents represent cash at bank and online payment platforms which are unrestricted as to withdrawal and use, and which have original maturities of three months or less.
Cash Held on Behalf of Clients
Cash held on behalf of clients represents cash maintained in segregated accounts for the benefit of clients of the Company’s majority-owned subsidiary, Fusion Five Continents Securities Limited (“Fusion Five”), in connection with securities trading and settlement activities. Such funds are not available to finance the Company’s general operations. Cash held on behalf of clients is separately presented on the condensed consolidated balance sheets. The Company has classified clients’ monies as cash held on behalf of clients under the assets section of the condensed consolidated balance sheets and has recognized the corresponding obligation to the respective clients as a payable under the liabilities section.
Investments
The Company evaluated its investments in joint ventures under ASC 323, Investments — Equity Method and Joint Ventures. Although YHC Online Limited, a wholly-owned subsidiary of the Company, held a
In April 2026, all joint venture agreements were terminated, and the amounts previously funded were returned to the Company in the form of USDT, a digital asset. This USDT, together with USDT received from other sources, was subsequently applied toward the consideration for the acquisition of Fusion Five Continents Securities Limited. See Note 8 — Investment in Joint Ventures, Note 9 — Digital Assets, and Note 4 — Business Combination.
Short-Term Investment – Broker Dealer and Payable – Broker Dealer
In accordance with ASC 321-10-35-1, Investments—Equity Securities, equity securities with readily determinable fair values are measured at fair value, with changes in fair value recognized in net income. Fair value measurements are determined in accordance with ASC Topic 820, Fair Value Measurement. ASC 820-10-35-37 establishes a three-level fair value hierarchy that gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1).
The short-term investment – broker dealer of the Company’s majority-owned subsidiary, Fusion Five Continents Securities Limited (“Fusion Five”), consists of marketable securities maintained in custody with Fusion Five’s third-party Execution Broker in connection with client securities trading activities. The securities are held for the benefit of Fusion Five’s clients and are not maintained for Fusion Five’s proprietary investment purposes.
8
The securities are measured at fair value at each reporting date. Securities valued using quoted prices for identical securities in active markets are classified as Level 1. Realized and unrealized gains and losses on equity securities within the scope of ASC 321 are recognized in earnings and are not recognized in other comprehensive income. Realized gains and losses are determined based on the difference between the proceeds received and the carrying amount of securities sold, while unrealized gains and losses represent changes in the fair value of securities held at the reporting date.
Short-term investment – Broker dealer represents amounts maintained for authorized client securities trading and settlement activities. The corresponding Payable – Broker dealer represents Fusion Five’s obligation to return such funds to clients or apply the funds to authorized client transactions. These investments are restricted for the benefit of clients, are not available for the Company’s general operating purposes, and do not represent revenue of the Company. As of June 30, 2026 and December 31, 2025, Short-term investment – Broker dealer and the corresponding Payable – Broker dealer were $
Fusion Five’s short-term investment is subject to market risk arising from fluctuations in the market prices of securities. The securities are maintained in custody with the Execution Broker, and Fusion Five is also exposed to custodial, concentration, and counterparty credit risk associated with the Execution Broker.
Property and Equipment
Property and equipment, net are stated at cost less accumulated depreciation and impairment, if any, and depreciated on a straight-line basis over the estimated useful lives of the assets. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its intended use. Depreciation expenses are included in general and administrative expenses. Land is not depreciated since it has an indefinite useful life. Estimated useful lives are as follows:
The Company’s property and equipment consisted of a motor vehicle with an estimated useful life of years, which was disposed of during the three months ended June 30, 2026. See Note 5 — Property and Equipment, Net.
Expenditure for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expenses as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The cost of an acquisition comprises the consideration transferred, the fair value of any previously held equity interest in the acquiree, and the fair value of any non-controlling interest in the acquiree, and is allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with any excess recorded as goodwill. For a business combination achieved in stages, the previously held equity interest is remeasured to its acquisition-date fair value and any resulting gain or loss is recognized in earnings. Non-controlling interest is measured at fair value as of the acquisition date. Acquisition-related costs are expensed as incurred. The fair values assigned to the assets acquired and liabilities assumed are provisional and may be retrospectively adjusted during the measurement period, which ends no later than one year from the acquisition date. See Note 4 — Business Combination.
Goodwill
The Company accounts for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other. Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets acquired in a business combination and is not amortized. Substantially all of the Company’s goodwill is attributable to its acquisition of Fusion Five Continents Securities Limited (“Fusion Five”) and is allocated to the Company’s financial services reporting unit. See Note 4 — Business Combination.
The Company tests goodwill for impairment at the reporting unit level at least annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying amount. Such events or circumstances could include, but are not limited to, a significant adverse change in legal factors or the business climate, an adverse regulatory action or assessment, unanticipated competition, a loss of key personnel, a significant decline in the Company’s stock price, or a determination that it is more likely than not that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of.
The Company first assesses qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test, in accordance with ASC 350-20-35-3A. If, based on that qualitative assessment, the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a quantitative impairment test, comparing the fair value of the reporting unit to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit, in accordance with ASU 2017-04. Determining the fair value of a reporting unit requires significant judgment, including estimates of future cash flows, discount rates, and other assumptions, which are inherently uncertain and could change materially in future periods.
No goodwill impairment was recognized during the three and six months ended June 30, 2026. Because the Company’s goodwill is concentrated in a single reporting unit recently established through the acquisition of Fusion Five, and the fair values used in the acquisition’s purchase price allocation remain provisional, the Company will continue to monitor Fusion Five’s performance and the finalization of the purchase price allocation for indicators that could affect the recoverability of goodwill in future periods. See Note 4 — Business Combination.
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Digital Assets
The Company accounts for its holdings of digital assets in accordance with ASC 350-60, Intangibles—Goodwill and Other—Crypto Assets, as amended by ASU 2023-08, Accounting for and Disclosure of Crypto Assets. Digital assets within the scope of ASC 350-60 are measured at fair value each reporting period, with changes in fair value recognized in net income. The Company determines fair value using quoted prices for identical assets in an active market accessible by the Company as of the measurement date, without adjustment for contractual sale restrictions, which the Company has concluded represents a Level 1 measurement within the fair value hierarchy of ASC 820, Fair Value Measurement. Realized gains and losses on the sale or disposition of digital assets, and unrealized gains and losses arising from the remeasurement of digital assets held at period end, are recognized within other income (expense) in the condensed consolidated statements of operations. Digital assets are classified as current or non-current based on the Company’s intent and ability to convert such assets to cash within twelve months of the balance sheet date.
Digital Assets – External Trust Company and Payable – External Trust Company
In accordance with ASC 350-60-15-1, Crypto Assets, the Company evaluates digital asset holdings held by Fusion Five to determine whether they are within the scope of ASC Subtopic 350-60. Fusion Five holds certain digital assets, principally U.S. dollar-denominated stablecoins, with a third-party licensed trust company in connection with client funding and securities trading activities. Such digital assets are held for the benefit of Fusion Five’s clients and are not maintained for Fusion Five’s proprietary investment purposes.
Digital assets held on behalf of clients are measured at fair value at each reporting date based on observable market prices available in the principal market for the digital asset. The corresponding obligation to clients is presented separately as “Payable – External trust company.” Fusion Five does not pledge or use client digital assets for its own financing or proprietary investment activities. As of June 30, 2026, none of the digital assets held on behalf of clients were pledged or otherwise subject to contractual restrictions. The Company does not use client digital assets for its own proprietary investment or general corporate purposes. The Company is exposed to custodial and counterparty risk associated with the third-party trust company, as well as liquidity, redemption, market, regulatory, operational, cybersecurity, and blockchain-network risks associated with digital assets.
As of June 30, 2026 and December 31, 2025, Digital Assets – External trust company and the corresponding Payable – External trust company were $
Foreign Currency Translation
The functional currency of Fusion Five is the New Zealand dollar. The assets and liabilities of Fusion Five are translated into United States dollars at the exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average exchange rate for the period. Equity accounts are translated at historical exchange rates. The resulting translation adjustments are recorded in accumulated other comprehensive loss as a component of stockholders’ equity.
The exchange rates used to translate Fusion Five’s financial statements were as follows:
For the six months ended June 30, 2026, closing rate
For the six months ended June 30, 2026, average rate
For the three and six months ended June 30, 2026, the Company recorded a foreign currency translation adjustment of $
Fair Value Measurements
The Company follows ASC 820, Fair Value Measurement, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three levels of the fair value hierarchy:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
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The Company’s digital assets, including digital assets held on behalf of clients, are measured at fair value on a recurring basis. The fair values of assets acquired, liabilities assumed, the previously held equity interest, and the non-controlling interest in a business combination are measured on a non-recurring basis, using the acquisition method described in Note 4 — Business Combination. Transfers between levels of the fair value hierarchy, if any, are recognized as of the date of the event or change in circumstances giving rise to the transfer.
The carrying values of the Company’s cash and cash equivalents, cash held on behalf of clients, accounts receivable, short-term investment – broker dealer, due from/to related party, accounts payable, client funds payable, payable – broker dealer, and accrued and other payables approximate their fair values due to the short-term nature of these instruments. The carrying value of the Company’s notes payable approximates fair value, as the Notes bear interest at a rate that approximates current market rates for instruments with similar terms and credit risk.
The Company’s cost method investments in equity securities are carried at cost, less impairment, and are not measured at fair value on a recurring basis. See Note 7.
The Company’s investments in joint ventures were carried at cost following rebuttal of the significant influence presumption under ASC 323, and were not measured at fair value on a recurring basis. All joint venture agreements were terminated in April 2026. See Note 8.
There were no transfers between Level 1, Level 2, or Level 3 fair value classifications during the three and six months ended June 30, 2026. The fair values of the identifiable assets acquired, liabilities assumed, previously held equity interest, and non-controlling interest in connection with the acquisition of Fusion Five were measured on a non-recurring basis at the acquisition date using Level 3 inputs. See Note 4 — Business Combination.
The following tables present the Company’s assets measured at fair value on a recurring basis:
| Fair Value Measurements as of June 30, 2026 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Digital assets, at fair value | $ | |||||||||||
| Digital assets, held on behalf of clients, at fair value | ||||||||||||
| $ | $ | $ | ||||||||||
| Fair Value Measurements as of December 31, 2025: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Digital assets, at fair value | $ | $ | $ | $ | ||||||||||||
| Digital assets, held on behalf of clients, at fair value | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Digital assets, at fair value
Tether (USDT), including USDT held on behalf of clients, is traded in an active market on the Company’s principal exchange, providing unadjusted quoted prices for identical assets; therefore, Tether (USDT) is classified as a Level 1 asset.
Accounts Receivable
Accounts receivable are recorded at the gross billing amount less an allowance for any uncollectible accounts due from the customers. Accounts receivable do not bear interest.
Since January 1, 2024, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), using the modified retrospective transition method. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. Upon adoption, the Company changed the impairment model to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost and receivables resulting from the application of ASC 606, including contract assets.
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The Company maintains an allowance for credit losses and records the allowance for credit losses as an offset to accounts receivable and the estimated credit losses charged to the allowance is classified as “General and administrative expenses” in the unaudited condensed consolidated statements of comprehensive income. The Group assesses collectability by reviewing accounts receivable on aging schedules because the accounts receivable were primarily consisted of receivables arising from provision of marketing services, product sales, CWS platform and vault. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status, the age of the balances, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers. Delinquent account balances are written-off against the allowance for expected credit loss after management has determined that the likelihood of collection is not probable.
As of June 30, 2026 and December 31, 2025, the Company recorded an allowance for credit losses of $
Prepaid Expenses
Prepaid expenses represent costs paid in advance of receiving the related goods or services and are recognized as expense over the period in which the related benefit is received.
Prepaid expenses attributable to the Company’s majority-owned subsidiary, Fusion Five Continents Securities Limited (“Fusion Five”), consist of prepaid software subscription costs. Fusion Five entered into a two-year agreement with a third-party technology service provider for access to a securities trading system and related mobile application used in connection with Fusion Five’s cross-border securities trading services. Under the arrangement, the third-party service provider hosts, operates, and maintains the system and application; Fusion Five does not have the contractual right to take possession of the underlying software and cannot operate the software independently or engage an unrelated third party to host the software. The agreement has a contractual term of two years and requires annual subscription payments of HKD
Annual subscription fees paid in advance are recorded as prepaid software subscription costs and recognized as cost of revenue on a straight-line basis over the applicable annual service period. The Company determined that classification within cost of revenue is appropriate because the system and application are directly used in providing securities trading access and related services to Fusion Five’s clients.
As of June 30, 2026 and December 31, 2025, prepaid expenses included $
Impairment of Long-Lived Assets
For long-lived assets the Company evaluates for impairment whenever events or changes indicate that the carrying amount of an asset may no longer be recoverable. The Company assesses the recoverability of the long-lived assets by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to receive from use of the assets and their eventual disposition. Such assets are considered to be impaired if the sum of the expected undiscounted cash flows is less than the carrying amount of the assets. The impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company tests impairment of long-lived assets at the reporting unit level when impairment indicator appeared and recognizes impairment in the event at the carrying value exceeds the fair value of each reporting unit.
impairment charge of long-lived assets was recorded for the three and six months ended June 30, 2026 and 2025.
Deferred Offering Costs
The Company complies with the requirements of FASB ASC 340-10-S99-1 with regards to offering costs. Prior to the completion of an offering, offering costs are capitalized. Upon completion of an offering, deferred offering costs are reclassified to additional paid-in capital as a reduction of the offering proceeds. If an offering is abandoned, the deferred offering costs are charged to expense in the period the offering is determined not to be completed.
As of June 30, 2026 and December 31, 2025, the Company had deferred offering costs of $
Contract Liabilities
The Company recognizes contract liabilities in accordance with ASC 606, Revenue from Contracts with Customers. A contract liability represents the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration before the related performance obligation has been satisfied. Contract liabilities are recognized as revenue when the Company satisfies the related performance obligation. Due to the generally short-term duration of the relevant contracts, all performance obligations are satisfied within one year. Where transaction prices for marketing services, product sales, CWS platform and vault are received upfront from the customers, such receipts are recorded as contract liabilities and recognized as revenues either over the contract period or point in time upon service rendered.
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The following table presents the activity in contract liabilities for the six months ended June 30, 2026 and 2025:
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| Balance, beginning of the period | $ | $ | ||||||
| Additions - consideration received in advance | ||||||||
| Revenue recognized | ( | ) | ||||||
| Balance, end of the period | $ | $ | ||||||
As of June 30, 2026 and December 31, 2025, the Company had contract liabilities of $
Related Parties
The Company follows ASC 850, Related Party Disclosures, for the identification and disclosure of related party transactions. Related parties include principal owners, management, members of their immediate families, affiliates, and other parties that can significantly influence the management or operating policies of the Company, or that can be significantly influenced by the Company. All material transactions with related parties are disclosed in the accompanying notes to the consolidated financial statements, with the exception of compensation arrangements that are established through the Company’s standard employment and compensation practices.
Revenue Recognition
In accordance with FASB ASC 606, Revenue from Contracts with Customers¸ the Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer; |
| ● | Identification of the performance obligations in the contract; |
| ● | Determination of the transaction price; |
| ● | Allocation of the transaction price to the performance obligations in the contract; and |
| ● | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers in an amount that reflects the consideration expected to be received in exchange for transferring goods or services to customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance.
The Company derives its revenue from marketing services, sales via the CWS Platform, distribution of its SWOL Tequila and subscription-based membership revenue, and, following the acquisition of Fusion Five Continents Securities Limited (“Fusion Five”) on June 1, 2026, brokerage commission and platform income. Revenue is reported net of discounts.
Marketing Services
The Company provides integrated marketing services to third-party alcoholic beverage brands through its CWS Platform, including campaign strategy development, creation of promotional materials, and digital advertising execution over a defined campaign period, generally ranging from one to three months. In applying ASC 606-10-25-14, the Company has concluded that each contract contains a single performance obligation, as the promised services are not separately identifiable within the context of the contract and are combined to deliver a single integrated marketing campaign. In accordance with ASC 606-10-25-19, the Company determined that the individual services are not distinct, as they are highly interrelated and interdependent and do not provide benefit to the customer on a standalone basis. The services represent a series of distinct services that are substantially the same and have the same pattern of transfer.
Revenue is recognized over time in accordance with ASC 606-10-25-27, as the customer simultaneously receives and consumes the benefits of the services as they are performed. The Company measures progress using a time-elapsed output method over the campaign period. The Company has concluded that it acts as the principal under ASC 606-10-55-37A and 55-39, as it controls the services prior to transfer, maintains primary responsibility for fulfillment, and has discretion in directing third-party service providers. Accordingly, revenue is recognized on a gross basis. Revenue from marketing services is disaggregated and recognized over the campaign period, and contracts are generally short-term in nature; therefore, the Company does not disclose remaining performance obligations pursuant to the practical expedient in ASC 606-10-50-14(a).
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CWS Platform
The Company sells wine and spirits directly to end customers through its CWSpirits.com platform. Each transaction contains a single performance obligation under ASC 606-10-25-14, consisting of delivery of the product to the customer. The Company determined that the product is distinct in accordance with ASC 606-10-25-19, as the customer can benefit from the product independently. Revenue is recognized at a point in time in accordance with ASC 606-10-25-30, when control transfers to the customer upon delivery.
The Company has concluded that it acts as the principal in these arrangements under ASC 606-10-55-37A and 55-39, as it establishes pricing, directs marketing activities, and bears financial inventory risk, including risk of loss. Accordingly, revenue is recognized on a gross basis. Revenue is disaggregated as e-commerce product revenue and recognized upon delivery, and the Company does not have material remaining performance obligations due to the short-term nature of transactions in accordance with ASC 606-10-50-14(a).
Product Sales
The Company generates wholesale revenue from the sale of SWOL Tequila, which is produced by a third-party manufacturer and delivered to CWS for retail distribution. Each arrangement contains a single performance obligation under ASC 606-10-25-14, consisting of delivery of the product to the customer. The Company determined that the product is distinct in accordance with ASC 606-10-25-19, as it can be consumed independently.
Revenue is recognized at a point in time in accordance with ASC 606-10-25-30, when control transfers upon delivery to the customer. The Company has concluded that it acts as the principal under ASC 606-10-55-37A and 55-39, as it controls the product prior to transfer, establishes pricing, and bears inventory and production risk. Accordingly, revenue is recognized on a gross basis. Revenue is disaggregated as wholesale product revenue and recognized upon delivery. Due to regulatory restrictions, ownership transfers upon delivery with no right of return. Remaining performance obligations are not material in accordance with ASC 606-10-50-14(a).
Vault
The Company offers a subscription-based membership program that provides customers with access to exclusive benefits, including discounts, free shipping, and promotional offers. Each subscription arrangement contains a single performance obligation under ASC 606-10-25-14, consisting of the provision of ongoing membership benefits over the subscription term. In accordance with ASC 606-10-25-19, the Company determined that the membership services are not distinct individually but represent a series of services that are substantially the same and provided continuously over the subscription period.
Revenue is recognized over time in accordance with ASC 606-10-25-27, as the customer simultaneously receives and consumes the benefits of the membership. Revenue is recognized on a straight-line basis over the subscription period. The Company has concluded that it acts as the principal under ASC 606-10-55-37A and 55-39, as it controls the membership program and establishes pricing. Accordingly, revenue is recognized on a gross basis. Prior to the acquisition of the CWS Platform, the Company acted as an agent and recognized net revenue. Revenue is disaggregated as subscription revenue and recognized over the subscription period. The Company records reserves for chargebacks and cancellations based on historical experience, and remaining performance obligations are not disclosed for contracts with an original expected duration of one year or less in accordance with ASC 606-10-50-14(a).
Brokerage Commission and Platform Income
Fusion Five earns commissions and platform income from securities brokerage services based on transaction volume and platform fees charged per transaction. When a client executes a securities trading transaction, brokerage commission and platform fee is recognized at a point in time when the performance obligation has been satisfied by the completion of the trade and the service has been passed to the client. Brokerage commission income and platform fee are accrued on a trade-date basis, as this is when the underlying financial instrument is identified, the pricing of the brokerage service is agreed upon, and the promised services are delivered to the client. Commission fees and platform fees are charged directly from the client’s account when transactions are settled. Securities trading transactions cannot be cancelled once executed and are not refundable.
The transaction price consists of the commission fees and platform fee charged to the client. Because these services are provided together, are highly interdependent, and no separate allocation of the transaction price is required in accordance with ASC 606-10-25-19, they are accounted for as a single performance obligation, which is satisfied when the related trade is executed.
These activities are provided together as part of the Company’s trading service and are treated as one performance obligation. The transaction price consists of the commission fees and platform fee charged to customers. The Company determines the rates and fees charged to its customers. Since the services are provided together, no separate allocation of the transaction price is required. Revenue is recognized when the related service is provided and, for transaction-based fees, when the related trade is executed.
For each customer transaction, the Company provides access to the trading platform, helps process the customer’s trading instructions, and arranges for the trade to be executed through the Execution Broker. These services are provided together as one overall trading service. Therefore, the Company treats them as one performance obligation for each transaction.
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Principal vs. Agent Considerations
The Company evaluates whether it acts as a principal or an agent in each revenue arrangement in accordance with ASC 606-10-55-36 through 55-40, considering whether it controls the promised good or service before transfer to the customer, bears inventory risk, and has pricing discretion. Where the Company is the principal, revenue is recorded gross. Where the Company is the agent, revenue is recorded net. The Company has determined it acts as principal for CWS Platform transactions and SWOL Tequila sales, and Fusion Five’s brokerage commission and platform income, and records revenue on a gross basis accordingly. With respect to Fusion Five’s brokerage services, the Company is responsible for providing the trading platform and transaction facilitation services and for setting the commission and platform fees charged to clients; accordingly, the Company has concluded it is the principal and recognizes these revenues on a gross basis. Trade execution, custody, and settlement are provided by a third-party licensed securities broker (the “Execution Broker”), and fees paid to the Execution Broker are recorded as cost of revenue rather than deducted from revenue.
Disaggregation of Revenue
The following is a summary of the disaggregation of revenue for the three and six months ended June 30, 2026 and 2025:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| Disaggregation of Revenues | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| CWS Platform | $ | $ | $ | $ | ||||||||||||
| SWOL product sales | ||||||||||||||||
| Revenue - product | ||||||||||||||||
| Marketing | ||||||||||||||||
| Vault | ||||||||||||||||
| Brokerage | ||||||||||||||||
| Revenue - services | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
The following table presents the timing of recognition of revenue for the three and six months ended June 30, 2026 and 2025:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue recognized at a point in time | ||||||||||||||||
| CWS Platform | $ | $ | $ | $ | ||||||||||||
| SWOL product sales | ||||||||||||||||
| Brokerage | ||||||||||||||||
| Revenue - product | ||||||||||||||||
| Revenue recognized over time | ||||||||||||||||
| Marketing | ||||||||||||||||
| Vault | ||||||||||||||||
| Revenue - services | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Cost of Revenue
Cost of revenue consists of all direct costs attributable to sales and performing marketing services, and, following the acquisition of Fusion Five Continents Securities Limited (“Fusion Five”) on June 1, 2026, direct costs attributable to providing securities trading access and related client services. Cost of revenue includes product costs, packaging, shipping and other importing and delivery charges, as well as contracted marketing services. Cost of revenue also includes customer service personnel costs.
Cost of revenue attributable to Fusion Five consists of fees paid or payable to the Execution Broker and other third parties for trade execution, clearing, settlement, regulatory, exchange, and similar services, as well as software subscription and related support service costs and software installation costs directly attributable to the provision of securities trading access to clients. Such software subscription costs are recognized on a straight-line basis over the applicable service period as the related services are received, and installation costs are expensed as incurred.
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General and Administrative Expenses
General and administrative expenses consist primarily of costs associated with the general management and administration of the Company’s business that are not directly attributable to the provision of goods or services to customers. Such costs include administrative service costs, bank charges, professional and legal fees, and general corporate overhead.
Fusion Five Continents Securities Limited (“Fusion Five”) records within general and administrative expenses losses arising from the conversion and settlement of client funding balances, when such losses are borne by Fusion Five rather than its clients. Fusion Five’s clients fund their accounts through an external trust company using USDT, a digital stablecoin, which the trust company converts into fiat currency before transferring the resulting funds to Fusion Five’s account with its Execution Broker. Differences between the amount maintained with the trust company and the amount transferred to the Execution Broker, including conversion spreads and related settlement losses borne by Fusion Five, are recognized as general and administrative expenses when the conversion and settlement occur, measured based on the actual amount deducted or retained by the trust company.
Because Fusion Five bears these losses, the corresponding client deposit liability is not reduced; instead, the loss is recognized in the condensed consolidated statements of operations, with a corresponding reduction in the amount due from the trust company. Costs directly attributable to the provision of client trading services, including software subscription costs and software installation costs, are excluded from general and administrative expenses and are presented within cost of revenue.
Sales and Marketing
Sales and marketing costs primarily consist of advertising, promotional expenses and marketing consulting and advisory services. Sales and marketing costs also include sales commissions.
Stock-Based Compensation
ASC 718-10 requires that share-based payment transactions with employees and non-employees, such as share options, be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.
Leases
The Company leases certain office space from third parties. Leases with an initial term of
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Most leases include one or more options to renew, with renewal terms that can extend the lease term from one year or more. The exercise of lease renewal options is at the Company’s sole discretion. Renewal periods are included in the lease term only when renewal is reasonably certain, which is a high threshold and requires management to apply judgment to determine the appropriate lease term. The Company’s leases do not include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Certain lease agreements include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. All of the Company’s leases are classified as operating leases. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of
ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or cancellation provisions, and determining the discount rate.
As the rate implicit in the lease is not usually available, the Company used an incremental borrowing rate based on the information available at the adoption date of ASC 842 in determining the present value of lease payments for existing leases. The Company will use information available at the lease commencement date to determine the discount rate for any new leases.
Net Income (Loss) per Share
Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net loss per share. As there were potentially dilutive securities outstanding as of June 30, 2026 and 2025, diluted net income (loss) per share is the same as basic net income (loss) per share for each period. The Company had dilutive instruments outstanding as of June 30, 2026.
Comprehensive Income (Loss)
FASB ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive income or loss, its components, and accumulated balances. Comprehensive income or loss includes all changes in equity during a period from non-owner sources and consists of two components: net income (loss) and other comprehensive income (loss) (“OCI”). The Company’s OCI consists solely of foreign currency translation adjustments arising from the translation of the New Zealand dollar functional-currency financial statements of Fusion Five Continents Securities Limited into the Company’s U.S. dollar reporting currency. Resulting foreign currency translation adjustments are recognized in OCI, net of tax, where applicable, and accumulated in accumulated other comprehensive income (loss), a component of equity.
Segment Information
An operating segment is a component of the Company that engages in business activities from which it may earn revenue and incur expenses and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Company’s chief operating decision maker in order to allocate resources and assess performance of the segment.
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the “CODM”) in deciding how to allocate resources and in assessing performance. The Company uses the management approach in determining its operating and reportable segments, which considers the internal organization and reporting used by the Company’s CODM for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s CODM is its Chief Executive Officer.
Following the acquisition of Fusion Five Continents Securities Limited (“Fusion Five”) on June 1, 2026 (see Note 4 — Business Combination), the Company has determined that it operates in two reportable segments: (i) beverage alcohol, comprising the Company’s marketing services, e-commerce, and product distribution operations, and (ii) financial services, comprising Fusion Five’s securities brokerage operations. These segments do not have similar economic characteristics — they operate under different regulatory regimes, serve different customer bases, and have fundamentally different revenue and margin structures — and are managed and evaluated separately by the CODM.
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Income Tax
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates expected to be in effect in the years in which those temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company is subject to income taxes in the United States and Hong Kong, through its subsidiary YHC Online Limited, and, following the acquisition of Fusion Five Continents Securities Limited (“Fusion Five”) on June 1, 2026, in New Zealand. Deferred tax assets and liabilities of Fusion Five are measured using the enacted New Zealand corporate income tax rate applicable to the periods in which the related temporary differences are expected to reverse.
The Company records a valuation allowance against deferred tax assets to the extent it is more likely than not that some or all of the deferred tax assets will not be realized based on available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and the history of operating losses.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Interest and penalties related to uncertain tax positions, if any, are recognized as a component of income tax expense.
The Company adopted ASU 2023-09, Improvements to Income Tax Disclosures, for the fiscal year ended December 31, 2025. ASU 2023-09 requires enhanced disclosures in the rate reconciliation and additional disaggregation of income taxes paid. The adoption of ASU 2023-09 affected disclosures only and did not have an impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about significant segment expenses and other segment items regularly provided to the chief operating decision maker, and expands interim disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023-07 for the fiscal year ended December 31, 2024, on a retrospective basis. The adoption affected disclosures only and did not have a material impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) — Improvements to Income Tax Disclosures, which requires enhanced disclosures in the annual rate reconciliation, including specific categories of reconciling items, and disaggregation of income taxes paid by federal, state, and foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023-09 for the fiscal year ended December 31, 2025. The adoption affected disclosures only and did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40), which requires public entities to disclose, in the notes to the financial statements, specified information about certain costs and expenses included in expense line items on the face of the income statement. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03 on its consolidated financial statements and disclosures.
In January 2025, the FASB issued ASU 2025-01, Income Statement — Reporting Comprehensive Income (Topic 220) — Clarifying the Effective Date, which clarifies the effective date of ASU 2024-03 for entities that do not have an issued interim financial statement before the issuance of ASU 2025-01. ASU 2025-01 is effective upon issuance. The adoption of ASU 2025-01 did not have a material impact on the Company’s consolidated financial statements.
In March 2025, the FASB issued ASU No. 2025-04, Compensation — Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer, which clarifies the accounting for share-based payment awards granted to customers in connection with revenue arrangements, addressing the interaction between Topic 718 and Topic 606 with respect to measurement, classification, and recognition of such awards. ASU 2025-04 is effective for the Company for the fiscal year beginning January 1, 2026. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
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In July 2025, the FASB issued ASU 2025-05, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets: The ASU provides a practical expedient permitting entities to assume that conditions at the balance sheet date remain unchanged over the life of current accounts receivable and current contract assets when estimating expected credit losses. The guidance is effective for annual and interim reporting periods beginning after December 15, 2025, with early adoption permitted. The Company does not expect ASU 2025-05 to have a material impact on its consolidated financial statements.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements: The ASU requires entities to disclose events occurring since the end of the last annual reporting period that have a material impact on the entity. The amendments apply to all entities that present interim financial statements in accordance with GAAP. The guidance is effective for annual reporting periods beginning after December 15, 2027, and interim periods within those annual reporting periods, with early adoption permitted. The amendments may be applied either prospectively or retrospectively. The Company expects ASU 2025-11 to impact its disclosures only and does not expect it to affect its results of operations, financial condition or cash flows.
In December 2025, the FASB issued ASU 2025-12, Codification Improvements, which makes various non-substantive technical corrections and clarifications to the FASB Accounting Standards Codification. ASU 2025-12 is effective upon issuance. The Company does not expect the adoption of ASU 2025-12 to have a material impact on its consolidated financial statements.
4. BUSINESS COMBINATION
On April 11, 2026, the Company entered into a Share Purchase Agreement to acquire all of the issued and outstanding shares of Fusion Five, a New Zealand financial services cross-border securities trading intermediary, in multiple closings, for total consideration of $
The cost of the acquisition was $
The following table summarizes the cost of the acquisition:
| June 1, | ||||
| 2026 | ||||
| Consideration transferred | $ | |||
| Fair value of non-controlling interest | ||||
| Fair value of previously held equity interest | ||||
| Total cost of acquisition | $ | |||
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The Company remeasured its previously held
The gain on remeasurement of the previously held equity interest was determined as follows:
| Fair value of previously held equity interest at the acquisition date | $ | |||
| Less: carrying amount of previously held equity interest | ( | ) | ||
| Gain on remeasurement of previously held equity interest | $ |
The provisional fair values of the identifiable assets acquired and liabilities assumed at the acquisition date are summarized as follows:
| Amount | ||||
| Cash held on behalf of clients | $ | |||
| Prepaid expenses | ||||
| Short-term investment - Broker dealer | ||||
| Digital Assets - External trust company | ||||
| Goodwill | ||||
| Payables - Client funds | ( | ) | ||
| Payable - Broker dealer | ( | ) | ||
| Payable – External trust company | ( | ) | ||
| Due to related parties | ( | ) | ||
| $ | ||||
The fair values above are provisional. The Company has not finalized its measurement of the assets acquired and liabilities assumed and may retrospectively adjust the provisional amounts during the measurement period, which ends no later than one year from the acquisition date, in accordance with ASC 805.
Consistent with the nature of Fusion Five’s business — a customer-facing brokerage whose primary value derives from its regulatory licensure, client relationships, and operating platform rather than from any single separable, transferable technology asset — the Company has preliminarily determined that no identifiable intangible assets meet the separate recognition criteria of ASC 805-20-25. Accordingly, the excess of the consideration transferred over the fair value of identifiable net tangible assets acquired has been preliminarily recorded as goodwill of $
The non-controlling interest was recognized at its acquisition-date fair value of $
The results of Fusion Five are included in the unaudited condensed consolidated statements of operations from the acquisition date. From June 1, 2026 to June 30, 2026, Fusion Five contributed revenue of $
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Supplemental pro forma information (Unaudited)
The following unaudited supplemental pro forma financial information presents the combined revenue and net income (loss) attributable to LQR House Inc. of the Company and Fusion Five as though the acquisition had occurred on January 1, 2025. The gain on remeasurement of the previously held equity interest and acquisition-related costs, which are directly attributable to the transaction as it actually occurred in stages, have been eliminated from the pro forma results, as the pro forma presentation assumes the Company acquired a controlling financial interest in Fusion Five on January 1, 2025, with no intervening period during which the Company held a non-controlling equity-method interest.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Pro forma revenue | $ | $ | $ | $ | ||||||||||||
| Pro forma net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Motor Vehicle | $ | $ | ||||||
| Less : Accumulated depreciation | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the six months ended June 30, 2026 and 2025 was $
During the three months ended June 30, 2026, the Company disposed of its motor vehicle, which had a net book value of $
6. ACQUISITION OF CWS PLATFORM
On November 1, 2023, LQR House Acquisition Corp. (the “Buyer”), a wholly owned subsidiary of the Company, and SSquared Spirits LLC (the “Seller”, “SSquared”) entered into a Domain Name Transfer Agreement (“Agreement”). Pursuant to the Agreement, the Seller irrevocably sold, assigned, transferred, and conveyed to the Buyer (a) all right, title, and interest in and to the domain name www.cwspirits.com (the “Domain Name”, “CWS Platform”), including its current registration and (b) any other rights (including, but not limited to, trademark rights associated with the Domain Name in any jurisdiction, all Internet traffic through the Domain Name and all Website Content (as defined in the Agreement) the Seller may have in the Domain Name, together with any goodwill associated therewith, in exchange for the payment by the Buyer of the purchase price of $
In connection with the Company’s purchase of the Domain Name, on November 1, 2023, the Company entered into a product handling agreement (“Product Handling Agreement”) with KBROS LLC (“KBROS”). Pursuant to the Product Handling Agreement, KBROS provides services relating to the purchase and delivery of spirits and other beverage products purchased by customers of the Company through websites associated with the Domain, including procurement and maintenance of all certificates, licenses, authorizations and registrations required to import, possess, promote, sell, distribute and receive payment for such products.
Under Regulation S-X 3-05, management determined that the CWS Platform acquisition constituted a business combination, and the Company recorded an intangible asset of $
During the year ended December 31, 2025, the Company determined that the CWS Platform intangible asset was fully impaired and recorded an impairment charge of $
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7. INVESTMENTS, AT COST
The Company held minority equity interests in Cannon Estate Winery Ltd. and Chase Mocktails Ltd. (f/k/a DRNK Beverage Corp.), each accounted for under the cost method of accounting. As of June 30, 2026 and December 31, 2025, the carrying value of both investments was — following full impairment recognized during the years ended December 31, 2024 and 2025.
During the year ended December 31, 2025, the Company recognized impairment charges of $
8. INVESTMENT IN JOINT VENTURES
In December 2025, YHC Online Limited (“YHC”), a wholly-owned subsidiary of the Company, entered into four separate joint venture agreements with Bancroft Equity Limited, Emerald Wealth Inc., Meridian Financial Solutions Inc., and Sequoia Equity Group Inc., to cooperate in the creation of multi-channel network (“MCN”) content for digital platforms, including TikTok. Each joint venture is engaged in the creation and monetization of influencer-hosted content targeted at a specific geographic market. Under each agreement, YHC holds a
The Company evaluated its investments under ASC 323, Investments — Equity Method and Joint Ventures. Although YHC held a
Each joint venture agreement provides YHC with a put right, exercisable at any time following the first anniversary of the respective agreement, pursuant to which YHC may require the co-venturer to repurchase YHC’s interest at a price equal to YHC’s total funded investment amount.
Of the aggregate $
income or loss from the joint ventures was recognized during the six months ended June 30, 2026, as the investments were carried at cost and no dividends or distributions were declared by any joint venture entity prior to termination.
In April 2026, all four agreements were terminated, and the amounts previously funded, aggregating $
The movement in investments in joint ventures and advances during the period was as follows:
| Investment in joint ventures at December 31, 2025 | $ | |||
| Advance for investment in joint venture at December 31, 2025 | ||||
| Total funded at December 31, 2025 | ||||
| Returned in the form of USDT | ( | ) | ||
| Investment in joint ventures and advances at June 30, 2026 | $ |
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9. DIGITAL ASSETS
The Company’s digital assets consist of Tether (USDT), a stablecoin pegged to the U.S. dollar, held to facilitate the acquisition of Fusion Five Continents Securities Limited (“Fusion Five”) and related funding activity described below, and USDT held by Fusion Five on behalf of its clients in connection with client funding and securities trading activities.
Digital assets are measured at fair value in accordance with ASC 350-60, Intangibles—Goodwill and Other—Crypto Assets, as updated by ASU 2023-08, Accounting for and Disclosure of Crypto Assets, with changes in fair value recognized in net income. The Company determines fair value using quoted prices for identical assets in an active market accessible by the Company as of the measurement date, without adjustment, which the Company has concluded represents a Level 1 measurement within the fair value hierarchy of ASC 820, Fair Value Measurement. No realized or unrealized gains or losses were recognized during the period, as USDT was received, held, and settled at $1.00 per token throughout.
The Company classifies its digital assets as current assets, as they are readily convertible to cash and the Company does not intend, nor is it restricted, to hold such assets beyond twelve months from the balance sheet date. The Company holds no digital assets that are subject to contractual sale restrictions. See Note 3 — Summary of Significant Accounting Policies, Digital Assets – External Trust Company and Payable – External Trust Company, for the Company’s accounting policy and disclosures related to digital assets held by Fusion Five on behalf of its clients.
The following table presents the Company’s digital asset holdings as of June 30, 2026. USDT was the Company’s only significant individual crypto asset holding during the period, and the Company held no digital assets as of December 31, 2025.
| June 30, 2026 | ||||||||||||
| Units | Cost Basis | Fair Value | ||||||||||
| Digital assets, at fair value | ||||||||||||
| Digital assets, held on behalf of clients, at fair value | ||||||||||||
| $ | $ | |||||||||||
The following table presents the changes in the Company’s own digital assets, held for its general corporate purposes, and describes the nature of each addition and disposition, for the six months ended June 30, 2026 and 2025. Digital assets held on behalf of clients are excluded from this table, as their movement corresponds directly to client-directed funding and withdrawal activity rather than the Company’s own treasury and acquisition-related transactions.
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions: | ||||||||
| USDT received in settlement of investments in and advances for joint ventures | ||||||||
| USDT received in settlement of an advance payment to a distributor | ||||||||
| USDT received in settlement of amounts due from a related party | ||||||||
| USDT purchased with cash | ||||||||
| USDT received as proceeds from a promissory note | ||||||||
| Dispositions: | ||||||||
| USDT transferred as consideration for the acquisition of Fusion Five | ( | ) | ||||||
| USDT converted to U.S. dollars | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
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10. ADVANCE PAYMENT TO DISTRIBUTOR
On March 25, 2025, the Company entered into a Distribution and Marketing Service Agreement with a Hong Kong entity pursuant to which the Company paid $
On April 1, 2025, the Company entered into a Distribution and Marketing Services Agreement with a Hong Kong entity pursuant to which the entity agreed to provide market access, promotional services, and distribution of the Company’s products and CWSpirits.com platform within the Asian market, excluding the Company’s SWOL Tequila product line. The total fee paid by the Company under the agreement is $
Through the dates of termination described below, amortization had been recorded with respect to either arrangement, pending commencement of services.
In April 2026, both arrangements were terminated, and the amounts previously paid, aggregating $
11. ACCRUED AND OTHER PAYABLES
Accrued and other payables consist of the following:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Accrued retention and settlement payments | $ | $ | ||||||
| Accrued consulting and other fees | ||||||||
| Taxes payable | ||||||||
| Accrued deferred offering costs | ||||||||
| Accrued interest payable | ||||||||
| Accrued compensation | ||||||||
| Accrued legal & professional fees | ||||||||
| Other accrued | ||||||||
| Total accrued and other payables | $ | $ | ||||||
| Other accrued expenses, related party | ||||||||
| Accrued retention and settlement payments, related parties | ||||||||
| Total accrued and other payables, related parties | $ | $ | ||||||
12. NOTES PAYABLE
On May 20, 2026, the Company entered into a Note Purchase Agreement (the “Purchase Agreement”) with several purchasers (collectively, the “Holders”), pursuant to which the Company issued
Each Note bears interest at a rate of
The Notes constitute direct, unconditional, and unsecured obligations of the Company and rank pari passu in right of payment with the Company’s other present and future unsecured and unsubordinated indebtedness, and senior in right of payment to the Company’s equity securities. The Company may prepay the Notes, in whole or in part, at any time without penalty or premium, at a redemption price equal to
The Notes contain events of default customary for instruments of this type, including failure to make required payments of principal or interest, cross-default to other indebtedness of the Company in excess of $
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During the six months ended June 30, 2026, the Company received aggregate advances of $
Interest expense on the Notes was $
As of June 30, 2026, the future contractual maturities of the Notes were as follows:
| Year Ending December 31, | ||||
| 2026 (remaining six months) | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total | $ | |||
13. STOCKHOLDERS’ EQUITY
Reincorporation 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
Reverse Stock Split
On July 9, 2026, the Company effected a one-for-one hundred (
2026 Stock Transactions
During the three months ended June 30, 2026, the Company issued
2025 Stock Transactions
During the six months ended June 30, 2025, the Company issued
During the six months ended June 30, 2025, the Company issued
On June 3, 2025, the Company entered into an Advisory Services Agreement with a third party to provide capital markets and investor relations advisory services, in connection with which the Company issued
During the six months ended June 30, 2025, the Company issued
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Restricted Stock Units
As of December 31, 2025, all restricted stock units had been fully vested or forfeited and unrecognized compensation cost remained. RSU activity occurred during the six months ended June 30, 2026. Stock-based compensation expense related to restricted stock units was $
14. RELATED PARTY TRANSACTIONS
KBROS and Ssquared Spirits LLC
The Company’s founder and Chief Executive Officer, who is a stockholder and member of the Board of Directors, has an economic interest in Ssquared Spirits LLC, the seller of the CWS Platform acquisition. The spouse of the Company’s former Chief Executive Officer and director is the President and controlling stockholder of KBROS, the managing member and director of Ssquared Spirits LLC, and a minority shareholder of the Company. See Note 6 for the CWS Platform acquisition from SSquared.
KBROS serves as the Company’s Product Handler pursuant to a Product Handling Agreement. Under the agreement, KBROS is entitled to a monthly fee of $
In October 2024, the Company entered into a settlement and release agreement with KBROS and its controlling stockholder for an aggregate amount of $
See Note 17 for funding commitment with KBROS.
Country Wine & Spirits, Inc. (“CWS”)
CWS operates six brick-and-mortar locations for the sale of beer, wine, and spirits and specializes in logistics of shipping. To date, CWS has distributed all of the alcohol ordered by customers through the CWS Platform, via the Company’s Product Handler agreement with KBROS. The President of CWS is also the
As of June 30, 2026 and December 31, 2025, accounts receivable, related party, with CWS was and $
Performance Bonus – Chief Executive Officer
During the three and six months ended June 30, 2026, the Company did not pay its Chief Executive Officer a performance bonus. During the three and six months ended June 30, 2025, the Company paid its Chief Executive Officer a performance bonus of $
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Due to/from Related Parties
As of June 30, 2026, the Company had $
On June 4, 2026, Mr. Lu resigned from his position as President and as a member of the Board of Directors of the Company, effective immediately. Mr. Lu’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices. In April 2026, prior to his resignation, the Company received repayment of $
As of June 30, 2026, the Company had $
Fusion Five – Related Party
The Company’s majority-owned subsidiary, Fusion Five, has amounts due to a director of Fusion Five. The amount is unsecured, non-interest bearing, and repayable on demand. As of June 30, 2026, amounts due to related parties of Fusion Five were $
Lease
The Company historically leased space, which is now month-to-month, from South Doll Limited Partnership, an entity affiliated with the Company’s Chief Executive Officer. Pursuant to retention and settlement agreements entered into during the year ended December 31, 2024, the Company agreed to pay $
During the three months ended March 31, 2026, SWOL Holdings Inc., a wholly owned subsidiary of the Company, terminated its commercial lease agreement with CapMinds for office space located at 6538 Collins Avenue, Suite 344, Miami Beach, Florida 33141. CapMinds is an entity affiliated with Alexandra Hoffman, Secretary and Technical Writer of the Company and Chief Executive Officer of SWOL Holdings Inc. The lease had commenced March 15, 2025 at a monthly base rent of $
15. SEGMENT REPORTING
The Company has adopted ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure, on both an annual and interim basis, of significant segment expenses regularly provided to the chief operating decision maker (“CODM”) and other segment items.
The CODM evaluates segment performance based on segment revenue and cost of revenue. Other operating expenses, including general and administrative expenses and sales and marketing expenses, together with non-operating items, are reviewed by the CODM on a consolidated basis and are not regularly provided to the CODM disaggregated by segment; accordingly, such amounts are presented below as “Other segment items, net” and are not allocated between segments.
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The following table presents segment revenues, the significant expense categories regularly provided to the CODM, and segment net income (loss), which is also consolidated net income (loss):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Segment revenue: | ||||||||||||||||
| Beverage alcohol | $ | $ | $ | $ | ||||||||||||
| Financial services | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Less: Segment cost of revenue: | ||||||||||||||||
| Beverage alcohol | ||||||||||||||||
| Financial services | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Segment gross profit | ||||||||||||||||
| Less: other segment items, net (unallocated) | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | - | |||||||||||||||
| Other segment items, net (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Segment and consolidated net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| (1) |
The measure of segment assets reviewed by the CODM is consolidated total assets as presented on the condensed consolidated balance sheets, as segment-level asset information is not regularly provided to the CODM.
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Segment and consolidated total assets | $ | $ | | |||||
Geographic Information
The Company’s revenues are generated primarily in the United States. The Company’s subsidiary, YHC Online Limited, is incorporated and operates in Hong Kong; however, it did not generate revenue during the three and six months ended June 30, 2026 and 2025. Following the acquisition of Fusion Five, a New Zealand entity, on June 1, 2026, the Company generated revenue of $37,778 from Fusion Five’s brokerage operations during the three and six months ended June 30, 2026. Substantially all other revenues are attributable to the United States.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| New Zealand (Fusion Five) | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
16. LEASES
SWOL Lease
In March 2025, SWOL Holdings Inc., a wholly-owned subsidiary of the Company, entered into a commercial lease agreement with CapMinds, a related party, for office space located at 6538 Collins Ave, Suite 344, Miami Beach, Florida, which also serves as the Company’s principal executive offices. CapMinds is an entity affiliated with Alexandra Hoffman, CEO of SWOL Holdings. See Note 14 - Related Party Transactions. The lease commenced on
During the six months ended June 30, 2026, the commercial lease agreement for office spaced located at 6800 Indian Creek Dr. Suite 1E Miami Beach, Florida 33141 was terminated and determined to be ineffective. Accordingly, the Company derecognized the related right-of-use asset of $
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17. COMMITMENTS AND CONTINGENCIES
Funding Commitment Agreement
On November 1, 2023, the Company entered into a Funding Commitment Agreement with KBROS, the Product Handler pursuant to the Product Handling Agreement as defined in Note 5. Pursuant to this agreement, the Company committed to provide annual funding to the Product Handler from time to time in the minimum amount of $
For further details regarding the settlement agreement, see Note 14.
Fusion Five — Remaining Purchase Commitment
Pursuant to the Share Purchase Agreement described in Note 4 — Business Combination, the Company has agreed to acquire the remaining
Legal Proceedings — Kingbird Ventures, LLC
On July 11, 2025, the Company, along with several of its current and former officers and directors and other parties, was named as a defendant in an action filed in the Eighth Judicial District Court, Clark County, Nevada, captioned Kingbird Ventures, LLC v. Sean Dollinger, et al. The complaint alleged, among other things, breach of fiduciary duties, violations of Nevada Revised Statutes Sections 78.650, 78.630, 207.400, 90.570, and 32.010, alter ego liability, and civil conspiracy. The complaint sought, among other things, unspecified monetary damages, a declaratory judgment, injunctive relief to freeze the assets of the Company and certain other defendants, and relief to prevent material corporate decisions by the Company.
On September 22, 2025, the Company entered into two settlement agreements with Kingbird Ventures and the other parties named therein to resolve all matters related to the litigation.
The First Settlement Agreement resolved the direct claims asserted by Kingbird Ventures against the Company and other defendants, providing for the dismissal of all direct claims with prejudice, mutual releases among the parties, a cash payment obligation of $
The Second Settlement Agreement resolved the stockholder derivative claims brought on behalf of the Company against certain current and former officers and directors, providing for the dismissal of the derivative action with prejudice, subject to court approval, mutual releases among the parties, and customary provisions including no admission of liability, cooperation undertakings, and confidentiality.
The Company recognized the full settlement amount of $
18. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through August 19, 2026, the date these unaudited condensed consolidated financial statements were available to be issued, and identified the following matters requiring disclosure.
Issuance of Common Stock
Between July 1, 2026 and July 8, 2026, the Company issued an aggregate of
Reverse Stock Split
On July 9, 2026, the Company filed a Certificate of Amendment to its Certificate of Incorporation to effect a one-for-one hundred (
Subsequent to the Reverse Stock Split, the Company issued an additional
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PART I — FINANCIAL INFORMATION
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.
Following the acquisition of a controlling interest in Fusion Five Continents Securities Limited (“Fusion Five”) on June 1, 2026, we also operate a New Zealand financial services company operating an AI-powered cross-border securities trading platform with proprietary USDT-based funding and settlement capabilities that enable clients internationally to buy and sell securities electronically and to make stablecoin deposits for the trading of Hong Kong and United States equities. Our business accordingly consists of two operating segments: beverage alcohol and financial services. See Note 15 — Segment Reporting.
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; in April 2026, all such joint venture agreements were terminated. See Note 8 — Investment in Joint Ventures and Note 4 — Business Combination.
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. During the three months ended June 30, 2026, the Company issued 1,619 shares of common stock under the agreement for net proceeds of $165,999.
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 the form of USDT, a digital asset, and, together with USDT received from other sources, applied toward the consideration for the acquisition of Fusion Five. See Note 4 — Business Combination.
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 the form of USDT, a digital asset, and, together with USDT received from other sources, applied toward the consideration for the acquisition of Fusion Five. See Note 4 — Business Combination.
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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). On April 24, 2026, the Company completed the initial closing, acquiring 24% of the outstanding shares for $28,080,000. On June 1, 2026, the Company completed an additional closing, acquiring a further 30% of the outstanding shares for $39,000,000, bringing its aggregate holding to 54% and obtaining control of Fusion Five, which has been consolidated from that date. The remaining 46% of the outstanding shares are to be acquired in one or more subsequent closings for $59,800,000, subject to receipt of required regulatory approvals. The Company expects to require additional financing to fund the remaining closings. Failure to secure adequate financing could delay or prevent the consummation of the remaining closings. The acquisition represents a significant use of capital, and the Company’s ability to meet its other operational and liquidity needs will depend on its ability to raise additional funds. See Note 4 — Business Combination.
Reverse Stock Split
On July 9, 2026, the Company filed a Certificate of Amendment to its Certificate of Incorporation to effect a one-for-one hundred (1-for-100) reverse stock split of its issued and outstanding common stock, which became effective on July 13, 2026. All share and per-share amounts in this Quarterly Report have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. See Note 1 — Nature of Operations and Note 18 — Subsequent Events.
Common Stock Issuances
Between July 1, 2026 and July 8, 2026, the Company issued an aggregate of 1,088,503 shares of common stock for net proceeds of $7,316,687, pursuant to its at-the-market offering program. See Note 18 — Subsequent Events.
Results of Operations
Comparison of Three Months Ended June 30, 2026 and June 30, 2025
The following table sets forth key components of our results of operations during the three months ended June 30, 2026 and 2025.
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| 2026 | 2025 | Var. $ | Var. % | |||||||||||||
| Revenue - services | $ | 3,781 | $ | 15,319 | $ | (11,538 | ) | -75 | % | |||||||
| Revenue - product | 304,416 | 483,209 | (178,793 | ) | -37 | % | ||||||||||
| Revenue - brokerage | 37,778 | - | 37,778 | n/a | ||||||||||||
| Total revenues | 345,975 | 498,528 | (152,553 | ) | -31 | % | ||||||||||
| Cost of revenue - services | - | - | - | n/a | ||||||||||||
| Cost of revenue - product | 295,333 | 414,022 | (118,689 | ) | -29 | % | ||||||||||
| Cost of revenue - brokerage | 4,740 | - | 4,740 | n/a | ||||||||||||
| Total cost of revenue | 300,073 | 414,022 | (113,949 | ) | -28 | % | ||||||||||
| Gross (loss) profit | 45,902 | 84,506 | (38,604 | ) | -46 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 1,263,129 | 2,207,612 | (944,483 | ) | -43 | % | ||||||||||
| Sales and marketing | - | 80,676 | (80,676 | ) | -100 | % | ||||||||||
| Total operating expenses | 1,263,129 | 2,288,288 | (1,025,159 | ) | -45 | % | ||||||||||
| Loss from operations | (1,217,227 | ) | (2,203,782 | ) | 986,555 | -45 | % | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (263,014 | ) | - | (263,014 | ) | n/a | ||||||||||
| Loss on disposition of assets | (25,136 | ) | - | (25,136 | ) | n/a | ||||||||||
| Gain on remeasurement of previously held equity interest | 4,206,055 | - | 4,206,055 | n/a | ||||||||||||
| Other income | 1,237 | 1,400 | (163 | ) | -12 | % | ||||||||||
| Total other income | 3,919,142 | 1,400 | 3,917,742 | 279839 | % | |||||||||||
| Income tax expense | - | - | - | n/a | ||||||||||||
| Net income (loss) | $ | 2,701,915 | $ | (2,202,382 | ) | $ | 4,904,297 | -223 | % | |||||||
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Revenue
Service revenues were $3,781 for the three months ended June 30, 2026, compared to $15,319 for the three months ended June 30, 2025, a decrease of $11,538, or approximately 75 %. The decrease was attributable primarily to fewer marketing service engagements through the CWS Platform and lower Vault membership subscription revenue.
Product revenues were $304,416 for the three months ended June 30, 2026, compared to $483,209 for the three months ended June 30, 2025, a decrease of $178,793, or approximately 37 %. The decline reflects lower customer traffic and order activity through the CWS Platform, consistent with management’s strategic focus on profitability with the existing customer base rather than top-line growth.
Brokerage revenues were $37,778 for the three months ended June 30, 2026, with no comparable revenue in the 2025 period. Brokerage revenue represents commissions and platform income earned by Fusion Five Continents Securities Limited (“Fusion Five”), following the Company’s acquisition of a controlling interest in Fusion Five on June 1, 2026. See Note 4 — Business Combination.
Cost of Revenue and Gross Profit (Loss)
Service cost of revenues was $0 for both the three months ended June 30, 2026 and 2025.
Product cost of revenues was $295,333 for the three months ended June 30, 2026, compared to $414,022 for the three months ended June 30, 2025, a decrease of $118,689, or approximately 29%, consistent with the decline in product revenue described above.
Brokerage cost of revenues was $4,740 for the three months ended June 30, 2026, with no comparable amount in the 2025 period, representing fees paid to Fusion Five’s Execution Broker and other third parties for trade execution, clearing, and settlement services attributable to the post-acquisition period.
Gross profit was $45,902 for the three months ended June 30, 2026, compared to $84,506 for the three months ended June 30, 2025, a decrease of $38,604, or approximately 46%. The decrease was primarily attributable to the decline in product gross profit, partially offset by the gross profit contribution from Fusion Five’s brokerage operations following the acquisition.
General and Administrative
General and administrative expenses were $1,263,129 for the three months ended June 30, 2026, compared to $2,207,612 for the three months ended June 30, 2025, a decrease of $944,483, or approximately 43%. The decrease was primarily attributable to lower professional fees and administrative costs in the Company’s beverage alcohol operations during the current period.
Sales and Marketing
Sales and marketing expenses were $0 for the three months ended June 30, 2026, compared to $80,676 for the three months ended June 30, 2025, a decrease of $80,676, or 100%, reflecting the continued absence of discretionary advertising and promotional spending during the current period.
Other Income (Expense)
Interest expense was $263,014 for the three months ended June 30, 2026, with no comparable expense in the 2025 period, representing interest on the promissory notes issued in May 2026. See Note 12 — Notes Payable.
The Company recognized a loss on disposition of assets of $25,136 for the three months ended June 30, 2026, with no comparable amount in the 2025 period, in connection with the disposal of the Company’s motor vehicle. See Note 5 — Property and Equipment, Net.
The Company recognized a gain on remeasurement of the previously held equity interest of $4,206,055 for the three months ended June 30, 2026, with no comparable amount in the 2025 period, in connection with the remeasurement of the Company’s previously held 24% equity interest in Fusion Five to its acquisition-date fair value upon obtaining control on June 1, 2026. See Note 4 — Business Combination.
Other income was $1,237 for the three months ended June 30, 2026, compared to $1,400 for the three months ended June 30, 2025, a decrease of $163, or approximately 12%.
Net Income (Loss)
Net income was $2,701,915 for the three months ended June 30, 2026, compared to a net loss of $2,202,382 for the three months ended June 30, 2025, an improvement of $4,904,297. The improvement was primarily attributable to the $4,206,055 gain on remeasurement of the previously held equity interest in Fusion Five and the decrease in general and administrative expenses, partially offset by interest expense on the promissory notes and the loss on disposition of the Company’s motor vehicle.
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Comparison of Six Months Ended June 30, 2026 and June 30, 2025
The following table sets forth key components of our results of operations during the six months ended June 30, 2026 and 2025.
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| 2026 | 2025 | Var. $ | Var. % | |||||||||||||
| Revenue - services | $ | 16,353 | $ | 92,675 | $ | (76,322 | ) | -82 | % | |||||||
| Revenue - product | 514,527 | 835,193 | (320,666 | ) | -38 | % | ||||||||||
| Revenue - brokerage | 37,778 | - | 37,778 | n/a | ||||||||||||
| Total revenues | 568,658 | 927,868 | (359,210 | ) | -39 | % | ||||||||||
| Cost of revenue - services | 13,553 | 1,400 | 12,153 | 868 | % | |||||||||||
| Cost of revenue - product | 526,699 | 811,804 | (285,105 | ) | -35 | % | ||||||||||
| Cost of revenue - brokerage | 4,740 | - | 4,740 | n/a | ||||||||||||
| Total cost of revenue | 544,992 | 813,204 | (268,212 | ) | -33 | % | ||||||||||
| Gross (loss) profit | 23,666 | 114,664 | (90,998 | ) | -79 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 4,044,029 | 4,230,773 | (186,744 | ) | -4 | % | ||||||||||
| Sales and marketing | 105,000 | 487,529 | (382,529 | ) | -78 | % | ||||||||||
| Total operating expenses | 4,149,029 | 4,718,302 | (569,273 | ) | -12 | % | ||||||||||
| Loss from operations | (4,125,363 | ) | (4,603,638 | ) | 478,275 | -10 | % | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (263,014 | ) | - | (263,014 | ) | n/a | ||||||||||
| Loss on disposition of assets | (25,136 | ) | - | (25,136 | ) | n/a | ||||||||||
| Gain on remeasurement of previously held equity interest | 4,206,055 | - | 4,206,055 | n/a | ||||||||||||
| Other income | 1,994,404 | 11,606 | 1,982,798 | 17084 | % | |||||||||||
| Total other income | 5,912,309 | 11,606 | 5,900,703 | 50842 | % | |||||||||||
| Income tax expense | - | - | - | n/a | ||||||||||||
| Net income (loss) | $ | 1,786,946 | $ | (4,592,032 | ) | $ | 6,378,978 | -139 | % | |||||||
Revenue
Service revenues were $16,353 for the six months ended June 30, 2026, compared to $92,675 for the six months ended June 30, 2025, a decrease of $76,322, or approximately 82%. The decrease was primarily attributable to lower marketing service engagements through the CWS Platform and reduced Vault membership subscription revenue.
Product revenues were $514,527 for the six months ended June 30, 2026, compared to $835,193 for the six months ended June 30, 2025, a decrease of $320,666, or approximately 38%, reflecting continued lower customer traffic and order activity through the CWS Platform, consistent with management’s strategic focus on profitability with the existing customer base rather than top-line growth.
Brokerage revenues were $37,778 for the six months ended June 30, 2026, with no comparable revenue in the 2025 period, representing commissions and platform income earned by Fusion Five Continents Securities Limited (“Fusion Five”) since the Company’s acquisition of a controlling interest on June 1, 2026. See Note 4 — Business Combination.
Cost of Revenue and Gross Profit (Loss)
Service cost of revenues was $13,553 for the six months ended June 30, 2026, compared to $1,400 for the six months ended June 30, 2025, an increase of $12,153. The increase reflects a fixed cost retainer that commenced in July 2025, which has no corresponding expense in the 2025 period.
Product cost of revenues was $526,699 for the six months ended June 30, 2026, compared to $811,804 for the six months ended June 30, 2025, a decrease of $285,105, or approximately 35%, consistent with the decline in product revenue described above.
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Brokerage cost of revenues was $4,740 for the six months ended June 30, 2026, with no comparable amount in the 2025 period, representing fees paid to Fusion Five’s Execution Broker and other third parties for trade execution, clearing, and settlement services attributable to the post-acquisition period.
Gross profit was $23,666 for the six months ended June 30, 2026, compared to $114,664 for the six months ended June 30, 2025, a decrease of $90,998, or approximately 79%. The decrease was primarily attributable to the decline in product gross profit and the increase in service cost of revenue described above.
General and Administrative
General and administrative expenses were $4,044,029 for the six months ended June 30, 2026, compared to $4,230,773 for the six months ended June 30, 2025, a decrease of $186,744, or approximately 4%. The net decrease reflects a $944,483 decline in general and administrative expenses during the second quarter of 2026, due to lower professional fees and administrative costs in the Company’s beverage alcohol operations, substantially offset by $1,150,000 of indemnification and related legal charges recorded in the first quarter of 2026, with no comparable amounts in the prior-year period.
Sales and Marketing
Sales and marketing expenses were $105,000 for the six months ended June 30, 2026, compared to $487,529 for the six months ended June 30, 2025, a decrease of $382,529, or approximately 78%. 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 (Expense)
Interest expense was $263,014 for the six months ended June 30, 2026, with no comparable expense in the 2025 period, representing interest on the promissory notes issued in May 2026. See Note 12 — Notes Payable.
The Company recognized a loss on disposition of assets of $25,136 for the six months ended June 30, 2026, with no comparable amount in the 2025 period, in connection with the disposal of the Company’s motor vehicle. See Note 5 — Property and Equipment, Net.
The Company recognized a gain on remeasurement of the previously held equity interest of $4,206,055 for the six months ended June 30, 2026, with no comparable amount in the 2025 period, in connection with the remeasurement of the Company’s previously held 24% equity interest in Fusion Five to its acquisition-date fair value upon obtaining control on June 1, 2026. See Note 4 — Business Combination.
Other income was $1,994,404 for the six months ended June 30, 2026, compared to $11,606 for the six months ended June 30, 2025, an increase of $1,982,798. The increase was primarily due to $1,944,603 of proceeds received under the Company’s directors and officers insurance policy during the three months ended March 31, 2026, with no comparable amount in the 2025 period.
Net Income (Loss)
Net income was $1,786,946 for the six months ended June 30, 2026, compared to a net loss of $4,592,032 for the six months ended June 30, 2025, an improvement of $6,378,978. The improvement was primarily attributable to the $4,206,055 gain on remeasurement of the previously held equity interest in Fusion Five and the $1,944,603 of directors and officers insurance proceeds received during the first quarter of 2026, partially offset by the $1,150,000 of indemnification and related legal charges recorded during the same period and interest expense on the promissory notes issued in May 2026.
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Liquidity and Capital Resources
As of June 30, 2026 and December 31, 2025, we had cash and cash equivalents of $144,642 and $5,975,408, respectively, excluding cash held on behalf of clients of $316,932 as of June 30, 2026, representing client monies held in segregated accounts by Fusion Five Continents Securities Limited (“Fusion Five”). 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; (ii) an accumulated deficit of $66,058,548 as of June 30, 2026; and (iii) cash and cash equivalents of $144,642 as of June 30, 2026, notwithstanding net income of $ 1,786,946 for the six months ended June 30, 2026, which was driven substantially by the non-cash gain on remeasurement of the previously held equity interest in Fusion Five and non-recurring insurance proceeds, rather than by cash generated from operations. Net cash used in operating activities was $3,004,669 for the six months ended June 30, 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 six months ended June 30, 2026, the Company raised $165,999 in net proceeds through the issuance of 1,619 shares of common stock under its at-the-market offering program. In April 2026, amounts previously funded under the Company’s joint venture agreements and distribution and marketing service agreements, aggregating $21,773,000, were returned to the Company in the form of USDT, a digital asset, and, together with USDT received from other sources, applied toward the consideration for the acquisition of Fusion Five. Subsequent to June 30, 2026, the Company issued an aggregate of 1,088,503 shares of common stock for net proceeds of $7,316,687. See Note 4 — Business Combination and Note 18 — Subsequent Events.
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. Through June 30, 2026, the Company had issued 1,619 shares of common stock under the agreement for net proceeds of $165,999.
The following table presents selected captions from our consolidated statement of cash flows for the six months ended June 30, 2026 and 2025:
Cash Flows
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| Net cash used in operating activities | $ | (3,004,669 | ) | $ | (8,263,348 | ) | ||
| Net cash used in investing activities | $ | (2,053,423 | ) | $ | (8,166,988 | ) | ||
| Net cash (used in) provided by financing activities | $ | (454,571 | ) | $ | 15,610,483 | |||
| Net change in cash, cash equivalents and restricted cash | $ | (5,513,834 | ) | $ | (819,853 | ) | ||
Net Cash Used in Operating Activities
Net cash used in operating activities was $3,004,969 for the six months ended June 30, 2026, compared to $8,263,348 for the six months ended June 30, 2025, a decrease in cash used of $4,718,109, or approximately 57%. The significant reduction was primarily attributable to the non-recurrence of $5,181,608 in cash payments made during the six months ended June 30, 2025 to settle accrued and other payables to related parties, representing retention, bonus, and settlement obligations that had been accrued in prior periods, compared to $134,787 of comparable payments during the six months ended June 30, 2026.
Net income was $1,786,946 for the six months ended June 30, 2026, compared to a net loss of $4,592,032 for the six months ended June 30, 2025; however, the improvement in net income was substantially non-cash in nature, driven by the $4,206,055 gain on remeasurement of the previously held equity interest in Fusion Five Continents Securities Limited (“Fusion Five”), which is excluded from operating cash flows. No stock-based compensation or restricted stock unit vesting expense was recognized during the six months ended June 30, 2026, compared to $220,200 and $1,360,205, respectively, during the six months ended June 30, 2025, as all restricted stock units had been fully vested or forfeited as of December 31, 2025.
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The most significant working capital movements during the six months ended June 30, 2026 were as follows:
Accrued and other payables increased by $409,311, compared to a decrease of $542,309 in the corresponding 2025 period, reflecting legal, audit, and consulting fees accrued in connection with the Company’s SEC reporting obligations and ongoing corporate activities.
Payables – Client funds decreased by $1,063,422, reflecting client-directed withdrawals of cash held on behalf of Fusion Five’s clients following the acquisition. Fusion Five’s short-term investment – broker dealer and related payable – broker dealer, and its digital assets – external trust company and related payable – external trust company, each moved by offsetting amounts during the period, as these assets are held for the benefit of Fusion Five’s clients and are not available for the Company’s general operating purposes; accordingly, these movements had no net effect on operating cash flows.
Net Cash Used in Investing Activities
Net cash used in investing activities was $2,053,423 for the six months ended June 30, 2026, compared to $8,166,988 for the six months ended June 30, 2025, a decrease in cash used of $6,113,565, or approximately 75%. The decrease was primarily attributable to the non-recurrence of $8,166,988 funded under the Company’s joint venture agreements during the six months ended June 30, 2025, with no comparable funding activity during the six months ended June 30, 2026, as those agreements were terminated in April 2026. See Note 8 — Investment in Joint Ventures.
Investing activities during the six months ended June 30, 2026 consisted of $4,051,415 used to purchase digital assets (USDT), partially offset by $1,380,354 of cash held on behalf of clients acquired in the acquisition of Fusion Five Continents Securities Limited on June 1, 2026, $347,638 of proceeds from the conversion of digital assets to U.S. dollars, and $270,000 of proceeds from the disposal of the Company’s motor vehicle. See Note 5 — Property and Equipment, Net, Note 9 — Digital Assets, and Note 4 — Business Combination.
Net Cash (Used in) Provided by Financing Activities
For the six months ended June 30, 2026, net cash used in financing activities was $454,571, compared to net cash provided by financing activities of $15,610,483 for the six months ended June 30, 2025. Financing activities during the six months ended June 30, 2026 consisted of net advances to related parties of $540,570 and $80,000 of deferred offering costs related to the SWOL IPO, partially offset by $165,999 of net proceeds from the issuance of common stock under the Company's at-the-market offering program. For the six months ended June 30, 2025, net cash provided by financing activities was $15,610,483, consisting of $11,559,068 from the issuance of common stock pursuant to the Company’s at-the-market offering program and $4,051,415 from the exercise of outstanding warrants.
Off-Balance Sheet Arrangements
As of June 30, 2026, we had no off-balance sheet arrangements that had or were 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.
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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. However, in light of our recent acquisition of a controlling interest in Fusion Five Continents Securities Limited (“Fusion Five”) on June 1, 2026, we are providing the following supplemental disclosures.
Digital Asset Risk
We hold digital assets, principally USDT, a U.S. dollar-denominated stablecoin, both for our own general corporate purposes and, through Fusion Five, on behalf of Fusion Five’s clients. As of June 30, 2026, the fair value of our own digital assets was $1,000,000, and digital assets held on behalf of Fusion Five’s clients had a fair value of $409,340. USDT is designed to maintain a stable value of $1.00 per token; however, there can be no assurance that this peg will be maintained. A significant decline in the value of USDT, or in the credit standing of its issuer, could adversely affect the value of our digital assets and our liquidity.
Foreign Currency Risk
Fusion Five’s functional currency is the New Zealand dollar. Fluctuations in the exchange rate between the New Zealand dollar and the U.S. dollar affect the U.S. dollar value of Fusion Five’s assets, liabilities, revenues, and expenses as translated into our reporting currency. We do not currently use derivative financial instruments to hedge our foreign currency exposure. A hypothetical 10% adverse movement in the NZD/USD exchange rate as of June 30, 2026 would not have had a material effect on our consolidated financial statements, given the current size of Fusion Five’s net asset position relative to our total assets; however, this exposure may become more significant as Fusion Five’s operations grow or as we complete the remaining closings of the Fusion Five acquisition.
Interest Rate Risk
Our $40,000,000 of promissory notes bear interest at a fixed rate of 6.0% per annum and are not subject to interest rate fluctuation risk with respect to our required interest payments. However, changes in prevailing market interest rates could affect the fair value of the Notes and our ability to refinance this or other indebtedness on favorable terms in the future.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the U.S. Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.
As of June 30, 2026, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2026, due to the existence of the following material weaknesses in our internal control over financial reporting previously identified and disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025:
Segregation of Duties. Our size has prevented us from being able to employ sufficient resources to enable an adequate level of supervision and segregation of duties. It is therefore difficult to effectively segregate accounting duties, which constitutes a material weakness in internal controls.
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Insufficient Accounting and Financial Reporting Personnel. The Company lacks sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. generally accepted accounting principles (“U.S. GAAP”) and SEC reporting requirements. This deficiency increases the risk that material misstatements in the consolidated financial statements would not be prevented or detected on a timely basis.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Acquisition of Fusion Five
In connection with the acquisition of a controlling interest in Fusion Five Continents Securities Limited (“Fusion Five”) on June 1, 2026, management’s evaluation of disclosure controls and procedures as of June 30, 2026 did not include Fusion Five’s internal control over financial reporting, consistent with the general guidance provided by the SEC that allows a recently acquired business to be excluded from such assessment for a reasonable period following the acquisition. The Company is in the process of evaluating Fusion Five’s internal control environment, including differences arising from Fusion Five’s operations in New Zealand and its status as a newly regulated financial services subsidiary, and expects to complete this evaluation and integrate Fusion Five into the Company’s internal control framework within the period permitted under applicable SEC rules.
The Company is implementing measures designed to improve its internal control over financial reporting and remediate the identified material weaknesses, including the following:
| ● | Increasing the capacity of qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate controls over our Exchange Act reporting disclosures. | |
| ● | Providing more regular training on an ongoing basis to our accounting personnel covering a broad range of U.S. GAAP and SEC financial reporting topics. | |
| ● | Implementing enhanced review procedures over the financial statement close process and disclosures to reduce the risk of misstatement. |
Although these actions represent progress toward remediation, the material weaknesses have not yet been fully remediated. There can be no assurance that these measures will be sufficient to remediate the identified material weaknesses or prevent future material weaknesses from arising.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than the ongoing remediation efforts described above.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. See Note 17 — Commitments and Contingencies to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes from the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025.
We may not realize the anticipated benefits of the Fusion Five acquisition, and the integration of Fusion Five’s operations may be difficult, costly, or disruptive.
The acquisition of Fusion Five represents our entry into the financial services and securities brokerage industry, which is substantially different from our historical beverage alcohol operations. Successfully integrating Fusion Five’s operations, personnel, regulatory compliance functions, and financial reporting systems requires, and may continue to require, significant management attention and resources. We may encounter unforeseen difficulties, including differences in business practices, regulatory environments, and accounting systems between our historical operations and those of Fusion Five. Any failure to successfully integrate Fusion Five could adversely affect our business, financial condition, and results of operations.
We may be unable to complete the remaining closings of the Fusion Five acquisition, which are subject to regulatory approvals and our ability to obtain additional financing.
We have acquired an aggregate of 54% of Fusion Five’s issued and outstanding shares to date. The purchase of the remaining 46%, for an aggregate purchase price of $59,800,000, remains subject to the receipt of required regulatory approvals and our ability to secure additional financing. There can be no assurance that such approvals will be obtained or that adequate financing will be available on acceptable terms, or at all. Failure to complete the remaining closings could adversely affect our strategic plans, our investment in Fusion Five and our relationship with Fusion Five’s other shareholders.
Our use of digital assets, including USDT, to fund a substantial portion of the Fusion Five acquisition, and Fusion Five’s use of digital assets in connection with its client-related operations, expose us to risks associated with stablecoins and digital asset markets.
A substantial portion of the consideration paid for the Fusion Five acquisition was paid in USDT, a U.S. dollar-denominated stablecoin, and Fusion Five holds certain digital assets on behalf of its clients in USDT. Stablecoins are subject to risks relating to the issuer’s ability to maintain adequate reserves and honor redemptions, regulatory uncertainty regarding their treatment under U.S. and foreign law, cybersecurity and custodial risks associated with digital asset wallets and third-party trust companies, and the risk that a stablecoin may lose its peg to the U.S. dollar. The materialization of any of these risks could adversely affect the value of our digital assets, our liquidity and our ability to complete the remaining Fusion Five closings.
Fusion Five depends on a single third-party execution broker, and a disruption to that relationship could adversely affect Fusion Five’s operations.
Substantially all of Fusion Five’s client securities transactions are executed through a single third-party execution broker. Fusion Five does not itself hold a securities dealing license in each of the jurisdictions where its clients trade. A termination or disruption of this relationship, or a deterioration in the execution broker’s financial condition or regulatory standing, could impair Fusion Five’s ability to provide trading services to its clients and adversely affect our financial services segment.
Fusion Five’s operations subject us to New Zealand regulatory requirements and foreign currency risk.
Fusion Five is registered as a financial service provider in New Zealand and is subject to regulatory oversight that differs from the regulatory environment applicable to our historical U.S. operations. Changes in New Zealand financial services laws or regulation, or Fusion Five’s failure to maintain its registration or comply with applicable legal and regulatory requirements, could adversely affect our financial services segment. In addition, Fusion Five’s functional currency is the New Zealand dollar, and fluctuations in the NZD/USD exchange rate may affect the U.S. dollar value of Fusion Five’s assets, liabilities, and results of operations as reported in our consolidated financial statements.
We have incurred substantial indebtedness in connection with the Fusion Five acquisition, which could adversely affect our financial condition.
We issued $40,000,000 aggregate principal amount of promissory notes to fund a portion of the Fusion Five acquisition, which bear interest at 6.0% per annum and mature on May 20, 2028. Our ability to service this indebtedness depends on our future operating performance and financial condition, which are subject to prevailing economic conditions and other factors, many of which are beyond our control. Our failure to make required payments under the notes when due could result in an event of default, which could have a material adverse effect on our business, financial condition and results of operations.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
None.
ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LQR HOUSE INC. | ||
| Date: August 19, 2026 | By: | /s/ Sean Dollinger |
| Sean Dollinger | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 19, 2026 | By: | /s/ Kumar Abhishek |
| Kumar Abhishek | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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