10q10k10q10k.net

What changed in Heritage Distilling Holding Company, Inc.'s 10-K — 2024 vs 2025

vs

Paragraph-level year-over-year comparison of Heritage Distilling Holding Company, Inc.'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+930 added−710 removedSource: 10-K (2026-04-14) vs 10-K (2025-04-28)

Top changes in Heritage Distilling Holding Company, Inc.'s 2025 10-K

930 paragraphs added · 710 removed · 246 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

21 edited+182 added−198 removed24 unchanged
Biggest changeOut of the more than 2,600 craft producers in North America, we have been recognized with more awards for our products from the American Distilling Institute, the leading independent spirits association in the U.S., than any other North American craft distiller for each of the last ten years, plus numerous other Best of Class, Double Gold and Gold medals from multiple national and international spirits competitions.
Biggest changeFor a decade we received the most craft distiller awards from the American Distilling Institute than any other craft distiller in North America, in addition to receiving numerous Best of Class, Double Gold, and Gold medals in a broad range of national and international competitions.
Alcohol-related regulation We are subject to extensive regulation in the United States by federal, state and local laws and regulations regulating the production, distribution and sale of consumable food items, and specifically alcoholic beverages, including by the Alcohol and Tobacco Tax and Trade Bureau (the “TTB”) and the Food and Drug Administration (the “FDA”).
Alcohol-related regulation We are subject to extensive regulation in the United States by federal, state and local laws and regulations regulating the production, distribution and sale of consumable food items, and specifically alcoholic beverages, including by the Federal Alcohol and Tobacco Tax and Trade Bureau (the “TTB”) and the Food and Drug Administration (the “FDA”).
We expect to continue to file trademark applications to protect our spirits brands. We have also been granted copyright registration in the first version of our website located at www.heritagedistilling.com . Information contained on or accessible through our website is not incorporated by reference in or otherwise a part of this filing.
We expect to continue to file trademark applications to protect our spirits brands. We have also been granted copyright registration in the first version of our website located at www.heritagedistilling.com . Information contained on or accessible through our website is not incorporated by reference in or otherwise a part of this prospectus.
We currently utilize software tools available to the industry and work with our license compliance service provider to navigate and manage the complex state-by-state tax and other regulations that apply to our operations in the alcoholic beverage industry.
We currently utilize software tools that are generally available to the industry and work with our license compliance service provider to navigate and manage the complex state-by-state tax and other regulations that apply to our operations in the alcoholic beverage industry.
This allows us to leverage our experience and our innovative distillation methods while taking advantage of the Pacific Northwest’s unique climate to produce aged whiskeys that are authentic to our name and of the highest quality. Depending on the particular product, ingredients are blends of corn, rye, malted barley, unmalted barley, peated malt and wheat.
This allows us to leverage our experience and our innovative distillation methods while taking advantage of the Pacific Northwest’s unique climate to produce aged whiskeys that are 12 Table of Contents authentic to our name and of the highest quality. Depending on the particular product, ingredients are blends of corn, rye, malted barley, unmalted barley, peated malt and wheat.
Based on historical activities, more than one-third of our annual revenue is earned in the fourth quarter of each year, and absent a major disruption or change in operations, management does not anticipate that to change in the foreseeable future.
Based on historical activities, more than one-third of our annual revenue is 15 Table of Contents earned in the fourth quarter of each year, and absent a major disruption or change in operations, management does not anticipate that to change in the foreseeable future.
Regulatory Matters Along with our distributors, retail accounts and ingredients and packaging suppliers, we are subject to extensive regulation in the United States by federal, state and local government authorities with respect to registration, production processes, product attributes, packaging, labeling, storage and distribution of the craft spirits, RTD canned cocktails and other products we produce.
Regulatory Matters Along with our distributors, retail accounts and ingredients and packaging suppliers, we are subject to extensive regulation in the United States by federal, state and local government authorities with respect to registration, production processes, product attributes, packaging, labeling, storage and distribution of the craft spirits we produce.
We also rely on, and carefully protect, proprietary knowledge and expertise, including the sources of certain supplies, formulations, production processes, innovation regarding product development and other trade secrets necessary to maintain and enhance our competitive position. Human Capital As of December 31, 2024, we had 83 employees, of which 21 worked part-time.
We also rely on, and carefully protect, proprietary knowledge and expertise, including the sources of certain supplies, formulations, production processes, innovation regarding product development and other trade secrets necessary to maintain and enhance our competitive position. Human Capital As of March 31, 2026, we had 21 employees, of which one worked part-time.
We are also subject to employment and safety regulations issued by state and local authorities. 14 Table of Contents Environmental regulation Due to our distilleries and production activities, we and certain third parties with which we work are subject to federal, state and local environmental laws and regulations.
We are also subject to employment and safety regulations issued by state and local authorities. Environmental regulation Due to our distilleries and production activities, we and certain third parties with which we work are subject to federal, state and local environmental laws and regulations.
In 2015, we launched 1st Special Forces Whiskey , a premium brand positioned towards active-duty military, retired military, military families, and others supportive of the armed forces in the Pacific Northwest, where the 1 st Special Forces Group is stationed at Joint Base Lewis McChord (“JBLM”).
Brand Portfolio and Product Innovation We offer a diversified portfolio of super-premium whiskeys and premium-flavored whiskey products: • 1st Special Forces Whiskey & Salute Series : In 2015, we launched 1 st Special Forces Whiskey, a premium brand positioned towards active-duty military, retired military, military families, and others supportive of the armed forces in the Pacific Northwest, where the 1 st Special Forces Group is stationed at Joint Base Lewis McChord.
While we were producing the whiskey products described above, we were aging additional whiskey with the goal of creating bottles of single-barrel selections with specific flavor profiles to appeal to the growing “bourbon hunter” demographic — a subset of whiskey drinkers who seek out small batch and unique high-quality whiskeys.
This was the fourth time we have won these prestigious awards in the flavored whiskey category for the United States and the third time globally. • Stiefel’s Select Aged Whiskey : While we were producing the whiskey products described above, we were aging additional whiskey with the goal of creating bottles of single-barrel selections with specific flavor profiles to appeal to the growing “bourbon hunter” demographic — a subset of whiskey drinkers who seek out small batch and unique high-quality whiskeys.
This training is tracked and recorded by us and is mandatory for all new hires. Our employees have multiple avenues available through which inappropriate behavior can be reported, including a confidential hotline. Our policies require all reports of inappropriate behavior to be promptly investigated with appropriate action taken.
We require and provide training for our employees covering harassment, discrimination and unconscious bias. This training is tracked and recorded by us and is mandatory for all new hires. Our employees have multiple avenues available through which inappropriate behavior can be reported, including a confidential hotline.
We maintain licenses that enable us to distribute our craft spirits and RTD pre-mixed cocktails in all 50 states plus Washington, D.C., and to sell directly to consumers in 46 states via a three-tier compliant third-party firm.
We maintain licenses that enable us to distribute our craft spirits and ready-to-drink (“RTD”) pre-mixed cocktails in multiple states and we work with third-party retailers that sell a cross-section of our premium spirits directly to consumers in 46 states via a three-tier compliant third-party firm.
Federal regulations govern, among other things, air emissions, wastewater and stormwater discharges, and the treatment, handling and storage and disposal of materials and wastes. State environmental regulations and authorities intended to address and oversee environmental issues are largely state-level analogs to federal regulations and authorities intended to perform similar purposes. Privacy and security regulation We collect personal information from individuals.
State environmental regulations and authorities intended to address and oversee environmental issues are largely state-level analogs to federal regulations and authorities intended to perform similar purposes. 14 Table of Contents Privacy and security regulation We collect personal information from individuals.
In February 2025, Cocoa Bomb was recognized as the “Best Flavored Whiskey in the United States” by Whiskey Magazine, and was then named “World’s Best Flavored Whiskey” at Whiskey Magazine’s global competition in March 2025. This was the third time we have one these prestigious awards in the flavored whiskey category for the United States and globally.
In February 2025 and 2026, Cocoa Bomb was recognized as the “Best Flavored Whiskey in the United States” by Whiskey Magazine , and in March 2025, Cocoa Bomb was also named “World’s Best Flavored Whiskey” at Whiskey Magazine ’s global competition.
We believe the new Salute Series line will continue to garner a growing following given the specialty packaging and non-profit charitable partnerships we are forming to support the launch and sale of the line. On February 21, 2024, we acquired Thinking Tree Spirits, a small craft spirits producer and retailer located in Eugene, Oregon.
We believe the new Salute Series line will continue to garner a growing following given the specialty packaging and non-profit charitable partnerships we are forming to support the launch and sale of the line. • Flavored Whiskey Leadership : In 2017, we created and launched Flavored Bourbon , a bourbon flavored with brown sugar and cinnamon.
In the typical TBN collaboration, the tribes will own these businesses and we will receive a royalty on gross sales through licenses we grant to use our brands, products, recipes, programs, IP, new product development, on-going compliance support and the other 3 Table of Contents support we provide.
Under this model, in the typical TBN collaboration, our tribal partners will construct and own Heritage-branded micro production hubs and Heritage-branded stores and tasting rooms on tribal lands and we will receive development fees and ongoing royalties on gross sales through licenses we grant to use our brands, products, recipes, programs, IP, new product development, on-going compliance and other support.
Of our 83 employees, we employed 14 in corporate and administrative capacities, 7 in marketing and sales and e-commerce activities, 41 in retail activities and 21 in production, warehouse and product development activities. None of our employees is covered by a collective bargaining agreement. We believe our employees are key to achieving our business objectives.
Of our 21 employees, we employed 14 in corporate and administrative capacities, five in marketing, sales, and e-commerce activities, and two in production, warehouse, and product development activities. None of our employees is covered by a collective bargaining agreement. We strive to maintain an inclusive environment free from discrimination of any kind, including sexual or other discriminatory harassment.
Seasonality We experience some seasonality whereby the peak summer months and the winter holidays show a higher level of sales and consumption. However, the structure of our business and range of products in our portfolio are designed to mitigate major fluctuations.
However, the structure of our business and range of products in our portfolio are designed to mitigate major fluctuations.
We maintain a global privacy policy and related procedures and train our workforce to understand and comply with applicable privacy laws. Intellectual Property We strive to protect the reputation of our brand.
We maintain a global privacy policy and related procedures and train our workforce to understand and comply with applicable privacy laws. Digital asset regulation $IP Tokens and other digital assets are relatively novel and the application of state and federal securities laws, taxes and other laws and regulations to digital assets is unclear in certain respects.
First, we are focused on growing our direct-to-consumer (“DtC”) sales by shipping to legal purchasers to their homes where allowed. We currently use a three-tier compliant, third-party platform to conduct these sales and deliveries in 46 states in which approximately 96.8% of the U.S. population reside.
Sales and Distribution Our growth strategy for the sale and distribution of our spirits products focuses on three primary initiatives: • Direct-to-Consumer Sales . We sell spirits directly to consumers online where legally permitted, utilizing a three-tier-compliant third-party platform that enables shipment of our products to 46 states, covering approximately 96.8% of the U.S. population.
Removed
Item 1. Business Overview We are a craft distiller producing, marketing and selling a diverse line of award-winning craft spirits, including whiskeys, vodkas, gins, rums, and “ready-to-drink” canned cocktails. We recognize that taste and innovation are key criteria for consumer choices in spirits and innovate new products for trial in our company-owned distilleries and tasting rooms.
Added
Item 1. Business Overview We operate a diversified business centered on digital asset–based infrastructure and intellectual property (“IP”) management, supplemented by a legacy craft spirits operating segment. In August 2025, we consummated a $220 million offering of our pre-paid stock purchase warrants in which we acquired 53.2 million $IP Tokens for our digital asset treasury.
Removed
We have developed differentiated products that are responsive to consumer desires for rewarding and novel taste experiences. We compete in the craft spirits segment, which is the most rapidly-growing segment of the overall $288 billion spirits market.
Added
The $IP Token is the native utility token of the Story Network, a decentralized layer 1 blockchain that allows network participants to register, license and enforce IP assets.
Removed
According to the American Craft Spirits Association, a craft distillery is defined generally as a distillery that produces fewer than 750,000 gallons annually and holds an ownership interest of 51% or more of a distilled spirits plant that is licensed by the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury.
Added
Our strategic focus involves the continued growth of our validator services using our $IP Tokens to generate yield and the possible future acquisition, management, and monetization of IP that can add value to our balance sheet and deliver more revenue and yield.
Removed
According to the Craft Spirits Global Market Report 2023 of Grand View Research, the craft spirits segment had revenues of in excess of $21.4 billion in 2023 and is estimated to grow at a compound annual growth rate (“CAGR”) of 29.4% between 2024 and 2030.
Added
We are among the largest corporate holders of $IP Tokens, and we actively deploy these holdings to generate yield and service revenue through validator operations. We view our $IP Token holdings as productive assets that support transaction validation, network security, and IP-centric economic activity across the Story ecosystem.
Removed
We believe we are well positioned to grow in excess of the growth rate of the market by increasing our marketing efforts, increasing the size of our sales teams and broadening our wholesale distribution.
Added
We established our validator business in September 2025 to allow us to derive yield and revenue from our large $IP Token holdings. A cryptocurrency validator is like a digital “notary” or “referee” in a blockchain network. Its job is to check that transactions on the network are real and follow the network rules.
Removed
We are one of the largest craft spirits producers on the West Coast based on revenues and are developing a national reach in the U.S. through traditional sales channels (wholesale, on-premises and e-commerce) and our unique and recently-developed Tribal Beverage Network (“TBN”) sales channel.
Added
Validators also are randomly selected to propose a new block of transactions to be added to the blockchain. When a participant attempts a transaction, that participant is required to pay a minimum “gas” fee. A participant can opt to pay an additional fee to ensure that its transaction is added to the blockchain more quickly.
Removed
Based upon our revenues and our continued track record of winning industry awards in an increasingly competitive environment, we believe we are one of the leading craft spirits producers in the United States.
Added
These fees are denominated in the same cryptocurrency that is evidenced by the blockchain. In the case of the Story Network, these fees are denominated in $IP Tokens.
Removed
We sell our products through wholesale distribution, directly to consumers through our five distilleries and tasting rooms we own and operate in Washington and Oregon and by shipping directly to consumers online where legal. Currently, we sell products primarily in the Pacific Northwest with limited distribution in other states throughout the U.S.
Added
The validator chosen to propose a block will (when that block is successfully confirmed by the other validator nodes) receive the gas fees for all transactions in the block (known as “execution layer rewards”). In addition, the Story Network automatically issues $IP Tokens as rewards to validators that successfully propose a block.
Removed
In addition, in collaboration with Native American tribes, we have recently developed a new sales, manufacturing and distribution channel on tribal lands that we expect will increase and broaden the recognition of our brand as that network expands nationally. Our growth strategy is based on three primary areas.
Added
We have elected to continue operating our own validator services rather than to “delegate” our $IP Tokens to third-party validation service providers. In parallel with our digital asset management operations, we continue to operate a streamlined spirits business through our Heritage Distilling Company subsidiary that markets and sells award-winning craft whiskeys and select flavored spirits.
Removed
This allows us to develop a relationship directly with the consumer through higher-margin sales while collecting valuable data about our best performing products. We can then use this data to target the consumer based on location, age, key demographics and product types. With the data collected, we can also retarget and resell to these customers, thereby generating more revenue.
Added
Over the past year, we have taken a number of steps to reduce the costs associated with, and increase the revenue from, our spirits segment and, as a result, our spirits business is becoming increasingly asset-light and is focused on wholesale distribution, direct-to-consumer (“DtC”) sales, and the expansion of our Tribal Beverage Network (“TBN”) through licensing, royalties, and management agreements.
Removed
Our board of directors recently created a technology and Cryptocurrency Committee of the Board of Directors and simultaneously adopted a Bitcoin Treasury Policy Statement that lays out a path to our eventual acceptance of bitcoin as a form of payment from customers purchasing our products online and other matters dealing with our handling of bitcoin.
Added
Our Operating Segments IP Management Infrastructure Our digital asset–based infrastructure and IP management strategy is intended to bring value to our stockholders in the following ways: • We operate a number of validator nodes on the Story Network, including new nodes established under our custody arrangement with Crypto.com, that are used to stake our own $IP Tokens.
Removed
We believe this could expand the number of customers who may be interested in buying our products. The Technology and Cryptocurrency Committee will craft a recommended Bitcoin Treasury Policy for the Board to review, consider and adopt prior to us accepting or handing any such assets.
Added
In a proof-of-stake network, such as the Story Network, validators earn incremental tokens from their efforts in securing the network and validating transactions.
Removed
Our DtC sales also support our second growth area, which entails growing our wholesale volume with our distributors through key national accounts both on-premises and off-premises.
Added
Third parties can also delegate $IP Tokens to our validator node on the Story Network for which we typically earn a 5% commission on the staking rewards earned by such third parties, which amount is subject to change in our discretion at any time and from time to time.
Removed
By building brand recognition for key products in selected regions or states through DtC sales, we can better support the wholesale launch, marketing and product pull-through of those products in partnership with wholesalers in those targeted states.
Added
At December 31, 2025, third parties had delegated 2,387,391.98 $IP Tokens to our validator, none of which had yet been migrated to our new validator set up under our custody arrangement at Crypto.com.
Removed
While DtC sales result in singular high-margin sales, growing volume through wholesale distribution is the most efficient way to drive large-scale growth across retail chains. Third, we are focused on expanded growth of our collaboration with Native American tribes through the TBN model we created.
Added
Any incremental $IP Tokens we earn in our validator operations are treated as revenue for us under GAAP and provide us an additional source of liquidity. • We plan to strategically and opportunistically engage in the issuance of our securities in the capital markets, which may include the issuance of equity, convertible debt or other securities, to raise capital in an accretive fashion for the benefit of our stockholders to purchase and hold additional $IP Tokens. • We stake the majority of the $IP Tokens in our treasury to earn a staking yield and turn our treasury into a productive asset.
Removed
In concert with tribal partners, this sales channel includes Heritage-branded micro production hubs, Heritage-branded stores and tasting rooms and the sale of our products and new tribally-branded products.
Added
At December 31, 2025, we were staking approximately 81.8% of the $IP Tokens in our treasury. In the first quarter of 2026, we began moving a majority of our $IP Tokens to third-party custodians that will allow us to continue our validator efforts and to stake our $IP Tokens under longer-term contracts to increase yield.
Removed
The TBN is expected to form a network of regional production hubs that will support product trials and sampling, and will generate sales of finished, intermediate and bulk spirits depending on location, equipment and market. Importantly, because these premium spirits will be produced locally, we believe the TBN will promote the positioning of our brands as local and regional.
Added
Unless we need to sell $IP Tokens to cover operating expenses, we generally intend to keep those $IP Tokens staked going forward. We do not currently hedge our $IP Tokens and do not currently have plans to hedge our $IP Tokens or otherwise engage in decentralized finance activities.
Removed
We expect that, as the brands grow and the TBN footprint expands, there will be an important synergy with increased adoption and growth through our wholesale channels in the regions where the TBN locations are driving trial and awareness.
Added
Any future hedging or decentralized 3 Table of Contents finance activities we undertake will be subject to approval by the Technology and Cryptocurrency Committee of our Board and, if material in amount or scope, will be publicly disclosed. • In September 2025, the Technology and Cryptocurrency Committee of our Board approved our sale of covered call options using less than 2% of the total amount of $IP Tokens we own.
Removed
Similarly, as demand for our products grow through our wholesale channels, there should be a positive effect on the demand for our products through the tribal distilleries. Competitive Strengths We attribute our success to the following competitive strengths. • Premium Aged Whiskeys. We have been testing, distilling and aging premium whiskeys since our inception over ten years ago.
Added
On January 6, 2026, the Board increased this authorized amount to 3 million $IP Tokens, which on such date represented approximately 5.6% of the $IP Tokens in our treasury.
Removed
Unlike many new brands entering the premium craft whiskey and bourbon category that rely on sourced liquid for their blends, we chose to produce and age all of our own product in-house for our recently-launched super premium whiskey line under our Stiefel’s Select label.
Added
We sell 30-day covered call options that can be exercised if the price of the $IP Token in the market reaches a price that is 20% to 50% above the $IP Token price at the time the option is sold.
Removed
This approach has allowed us to leverage our experience and our innovative distillation methods while taking advantage of the Pacific Northwest’s unique climate to produce aged whiskeys that are of the highest quality and authentic to our name. We introduced our first single barrel selections to the public in late 2022 under the Stiefel’s Select brand.
Added
To date, we have been earning monthly yields averaging approximately 4% (nearly 60% annually on a compounded basis) while still owning the $IP Tokens underlying such options until such time as the price of the $IP Token in the open market reaches the call threshold. • At December 31, 2025, 99% of our digital asset reserves consisted of $IP Tokens, with the reminder of such assets held in USDC and a small amount of $ARIA tokens (a layer 2 token that allows for fractional ownership of music rights built on the Story layer 1 blockchain) we acquired in late 2025.
Removed
The initial single barrel selections, which included a four-grain bourbon, a high rye bourbon, a wheated bourbon, a peated bourbon, a 100% rye whiskey and a single malt whiskey, sold out quickly, and we have begun releasing more single barrel selections to the market.
Added
We do not intend to dedicate any of our treasury-allocated capital to other digital assets outside of those in the Story ecosystem.
Removed
We expect to continue to release these whiskeys as either “single barrel picks” or “small batch blends” depending on the recipe and target market.
Added
We may strategically purchase additional $IP Tokens from time to time, including through over-the-counter transactions and strategic partnerships, which could provide gains for our stockholders. • We may sell our $IP Token holdings, whether on the open market, through block trades or in other negotiated transactions, for various reasons and at various times, which may include to raise cash for the repurchase of shares of our common stock when our Board believes such repurchases will result in the creation of accretive value for our stockholders and at such times when it is legally permissible to do so.
Removed
We have been awarded a Double Gold Medal, Gold Medal and Best of Category for our first releases of Stiefel’s Select by some of the most prestigious spirits competitions in the world, including at the San Francisco International Spirits Competition and the Fred Minnick Ascot Awards. • Purposefully Aligned Products .
Added
We may also sell unlocked $IP Tokens or $IP Tokens earned from our validating efforts in the market under certain market conditions to build cash reserves, to acquire IP assets, to grow or launch a new product or service, or to cover ongoing expenses.
Removed
We recently launched a new line of spirits called the Salute Series line of whiskeys in which we created a super-premium whiskey to generate high-margin revenue and raise donations for carefully-vetted non-profit groups that support active duty, retired and injured special operations heroes, veterans, first responders and their families.
Added
There can be no assurance, however, that the value of $IP Tokens will increase, and investors should carefully consider the risks associated with digital assets. See “Risk Factors — Risks Related to Our Cryptocurrency Treasury Reserve Strategy and $IP Tokens” for additional information.
Removed
Each bottle of our initial release comes in a specially-designed bespoke whiskey tube with a commissioned reproduction lithograph from Michael Solovey, a well-known military artist. Each bottle currently sells for $125, of which $10 is donated to our non-profit partners.
Added
Our Cryptocurrency Treasury Reserve Policy On August 15, 2025, we adopted an amended treasury reserve policy that sets out our treasury management and capital allocation strategies.
Removed
Our current partners include 21 national and local charities, such as the Green Beret Foundation, the Marine Raider Foundation, the Honor Foundation, the Special Forces Foundation, the Army Special Operations Association, the Special Operations Memorial Foundation, and the Foundation for Exceptional Warriors, among others.
Added
The objectives of this policy include the following: • fulfilling our goal of pursuing an accumulation strategy with respect to $IP Tokens; • satisfying our liquidity needs; • implementing fiduciary control of our cash and investments; and • maximizing our investment performance within the policy’s parameters and subject to market conditions.
Removed
Since the launch of the Army SOF version in late October 2023 through February 28, 2025, we have sold more than 23,000 bottles of Salute Series products directly to consumers in our tasting rooms and online, and to select wholesalers, representing more than $1,800,000 in revenue to us and $2,400,000 in total value based on retail pricing to the consumer.
Added
In the policy, our Board has delegated to our Chief Investment Officer and the Technology and Cryptocurrency Committee of our Board responsibility for overseeing the management of our investment portfolio, which includes: • overseeing the execution of our reserve management activities and the implementation and enforcement of the policy; • evaluating and approving decisions pertaining to our treasury reserve management (such as amounts, timing, and pricing of acquisitions and dispositions of $IP Tokens and staking or the use of $IP Tokens in decentralized finance protocols); and • providing updates to the Board and management regarding management of our treasury reserves and implementation of the policy.
Removed
In May 2024, we launched a three-bottle set commemorating the 80th anniversary of D-Day, also featuring artwork by Michael Solovey depicting the combined air, land, and sea efforts on June 6, 1944 along the coast of Normandy, France.
Added
Our Chief Investment Officer and the Technology and Cryptocurrency Committee may delegate duties related to the management of our treasury reserves to other personnel within our company or to third-party asset managers as they deem appropriate so long as such officer and committee maintain responsibility for overseeing the performance of such delegated duties and for approving purchases and dispositions of treasury reserve assets.
Removed
Since its launch in May 2024, we have sold nearly 7,500 bottles of this limited edition offering, with charitable components from such sales going to the Green Beret Foundation and other partnering charities.

… 321 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

140 edited+396 added−123 removed290 unchanged
Biggest changeSome of the risks that may affect our ability to integrate, or realize any anticipated benefits from, acquisitions include: • unexpected losses of key employees or customers of the acquired company; • difficulties integrating the acquired company’s products, services, standards, processes, procedures and controls; • difficulties coordinating new product and process development; • difficulties hiring additional management and other critical personnel; • difficulties increasing the scope, geographic diversity and complexity of our operations; • difficulties consolidating facilities or transferring processes and know-how; • difficulties reducing costs of the acquired company’s business; • diversion of management’s attention from our management; and • adverse impacts on retaining existing business relationships with customers. 31 Table of Contents Our recent acquisition of Thinking Tree Spirits could present several challenges or potential liabilities that could adversely affect our business, including the following: • we may not be able to fully integrate the acquired brands or products into our platform; • we may not be able to recover the cost of the investment in a way that makes the acquisition profitable or a good decision; • we may suffer reputational harm in the communities in which Thinking Tree Spirits is located from people who object to a local business being acquired; • we may not have been given all relevant information during our due diligence process, which could have affected our decision to proceed with the acquisition or could have allowed us to renegotiate the purchase price or other terms; • we are obligated by certain earn-out provisions of our purchase contract to issue to the sellers of Thinking Tree Spirits additional shares of our common stock over the next three years if the Thinking Tree Spirits brands grow in revenue over that period, which could lead to dilution for all other shareholders; and • as the purchaser in the acquisition, we may be subject to litigation related to certain acts of Thinking Tree Spirits or its management that occurred prior to the acquisition, including wrongful termination or age discrimination claims, securities fraud, whistleblower issues or other matters, known or unknown to us at the time.
Biggest changeSome of the risks that may affect our ability to integrate, or realize any anticipated benefits from, acquisitions include: • unexpected losses of key employees or customers of the acquired company; • difficulties integrating the acquired company’s products, services, standards, processes, procedures and controls; • difficulties coordinating new product and process development; • difficulties hiring additional management and other critical personnel; • difficulties increasing the scope, geographic diversity and complexity of our operations; • difficulties consolidating facilities or transferring processes and know-how; • difficulties reducing costs of the acquired company’s business; • diversion of management’s attention from our management; and • adverse impacts on retaining existing business relationships with customers. 23 Table of Contents We may enter into partnerships, co-branding arrangements, licensing agreements, co-location, joint branding or other collaborative arrangements with other brands, producers, partners or celebrities which could distract from our core business plans, create new risks for our company or otherwise dilute our efforts at growing the value of our company or our brands.
In such an event, we may be forced to repurchase products we have already sold, cover other costs associated with the product or the recall, cease the sale of product already in the sales pipeline, or destroy product still in our control or that we are still processing.
In such an event, we may be forced to repurchase products we have already sold, cover other costs associated with the products or the recall, cease the sale of product already in the sales pipeline, or destroy product still in our control or that we are still processing.
In addition, new forms of taxation on the receipt, accumulation, acquisition, holding, storing, transferring, selling or otherwise using of such cryptocurrencies which could alter, diminish or destroy the value proposition for such cryptocurrencies or how we value any cryptocurrencies we may hold at that time, which could negatively impact our balance sheet or income statement.
In addition, new forms of taxation on the receipt, accumulation, acquisition, holding, storing, transferring, selling or otherwise using cryptocurrencies could alter, diminish or destroy the value proposition for such cryptocurrencies or how we value any cryptocurrencies we may hold at that time, which could negatively impact our balance sheet or income statement.
If we do not retain a listing on Nasdaq and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information.
If we do not retain our listing on Nasdaq and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information.
In such cases this could result in fewer customers, fewer purchases, less revenue and an overall reduction in business relative to the trajectory we may have been on, which could impact our financial result or reputation negatively; • accepting cryptocurrencies as a form of payment for goods or services could be subject to transactions fees that are higher than regular credit card processing or similar fees, which could impact our financial results, profitability and net income or loss; • based on new accounting rules adopted by the Financials Services Accounting Board, the value of cryptocurrencies held by public companies may be marked to market.
In such cases this could result in fewer customers, fewer purchases, less revenue and an overall reduction in business relative to the trajectory we may have been on, which could impact our financial result or reputation negatively;accepting cryptocurrencies as a form of payment for goods or services could be subject to transactions fees that are higher than regular credit card processing or similar fees, which could impact our financial results, profitability and net income or loss; • based on new accounting rules adopted by the Financial Services Accounting Board, the value of cryptocurrencies held by public companies may be marked to market.
There is a risk the other brand owner cannot pay their debts, becomes insolvent, files for bankruptcy, is foreclosed upon or otherwise must cease operations, in which case we could have a co-located presence without a corresponding co-location partner to fulfill its terms of the agreement.
There is a risk the other brand owner cannot pay its debts, becomes insolvent, files for bankruptcy, is foreclosed upon or otherwise must cease operations, in which case we could have a co-located presence without a corresponding co-location partner to fulfill its terms of the agreement.
These disclosure requirements may reduce the trading activity in the secondary market for our common stock, so stockholders may have difficulty selling their shares. We could use shares of our common stock to acquire a position in, or all of, another company or brand, which could result in dilution for shareholders of record at that time.
These disclosure requirements may reduce the trading activity in the secondary market for our common stock, so stockholders may have difficulty selling their shares. We could use shares of our common stock to acquire a position in, or all of, another company or brand, which could result in dilution for stockholders of record at that time.
Risks Related to Our Business Model We face significant competition with an increasing number of products and market participants that could materially and adversely affect our business, results of operations and financial results. Our industry is intensely competitive and highly fragmented. Our craft spirits compete with many other domestic and foreign premium whiskies and other spirits.
Risks Related to Our Craft Spirits Business We face significant competition with an increasing number of products and market participants that could materially and adversely affect our business, results of operations and financial results. Our industry is intensely competitive and highly fragmented. Our craft spirits compete with many other domestic and foreign premium whiskies and other spirits.
If for any reason our sales were to be substantially below seasonal norms, our annual revenues and earnings could be materially and adversely affected. If our inventory is lost due to theft, fire or other damage or becomes obsolete, our results of operations would be negatively impacted.
If for any reason our spirits sales were to be substantially below seasonal norms, our annual revenues and earnings could be materially and adversely affected. If our inventory is lost due to theft, fire or other damage or becomes obsolete, our results of operations would be negatively impacted.
Any such scenario would likely cause significant hardship for us and could cause an investment in us to lose all or some of its value. We are subject to seasonality related to sales of our products. Our business is subject to substantial seasonal fluctuations.
Any such scenario would likely cause significant hardship for us and could cause an investment in us to lose all or some of its value. We are subject to seasonality related to sales of our products. Our spirits business is subject to substantial seasonal fluctuations.
There is a risk that competitors, members of the public or others who want to hurt our company or our brand, begin to post on social media about our company or our brands that causes a backlash among consumers, or use AI to create false narratives about our company.
There is a risk that competitors, members of the public or others who want to hurt our company or our brand, begin to post false information on social media about our company or our brands that causes a backlash among consumers, or use AI to create false narratives about our company.
Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our business, operations or financial performance, and water scarcity or poor quality could negatively impact our production costs and capacity. Our business depends upon agricultural activity and natural resources.
Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our spirits business, operations or financial performance, and water scarcity or poor quality could negatively impact our production costs and capacity. Our spirits business depends upon agricultural activity and natural resources.
In the future we could use shares of our common stock as a form of currency to invest in or acquire other companies or brands. The issuance of these shares would be dilutive to other stockholders of our company.
In the future we could use shares of our common stock as a form of currency to invest in or acquire other companies, assets or brands. The issuance of these shares would be dilutive to other stockholders of our company.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or any of its directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although the our stockholders will not be deemed to have waived the Company’s compliance with federal securities laws and the rules and regulations thereunder.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with our company or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.
Further, equipment, raw ingredients and/or finished ingredients or goods may not be readily available for licensed partners at any given time, which could negatively impact the cash flow and deliverability of an operation, the licensed partners and/or our brand. 25 Table of Contents • Cross Sales into Distribution Channels — Our Tribal partners might attempt to directly sell into the market in violation of our distribution agreements, or attempt to compete with us in distribution outside the context of a formal company-wide distribution plan, which could disrupt our contractual or legal obligations, undercut us in the market, flood the market with product or cause confusion within distribution channels. • Change of leadership — Tribal organizations have regular elections for leadership positions.
Further, equipment, raw ingredients and/or finished ingredients or goods may not be readily available for licensed partners at any given time, which could negatively impact the cash flow and deliverability of an operation, the licensed partners and/or our brand. • Cross Sales into Distribution Channels — Our Tribal partners might attempt to directly sell into the market in violation of our distribution agreements, or attempt to compete with us in distribution outside the context of a formal company-wide distribution plan, which could disrupt our contractual or legal obligations, undercut us in the market, flood the market with product or cause confusion within distribution channels. • Change of leadership — Tribal organizations have regular elections for leadership positions.
Alternatively, if a court were to find the choice of forum provision contained in our second amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Alternatively, if a court were to find the choice of forum provision contained in our third amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
In addition, our second amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
In addition, our third amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
Emerging growth companies may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with 46 Table of Contents the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Emerging growth companies may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We will incur significant costs from operating as a public company, and our management expects to devote substantial time to public company compliance programs.
We incur significant costs from operating as a public company, and our management expects to devote substantial time to public company compliance programs.
In addition, although the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court were facially valid under Delaware law, there is uncertainty as to whether other courts will enforce the Company’s federal forum selection clause.
In addition, although the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court were facially valid under Delaware law, there is uncertainty as to whether other courts will enforce our federal forum selection clause.
There is also a risk that the entity with whom we have co-branded, or one of its employees, managers, 32 Table of Contents executives, directors, or prominent shareholders, does or says something to cause harm to the co-branded product and our brand by association. • Licensing Agreements — There is a risk that if we license to others one or more of our brands, trademarks or patents, the licensee might not pay us the licensing fees or royalties due to us for a variety of reasons.
There is also a risk that the entity with whom we have co-branded, or one of its employees, managers, executives, directors, or prominent shareholders, does or says something to cause harm to the co-branded product and our brand by association. • Licensing Agreements — There is a risk that if we license to others one or more of our brands, trademarks or patents, the licensee might not pay us the licensing fees or royalties due to us for a variety of reasons.
A company or brand that we invest in or acquire might not fit our portfolio and might not yield a return for us or our stockholders. The strategy may not work and may result in a dilutive effect from the issuance of those shares that could result in a loss of some or all of the investment for stockholders.
Any company, assets or brand that we invest in or acquire might not fit our portfolio and might not yield a return for us or our stockholders. The strategy may not work and may result in a dilutive effect from the issuance of those shares that could result in a loss of some or all of the investment for stockholders.
We also might not be able to secure or keep permits and/or licenses required to open and operate our business, including but not limited to building and trades permits, Conditional Use/Special Use Permits or other zoning permits, health permits, food permits, our federal TTB license, federal Food and Drug Administration license, state liquor licenses or other licenses or permits.
We might not be able to secure or keep permits and/or licenses required to operate our business, including but not limited to building and trades permits, Conditional Use/Special Use Permits or other zoning permits, health permits, our federal TTB license, federal Food and Drug Administration license, state liquor licenses or other licenses or permits.
Increased IT security threats and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, theft of crypto currencies, social engineering, hacking and other types of attacks pose a potential risk to the security of our IT systems, networks and services, as well as the confidentiality, availability and integrity of our data, and we have in the past, and may in the future, experience cyberattacks and other unauthorized access attempts to our IT systems.
Increased IT security threats and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking and other types of attacks pose a potential risk to the security of our IT systems, networks and services, as well as the confidentiality, availability, and integrity of our data, and we have in the past, and may in the future, experience cyberattacks and other unauthorized access attempts to our IT systems.
Investors could experience a reduction in share price for our common stock they own, or dilution resulting from our equity line of credit, the exercise of warrants into common stock or the conversion of preferred stock into common stock, or the vesting and settlement of equity grants to employees, directors and consultants.
Investors could experience a reduction in share price for our common stock they own, or dilution resulting from the exercise of warrants into common stock or the conversion of preferred stock into common stock, or the vesting and settlement of equity grants to employees, directors and consultants.
A limited or general decline in consumer demand could occur in the future due to a variety of factors, including: • a general decline in economic or geopolitical conditions; • a general decline in the consumption of alcoholic beverage products in on-premises establishments, such as those that may result from smoking bans and stricter laws relating to driving while under the influence of alcohol and changes in public health policies, including those implemented to address the COVID-19 pandemic; • a generational or demographic shift in consumer preferences away from whiskies and other spirits to other alcoholic beverages or non-alcoholic beverages; • increased activity of anti-alcohol groups; • increased regulation placing restrictions on the purchase or consumption of alcoholic beverage products; • concern about the health consequences of consuming alcoholic beverage products; and • increased federal, state, provincial, and foreign excise, or other taxes on beverage alcohol products and increased restrictions on beverage alcohol advertising and marketing.
A limited or general decline in consumer demand could occur in the future due to a variety of factors, including: • a general decline in economic or geopolitical conditions; • a general decline in the consumption of alcoholic beverage products in on-premises establishments, such as those that may result from smoking bans and stricter laws relating to driving while under the influence of alcohol and changes in public health policies; • a generational or demographic shift in consumer preferences away from whiskies and other spirits to other alcoholic beverages or non-alcoholic beverages; • increased activity of anti-alcohol groups; • increased regulation placing restrictions on the purchase or consumption of alcoholic beverage products; • concern about the health consequences of consuming alcoholic beverage products; and • increased federal, state, provincial, and foreign excise, or other taxes on beverage alcohol products and increased restrictions on beverage alcohol advertising and marketing.
Additionally, our larger distributors and partners may make orders that are larger than we have historically been required to fill. Shortages in inventory levels, supply of raw materials or other key supplies could negatively affect us. The sales of our products could decrease significantly if we cannot secure and maintain listings in the control states .
Additionally, our larger distributors and partners may make orders that are larger than we have historically been required to fill. Shortages in inventory levels, supply of raw materials to our third-party producers or other key supplies could negatively affect us. The sales of our products could decrease significantly if we cannot secure and maintain listings in the control states .
These risks include, but are not limited to, changes in how we must value any cryptocurrencies we hold, which could impact our balance sheet and income statement, or our ability to hold, use or dispose of them.
Additional risks include, but are not limited to, changes in how we must value any cryptocurrencies we hold, which could impact our balance sheet and income statement, or our ability to hold, use or dispose of them.
We rely on IT systems, networks and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software and technical applications and platforms, some of which are managed, hosted, provided and used by third parties or their vendors, to assist us in the management of our business.
We rely on IT systems, networks and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software and technical applications and platforms, some of which 24 Table of Contents are managed, hosted, provided and used by third parties or their vendors, to assist us in the management of our business.
Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management. Our new Salute Series lines of spirits may be subject to claims of misuse or unapproved use of certain imagery or terms associated with the U.S. military or first responders.
Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management. 55 Table of Contents Our new Salute Series lines of spirits may be subject to claims of misuse or unapproved use of certain imagery or terms associated with the U.S. military or first responders.
As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates, and thus investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.
As a result of this election, our financial statements may not be comparable to companies that comply with public company 62 Table of Contents effective dates, and thus investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.
Such a campaign could tarnish our brand and put pressure on us or our Tribal partners to terminate our arrangements. • Failure to be perceived as authentically “local” — Some consumers may not view the idea of licensed distilleries as being authentically “local,” such that our brand reputation and products may be diminished in a particular region.
Such a campaign could tarnish our brand and put pressure on us or our Tribal partners to terminate our arrangements. 47 Table of Contents • Failure to be perceived as authentically “local” — Some consumers may not view the idea of licensed distilleries as being authentically “local,” such that our brand reputation and products may be diminished in a particular region.
Because AI tools work with ever-changing inputs in the background and we have no visibility to how 35 Table of Contents the AI tools are performing their work, there is a risk that a product produced by an AI tool for us infringes on another person’s, brand’s or entity’s intellectual property, or that the finished product was also provided by the AI tool to other persons, brands, entities or businesses who may or may not be in competition with us.
Because AI tools work with ever-changing inputs in the background and we have no visibility to how the AI tools are performing their work, there is a risk that a product produced by an AI tool for us infringes on another person’s, brand’s or entity’s intellectual property, or that the finished product was also provided by the AI tool to other persons, brands, entities or businesses who may or may not be in competition with us.
These broad market and industry 44 Table of Contents fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock You may not realize any return on your investment in us and may lose some or all of your investment.
These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. You may not realize any return on your investment in us and may lose some or all of your investment.
Suspension or rescission of a permit or license would put us at risk of not being able to continue operations. We operate in a highly-regulated industry subject to state and federal regulation, and it is possible that state or federal legislative or regulatory bodies could change or amend laws that impact us.
Suspension or rescission of a permit or license would put us at risk of not being able to continue operations. 57 Table of Contents We operate in a highly-regulated industry subject to state and federal regulation, and it is possible that state or federal legislative or regulatory bodies could change or amend laws that impact us.
In January 2025, the United States Surgeon General issued a report calling for more regulation on the warnings that should be put on labels for alcoholic beverages, specifically as it relates to his belief that specific amounts of consumption may increase incidences of cancer.
In January 2025, the United States Surgeon General issued a report calling for more regulation on the warnings that should be put on labels for alcoholic beverages, specifically as it relates to his belief that specific amounts of consumption 56 Table of Contents may increase incidences of cancer.
If, in the future, we are unable to maintain our current listings in the control states, or secure and maintain listings in those states for any additional products we may produce or acquire, sales of our products could decrease significantly. 23 Table of Contents The privatization of a control state could adversely impact our sales and our results of operations.
If, in the future, we are unable to maintain our current listings in the control states, or secure and maintain listings in those states for any additional products we may produce or acquire, sales of our products could decrease significantly. The privatization of a control state could adversely impact our sales and our results of operations.
Our independent registered public accounting firm identified material weaknesses in our internal controls over financial reporting in connection with the preparation of our financial statements and audit as of and for the year ended December 31, 2024, which relate to a deficiency in the design and operation of our financial accounting and reporting controls.
Our independent registered public accounting firm identified material weaknesses in our internal controls over financial reporting in connection with the preparation of our financial statements and audit as of and for the years ended December 31, 2025 and 2024, which relate to a deficiency in the design and operation of our financial accounting and reporting controls.
Our ability to incentivize and motivate distributors to manage and sell our products is affected by competition from other beverage companies who have greater resources than we do.
Our ability to incentivize and motivate distributors to manage and sell our products is affected by competition from other beverage companies that have greater resources than we do.
Such events could adversely affect the results of operations and financial condition. During the fermentation process required to make spirits, carbon dioxide is produced and vented into the atmosphere. Currently there are no regulations in the industry requiring capture of carbon dioxide.
Such events could adversely affect the results of operations and financial condition. 50 Table of Contents During the fermentation process required to make spirits, carbon dioxide is produced and vented into the atmosphere. Currently there are no regulations in the industry requiring capture of carbon dioxide.
The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders.
The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, 63 Table of Contents and such judgments or results may be more favorable to us than to our stockholders.
Any such litigation or other actions 33 Table of Contents may be expensive to defend and result in damages, penalties or fines as well as reputational damage to us and our spirits brands and may impact the ability of management to focus on other business matters.
Any such litigation or other actions may be expensive to defend and result in damages, penalties or fines as well as reputational damage to us and our spirits brands and may impact the ability of management to focus on other business matters.
Likewise, labor pressures could continue to increase as employees become increasingly focused on their own standard of living, putting upward labor costs on our company before we have achieved some or all of our growth plans.
Likewise, labor pressures could continue to increase as employees become 20 Table of Contents increasingly focused on their own standard of living, putting upward labor costs on our company before we have achieved some or all of our growth plans.
Accordingly, any failure of our brands to maintain or increase acceptance or market penetration would likely have a material adverse effect on our revenues and financial results. 21 Table of Contents A reduction in consumer demand for whiskey, vodka, gin, RTDs and other spirits, which may result from a variety of factors, including demographic shifts and decreases in discretionary spending, could materially and adversely affect our business, results of operations and financial results.
Accordingly, any failure of our brands to maintain or increase acceptance or market penetration would likely have a material adverse effect on our revenues and financial results. 42 Table of Contents A reduction in consumer demand for whiskey and other spirits, which may result from a variety of factors, including demographic shifts and decreases in discretionary spending, could materially and adversely affect our business, results of operations and financial results.
Our second amended and restated certificate of incorporation filed on November 25, 2024 with the Delaware Secretary of State provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory law or Delaware common law, subject to certain exceptions: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders; (3) any action asserting a claim against us arising pursuant to provisions of the Delaware General Corporation Law or our second amended and restated certificate of incorporation or amended and restated bylaws; or (4) any action asserting a claim governed by the internal affairs doctrine.
Our third amended and restated certificate of incorporation filed on February 17, 2026 with the Delaware Secretary of State provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory law or Delaware common law, subject to certain exceptions: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders; (3) any action asserting a claim against us arising pursuant to provisions of the Delaware General Corporation Law or our third amended and restated certificate of incorporation or second amended and restated bylaws; or (4) any action asserting a claim governed by the internal affairs doctrine.
There is also a risk that social media influencers, pundits or public personalities who may be viewed as controversial attempt to align themselves with our company or our brands that causes a backlash among consumers. AI tools are being used to create fake video clips and fake images.
There is also a risk that social media influencers, pundits or public 53 Table of Contents personalities who may be viewed as controversial attempt to align themselves with our company or our brands that causes a backlash among consumers. AI tools are being used to create fake video clips and fake images.
For example, the State of California has enacted the California Consumer Privacy Act of 2018 (“CCPA”), which generally requires companies that collect, use, share and otherwise process “personal information” (which is broadly defined) of California residents to make disclosures about their data collection, use, and sharing practices, allows consumers to opt-out of certain data sharing with third parties or the sale of personal information, allows consumers to exercise certain rights with respect to any personal information collected and provides a new cause of action for data breaches.
For example, the State of California has enacted the California Consumer Privacy Act of 2018 (“CCPA”) and the California Privacy Rights Act (“CPRA”), which significantly modifies the CCPA, which generally require companies that collect, use, share and otherwise process “personal information” (which is broadly defined) of California residents to make disclosures about their data collection, use, and sharing practices, allows consumers to opt-out of certain data sharing with third parties or the sale of personal information, allows consumers to exercise certain rights with respect to any personal information collected and provides a new cause of action for data breaches.
As a result, our financial projections could change dramatically overall and on a per-bottle or per-unit basis. Such changes could result in significant reductions in the assumptions for sales, profits and distributions for stockholders, thereby negatively impacting potential returns for investors or putting the investors’ investments at risk.
As a result, our financial projections could change dramatically overall and on a per-bottle or per-unit basis. Such changes could result in significant reductions in the assumptions for sales, profits 49 Table of Contents and distributions for stockholders, thereby negatively impacting potential returns for investors or putting the investors’ investments at risk.
Increases in the prices of our finished products resulting from a higher cost of ingredients, other raw materials, packaging materials, aluminum cans and other containers could affect affordability in some markets and reduce our sales.
Increases in the prices of our finished products resulting from a higher cost of ingredients, other raw materials, packaging materials, aluminum cans and other containers could affect 45 Table of Contents affordability in some markets and reduce our sales.
While we have a minority interest in Flavored Bourbon LLC (“FBLLC”), the owner of the Flavored Bourbon brand, there is no guarantee that such brand will ever grow in value or retain its current value.
While we have a minority interest in Flavored Bourbon LLC (“FBLLC”), the owner of the Flavored Bourbon brand, there is no guarantee that such brand will ever grow in value or retain its current value or any value at all.
If we materially underestimate demand for our products or are unable to maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term basis.
If we materially underestimate demand for our products or our third-party producers are unable to maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term basis.
The issuance of common stock via “puts” under the equity line or the creation of common stock shares from warrants or preferred stock conversions, or the granting of stock or other equity under a compensation plan that results in the issuance of common stock, will create dilution for common stock holders, and potentially impact the per share value of our common stock, impacting their investments.
The creation of common stock from warrants or preferred stock conversions, or the granting of stock or other equity under a compensation plan that results in the issuance of common stock, will create dilution for common stock holders, and potentially impact the per share value of our common stock, impacting their investments.
Such an event could require us to allocate financial resources and personnel into areas to which we are not currently planning to allocate and to subject us to fines, interest and penalties in addition to the taxes or fees that may be 42 Table of Contents owed.
Such an event could require us to allocate financial resources and personnel into areas to which we are not currently planning to allocate and to subject us to fines, interest and penalties in addition to the taxes or fees that may be owed.
In addition, our current loan facility and any future loan arrangements we enter into may contain terms prohibiting or limiting the number or amount of dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Item 1B.
In addition, any loan arrangement we enter into in the future may contain terms prohibiting or limiting the number or amount of dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Item 1B.
Future legal or regulatory challenges to the industry in which we operate, or our business practices and arrangements could give rise to liability and 40 Table of Contents fines, or cause us to change our practices or arrangements, which could have a material adverse effect on us or our revenues and profitability.
Future legal or regulatory challenges to the industry in which we operate, or our business practices and arrangements could give rise to liability and fines, or cause us to change our practices or arrangements, which could have a material adverse effect on us or our revenues and profitability.
Provisions in our second amended and restated certificate of incorporation and amended and restated bylaws may delay or prevent a change of control of our company or changes in our management and include provisions that: • provide for a staggered board of directors; • authorize our board of directors to issue, without further action by the stockholders, up to 4,500,000 shares of undesignated existing preferred stock; • require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; • require the affirmative vote of the holders of at least 2/3 of the voting power of all of our outstanding shares of voting stock, voting together as a single class, to amend, alter, change or repeal our bylaws or certain provisions of our certificate of incorporation; • specify that, except as required by applicable law, special meetings of our stockholders can be called only by our board of directors pursuant to a resolution adopted by the majority of the board of directors; • establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors; • provide that our directors may be removed only for cause; and • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.
Provisions in our third amended and restated certificate of incorporation and second amended and restated bylaws may delay or prevent a change of control of our company or changes in our management and include provisions that: • provide for a staggered board of directors; • authorize our board of directors to issue, without further action by the stockholders, additional shares of undesignated existing preferred stock; • require the affirmative vote of the holders of at least 2/3 of the voting power of all of our outstanding shares of voting stock, voting together as a single class, to amend, alter, change or repeal our bylaws or certain provisions of our third amended and restated certificate of incorporation; • specify that, except as required by applicable law, special meetings of our stockholders can be called only by our board of directors pursuant to a resolution adopted by the majority of the board of directors; • establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors; • provide that our directors may be removed only for cause; and • provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.
There is a risk the licensee, or one of its employees, managers, executives, directors, or prominent shareholders, does or says something to cause harm to the licensed product and our brand by association. • Co-location — We may decide to co-locate or co-brand retail spaces with other distillers or producers, either in their space or in our space to increase the variety of our offerings, attract new consumers to our space or get our brand and products in front of consumers in areas of the country where we do not have a physical presence.
There is a risk the licensee, or one of its employees, managers, executives, directors, or prominent shareholders, does or says something to cause harm to the licensed product and our brand by association. • Co-location — We may decide to co-locate or co-brand retail spaces with other distillers or producers in their spaces to get our brand and products in front of consumers in areas of the country where we do not have a physical presence.
Historically, a significant portion of our net sales and net earnings has been realized during the period from June through August and in November and December. Accordingly, our 28 Table of Contents operating results may vary significantly from quarter to quarter. Our operating results for any quarter are not necessarily indicative of any other results.
Historically, a significant portion of our net sales and net earnings of our spirits segment has been realized during the period from June through August and in November and December. Accordingly, the operating results of our spirits segment may vary significantly from quarter to quarter. Our operating results for any quarter are not necessarily indicative of any other results.
Substantial disruption to production at our distilleries and distribution facilities, or at a facility with which we contract or partner for production, could occur. A disruption in production at our distilleries or third-party production facilities could have a material adverse effect on our business.
Substantial disruption at the distilleries and distribution facilities with which we contract or partner for our production or storage could occur. A disruption in production at the distilleries or third-party production facilities with which we partner or contract could have a material adverse effect on our business.
However, these efforts may not be successful. While the current plan does not envision us providing any capital to build out and operate these licensed locations, our involvement in these efforts will require the time and efforts of our employees and executives, which may detract from their time spent building our brand and value as a standalone entity.
While the current plan does not envision us providing any capital to build out and operate these licensed locations, our involvement in these efforts will require the time and efforts of our employees and executives, which may detract from their time spent building 46 Table of Contents our brand and value as a standalone entity.
There is also a risk that a third-party delivery company that is delivering the product to a consumer leaves the package where an individual under the age of 21 can gain access to it, or that such company delivers it to a location and fail to verify the person’s age.
There is also a risk that a third-party delivery company that is delivering the product to a consumer could leave a package where an individual under the age of 21 can gain access to it, or that such company could deliver a package to a location and fail to verify the person’s age.
There are several risks associated with direct-to-consumer shipping, including that one or more states could decide such activities do not comport with their specific laws or regulations.
There are several risks associated with direct-to-consumer shipping, including that one or more states could decide such activities do not comport with their specific laws or 58 Table of Contents regulations.
We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to our principal executive and financial officers.
We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act, is accumulated and communicated to our principal executive and financial officers.
Although we maintain insurance coverage for various property damage and loss events, an interruption in or loss of operations at any of our distilleries or other production facilities could reduce or postpone production of our products, which could have a material adverse effect on our business, results of operations, or financial condition.
Although we require our third-party producers to maintain insurance coverage for various property damage and loss events, an interruption in or loss of operations at any of the distilleries or other production facilities of our third-party producers could reduce or postpone production of our products, which could have a material adverse effect on our business, results of operations, or financial condition.
For additional information regarding such payment obligation, see Note 5 to our consolidated financial statements for the years ended December 31, 2024 and 2023 included elsewhere in this filing.
For additional information regarding such payment obligation, see Note 5 to our consolidated financial statements for the years ended December 31, 2025 and 2024 included elsewhere in this report.
There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, 24 Table of Contents failing to distribute to sufficient retailers or positioning our products in localities that may not be receptive to our product.
There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our products in localities that may not be receptive to our products.
If an employee, director or consultant who received restricted stock units or other equity awards as part of a compensation plan attempts to sell those shares into the market without equal or greater demand in the market for those shares, it could negatively impact the stock price.
If an employee, director or consultant who received restricted stock units or other equity awards as part of a compensation plan attempts to sell those shares into the market without equal or greater demand in the market for those shares, such attempted sales of our common stock could negatively impact the price of our common stock.
We may be disparaged publicly or in the press for not being authentically “craft.” Having multiple distillery locations, increasing the scale of our operations, collaborating with larger partners to achieve our goals, licensing our brand to third parties for production, or becoming a publicly-traded company could, individually or in the aggregate, impact how and whether consumers, competitors, regulators and the media, among others, perceive us as a “craft” distiller.
We may be disparaged publicly or in the press for not being authentically “craft.” Having our product produced solely by third-party producers, increasing the scale of our operations, collaborating with larger partners to achieve our goals, licensing our brand to third parties for production, or becoming a publicly-traded company could, individually or in the aggregate, impact how and whether consumers, competitors, regulators and the media, among others, perceive us as a “craft” distiller.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future and, as such, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. We have never declared or paid cash dividends on our common stock.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future and, as such, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
In addition, if the inventory of our products held by our distributors and retailers is too high, they will not place orders for additional products, which would also unfavorably impact our sales and adversely affect our operating results. 26 Table of Contents We may not be able to replicate the flavor profiles of our products.
In addition, if the inventory of our products held by our distributors and retailers is too high, they will not place orders for additional products, which would also unfavorably impact our sales and adversely affect our operating results. We or our third-party producers may not be able to replicate the flavor profiles of our products.
If the SBA demands that we repay any amounts owed more than the amount of our available cash, it could force us to raise new capital under less than favorable terms that could be dilutive to stockholders, or to take on debt that could have higher borrowing costs.
If the SBA demands that we repay any amounts owed more than the amount of our available cash, it could force us to sell some of the $IP Tokens in our treasury reserve, to raise new capital under less than favorable terms that could be dilutive to stockholders, or to take on debt that could have higher borrowing costs.
To the extent any acquisitions are completed, we may be unsuccessful in integrating acquired companies or their operations, or if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse impact on future profitability.
We may be unsuccessful in identifying suitable acquisition candidates or may be unable to consummate desired acquisitions. To the extent any acquisitions are completed, we may be unsuccessful in integrating acquired companies or their operations, or if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse impact on future profitability.
We must generate and sustain higher revenue levels in future periods to become profitable, and, even if we do, we may not be able to maintain or increase our profitability.
We must continue to generate and sustain higher revenue levels (and/or lower cost levels) in future periods to remain profitable and, even if we do, we may not be able to maintain or increase our profitability.
Even though we maintain cyber risk insurance, this insurance may not be sufficient to cover all of our losses from any future breaches or failures of our IT systems, networks and services. Global conflicts could increase our costs, which could adversely affect our operations and financial condition.
Even though we maintain cyber risk insurance, this insurance may not be sufficient to cover all our losses from any future breaches or failures of our IT systems, networks and services. Global conflicts and geopolitical tensions could increase cybersecurity risks and disrupt our operations, which could adversely affect our business, financial condition and results of operations.
Likewise, there is no guarantee that the Federal Alcohol and Tobacco Tax and Trade Bureau (the “TTB”) will approve our label designs for any such branch or that after approval by the TTB that such approval may later be rescinded. Such results would require us to rethink our branding or designs for one or more branches or products.
Likewise, there is no guarantee that the TTB will approve our label designs for any such branch or that after approval by the TTB that such approval may later be rescinded. Such results would require us to rethink our branding or designs for one or more branches or products.
On April 14, 2025, we received a notice (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”), which indicated that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), as the closing bid price for our common stock was below $1.00 per share for the prior thirty (30) consecutive business days.
In April 2025, we received a notice from Nasdaq that indicated that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), as the closing bid price for our common stock was below $1.00 per share for the prior thirty (30) consecutive business days.
Such risks include, but are not limited to: • accepting cryptocurrency as a form of payment for our goods or services, and then subsequently seeing the value of such cryptocurrencies fall, which would have a negative impact on our effective net gross margin and ultimately our ability to reach or maintain profitability; • having any cryptocurrencies we own and hold be subject to fraud, hacking or theft as a result of not being properly stored or handled, or as a result of a breach of information that allows a third party to improperly access and transfer such cryptocurrencies out of our possession, which could impact our total assets, balance sheet and liquidity; 36 Table of Contents • acquiring and holding such cryptocurrencies and then selling some or all of those holdings into the market for cash before an event that increases the value of those cryptocurrencies, meaning we would have lost out on an increase in the value of that asset had we held it longer; • selling cryptocurrencies we own such that followers of cryptocurrencies who may have become, or could have become loyal customers of ours, because we engage in the use of cryptocurrencies could view such sale as not being in line with their belief that cryptocurrency should be used to replace fiat currencies.
Such risks include, but are not limited to: • continued worldwide growth in the adoption and use of cryptocurrencies; • government and quasi-government regulation of cryptocurrencies and their use, or restrictions on or regulation of access to and operation of cryptocurrency systems; • the maintenance and development of the open-source software of the Story Network and the blockchains associated with other cryptocurrencies we may hold; • the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; • accepting cryptocurrency as a form of payment for our goods or services, and then subsequently seeing the value of such cryptocurrencies fall, which would have a negative impact on our effective net gross margin and ultimately our ability to reach or maintain profitability; • having any cryptocurrencies we own and hold be subject to fraud, hacking or theft as a result of not being properly stored or handled, or as a result of a breach of information that allows a third party to improperly access and 22 Table of Contents transfer such cryptocurrencies out of our possession, which could impact our total assets, balance sheet and liquidity; • acquiring and holding such cryptocurrencies and then selling some or all of those holdings into the market for cash before an event that increases the value of those cryptocurrencies, meaning we would have lost out on an increase in the value of that asset had we held it longer; • selling cryptocurrencies we own such that followers of cryptocurrencies who may have become, or could have become loyal customers of ours, because we engage in the use of cryptocurrencies could view such sale as not being in line with their belief that cryptocurrency should be used to replace fiat currencies.
Likewise, as warrant holders exercise warrants into common stock, or holders of preferred stock convert their preferred stock into common stock, and then attempt to sell those shares into the market, if there is not demand for shares equal to, or greater than, the number of shares they sell, it could decrease our stock price.
As warrant holders exercise warrants to purchase common stock, or holders of preferred stock convert their preferred stock into common stock, and then attempt to sell those shares into the market, if there is not demand for shares of our common stock equal to, or greater than, the number of shares such security holders seek to sell, the price of our common stock could decline.
In this case, it might be years before we find the impact of such actions on the final product and by that time, we may not be able to use that product for our intended purposes, which could impact our business plans and/or revenue targets.
There is a chance a particular step is not taken properly or is missed entirely. In this case, it might be years before we find the impact of such actions on the final product and by that time, we may not be able to use that product for our intended purposes, which could impact our business plans and/or revenue targets.
Accordingly, we may not be able to generate sufficient revenue to offset our expected cost increases and achieve and sustain profitability. If we fail to achieve and sustain profitability, the market price of our common stock could decline.
These expenditures may not result in additional revenue or the growth of our business. Accordingly, we may not be able to generate sufficient revenue to offset our expected cost increases and achieve and sustain profitability. If we fail to achieve and sustain profitability, the market price of our common stock could decline.

… 579 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

3 edited+0 added−2 removed5 unchanged
Biggest changeWe have two employees in our IT department that manage all technology for our company, and we rely on trusted third party platforms and software that is constantly under review for cyber threats.
Biggest changeAs a smaller reporting company, we currently do not have formalized cybersecurity measures, a dedicated cybersecurity team or specific protocols in place to manage cybersecurity risks. We have two employees in our IT department that manage all technology for our company, and we rely on trusted third party platforms and software that is constantly under review for cyber threats.
Our goal is to establish a cybersecurity framework that is commensurate with our size, complexity, and the nature of our operations, thereby reducing our exposure to cybersecurity risks. In addition, our board of directors created a Technology and Cryptocurrency Committee and appointed members to that committee.
Our goal is to establish a cybersecurity framework that is commensurate with our size, complexity, and the nature of our operations, thereby reducing our exposure to cybersecurity risks. 64 Table of Contents In addition, our board of directors created a Technology and Cryptocurrency Committee that oversees our cybersecurity risk management framework and approves any cybersecurity policies, strategies, and risk management practices.
Item 1C. Cybersecurity We acknowledge the increasing importance of cybersecurity in today’s digital and interconnected world.
Item 1C. Cybersecurity We acknowledge the increasing importance of cybersecurity in today’s digital and interconnected world. Cybersecurity threats pose significant risks to the integrity of our systems and data, potentially impacting our business operations, financial condition, and reputation.
Removed
Cybersecurity threats pose significant risks to the integrity of our systems and data, potentially impacting our business operations, financial condition, and reputation. 49 Table of Contents As a smaller reporting company, we currently do not have formalized cybersecurity measures, a dedicated cybersecurity team or specific protocols in place to manage cybersecurity risks.
Removed
It is in the process of formulating its charter, a portion of which will include reviewing and addressing the issues related to cybersecurity. That committee will oversee the Company’s cybersecurity risk management framework and approve any cybersecurity policies, strategies, and risk management practices.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−1 removed0 unchanged
Biggest changeAll of our facilities are leased, and we believe our facilities are adequate for our current needs and that suitable additional space will be available on commercially-acceptable terms as required.
Biggest changeItem 2. Properties We maintain our principal corporate offices and a distribution warehouse in leased facilities in Gig Harbor, Washington. We believe our facilities are adequate for our current needs and that suitable additional space will be available on commercially-acceptable terms as required.
Removed
Item 2. Properties We maintain our principal corporate offices, distribution warehouse, and barrel-aging rickhouse in Gig Harbor, Washington. We have production distilleries in both Tumwater, Washington and Eugene, Oregon. We also maintain retail tasting rooms in Gig Harbor, Roslyn, and Tumwater, Washington and two tasting rooms in Eugene, Oregon.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−6 removed2 unchanged
Biggest changeRegardless of outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors.
Biggest changeRegardless of outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors. Currently, there is no litigation pending against our company that could materially affect our company. Item 4. Mine Safety Disclosures Not applicable. 65 Table of Contents PART II
Removed
Currently, there is no litigation pending against our company that could materially affect our company, except as follows: On January 31, 2025, CFGI, LLC (“CFGI”) commenced a litigation against us in the Superior Court, Suffolk County, Massachusetts asserting claims arising under a November 1, 2022 written engagement letter agreement whereby CFGI agreed to provide financial, accounting and tax consulting services to us.
Removed
CFGI contends that it fully performed its obligations under such agreement, but that the parties amended the agreement on or about May 22, 2023 when we fell behind in our payments. CFGI alleges further that, while we made some payments under the amended agreement, CFGI is currently owed approximately $730,000, plus interest.
Removed
Our response to the complaint was due on or before April 21, 2025, but we have received a two week extension from CFGI.
Removed
At December 31, 2024 we had accrued the entire amount payable to CFGI and the Company is in negotiations with CFGI on alternate payment terms that will allow us to pay the amounts due to CFGI over time. 50 Table of Contents On April 16, 2025, Kaylon McAlister, a former co-founder of Thinking Tree Spirits, filed suit in the Circuit Court of Oregon against Thinking Tree Spirits and our company seeking $470,000 under the Oregon dissenter rights statute, plus interest.
Removed
While we are reviewing the matter, we believe the amount being sought is solely without merit and grossly overinflates the value of the enterprise, and we intend to vigorously defend this matter.
Removed
Further, we believe we have counterclaims against the plaintiff for actions taken by him before, during and after the closing of the acquisition transaction that further effected the valuation of the acquisition and adversely affected our investment in Thinking Tree Spirits. Item 4. Mine Safety Disclosures Not applicable. 51 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+1 added−1 removed3 unchanged
Biggest changeRecent Sales of Unregistered Securities Other than as previously disclosed in the prospectus for our initial public offering of common stock or in our Current Reports on Form 8-K or Quarterly Reports on Form 10-Q filed with the SEC, we did not issue any unregistered equity securities during the twelve months ended December 31, 2024.
Biggest changeRecent Sales of Unregistered Securities Other than as previously disclosed in our Current Reports on Form 8-K or Quarterly Reports on Form 10-Q filed with the SEC, we did not issue any unregistered equity securities during the twelve months ended December 31, 2025. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
Because many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Dividends Our current credit facility prohibits our payment of cash dividends and we do not anticipate paying cash dividends on our common stock in the foreseeable future.
Because many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Dividends We do not anticipate paying cash dividends on our common stock in the foreseeable future.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities We completed our initial public offering of our common stock on November 25, 2024. Our common stock is traded on The Nasdaq Capital Market under the symbol “CASK”. As of April 25, 2025, there were 6,921,564 shares of our common stock outstanding.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities We completed our initial public offering of our common stock on November 25, 2024. Our common stock is traded on The Nasdaq Capital Market under the symbol “IPST.” As of March 31, 2026, there were 10,283,427 shares of our common stock outstanding.
There were approximately 275 stockholders of record on the Company’s ledger at April 25, 2025 in addition to the number of public stockholders holding shares in street name, the details of which are not reported to the Company.
There were approximately 290 stockholders of record on our stock ledger at March 31, 2026 in addition to the number of public stockholders holding shares in street name, the details of which are not reported to us.
Removed
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. [ Reserved ] 52 Table of Contents
Added
Item 6. [ Reserved ] 66 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

75 edited+105 added−133 removed67 unchanged
Biggest changeFor the Years Ended December 31, 2024 2023 Change Net Sales Products $ 6,614,933 $ 5,136,482 $ 1,478,451 Services 1,787,555 2,834,742 (1,047,187) Total Net Sales 8,402,488 7,971,224 431,264 Cost of Sales Products 6,173,189 4,963,176 1,210,013 Services 103,452 857,007 (753,555) Total Cost of Sales 6,276,641 5,820,183 456,458 Gross Profit 2,125,847 2,151,041 (25,194) Operating Expenses Sales and Marketing 6,038,636 5,938,315 100,321 General and Administrative 11,006,021 7,477,285 3,528,736 Total Operating Expenses 17,044,657 13,415,600 3,629,057 Operating Loss (14,918,810) (11,264,559) (3,654,251) Other Income (Expense) Interest Expense (2,535,701) (2,526,740) (8,961) Gain on Investment 3,421,222 — 3,421,222 Change in Fair Value of Convertible Notes 14,028,067 (22,764,854) 36,792,921 Change in Fair Value of Warrant Liabilities 736,580 (240,159) 976,739 Other (Income) / Expense (11,750) 4,893 (16,643) Total Other Expense 15,638,418 (25,526,860) 41,165,278 Income/(Loss) Before Income Taxes 719,608 (36,791,419) 37,511,027 Income Taxes (9,150) (7,000) (2,150) Net Income/(Loss) $ 710,458 $ (36,798,419) $ 37,508,877 Net Income/(Loss) Per Share, Basic $ 0.05 $ (96.45) $ 96.50 Weighted Average Common Shares Outstanding, Basic 1,281,339 381,543 $ 899,796.00 Net Income/(Loss) Per Share, Diluted $ (1.97) $ (96.45) $ 94.47 Weighted Average Common Shares Outstanding, Diluted 7,077,759 381,543 6,696,216 Cost of Sales of approximately $6,277,000 and $5,820,000, and Operating Expenses of approximately $17,045,000 and $13,416,000 for the years ended December 31, 2024 and 2023, respectively, included non-cash share- 59 Table of Contents based compensation for employees (personnel) and consultants of approximately $4,892,000 and $19,000, respectively, as follows: Years Ended December 31, (rounded to $000’s) 2024 2023 Change Production / Cost of Sales $ 178,000 $ — $ 178,000 Sales and Marketing 730,000 — 730,000 General and Administrative 2,414,000 6,000 2,408,000 Subtotal Employee Compensation 3,322,000 6,000 3,316,000 Professional Fees (General and Administrative) 1,570,000 13,000 1,557,000 Total Non-Cash Share-Based Compensation $ 4,892,000 $ 19,000 $ 4,873,000 Netting out the non-cash share-based compensation from the Total Operating Expenses results in cash based Operating Expenses for 2024 of $12,177,858 for 2024, which is $1,237,742 less than the Operating Expenses for 2023.
Biggest changeFor the Years Ended December 31, 2025 2024 Change REVENUE Crypto and Related $ 4,951,565 $ — $ 4,951,565 Spirits Products 4,198,887 6,614,933 (2,416,046) Spirits Services 968,935 1,787,555 (818,620) Total Net Revenues 10,119,387 8,402,488 1,716,899 COST OF REVENUE Crypto and Related 234,590 — 234,590 Spirits Products 4,258,037 6,173,189 (1,915,152) Spirits Services 66,670 103,452 (36,782) Total Cost of Revenue 4,559,297 6,276,641 (1,717,344) Gross Profit 5,560,090 2,125,847 3,434,243 OPERATING EXPENSES Sales and Marketing 5,497,018 6,038,636 (541,618) General and Administrative 12,414,810 11,006,021 1,408,789 Change in Fair Value of Intangible Digital Assets 118,199,949 — 118,199,949 Restructure Costs 3,392,744 — 3,392,744 Total Operating Expenses 139,504,521 17,044,657 122,459,864 Operating Income / (Loss) (133,944,431) (14,918,810) (119,025,621) Other Income (Expense) Interest Expense (1,642,234) (2,535,701) 893,467 Impairment (Loss) / Gain on Investment (3,357,027) 3,421,222 (6,778,249) Gain on Extinguishment of Debt 1,673,127 — 1,673,127 Change in Fair Value of Convertible Notes — 14,028,067 (14,028,067) Change in Fair Value of Warrant Liabilities — 736,580 (736,580) Change in Fair Value of Contingency Liability (62,424) — (62,424) Other Income / (Expense) (390,816) (11,750) (379,066) Total Other Income / (Expense) (3,779,374) 15,638,418 (19,417,792) Income / (Loss) Before Income Taxes (137,723,805) 719,608 (138,443,413) Income Taxes 8,490 (9,150) 17,640 Net Income / (Loss) $ (137,715,315) $ 710,458 $ (138,425,773) Net Income / (Loss) Per Share, Basic $ (16.03) $ 0.98 $ (17.01) Weighted Average Common Shares Outstanding, Basic 8,619,951 64,066 8,555,885 Net Income / (Loss) Per Share, Diluted (See Note 16) $ (16.03) $ (39.46) $ 23.43 Weighted Average Common Shares Outstanding, Diluted 8,619,951 353,887 8,266,064 74 Table of Contents Cost of Revenue of approximately $4,559,000 and $6,277,000, and Operating Expenses of approximately $139,505,000 and $17,045,000 for the years ended December 31, 2025 and 2024, respectively, included non-cash share-based compensation for employees (personnel) and consultants of approximately $4,487,000 and $4,892,000, respectively, as follows: Years Ended December 31, (rounded to $000’s) 2025 2024 Change Production / Cost of Revenue $ 121,000 $ 178,000 $ (57,000) Sales and Marketing 647,000 730,000 (609,000) General and Administrative 3,699,000 2,414,000 (1,767,000) Subtotal Employee Compensation 4,467,000 3,322,000 (2,433,000) Professional Fees 20,000 1,570,000 (1,550,000) Total Non-Cash Share-Based Compensation $ 4,487,000 $ 4,892,000 $ (3,983,000) Netting out the non-cash share-based compensation from the Total Operating Expenses resulted in cash based Operating Expenses for the year ended December 31, 2025 of approximately $13,424,000, compared to approximately $12,153,000 for the year ended December 31, 2024, an increase of approximately $1,271,000.
The fixing of the exercise price allowed us to reclassify the warrant liabilities as equity on a pro forma basis, per ASC Topic 420 as of November 25, 2024 (the date of the our initial public offering).
The fixing of the exercise price allowed us to reclassify the warrant liabilities as equity on a pro forma basis, per ASC Topic 420 as of November 25, 2024 (the date of our initial public offering).
EBITDA and Adjusted EBITDA: EBITDA represents GAAP net loss adjusted for (i) depreciation of property and equipment; (ii) interest expense; (iii) share-based compensation; and (iv) provision for income taxes. Adjusted EBITDA represents EBITDA adjusted for the recognition of share-based compensation, non recurring gains and losses; and other one-time items.
EBITDA and Adjusted EBITDA: EBITDA represents GAAP net income / (loss) adjusted for (i) depreciation of property and equipment; (ii) interest expense; (iii) share-based compensation; and (iv) provision for income taxes. Adjusted EBITDA represents EBITDA adjusted for the recognition of share-based compensation, non recurring gains and losses; and other one-time items.
On the basis of our analysis we determined that the fair value of our Investment in Flavored Bourbon, LLC, should be adjusted to $14,285,000, with the resulting increase in fair value of $3,421,000 recorded as gain on increase in value of Flavored Bourbon, LLC on our condensed consolidated statement of operations for the six months ended June 30, 2024, and recorded no further adjustment in the value of Flavored Bourbon, LLC through the remainder of 2024.
On the basis of our analysis we determined that the fair value of our Investment in Flavored Bourbon, LLC, should be adjusted to $14,285,222, with the resulting increase in fair value of $3,421,222 recorded as gain on increase in value of Flavored Bourbon, LLC on our condensed consolidated statement of operations for the six months ended June 30, 2024, and recorded no further adjustment in the value of Flavored Bourbon, LLC through the remainder of 2024.
As of the end of 2024, a total of $9,791,360 of the $12 million had been raised, and it was unclear if an effort would be made to round out the remainder of the initial targeted raise. We retain a 12.2% ownership interest in this entity plus a 2.5% override in the waterfall of distributions.
As of the end of 2024, a total of $9,791,360 of the $12 million had been raised, and it was unclear if an effort would be made to round out the remainder of the initial targeted raise. We retain a 11.8% ownership interest in this entity plus a 2.5% override in the waterfall of distributions.
We made the choice to move our sales focus onto higher margin products and away from low margin well-based products, resulting in fewer cases sold in 2024 relative to 2023. Fewer cases of production carrying the same amount of overhead increases the unabsorbed overhead, and the associated cost per case, using standard cost accounting methodologies.
We made the choice to move our sales focus onto higher margin products and away from low margin well-based products, resulting in fewer cases sold in 2025 relative to 2024. Fewer cases of production carrying the same amount of overhead increases the unabsorbed overhead, and the associated cost per case, using standard cost accounting methodologies.
It is especially important in forecasting to larger 67 Table of Contents entities that may be looking to acquire brands or entities about the amount of inefficiencies they can wring out of a products or production if such products or ventures were acquired and absorbed into their larger and more efficient systems.
It is especially important in forecasting to larger entities that may be looking to acquire brands or entities about the amount of 83 Table of Contents inefficiencies they can wring out of a products or production if such products or ventures were acquired and absorbed into their larger and more efficient systems.
Assuming all other factors remain steady in the business, as we work to grow our Salute Series volume sales, which is our highest margin item, we will begin to see reductions in our unabsorbed overhead overall and per case, 61 Table of Contents leading to higher gross margins.
Assuming all other factors remain steady in the business, as we work to grow our Salute Series volume sales, which is our highest margin item, we will begin to see reductions in our unabsorbed overhead overall and per case, 77 Table of Contents leading to higher gross margins.
It is important to note specifically that the Adjusted Gross Margin excluding unabsorbed overhead includes revenue from low margin barrel production contracts we had in 2024 and 2023 that we do not expect to be performing for the foreseeable future as we focus on higher margin activities.
It is important to note specifically that the Adjusted Gross Margin excluding unabsorbed overhead includes revenue from low margin barrel production contracts we had in 2024 that we do not expect to be performing for the foreseeable future as we focus on higher margin activities.
Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 2 to our consolidated financial statements for the years ended December 31, 2024 and 2023 included elsewhere in this filing. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S.
Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 2 to our consolidated financial statements for the years ended December 31, 2025 and 2024 included elsewhere in this filing. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S.
Comparison of the Results of Operations for the Years Ended December 31, 2024 and 2023 The numbers presented below that have been rounded for presentation purposes have been rounded individually. As a result, totals may reflect the effect of differences between: aggregating the individually rounded component numbers; and the rounding of the total of the individual (non-rounded) component numbers.
Comparison of the Results of Operations for the Years Ended December 31, 2025 and 2024 The numbers presented below that have been rounded for presentation purposes have been rounded individually. As a result, totals may reflect the effect of differences between: aggregating the individually rounded component numbers; and the rounding of the total of the individual (non-rounded) component numbers.
Changes in Fair Value of Convertible Notes As of September 30, 2024, the fair value of the Convertible Notes that were issued in 2022 and 2023 and were exchanged in October and November 2023 for a fixed number of shares of common stock and prepaid warrants, was revalued to $18,482,353, which reflected the impact of the then-anticipated pricing of our initial public offering of $5.00 per share in the valuation calculation methodology.
Changes in Fair Value of Convertible Notes As of September 30, 2024, the fair value of the Convertible Notes that were issued in 2022 and 2023 and were exchanged in October and November 2023 for a fixed number of shares of common stock and prepaid warrants, was revalued to $18,482,353, which reflected the impact of the then-anticipated pricing of our initial public offering of $100 per share in the valuation calculation methodology.
Our cost of sales consists of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement costs, fulfillment costs, warehousing costs, and certain allocated costs related to management, facilities and personnel-related expenses associated with supply chain logistics.
Our cost of revenue consists of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement costs, fulfillment costs, warehousing costs, and certain allocated costs related to management, facilities and personnel-related expenses associated with supply chain logistics.
(See below our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures ).
(See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures ).
We have elected to use this extended transition period for complying with new or revised 75 Table of Contents 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.
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.
The expenses include our personnel responsible for managing our e-commerce platform, wages, commissions and bonuses for our outside sales team members who market and sell our products to distributors and retail end users and the associated costs of such sales.
The expenses included our personnel responsible for managing our e-commerce platform, wages, commissions and bonuses for our outside sales team members who market and sell our products to distributors and retail end users and the associated costs of such sales.
The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enacted date. Impairment of Long-Lived Assets All long-lived assets used are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enacted date. 88 Table of Contents Impairment of Long-Lived Assets All long-lived assets used are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
The changes in the fair value of the Convertible Notes and related warrants are recorded as “changes in fair value” as a component of other income (expenses) in our consolidated statements of operations.
The changes in the fair value of the Convertible Notes and related warrants were recorded as “changes in fair value” as a component of other income (expenses) in our consolidated statements of operations.
As a result of the January 2024 capital call, in accordance with adjusting for observable price changes for similar investments of the same issuer pursuant to ASC 321 as noted above, we performed a qualitative assessment of our Investment in Flavored Bourbon, LLC.
As a result of the January 2024 capital call, in accordance with adjusting for observable price changes for similar investments of the same issuer pursuant to ASC 321 as 70 Table of Contents noted above, we performed a qualitative assessment of our Investment in Flavored Bourbon, LLC.
The fair value of the common stock underlying our stock-based awards has historically been determined by our board of directors, with input from management and corroboration from contemporaneous third-party valuations. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock.
The fair value of the common stock 87 Table of Contents underlying our stock-based awards has historically been determined by our board of directors, with input from management and corroboration from contemporaneous third-party valuations. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock.
We did not record any impairment losses on long-lived assets for the years ended December 31, 2024 and 2023. Off-Balance Sheet Arrangements We had no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of December 31, 2024 or for the periods presented.
We did not record any impairment losses on long-lived assets for the years ended December 31, 2025 or 2024. Off-Balance Sheet Arrangements We had no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of December 31, 2025 or for the periods presented.
We use a probability weighted expected return method (“PWERM”) and the Discounted Cash Flow (“DCF”) method to incorporate estimates and assumptions concerning our prospects and market indications into a model to estimate the value of the notes.
We use a probability weighted expected return method (“PWERM”) and the Discounted Cash Flow (“DCF”) method to incorporate estimates 86 Table of Contents and assumptions concerning our prospects and market indications into a model to estimate the value of the notes.
The remaining warrants, which remain outstanding subsequent to the closing of our initial public offering, were amended to fix the exercise price at $6.00 per share effective upon the closing of our initial public offering, thereby removing the floating price optionality.
The remaining warrants, which remain outstanding subsequent to the closing of our initial public offering, were amended to fix the exercise price at $120 per share effective upon the closing of our initial public offering, thereby removing the floating price optionality.
In cases where rounding occurred, the amount of the rounding difference is generally $1,000 or less. Such differences are considered to be insignificant. 58 Table of Contents The following table summarizes our results of operations for the years ended December 31, 2024 and 2023.
In cases where rounding occurred, the amount of the rounding difference is generally $1,000 or less. Such differences are considered to be insignificant. 73 Table of Contents The following table summarizes our results of operations for the years ended December 31, 2025 and 2024.
The following table presents a reconciliation of GAAP Gross Profit to Adjusted Gross Profit by removing unabsorbed overhead for the years ended December 31, 2024 and 2023. Adjusted Gross Margin excluding unabsorbed overhead is the percentage obtained by dividing Adjusted Gross Profit after removing unabsorbed overhead by our GAAP total net sales.
The following table presents a reconciliation of our spirits business GAAP Gross Profit to Adjusted Gross Profit by removing unabsorbed overhead for the years ended December 31, 2025 and 2024. Adjusted Gross Margin excluding unabsorbed overhead is the percentage obtained by dividing Adjusted Gross Profit after removing unabsorbed overhead by our GAAP total net sales.
Changes in Fair Value of Investment in Flavored Bourbon, LLC As of December 31, 2024 and December 31, 2023, we had a 12.2% and 15.1% ownership interest in Flavored Bourbon, LLC, respectively, and did not record any impairment charges related to our investment in Flavored Bourbon, LLC for the year ended December 31, 2023.
Changes in Fair Value of Investment in Flavored Bourbon, LLC As of December 31, 2025 and December 31, 2024, respectively, we had a 11.8% and 12.2% ownership interest in Flavored Bourbon, LLC, respectively, and did not record any impairment charges related to our investment in Flavored Bourbon, LLC for the year ended December 31, 2023.
Upon the effectiveness of our initial public offering (on November 25, 2024), the fair value of the Convertible Notes decreased and was reclassified from a liability to equity in the amount of $15,278,168 (representing the 3,312,148 shares of common stock and 507,394 prepaid warrants for which the Convertible Notes were exchanged multiplied by the price per share of our common stock of $4.00 in the November 25, 2024 initial public offering., with the remaining $3,204,185 recorded as a gain for the decrease in fair value of those Convertible Notes for the period from September 30, 2024 to the date of our initial public offering (November 25, 2024), which is the date on which the contingent treatment of the liability associated with such convertible notes is relieved and they were reclassified to equity.
Upon the effectiveness of our initial public offering (on November 25, 2024), the fair value of the Convertible Notes decreased and was reclassified from a liability to equity in the amount of $15,278,168 (representing the 165,607 shares of common stock and 25,369 prepaid warrants for which the Convertible Notes were exchanged multiplied by the price per share of our common stock of $80 in the November 25, 2024 initial public offering, with the remaining $3,204,185 recorded as a gain for the decrease in fair value of those Convertible Notes for the period from September 30, 2024 to the date of our initial public offering (November 25, 2024), which is the date on which the contingent treatment of the liability associated with such convertible notes is relieved and they were reclassified to equity.
Upon the effectiveness of our initial public offering (on November 25, 2024), the fair value of such convertible promissory notes and related warrant liabilities decreased and was reclassified from a liability to equity in the aggregate amount of $11,784,068 (representing the 2,399,090 shares of common stock and 546,927 prepaid warrants for which the Whiskey Notes were exchanged multiplied by the price per share of our common stock of $4.00 in our November 25, 2024 initial public offering, with the remaining $2,499,684 recorded as a gain for the decrease in fair value of those convertible notes and related warrant liabilities for the period from September 30, 2024 to the date of our initial public offering (November 25, 2024), which is the date on which the contingent treatment of the liability associated with such convertible notes is relieved and they were reclassified to equity.
Upon the effectiveness of our initial public offering (on November 25, 2024), the fair value of such convertible promissory notes and related warrant liabilities decreased and was reclassified from a liability to equity in the aggregate amount of $11,784,068 (representing the 119,954 shares of common stock and 27,346 prepaid warrants for which the Whiskey Notes were exchanged, multiplied by the price per share of our common stock of $80 in our November 25, 2024 initial public offering, with the remaining $2,499,684 recorded as a gain for the decrease in fair value of those convertible notes and related warrant liabilities for the period from September 30, 2024 to the date of our initial public offering (November 25, 2024), which is the date on which the contingent treatment of the liability associated with such convertible notes is relieved and they were reclassified to equity.
The following table presents a reconciliation of net loss to EBITDA and adjusted EBITDA for the years ended December 31, 2024 and 2023.
The following table presents a reconciliation of net income / (loss) to EBITDA and adjusted EBITDA for the years ended December 31, 2025 and 2024.
The changes in fair value related to the accrued interest components of the Convertible Notes are also included 56 Table of Contents within the single line of change in fair value of convertible notes on our consolidated statements of operations.
The changes in fair value related to the accrued interest components of the Convertible Notes were also included within the single line of change in fair value of convertible notes on our consolidated statements of operations.
In addition, an incremental credit spread is estimated and applied to reflect our ability to continue as a going concern. Using the spread adjusted yield curve with a maturity equal to the remaining lease term, we determine the borrowing rates for all operating leases.
Our calculated credit rating on secured debt instruments determines the yield curve used. In addition, an incremental credit spread is estimated and applied to reflect our ability to continue as a going concern. Using the spread adjusted yield curve with a maturity equal to the remaining lease term, we determine the borrowing rates for all operating leases.
As of September 30, 2024, the fair value of the convertible notes issued in 2023 and 2024 (the “Whiskey Notes”) and related warrant liabilities, which notes and warrants were exchanged for 2,399,090 shares of common stock and 546,927 prepaid warrants in April 2024, was $14,283,752 and $18,658, respectively, which reflected the impact of the then-anticipated pricing of our initial public offering of $5.00 per share in the valuation calculation methodology.
As of September 30, 2024, the fair value of the convertible notes issued in 2023 and 2024 (the “Whiskey Notes”) and related warrant liabilities, which notes and warrants were exchanged for 119,954 shares of common stock and 27,346 prepaid warrants in April 2024, was $14,283,752 and $18,658, respectively, which reflected the impact of the then-anticipated pricing of our initial public offering of $100 per share in the valuation calculation methodology.
We expect our gross margins to fluctuate over time, depending on the factors described above.
We expect our gross profit and gross margin to fluctuate over time, depending on the factors described above.
During the years ended December 31, 2024 and 2023, approximately $(1,022,000) and $2,893,000, respectively, of cash was (used) / generated by changes in account balances of operating assets and liabilities. Non-cash adjustments to reconcile net loss to net cash used in operating activities were approximately $(10,904,000) and $25,425,000 in the respective periods.
During the years ended December 31, 2025 and 2024, approximately $(8,183,000) and $(1,022,000), respectively, of cash was generated / (used) by changes in account balances of operating assets and liabilities. Non-cash adjustments to reconcile net income / (loss) to net cash used in operating activities were approximately $130,570,000 and $(10,904,000) in the respective periods.
These factors include: • contemporaneous valuations of our common stock performed by independent third-party specialists; • the lack of marketability inherent in our common stock; • our actual operating and financial performance; • our current business conditions and projections; • the hiring of key personnel and the experience of our management; • our history and the introduction of new products; • our stage of development; • the likelihood of achieving a liquidity event, such as an initial public offering (IPO), a merger, or acquisition of our company given prevailing market conditions; • the operational and financial performance of comparable publicly traded companies; and • the U.S. and global capital market conditions and overall economic conditions. 74 Table of Contents In valuing our common stock, the fair value of our business was determined using various valuation methods, including combinations of income and market approaches with input from management.
These factors include: • contemporaneous valuations of our common stock performed by independent third-party specialists; • the lack of marketability inherent in our common stock; • our actual operating and financial performance; • our current business conditions and projections; • the hiring of key personnel and the experience of our management; • our history and the introduction of new products; • our stage of development; • the likelihood of achieving a liquidity event, such as an initial public offering, a merger, or acquisition of our company given prevailing market conditions; • the operational and financial performance of comparable publicly traded companies; and • the U.S. and global capital market conditions and overall economic conditions.
Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” and elsewhere in this filing.
Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” and elsewhere in this filing.
Gross Profit and Gross Margin Our gross profit is the difference between our revenues and cost of sales. Gross margin percentage is obtained by dividing gross profit by our revenue.
Gross Profit and Gross Margin Our gross profit for both our crypto and spirits business is the difference between our revenues and cost of revenue. Gross margin percentage is obtained by dividing gross profit by our revenue.
The cash proceeds received in the year ended December 31, 2024 were primarily comprised of approximately: $3,656,000 of proceeds from the sale of convertible notes (of which $1,433,000 was from a related party); $695,000 proceeds from notes payable; $5,960,000 from proceeds of our initial public offering; $2,025,000 from the sale of preferred stock; offset by repayment of notes payable of $1,723,000; and $4,000 of other expenditures.
The cash proceeds received in the year ended December 31, 2024 were primarily comprised of approximately: $3,656,000 of proceeds from the sale of convertible notes (of which $1,433,000 was from a related party); $695,000 proceeds from notes payable; $5,960,000 from proceeds of our initial public offering; $1,398,000 from proceeds of common warrants; $2,025,000 from the sale of Series A Convertible Preferred Stock, par value $0.0001 per share (“Series A Preferred Stock”); offset by $313,000 of expenses related to our initial public offering (which was recorded to additional paid-in-capital, net against initial public offering proceeds);repayment of notes payable of $1,723,000; and $4,000 of other expenditures.
Services cost of sales decreased by approximately $754,000 from 2023 to 2024 primarily resulting from us ending a low-margin third party production contract for another brand and the wind down of barrel production for third parties.
Services cost of revenue decreased by approximately $36,000 to approximately $67,000 for the year ended December 31, 2025 from approximately $103,000 for the year ended December 31, 2024 primarily resulting from our ending a low-margin third party production contract for another brand and the wind down of barrel production for third parties.
See also Note 5 to our consolidated financial statements for the years ended December 31, 2024 and 2023 included elsewhere in this Report. 57 Table of Contents Changes in Fair Value of Warrant Liabilities We issued certain warrants for the purchase of shares of our common stock in connection with the issuance of certain Convertible Notes and classified such warrants as a liabilities on our consolidated balance sheet pursuant to ASC Topic 480 because, when issued, the warrants were to settle by issuing a variable number of shares of our common stock based on the then-unknown price per share of our common stock in our IPO.
With the satisfaction of that remaining contingency, the exchange of the convertible notes payable for common stock qualified for equity classification. 71 Table of Contents Changes in Fair Value of Warrant Liabilities We issued certain warrants for the purchase of shares of our common stock in connection with the issuance of certain Convertible Notes and classified such warrants as a liabilities on our consolidated balance sheet pursuant to ASC Topic 480 because, when issued, the warrants were to settle by issuing a variable number of shares of our common stock based on the then-unknown price per share of our common stock in our IPO.
Interest Expense Interest expenses include cash interest accrued on our secured debt, cash interest and non-cash interest paid or accrued on our notes payable, interest on leased equipment or assets, and costs and interest on credit cards.
Interest Expense Interest expenses include cash interest accrued on our secured debt, cash interest and non-cash interest paid or accrued on our notes payable, interest on leased equipment or assets, and costs and interest on credit cards. Change in Fair Value of Intangible Digital Assets Our intangible digital assets consist solely of $IP Tokens in our digital treasury.
Components of Products Cost of Sales Years Ended December 31, (rounded to $000’s) 2024 2023 Change Product Cost (from inventory) $ 3,623,000 $ 2,748,000 $ 875,000 Overhead – Unabsorbed 2,550,000 2,215,000 335,000 $ 6,173,000 $ 4,963,000 $ 1,210,000 Components of Products Cost of Sales Years Ended December 31, 2024 2023 Change Product Cost (from inventory) 58.7 % 55.4 % 3.3 % Overhead – Unabsorbed 41.3 % 44.6 % (3.3) % 100.0 % 100.0 % — % • Unabsorbed overhead as a component of Product Cost of 41.3% and 44.6% for 2024 and 2023, respectively, are significant contributors to our current overall low Products gross margins.
Components of Products Cost of Revenue - Spirits Business Years Ended December 31, (rounded to $000’s) 2025 2024 Change Product Cost (from inventory) $ 1,866,000 $ 3,623,000 $ (1,757,000) Overhead – Unabsorbed 2,392,000 2,550,000 (158,000) $ 4,258,000 $ 6,173,000 $ (1,915,000) Components of Products Cost of Revenue - Spirits Business Years Ended December 31, 2025 2024 Change Product Cost (from inventory) 43.8 % 58.7 % (14.9) % Overhead – Unabsorbed 56.2 % 41.3 % 14.9 % 100.0 % 100.0 % — % • Unabsorbed overhead as a component of Product Cost of 56.2% and 41.3% for the years ended December 31, 2025 and 2024, respectively, are significant contributors to our current overall low products gross margins.
Supplemental Cash Flow Information During the year ended December 31, 2024, supplemental cash flow activity included approximately: $2,189,000 of cash paid for interest expense; $1,266,000 of Series A Preferred Stock issued in exchange for inventory and barrels; $720,000 of Series A Preferred Stock issued in exchange for factoring agreement and related accrued interest and fees; $1,676,000 of unpaid deferred transaction costs that were recorded as a deferred expense on the balance sheet and recorded 72 Table of Contents in accounts payable and other current liabilities; and $0 of leased assets obtained in exchange for new operating lease liabilities.
During the year ended December 31, 2024, supplemental cash flow activity included approximately: $2,189,000 of cash paid for interest expense; $1,266,000 of Series A Preferred Stock issued in exchange for inventory and barrels; $720,000 of Series A Preferred Stock issued in exchange for factoring agreement and related accrued interest and fees; $671,000 of common stock issued in conjunction with acquisition of Thinking Tree Spirits; $15,278,000 from the conversion of 2022 and 2023 convertible notes to equity; $1,873,000 from 2022 convertible notes warrants reclassified from liability to equity; $11,784,000 from conversion of the Whiskey Notes and related warrant liabilities to equity; $1,676,000 of unpaid deferred initial public offering transaction costs that were recorded as a deferred expense on the balance sheet and recorded in accounts payable and other current liabilities; and $2,054,000; and $153,000 of leased assets obtained in exchange for operating lease liabilities.
Service revenue is recognized over the period in which the service is provided. Cost of Sales We recognize the cost of sales in the same manner that the related revenue is recognized.
We recognize the spirits business cost of revenue in the same manner that the related revenue is recognized.
Our gross profit and gross margin are, or may be, influenced by several factors, including: • Market conditions that may impact our pricing; • Our cost structure for manufacturing operations, including contract manufacturers, relative to volume, and our product support obligations; • Our capacity utilization and overhead cost absorption rates; 55 Table of Contents • Our ability to maintain our costs on the components that go into the manufacture of our products; and • Seasonal sales offerings or product promotions in conjunction with plans created with our distributors or retail channels.
Our gross profit and gross margin are, or may be, influenced by several factors, including: • Market conditions that may impact the market value of our investment in intangible digital assets (SIP Tokens); • Market conditions that impact the market value of the blockchain rewards (staking revenue); • Staking yields for work performed on the validator; • The cost of third party computer services that house our validator; • The volume of tokens that we stake or commit to covered calls, and the terms of the related contracts; • The volume of third party tokens assigned to our validator; • Market conditions that may impact our pricing; • Our cost structure for manufacturing operations, including contract manufacturers, relative to volume, and our product support obligations; • Our capacity utilization and overhead cost absorption rates; • Our ability to maintain our costs on the components that go into the manufacture of our products; • Seasonal sales offerings or product promotions in conjunction with plans created with our distributors or retail channels; • Our closure of our tasting rooms; and • Our closure of our distillery operations and shift to third party production.
Years Ended December 31, (rounded to $000’s) Gross Profit Analysis Excluding Unabsorbed Overhead 2024 2023 GAAP Total Net Sales $ 8,403,000 $ 7,972,000 GAAP Gross Profit 2,126,000 2,151,000 GAAP Gross Profit Additions/(Deductions): Unabsorbed Overhead 2,550,000 2,215,000 Adjusted Gross Profit excluding unabsorbed overhead $ 4,676,000 $ 4,366,000 GAAP Gross Margin 25.3 % 27.0 % Adjusted Gross Margin excluding unabsorbed overhead 55.6 % 54.8 % The above Adjusted Gross Margin excluding unabsorbed overhead shows the cost of production of our products and services based on raw inputs and direct labor and overhead, removing all unabsorbed overhead expenses for unused capacity.
Years Ended December 31, (rounded to $000’s) Gross Profit - Excluding Unabsorbed Overhead - Spirits Business 2025 2024 Products Sales $ 4,199,000 $ 6,615,000 Products Gross Profit (59,000) 442,000 GAAP Gross Profit Additions/(Deductions): Add Back: Unabsorbed Overhead 2,392,000 2,550,000 Products Gross Profit Excluding Unabsorbed Overhead $ 2,333,000 $ 2,992,000 GAAP Gross Margin (1.4) % 6.7 % Adjusted Gross Margin excluding unabsorbed overhead 55.6 % 45.2 % The above Adjusted Gross Margin excluding unabsorbed overhead shows the cost of production of our products and services based on raw inputs and direct labor and overhead, removing all unabsorbed overhead expenses for unused capacity.
Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this filing and the section of this filing entitled “Information about Heritage.” In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this filing.
General and Administrative General and administrative expenses consist primarily of personnel-related expenses associated with our executive, finance, legal, insurance, information technology and human resources functions, as well as professional fees for legal, audit, accounting and other consulting services, and an allocated portion of overhead costs.
We also expect significant cost reductions in sales and marketing moving forward as a result of closing the tasting rooms and the resulting head count reductions otherwise reported. 69 Table of Contents General and Administrative General and administrative expenses consist primarily of personnel-related expenses associated with our executive, finance, legal, insurance, information technology and human resources functions, as well as professional fees for legal, audit, accounting and other consulting services, and an allocated portion of overhead costs.
Substantially all revenue is recognized from products transferred at a point in time when control is transferred, and contract performance obligations are met. Service revenue represents fees for distinct value-added services that we provide to third parties, including production, bottling, marketing, consulting and other services, including for the TBN, aimed at growing and improving brands and sales.
Service revenue represents fees for distinct value-added services that we provide to third parties, including production, bottling, 68 Table of Contents marketing, consulting and other services, including for the TBN, aimed at growing and improving brands and sales. Service revenue is recognized over the period in which the service is provided.
Total Cost of Sales Years Ended December 31, (rounded to $000’s) 2024 2023 Change Products $ 6,173,000 $ 4,963,000 $ 1,210,000 Services 103,000 857,000 (754,000) $ 6,276,000 $ 5,820,000 $ 456,000 The approximately $1,210,000 increase in net products cost of sales period over period included: an increase in product cost of approximately $875,000 to approximately $3,623,000 for the year ended December 31, 2024, from approximately $2,748,000 for the year ended December 31, 2023 which included an increase in unabsorbed overhead of approximately $335,000 to approximately $2,550,000 as of December 31, 2024 from approximately $2,215,000 as of December 31, 2023.
Cost of Revenue - Spirits Business Years Ended December 31, (rounded to $000’s) 2025 2024 Change Products $ 4,258,000 $ 6,173,000 $ (1,915,000) Services 67,000 103,000 (36,000) $ 4,325,000 $ 6,276,000 $ (1,951,000) The approximately $1,915,000 decrease in net products cost of sales period over period included: a decrease in product cost of approximately $1,757,000 to approximately $1,866,000 for the year ended December 31, 2025, from approximately $3,623,000 for the year ended December 31, 2024 which included an approximately $158,000 decrease in unabsorbed overhead to approximately $2,392,000 as of December 31, 2025 from approximately $2,550,000 as of December 31, 2024.
Net Cash Provided By Financing Activities During the years ended December 31, 2024 and 2023, net cash provided by financing activities was approximately $11,693,000 and $8,358,000, respectively.
Net Cash Provided By / (Used in) Investing Activities During the years ended December 31, 2025 and 2024, net cash provided by / (used in) investing activities was approximately $(16,519,000) and $(101,000), respectively.
Sales and marketing expenses also include the costs of sports and venue sponsorships, radio, television, social media, influencers, direct mail and other traditional marketing costs, costs related to trade shows and events and an allocated portion of overhead costs.
Sales and marketing expenses also included the costs of social media, influencers, and other traditional marketing costs, costs related to trade shows and events and an allocated portion of overhead costs. We expect our sales and marketing costs reduce given our restructuring of the spirits business.
The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in the economic 73 Table of Contents environments where the leased asset is located.
The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in the economic environments where the leased asset is located. The incremental borrowing rate is calculated by modeling our credit rating on our historical arm’s-length secured borrowing facility and estimating an appropriate credit rating for similar secured debt instruments.
We believe the fair value option better reflects the underlying economics of the Convertible Notes and the related warrants given their embedded conversion or exercise features. As a result, the Convertible Notes and the related warrants were recorded at fair value upon issuance and were subsequently, and will continue to be, remeasured at each reporting date until settled or converted.
We believe the fair value option better reflects the underlying economics of the Convertible Notes and the related warrants given their embedded conversion or exercise features.
Net Cash Used in Investing Activities During the years ended December 31, 2024 and 2023, net cash used in investing activities was approximately $101,000 and $24,000, respectively. Investing activities during the years ended December 31, 2024 and 2023 were related primarily to the purchase of property and equipment, net of minor amounts related to purchases / sales of assets.
Investing activities during the year ended December 31, 2024 were primarily comprised of approximately, $106,000 from the net purchase of property and equipment. Net Cash Provided By Financing Activities During the years ended December 31, 2025 and 2024, net cash provided by /(used in) financing activities was approximately $31,640,000 and $11,693,000, respectively.
Following the date of the forgiveness, the remaining balance of the PPP loan of $2,269,456 is expected to be repaid in the next 12 months with our general assets. 71 Table of Contents Cash Flows The following table sets forth a summary of cash flows for the periods presented: Summary of Cash Flows Years ended December 31, (rounded to $000’s) 2024 2023 Net Cash Used in Operating Activities $ (11,216,000) $ (8,480,000) Net Cash Used in Investing Activities (101,000) (24,000) Net Cash Provided by Financing Activities 11,693,000 8,358,000 Net increase / (decrease) in cash $ 376,000 $ (146,000) Net Cash Used in Operating Activities During the years ended December 31, 2024 and 2023, net cash used in operating activities was approximately $11,216,000 and 8,480,000, respectively, resulting primarily from net income (loss) of approximately $710,000 and $(36,798,000), respectively.
Cash Flows The following table sets forth a summary of cash flows for the periods presented: Summary of Cash Flows Years ended December 31, (rounded to $000’s) 2025 2024 Net Cash Provided by / (Used in) Operating Activities $ (15,328,000) $ (11,216,000) Net Cash Provided by / (Used in) Investing Activities (16,519,000) (101,000) Cash Flow from Financing Activities 31,640,000 11,693,000 Net Increase / (Decrease) in Cash $ (208,000) $ 376,000 Net Cash Provided By / (Used in) Operating Activities During the years ended December 31, 2025 and 2024, net cash provided by / (used in) operating activities was approximately $(15,328,000) and $(11,216,000), respectively, including net income / (loss) of approximately $(137,715,000) and $710,000, respectively.
As of December 31, 2024, we had outstanding restricted stock units (“RSUs”) that, upon vesting, will settle into an aggregate of 11,064 shares based upon the grant date with a fair value of $157.89, and 234,525 shares based upon the grant date with a fair value of $4.00.
As of December 31, 2025, we had outstanding restricted stock units (“RSUs”) that, upon vesting, will settle into an aggregate of 431,566 shares based upon the grant date with a fair value of $4,150,465.11. We recognized an aggregate of $2,684,995 of previously-unrecognized compensation expense for RSU awards upon completion of our initial public offering (“IPO”).
Cost of Sales Cost of sales were approximately $6,276,000 and $5,820,000 for the years ended December 31, 2024 and 2023, respectively, an increase of approximately $456,000, or 7.8%, period over period.
Cost of Revenue — Spirits Business Cost of revenue was approximately $4,325,000 and $6,276,000 for the years ended December 31, 2025 and 2024, respectively, an approximately $1,951,000 or 31.1% decrease, period over period.
Years ended December 31, (rounded to $000’s) EBITDA Analysis 2024 2023 Net Income / (Loss) $ 710,000 $ (36,798,000) Add (Deduct): Income Tax 9,000 7,000 Interest Expense 2,536,000 2,527,000 Depreciation and Amortization 1,285,000 1,430,000 EBITDA $ 4,540,000 $ (32,834,000) Change in fair value of convertible notes (14,028,000) 22,765,000 Change in fair value of warrant liabilities (737,000) 240,000 Investment (Gain) / Loss (3,421,000) — Share-Based Compensation 4,892,000 19,000 Adjusted EBITDA $ (8,754,000) $ (9,810,000) 68 Table of Contents Liquidity and Capital Resources We have prepared our financial statements assuming we will continue as a going concern.
Years Ended December 31, (rounded to $000’s) EBITDA Analysis 2025 2024 Net Income / (Loss) $ (137,715,000) $ 710,000 Add (Deduct): State Taxes 8,000 9,000 Federal Income Taxes and Other (17,000) — Interest Expense 1,642,000 2,536,000 Depreciation and Amortization 1,064,000 1,285,000 EBITDA $ (135,018,000) $ 4,540,000 Change in Fair Value of Intangible Digital Assets 118,199,949 — Change in Fair Value of Convertible Notes — (14,028,000) Change in Fair Value of Warrant Liabilities — (737,000) Investment (Gain) / Loss 3,357,000 (3,421,000) Share-Based Compensation 4,487,000 4,892,000 Adjusted EBITDA $ (8,974,000) $ (8,754,000) Liquidity and Capital Resources We have experienced recurring operating losses, negative operating cash flows, and periods of negative working capital.
The approximately $25,425,000 of non-cash adjustments in the years ended December 31, 2023 included approximately: $1,430,000 of depreciation expense; $493,000 of non-cash amortization of operating lease right-of-use assets; $22,765,000 of loss on change in fair value of convertible notes; $240,000 of loss on change in fair value of warrant liabilities; $19,000 of non-cash share-based compensation; and $435,000 of non-cash interest expense primarily associated with our notes payable.
The approximately $130,570,000 of non-cash adjustments in the year ended December 31, 2025 included approximately: $1,064,000 of depreciation expense; $423,000 of non-cash amortization of operating lease right-of-use assets; $992,000 of loss on disposal of property and equipment; $3,393,000 of restructuring expense; $118,200,000 of change in fair value of intangible digital assets; $3,357,000 of impairment loss on investment; $1,673,000 of gain on restructuring of debt; $4,487,000 of non-cash share-based compensation; and $140,000 of non-cash interest expense primarily associated with our notes payable.
Sales and Marketing Sales and marketing expenses consist primarily of employee-related costs for individuals working in our sales and marketing departments, our tasting room general managers and Cask Club directors, our hourly tasting room sales associates, the executives to whom all general managers report, and the executives whose primary function is sales or marketing, and rent and associated costs for running each tasting room.
Sales and Marketing Sales and marketing expenses through December 31, 2025 consisted primarily of employee-related costs for individuals working in our sales and marketing departments, our tasting room general managers and our hourly tasting room associates up to the date we closed all retail tasting rooms on December 31, 2025.
Unless the context otherwise requires, for the purposes of this section, “Heritage,” “we,” “us,” “our,” or the “Company” refer to Heritage Distilling Holding Company, Inc. and its subsidiaries. Business Overview We are a craft distiller producing, marketing and selling a diverse line of award-winning craft spirits, including whiskeys, vodkas, gins, rums, and “ready-to-drink” canned cocktails.
Unless the context otherwise requires, for the purposes of this section, “IP Strategy,” “we,” “us,” “our,” or the “Company” refer to IP Strategy Holdings, Inc. and its consolidated subsidiaries, including its principal operating subsidiary, Heritage Distilling Company, Inc. (“Heritage,” “Heritage Distilling” or “HDC”).
As we work to shed some of our excess capacity and overhead, and as we increase our sales of higher margin items, we expect this Products gross margin to increase significantly ( See also below our comments related to this in more detail in Non-GAAP Financial Measures ).
( See also below our comments related to this in more detail in Non-GAAP Financial Measures ).
The income approach estimates value based on the expectation of future cash flows that a company will generate.
In valuing our common stock, the fair value of our business was determined using various valuation methods, including combinations of income and market approaches with input from management. The income approach estimates value based on the expectation of future cash flows that a company will generate.
Net Sales Net sales were approximately $8,402,000 and $7,971,000 for the years ended December 31, 2024 and 2023, respectively, an increase of approximately $431,000, or 5.4%, period over period.
Net Revenues - Crypto and Related Business Years Ended December 31, (rounded to $000’s) Net Revenues - Crypto and Related 2025 2024 Change Validator Business - Blockchain Rewards (Staking Revenue) $ 4,952,000 $ — $ 4,952,000 $ 4,952,000 $ — $ 4,952,000 Net revenues were approximately $4,952,000 and $0 for the years ended December 31, 2025 versus 2024, respectively, an increase of approximately $4,952,000, or 100%, period over period.
Unabsorbed overhead is a functions of costs attributable to the excess capacity and associated overhead in our system.
Unabsorbed overhead is a function of costs attributable to the excess capacity and associated overhead in our system. As we move to third party production in 2026 and we move into 2026 with a significantly reduced headcount, we expect unabsorbed overhead to be greatly reduced on a full year basis in 2026.
This approximately $3,529,000 increase included: General and Administrative Expense Years Ended December 31, (rounded to $000’s) Change 2024 2023 Personnel - Cash Wages and Related Expense $ 2,056,000 $ 1,955,000 $ 101,000 Personnel - Share-Based Compensation 2,414,000 6,000 2,408,000 Recruiting and retention 20,000 163,000 (143,000) Professional Fees 2,195,000 2,220,000 (25,000) Professional Fees - Share-Based Compensation 1,571,000 — 1,571,000 Leases and Rentals 593,000 658,000 (65,000) Depreciation 1,022,000 1,160,000 (138,000) Other 1,135,000 1,315,000 (180,000) $ 11,006,000 $ 7,477,000 $ 3,529,000 • The approximately $11,006,000 in General and Administrative Expenses listed in the table above includes a total of approximately $3,985,000 in non-cash share-based compensation expense recognized in 2024 for RSU awards, comprised of approximately $2,414,000 of such non-cash expense to General and Administrative employees and approximately $1,571,000 in non-cash expense to consultants.
This approximately $1,408,000 increase included: General and Administrative Expense Years Ended December 31, (rounded to $000’s) 2025 2024 Change Personnel - Cash Wages and Related Expense $ 1,460,000 $ 2,056,000 $ (596,000) Personnel - Share-Based Compensation 3,699,000 2,414,000 1,285,000 Recruiting and retention (5,000) 20,000 (25,000) Professional Fees 2,097,000 2,195,000 (98,000) Professional Fees - Share-Based Compensation 589,000 1,571,000 (982,000) Leases and Rentals 521,000 593,000 (72,000) Depreciation 899,000 1,022,000 (123,000) Other 3,154,000 1,135,000 2,019,000 $ 12,414,000 $ 11,006,000 $ 1,408,000 • General and administrative expenses increased by approximately $1.4 million to $12.4 million million for the year ended December 31, 2025, from approximately $11.0 million in 2024, driven primarily by an approximately $1.3 million increase in non-cash share-based compensation, including RSU grants tied to deferred compensation and employee incentives, and an approximately $2.0 million increase in other general and administrative expense reflecting broader increases across operating categories such as insurance, public company director expenses, and a one-time accounting expense related to renegotiating warehouse leases.
We recognize that taste and innovation are key criteria for consumer choices in spirits and innovate new products for trial in our company-owned distilleries and tasting rooms. We believe we have developed differentiated products that are responsive to consumer desires for rewarding and novel taste experiences.
In our spirits segment we produce, market and sell super premium whiskeys and premium flavored whiskeys. We believe we have developed differentiated products that are responsive to consumer desires for rewarding and novel taste experiences. We sell our spirits products through our DtC channel, via wholesale distributors and through TBN partners.
The approximately $1,048,000 decrease in net sales of services period over period included: Services Sales Years Ended December 31, (rounded to $000’s) 2024 2023 Change Third Party Production $ 99,000 $ 1,094,000 $ (995,000) Retail Services 1,442,000 1,387,000 55,000 Consulting and Other 246,000 354,000 (108,000) $ 1,787,000 $ 2,835,000 $ (1,048,000) • The approximately $995,000 decrease in third-party production resulted from the ending of a low-margin third-party bottling contract as of January 31, 2024.
The approximately $818,000 decrease in net sales of services period over period included: Services Revenue - Spirits Business Years Ended December 31, (rounded to $000’s) 2025 2024 Change Third Party Production $ 22,000 $ 99,000 $ (77,000) Retail Services 913,000 1,442,000 (529,000) Consulting and Other 34,000 246,000 (212,000) $ 969,000 $ 1,787,000 $ (818,000) • Net sales of services decreased by approximately $818,000 period over period, driven by an approximately $529,000 decrease in retail services due to reduced operating hours at select locations, an approximately $212,000 decrease in consulting fees as certain TBN projects progressed from development into construction following the completion of the Stillaguamish project, and an approximately $77,000 decrease in third-party production revenue following the intentional exit of a low-margin bottling contract in early 2024 as we shifted focus toward higher-margin activities.
Gross Profit Gross profit was approximately $2,126,000 and $2,151,000 for the years ended December 31, 2024 and 2023, respectively, a decrease of approximately $25,000, or 1.2%, period over period, and included: Total Gross Profit Years Ended December 31, (rounded to $000’s) Change 2024 2023 Products $ 442,000 $ 173,000 $ 269,000 Services 1,684,000 1,978,000 (294,000) $ 2,126,000 $ 2,151,000 $ (25,000) Total Gross Margin Years Ended December 31, Change 2024 2023 Products 6.7 % 3.4 % 3.3 % Services 94.2 % 69.8 % 24.5 % 25.3 % 27.0 % (1.7) % Total Sales Years Ended December 31, (rounded to $000’s) Change 2024 2023 Products $ 6,615,000 $ 5,136,000 $ 1,479,000 Services 1,787,000 2,835,000 (1,048,000) $ 8,402,000 $ 7,971,000 $ 431,000 • Gross margin was approximately 25.3% and 27.0% for the years ended December 31, 2024 and 2023, respectively, based upon total net sales of approximately $8,402,000 and $7,971,000, respectively.
(See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures ). 78 Table of Contents Gross Profit -- Spirits Business Gross profit was approximately $843,000 and $2,126,000 for the years ended December 31, 2025 and 2024, respectively, an approximately $1,283,000 decrease, or 60.3%, period over period, and included: Total Gross Profit - Spirits Business Years Ended December 31, (rounded to $000’s) 2025 2024 Change Spirits Products $ (59,000) $ 442,000 $ (501,000) Spirits Services 902,000 1,684,000 (782,000) $ 843,000 $ 2,126,000 $ (1,283,000) Years Ended December 31, Total Gross Margin - Spirits Business 2025 2024 Change Products (1.4) % 6.7 % (8.1) % Services 93.1 % 94.2 % (1.1) % 16.3 % 25.3 % (9.0) % Years Ended December 31, (rounded to $000’s) Net Revenues - Spirits Business 2025 2024 Change Products $ 4,199,000 $ 6,615,000 $ (2,416,000) Services 969,000 1,787,000 (818,000) $ 5,168,000 $ 8,402,000 $ (3,234,000) It is important to note that for the years ended December 31, 2025 and 2024, respectively, the approximately $(59,000) and $442,000 in Products Gross Profit / (Loss), and the resulting low Gross Margin of (1.4)% and 6.7%, is after layering in the approximately $2,392,000 and 2,550,000 in unabsorbed overhead costs.
The approximately $1,210,000 increase in net products cost of sales period over period is further detailed as follows: Cost of Sales Products Sales Years Ended December 31, (rounded to $000’s) 2024 2023 Change Spirits – Wholesale $ 1,143,000 $ 1,309,000 $ (166,000) Spirits – Retail 946,000 848,000 98,000 Spirits – Third Party 1,116,000 230,000 886,000 Hand Sanitizer — 46,000 (46,000) Merchandise and Prepared Food 418,000 318,000 100,000 Unabsorbed Overhead 2,550,000 2,212,000 338,000 $ 6,173,000 $ 4,963,000 $ 1,210,000 • The larger realized increase in third-party production costs include lower margins for pre-existing barrel production contracts that were put into place prior to 2024, but which are now completed.
The approximately $1,757,000 decrease in products cost of revenue period over period is further detailed as follows: Cost of Revenue Product Sales - Spirits Business Years Ended December 31, (rounded to $000’s) 2025 2024 Change Spirits – Wholesale $ 852,000 $ 1,143,000 $ (291,000) Spirits – Retail 914,000 946,000 (32,000) Spirits – Third Party — 1,116,000 (1,116,000) Merchandise and Prepared Food 100,000 418,000 (318,000) Unabsorbed Overhead 2,392,000 2,550,000 (158,000) $ 4,258,000 $ 6,173,000 $ (1,915,000) • Products cost of revenue decreased by approximately $1.76 million period over period, driven primarily by a $291,000 reduction in wholesale product costs as we continued shifting away from lower-margin wholesale volume toward higher-margin direct-to-consumer sales, the elimination of third-party production costs due to no such activity in 2025, and a $158,000 decrease in unabsorbed overhead reflecting improved capacity utilization as production focus evolved.
See “ Recent Developments ” for further information. 66 Table of Contents Interest Expense Interest expense increased by approximately $9,000 to approximately $2,536,000 for the year ended December 31, 2024, compared to approximately $2,527,000 for the year ended December 31, 2023. The increase was due to a number of smaller offsetting items.
Interest Expense Interest expense decreased by approximately $893,000 to approximately $1,642,000 for the year ended December 31, 2025, compared to approximately $2,536,000 for the year ended December 31, 2024. The decrease was primarily due to the settlement of the Silverview loan in August 2025.
Key Factors Affecting Our Operating Results Management believes that our performance and future success depend on many factors that present significant opportunities, but also pose challenges, including the following: Pricing, Product Cost and Margins To date, most of our revenue has been generated by retail sales of our spirits in our retail tasting rooms and through our eCommerce platform.
Pricing, Product Cost and Margins Previous to August 2025, most of our revenue was generated by retail sales of our spirits in our retail tasting rooms, which we closed on December 31, 2025, wholesale spirits sold through distributors, and spirits sold through our eCommerce platform.
First, we are focused on growing our direct-to-consumer (“DtC”) sales via shipping to legal purchasers to their homes where allowed. We currently use a three-tier compliant, third-party platform to conduct these sales and deliveries in 46 states in which approximately 96.8% of the U.S. population reside.
Our growth strategy is centered on three primary initiatives. First, we are expanding higher-margin DtC sales through a compliant third-party platform that enables shipments to consumers in 46 states, representing approximately 96.8% of the U.S. population, allowing us to build direct customer relationships and leverage consumer data to drive repeat purchases and targeted marketing.
Management believes that investment in beverage product innovation will contribute to long-term revenue growth, especially in the premium and ultra-premium segments. Key Components of Results of Operations Net Sales Our net sales consist primarily of the sale of spirits and services domestically in the United States. Customers consist primarily of wholesale distributors and direct consumers.
Revenue is measured based on the number of tokens received and their fair value at contract inception. Our spirits business net revenues consist primarily of the sale of spirits and services domestically in the United States. Customers consist primarily of wholesale distributors and direct consumers.
Removed
We compete in the craft spirits segment, which is the most rapidly-growing segment of the overall $288 billion spirits market.
Added
In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Removed
According to the American Craft Spirits Association, a craft distillery is defined generally as a distillery that produces fewer than 750,000 gallons annually and holds an ownership interest of 51% or more of a distilled spirits plant that is licensed by the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury.
Added
Business Overview In connection with the development of our cryptocurrency treasury reserve policy, on August 15, 2025, we completed a $223.8 million private investment in public equity (“PIPE”) transaction wherein we ended up owning 53.2 million $IP Tokens in our digital asset treasury. Details of the PIPE transaction are summarized below.
Removed
According to the Craft Spirits Global Market Report 2023 of Grand View Research, the craft spirits segment had revenues of more than $21.4 billion in 2023 and is estimated to grow at a compound annual growth rate (“CAGR”) of 29.4% between 2024 and 2030.

… 233 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed2 unchanged
Biggest changeNonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs, and our inability or failure to do so could harm our business, financial condition and results of operations. 76 Table of Contents
Biggest changeNonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs, and our inability or failure to do so could harm our business, financial condition and results of operations. 89 Table of Contents