Heritage Distilling Holding Company, Inc.
For the period ended Sep 30, 2025. Filed Nov 18, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2025 · Filed Nov 18, 2025
IPST$2.15-4.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-06-30; filed 2025-08-14.
0001788230-25-000126
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-09-30; filed 2025-11-18.
0001788230-25-000175
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 210 previous paragraphs and 246 current paragraphs.
73 unchanged; 80 reworded; 90 added; 49 removed; 8 previous and 3 current paragraphs rearranged.
Tables are not compared: 34 previous and 44 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (90)
Current report
Reverse Stock Split
Current report
On May 11, 2024, our Board and stockholders approved, and on May 14, 2024 we effected, a .57-for-1 reverse stock split. On September 18, 2025, our stockholders approved an amendment to our Certificate of Incorporation to effect a reverse stock split of our common stock at a reverse stock split ratio ranging from 1:5 to 1:20, without reducing the authorized number of shares of common stock, and to authorize the Board to determine, at its discretion, the timing of the amendment and the specific ratio of the reverse stock split, without further approval or authorization of our stockholders. On October 26, 2025, the Board approved, and on November 5, 2025 we effected, a 1-for-20 reverse stock split. All share and per share numbers included in this filing as of and for all periods presented reflect the effect of that such reverse stock split unless otherwise noted.
Current report
All share and per share numbers presented in this filing 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 component numbers. In cases where rounding occurred, the amount of the rounding difference is not material and are considered to be insignificant.
Current report
In connection with the development of our cryptocurrency treasury reserve policy, On August 15, 2025, we completed a $223.8 million PIPE transaction wherein we ended up owning 53.2 million $IP Tokens in our digital asset treasury. Details of the PIPE transaction are detail below. The $IP Token is the native cryptocurrency of the Story Network, running on the Story IP layer 1 blockchain. The $IP protocol and related $IP Tokens can be used to pay for computational services on the Story Network, to mint or manage digital rights objects, or to transfer value in network-native transactions. These tokens can also be exchanged for fiat currencies, such as the U.S. dollar, at rates determined on digital asset trading platforms or in individual end-user-to-end-user transactions using decentralized trading protocols. As part of our treasury reserve strategy, we set up a validator business as a reporting segment to generate ongoing recurring revenue from activities associated with such validation efforts.
Current report
Our Crypto and Related Business. In August 2025, we determined to focus our growing cryptocurrency efforts on the native cryptocurrency of the Story Network referred to as $IP Tokens. As part of this business segment, we established a new validator business related to $IP Tokens, staking 43.5 million of the 53.2 million $IP Tokens we secured in the August 15, 2025 PIPE transaction. To become a network validator, a holder of $IP Tokens is required to put up or “stake” $IP Tokens as collateral (like a security deposit) that shows the Story Network that it has “skin in the game.” 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. Validators 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 also can opt to pay an additional fee to ensure that its transaction is added to the blockchain more quickly. These fees are denominated in the same cryptocurrency that is evidenced by the blockchain. 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 blockchain automatically issues cryptocurrency as rewards to validators who successfully propose a block. While we currently operate our own Story Network validator services, in the future we may seek to “delegate” a portion of our $IP Tokens to third-party validation service providers in exchange for a percentage of its validation fees.
Current report
We are subject to various risks including market risk, liquidity risk, and other risks related to its concentration in a single asset, $IP Tokens. Investing in $IP Tokens is currently highly speculative and volatile.
Current report
The Fair Value of our Intangible Digital Assets, calculated by reference to the principal market price in accordance with U.S. GAAP, relates primarily to the value of the $IP Tokens held by us and fluctuations in the price of $IP Tokens could materially and adversely affect an investment in our stock. The price of $IP Tokens has a limited history. During such history, $IP Token prices have been volatile and subject to influence by many factors, including the levels of liquidity. If digital asset markets continue to experience significant price fluctuations, we may experience losses. Several factors may affect the price of $IP Tokens, including, but not limited to, global $IP Token supply and demand, theft of $IP Tokens from global trading platforms or vaults, failure of a custodian holding our $IP Tokens, competition from other forms of digital currency or payment services, global or regional political, economic or financial conditions, and other unforeseen events and situations.
Current report
The $IP Tokens held by us are assets of ours and our stockholders have no specific rights to any specific $IP Token(s). In the event of our insolvency. our assets may be inadequate to satisfy a claim by our creditors or stockholders.
Current report
There is currently no clearing house for $IP Tokens, nor is there a central or major depository for the custody of $IP Tokens. There is a risk that some or all of our $IP Tokens could be lost or stolen. There can be no assurance that the Custodian will maintain adequate insurance or that such coverage will cover losses with respect to our SIP Tokens. Further, transactions in $IP Tokens are irrevocable. Stolen or incorrectly transferred $IP Tokens may be irretrievable. As a result, any incorrectly executed $IP Token transactions could adversely affect an investment in us (our stock).
Current report
The Securities and Exchange Commission (the “SEC”) has stated that certain digital assets may be considered “securities” under the federal securities laws. The test for determining whether a particular digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict. Public, though non-binding, statements by senior officials at the SEC in the past have indicated that the SEC did not consider Bitcoin or Ether to be securities, and does not currently consider Bitcoin to be a security. The SEC staff has also provided informal assurances via no-action letter to a handful of promoters that their digital assets are not securities. On the other hand, the SEC has brought enforcement actions against the issuers and promoters of several other digital assets on the basis that the digital assets in question are securities and has not formally or explicitly confirmed that it does not deem Ether to be a security. In June 2023, the SEC brought charges against the Digital Asset Trading Platforms Binance and Coinbase for alleged violations of a variety of securities laws. In November 2023, the SEC brought charges against the Digital Asset Trading Platform Kraken for alleged violations of a variety of securities laws. In these complaints, the SEC asserted that SOL is a security under the federal securities laws. In September 2024, the SEC filed an enforcement action against Mango Labs, LLC, Mango DAO, and Blockworks Foundation, and in October 2024, the SEC filed an enforcement action against Cumberland DRW, LLC, in both instances describing a number of digital assets, including SOL, as examples of “crypto assets that are offered and sold as securities.”
Current report
If $IP Tokens are determined to be a “security” under federal or state securities laws by the SEC or any other agency, or in a proceeding in a court of law or otherwise, it may have material adverse consequences for $IP Tokens. For example, it may become more difficult for $IP Tokens to be traded, cleared and custodied as compared to other digital assets that are not considered to be securities, which could, in turn, negatively affect the liquidity and general acceptance of $IP Tokens and cause users to migrate to other digital assets. As such, any determination that $IP Tokens are a security under federal or state securities laws may adversely affect the value of $IP Tokens and, as a result, an investment in us (our stock).
Current report
In addition, if $IP Tokens are in fact a security, we could be considered an unregistered “investment company” under the Investment Company Act of 1940, which could necessitate our liquidation or delisting from the exchange upon which our stock is traded. In this case, we and any Sponsors may be deemed to have participated in an illegal offering of investment company securities and there is no guarantee that the Sponsor will be able to register us under the Investment Company Act of 1940 at such time, or take such other actions as may be necessary to ensure our activities comply with applicable law, which could force us to liquidate.
Current report
As with any computer network, digital asset networks are vulnerable to various kinds of attacks and disruptions. For example, on September 14, 2021, the Solana Network experienced a significant disruption, later attributed to a type of denial of service attack, and was offline for 17 hours, only returning to full functionality 24 hours later. While persons associated with Solana Labs and/or the Solana Foundation are understood to have played a key role in bringing the network back online, the broader community also played a key role, as Solana validators coordinated to upgrade and restart the network. The Solana Network subsequently experienced similar disruptions, and has been subject to multiple similar outages throughout its history. Any such similar outages in the future could have a material adverse effect on the value of $IP Tokens and an investment in us (our stock).
Current report
Furthermore, like any smart contract platform that utilizes bridge technology, digital assets transferred to or from other blockchains are vulnerable to certain types of exploits. For example, on February 3, 2022, hackers were able to manipulate the Wormhole bridge smart contract code which enables the transfer of certain digital assets to the Solana Network, to divert approximately 120,000 Ether from the Wormhole bridge to the attacker’s Ethereum wallet. While Jump
Current report
Crypto, the creators of the Wormhole bridge, replenished the stolen Ether, effectively backstopping user losses, they or other creators may not be able to do so again in the future. The development of bridges on the Solana Network is ongoing and further attacks on bridges compatible with the Solana Network could have a material adverse effect on the value of $IP Tokens and an investment in us (our stock).
Current report
To the extent a private key required to access an $IP Token address is lost, destroyed or otherwise compromised and no backup of the private keys are accessible, we may be unable to access the $IP Tokens controlled by the private key and the private key will not be capable of being restored by the Story Network. The processes by which $IP Token transactions are settled are dependent on the $IP Token peer-to-peer network, and as such, we are subject to operational risk. A risk also exists with respect to previously unknown technical vulnerabilities, which may adversely affect the value of $IP Tokens.
Current report
We rely on third-party service providers to perform certain functions essential to our operations. Any disruptions to our service providers’ business operations resulting from business failures, financial instability, security failures, government mandated regulation or operational problems could have an adverse impact on our ability to access critical services and be disruptive to our operations.
Current report
We and any transaction Sponsors may be subject to various litigation, regulatory investigations, and other legal proceedings that arise in the ordinary course of our business.
Current report
Market Price of the $IP Token
Current report
We use the fair value method of accounting to report our operating results, in accordance with U.S. GAAP. We currently own approximately 53.2 million $IP Tokens, some of which were acquired at a significant discount to the then market value, and which may be written down to a lower cost per token at any time that the market value of $IP Tokens is lower (impaired) from the previously recorded cost. For each reporting period, our $IP Token treasury will be reflected at the market price of $IP Tokens and the aggregate change in the fair value of our treasury of $IP Tokens will be reflected as a gain or loss in our condensed consolidated statement of operations. For each reporting period, our condensed consolidated statement of operations will reflect a net gain or loss commensurate with the respective change in market value of a $IP Token (across the number of $IP Tokens that we hold in our treasury). Accordingly, assuming the number of $IP Tokens we hold remains constant at approximately 53.2 million, every $1.00 increase in the market value of a $IP Token will represent a gain of approximately $53.2 million that we must recognize; and, conversely, every $1.00 decrease in the market price of a $IP Token will represent a loss of approximately $53.2 million that we must recognize. The more the $IP Token price increases or decreases in the market, the greater the gain or loss we will be required to report, and depending on market conditions from quarter to quarter, we could see significant swings in gains or losses simply due to marking the value of the $IP tokens we hold to their market value.
Current report
We have experienced modest inflation in some of our raw inputs, particularly in grains, bottles, cans and barrels over the last four years. During the summer of 2025, we re-evaluated our sourcing practices for raw inputs given the current tariff landscape and determined to maintain our current practices. This was in light of the fact that we import few inputs from other countries, and those items we do import (glass bottles and labels) are relatively low-cost items compared to the premium we can charge for our products. Any tariff on a raw input that costs less than $1 will have minimal impact on our pricing or gross margins, and any tariffs we do incur would be relatively small compared to the disruption of switching suppliers and the potential impact out-of-stocks would have on our production plan and revenue. We remain firm that our exposure to the cost of tariffs on our direct inputs remains low, and retaliatory tariffs on American products has no impact on our current customer base or revenue as we do not export. It is too soon to tell what the trickle down or secondary cost impacts will be for our general business operations as a result of the changing tariff landscape.
Current report
Development of our Cryptocurrency Validator Business
Current report
In August 2025, we completed a private placement of pre-funded warrants in which we received 53.2 million $IP Tokens. In September 2025, we completed the testing of a validator to stake a large portion of those tokens to earn yield. By mid-September 2025, we completed the testing and onboarding of the bulk of our $IP Tokens onto the validator, from which we earn significant yield on a daily basis in the form of new $IP Tokens awarded to us. We will report our earnings from our validator services quarterly, reporting the income in U.S. dollars, with the value of any $IP Token rewards to be determined based on the market price of the $IP Token as reported publicly on Coinbase as of the time such rewards are earned. The amount of $IP Tokens we earn, and the value per token, could have significant impact on our overall revenue, gross margins and net income on a quarterly and annual basis, and could add significantly to our overall value proposition as a company. Factors that impact the success of our validator efforts and the value we are attempting to create include, but are not limited to, the overall uptime of our validator, the reliability of third-party systems we use to house and operate our validator efforts, the demand for validating services on the Story Network at any given time or over any given length of time, the number of other validators providing services to the Story Network, other network validators offering similar services at less cost to secure market share at our expense, the integrity and uptime of the Story Network and the demand or lack thereof for any layer 2 apps on the Story Network that drive demand for validator services, among others. The value of our validator efforts and the amount of income we might realize from those efforts are tied directly to the value of the $IP Token in the market at any given time or over any given length of time, and are driven by market dynamics.
Current report
Net Sales
Current report
Our blockchain rewards revenue is primarily generated through participation in proof-of-stake networks, where we validate or create blocks on the Story Network using staking validators we control. In exchange for these validation services, we earn $IP Tokens—the native token of the Story Network. Revenue is recognized at the point in time when a block is successfully created or validated and the related rewards are transferred to a digital wallet we control. Each block validation represents a distinct performance obligation. For the three and nine months ended September 30, 2025, we recognized blockchain rewards revenue on a gross basis, as we act as principal in the majority of our contracts by providing the $IP Tokens required for staking. Blockchain rewards are recorded in other revenue on the condensed consolidated statements of operations. Revenue is measured based on the number of tokens received and their fair value at contract inception.
Current report
Cost of Sales
Current report
We recognize the staking and validator business cost of sales in the same manner that the related revenue is recognized. Our cost of sales consists of AWS data center incidences that run the validator protocol and software, financial software to track each token earned and their value, consulting agreements related to managing the validator work and contracted computer programmers to insure validator uptime.
Current report
Change in Fair Value of Intangible Digital Assets
Current report
Our intangible digital assets consist solely of $IP Tokens in our digital treasury. These assets are remeasured to fair value at the end of each reporting period, with changes recognized in Change in Fair Value of Intangible Digital Assets on the condensed consolidated statements of operations. For the three and nine months ended September 30, 2025, we recognized a fair value gain of approximately $245,841,000, driven by market fluctuations in the Story Network’s native token. As of September 30, 2025, the fair value of intangible digital assets on our condensed consolidated balance sheet was $455,648,074 using the closing price per $IP Token of $8.54 We continue to hold substantially all $IP Tokens for investment and may stake them periodically.
Current report
Net Sales - Spirits Business
Current report
Net sales were approximately $1,081,000 and $1,774,000 for the three months ended September 30, 2025 and 2024, respectively, a decrease of approximately $693,000, or 39.1%, period over period.
Current report
Net Revenues - Crypto and Related Business
Current report
Net revenues were approximately$1,909,000 and $0 for the three months ended September 30, 2025 and 2024, respectively, an increase of approximately $1,909,000, or 100%, period over period. There were no comparable revenues in 2024 as we began recognizing staking and validator revenues upon the closing of our PIPE Offering on August 15, 2025 and the establishment of our Treasury Policy.
Current report
Of the total revenues related to cryptocurrency we drive operational revenues in two ways: 1) Self-Staking (tokens we own being staked on our own validator); and 2) Third-Party Validator Commissions (tokens owned by others that are staked on our validator). Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that the Company controls. Validator services were tested in early September and were fully functional as of September 18, 2025, meaning the revenue from this activity was only active for approximately two weeks of the twelve weeks of the entire quarter. We expect to earn revenues from this activity on a full quarter basis moving forward. For the three months ended September 30,2025, substantially all Crypto and Related Revenue related to Self-Staking.
Current report
Cost of Sales — Spirits Business
Current report
Services cost of sales increased by approximately $15,000 to approximately $29,000 for the three months ended September 30, 2025 from approximately $14,000 for the three months ended September 30, 2024 primarily resulting from increased rent and labor costs associated with our retail spaces.
Current report
Cost of Sales — Crypto and Related Business
Current report
Cost of sales were approximately $53,000 and $0 for the three months ended September 30, 2025 and 2024, respectively, an increase of approximately $53,000 or 100%, period over period. Cost of sales consisted primarily of technology platform expenses, external engineering support, consulting services, and blockchain transaction fees related to crypto operating activities. There were no comparable cost of sales in 2024 as we began recognizing staking and validator revenues and costs once the validator service was fully operational on September 18, 2025.
Current report
Gross Profit — Spirits Business
Current report
Gross profit was approximately $(23,000) and $642,000 for the three months ended September 30, 2025 and 2024, respectively, a decrease of approximately $665,000, or 104%, period over period, and included:
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Removed paragraphs (49)
Previous report
We have experienced inflation in some of our raw inputs, particularly in grains, bottles, cans and barrels. Some of these price increases began to moderate beginning in the second half of 2021, such as in grain. Grain prices increased due to supply chain issues associated with the war in Ukraine and the increased input cost of fertilizers tied to high natural gas prices. Grain prices have moderated as some additional sources of supply opened up and the market price for grain has come down from its recent historic highs. Aluminum prices for cans and bottles increased in 2021 and early 2022, but began to decline in the second half of 2022, and we were able to achieve more favorable pricing based on larger order quantities in late 2022. In the first quarter of 2025, the Trump administration announced the imposition of 25% tariff on aluminum, which could increase prices for aluminum cans. In late March and early April the Trump administration instituted blanket tariffs of varying amounts on virtually all countries, resulting in market and consumer apprehension and retaliatory tariffs from many nations on American made goods. We remain firm that our exposure to the cost of tariffs on our direct inputs remains low, and retaliatory tariffs on American products has no impact on our current customer base or revenue as we do not export. It is too soon to tell what the trickle down or secondary cost impacts will be for our general business operations as a result of the changing tariff landscape.
Previous report
While glass bottle prices also increased between 2022 and 2023, we were able to lock in pricing for two years at favorable prices in 2021. In 2023, our suppliers indicated their price increases were moderating and their supply chains were returning to normal. During the uncertain periods in 2021 and 2022, we elected to take possession of glass bottle quantities designed to last two years at favorable prices, insulating these costs to a measurable degree moving into 2024. The cost of glass bottles did not materially appreciate in 2024. Our suppliers source some of our glass bottles from markets in Asia subject to recent tariff increases announced by the Trump administration in the first quarter of 2025. We do not believe these tariffs will materially impact our gross margin as these glass bottles are used to make our most premium and highest priced products.
Previous report
The cost of oak barrels necessary for the aging of spirits escalated by approximately 30% since the beginning of 2022 due to the growing demand for barrels needed to age whiskey and constraints in the raw oak market. In 2024 those prices began to stabilize.
Previous report
Net sales were approximately $1,321,000 and $1,844,000 for the three months ended June 30, 2025 and 2024, respectively, a decrease of approximately $523,000, or 28.4%, period over period.
Previous report
Gross Profit
Previous report
Gross profit was approximately $225,000 and $745,000 for the three months ended June 30, 2025 and 2024, respectively, a decrease of approximately $520,000, or 70%, period over period, and included:
Previous report
Gross Profit Analysis
Previous report
Sales and marketing expenses were approximately $1,973,000 for the three months ended June 30, 2025 compared to approximately $1,298,000 for the three months ended June 30, 2024. This approximately $675,000 increase included:
Previous report
General and administrative expenses were approximately $4,424,000 for the three months ended June 30, 2025, compared to approximately $1,747,000 for the three months ended June 30, 2024. This approximately $2,677,000 increase included:
Previous report
Interest expense decreased by approximately $39,000 to approximately $595,000 for the three months ended June 30, 2025, compared to approximately $635,000 for the three months ended June 30, 2024. The decrease included approximately $69,000 resulting from the decreased principal balance of the Silverview loan in 2025 compared to 2024, and an approximately $9,000 decrease in interest expense related to the channel partners loan having been paid off in 2024.
Previous report
The provision for income taxes for the three months ended June 30, 2025 and 2024 was immaterial, primarily as we were in a net loss position for those periods.
Previous report
Net sales were approximately $2,414,000 and $3,549,000 for the six months ended June 30, 2025 and 2024, respectively, a decrease of approximately $1,135,000, or 32.0%, period over period.
Previous report
•The approximately $80,000 decrease in wholesale product sales was primarily the result of the timing of orders through the wholesale channel moved into second quarter 2025 that occurred in first quarter 2024 and the reduction of sales of low margin spirits as we continue to move our emphasis to higher margin items.
Previous report
Online DtC Product Sales from our online distributor’s inventory sold retailers for resale to retail customers for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 reflected the Company’s increased focus on high-margin direct to consumer (“DtC”) and online sales period over period. The tables below report the substantial increase in the retail value of DtC products sold to consumers during the six months ended June 30, 2025 versus 2024 (sales from our online distributor’s inventory) as follows (in dollars and units sold):
Previous report
Gross Profit
Previous report
Gross profit was approximately $499,000 and $1,157,000 for the six months ended June 30, 2025 and 2024, respectively, a decrease of approximately $658,000, or 56.9%, period over period, and included:
Previous report
Gross Profit Analysis
Previous report
Sales and marketing expenses were approximately $3,287,000 for the six months ended June 30, 2025 compared to approximately $2,488,000 for the six months ended June 30, 2024. This approximately $799,000 increase included:
Previous report
General and administrative expenses were approximately $6,312,000 for the six months ended June 30, 2025, compared to approximately $3,194,000 for the six months ended June 30, 2024. This approximately $3,118,000 increase included:
Previous report
•The approximately 188,000 increase in professional fees expense was primarily the result of year end audit fees recognized in the six months ended June 30, 2025 for which there was no such expense in the comparable six months ended June 30, 2024, $221,000.
Previous report
Interest expense decreased by approximately $117,000 to approximately $1,119,000 for the six months ended June 30, 2025, compared to approximately $1,236,000 for the six months ended June 30, 2024. The decrease included approximately $69,000 resulting from the decreased principal balance of the Silverview loan in 2025 compared to 2024, and an approximately $9,000 decrease in interest expense related to the channel partners loan having been paid off in 2024.
Previous report
The provision for income taxes for the six months ended June 30, 2025 and 2024 was immaterial, primarily as we were in a net loss position for those periods.
Previous report
We have prepared our condensed consolidated financial statements assuming we will continue as a going concern. Since our inception, we have incurred net losses and experienced negative cash flows from operations as we have invested in equipment, location buildout, inventory buildout (including laying down barrels of whiskey for aging) and marketing to grow our presence and brands. To date, our primary sources of capital have been private and public placements of equity securities, term loans, and convertible debt. During the six months ended June 30, 2025 and 2024, we had net income / (loss) of approximately $(10,328,000) and $8,859,000, respectively (of which, approximately $0 and $14,628,000, respectively, stemmed from the (increase)/decrease in fair value of certain convertible notes, warrants and contingencies, and gain on investment). We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in inventory, assets, working capital and otherwise in the growth of our business.
Previous report
At June 30, 2025, we had outstanding aged payables to vendors in the aggregate amount of approximately $6,881,000, inclusive of accrued amounts to service providers who were providing services for us related to our IPO. We reached agreements with most of these vendors, including the vendors with some of the largest outstanding invoices, to be paid soon after the IPO or periodically on payment plans. Of the aforementioned vendor obligations, approximately $1,364,817 were for services related to the preparation of our IPO. A significant amount of the remaining payables relate to marketing and sports sponsorship fees that were agreed upon or contracted for prior to the COVID-19 lockdowns, but were put on hold or held over during those lockdowns and then restarted after the COVID lockdowns ended pursuant to the terms of the agreements. All of those sports marketing contracts have been completed as of the end of 2024 and will not be renewed, and we expect to make payments to those vendors in a way that allows us to manage our cash on hand as we grow our higher-margin revenue in 2025. Given our shift away from low-margin products and services, management believes the use of cash for higher-margin activities and priorities, requiring fewer raw goods units to drive more top line revenue, and more profitable revenue, will also assist with reducing and eventually eliminating our cash burn. While we believe we have put in place satisfactory payment terms for the payment of most of our outstanding payables, there is a risk that one or more of our vendors could demand a more immediate payment or initiate litigation against us in an attempt to force payment of the amounts owed. In such a case, the litigation could cause us to incur significant costs defending such action, and any such payment could materially affect our business, financial condition or liquidity.
Previous report
From time to time, we were out of compliance with various financial and other debt covenants under the Silverview Loan, which is discussed below, with respect to our failure to meet certain financial thresholds and tests and the furnishing of some of our consolidated financial statements for quarterly periods in 2024 prior to the closing of our IPO and for the year ended December 31, 2023. As of October 1, 2024, the lender waived any existing covenant compliance matters through the date of our IPO and agreed to forbear from exercising its rights and remedies under the loan agreement for any covenant violations, defaults or breaches through the Silverview Loan through the period ending on the closing date of our IPO. During the first three quarters of 2024, we were out of compliance with certain debt covenants in connection with the furnishing of monthly income statements, meeting an EBITDA test, providing a monthly cash balance report, and providing a monthly operational performance report, of which those covenant breaches were also waived in the October 1, 2024 Silverview Loan modification. We executed an additional agreement with our lender that contained further modifications on November 19, 2024, that went into effect upon the closing of our IPO. It included, among other changes favorable to us, confirming the waiver of any past defaults and covenant breaches, and reducing and simplifying our financial tests and reporting requirements under the loan agreement, making it easier for us to remain in compliance as of December 31, 2024 as we focus on growing our business.
Previous report
We used a portion of the net proceeds of our IPO to repay a portion of the principal amount of the Silverview Loan as part of the loan modification agreement. Our future capital requirements and the adequacy of available funds will depend on many factors. We believe we will need to raise additional capital in 2025 to cover our expenses and to meet our growth objectives for the remainder of the year. Subject to meeting certain conditions set forth in the securities purchase agreement, we have the ability to draw down on the equity line of credit (ELOC) we put in place in February 2025 if market conditions are favorable for the use of the ELOC at times we seek to use it. However, we may need to seek such additional financing through the offering of other instruments or securities. We will continue seeking additional financing from time to time to meet our working capital requirements, make continued investment in research and development and make capital expenditures needed for us to maintain and expand our business and expand our marketing and sales efforts. We do not have any credit facilities as a source of future funds other than the recently completed equity line of credit, and there can be no assurance that we will be able to raise sufficient additional capital on acceptable terms, or at all. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, or if we expend capital on projects that are not successful, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, or we may have to cease or seriously curtail our operations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. If we raise additional funds through further issuances of equity, convertible preferred stock or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
Previous report
On February 4, 2025, we completed a registration statement for an equity line of credit (“ELOC”). Under the ELOC, we registered the resale of up to 5,000,000 shares of our common stock, and subsequently an additional 10,000,000 shares of common stock under the June 2025 ELOC Registration Statement (discussed below), to be sold under the ELOC of of the up to $15,000,000 aggregate gross purchase price of shares of common stock (the “ELOC Shares”), that have been or may be issued by us to the Investor pursuant to the ELOC purchase agreement. The registration statement also included the resale of up to 67,162 shares of common stock that were issued to the Investor upon the exercise of a stock purchase warrant with an exercise price of $0.001 per share (the “Commitment Warrant”) that was issued to the Investor pursuant to the ELOC purchase agreement. In February 2025, the Investor exercised the Commitment Warrant for $67.
Previous report
On June 13, 2025, we filed a Form S-1 Registration Statement under the Securities Act of 1933 to register up to a maximum of an additional 10,000,000 ELOC Shares (the “June 2025 ELOC Registration Statement”), for an aggregate of 15,000,000 ELOC Shares available under the ELOC Purchase Agreement, which was approved by the shareholders on June 24, 2025.
Previous report
On August 11, 2025, we entered into subscription agreements (each, a “Subscription Agreement” and collectively the “Subscription Agreements”) with certain institutional and accredited investors (each, an “Investor” and collectively, the “Investors”), pursuant to which we, subject to the restrictions and satisfaction of the conditions in the Subscription Agreements, agreed to sell in a private placement (the “Offering”) to the Investors an aggregate of 183,478,891 shares (the “Shares”) of our common stock, par value $0.0001 per share (the “Common Stock”), and pre-funded warrants (the “Pre-Funded Warrants”) to acquire in the aggregate up to 186,900,000 shares of Common Stock. The purchase price for the Shares is $0.6043 per share (the “Share Price”) and the purchase price for the Pre-Funded Warrants is equal to the Share Price less $0.0001, or $0.6042 per Pre-Funded Warrant.
Previous report
Included among the Investors in the Offering are Story Foundation, the entity behind the Story Network (“Story Foundation”), which has agreed to purchase 9,295,141 Shares and Pre-Funded Warrants to purchase 85,000,000 shares of Common Stock; Justin Stiefel, the Company’s Chairman and Chief Executive Officer, who has agreed to purchase 3,309,614 Shares; and Andrew Varga, a director of the Company, who has agreed to purchase 300,000 Shares.
Previous report
Of the total $223,819,964 purchase price for the Shares and the Pre-Funded Warrants, $50,862,166 is expected to be paid in cash, $49,137,833 is expected to be paid in the cryptocurrency stablecoin commonly referred to as USDC (“USDC”), based on a purchase price of $1.00 per USDC, and $123,819,949 is expected to be paid in the native cryptocurrency of the Story Network, referred to as $IP Tokens (“$IP Tokens”), which will be valued for purpose of the Subscription Agreement at (i) $5.2413 (representing a 20% discount from the closing price of $IP Tokens on August 8, 2025 as reported by CoinMarketCap.com) in the case of the Story Core Contributors (as defined in the Subscription Agreements), (ii) $3.40 (representing an approximate 48% discount from the closing price of $IP Tokens on August 8, 2025 as reported by CoinMarketCap.com) in the case of Story Foundation, or (iii) $6.5516 (the reported closing price of $IP Tokens on August 8, 2025 as reported by CoinMarketCap.com) in the case of all other Investors.
Previous report
The Offering is anticipated to close in August, 2025, subject to the satisfaction of customary closing conditions, and subject to shareholder approval of specific parts of the transaction. We intend to use (a) up to $4.0 million of the net proceeds from the Offering for general corporate purposes initiated after the closing, (b) up to $0.6 million for pre-existing working capital commitments or obligations, and (c) at least $80.0 million to purchase $IP Tokens from Story Foundation at a price per $IP Token of $3.40. The balance of the net proceeds will be used to purchase or otherwise acquire $IP Tokens and for the establishment of our cryptocurrency treasury operations to the extent consistent with our investment policy as amended or otherwise modified from time to time. We will not use more than $7.0 million of such proceeds: (i) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of our business and prior practices), (ii) for the redemption of any Common Stock or (iii) for the settlement of any outstanding litigation. In connection with the announcement of the Offering, we announced the launch of our digital asset treasury reserve strategy, to be effective upon the closing of the Offering, pursuant to which we plan to use $IP Tokens as our primary treasury reserve asset on an ongoing basis. The is no assurance that the Company will be able to close on this transaction, or that if it does close the transaction, that it will be with substantially the same terms as described herein. If the transaction closes, the Company will disclose the final details in a related 8-K filing.
Previous report
On April 14, 2025, we received a notice from the Nasdaq that indicated that we were not in compliance with Nasdaq’s minimum bid price requirement as the closing bid price for our common stock was below $1.00 per share for the prior 30 consecutive business days. Pursuant to the Nasdaq listing rules, we have been granted a 180-calendar day compliance period, or until October 13, 2025, to regain compliance with the Nasdaq’s minimum bid price requirement. During such compliance period, our shares of common stock will continue to be listed and traded on the Nasdaq Capital Market. If at any time during such compliance period, the bid price of our common stock closes at or above $1.00 per share for a minimum of ten consecutive business days, Nasdaq will provide us with written confirmation of compliance with the minimum bid price requirement and the matter will be closed. At the end of such compliance period, we may be granted an additional 180-calendar day compliance period to satisfy the minimum bid price requirement.
Previous report
If we do not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, our common stock will be subject to delisting. Delisting from Nasdaq could adversely affect our ability to consummate a strategic transaction and raise additional financing through the public or private sale of equity securities, and would significantly affect the ability of investors to trade our securities and negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees and the loss of institutional investor interest.
Previous report
One way to regain compliance with the minimum listing standard is to undergo a reverse stock split. If we were to undergo a reverse stock split it could impact investors’ value in the investment they made in the company. There is also no guarantee that after undergoing a reverse stock split that our stock’s trading price will remain above the minimum listing requirement for the exchange, in which case the risks mentioned in the paragraphs above could remain in place or come back into being.
Previous report
In March 2021, we entered into a secured term loan agreement (the “Silverview Loan”) with Silverview Credit Partners, L.P. (“Silverview”) for a secured term loan of up to $15,000,000. The Silverview Loan originally matured on April 15, 2025, but was extended to October 25, 2026 in the October 1, 2024 Silverview Loan modification. The Silverview Loan initially accrued interest through the 18-month anniversary of the closing date at (i) a fixed rate of 10.0% per annum, which portion was payable in cash, and (ii) a fixed rate of 6.5% per annum, which portion was payable in kind and added to the outstanding obligations as principal. Commencing in October 2022, the Silverview Loan began accruing interest at a fixed rate of 15.0% per annum through maturity. We had an option to prepay the Silverview Loan with a prepayment premium up to 30.0% of the outstanding obligations during the first 24 months of the loan, after which time we could prepay the loan with no premium due. We are now past that initial 24-month window and can prepay all or some of the outstanding balance without penalty. The Silverview Loan is secured by substantially all of our assets.
Previous report
The original Silverview Loan contained certain financial and other debt covenants that, among other things, imposed certain restrictions on indebtedness, liens, investments and capital expenditures. The financial covenants required that, at the end of each applicable fiscal period, as defined pursuant to the Silverview Loan agreement, we either had (i) an EBITDA interest coverage ratio up to 2.00 to 1.00, or (ii) a cash interest coverage ratio of not less than 1.25 to 1.00. Commencing with the fiscal quarter ending June 30, 2021, we were required to maintain liquidity of not less than $500,000. The Silverview Loan was used for general corporate purposes, including working capital needs and capital expenditures. The covenants and tests have since been deleted as part of the October 1, 2024 and November 19, 2024 loan modifications.
Previous report
As discussed above, in the past, we had violated various financial and other debt covenants in the Silverview Loan agreement, including our failure to timely furnish to Silverview our consolidated financial statements for the months of 2024 prior to the completion of our IPO and for the year ended December 31, 2023. Because we had reached an agreement in principal with Silverview in June 2024 on the treatment of such waivers and the elimination of certain reporting requirements and covenants leading up to the IPO and we were working to paper those modifications while working on the IPO, we determined that the Silverview Loan should be classified as a current liability as of the date of our IPO. As of the date of our IPO (November 25, 2024) the outstanding principal balance on the Silverview Loan was $12,250,000, with approximately $1,568,0000 having been paid towards principal subsequent to the closing of the IPO through December 31, 2024 leaving an outstanding balance of the Silverview Loan of approximately $10,682,000 at December 31, 2024 In the six months ended June 30, 2025, approximately $300,000 was paid towards principal, leaving an outstanding balance on the Silverview Loan of approximately $10,382,438.
Previous report
The modification, first executed by the parties on October 1, 2024 and further modified on November 19, 2024, became effective upon the closing of our initial public offering in November 2024, contained the following provisions:
Previous report
1)extend the maturity date by 18 months to October 25, 2026;
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Previous wording
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed 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. 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. 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.
Current wording
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto and other financial information included elsewhere in this filing and the section of this filing entitled “Business.” 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. 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. 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.
Previous wording
We compete in the craft spirits segment, which is the most rapidly-growing segment of the overall $288 billion spirits market. 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. 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. We believe we are well positioned to grow more than the growth rate of the market by increasing our marketing efforts, increasing the size of our sales teams and broadening our wholesale distribution.
Current wording
Our Spirits Business. In our spirits business, we compete in the craft spirits segment, which is the most rapidly-growing segment of the overall $288 billion spirits market. 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. 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. We believe we are well positioned to grow more than the growth rate of the market by increasing our marketing efforts, increasing the size of our sales teams and broadening our wholesale distribution.
Previous wording
Out 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. 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. 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.
Current wording
Out 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. We are one of the largest craft spirits producers on the
Previous wording
Our growth strategy is based on three primary areas. 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. 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 them generating more revenue.
Current wording
Our growth strategy for our spirits business is based on three primary areas. 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. 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 them generating more revenue.
Previous wording
Third, we are focused on expanded growth of our collaboration with Native American tribes through the TBN model we created. 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. 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 support we provide. 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. 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. Similarly, as demand for our products grows through our wholesale channels, there should be a positive effect on the demand for our products through the tribal distilleries.
Current wording
Third, we are focused on expanded growth of our collaboration with Native American tribes through the TBN model we created. 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. In the typical TBN collaboration, the tribes own these businesses and we 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 support we provide. 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. 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. Similarly, as demand for our products grows through our wholesale channels, there should be a positive effect on the demand for our products through the tribal distilleries.
Previous wording
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. Having completed the construction of our existing production facilities and contracted with established distributors, we now intend to focus our production capacity, record of success in developing award-winning products, and a portion of the net proceeds from our initial public offering (“IPO”) on the growth of our wholesale channel. Going forward, we expect to sell our products in a variety of vertical industry markets in partnership with our distributors across states and geographic regions. Pricing may vary by region due to market-specific dynamics and various layers of taxes applied by the states at the different steps of distribution and retail sales. As a result, our financial performance will depend, in part, on the mix of our sales in different markets during a given period and our ability to scale efficiently.
Current wording
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. Going forward, we expect to sell our products in a variety of vertical industry markets in partnership with our distributors across states and geographic regions and direct to consumers via third-party fulfillment partners. Pricing may vary by region due to market-specific dynamics and various layers of taxes applied by the states at the different steps of distribution and retail sales. As a result, our financial performance will depend, in part, on the mix of our sales in different markets during a given period and our ability to scale efficiently.
Previous wording
While constraints in the freight market caused historically high shipping rates, those shipping rates were returning to their previous levels until the subsequent bankruptcy announcements by several freight companies in the U.S. announced over the lat two quarters. Those bankruptcies, when combined with high diesel prices and a lack of licensed drivers, continued to cause uncertainty in the freight markets. More recently, we have seen freight prices moderate. Likewise, employees are facing financial stress as inflation hits them at home, and their desire for more compensation creates higher cost pressures on overall operations absent finding offsetting cost efficiencies. In addition, the annual minimum wage increases for hourly retail and production staff in the states in which we operate are higher than other parts of the U.S. Unlike singular commodity spikes in the recent past due to an isolated incident, or short-term supply chain issues, the confluences of these factors created pressure across all parts of our operations, requiring us to manage each aspect carefully. Finally, we have begun to see a change in the buying habits of consumers who are looking for “experiences” rather than buying “things,” and we believe consumers are electing to buy fewer but more premium items. As a result, we must re-examine how we engage with consumers at retail and online to ensure we stay relevant.
Current wording
While constraints in the freight market caused historically high shipping rates during and after the COVID-19 supply chain disruption, shipping rates have largely returned to their previous levels, even including recent bankruptcy announcements by several freight companies in the U.S. announced over the last two quarters. Employees have been facing financial stress as inflation over the last several years has increased the cost of living across the board, and in the markets in which we operate, annual minimum wage increases for hourly retail and production staff are higher than other parts of the U.S. Unlike singular commodity spikes in the recent past due to an isolated incident, or short-term supply chain issues, the confluences of these factors created pressure across all parts of our operations, requiring us to manage each aspect carefully. Finally, we have begun to see a change in the buying habits of consumers who are looking for “experiences” rather than buying “things,” and we believe consumers are electing to buy fewer, but more premium items. We are also seeing reports of Americans electing to consume less alcohol than in the past. While spirits is still gaining market share from beer and wine, an overall reduction in consumption or purchasing has a chilling effect on the market. This is compounded by the number of Americans who are electing to use marijuana as an alternative to consuming alcohol. In some cases, given economic uncertainty we are also seeing some consumer “trade down”, spending less on premium items in favor of buying lower cost items in the same categories. As a result, the forgoing factors forced us tore-examine how we engage with consumers at retail and online to ensure our brands stay relevant while getting more aggressive to cut top line expenses and eliminate losses.
Previous wording
On the positive side, there is an excess of quality aged bourbon in Kentucky in which barrels have accumulated to never before seen levels as investors piled into the idea of owning barrels of whiskey and bourbon to capitalize on their price appreciation. As a result of the buildup of inventory, we are seeing prices fall for wholesale barrel sales, which works in our favor as we look to expand our Salute Series line of spirits. In some cases, the price for barrels of quality aged Kentucky bourbon in bulk have fallen by more than half, reducing our input costs for our most premium products. We view this as a tremendous arbitrage opportunity that works in our favor just as we expand our offerings under the Salute Series.
Current wording
On the positive side, there is an historic excess of quality aged bourbon in Kentucky in which more barrels have accumulated to atypical levels as investors piled into the idea of owning barrels of whiskey and bourbon to capitalize on past price appreciation. As a result of the buildup of inventory, we are seeing prices fall for wholesale barrel sales, which works in our favor as we look to expand our Salute Series line of spirits. In some cases, the price for barrels of quality aged Kentucky bourbon in bulk have fallen by more than half, reducing our input costs for our most premium products. We view this as a tremendous arbitrage opportunity that works in our favor just as we expand our offerings under the Salute Series, especially since we focus marketing our brands to specific populations where our brands and labels resonate the most. Because we sell a relatively small amount of finished spiritists in the market relative to the market as a whole, we can expect to see significant improvements in topline revenue and net income from our spirits segment as our volumes grow.
Previous wording
We source some labels and printed collateral from trusted suppliers in Canada, and recent tariffs announced by the Trump administration on Canadian imports in the first quarter of 2025 could impact those items. However, these labels and print collateral items typically have a cost ranging from 10 cents to $1.00 each, and because these labels and print items are used for our most expensive and premium products, we do not believe the imposition of tariffs on those items will have a material effect on our gross margin for those products.
Current wording
We source some labels and printed collateral from trusted suppliers in Canada, and tariffs imposed by the Trump administration on Canadian imports in the first quarter of 2025 have resulted in modest increases in the cost of those items. However, these labels and print collateral items typically have a cost ranging from 10 cents to $1.00 each, and because these labels and print items are used for our most expensive and premium products, we do not believe the imposition of tariffs on those items will have a material effect on our gross margin for those products.
Previous wording
Our performance is dependent on our ability to continue to develop products that resonate with consumers. It is essential that we continually identify and respond to rapidly-evolving consumer trends, develop and introduce innovative new products, enhance our existing products, and generate consumer demand for our products. Management believes that investment in beverage product innovation will contribute to long-term revenue growth, especially in the premium and ultra-premium segments.
Current wording
The performance of our spirits business is dependent on our ability to continue to develop products that resonate with consumers. It is essential that we continually identify and respond to rapidly-evolving consumer trends, develop and introduce innovative new products, enhance our existing products, and generate consumer demand for our products. Management believes that investment in beverage product innovation will contribute to long-term revenue growth, especially in the premium and ultra-premium segments.
Previous wording
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. 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 is recognized over the period in which the service is provided.
Current wording
Our spirits business 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. 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 is recognized over the period in which the service is provided.
Previous wording
We recognize the cost of sales in the same manner that the related revenue is recognized. 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.
Current wording
We recognize the spirits business cost of sales in the same manner that the related revenue is recognized. 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.
Previous wording
As of June 30, 2025, all restricted stock units (“RSUs”) had settled on the six month anniversary of our initial public offering, which was completed in November 2024, leaving zero outstanding. We recognized an aggregate of $2,684,395 of previously-unrecognized compensation expense for RSU awards upon completion of our IPO. Included above are an aggregate of 234,525 RSUs to employees, directors and consultants that the Board of Directors approved in May 2024, with a fair grant value of $4.00 per unit. These RSUs contained a double trigger and, upon grant, were deemed to have met their time-based service requirements for vesting.
Current wording
As of September 30, 2025, we had outstanding restricted stock units (“RSUs”) that, upon vesting, will settle into an aggregate of 125,000 shares of common stock based upon the grant date with a fair value of $14.56 per unit. We recognized an aggregate of $2,684,395 of previously-unrecognized compensation expense for RSU awards upon completion of our IPO. Included in the previously-unrecognized compensation expense are an aggregate of 11,726 RSUs to employees, directors and consultants that the Board of Directors approved in May 2024, with a fair grant value of $80 per unit. These RSUs contained a double trigger and, upon grant, were deemed to have met their time-based service requirements for vesting.
Previous wording
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. 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.
Current wording
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. 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.
Previous wording
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. 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.
Current wording
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. 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.
Previous wording
In April 2024, certain of such warrants and the related Convertible Notes were exchanged (contingent upon the consummation of our initial public offering, which occurred on November 25, 2024, which contingency is now lifted) for common stock. 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 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).
Current wording
In April 2024, certain of such warrants and the related Convertible Notes were exchanged (contingent upon the consummation of our initial public offering, which occurred on November 25, 2024, which contingency is now lifted) for common stock. 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. 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).
Previous wording
Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law.
Current wording
Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. We are conducting a Section 382 net operating loss (“NOL”) review to determine to what extent our past NOLs can be used moving forward given the size of the August 15, 2025 PIPE and the total number of new shares issued relative to our previously outstanding shares of common stock. We anticipate that report will be finalized in time for the filing of our annual report.
Previous wording
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. In cases where rounding occurred, the amount of the rounding difference is generally $1,000 or less. Such differences are considered to be insignificant. The following table summarizes our results of operations for the three months ended June 30, 2025 and 2024.
Current wording
The numbers presented below that have been rounded for presentation purposes and 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. In cases where rounding occurred, the amount of the rounding difference is generally $1,000 or less. Such differences are considered to be insignificant. The following table summarizes our results of operations for the three months ended September 30, 2025 and 2024.
Previous wording
The approximately $385,000 net decrease in products sales, period over period, included:
Current wording
The approximately $559,000 net decrease in products sales, period over period, included:
Previous wording
•The Company was involved in reevaluating its options and opportunities in the second quarter related to several cryptocurrency treasury strategies visa vi its overall retail focus while working to reduce overhead and preserve cash as it evaluated several possible cryptocurrency transactions. As a result, the Company pulled back on significant marketing spend for its goods and services as it focused its attention on evaluating the cryptocurrency landscape. The year over year approximate 336,000 decrease included second quarter 2024 DtC sales decrease from continued sales of the Salute Series Army initial edition and the launch of the D-Day Series which included three products. DtC sales for second quarter 2025 was a more modest launch of two new editions, Green Beret and Iwo Jima. A portion of the reduction in retail revenue in the three months ended June 30, 2025 versus 2024 was also from the continued reduction of hours in some of our brick and mortar retail locations April through May, and the decision to close some locations on Mondays and Tuesdays to reduce labor expenses on our slowest retail sales days during the quarter. During the same period in 2024 our retail locations were open seven days per week. We reopened those locations on Mondays and Tuesdays close to the Memorial Day holiday to take advantage of higher summer foot traffic. Also contributing to the decrease was the closure of our Thinking Tree Spirits location that was open in the second quarter 2024.
Current wording
•Beginning in the second quarter of 2025, we were involved in reevaluating our options and opportunities related to several cryptocurrency treasury strategies vis a vis our overall retail focus while working to reduce overhead and preserve cash as we evaluated several possible cryptocurrency transactions. As a result, we pulled back on significant marketing spend for our goods and services as we focused our attention on evaluating the cryptocurrency landscape. The year-over-year approximate $259,000 decrease included second quarter 2024 DtC sales decrease from continued sales of the Salute Series Army initial edition and the launch of the D-Day Series which included three products. DtC sales for second quarter 2025 was a more modest launch of two new editions in support of Green Beret heroes and the 80th anniversary of the battle of Iwo Jima. A portion of the reduction in retail revenue in the three months ended September 30, 2025 versus 2024 was also from the continued reduction of hours in some of our brick-and-mortar retail locations in April through May 2025, and the decision to close some locations on Mondays and Tuesdays to reduce labor expenses on our slowest retail sales days during the quarter. During the same period in 2024 our retail locations were open seven days per week. We reopened those locations on Mondays and Tuesdays as we approached the Memorial Day holiday to take advantage of higher summer foot traffic. Also contributing to the decrease was the closure of our Thinking Tree Spirits location that was open in the second quarter 2024.
Previous wording
The approximately $139,000 decrease in net sales of services period over period included:
Current wording
The approximately $134,000 decrease in net sales of services period over period included:
Previous wording
•The approximately $180,000 decrease in retail services was the result of the reduction of hours in some of our brick and mortar retail locations as we made the decision to close some locations on Mondays and Tuesday to reduce labor expenses on our slowest retail sales days during the quarter. During the same period in 2024 our retail locations were open seven days per week. We plan to reopen those locations on Mondays and Tuesdays as we get closer to the Memorial Day holiday to take advantage of higher summer foot traffic.
Current wording
•The approximately $113,000 decrease in retail services was the result of the reduction of hours in some of our brick-and-mortar retail locations as we made the decision to close some locations on Mondays and Tuesday to reduce labor expenses on our slowest retail sales days during the quarter. During the same period in 2024 our retail locations were open seven days per week. We reopened those locations on Mondays and Tuesdays as we approached the Memorial Day holiday to take advantage of higher summer foot traffic. A portion of the change was also due to not renewing Cask Club memberships as management evaluated its ongoing retail options moving forward.
Previous wording
•The approximately $22,000 decrease in consulting fees is related to TBN projects as we saw the successful completion and opening of the Stillaguamish project in October 2024 and we moved the announced Coquille and Tonto Apache projects that were in planning phase into construction phase in preparation for openings in late 2025.
Current wording
•The approximately $21,000 decrease in consulting fees was related to TBN projects as we saw the successful completion and opening of the Stillaguamish project in October 2024 and we moved the announced Coquille and Tonto Apache projects that were in the planning phase into the construction phase in preparation for openings in late 2025 or early 2026.
Previous wording
Cost of sales were approximately $1,095,000 and $1,098,000 for the three months ended June 30, 2025 and 2024, respectively, a decrease of approximately $(3,000), or 21.0%, period over period. Cost of Sales for the three months ended June 30, 2025 includes approximately $121,000 of non-cash share-based compensation expenses related to RSU grant awards recognized in the three months ended June 30, 2025 for production employees compared to no such award recognition in 2024.
Current wording
Cost of sales were approximately $1,104,000 and $1,132,000 for the three months ended September 30, 2025 and 2024, respectively, a decrease of approximately $28,000, or 2.47%, period over period. Cost of sales for the three months ended September 30, 2025 includes approximately $121,000 of non-cash share-based compensation expenses related to RSU grant awards recognized in the three months ended September 30, 2025 for production employees compared to no such award recognition in 2024. Removing the $121,000 in non-cash share-based compensation from the cost of the sales indicates the adjusted cost of sales for the spirits business from an inputs and other overhead perspective was $149,000 less than the same period over period, or a reduction of 13.2%.
Previous wording
The approximately $18,000 decrease in net products cost of sales period over period included: a decrease in product cost of approximately $114,000 to approximately $476,000 for the three months ended June 30, 2025, from approximately $590,000 for the three months ended June 30, 2024, and a increase in unabsorbed overhead of approximately $96,000 to approximately $607,000 as of June 30, 2025 from approximately $511,000 as of June 30, 2024. 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. 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, leading to higher gross margins. This is purely a function of how much excess capacity we have in our production system at the time while we transition from low margin, but high volume production to higher margin products.
Current wording
The approximately $43,000 decrease in net products cost of sales period over period included: a decrease in product cost of approximately $289,000 to approximately $347,000 for the three months ended September 30, 2025, from approximately $636,000 for the three months ended September 30, 2024, and an increase in unabsorbed overhead of approximately $246,000 to approximately $728,000 as of September 30, 2025 from approximately $482,000 as of September 30, 2024. 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. 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, leading to higher gross margins. This is purely a function of how much excess capacity we have in our production system at the time while we transition from low margin, but high volume production to higher margin products.
Previous wording
•Unabsorbed overhead as a component of Product Cost of 56.0% and 46.4% for the three months ended June 30, 2025 and 2024, respectively, are significant contributors to our current overall low products gross margins. Unabsorbed overhead is a function of costs attributable to the excess capacity and associated overhead in our system. While we made progress seeing this cost drop to 41.3% in the full year ended December 31, 2024, from 44.6% in the full year ended December 31, 2023, we have significant opportunities to push this cost component down further in 2025 and beyond by reducing unused capacity and reducing our real estate footprint to get leaner and more efficient. The increase in the unabsorbed overhead percentage in the three months ended June 30, 2025 compared to the fourth quarter 2024 is a reflection of the large product sales and volume we had during in the fourth quarter of 2024 given fourth quarter of a year is typically the strongest quarter and the first quarter is typically the slowest quarter of the year in the spirits industry. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Current wording
•Unabsorbed overhead as a component of Product Cost of 67.7% and 43.1% for the three months ended September 30, 2025 and 2024, respectively, are significant contributors to our current overall low products gross margins. Unabsorbed overhead is a function of costs attributable to the excess capacity and associated overhead in our system. While we made progress seeing this cost drop to 41.3% in the full year ended December 31, 2024, from 44.6% in the full year ended December 31, 2023, we have significant opportunities to push this cost component down further in 2025 and beyond by reducing unused capacity and reducing our real estate footprint to get leaner and more efficient. The increase in the unabsorbed overhead percentage in the three months ended September 30, 2025 compared to the fourth quarter 2024 is a reflection of the large product sales and volume we had during in the third quarter of 2024 given versus lower volumes sold during the same period in 2025 as we pulled back on marketing spend while we focused on our cryptocurrency transition. 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. (See also below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Previous wording
The approximately $18,000 decrease in net products cost of sales period over period is further detailed as follows:
Current wording
The approximately $43,000 decrease in net products cost of sales period over period is further detailed as follows:
Previous wording
•The approximately $13,000 decrease in wholesale product cost of sales to approximately $303,000 for the three months ended June 30, 2025 compared to approximately $316,000 for the three months ended June 30, 2024 was primarily the result of the shifting of some wholesale orders from the first quarter to the second quarter based on timing of reorders in the wholesale channel and the continued reduction of focus on our part on low margin items as we shift focus to higher margin items.
Current wording
•The approximately $172,000 decrease in wholesale product cost of sales to approximately $175,000 for the three months ended September 30, 2025 compared to approximately $347,000 for the three months ended September 30, 2024 was primarily the result of the shifting of some wholesale orders from quarter to quarter based on timing of reorders in the wholesale channel and the continued reduction of focus on our part on low margin items as we shift focus to higher margin items.
Previous wording
•Our unabsorbed overhead, which is a measure of our capacity relative to our current utilization, increased by approximately $96,000 to approximately $607,000 for the three months ended June 30, 2025 compared to approximately $511,000 for the three months ended June 30, 2024. The unabsorbed overhead expense indicates our underutilization of current production capacity as we move away from low-margin, high volume products into higher margin products. Our goal continues to be the reduction of unabsorbed overhead over time as our production volumes increase with increased sales and as we reduce overhead costs associated with excess production capacity, warehouse space and other real estate. The combined efforts of increasing high margin product sales and reducing general overhead costs are geared toward reducing our overhead expenses to have our remaining overhead right-sized to our strategy of focusing on producing and selling high margin super premium items. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Current wording
•Our unabsorbed overhead, which is a measure of our capacity relative to our current utilization, increased by approximately $246,000 to approximately $728,000 for the three months ended September 30, 2025 compared to approximately $482,000 for the three months ended September 30, 2024. The unabsorbed overhead expense indicates our underutilization of current production capacity as we move away from low-margin, high volume products into higher margin products. Our goal continues to be the reduction of unabsorbed overhead over time as our production volumes increase with increased sales and as we reduce overhead costs associated with excess production capacity, warehouse space and other real estate. The combined efforts of increasing high margin product sales and reducing general overhead costs are geared toward reducing our overhead expenses to have our remaining overhead right-sized to our strategy of focusing on producing and selling high margin super premium items. 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. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Previous wording
It is important to note that the approximately $(24,000) in Products Gross Profits, and the resulting low Gross Margin of (2.3)%,is after layering in the approximately $607,000 in unabsorbed overhead costs.
Current wording
It is important to note that the approximately $(259,000) in Products Gross Profits, and the resulting low Gross Margin of (31.7)%, is after layering in the approximately $728,000 in unabsorbed overhead costs. The change in gross profit and gross margin in 2025 versus the same period in 2024 was the result of lower sales due to pulling back from marketing efforts while we worked on our cryptocurrency transition against slightly higher fixed expenses during the period.
Previous wording
Gross Profit - Analysis of Exclusion of Unabsorbed Overhead
Current wording
Gross Profit - Analysis of Exclusion of Unabsorbed Overhead - Whiskey Business
Previous wording
To provide a more detailed view to our performance for products and services based purely on the direct input costs we remove unabsorbed overhead expenses for the following analysis. Gross profit excluding unabsorbed overhead was approximately $583,000 and $854,000 for the three months ended June 30, 2025 and 2024, respectively, a decrease of approximately $271,000, or 31.7%, period over period, and included:
Current wording
To provide a more detailed view to our performance for products and services based purely on the direct input costs, we remove unabsorbed overhead expenses for the following analysis. Gross profit excluding unabsorbed overhead was approximately $469,000 and $739,000 for the three months ended September 30, 2025 and 2024, respectively, a decrease of approximately $270,000, or 36.5%, period over period, and included:
Previous wording
Gross Margin excluding unabsorbed overhead of 63.0% for the three months ended June 30, 2025 compared to 68.1% for the same period in 2024 is a significant increase, as is the improvement compared to the 55.6% we reported for the full year 2024, indicating our efforts aimed at reducing overhead expenses and focusing on high margin items are starting to bear fruit.
Current wording
Gross Margin excluding unabsorbed overhead of 65.2% for the three months ended September 30, 2025 compared to 63.4% for the same period in 2024 is a significant increase, as is the improvement compared to the 55.6% we reported for the full year 2024, indicating our efforts aimed at reducing overhead expenses and focusing on high margin items are starting to bear fruit.
Previous wording
•Gross margin was approximately 17.0% and 40.4% (63.0% and 68.1%, excluding unabsorbed overhead) for the three months ended June 30, 2025 and 2024, respectively, based upon total net sales of approximately $1,321,000 and $1,844,000, respectively. As we add more Special Operations Salute sales via online channels, we expect to see our overall gross margin increase. Likewise, as we add more states into our wholesale distribution channel focused solely on high-margin items, rather than any low-margin well vodka in those states, we expect to see additional margin increases. Also, as we add more cases of production through our system, we expect the unabsorbed overhead costs will be reduced as each additive case of new sales volume begins to carry incremental overhead costs as part of the normal manufacturing cost accounting, which should increase our overall margins. Finally, our third-party production contracts were very low margin for us, which is why management made the decision to end those contracts at the end of January 2024 and phase out producing barrels of whiskey for third parties under contract in late 2024. Moving forward, management will focus on higher-margin activities, which we expect will increase our overall margins.
Current wording
•Gross margin was approximately (2.1)% and 36.2% (65.2% and 63.4%, excluding unabsorbed overhead) for the three months ended September 30, 2025 and 2024, respectively, based upon total net sales of approximately $1,081,000 and $1,774,000, respectively. As we add more Special Operations Salute sales via online channels, we expect to see our overall gross margin increase. Likewise, as we add more states into our wholesale distribution channel focused solely on high-margin items, rather than any low-margin well vodka in those states, we expect to see additional margin increases. Also, as we add move cases of production to third party production and reduce our in-house production capacity, we expect the unabsorbed overhead costs will be reduced as each additive case of new sales volume begins to carry incremental overhead costs as part of the normal manufacturing cost accounting, which should increase our overall margins. Finally, our third-party production contracts were very low margin for us, which is why management made the decision to end those contracts at the end of January 2024 and phase out producing barrels of whiskey for third parties under contract in late 2024. Moving forward, management will focus on higher-margin activities, which we expect will increase our overall margins.
Previous wording
•Gross margin for Products of (2.3)% (55.0% excluding unabsorbed overhead) for the three months ended June 30, 2025 compared to 23.7% (59.1% excluding unabsorbed overhead) for the three months ended June 30, 2024 are inclusive of low margin production contracts we ended in 2024, the significant amount of unabsorbed overhead we booked (which drags down gross margin based on the amount of unused capacity in our system). 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).
Current wording
•Gross margin for Products of (31.7)% (57.5% excluding unabsorbed overhead) for the three months ended September 30, 2025 compared to 18.7% (53.7% excluding unabsorbed overhead) for the three months ended September 30, 2024 are inclusive of low margin production contracts we ended in 2024, the significant amount of unabsorbed overhead we booked (which drags down gross margin based on the amount of unused capacity 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. (See also below our comments related to this in more detail in Non-GAAP Financial Measures).
Previous wording
•The approximately $99,000 decrease in sales and marketing expenses included: an increase in digital advertising production expense to drive DtC sales of our highest margin spirits brands, offset by decreases in sponsorships and print advertising as we shifted to a new third-party e-commerce platform.
Current wording
•The approximately $124,000 decrease in sales and marketing expenses included: an increase in digital advertising production expense to drive DtC sales of our highest margin spirits brands, offset by decreases in sponsorships and print advertising as we shifted to a new third-party e-commerce platform.
Previous wording
•The approximately $23,000 decrease in other sales and marketing expenses stems from decreased deals, discounts, rebates and incentives offered to wholesale distributors for low margin products and the ending of a contract for an outside sales consultant as of December 31, 2024.
Current wording
•The approximately $29,000 decrease in other sales and marketing expenses stems from decreased deals, discounts, rebates and incentives offered to wholesale distributors for low margin products and the ending of a contract for an outside sales consultant as of December 31, 2024.
Previous wording
Comparison of the Results of Operations for the Six Months Ended June 30, 2025 and 2024
Current wording
Comparison of the Results of Operations for the Nine Months Ended September 30, 2025 and 2024
Previous wording
The following table summarizes our results of operations for the six months ended June 30, 2025 and 2024.
Current wording
The following table summarizes our results of operations for the nine months ended September 30, 2025 and 2024.
Previous wording
The approximately $777,000 net decrease in products sales, period over period, included:
Current wording
The approximately $1,337,000 net decrease in products sales, period over period, included:
Showing the first 40 of 80 pairs. Open the source sections for the rest.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
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. 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.
Current report — wording carried from elsewhere
•Unabsorbed overhead as a component of Product Cost of 60.4% and 48.2% for the nine months ended September 30, 2025 and 2024, respectively, are significant contributors to our current overall low products gross margins. 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. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Current report — wording carried from elsewhere
During the nine months ended September 30, 2025 and 2024, net cash provided by financing activities was approximately $29,990,000 and $6,210,000, respectively. The cash proceeds received in the nine months ended
Rearranged previous paragraphs (8)
Previous report — wording carried elsewhere
Services cost of sales decreased by approximately $63,000 to approximately $18,000 for the six months ended June 30, 2025 from approximately $81,000 for the six months ended June 30, 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.
Previous report — wording carried elsewhere
•Unabsorbed overhead as a component of Product Cost of 55.7% and 50.7% for the six months ended June 30, 2025 and 2024, respectively, are significant contributors to our current overall low products gross margins. Unabsorbed overhead is a function of costs attributable to the excess capacity and associated overhead in our system. While we made progress seeing this cost drop to 41.3% in the full year ended December 31, 2024, from 44.6% in the full year ended December 31, 2023, we have significant opportunities to push this cost component down further in 2025 and beyond by reducing unused capacity and reducing our real estate footprint to get leaner and more efficient. The increase in the unabsorbed overhead percentage in the first six months of of 2025 compared to the fourth quarter 2024 is a reflection of the large product sales and volume we had during in the fourth quarter of 2024 given fourth quarter of a year is typically the strongest quarter and the first quarter is typically the slowest quarter of the year in the spirits industry. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Previous report — wording carried elsewhere
•The approximately $103,000 decrease in wholesale product cost of sales to approximately $477,000 for the six months ended June 30, 2025 compared to approximately $580,000 for the six months ended June 30, 2024 was primarily the result of the shifting of some wholesale orders from the first quarter to the second quarter based on timing of reorders in the wholesale channel and the continued reduction of focus on our part on low margin items as we shift focus to higher margin items.
Previous report — wording carried elsewhere
It is important to note that the approximately $2,000 in Products Gross Profits, and the resulting low Gross Margin of 0.1%, is after layering in the approximately $1,043,000 in unabsorbed overhead costs.
Previous report — wording carried elsewhere
•The approximately $647,000 of personnel - share-based compensation in the three months ended June 30, 2025, for which there was no such expense in the comparable three months ended June 30, 2024 included; $511,000 grant of matching non-cash RSU compensation related to deferred compensation. (See Notes 2 and 7 of our condensed consolidated financial statements for the three months ended June 30, 2025 and 2024), plus additional RSU grants employee recognitions of $136,000.
Previous report — wording carried elsewhere
•The approximately $1,810,000 of personnel - share-based compensation in the six months ended June 30, 2025, for which there was no such expense in the comparable six months ended June 30, 2024 included; $1,286,000 grant of matching non-cash RSU compensation related to deferred compensation. (See Notes 2 and 7 of our condensed consolidated financial statements for the six months ended June 30, 2025 and 2024), plus additional RSU grants employee recognitions of $525,000.
Previous report — wording carried elsewhere
•The approximately $212,000 of non-cash share-based compensation Professional fees expense recognized in the three months ended June 30, 2025, for which there was no such expense in the comparable three months ended June 30, 2024 for RSU awards granted to outside consultants in lieu of cash.
Previous report — wording carried elsewhere
•The approximately $337,000 of non-cash share-based compensation other - director fees expense recognized in the six months ended June 30, 2025, for which there was no such expense in the comparable six months ended June 30, 2024 for RSU awards granted to directors in lieu of cash.