IP STRATEGY HOLDINGS, INC.
For the period ended Mar 31, 2026. Filed May 20, 2026.
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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.
Mar 31, 2026 · Filed May 20, 2026
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 2025-09-30; filed 2025-11-18.
0001788230-25-000175
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-03-31; filed 2026-05-20.
0001788230-26-000068
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.
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53 unchanged; 44 reworded; 109 added; 138 removed; 11 previous and 2 current paragraphs rearranged.
Tables are not compared: 44 previous and 24 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 (109)
Current report
Reverse Stock Splits
Current report
In our spirits segment we produce, market and sell super premium whiskeys and premium flavored whiskeys. We believe we have developed differentiated products that are responsive to consumer desires for rewarding and novel taste experiences. We sell our spirits products through our direct-to-consumer (“DtC”) channel, via wholesale distributors and through TBN partners.
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Our Crypto and Related Business
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Our Spirits Business
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Our spirits business operates in the craft segment of the approximately $288 billion global spirits market. Our growth strategy is centered on three primary initiatives. First, we are expanding higher-margin DtC sales through a compliant third-party platform that enables shipments to consumers in 46 states, representing approximately 96.8% of the U.S. population, allowing us to build direct customer relationships and leverage consumer data to drive repeat purchases and targeted marketing. Second, we aim to increase wholesale volume through key national and regional accounts by using DtC brand-building efforts to support distributor partnerships and retail pull-through. Third, we are growing the TBN model, under which tribal partners own and operate production and retail businesses using our brands, intellectual property and operational support in exchange for royalties on gross sales. We believe this regional production and distribution network enhances brand localization, drives trial and awareness, and creates synergies with our wholesale channels as both footprints expand.
Current report
Prior to August 2025, most of our revenue was generated by retail sales of our spirits in our retail tasting rooms, which we closed on December 31, 2025, wholesale spirits sold through distributors, and spirits sold through our eCommerce platform. Beginning in September 2025, we established a validator program to begin deriving revenue from staking rewards tied to our $IP Token holdings, which now accounts for the majority of our revenue at margins exceeding 95%. Going forward, as we transition spirits production to third parties we expect our expenses related to production, sales and marketing of our spirits brands will go down. Also, as we focus on the highest margin spirits brands while we shed high overhead real estate leases, equipment and depreciation expenses, we expect to see margins associated with our sprits brands to increase. Given our relatively small production volumes compared to the broader spirits market, we believe that disciplined cost management and favorable barrel pricing position us to improve topline revenue and profitability within our spirits segment as volumes grow, although continued macroeconomic uncertainty could impact overall consumer demand.
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Net Revenues
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We also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026. The premium received from the sale of the call option is recognized as a component of crypto and related revenue in our condensed consolidated statement of operations. The premium is amortized to crypto and related revenue over the life of the option using the straight-line method. We record the option as a derivative liability on our condensed consolidated balance sheet at fair value, with changes in fair value recognized in crypto and related revenue until the option expires or is exercised. If the option is exercised, we settle the underlying security at the exercise price, and the premium is recognized as a reduction of the carrying amount of the $IP Token
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Cost of Revenue
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•Market conditions that may impact the market value of our investment in intangible digital assets ($IP Tokens);
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•Market conditions that impact the market value of the blockchain rewards (staking revenue);
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•Staking yields for work performed on the validator;
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•The cost of third party computer services that house our validator;
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•The volume of tokens that we stake or commit to covered calls, and the terms of the related contracts;
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•The volume of third party tokens assigned to our validator;
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•Our closure of our tasting rooms; and
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•Our closure of our distillery operations and shift to third party production.
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As of March 31, 2026, we had outstanding restricted stock units (“RSUs”) that, upon vesting, will settle into an aggregate of 34,938 shares based upon the grant date fair value of $4,328,639. During the three months ended March 31, 2026, we granted 8,975 RSUs to officers and employees and 10,000 to a consultant for investor relations support.
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Interest Expense
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As of March 31, 2026 and December 31, 2025, respectively, we had a 11.8% and 11.8% ownership interest in Flavored Bourbon, LLC, respectively. For the year ended December 31, 2025 we recorded an impairment charge of approximately $3,357,000 on our investment in Flavored Bourbon LLC. For the year ended December 31, 2024 we recorded a gain of approximately $3,421,000 on our investment in Flavored Bourbon LLC.
Current report
As of December 31, 2025, we evaluated qualitative impairment indicators for our non-controlling minority equity investment in Flavored Bourbon, LLC as of the measurement date. There have been no observable share sales, financing rounds, or brand-level transactions to provide direct price discovery. Therefore, we estimated fair value using Level 3 inputs consistent with ASC 820 (market participant assumptions).
Current report
Based on (i) the reported contraction in craft spirits, (ii) the reported slowdown in overall alcohol participation and spirits supplier revenue, (iii) reported flavored whiskey category softness, (iv) continued distributor-tier consolidation and sales force reductions, (v) lack of consistent marketing or sales activity for the brand for the latter half of 2025, and (vi) public-company earnings deterioration and impairment activity, management concluded the investment’s carrying value exceeds fair value. A write-down of 23.5%, or approximately $3,357,000, from the previously recorded approximately $14,285,000 down to approximately $10,928,000 as of December 31, 2025, is the best estimate within a supportable 20%–25% range.
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Restructure Costs
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On October 23, 2025, we announced that we would close our five owned and operated tasting rooms in Washington and Oregon effective December 31, 2025, along with the transition of our production from in-house production to third party contract producers beginning in the first quarter of 2026 (the “Restructuring”). As of December 31, 2025, we wrote off and expensed approximately $3,393,000 of: property and equipment; operating lease ROU assets and lease liabilities; and other related expenses as part of the Restructuring. During the three months ended March 31, 2026, we recorded additional expenses related to the Restructuring of approximately $291,000 of future lease obligation, and personnel related expenses.
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Section 382 Ownership Changes and Limitation on Net Operating Loss Carryforwards
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We engaged an outside accounting firm to perform an analysis under Internal Revenue Code (“IRC”) Section 382 to determine whether changes in ownership of our stock could limit the future utilization of our NOL carryforwards and certain tax credits. The analysis covered the period beginning March 22, 2018, when we ceased operating as an S corporation and became a C corporation, through December 31, 2025.
Current report
Under IRC Section 382, if a corporation undergoes an “ownership change,” generally defined as a cumulative increase of more than 50 percentage points in the ownership of 5% shareholders over a rolling three-year period, the corporation’s ability to utilize its pre-change NOLs and certain tax attributes may be subject to an annual limitation. The limitation is generally calculated based on the fair market value of the corporation immediately prior to the ownership change multiplied by the long-term tax-exempt rate, subject to certain adjustments.
Current report
Based on the analysis, we experienced ownership changes on November 25, 2024 and August 15, 2025, primarily in connection with our initial public offering and subsequent equity transactions. These ownership changes resulted in limitations on our ability to utilize certain NOL carryforwards and tax credits generated prior to those dates.
Current report
As of December 31, 2024, we had approximately $61.5 million of federal NOL carryforwards and approximately $192 thousand of federal tax credits subject to Section 382 limitations. During the year ended December 31, 2025, we generated additional federal NOLs of approximately $13.3 million and $32,000 of federal tax credit, resulting in total federal NOL carryforwards of approximately $74.8 million and federal tax credit approximately $224,000 as of December 31, 2025, before consideration of any limitations under Section 382. Following the ownership changes, our ability to utilize its NOLs and certain tax credits is limited on an annual basis.
Current report
Based on the Section 382 limitation analysis, we expect that our tax attributes will be released and available for use gradually over multiple years rather than immediately. For example, estimated annual availability includes approximately:
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•$0.8 million available in 2024 (partial year following the ownership change);
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•approximately $5.4 million per year from 2025 through 2028;
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•approximately $4.7 million in 2029; and
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•approximately $1.0 million per year thereafter until the remaining attributes are fully utilized.
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The additional NOLs generated during 2025 of approximately $13.3 million may also be subject to the Section 382 limitation to the extent such losses are treated as pre-change attributes or otherwise limited under applicable tax rules. As a result, we expect that a portion of its NOL carryforwards, including those generated in 2025, will be utilizable only over an extended period of time in accordance with the applicable annual limitation amounts.
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As reflected in the rollout schedule included in the analysis, a portion of our tax attributes will become available over time through approximately 2044 and subsequent tax years, subject to our generating sufficient taxable income to utilize those attributes.
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The analysis also indicates that approximately $189,000 of tax credits may be permanently limited and therefore unavailable for utilization as a result of the Section 382 limitations. We will update this estimate to reflect the impact of additional NOLs generated in 2025 of approximately $13.3 million and any resulting changes in the amount of tax attributes that may be limited or available in future periods.
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We will continue to evaluate the impact of these limitations as part of our ASC 740 income tax accounting, including the assessment of deferred tax assets and related valuation allowances. Future ownership changes, additional losses generated in 2025 and subsequent years, or changes in taxable income projections could further impact our ability to utilize our NOL carryforwards and other tax attributes.
Current report
Cost of Revenue of approximately $543,000 and $820,000, and Operating Expenses of approximately $67,562,000 and $2,723,000 for the three months ended March 31, 2026 and 2025, respectively, included non-cash share-based compensation for employees (personnel) and consultants of approximately $943,000 and $0, respectively, as follows:
Current report
Netting out the non-cash share-based compensation from the Total Operating Expenses resulted in cash based Operating Expenses for the three months ended March 31, 2026 of approximately $66,624,000, compared to approximately $2,723,000 for the three months ended March 31, 2025, a decrease of approximately $63,901,000.
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Removed paragraphs (138)
Previous report
Reverse Stock Split
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We are a craft distiller producing, marketing and selling a diverse line of award-winning craft spirits, including whiskeys, vodkas, gins, rums, and “ready-to-drink” canned cocktails. We recognize that taste and innovation are key criteria for consumer choices in spirits and innovate new products for trial in our company-owned distilleries and tasting rooms. We believe we have developed differentiated products that are responsive to consumer desires for rewarding and novel taste experiences.
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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.
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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
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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.
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We sell our products through wholesale distribution, directly to consumers through our five distilleries and tasting rooms we own and operate in Washington and Oregon and by shipping directly to consumers online where legal. Currently, we sell products primarily in the Pacific Northwest with limited distribution in other states throughout the U.S. In addition, in collaboration with Native American tribes, we have recently developed a new sales, manufacturing and distribution channel on tribal lands that we expect will increase and broaden the recognition of our brand as that network expands nationally.
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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.
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Our DtC sales also support our second growth area, which entails growing our wholesale volume with our distributors through key national accounts both on-premises and off-premises. By building brand recognition for key products in selected regions or states through DtC sales, we can better support the wholesale launch, marketing and product pull-through of those products in partnership with wholesalers in those targeted states. While DtC sales result in singular high-margin sales, growing volume through wholesale distribution is the most efficient way to drive large-scale growth across retail chains.
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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.
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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.
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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.
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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.
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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).
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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.”
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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).
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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.
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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).
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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
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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).
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Continued Investment and Innovation
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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.
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Net Sales
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Cost of Sales
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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.
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Change in Fair Value of Convertible Notes and Warrant Liabilities
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We elected the fair value option for the convertible notes we issued in 2022 and 2023 (the “Convertible Notes”) and the warrants that were issued in connection with the Convertible Notes under ASC Topic 825, Financial Instruments, with changes in fair value reported in our consolidated statements of operations as a component of other income (expense). We believe the fair value option better reflects the underlying economics of the Convertible Notes and the related warrants given their embedded conversion or exercise features. As a result, the Convertible Notes and the related warrants were recorded at fair value upon issuance and were subsequently remeasured at each reporting date until they were converted upon the occurrence of our IPO on November 25, 2024. Accordingly, the Convertible Notes and the related warrants are recognized initially and subsequently (through and including their exchange for common stock, or in the case of the warrants, the fixing of their exercise price) at fair value, inclusive of their respective accrued interest at their stated interest rates, which were included in convertible notes on our consolidated balance sheets. The changes in the fair value of the Convertible Notes and related warrants were recorded as “changes in fair value” as a component of other income (expenses) in our consolidated statements of operations. The changes in fair value related to the accrued interest components of the Convertible Notes were also included within the single line of change in fair value of convertible notes on our consolidated statements of operations. Upon the initial public offering of our common stock (on November 25, 2024), the fair value of the Convertible Notes and related warrants were converted to equity effective November 25, 2024.
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As of September 30, 2025 and December 31, 2024, respectively, we had a 12.2% and 12.2% ownership interest in Flavored Bourbon, LLC, respectively, and did not record any impairment charges related to our investment in Flavored Bourbon, LLC for the year ended December 31, 2023. In January 2024, Flavored Bourbon LLC conducted a capital call, looking to raise $12 million from current and new investors at the same valuation as its last raise. We chose not to participate in the raise, but still retained our rights to full recovery of our capital account of $25.3 million, with the Company being guaranteed a pay out of this $25.3 million, which we must be paid in the event the brand is sold to a third party, or we can block such sale. As of the end of 2024, a total of $9,791,360 of the $12 million had been raised, and it was unclear if an effort would be made to round out the remainder of the initial targeted raise. We retain a 12.2% ownership interest in this entity plus a 2.5% override in the waterfall of distributions. As a result of the January 2024 capital call, in accordance with adjusting for observable price changes for similar investments of the same issuer pursuant to ASC 321 as noted above, we performed a qualitative assessment of our Investment in Flavored Bourbon, LLC. On the basis of our analysis we determined that the fair value of our Investment in Flavored Bourbon, LLC, should be adjusted to $14,285,000, with the resulting increase in fair value of $3,421,000 recorded as gain on increase in value of Flavored Bourbon, LLC on our condensed consolidated statement of operations for the six months ended June 30, 2024, and recorded no further adjustment in the value of Flavored Bourbon, LLC through the remainder of 2024.
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Changes in Fair Value of Convertible Notes
Previous report
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 report
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 report
As the exchange of the Convertible Notes to common stock was conditioned upon the closing of our initial public offering of common stock prior to a specified date, the aggregate fair value of the Convertible Notes continued to be reflected as a liability on our consolidated balance sheet until the closing of our initial public offering (November 25, 2024), at which time the Convertible Notes were reclassified from convertible notes payable to equity, as the remaining contingency to the exchange of the Convertible Notes to common stock was then satisfied. With the satisfaction of that remaining contingency, the exchange of the convertible notes payable for common stock qualified for equity classification.
Previous report
We issued certain warrants for the purchase of shares of our common stock in connection with the issuance of certain Convertible Notes and classified such warrants as a liabilities on our consolidated balance sheet pursuant to ASC Topic 480 because, when issued, the warrants were to settle by issuing a variable number of shares of our common stock based on the then-unknown price per share of our common stock in our IPO. The warrant liabilities were initially recorded at fair value on the issuance date of each warrant and are subsequently remeasured to fair value at each reporting date. Changes in the fair value of the warrant liabilities are recognized as a component of other income (expense) in the consolidated statements of operations. As originally drafted, changes in the fair value of the warrant liabilities are recognized until the warrants are exercised, expire or qualify for equity classification.
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Reworded paragraphs (44)
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 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.
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 and other financial information included elsewhere in this filing. In addition to historical condensed 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 this section titled “Risk Factors” and elsewhere in this filing. Unless the context otherwise requires, for the purposes of this section,. “IP Strategy,” “we,” “us,” “our,” or the “Company” refer to IP Strategy Holdings, Inc. and its consolidated subsidiaries, including its principal operating subsidiary, Heritage Distilling Company, Inc. (“Heritage,” “Heritage Distilling” or “HDC”).
Previous wording
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 wording
On April 10, 2026, the stockholders approved an amendment to our Third Amended and Restated 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 or preferred stock or changing the par value per share of our 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 April 17, 2026, the Board approved, and on April 23, 2026 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 also reflect the effect of that stock split unless otherwise noted.
Previous wording
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 wording
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. The aggregate effect of rounding down fractional shares and the respective payout of paid in capital is reported in the aggregate where significant, including the condensed consolidated statements of stockholders’ equity.
Previous wording
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 wording
In connection with the development of our cryptocurrency treasury reserve policy, on August 15, 2025, we completed a $223.8 million private investment in public equity (“PIPE”) transaction wherein we acquired 53.2 million $IP Tokens in our digital asset treasury. Details of the PIPE transaction are summarized 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.
Previous wording
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 wording
“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. In addition to staking revenue, we also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026.
Previous wording
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 wording
We use the fair value method of accounting to report our operating results, in accordance with U.S. GAAP. We currently own approximately 52.3 million $IP Tokens (as of March 31, 2026), some of which were acquired at a significant discount to the then market value. 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 52.3 million, every $1.00 increase in the market value of a $IP Token will represent a gain of approximately $52.3 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 $52.3 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.
Previous wording
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 wording
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.
Previous wording
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 wording
Our validator business revenue is primarily generated through blockchain rewards from participation in proof-of-stake networks (“Staking Revenue”), 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 digital wallets we control. Each block validation represents a distinct performance obligation. We recognize blockchain rewards revenue (Staking Revenue) on a gross basis, as we act as principal of our contracts by providing the $IP Tokens required for staking. Blockchain rewards are recorded in crypto and related 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.
Previous 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.
Current wording
Our spirits business net revenues consist primarily of the sale of spirits and services domestically in the United States. Customers consist primarily of wholesale distributors and direct consumers. 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 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 wording
We recognize the staking and validator business cost of revenue in the same manner that the related revenue is recognized. Our cost of revenue consists of Amazon Web Services 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.
Previous 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.
Current wording
We recognize the spirits business cost of revenue in the same manner that the related revenue is recognized. Our cost of revenue consists of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement costs, fulfillment costs, warehousing costs, and certain allocated costs related to management, facilities and personnel-related expenses associated with supply chain logistics.
Previous wording
Our gross profit is the difference between our revenues and cost of sales. Gross margin percentage is obtained by dividing gross profit by our revenue. Our gross profit and gross margin are, or may be, influenced by several factors, including:
Current wording
Our gross profit for both our crypto and spirits business is the difference between our revenues and cost of revenue. Gross margin percentage is obtained by dividing gross profit by our revenue. Our gross profit and gross margin are, or may be, influenced by several factors, including:
Previous wording
•Our ability to maintain our costs on the components that go into the manufacture of our products; and
Current wording
•Our ability to maintain our costs on the components that go into the manufacture of our products;
Previous wording
We expect our gross margins to fluctuate over time, depending on the factors described above.
Current wording
We expect our gross profit and gross margin to fluctuate over time, depending on the factors described above.
Previous wording
Sales and marketing expenses consist primarily of employee-related costs for individuals working in our sales and marketing departments, our tasting room general managers and Cask Club directors, our hourly tasting room sales associates, the executives to whom all general managers report, and the executives whose primary function is sales or marketing, and rent and associated costs for running each tasting room. The expenses include our personnel responsible for managing our e-commerce platform, wages, commissions and bonuses for our outside sales team members who market and sell our products to distributors and retail end users and the associated costs of such sales. Sales and marketing expenses also include the costs of sports and venue sponsorships, radio, television, social media, influencers, direct mail and other traditional marketing costs, costs related to trade shows and events and an allocated portion of overhead costs. We expect our sales and marketing costs will increase as we expand our headcount, open new locations in partnership with tribes, expand our wholesale distribution footprint and initiate new marketing campaigns.
Current wording
Sales and marketing expenses through March 31, 2026 consisted primarily of employee-related costs for individuals working in our sales and marketing departments and the executives to whom such employees report and the executives whose primary function was sales or marketing. The expenses included our personnel responsible for managing our e-commerce platform, wages, commissions and bonuses for our outside sales team members who market and sell our products to distributors and retail end users and the associated costs of such sales. Sales and marketing expenses also included the costs of social media, influencers, and other traditional marketing costs, costs related to trade shows and events and an allocated portion of overhead costs. With the closure of our retail tasting rooms as of December 31, 2025, all staffing and managerial sales and marketing expenses related to those operations were eliminated for the period ending March 31, 2026.
Previous wording
General and administrative expenses consist primarily of personnel-related expenses associated with our executive, finance, legal, insurance, information technology and human resources functions, as well as professional fees for legal, audit, accounting and other consulting services, and an allocated portion of overhead costs. We expect our general and administrative expenses will increase on an absolute dollar basis as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as increased expenses for general and director and officer insurance, investor relations, directors fees and other administrative and professional services. In addition, we expect to incur additional costs as we hire additional personnel and enhance our infrastructure to support the anticipated growth of our business. We expect that the one-time large costs associated with preparing our initial public offering will not need to be recurring expenses, allowing us to focus on baseline costs.
Current wording
General and administrative expenses consist primarily of personnel-related expenses associated with our executive, finance, legal, insurance, information technology and human resources functions, as well as professional fees for legal, audit, accounting and other consulting services, and an allocated portion of overhead costs. We expect our general and administrative expenses will increase on an absolute dollar basis as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as increased expenses for general and director and officer insurance, investor relations, directors fees and other administrative and professional services. In addition, we expect to incur additional costs as we hire additional personnel and enhance our infrastructure to support our crypto and related business and the anticipated growth of our business.
Previous wording
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 wording
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 months ended March 31, 2026, we recognized a fair value loss of approximately $62,110,000 driven by market fluctuations in the $IP Token. As of March 31, 2026, the fair value of intangible digital assets on our condensed consolidated balance sheet was approximately $24,844,000 using the closing price per $IP Token of $0.5041. As of December 31, 2025, the fair value of intangible digital assets on our condensed consolidated balance sheet was approximately $91,701,000 using the closing price per $IP Token of $1.719. We continue to hold substantially all $IP Tokens for investment and may stake them periodically.
Previous wording
The following table summarizes our results of operations for the nine months ended September 30, 2025 and 2024.
Current wording
The following table summarizes our results of operations for the three months ended March 31, 2026 and 2025.
Previous wording
(See description of Self Staking and Third-Party Validator Commissions in the three month period discussion above). Net revenues were approximately $1,909,000 and $0 for the nine 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 on September 18, 2025. For the nine months ended September 30,2025, substantially all Crypto and Related Revenue related to Self-Staking
Current wording
Net revenues were approximately $1,453,000 and $0 for the three months ended March 31, 2026 and 2025, respectively, an increase of approximately $1,453,000, or 100%, period over period. There were no comparable revenues in the three months ended March 31, 2025 as we began recognizing staking and validator revenues on September 18, 2025 and revenue from sale of covered call contracts in January of 2026. For the three months ended March 31, 2026, substantially all crypto and related validator business revenue was related to self-staking.
Previous wording
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 wording
Of the total validator business 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) staking of third-party tokens. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that we control. 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 the fourth quarter of 2025, and approximately two weeks of the twelve weeks of the third quarter of 2025. In addition to staking revenue, we also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026 and totaled approximately $240,000 in covered call premiums for the three months ended March 31, 2026.
Previous wording
Cost of sales were approximately $53,000 and $0 for the nine 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 incurring related cost of sales once our validator services was operational on September 18, 2025.
Current wording
Cost of revenue was approximately $143,000 and $0 for the three months ended March 31, 2026 and 2025, respectively, an increase of approximately $143,000 from $0 period over period. Cost of revenue consisted primarily of: technology platform expenses, external engineering support, consulting services, and blockchain transaction fees and blockchain rewards payable to third party delegators related to crypto operating activities; and commissions paid on covered call contracts. There was no comparable cost of revenue in the three months ended March 31, 2025 as we began recognizing revenues from staking and validator activities and covered call contracts; and incurring related cost of revenue once our validator services was operational on September 18, 2025 and we began entering into covered call contracts in January 2026.
Previous wording
Gross profit was approximately $476,000 and $1,786,000 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of approximately $1,310,000, or 73.3%, period over period, and included:
Current wording
Gross profit was approximately $1,310,000 and $0 for the three months ended March 31, 2026 and2025, respectively, an increase of approximately $1,310,000, or 100%, period over period, and included:
Previous wording
It is important to note that there were no comparable cost of sales in 2024 as we began recognizing staking and validator revenues and incurring related cost of sales upon beginning our validator service on September 18, 2025.
Current wording
It is important to note that there were no comparable cost of revenue in the three months ended March 31, 2025 as we began recognizing staking and validator revenues and incurring related cost of revenue upon beginning our validator service on September 18, 2025.
Previous wording
•Gross margin was approximately 97.2% and 0% for the three months ended September 30, 2025 and 2024, respectively, based upon total net revenues of approximately $1,855,000 and $0, respectively.
Current wording
Gross margin was approximately 90.2% and 0.0% for the three months ended March 31, 2026 and 2025, respectively, based upon total net revenues of approximately $1,453,000 and $0, respectively.
Previous wording
•The approximately $342,000 decrease in wholesale product sales was primarily the result of reducing focus on lower margin items and the timing of orders through the wholesale channel moving between quarters.
Current wording
The approximately $75,000 decrease in wholesale product revenues was primarily the result of halting production of a selection of lower margin SKUs items and the timing of orders through the wholesale channel moving between quarters.
Previous wording
Services cost of sales decreased by approximately $49,000 to approximately $46,000 for the nine months ended September 30, 2025 from approximately $95,000 for the nine months ended September 30, 2024 primarily resulting from our ending a low-margin third party production contract for another brand and the wind down of barrel production for third parties.
Current wording
Services cost of revenue decreased by approximately $6,000 to approximately $0 for the three months ended March 31, 2026 from approximately $6,000 for the year ended March 31, 2025 primarily resulting from exiting a low-margin third-party production contract for another brand and the wind down of barrel production for third parties.
Previous wording
•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 wording
Unabsorbed overhead as a component of product cost of 69.3% and 56.6% for the three months ended March 31, 2026 and 2025, respectively, contribute to 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 are already seeing a significant reduction in costs attributed to unabsorbed overhead. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Previous wording
The approximately $43,000 decrease in net products cost of sales period over period is further detailed as follows:
Current wording
The approximately $414,000 decrease in products cost of revenue period over period is further detailed as follows:
Previous wording
Gross Profit - Analysis of Exclusion of Unabsorbed Overhead - Whiskey Business
Current wording
Gross Profit - Analysis of Exclusion of Unabsorbed Overhead - Spirits 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 $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:
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 $136,000 and $733,000 for the three months ended March 31, 2026 and 2025, respectively, a decrease of approximately $(597,000), or 81.4%, period over period, and included:
Previous wording
Change in fair value of intangible digital assets resulted in a gain of approximately $245,841,000 for the three months ended September 30, 2025 (based on a closing price on September 30, 2025 of $8.54 per $IP Token), compared to $0 for the three months ended September 30, 2024, as we began recognizing fair value adjustments on $IP Tokens in the current quarter. The gain was primarily attributable to favorable market movements in the quoted price of $IP Tokens held for investment, including approximately $209,659,980 related to tokens acquired in the quarter and remeasured at higher fair values. We measure fair value using quoted prices in our principal market 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.
Current wording
Change in fair value of intangible digital assets resulted in a loss of approximately $62.1 million for the three months ended March 31, 2026, (based on a closing price on March 31, 2026 of $0.5041 per $IP Token), compared to $0 for the three months ended March 31, 2025, as we had no similar $IP Tokens held for investment as of March 31, 2025 and began recognizing fair value adjustments on $IP Tokens upon closing of the August 15, 2025 PIPE transaction. The loss for the three months ended March 31, 2026 was primarily attributable to unfavorable market movements in the quoted price of $IP Tokens held for investment. We measure fair value using quoted prices in our principal market 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.
Previous wording
The following table presents a reconciliation of GAAP Gross Profit to Adjusted Gross Profit by removing unabsorbed overhead for the three and nine months ended September 30, 2025 and 2024. Adjusted Gross Margin excluding unabsorbed overhead is the percentage obtained by dividing Adjusted Gross Profit after removing unabsorbed overhead by our GAAP total net sales. It is an analysis that assumes all excess production capacity and space has been used in production and generating revenue, assigning all such overhead costs across all production and revenue. It is especially important in forecasting to larger entities that may be looking to acquire brands or entities about the amount of inefficiencies they can wring out of a products or production if such products or ventures were acquired and absorbed into their larger and more efficient systems.
Current wording
The following table presents a reconciliation of our spirits business GAAP Gross Profit to Adjusted Gross Profit by removing unabsorbed overhead for the three months ended March 31, 2026 and 2025. Adjusted Gross Margin excluding unabsorbed overhead is the percentage obtained by dividing Adjusted Gross Profit after removing unabsorbed overhead by our GAAP total net sales. It is an analysis that assumes all excess production capacity and space has been used in production and generating revenue, assigning all such overhead costs across all production and revenue. It is especially important in forecasting to larger entities that may be looking to acquire brands or entities about the amount of inefficiencies they can wring out of a products or production if such products or ventures were acquired and absorbed into their larger and more efficient systems.
Previous wording
The above Adjusted Gross Margin excluding unabsorbed overhead shows the cost of production of our products and services based on raw inputs and direct labor and overhead, removing all unabsorbed overhead expenses for unused capacity. This allows us to examine the cost of each product and its margin as we evaluate where our areas of product focus should be. Considering we had low margin activity in our portfolio through early 2024 (for example, well vodka and third-party production) an Adjusted Gross Margin excluding unabsorbed overhead greater than 50% is remarkable for a craft producer. As we increase the use of unused capacity, reduce capacity and continue to shift away from low margin activities towards our focus on higher margin products, we would expect to see both the GAAP Gross Margin and the Adjusted Gross Margin excluding unabsorbed overhead increase.
Current wording
The above Adjusted Gross Margin excluding unabsorbed overhead shows the cost of production of our products and services based on raw inputs and direct labor and overhead, removing all unabsorbed overhead expenses for unused capacity. This allows us to examine the cost of each product and its margin as we evaluate where our areas of product focus should be. Considering we had low margin activity in our portfolio in 2024 (for example, well vodka and third-party production) an Adjusted Gross Margin excluding unabsorbed overhead greater than 50% is remarkable for a craft producer. As we increase the use of unused capacity, reduce capacity and continue to shift away from low margin activities towards our focus on higher margin products, we would expect to see both the GAAP Gross Margin and the Adjusted Gross Margin excluding unabsorbed overhead increase.
Previous wording
It is important to note specifically that the Adjusted Gross Margin excluding unabsorbed overhead includes revenue from low margin barrel production contracts we had through early 2024 and that we do not expect to be performing for the foreseeable future as we focus on higher margin activities.
Current wording
It is important to note specifically that the Adjusted Gross Margin excluding unabsorbed overhead includes revenue from low margin barrel production contracts we had in 2024 that we do not expect to be performing for the foreseeable future as we focus on higher margin activities.
Previous wording
The following table presents a reconciliation of net income / (loss) to EBITDA and adjusted EBITDA for the three and nine months ended September 30, 2025 and 2024:
Current wording
The following table presents a reconciliation of net income / (loss) to EBITDA and adjusted EBITDA for the three months ended March 31, 2026 and 2025:
Previous wording
During the nine months ended September 30, 2025 and 2024, net cash used in operating activities was approximately $(7,822,000) and $(6,228,000), respectively, resulting primarily from net income / (loss) of approximately $185,936,000 and $5,426,000, respectively. During the nine months ended September 30, 2025 and 2024, approximately $(2,238,000) and $583,000, respectively, of cash was (used) / generated by changes in operating account balances of operating assets and liabilities. Non-cash adjustments to reconcile net income / (loss) to net cash used in operating activities were approximately $(191,330,000) and $(12,238,000) in the respective periods.
Current wording
During the three months ended March 31, 2026 and 2025, net cash used in operating activities was approximately $2,453,000 and $2,031,000, respectively, resulting primarily from net loss of approximately $66,745,000 and $3,033,000, respectively. During the three months ended March 31, 2026 and 2025, approximately $(1,282,000) and $554,000, respectively, of cash was (used) / generated by changes in operating account balances of operating assets and liabilities. Non-cash adjustments to reconcile net income / (loss) to net cash used in operating activities were approximately $65,573,000 and $447,000 in the respective periods.
Previous wording
The approximately $(191,330,000) of changes in operating account balances of operating assets and liabilities for the nine months ended September 30, 2025 consisted primarily of approximately: $832,000 of depreciation expense; $304,000 of non-cash amortization of operating lease right-of-use assets; $481,000 of loss on disposal of property and equipment; and $(905,000) of non-cash interest expense primarily associated with our notes payable.
Current wording
The approximately $65,573,000 of non-cash adjustments for the three months ended March 31, 2026 consisted primarily of approximately: $62,110,000 of change in fair value of intangible digital assets; $2,360,000 of realized loss on sale of intangible digital assets; $31,000 of depreciation expense; $124,000 of non-cash amortization of operating lease right-of-use assets; $943,000 of non-cash share-based compensation; and $7,000 of non-cash interest expense primarily associated with our notes payable.
Previous wording
The approximately $(12,238,000) of changes in operating account balances of operating assets and liabilities for the nine months ended September 30, 2024 included approximately: $984,000 of depreciation expense; $365,000 of non-cash amortization of operating lease right-of-use assets; $(8,324,000) of loss on change in fair value of convertible notes; and $313,000 of non-cash interest expense primarily associated with our notes payable, offset by: $3,421,000 of gain on change in fair value of investment; and $1,734,000 of gain on change in fair value of warrant liabilities.
Current wording
The approximately $447,000 of non-cash adjustments in the three months ended March 31, 2025 included approximately: $297,000 of depreciation expense; $96,000 of non-cash amortization of operating lease right-of-use assets; and $50,000 of non-cash interest expense primarily associated with our notes payable.
Previous wording
During the nine months ended September 30, 2025 and 2024, net cash provided by (used in) investing activities was approximately -$20,947,000 and $(27,000), respectively, related primarily to the purchase of property and equipment, net of amounts related to proceeds from sale of assets.
Current wording
During the three months ended March 31, 2026 and 2025, net cash provided by / (used in) investing activities was approximately $2,312,000 and $65,000, respectively, from the approximately $2,267,000 proceeds from sale of intangible digital assets in the three months ended March 31, 2026, and otherwise related primarily to the purchase of property and equipment, net of amounts related to proceeds from sale of assets in both periods.
Previous wording
September 30, 2025 were primarily comprised of approximately: $730,000 from the sale of common stock under the ELOC; $2,917,000 from the sale of Series B Preferred Stock (and warrants for the first two non-ELOC Investor subscriptions); offset by repayment of notes payable of $7,821,000. The cash proceeds received in the nine months ended September 30, 2024 of approximately $6,210,000 were related to approximately: proceeds from convertible notes of $3,656,000 (of which approximately $1,100,000 was from a related party); $695,000 proceeds from notes payable; offset by deferred transaction costs associated with our IPO of $23,000; and repayment of notes payable of $139,000.
Current wording
During the three months ended March 31, 2026 and 2025, net cash provided by / (used in) financing activities was approximately $(11,000) and $1,612,000, respectively. The cash used in the three months ended March 31, 2026 of approximately $11,000 was used for the repayment of notes payable. The cash proceeds received in the three months ended March 31, 2025 were primarily comprised of approximately: $232,000 from the sale of common stock under the ELOC; $1,680,000 from the sale of Series B Preferred Stock (and warrants for the first two non-ELOC Investor subscriptions); offset by repayment of notes payable of $300,000.
Showing the first 40 of 44 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
On September 18, 2025, the stockholders approved an amendment to our Second Amended and Restated Certificate of Incorporation, as amended, 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 or preferred stock or changing the par value per share of our common stock, and to authorize the Company’s Board of Directors (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 16, 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 in this filing as of and for all periods presented also reflect the effect of that stock split unless otherwise noted.
Current report — wording carried from elsewhere
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
Rearranged previous paragraphs (11)
Previous report — wording carried elsewhere
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 report — wording carried elsewhere
Comparison of the Results of Operations for the Nine Months Ended September 30, 2025 and 2024
Previous report — wording carried elsewhere
Net Revenues - Crypto and Related Business
Previous report — wording carried elsewhere
The approximately $457,000 decrease in net products cost of sales period over period is further detailed as follows:
Previous report — wording carried elsewhere
Gross Profit - Analysis of Exclusion of Unabsorbed Overhead - Whiskey Business
Previous report — wording carried elsewhere
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 $1,539,000 and $2,276,000 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of approximately $737,000, or 32.4%, period over period, and included:
Previous report — wording carried elsewhere
Gross Profit — Crypto and Related Business
Previous report — wording carried elsewhere
Gross Profit Analysis — Crypto and Related Business
Previous report — wording carried elsewhere
Gross Margin numbers above are based on the total revenues for the nine months ended September 30, 2025 and 2024 as follows:
Previous report — wording carried elsewhere
Change in fair value of intangible digital assets resulted in a gain of approximately $245,841,000 for the nine months ended September 30, 2025 (based on a closing price on September 30, 2025 of $8.54 per $IP Token), compared to $0 for the nine months ended September 30, 2024, as we began recognizing fair value adjustments on $IP Tokens in the current quarter. The gain was primarily attributable to favorable market movements in the quoted price of $IP Tokens held for investment, including approximately $275,699,823 related to tokens acquired in the quarter and remeasured at higher fair values. We measure fair value using quoted prices in our principal market 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.
Previous report — wording carried elsewhere
Net Cash Used in Investing Activities