IPST 10-K & 10-Q changes, risk factors and insider trading
Ip Strategy Holdings, Inc. · Nasdaq · Beverages · CIK 1788230 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “We have a history of losses and our profitability may be subject to large swings in the future due to changes in the value of the $IP Tokens we own based on their value in the market.”
New heading “Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our $IP Token holdings. Moreover, our quarterly operating results, revenues, and expenses may fluctuate significantly, which could have an adverse effect on the market price of our common stock.”
New heading “The release of lockups on outstanding $IP Tokens, and the increase in the supply of $IP Tokens in circulation, may have an adverse impact on the market price of $IP Tokens, which could adversely affect our business, financial condition and results of operations.”
New heading “Risks associated with our net operating loss (“NOL”) carryforwards, tax liabilities and fluctuations between reporting periods could adversely affect our results of operations and financing costs and the market price of our common stock.”
New heading “Certain previous sales made under our now closed equity line of credit may adversely affect our business, market perception and stock price.”
New heading “There is a risk that the Cryptocurrency Treasury Reserve Policy we adopted, as it may be amended from time to time, does not adequately address risks regarding the acceptance, acquisition, handling, storage, use, and disposition of cryptocurrencies, which could create a number of risks for us and our stockholders”
New heading “We may enter into partnerships, co-branding arrangements, licensing agreements, co-location, joint branding or other collaborative arrangements with other brands, producers, partners or celebrities which could distract from our core business plans, create new risks for our company or otherwise dilute our efforts at growing the value of our company or our brands.”
New heading “Global conflicts and geopolitical tensions could increase cybersecurity risks and disrupt our operations, which could adversely affect our business, financial condition and results of operations.”
New heading “Risks Related to Our Cryptocurrency Treasury Reserve Strategy and $IP Tokens”
New heading “In relation to our acquisition, accumulation, holding, storing, selling, transferring or otherwise using any cryptocurrencies, there is a risk that rules or regulations could change, impacting the value of any such cryptocurrencies we hold and our ability to continue to use them or how we recognize, use and value them.”
New heading “Declines in the broader cryptocurrency market could adversely affect the $IP Token, our business and the value of our digital assets.”
New heading “A principal component of our cryptocurrency treasury reserve policy is the acquisition of $IP Tokens, the price of which has been, and will likely continue to be, highly volatile. Our operating results and share price may significantly fluctuate due to the highly-volatile nature of the price of such digital assets and erratic market movements.”
New heading “We have engaged, and plan to continue to engage, in derivatives transactions, including for the purpose of generating yield by the sale of covered call options on our $IP Tokens, and such transactions may expose us to material risks that could adversely impact our business, operating results and financial condition.”
New heading “Our common stock may trade at a substantial premium or discount to the value of the $IP Tokens we hold, and our stock price may be more volatile than the price of $IP Tokens.”
New heading “$IP Tokens and other digital assets are novel assets and are subject to significant legal, commercial, tax, regulatory and technical uncertainty, which could materially adversely affect our financial position, operations and prospects.”
New heading “Our shift towards an $IP-focused strategy requires substantial changes in our day-to-day operations and exposes us to significant operational risks.”
New heading “We plan to purchase additional digital assets using primarily proceeds from equity and debt financings, but we may be unable to obtain such financings on favorable terms.”
New heading “In connection with our focus on $IP Tokens, we expect to interact with various smart contracts deployed on the Story Network, which may expose us to risks and technical vulnerabilities.”
New heading “Transactions using $IP Tokens or on the Story Network require the payment of “gas fees,” which are subject to fluctuations that may result in high transaction fees.”
New heading “Changes in regulatory interpretations could require us to register as a money services business or money transmitter, leading to increased compliance costs or operational shutdowns.”
New heading “There is a possibility that $IP Tokens may be classified as a “security.” If $IP Tokens are classified as a “security,” that would subject us to additional regulation and could materially impact the operations of our treasury strategy and our business.”
New heading “The SEC-CFTC Memorandum of Understanding dated March 11, 2026 establishes a framework for heightened interagency coordination on crypto asset regulation and enforcement that could materially affect the regulatory treatment of $IP Tokens and our treasury strategy.”
New heading “If we were deemed to be an investment company under the Investment Company Act, applicable restrictions likely would make it impractical for us to continue segments of our business as currently contemplated.”
New heading “The availability of spot exchange-traded products (“ETPs”) for digital assets may adversely affect the market price of our listed securities.”
New heading “We are not subject to legal and regulatory obligations that apply to investment companies such as mutual funds and exchange-traded funds, or to obligations applicable to investment advisers.”
New heading “Legislative or regulatory change regarding the regulation of “commodities” by the CFTC and the regulation of digital assets as “digital commodities” could subject us to additional regulatory burdens and oversight by the CFTC and could adversely affect the market price of $IP Tokens and the market price of our listed securities.”
New heading “We may be deemed to be a “commodity pool” under CEA and CFTC Rules as a result of our commodity interest trading, which could have a material adverse effect on our business, financial condition and results of operations.”
New heading “Due to the unregulated nature and lack of transparency surrounding the operations of many digital asset trading venues, digital asset trading venues may experience greater fraud, security failures or regulatory or operational problems than trading venues for more established asset classes, which may result in a loss of confidence in digital asset trading venues and adversely affect the value of digital assets, and our financial position, operations and prospects.”
New heading “Digital asset holdings are less liquid than cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.”
New heading “Transacting in digital assets exposes us to counterparty credit risk.”
New heading “Cybersecurity risks associated with digital assets and decentralized protocols could result in significant losses.”
New heading “Intellectual property disputes related to the open-source structure of digital asset networks exposes us to risks related to software development, security vulnerabilities and potential disruptions to digital asset technology could threaten our ability to operate.”
New heading “The lack of legal recourse and insurance for digital assets increases the risk of total loss in the event of theft or destruction.”
New heading “We face risks relating to the custody of our digital assets, including the loss or destruction of private keys required to access our digital assets and cyberattacks or other data loss relating to our digital assets, including smart contract related losses and vulnerabilities.”
New heading “The use of digital asset custodians could expose us to additional risks related to custodian insolvency, as well as cybersecurity and concentration risk.”
New heading “We will face risks relating to the custody of our digital assets. If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our digital assets, or if our private keys are lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our digital assets and our financial condition and results of operations could be materially adversely affected.”
New heading “The irreversibility of digital asset transactions exposes us to risks of theft, loss and human error, which could negatively impact our business.”
New heading “We are subject to significant competition in the growing digital asset industry and our business, operating results, and financial condition may be adversely affected if we are unable to compete effectively.”
New heading “The emergence or growth of other digital assets, including those with significant private or public sector backing, including by governments, consortiums or financial institutions, could have a negative impact on the price of $IP Tokens and adversely affect our securities.”
New heading “We may be subject to risks associated with the provision and use of validator services.”
New heading “Complex valuation controls and benchmark dependence may lead to restatements or control deficiencies.”
New heading “The Story Network is a relatively new protocol and could be subject to risks inherent in new technologies.”
New heading “Because of the pseudonymous nature of blockchain transactions, we may inadvertently and without knowledge, directly or indirectly engage in transactions with or for the benefit of prohibited persons under U.S. or foreign sanctions laws.”
New heading “We may be subject to securities or corporate governance litigation, which is expensive and could divert our management’s attention.”
New heading “Risks Related to Our Craft Spirits Business”
New heading “We could see structural changes in the amount of alcohol purchased and consumed in our markets as the use of GLP-1 and similar weight loss drugs increase among the population, which could create more pricing competition or an overall reduction in sales and revenues associated with alcohol.”
Removed heading “We have a history of losses, anticipate increasing our operating expenses in the future and may not achieve or maintain profitability in the future.”
Removed heading “As we have incurred recurring operating losses and negative cash flows from operations since our inception, there is no assurance that we will be able to continue as a going concern absent additional financing, which we may not be able to obtain on favorable terms, or at all.”
Removed heading “Our future capital needs are uncertain, and we may need to raise additional funds to support those needs.”
Removed heading “We may continue to have limited capital depending on our ability to raise additional equity or debt financing, how our funds are managed and how well our products and services continue to be received in the marketplace.”
Removed heading “Our senior secured lender may accelerate our indebtedness and foreclose on our assets.”
Removed heading “Higher interest rates could adversely affect our ability to obtain debt financing and our operating results.”
Removed heading “We could be materially adversely affected by health concerns such as, or similar to, the COVID-19 pandemic, food-borne illnesses, and negative publicity regarding food quality, illness, injury or other health concerns.”
Removed heading “Our current working capital deficiency, incurrence of significant losses and required additional funding to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern. Furthermore, our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited consolidated financial statements included in this filing.”
Removed heading “We may be subject to litigation from vendors for unpaid invoices, which could materially affect our business, results of operations, financial condition or liquidity.”
Removed heading “Temperature issues in fermentation vessels, bacteria or other contamination could negatively affect the fermentation process for our products.”
Removed heading “Our recent acquisition of Thinking Tree Spirits could present several challenges or potential liabilities that could adversely affect our business, including the following:”
Removed heading “Certain former Thinking Tree Spirits shareholders opposed our acquisition of that company and filed a notice exercising dissenters’ rights. Two of the dissenters claims have been resolved and we are awaiting final resolution of the third.”
Removed heading “We may enter partnerships, co-branding arrangements, licensing agreements, co-location, joint branding or other collaborative arrangements with other brands, producers, partners or celebrities which could distract from our core business plans, create new risks for our company or otherwise dilute our efforts at growing the value of our company or our brands.”
Removed heading “We may be subject to claims for personal injuries at our facilities.”
Removed heading “There is a risk that we adopt a Bitcoin Treasury Policy that guides the acceptance, acquisition, handling, storage, use and disposition of bitcoin and other cryptocurrencies, which could create a number of risks for us and our stockholders.”
Removed heading “We could be faced with risks associated with cyberattacks or digital theft by non-state actors or countries since the Russian invasion of Ukraine and the terrorist attacks by Hamas on Israel, past attacks by Iran, the resulting responses by Israel, recent bitcoin theft by hackers in North Korea, or other similar threats.”
Removed heading “Global conflicts could increase our costs, which could adversely affect our operations and financial condition.”
Removed heading “We are subject to state-specific regulatory risks related to our location in Eugene, Oregon.”
Removed heading “In the event we begin to acquire, accumulate, hold, store, sell, transfer or otherwise use any cryptocurrencies, there is a risk that rules or regulations could change, impacting the value of any such crypto currencies we hold and our ability to continue to use them or how we recognize, use and value them.”
Removed heading “The price of our common stock fell below the $1.00 per share minimum trading requirement necessary for continued listing on the Nasdaq Capital Market. If we fail to regain or maintain compliance with the minimum listing requirements, our common stock will be subject to delisting. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if our common shares are delisted.”
Largest changes
“We acknowledge, however, that the SEC, a federal court or another relevant entity could take a different view. The regulatory treatment of $IP Tokens is such that it has drawn significant attention from legislative and regulatory bodies, including the SEC and the CFTC. The application of securities laws to the specific facts and circumstances of digital assets is complex and subject to change. …”see in full comparison
“The techniques used to obtain unauthorized system access are constantly changing and often are not recognized until launched against a target. As such, we or our vendors may be unable to anticipate these techniques or implement sufficient preventative or remedial measures. If we are unable to efficiently and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our systems may become more vulnerable to unauthorized access. …”see in full comparison
“We could be faced with risks associated with cyberattacks or digital theft by non-state actors or countries since the Russian invasion of Ukraine and the terrorist attacks by Hamas on Israel, past attacks by Iran, the resulting responses by Israel, recent bitcoin theft by hackers in North Korea, or other similar threats.”see in full comparison
“OFAC and other governmental authorities have significant discretion in the interpretation and enforcement of sanctions laws and regulations. Moreover, economic sanctions laws and regulations continue to evolve, often with little or no notice, which could raise operational or compliance challenges. If it is determined that we have transacted with prohibited persons, even inadvertently, this could result in substantial reputational harm, fines or penalties, and costs associated with governmental inquiries and investigations. …”see in full comparison
“The price of our common stock fell below the $1.00 per share minimum trading requirement necessary for continued listing on the Nasdaq Capital Market. If we fail to regain or maintain compliance with the minimum listing requirements, our common stock will be subject to delisting. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if our common shares are delisted.”see in full comparison
“Attacks upon systems across a variety of industries, including the digital asset industry, are increasing in frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including state actors. …”see in full comparison
Full comparison: every changed paragraph (375)
Investing in our securities involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this filing, including our financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our securities. The occurrence of any of the following risks could have a material and adverse effect on our business, reputation, financial condition, results of operations and future growth prospects, as well as our ability to accomplish our strategic objectives. As a result, the trading price of our securities could decline, and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and stock price. A summary of the risks discussed in greater detail in this Item 1A is as follows:
•Our operating history and evolving business make it difficult to evaluate our prospects and risks.
•We have a history of losses and may not achieve or maintain profitability in the future.
•Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our $IP Token holdings. Moreover, our quarterly operating results, revenues, and expenses may fluctuate significantly, which could have an adverse effect on the market price of our common stock.
•Actions related to cryptocurrencies, including but not limited to, accepting, accumulating or acquiring $IP Tokens or other cryptocurrencies, and risks associated with their volatility, stability, price, utilization, adoption, recognition, regulation, taxation, storage, handling and security of transacting, holding or using such cryptocurrencies in our business, could impact our financial condition, liquidity and profitability.
•The price of $IP Tokens has been highly volatile and such volatility may adversely affect our results of operations and stock price.
•$IP Tokens and other digital assets are novel assets and are subject to significant legal, commercial, tax, regulatory and technical uncertainty, which could materially adversely affect our financial position, operations and prospects.
•In connection with our focus on $IP Tokens, we expect to interact with various smart contracts deployed on the Story Network, which may expose us to risks and technical vulnerabilities.
•There is a possibility that $IP Tokens may be classified as a “security,” which would subject us to additional regulation and could materially impact the operations of our treasury strategy and our business.
•We face risks relating to the custody of our digital assets, including the loss or destruction of private keys required to access our digital assets and cyberattacks or other data loss relating to our digital assets, including smart contract related losses and vulnerabilities.
•We could be materially adversely affected by health concerns such as, or similar to, the COVID-19 pandemic, food-borne illnesses, and negative publicity regarding food quality, illness, injury or other health concerns.
•We face experienced and well capitalized competition and could lose market share to these competitors.
•We could fail to attract, retain, motivate or integrate our personnel.
•We may not be able to maintain and continue developing our reputation and brand recognition.
•We could fail to maintain our company culture as we grow, which could negatively affect our business.
•Our growth strategy will subject us to additional costs, compliance requirements, and risks.
•We could fail to effectively manage our growth and optimize our organizational structure.
•There may be uncertainties with respect to the legal systems in the jurisdictions in which we operate.
•As we expand our product offerings, we may become subject to additional laws and regulations.
•We may be subject to claims, lawsuits, government investigations, and other proceedings.
•Our failure to protect or enforce our intellectual property rights could harm our business.
•Claims by others that we infringed their intellectual property rights could harm our business.
•Changes in laws relating to privacy and data protection could adversely affect our business.
•We are subject to changing laws regarding regulatory matters, corporate governance, and public disclosure that could adversely affect our business or operations.
•We could lose momentum with our TBN efforts, or fail to secure substantial numbers of new agreements, or fail to maintain the agreements we already have. As it relates to TBN, we could also see a degradation of our brand if we cannot ensure product quality and consistency throughout all locations.
•Our failure to maintain an effective system of internal control over financial reporting could adversely affect our ability to present accurately our financial statements and could materially and adversely affect us, including our business, reputation, results of operations, financial condition or liquidity.
We have a history of losses and our profitability may be subject to large swings in the future due to changes in the value of the $IP Tokens we own based on their value in the market.
We have a history of losses, anticipate increasing our operating expenses in the future and may not achieve or maintain profitability in the future.
We have a history of operating losses, including operating losses of $(14,918,810)$133,944,431 and $(11,264,559)$14,918,810 for the years ended December 31, 20242025 and 2023,2024, respectively, and have incurred net losses in each prior year since our inception other than in: 2021, the year in which we sold a controlling interest in our B S B — B rown S ugar B ourbon (“Flavored Bourbon”) brand.brand; Weand 2024, when we reported a $14.0 million change in fair value of convertible notes. While we had an accumulatedoperating deficitprofit of $74,134,018$1,855,202 and totalnet stockholders’equityincome of $791,767$196,263,893 atfor the three month period ended September 30, 2025 (due primarily to our recognition of crypto and other related revenues from our recently-created validator operations and staking rewards) and as a result of the increase in the fair value of our $IP Token investment, for which we recognized a $245,841,410 gain on change in fair value of intangible digital assets, we also recognized an offsetting $364,041,359 loss on change in fair value of intangible digital assets for the three months ended December 31, 20242025 (afterdue taking into account all convertible note conversions andto the recognitionclosing price of the associated$IP fairTokens valuewe changes),held at that date. Because the pricing of the $IP Token in the marketplace is volatile and subject to swings, there can be no assurance if or whenthat we will continue to produce sufficient revenue from our $IP Tokens and related operations and/or spirits operations, or to recognize continued or consistent gains on our $IP Token treasury reserve, to support our costs. We must continue to generate and sustain higher revenue levels (and/or lower cost levels) in future periods to becomeremain profitable,profitable and, even if we do, we may not be able to maintain or increase our profitability. We expect to continue to incur losses for the foreseeable future as we expend substantial financial and other resources on, among other things:
While we recently implemented structural changes in our spirits segment to reduce expenses and overhead, there can be no assurance that such changes will make our spirits segment profitable. In addition, we expect to continue to incur substantial gains and losses from changes in the fair value of our intangible digital assets for the foreseeable future. Our $IP Token validation revenue is also expected to fluctuate as the market value of the $IP Tokens, in which the revenue is paid, fluctuates. We expect to continue to expend substantial financial and other resources on, among other things:
•sales and marketing,marketing in our spirits segment, including expanding our direct sales organization and marketing programs, particularly for larger customers and for expanding our Tribal Beverage Network efforts;
•investments in our distillationspirits andsegment, production team, andfor the development of new formulations and enhancements of our existing brands;
•expansion of our ready-to-drink canned cocktails into national distribution;
•hiring additional personnel to add to our production teams if we can successfully increase our wholesale sales; and
•general administration, including legal, accounting and other expenses related to being a public company.company;
•Increases in insurance premiums related to our digital asset treasury holdings and strategy; and
•specific spirits-related wind-down expenses, equipment or tenant improvement write downs, or adjustments for retail locations we have closed or plan to close or equipment we have taken or plan to take offline as we reduce our real estate footprint, move to third-party production and work to get asset-light.
Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our $IP Token holdings. Moreover, our quarterly operating results, revenues, and expenses may fluctuate significantly, which could have an adverse effect on the market price of our common stock.
Our historical financial statements for the year ended December 31, 2024 do not reflect the potential variability in earnings that we experienced in the year ended December 31, 2025 or may experience in the future from holding or selling significant amounts of $IP Tokens.
The price of $IP Tokens is subject to dramatic price fluctuations and is highly volatile. For example, from February 13, 2025 (the date $IP Tokens first became available on digital asset trading platforms) through March 31, 2026, the price of $IP Tokens, as reported by Coinbase.com, ranged from a low of $0.516 to a high of $14.908. We determine the fair value of our $IP Tokens based on prices reported by Coinbase.com, and pursuant to Accounting Standards Update No. 2023-08 (“ASU 2023-08”), we are required to measure our $IP Token holdings at fair value in our statement of financial position and to recognize gains and losses from changes in the fair value of our $IP Tokens in our statement of operations each reporting period, which may create significant volatility in our reported results of operations and increase or decrease the carrying value of our digital assets, which in turn could have a material effect on the market price of our common stock. Conversely, any sale of $IP Tokens at prices above our carrying value for such assets would create a gain for financial reporting purposes even if we would otherwise incur an economic or tax loss with respect to such transaction, which also may result in significant volatility in our reported results of operations.
Because we intend to purchase additional $IP Tokens in future periods and increase our overall holdings of $IP Tokens, we expect that the proportion of our total assets represented by our $IP Token holdings will increase in the future. As a result, volatility in our results of operations may be significantly more than what we experienced in prior periods.
For many reasons, including those described below, our operating results, revenues, and expenses may vary significantly in the future from quarter to quarter. These fluctuations could have an adverse effect on the market price of our listed securities.
Our quarterly operating results may fluctuate, in part, as a result of:
•fluctuations in the market price of the $IP Token, of which we have significant holdings and with respect to which we expect to continue to make significant future purchases, and potential fair value changes associated therewith;
•any sales by us of our $IP Tokens at prices above or below their carrying value, which would result in our recording gains or losses upon the sale of our $IP Tokens;
•the incurrence of tax liabilities on future unrealized gains on our $IP Tokens;
•regulatory, commercial, and technical developments related to $IP Tokens or the Story blockchain, or digital assets more generally;
•the impact of war, terrorism, infectious diseases (such as COVID-19), natural disasters and other global events, and government responses to such events, on the global economy and the market for and price of $IP Tokens;
•our profitability and expectations for future profitability; and
•increases or decreases in our unrecognized tax benefits.
We base our operating expense budgets on expected revenue trends and strategic objectives. Many of our expenses, such as office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending quickly enough to offset any unexpected shortfall in our cash flow. Accordingly, we may be required to take actions to pay expenses, such as selling $IP Tokens or using proceeds from equity or debt financings, some of which could cause significant variation in our operating results in any quarter.
Based on the above factors, we believe quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is possible that in one or more future quarters, our operating results may be below the expectations of public market analysts and investors. In that event, the market price of our common stock may fall.
The release of lockups on outstanding $IP Tokens, and the increase in the supply of $IP Tokens in circulation, may have an adverse impact on the market price of $IP Tokens, which could adversely affect our business, financial condition and results of operations.
A substantial portion of the total number of $IP Tokens initially created has been, and will continue to be, released into circulation, which may create significant downward pressure on the market price of $IP Tokens, which, in turn could adversely affect our revenues and liquidity position.
Unlike certain digital assets that are introduced into circulation gradually through mining or similar mechanisms, one billion $IP Tokens were created at the launch of the Story Network, with approximately 75% of the $IP Tokens created initially subject to lock-up restrictions. These tokens are being released over time pursuant to predetermined vesting schedules, including monthly unlocks over periods of up to four years. In addition, validator rewards continue to introduce new $IP Tokens into circulation, resulting in a net increase of approximately 25.5 million $IP Tokens since inception (net of token burns). As of March 31, 2026, approximately 352 million $IP Tokens were in circulation.
As lock-up periods expire, including those applicable to allocations held by the initial Story Network ecosystem participants, the Story Foundation, early backers and core contributors, a significant number of $IP Tokens may become freely tradable. The release of these tokens from contractual lockups, particularly those held by early investors or insiders, could result in substantial selling activity, whether actual or anticipated. This increased supply of liquid $IP Tokens may exceed market demand and lead to sustained or accelerated declines in the market price of $IP Tokens.
A decline in the market price of $IP Tokens would have several adverse effects on our business and financial condition:
•Validator Yield Revenue Risk. Our revenues derived from validator activities are directly tied to the value of $IP Tokens earned as rewards. Although token emissions may continue, any decrease in token price would reduce the dollar value of those rewards, potentially materially impacting our revenue and profitability even if Story Network participation remains stable or increases.
•Covered Call or Other Trading Strategy Risk. We may generate income through covered call strategies involving $IP Tokens, and we may expand into other income-generating strategies in the future using our $IP Tokens. Downward price pressure, increased volatility, or shifts in implied volatility resulting from token unlock events could reduce option premiums, increase the likelihood of unfavorable exercise outcomes, or impair our ability to effectively execute such strategies. Additionally, persistent price declines of the $IP Token may limit the willingness of counterparties to engage in options transactions or reduce the available liquidity in derivatives markets tied to $IP Tokens.
•Liquidity and Treasury Risk. Our liquidity position is partially dependent on the value and marketability of our $IP Token holdings. A sustained decline in the market price of $IP Tokens due to increased circulating supply or otherwise could reduce the realizable value of our digital asset treasury, constrain our ability to convert tokens into fiat or other assets without significant market impact, and impair our ability to meet operational or strategic funding needs.
Management's Discussion & Analysis (MD&A)
New heading “Our Crypto and Related Business”
New heading “Our Spirits Business”
New heading “Market Price of the $IP Token”
New heading “Development of our Cryptocurrency Validator Business”
New heading “Change in Fair Value of Intangible Digital Assets”
New heading “Gain on Extinguishment of Debt”
New heading “Restructure Costs”
New heading “Section 382 Ownership Changes and Limitation on Net Operating Loss Carryforwards”
New heading “Net Revenues - Crypto and Related Business”
New heading “Cost of Revenue — Crypto and Related Business”
New heading “Gross Profit — Crypto and Related Business”
New heading “Gross Profit Analysis — Crypto and Related Business”
New heading “Net Revenues - Spirits Business”
New heading “Cost of Revenue — Spirits Business”
New heading “Gross Profit -- Spirits Business”
New heading “Gross Profit - Analysis of Exclusion of Unabsorbed Overhead - Spirits Business”
New heading “Gross Profit Analysis - Spirits Business”
New heading “Gain / (Loss) on Intangible Digital Assets”
New heading “Restructure Costs”
New heading “Gain on Extinguishment of Debt”
New heading “Reverse Stock Splits”
New heading “Restructuring and Closure of Tasting Rooms; Production Transition”
Removed heading “Continued Investment and Innovation”
Removed heading “Line of Credit and Debt Agreements”
Largest changes
“From time to time, we were out of compliance with various financial and other debt covenants under the Silverview Loan, which is discussed below, with respect to our failure to meet certain financial thresholds and tests and the furnishing of some of our consolidated financial statements for quarterly periods in 2024 prior to the closing of our IPO and for the year ended December 31, 2023. …”see in full comparison
“We have experienced inflation in some of our raw inputs, particularly in grains, bottles, cans and barrels. Some of these price increases began to moderate beginning in the second half of 2021, such as in grain. Grain prices increased due to supply chain issues associated with the war in Ukraine and the increased input cost of fertilizers tied to high natural gas prices. Grain prices have moderated as some additional sources of supply opened up and the market price for grain has come down from its recent historic highs. …”see in full comparison
“While constraints in the freight market caused historically high shipping rates, those shipping rates were returning to their previous levels until the subsequent bankruptcy announcements by several freight companies in the U.S. announced over the lat two quarters. Those bankruptcies, when combined with high diesel prices and a lack of licensed drivers, continued to cause uncertainty in the freight markets. More recently, we have seen freight prices moderate. …”see in full comparison
“The original Silverview Loan contained certain financial and other debt covenants that, among other things, imposed certain restrictions on indebtedness, liens, investments and capital expenditures. The financial covenants required that, at the end of each applicable fiscal period, as defined pursuant to the Silverview Loan agreement, we either had (i) an EBITDA interest coverage ratio up to 2.00 to 1.00, or (ii) a cash interest coverage ratio of not less than 1.25 to 1.00. …”see in full comparison
“If we do not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, our common stock will be subject to delisting. Delisting from Nasdaq could adversely affect our ability to consummate a strategic transaction and raise additional financing through the public or private sale of equity securities, and would significantly affect the ability of investors to trade our securities and negatively affect the value and liquidity of our common stock. …”see in full comparison
“We will continue to evaluate its liquidity position, operating performance, and market conditions and may take additional actions, as necessary, to preserve liquidity and support our strategic objectives, including the disposition of digital assets for cash. Based on the foregoing, we believe we will continue as a going concern for at least the next twelve months from the date of issuance of the financial statements.”see in full comparison
Full comparison: every changed paragraph (233)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this filing and the section of this filing entitled “Information about Heritage.”filing. 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,IP Strategy,” “we,” “us,” “our,” or the “Company” refer to HeritageIP DistillingStrategy Holding Company,Holdings, Inc. and its subsidiaries.consolidated subsidiaries, including its principal operating subsidiary, Heritage Distilling Company, Inc. (“Heritage,” “Heritage Distilling” or “HDC”).
In connection with the development of our cryptocurrency treasury reserve policy, on August 15, 2025, we completed a $223.8 million private investment in public equity (“PIPE”) transaction wherein we ended up owning 53.2 million $IP Tokens in our digital asset treasury. Details of the PIPE transaction are summarized below. 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.
In our spirits segment we produce, market and sell super premium whiskeys and premium flavored whiskeys. We believe we have developed differentiated products that are responsive to consumer desires for rewarding and novel taste experiences. We sell our spirits products through our DtC channel, via wholesale distributors and through TBN partners.
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.
Our Spirits Business
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.
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.
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.
Out of the more than 2,600 craft producers in North America, we have been recognized with more awards for our products from the American Distilling Institute, the leading independent spirits association in the U.S., than any other North American craft distiller for each of the last ten years. Plus, numerous other Best of Class, Double Gold and Gold medals from multiple national and international spirits competitions. We are one of the largest craft spirits producers on the West Coast based on revenues and are developing a national reach in the U.S. through traditional sales channels (wholesale, on-premises and e-commerce) and our unique and recently-developed Tribal Beverage Network (“TBN”) sales channel. Based upon our revenues and our continued track record of winning industry awards in an increasingly competitive environment, we believe we are one of the leading craft spirits producers in the United States.
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.
Our growth strategy is based on three primary areas. First, we are focused on growing our direct-to-consumer (“DtC”) sales via shipping to legal purchasers to their homes where allowed. We currently use a three-tier compliant, third-party platform to conduct these sales and deliveries in 46 states in which approximately 96.8% of the U.S. population reside. This allows us to develop a relationship directly with the consumer through higher-margin sales while collecting valuable data about our best performing products. We can then use this data to target the consumer based on location, age, key demographics and product types. With the data collected, we can also retarget and resell to them generating more revenue.
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.
Third, we are focused on expanded growth of our collaboration with Native American tribes through the TBN model we created. In concert with tribal partners, this sales channel includes Heritage-branded micro production hubs, Heritage-branded stores and tasting rooms and the sale of our products and new tribally-branded products. In the typical TBN collaboration, the tribes will own these businesses and we will receive a royalty on gross sales through licenses we grant to use our brands, products, recipes, programs, IP, new product development, on-going compliance support and the other support we provide. The TBN is expected to form a network of regional production hubs that will support product trials and sampling, and will generate sales of finished, intermediate and bulk spirits depending on location, equipment and market. Importantly, because these premium spirits will be produced locally, we believe the TBN will promote the positioning of our brands as local and regional. We expect that, as the brands grow and the TBN footprint expands, there will be an important synergy with increased adoption and growth through our wholesale channels in the regions where the TBN locations are driving trial and awareness. Similarly, as demand for our products grows through our wholesale channels, there should be a positive effect on the demand for our products through the tribal distilleries.
Market Price of the $IP Token
We use the fair value method of accounting to report our operating results, in accordance with U.S. GAAP. We currently own approximately 52.2 million $IP Tokens, 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 consolidated statement of operations. For each reporting period, our 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 52.2 million, every $1.00 increase in the market value of a $IP Token will represent a gain of approximately $52.2 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 $52.2 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.
Previous to August 2025, most of our revenue was generated by retail sales of our spirits in our retail tasting rooms, which we closed on December 31, 2025, wholesale spirits sold through distributors, and spirits sold through our eCommerce platform. 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.
Development of our Cryptocurrency Validator Business
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.
To date, most of our revenue has been generated by retail sales of our spirits in our retail tasting rooms and through our eCommerce platform. Having completed the construction of our existing production facilities and contracted with established distributors, we now intend to focus our production capacity, record of success in developing award-winning products, and a portion of the net proceeds from our initial public offering (“IPO”) on the growth of our wholesale channel. Going forward, we expect to sell our products in a variety of vertical industry markets in partnership with our distributors across states and geographic regions. Pricing may vary by region due to market-specific dynamics and various layers of taxes applied by the states at the different steps of distribution and retail sales. As a result, our financial performance will depend, in part, on the mix of our sales in different markets during a given period and our ability to scale efficiently.
We have experienced inflation in some of our raw inputs, particularly in grains, bottles, cans and barrels. Some of these price increases began to moderate beginning in the second half of 2021, such as in grain. Grain prices increased due to supply chain issues associated with the war in Ukraine and the increased input cost of fertilizers tied to high natural gas prices. Grain prices have moderated as some additional sources of supply opened up and the market price for grain has come down from its recent historic highs. Aluminum prices for cans and bottles increased in 2021 and early 2022, but began to decline in the second half of 2022, and we were able to achieve more favorable pricing based on larger order quantities in late 2022. In the first quarter of 2025, the Trump administration announced the imposition of 25% tariff on aluminum, which could increase prices for aluminum cans. In late March and early April the Trump administration instituted blanket tariffs of varying amounts on virtually all countries, resulting in market and consumer apprehension and retaliatory tariffs from many nations on American made goods. We remain firm that our exposure to the cost of tariffs on our direct inputs remains low, and retaliatory tariffs on American products has no impact on our current customer base or revenue as we do not export. It is too soon to tell what the trickle down or secondary cost impacts will be for our general business operations as a result of the changing tariff landscape.
While glass bottle prices also increased between 2022 and 2023, we were able to lock in pricing for two years at favorable prices in 2021. In 2023, our suppliers indicated their price increases were moderating and their supply chains were returning to normal. During the uncertain periods in 2021 and 2022, we elected to take possession of glass bottle quantities designed to last two years at favorable prices, insulating these costs to a measurable degree moving into 2024. The cost of glass bottles did not materially appreciate in 2024. Our suppliers source some of our glass bottles from markets in Asia subject to recent tariff increases announced by the Trump administration in the first quarter of 2025. We do not believe these tariffs will materially impact our gross margin as these glass bottles are used to make our most premium and highest priced products.
The cost of oak barrels necessary for the aging of spirits escalated by approximately 30% since the beginning of 2022 due to the growing demand for barrels needed to age whiskey and constraints in the raw oak market. In 2024 those prices began to stabilize.
While constraints in the freight market caused historically high shipping rates, those shipping rates were returning to their previous levels until the subsequent bankruptcy announcements by several freight companies in the U.S. announced over the lat two quarters. Those bankruptcies, when combined with high diesel prices and a lack of licensed drivers, continued to cause uncertainty in the freight markets. More recently, we have seen freight prices moderate. Likewise, employees are facing financial stress as inflation hits them at home, and their desire for more compensation creates higher cost pressures on overall operations absent finding offsetting cost efficiencies. In addition, the annual minimum wage increases for hourly retail and production staff in the states in which we operate are higher than other parts of the U.S. Unlike singular commodity spikes in the recent past due to an isolated incident, or short-term supply chain issues, the confluences of these factors created pressure across all parts of our operations, requiring us to manage each aspect carefully. Finally, we have begun to see a change in the buying habits of consumers who are looking for “experiences” rather than buying “things,” and we believe consumers are electing to buy fewer but more premium items. As a result, we must re-examine how we engage with consumers at retail and online to ensure we stay relevant.
On the positive side, there is an excess of quality aged bourbon in Kentucky in which barrels have accumulated to never before seen levels as investors piled into the idea of owning barrels of whiskey and bourbon to capitalize on their price appreciation. As a result of the buildup of inventory, we are seeing prices fall for wholesale barrel sales, which works in our favor as we look to expand our Salute Series line of spirits. In some cases, the price for barrels of quality aged Kentucky bourbon in bulk have fallen by more than half, reducing our input costs for our most premium products. We view this as a tremendous arbitrage opportunity that works in our favor just as we expand our offerings under the Salute Series.
We source some labels and printed collateral from trusted suppliers in Canada, and recent tariffs announced by the Trump administration on Canadian imports in the first quarter of 2025 could impact those items. However, these labels and print collateral items typically have a cost ranging from 10 cents to $1.00 each, and because these labels and print items are used for our most expensive and premium products, we do not believe the imposition of tariffs on those items will have a material effect on our gross margin for those products.
Continued Investment and Innovation
Our performance is dependent on our ability to continue to develop products that resonate with consumers. It is essential that we continually identify and respond to rapidly-evolving consumer trends, develop and introduce innovative new products, enhance our existing products, and generate consumer demand for our products. Management believes that investment in beverage product innovation will contribute to long-term revenue growth, especially in the premium and ultra-premium segments.
Net SalesRevenues
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. For the year ended December 31, 2025, we recognized 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 consolidated statements of operations. Revenue is measured based on the number of tokens received and their fair value at contract inception.
Our spirits business net salesrevenues 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.
Cost of SalesRevenue
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 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.
We recognize the spirits business cost of salesrevenue in the same manner that the related revenue is recognized. Our cost of salesrevenue consists of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement costs, fulfillment costs, warehousing costs, and certain allocated costs related to management, facilities and personnel-related expenses associated with supply chain logistics.
Our gross profit for both our crypto and spirits business is the difference between our revenues and cost of sales.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:
•Market conditions that may impact the market value of our investment in intangible digital assets (SIP Tokens);
•Market conditions that impact the market value of the blockchain rewards (staking revenue);
•Staking yields for work performed on the validator;
•The cost of third party computer services that house our validator;
•The volume of tokens that we stake or commit to covered calls, and the terms of the related contracts;
•The volume of third party tokens assigned to our validator;
•Our ability to maintain our costs on the components that go into the manufacture of our products; and
•Seasonal sales offerings or product promotions in conjunction with plans created with our distributors or retail channels.channels;
•Our closure of our tasting rooms; and
•Our closure of our distillery operations and shift to third party production.
We expect our gross marginsprofit and gross margin to fluctuate over time, depending on the factors described above.
Sales and marketing expenses consistthrough December 31, 2025 consisted 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 salesassociates associates,up to the date we closed all retail tasting rooms on December 31, 2025. It also included the executives to whom all general managers report,reported, and the executives whose primary function iswas sales or marketing, and rent and associated costs for running each tasting room.room up through the closing date of December 31, 2025. The expenses includeincluded 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 includeincluded 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 willreduce increasegiven our restructuring of the spirits business. We also expect significant cost reductions in sales and marketing moving forward as wea expandresult ourof headcount,closing openthe newtasting locations in partnership with tribes, expand our wholesale distribution footprintrooms and initiatethe newresulting marketinghead campaigns.count reductions otherwise reported.
As of December 31, 2024,2025, we had outstanding restricted stock units (“RSUs”) that, upon vesting, will settle into an aggregate of 11,064431,566 shares based upon the grant date with a fair value of $157.89, and 234,525 shares based upon the grant date with a fair value of $4.00.$4,150,465.11. We recognized an aggregate of $2,684,995 of previously-unrecognized compensation expense for RSU awards upon completion of our IPO. Included above are an aggregate of 234,525 RSUs to employees, directors and consultants that the Board of Directors approved in May 2024, with a fair grant value of $4.00 per unit. These RSUs contain a double trigger and, upon grant, were deemed to have met their time-based service requirements for vesting. They will settle on the six month anniversary of our initial public offering,offering which was completed in November 2024.(“IPO”).
Change in Fair Value of Intangible Digital Assets
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 consolidated statements of operations. For the year ended December 31, 2025, we recognized a fair value loss of approximately $118,200,000, driven by market fluctuations in the $IP Token. As of December 31, 2025, the fair value of intangible digital assets on our consolidated balance sheet was $91,701,000 using the closing price per $IP Token of $1.72. We continue to hold substantially all $IP Tokens for investment and may stake them periodically.
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, and will continue to be,subsequently remeasured at each reporting date until settled or converted.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 are included in convertible notes on our consolidated balance sheets. The changes in the fair value of the Convertible Notes and related warrants arewere 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 arewere 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.
As of December 31, 20242025 and December 31, 2023,2024, respectively, we had a 12.2%11.8% and 15.1%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%11.8% 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,$14,285,222, with the resulting increase in fair value of $3,421,000$3,421,222 recorded as gain on increase in value of Flavored Bourbon, LLC on our condensed consolidated statement of operations for the six months ended June 30, 2024, and recorded no further adjustment in the value of Flavored Bourbon, LLC through the remainder of 2024.
As of 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).
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 $3,357,027, from the previously recorded $14,285,222 down to $10,928,195 as of December 31, 2025, is the best estimate within a supportable 20%–25% range.
Gain on Extinguishment of Debt
Gain on extinguishment of debt consisted of gain recognized in conjunction with the August 2025 settlement of the Silverview loan, for which approximately $2,611,000 was recognized as gain on settlement. The approximately $12,666,000 in principal and interest due on the loan was paid with approximately $7,092,000 in cash and 200,000 warrants (with a value of approximately $2,964,000).
As of September 30, 2024, the fair value of the convertible notes issued in 2023 and 2024 (the “Whiskey Notes”) and related warrant liabilities, which notes and warrants were exchanged for 2,399,090119,954 shares of common stock and 546,92727,346 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 $5.00$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 2,399,090119,954 shares of common stock and 546,92727,346 prepaid warrants for which the Whiskey Notes were exchangedexchanged, multiplied by the price per share of our common stock of $4.00$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.
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. See also Note 5 to our consolidated financial statements for the years ended December 31, 2024 and 2023 included elsewhere in this Report.
In April 2024, certain of such warrants and the related Convertible Notes were exchanged (contingent upon the consummation of our initial public offering, which occurred on November 25, 2024, which contingency is now lifted) for common stock. The remaining warrants, which remain outstanding subsequent to the closing of our initial public offering, were amended to fix the exercise price at $6.00$120 per share effective upon the closing of our initial public offering, thereby removing the floating price optionality. The fixing of the exercise price allowed us to reclassify the warrant liabilities as equity on a pro forma basis, per ASC Topic 420 as of November 25, 2024 (the date of the our initial public offering).
Restructure Costs
What changed in the latest 10-Q
Risk Factors
As a “smaller reporting company,” we are not required to provide the information required by this Item.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Our Crypto and Related Business”
New heading “Our Spirits Business”
New heading “Restructure Costs”
New heading “Section 382 Ownership Changes and Limitation on Net Operating Loss Carryforwards”
New heading “Net Revenues - Spirits Business”
New heading “Cost of Revenue — Spirits Business”
New heading “Gross Profit -- Spirits Business”
New heading “Gross Profit - Analysis of Exclusion of Unabsorbed Overhead - Spirits Business”
New heading “Restructure Costs”
New heading “Net Cash Provided By / (Used in) Financing Activities”
New heading “Valuation of Warrant Liabilities”
New heading “Valuation of Future Lease Payments”
New heading “Stock-Based Compensation”
Removed heading “Continued Investment and Innovation”
Removed heading “Change in Fair Value of Convertible Notes and Warrant Liabilities”
Removed heading “Changes in Fair Value of Convertible Notes”
Removed heading “Changes in Fair Value of Warrant Liabilities”
Removed heading “Net Sales - Spirits Business”
Removed heading “Cost of Sales — Spirits Business”
Removed heading “Gross Profit — Spirits Business”
Removed heading “Gross Profit - Analysis of Exclusion of Unabsorbed Overhead - Whiskey Business”
Removed heading “Gross Profit Analysis — Spirits Business”
Removed heading “Gain on Extinguishment of Debt”
Removed heading “Comparison of the Results of Operations for the Nine Months Ended September 30, 2025 and 2024”
Removed heading “Net Sales — Spirits Business”
Removed heading “Net Revenues - Crypto and Related Business”
Removed heading “Cost of Sales — Spirits Business”
Removed heading “Cost of Sales — Crypto and Related Business”
Removed heading “Gross Profit - Spirits Business”
Removed heading “Gross Profit - Analysis of Exclusion of Unabsorbed Overhead - Whiskey Business”
Removed heading “Gross Profit — Crypto and Related Business”
Removed heading “Gross Profit Analysis — Crypto and Related Business”
Removed heading “Sales and Marketing Expenses”
Removed heading “General and Administrative Expenses”
Removed heading “Interest Expense”
Removed heading “Gain on Extinguishment of Debt”
Removed heading “Gain on Intangible Digital Assets”
Removed heading “SELECTED FINANCIAL INFORMATION”
Removed heading “Line of Credit and Debt Agreements”
Removed heading “Net Cash Used in Investing Activities”
Largest changes
“The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in our operating leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in the economic environments where the leased asset is located. …”see in full comparison
“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. …”see in full comparison
“We have prepared our condensed consolidated financial statements assuming we will continue as a going concern. …”see in full comparison
“We will continue to evaluate our liquidity position, operating performance, and market conditions and may take additional actions, as necessary, to preserve liquidity and support our strategic objectives, including the disposition of digital assets for cash. Based on the foregoing, we believe we will continue as a going concern for at least the next twelve months from the date of issuance of the financial statements.”see in full comparison
“The fair value of the warrant liabilities at issuance and at each reporting period are estimated based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The warrants are free-standing instruments and determined to be liability-classified in accordance with ASC 480. We use the PWERM and the Monte Carlo Simulation (“MCS”) to incorporate estimates and assumptions concerning our prospects and market indications into the models to estimate the value of the warrants. …”see in full comparison
“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. …”see in full comparison
Full comparison: every changed paragraph (309)
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.”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 thethis section titled “Risk Factors” and elsewhere in this filing. Unless the context otherwise requires, for the purposes of this section,section,. “Heritage,IP Strategy,” “we,” “us,” “our,” or the “Company” refer to HeritageIP DistillingStrategy Holding Company,Holdings, Inc. and its subsidiaries.consolidated subsidiaries, including its principal operating subsidiary, Heritage Distilling Company, Inc. (“Heritage,” “Heritage Distilling” or “HDC”).
Reverse Stock SplitSplits
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, ourthe stockholders approved an amendment to our Second Amended and Restated Certificate of IncorporationIncorporation, 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 26,16, 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 such reverse stock split unless otherwise noted.
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.
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.
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.
In connection with the development of our cryptocurrency treasury reserve policy, Onon August 15, 2025, we completed a $223.8 million private investment in public equity (“PIPE”) transaction wherein we ended up owningacquired 53.2 million $IP Tokens in our digital asset treasury. Details of the PIPE transaction are detailsummarized 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.
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.
Our Crypto and Related Business
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.
Out of the more than 2,600 craft producers in North America, we have been recognized with more awards for our products from the American Distilling Institute, the leading independent spirits association in the U.S., than any other North American craft distiller for each of the last ten years. Plus, numerous other Best of Class, Double Gold and Gold medals from multiple national and international spirits competitions. We are one of the largest craft spirits producers on the West Coast based on revenues and are developing a national reach in the U.S. through traditional sales channels (wholesale, on-premises and e-commerce) and our unique and recently-developed Tribal Beverage Network (“TBN”) sales channel. Based upon our revenues and our continued track record of winning industry awards in an increasingly competitive environment, we believe we are one of the leading craft spirits producers in the United States.
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.
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.
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.
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.
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. In addition to staking revenue, we also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026.
Our Spirits Business
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.
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.
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.
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.
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).
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.”
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).
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.
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).
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 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).
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.
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.
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.
We use the fair value method of accounting to report our operating results, in accordance with U.S. GAAP. We currently own approximately 53.252.3 million $IP Tokens,Tokens (as of March 31, 2026), 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.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 53.252.3 million, every $1.00 increase in the market value of a $IP Token will represent a gain of approximately $53.2$52.3 million that we must recognize; and,and conversely, every $1.00 decrease in the market price of a $IP Token will represent a loss of approximately $53.2$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.
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.
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.
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.
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.
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.
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.
Continued Investment and Innovation
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.
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.
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.
Net SalesRevenues
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.
Our blockchainvalidator rewardsbusiness revenue is primarily generated through blockchain rewards from participation in proof-of-stake networks,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—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 walletwallets we control. Each block validation represents a distinct performance obligation. ForWe the three and nine months ended September 30, 2025, we recognizedrecognize blockchain rewards revenue (Staking 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 othercrypto 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.
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 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.
Cost of SalesRevenue
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.
We recognize the staking and validator business cost of salesrevenue in the same manner that the related revenue is recognized. Our cost of salesrevenue consists of AWSAmazon 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.
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.
Our gross profit for both our crypto and spirits business is the difference between our revenues and cost of sales.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:
•Market conditions that may impact the market value of our investment in intangible digital assets ($IP Tokens);
•Market conditions that impact the market value of the blockchain rewards (staking revenue);
•Staking yields for work performed on the validator;
•The cost of third party computer services that house our validator;
•The volume of tokens that we stake or commit to covered calls, and the terms of the related contracts;
•The volume of third party tokens assigned to our validator;
•Our ability to maintain our costs on the components that go into the manufacture of our products; and
•Seasonal sales offerings or product promotions in conjunction with plans created with our distributors or retail channels.channels;
•Our closure of our tasting rooms; and
•Our closure of our distillery operations and shift to third party production.
IPST insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-10-02 | Perkins Danielle B |
Option exercise | 94 | — | — |
| 2026-10-02 | Perkins Danielle B |
Shares withheld for tax | 39 | $3.08 | $120 |
| 2026-10-02 | Marker Beth A |
Option exercise | 94 | — | — |
| 2026-10-02 | Marker Beth A |
Shares withheld for tax | 28 | $3.08 | $86 |
| 2026-08-02 | Carrosino Michael |
Option exercise | 125 | — | — |
| 2026-08-02 | Carrosino Michael |
Shares withheld for tax | 330 | $2.16 | $713 |
| 2026-08-02 | Carrosino Michael |
Option exercise | 1,111 | — | — |
| 2026-08-02 | Carrosino Michael |
Shares withheld for tax | 38 | $2.16 | $82 |
| 2026-08-02 | Stiefel Jennifer D H |
Option exercise | 1,459 | — | — |
| 2026-08-02 | Stiefel Jennifer D H |
Shares withheld for tax | 62 | $2.16 | $134 |
| 2026-08-02 | Stiefel Jennifer D H |
Option exercise | 209 | — | — |
| 2026-08-02 | Stiefel Jennifer D H |
Shares withheld for tax | 433 | $2.16 | $935 |
| 2026-08-02 | Stiefel Justin B |
Option exercise | 209 | — | — |
| 2026-08-02 | Stiefel Justin B |
Shares withheld for tax | 433 | $2.16 | $935 |
| 2026-08-02 | Stiefel Justin B |
Option exercise | 1,459 | — | — |
| 2026-08-02 | Stiefel Justin B |
Shares withheld for tax | 62 | $2.16 | $134 |
| 2026-07-02 | Perkins Danielle B |
Option exercise | 94 | — | — |
| 2026-07-02 | Perkins Danielle B |
Shares withheld for tax | 39 | $2.48 | $97 |
| 2026-07-02 | Marker Beth A |
Option exercise | 94 | — | — |
| 2026-07-02 | Marker Beth A |
Shares withheld for tax | 28 | $2.48 | $69 |
| 2026-05-02 | Carrosino Michael |
Option exercise | 125 | — | — |
| 2026-05-02 | Carrosino Michael |
Shares withheld for tax | 330 | $5.50 | $1.8K |
| 2026-05-02 | Carrosino Michael |
Option exercise | 1,111 | — | — |
| 2026-05-02 | Carrosino Michael |
Shares withheld for tax | 38 | $5.50 | $209 |
| 2026-05-02 | Stiefel Jennifer D H |
Option exercise | 208 | — | — |
| 2026-05-02 | Stiefel Jennifer D H |
Shares withheld for tax | 62 | $5.50 | $341 |
| 2026-05-02 | Stiefel Jennifer D H |
Option exercise | 1,458 | — | — |
| 2026-05-02 | Stiefel Jennifer D H |
Shares withheld for tax | 433 | $5.50 | $2.4K |
| 2026-05-02 | Stiefel Justin B |
Option exercise | 1,458 | — | — |
| 2026-05-02 | Stiefel Justin B |
Shares withheld for tax | 62 | $5.50 | $341 |
| 2026-05-02 | Stiefel Justin B |
Option exercise | 208 | — | — |
| 2026-05-02 | Stiefel Justin B |
Shares withheld for tax | 433 | $5.50 | $2.4K |
| 2026-02-02 | Stiefel Jennifer D H |
Option exercise | 58,333 | — | — |
| 2026-02-02 | Stiefel Jennifer D H |
Shares withheld for tax | 2,471 | $1.08 | $2.7K |
| 2026-02-02 | Stiefel Jennifer D H |
Shares withheld for tax | 17,296 | $1.08 | $18.7K |
| 2026-02-02 | Stiefel Jennifer D H |
Option exercise | 8,333 | — | — |
| 2026-02-02 | Stiefel Justin B |
Option exercise | 58,333 | — | — |
| 2026-02-02 | Stiefel Justin B |
Shares withheld for tax | 2,471 | $1.08 | $2.7K |
| 2026-02-02 | Stiefel Justin B |
Option exercise | 8,333 | — | — |
| 2026-02-02 | Stiefel Justin B |
Shares withheld for tax | 17,296 | $1.08 | $18.7K |
Well-known investors holding IPST (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 252,728 | $66.7K | — | Sold out |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 12,574 | $29.5K | 0.0% | New position |
| Renaissance Technologies | 2026-06-30 | 65,207 | $17.2K | — | Sold out |