Heritage Distilling (ticker: CASK) surged nearly 20% on Tuesday after the company detailed its approach to building a treasury reserve for the Story Protocol's native IP token, a move it says will anc... ...

GIG HARBOR, Wash.--(BUSINESS WIRE)---- $CASK--Heritage Distilling Holding Company, Inc. (Nasdaq: CASK) ("Heritage†or the "Company†) today announced its "IP Strategy,†reflecting the first of many steps in its imminent evolution into a public-market vehicle centered on the accumulation of $IP tokens, the native token of the Story network. As part of this strategy, Heritage will be supported by an experienced advisory and governance team. Key figures that are expected to join Heritage include Phil Blows,. ...

[Part I - Financial Information](index=4&type=section&id=Part%20I%20-%20Financial%20Information) This section provides the company's unaudited interim condensed consolidated financial statements and management's analysis of financial performance [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited interim condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed accounting notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates | Metric | June 30, 2025 ($) | December 31, 2024 ($) | | :----------------------------------- | :------------ | :---------------- | | **Assets** | | | | Cash | $185,953 | $453,162 | | Total Current Assets | $3,104,012 | $3,919,547 | | Total Long Term Assets | $23,434,089 | $24,080,479 | | Total Assets | $26,538,101 | $28,000,026 | | **Liabilities & Stockholders' Equity / (Deficit)** | | | | Total Current Liabilities | $16,442,727 | $13,811,514 | | Total Long-Term Liabilities | $12,981,973 | $13,396,745 | | Total Liabilities | $29,424,700 | $27,208,259 | | Total Stockholders' Equity / (Deficit) | $(2,886,599) | $791,767 | - The company's cash balance decreased by approximately **59%** from **$453,162** at December 31, 2024, to **$185,953** at June 30, 2025. Total assets decreased by **5.2%** from **$28,000,026** to **$26,538,101** during the same period[14](index=14&type=chunk) - Total liabilities increased by **8.1%** from **$27,208,259** at December 31, 2024, to **$29,424,700** at June 30, 2025. Stockholders' equity shifted from a positive **$791,767** to a deficit of **$(2,886,599)**, indicating a significant deterioration in equity position[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, costs, and expenses, culminating in net income or loss for the specified periods | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Net Sales | $1,321,822 | $1,842,315 | $2,413,805 | $3,548,474 | | Total Cost of Sales | $1,094,734 | $1,094,518 | $1,914,832 | $2,392,140 | | Gross Profit | $227,088 | $747,797 | $498,973 | $1,156,334 | | Total Operating Expenses | $6,876,049 | $3,045,490 | $9,599,112 | $5,680,896 | | Operating Loss | $(6,648,961) | $(2,297,693) | $(9,100,139) | $(4,524,562) | | Total Other Income / (Expense) | $(642,995) | $10,713,344 | $(1,224,864) | $13,393,053 | | Net Income / (Loss) | $(7,295,078) | $8,406,501 | $(10,328,125) | $8,859,341 | | Net Income / (Loss) Per Share, Basic | $(0.77) | $19.90 | $(1.16) | $20.97 | | Net Income / (Loss) Per Share, Diluted | $(0.77) | $1.29 | $(1.16) | $(2.44) | - Net sales decreased significantly, by **28.37%** for the three months ended June 30, 2025, and by **31.97%** for the six months ended June 30, 2025, compared to the same periods in 2024[17](index=17&type=chunk) - The company reported a substantial net loss of **$(7,295,078)** for the three months and **$(10,328,125)** for the six months ended June 30, 2025, a sharp decline from net income in the prior year, primarily due to increased operating expenses and a lack of significant 'Change in Fair Value' gains seen in 2024[17](index=17&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity / (Deficit)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20/%20(Deficit)) This section outlines changes in the company's equity, including common stock, preferred stock, additional paid-in capital, and accumulated deficit | Metric | June 30, 2025 ($) | December 31, 2024 ($) | | :----------------------------------- | :------------ | :---------------- | | Common Stock Par Value | $1,299 | $556 | | Preferred Stock - Series A Par Value | $21 | $49 | | Preferred Stock - Series B Par Value | $74 | $0 | | Additional Paid-in Capital | $81,574,150 | $74,925,180 | | Accumulated Deficit | $(84,462,143) | $(74,134,018) | | Total Stockholders' Equity / (Deficit) | $(2,886,599) | $791,767 | - Total Stockholders' Equity shifted from a positive balance of **$791,767** at December 31, 2024, to a deficit of **$(2,886,599)** at June 30, 2025, driven by an increase in accumulated deficit[14](index=14&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) - The accumulated deficit increased significantly from **$(74,134,018)** at December 31, 2024, to **$(84,462,143)** at June 30, 2025, reflecting the net losses incurred during the period[14](index=14&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the cash inflows and outflows from operating, investing, and financing activities for the reported periods | Metric | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net Income / (Loss) | $(10,328,125) | $8,859,341 | | Net Cash Used in Operating Activities | $(3,544,467) | $(5,382,609) | | Net Cash Provided by / (Used in) Investing Activities | $55,306 | $(286,910) | | Net Cash Provided by / (Used in) Financing Activities | $3,221,951 | $5,744,254 | | Net Increase / (Decrease) in Cash | $(267,209) | $74,735 | | Cash – End of Period | $185,953 | $151,613 | - Net cash used in operating activities decreased from **$(5,382,609)** in H1 2024 to **$(3,544,467)** in H1 2025, indicating a reduction in cash burn from operations despite increased net losses[24](index=24&type=chunk) - Net cash provided by financing activities decreased from **$5,744,254** in H1 2024 to **$3,221,951** in H1 2025, primarily due to lower proceeds from notes payable and preferred stock sales compared to the prior year[24](index=24&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides comprehensive details and explanations for the figures presented in the condensed consolidated financial statements [NOTE 1 — DESCRIPTION OF OPERATIONS AND BASIS OF PRESENTATION](index=14&type=section&id=NOTE%201%20%E2%80%94%20DESCRIPTION%20OF%20OPERATIONS%20AND%20BASIS%20OF%20PRESENTATION) This note describes the company's business, its recent IPO, and addresses the going concern uncertainty and subsequent financing activities - Heritage Distilling Holding Company, Inc. (HDHC) is a Delaware corporation focused on the production, sale, or distribution of alcoholic beverages, operating through its wholly-owned subsidiary, Heritage Distilling Company, Inc. (HDC), which has been a craft distillery since 2011[27](index=27&type=chunk) - The company completed an Initial Public Offering (IPO) on November 25, 2024, selling **1,687,500** shares of common stock at **$4.00** per share, and concurrently a private offering of **382,205** common warrants[29](index=29&type=chunk) - The company faces substantial doubt about its ability to continue as a going concern due to recurring net losses, negative working capital, and increased accumulated deficit and stockholders' deficit. Management is exploring additional financing options, including an equity line of credit (ELOC) and private placements[38](index=38&type=chunk)[39](index=39&type=chunk) - Subsequent to June 30, 2025, on August 11, 2025, the Company entered into subscription agreements for a private placement of common stock and pre-funded warrants, with a significant portion of the purchase price expected to be paid in cryptocurrency (USDC and **$IP Tokens**). The company plans to use **$IP Tokens** as its primary treasury reserve asset[40](index=40&type=chunk) - The company monitors global conflicts, international relations, and market reactions, including tariffs, inflation, and legislative changes, which could impact supply costs, consumer spending, and labor costs. Efforts are underway to diversify glass bottle suppliers away from high-tariff zones[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk)[50](index=50&type=chunk) [NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=17&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the key accounting principles, estimates, and policies used in preparing the financial statements, including fair value measurements and revenue recognition - The company uses U.S. GAAP and makes estimates for financial statements, with significant assumptions in valuing common stock, warrants, convertible notes, and stock options. Fair value measurements are categorized into Level 1, 2, or 3 based on input transparency, with convertible notes and warrant liabilities using Level 3 inputs[52](index=52&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk)[57](index=57&type=chunk) - Credit risk concentration exists with a few customers representing a large portion of accounts receivable and revenue (e.g., three customers for **93%** of accounts receivable as of June 30, 2025, and five customers for **89%** of total revenue for the six months ended June 30, 2025)[60](index=60&type=chunk)[61](index=61&type=chunk) - Inventories are valued at the lower of cost or net realizable value using the weighted average method, with barreled whiskey classified as current assets despite long aging periods, consistent with industry practice[62](index=62&type=chunk)[63](index=63&type=chunk) - Revenue is primarily from domestic spirit sales (Direct to Consumer, Wholesale, Third Party) and services, recognized when control transfers or services are completed. Excise taxes and shipping/handling costs are included in Cost of Sales[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - Stock-based compensation is measured at fair value on the grant date and expensed over the service period. The 2024 Equity Incentive Plan authorized up to **5,000,000** shares, with **2,527,500** shares granted as of June 30, 2025[96](index=96&type=chunk)[97](index=97&type=chunk) - The company operates as a single segment, with the CEO as the chief operating decision maker, evaluating performance based on consolidated net income/(loss) and expenses[105](index=105&type=chunk) [NOTE 3 — INVENTORIES](index=24&type=section&id=NOTE%203%20%E2%80%94%20INVENTORIES) This note provides a breakdown of the company's inventory categories and their respective values at the end of the reporting periods | Inventory Category | June 30, 2025 ($) | December 31, 2024 ($) | | :----------------- | :------------ | :---------------- | | Finished Goods | $515,422 | $461,254 | | Work-in-Process | $815,031 | $936,181 | | Raw Materials | $984,999 | $1,074,132 | | Total Inventory | $2,315,452 | $2,471,567 | - Total inventory decreased by **6.3%** from **$2,471,567** at December 31, 2024, to **$2,315,452** at June 30, 2025, primarily driven by reductions in work-in-process and raw materials[109](index=109&type=chunk) [NOTE 4 — PROPERTY AND EQUIPMENT, NET](index=24&type=section&id=NOTE%204%20%E2%80%94%20PROPERTY%20AND%20EQUIPMENT,%20NET) This note details the company's property and equipment, including gross values, accumulated depreciation, and depreciation expense for the periods | Asset Category | June 30, 2025 ($) | December 31, 2024 ($) | | :----------------------------------- | :------------ | :---------------- | | Total Property and Equipment (Gross) | $13,148,814 | $13,228,795 | | Less: Accumulated Depreciation | $(8,315,839) | $(7,779,383) | | Property and Equipment, net | $4,832,975 | $5,449,412 | | Depreciation Expense (3 months) | $273,928 | $334,797 | | Depreciation Expense (6 months) | $570,456 | $655,262 | - Net property and equipment decreased by **11.3%** from **$5,449,412** at December 31, 2024, to **$4,832,975** at June 30, 2025, mainly due to accumulated depreciation[110](index=110&type=chunk) - Depreciation expense for the three and six months ended June 30, 2025, decreased compared to the same periods in 2024[110](index=110&type=chunk) [NOTE 5 — BORROWINGS](index=24&type=section&id=NOTE%205%20%E2%80%94%20BORROWINGS) This note provides details on the company's various loan agreements, including balances, interest rates, maturity dates, and repayment schedules | Loan Type | June 30, 2025 ($) | December 31, 2024 ($) | | :-------------------- | :------------ | :---------------- | | Silverview Loan | $10,382,438 | $10,682,438 | | PPP Loan | $2,269,456 | $2,269,456 | | COVID19 TTS Loan | $39,247 | $39,247 | | City of Eugene | $389,875 | $389,875 | | Total Notes Payable | $13,081,016 | $13,381,016 | | Less: Debt Issuance Costs | $(101,587) | $(140,082) | | Net Borrowings | $12,979,429 | $13,240,934 | - Total notes payable decreased slightly from **$13,381,016** at December 31, 2024, to **$13,081,016** at June 30, 2025, primarily due to repayments on the Silverview Loan[111](index=111&type=chunk)[115](index=115&type=chunk) - The Silverview Loan maturity was extended to October 25, 2026, with an increased interest rate of **16.5%** and a revised amortization schedule to preserve cash. The company was previously in violation of covenants, which were waived[111](index=111&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[116](index=116&type=chunk) - The PPP Loan balance remains at **$2,269,456**, with the company disputing a portion of the rescinded forgiveness. The City of Eugene loan, acquired in February 2024, has a **0%** interest rate until August 1, 2025, then **5%**[117](index=117&type=chunk)[121](index=121&type=chunk) | Years Ending | Amount ($) | | :----------- | :------- | | 2025 | $3,544,917 | | 2026 | $9,230,229 | | 2027 | $66,789 | | 2028 | $239,081 | | 2029 | $0 | | thereafter | $0 | | Total | $13,081,016 | [NOTE 6 — FAIR VALUE MEASUREMENT](index=27&type=section&id=NOTE%206%20%E2%80%94%20FAIR%20VALUE%20MEASUREMENT) This note explains the fair value measurements of financial instruments, particularly the reclassification of convertible notes and warrant liabilities to equity post-IPO - Upon the IPO on November 25, 2024, convertible notes, warrant liabilities, and Whiskey Special Ops notes were exchanged and reclassified from liabilities to equity, resulting in a fair value of **$0** for these instruments as of June 30, 2025, and December 31, 2024[127](index=127&type=chunk) | Financial Instrument | Balance as of January 1, 2024 ($) | Issuances ($) | Change in Fair Value ($) | Balance as of June 30, 2024 ($) | | :----------------------------------- | :---------------------------- | :-------- | :------------------- | :-------------------------- | | 2022 and 2023 Convertible Notes | $36,283,890 | $0 | $(18,216,803) | $18,067,087 | | Whiskey Special Ops Notes | $1,452,562 | $3,353,850 | $9,172,055 | $13,978,467 | | 2022 Notes Warrant Liabilities | $794,868 | $0 | $89,314 | $884,182 | | Whiskey Special Ops Notes Warrant Liabilities | $1,512,692 | $302,020 | $(1,794,334) | $20,378 | | Acquisition Contingency Liabilities | $0 | $584,203 | $(457,127) | $127,076 | [NOTE 7 — STOCKHOLDERS' EQUITY / (DEFICIT)](index=27&type=section&id=NOTE%207%20%E2%80%94%20STOCKHOLDERS'%20EQUITY%20/%20(DEFICIT)) This note details changes in stockholders' equity, including stock splits, IPO details, authorized capital, ELOC, preferred stock, and stock-based compensation - A **0.57-for-1** reverse stock split was effected on May 14, 2024. The company completed its IPO on November 25, 2024, selling **1,687,500** common shares at **$4.00/share** and **382,205** common warrants at **$3.99/warrant**[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) - Authorized capital stock was significantly increased in 2024 and 2025, reaching **495,000,000** shares (**490,000,000** common, **5,000,000** preferred) by June 24, 2025[143](index=143&type=chunk) - An Equity Line of Credit (ELOC) agreement was established on January 23, 2025, allowing the company to sell up to **$15,000,000** of common stock to an investor. As of June 30, 2025, **$730,074** gross proceeds were received from ELOC sales[142](index=142&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[152](index=152&type=chunk) - Series A Preferred Stock, with a subscription price of **$10/share** and stated value of **$12/share**, pays **15%** cumulative dividends. Series B Preferred Stock, also with a **$10/share** subscription price and **$12/share** stated value, pays **15%** cumulative dividends and is convertible into common stock[157](index=157&type=chunk)[159](index=159&type=chunk)[161](index=161&type=chunk)[168](index=168&type=chunk)[170](index=170&type=chunk) - Stock-based compensation expense for RSUs was **$3,127,807** for the six months ended June 30, 2025, with **2,527,500** shares granted under the 2024 Plan. Contingent Legacy Shareholder Warrants and Whiskey Note Shareholder Warrants were issued, exercisable upon specific stock price thresholds[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[190](index=190&type=chunk)[192](index=192&type=chunk) - Deferred compensation for senior employees, totaling **$470,454** as of June 30, 2025, was partially settled with equity compensation (RSUs) after the IPO lockup period[196](index=196&type=chunk) [NOTE 8 — ACQUISITION OF THINKING TREE SPIRITS](index=38&type=section&id=NOTE%208%20%E2%80%94%20ACQUISITION%20OF%20THINKING%20TREE%20SPIRITS) This note details the acquisition of Thinking Tree Spirits, including the purchase price, payment in common stock, and ongoing dissenters' rights litigation - On February 21, 2024, the company acquired Thinking Tree Spirits, Inc. (TTS) for **$670,686**, paid in common stock at a negotiated price of **$13.16** per share, subject to a true-up provision to the IPO price (**$4.00** per share)[197](index=197&type=chunk)[198](index=198&type=chunk)[201](index=201&type=chunk) - The acquisition involved a dissenters' rights process under Oregon law, with one remaining dissenter filing a lawsuit seeking **$470,000**. A settlement in principle for **$140,000** was reached, with the company planning to issue additional unregistered common stock to remaining TTS shareholders after the matter is concluded[203](index=203&type=chunk)[206](index=206&type=chunk)[208](index=208&type=chunk) [NOTE 9 — LEASES](index=40&type=section&id=NOTE%209%20%E2%80%94%20LEASES) This note outlines the company's operating lease arrangements for various facilities, including lease terms, ROU assets, and liabilities - The company holds operating leases for corporate offices, warehouses, distilleries, and tasting rooms, accounted for under ASC Topic 842. Lease terms include extension/termination options when reasonably certain[72](index=72&type=chunk)[75](index=75&type=chunk)[209](index=209&type=chunk) - In January 2025, the company terminated a warehouse lease in Eugene, Oregon, reducing monthly expenses from **$18,000** to **$7,700**, and also negotiated a reduction in space for its largest warehouse effective September 15, 2025[210](index=210&type=chunk) | Lease Metric | June 30, 2025 ($) | December 31, 2024 ($) | | :----------------------------------- | :------------ | :---------------- | | ROU Assets for Operating Leases | $3,284,292 | $3,303,158 | | Liabilities for Operating Leases | $3,906,963 | $3,941,560 | | Weighted-average remaining lease term | 4.8 years | 5.8 years | | Weighted-average discount rate | 22% | 22% | | Years Ending | Amounts ($) | | :----------- | :------- | | 2025 | $682,685 | | 2026 | $1,345,203 | | 2027 | $1,329,535 | | 2028 | $1,225,326 | | 2029 | $1,203,001 | | thereafter | $684,779 | | Total Lease Payments | $6,470,529 | | Less: Interest | $(2,563,566) | | Total Lease Liabilities | $3,906,963 | [NOTE 10 — COMMITMENTS AND CONTINGENCIES](index=41&type=section&id=NOTE%2010%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) This note details the company's financial commitments, recent litigation settlements, and the Nasdaq minimum bid price non-compliance notice - The company is committed to pay **150%** of subscription amounts (approximately **$24,495,000**) to investors in 2022 and 2023 financings from future revenues from the sale of FBLLC or the Flavored Bourbon brand[217](index=217&type=chunk) - A litigation with CFGI, LLC for **$730,000** was settled on July 30, 2025, with the company paying **$500,000**[220](index=220&type=chunk)[221](index=221&type=chunk)[223](index=223&type=chunk) - A lawsuit from a former co-founder of Thinking Tree Spirits seeking **$470,000** was settled on August 8, 2025, for **$140,000**[223](index=223&type=chunk) - The company received a Nasdaq notice on April 14, 2025, for non-compliance with the minimum bid price requirement (**$1.00** per share) and has until October 13, 2025, to regain compliance[224](index=224&type=chunk)[225](index=225&type=chunk) [NOTE 11 — RETIREMENT PLANS](index=42&type=section&id=NOTE%2011%20%E2%80%94%20RETIREMENT%20PLANS) This note describes the company's sponsored 401(k) and profit-sharing plans, noting no company contributions during the reported periods - The company sponsors a traditional 401(k), Roth 401(k), and profit-sharing plan for eligible employees, but no contributions were made by the company during the six months ended June 30, 2025, and 2024[229](index=229&type=chunk) [NOTE 12 — RELATED-PARTY TRANSACTIONS](index=43&type=section&id=NOTE%2012%20%E2%80%94%20RELATED-PARTY%20TRANSACTIONS) This note details various transactions with related parties, including management fees, barrel production agreements, factoring, and warrant exercises - The company pays Summit Distillery, Inc., a related party, an annual management fee of **$90,000** for managing its Eugene, Oregon location[231](index=231&type=chunk) - A 2023 barrel production agreement with a related party was amended in March 2024, with a **$500,000** excess prepayment used to purchase a Whiskey Note, later exchanged for common stock[232](index=232&type=chunk) - Factoring agreements with related parties in May and July 2024, totaling **$266,667**, were exchanged for Series A Preferred Stock and warrants[233](index=233&type=chunk)[234](index=234&type=chunk)[236](index=236&type=chunk) - In September 2024, the company purchased **50** barrels of aged whiskey from a related party for **$110,600**, paid in Series A Preferred Stock and warrants[238](index=238&type=chunk) - Related parties exercised **2,317,452** prepaid warrants for common stock in the six months ended June 30, 2025. Related Party Contingent Legacy Shareholder Warrants were issued in October 2024, exercisable upon specific stock price thresholds[240](index=240&type=chunk)[241](index=241&type=chunk)[243](index=243&type=chunk) [NOTE 13 — BASIC AND DILUTED NET INCOME / (LOSS) PER SHARE](index=45&type=section&id=NOTE%2013%20%E2%80%94%20BASIC%20AND%20DILUTED%20NET%20INCOME%20/%20(LOSS)%20PER%20SHARE) This note presents the calculation of basic and diluted net income or loss per share, including the impact of potentially dilutive securities | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income / (Loss) for the period – basic | $(8,473,622) | $8,392,964 | $(11,978,698) | $8,845,804 | | Weighted average common shares outstanding - basic | 11,000,519 | 421,799 | 10,335,057 | 421,799 | | Net Income / (Loss) per share - basic | $(0.77) | $19.90 | $(1.16) | $20.97 | | Net Income / (Loss) for the period - diluted | $(8,473,622) | $5,904,922 | $(11,978,698) | $(11,165,333) | | Weighted average common shares outstanding - diluted | 11,000,519 | 4,573,063 | 10,335,057 | 4,573,063 | | Net Income / (Loss) per share - diluted | $(0.77) | $1.29 | $(1.16) | $(2.44) | - Basic and diluted EPS for the three and six months ended June 30, 2025, were negative, reflecting the net losses incurred. This is a significant change from positive basic EPS in the prior year, though diluted EPS was negative in H1 2024 due to fair value changes[244](index=244&type=chunk) | Potentially Dilutive Securities Excluded | Three and Six Months Ended June 30, 2024 (Shares) | | :--------------------------------------- | :--------------------------------------- | | ISOs | 2,413 / 6,164 | | RSU Awards | 0 / 243,089 | | Equity-classified Warrants | 2,942,600 / 148,649 | | Liability-classified Warrants | 0 / 908,334 | | Legacy Warrants | 3,439,953 / 0 | | Warrants issued with Preferred Stock (Series B) | 852,399 / 0 | | Convertible Notes | 0 / 3,072,906 | | Preferred Stock (Series A) | 805,288 / 486,097 | | Preferred Stock (Series B) | 20,737,012 / 0 | | Total | 28,779,665 / 4,865,239 | [NOTE 14 — SUBSEQUENT EVENTS](index=46&type=section&id=NOTE%2014%20%E2%80%94%20SUBSEQUENT%20EVENTS) This note discloses significant events occurring after the reporting period, including a major private placement, debt settlements, and further equity sales - On August 11, 2025, the company entered into subscription agreements for a private placement (PIPE) of **183,478,891** common shares and pre-funded warrants for up to **186,900,000** shares. The total purchase price of **$223,819,964** is expected to be paid in cash, USDC, and **$IP Tokens**[248](index=248&type=chunk)[251](index=251&type=chunk) - Net proceeds from the PIPE will be used for general corporate purposes (**$4.0M**), working capital (**$0.6M**), and at least **$80.0M** to purchase **$IP Tokens** from Story Foundation, establishing a digital asset treasury reserve strategy[252](index=252&type=chunk) - **629,873** shares of Series B Preferred Stock will be exchanged for common stock and prepaid warrants, contingent on the August 11, 2025, Subscription Agreement[254](index=254&type=chunk) - Negotiated settlements with secured and unsecured creditors, contingent on the PIPE closing, will result in **$8,989,438** of secured notes payable being settled for **$7,000,000** cash and **$2,848,000** in Settlement Equity (warrants), recognizing a gain of **$2,635,507**. Unsecured payables of **$3,792,767** will be settled for **$1,816,250** cash and **$605,795** in Settlement Equity[255](index=255&type=chunk)[257](index=257&type=chunk) - Subsequent to June 30, 2025, an additional **10,525,357** common shares were sold under the ELOC for **$4,087,161**, and **100,000** prepaid warrants and **18,796** common warrants were exercised[258](index=258&type=chunk)[259](index=259&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, covering business overview, key factors, detailed analysis, liquidity, and critical accounting estimates [Business Overview](index=49&type=section&id=Business%20Overview) This section introduces Heritage Distilling as a craft spirits producer, highlighting its market position, growth strategy, and product offerings - Heritage Distilling is a craft distiller producing whiskeys, vodkas, gins, rums, and ready-to-drink cocktails, recognized with numerous awards from the American Distilling Institute[263](index=263&type=chunk)[265](index=265&type=chunk) - The company operates in the rapidly growing craft spirits segment, which had over **$21.4 billion** in revenue in 2023 and is projected to grow at a CAGR of **29.4%** between 2024 and 2030[264](index=264&type=chunk) - Growth strategy focuses on three primary areas: increasing direct-to-consumer (DtC) sales via online platforms in **46** states, growing wholesale volume through national accounts, and expanding the Tribal Beverage Network (TBN) model in collaboration with Native American tribes[267](index=267&type=chunk)[268](index=268&type=chunk)[269](index=269&type=chunk) [Key Factors Affecting Our Operating Results](index=50&type=section&id=Key%20Factors%20Affecting%20Our%20Operating%20Results) This section discusses the primary internal and external factors influencing the company's financial performance, including sales mix, inflation, tariffs, and product innovation - The company's financial performance is influenced by sales mix across different markets and efficient scaling. Inflation in raw inputs (grains, bottles, cans, barrels) and freight costs, along with labor pressures, pose challenges[270](index=270&type=chunk)[271](index=271&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk) - New tariffs on aluminum and imported glass bottles from Asia could increase costs, though the company believes the impact on gross margin for premium products will not be material due to source diversification efforts[271](index=271&type=chunk)[272](index=272&type=chunk) - An excess of quality aged bourbon in Kentucky has led to falling wholesale barrel prices, creating an arbitrage opportunity for the company's Salute Series line of spirits[276](index=276&type=chunk) - Continued investment in beverage product innovation is crucial for long-term revenue growth, especially in the premium and ultra-premium segments, to respond to evolving consumer trends and demand for novel taste experiences[278](index=278&type=chunk) [Key Components of Results of Operations](index=51&type=section&id=Key%20Components%20of%20Results%20of%20Operations) This section defines the main components of the company's income statement, including net sales, cost of sales, operating expenses, and other income/expense items - Net sales primarily derive from domestic spirit sales (wholesale, direct-to-consumer) and value-added services, recognized when performance obligations are met[279](index=279&type=chunk) - Cost of sales includes product manufacturing, duties, shipping, packaging, and allocated management/personnel expenses. Gross profit and margin are affected by market conditions, cost structure, and capacity utilization[280](index=280&type=chunk)[281](index=281&type=chunk) - Operating expenses include sales and marketing (employee costs, tasting room expenses, advertising) and general and administrative (executive, finance, legal, professional fees). These are expected to increase with business growth and public company operations[283](index=283&type=chunk)[284](index=284&type=chunk) - Interest expense covers secured debt, notes payable, and leased assets. Changes in fair value of convertible notes and warrant liabilities, previously reported in other income/expense, were reclassified to equity upon the IPO[286](index=286&type=chunk)[287](index=287&type=chunk)[289](index=289&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk) - The investment in Flavored Bourbon, LLC was adjusted to **$14,285,000** in January 2024, resulting in a **$3,421,000** gain, following a capital call where the company chose not to participate but retained its ownership and recovery rights[290](index=290&type=chunk) [Comparison of the Results of Operations for the Three Months Ended June 30, 2025 and 2024](index=54&type=section&id=Comparison%20of%20the%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030,%202025%20and%202024) This section analyzes the company's financial performance for the three months ended June 30, 2025, compared to the same period in 2024, highlighting key revenue, cost, and profit changes | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | Change ($) | | :----------------------------------- | :--------------------------- | :--------------------------- | :------- | | Total Net Sales | $1,321,822 | $1,842,315 | $(520,493) | | Total Cost of Sales | $1,094,734 | $1,094,518 | $216 | | Gross Profit | $227,088 | $747,797 | $(520,709) | | Total Operating Expenses | $6,876,049 | $3,045,490 | $3,830,559 | | Operating Loss | $(6,648,961) | $(2,297,693) | $(4,351,268) | | Net Income / (Loss) | $(7,295,078) | $8,406,501 | $(15,701,579) | - Net sales decreased by **28.4%** YoY, primarily due to a **$385,000** decrease in product sales (retail and third-party) and a **$138,000** decrease in service sales (retail services and consulting)[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk) - Gross profit decreased by **70%** YoY to **$227,088**, largely impacted by **$607,000** in unabsorbed overhead costs. Excluding unabsorbed overhead, gross margin was **55.0%** in Q2 2025, down from **59.1%** in Q2 2024[305](index=305&type=chunk)[307](index=307&type=chunk)[310](index=310&type=chunk)[312](index=312&type=chunk)[313](index=313&type=chunk) - Total operating expenses increased by **$3,830,559** YoY, driven by a **$675,000** increase in sales and marketing (mainly share-based compensation) and a **$2,677,000** increase in general and administrative expenses (also largely share-based compensation and professional fees)[300](index=300&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk)[321](index=321&type=chunk) - Net loss was **$(7,295,078)** in Q2 2025, a significant decline from net income of **$8,406,501** in Q2 2024, primarily due to the absence of large 'Change in Fair Value' gains from convertible notes and warrants seen in the prior year[300](index=300&type=chunk) [Comparison of the Results of Operations for the Six Months Ended June 30, 2025 and 2024](index=61&type=section&id=Comparison%20of%20the%20Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030,%202025%20and%202024) This section analyzes the company's financial performance for the six months ended June 30, 2025, compared to the same period in 2024, detailing changes in sales, costs, and overall profitability | Metric | 6 Months Ended June 30, 2025 ($) | 6 Months Ended June 30, 2024 ($) | Change ($) | | :----------------------------------- | :--------------------------- | :--------------------------- | :------- | | Total Net Sales | $2,413,805 | $3,548,474 | $(1,134,669) | | Total Cost of Sales | $1,914,832 | $2,392,140 | $(477,308) | | Gross Profit | $498,973 | $1,156,334 | $(657,361) | | Total Operating Expenses | $9,599,112 | $5,680,896 | $3,918,216 | | Operating Loss | $(9,100,139) | $(4,524,562) | $(4,575,577) | | Net Income / (Loss) | $(10,328,125) | $8,859,341 | $(19,187,466) | - Net sales decreased by **32.0%** YoY, primarily due to a **$777,000** decrease in product sales (retail, third-party, and wholesale) and a **$358,000** decrease in service sales (third-party production, retail services, and consulting)[323](index=323&type=chunk)[324](index=324&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk)[330](index=330&type=chunk) - Gross profit decreased by **56.9%** YoY to **$498,973**, significantly impacted by **$1,043,000** in unabsorbed overhead costs. Excluding unabsorbed overhead, gross margin was **63.9%** in H1 2025, slightly down from **65.6%** in H1 2024[332](index=332&type=chunk)[334](index=334&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk) - Total operating expenses increased by **$3,918,216** YoY, driven by a **$799,000** increase in sales and marketing (mainly share-based compensation) and a **$3,118,000** increase in general and administrative expenses (also largely share-based compensation and professional fees)[322](index=322&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk)[342](index=342&type=chunk)[347](index=347&type=chunk) - Net loss was **$(10,328,125)** in H1 2025, a substantial shift from net income of **$8,859,341** in H1 2024, primarily due to the absence of significant 'Change in Fair Value' gains and investment gains from the prior year[322](index=322&type=chunk) [SELECTED FINANCIAL INFORMATION](index=69&type=section&id=SELECTED%20FINANCIAL%20INFORMATION) This section provides a summary of key balance sheet data, offering a quick overview of the company's financial position at different reporting dates | Balance Sheet Data | June 30, 2025 ($) | December 31, 2024 ($) | December 31, 2023 ($) | | :------------------- | :------------ | :---------------- | :---------------- | | Cash | $185,953 | $453,162 | $76,878 | | Total assets | $26,538,101 | $28,000,026 | $26,268,232 | | Current liabilities | $16,442,727 | $13,811,514 | $62,848,642 | | Long-term liabilities | $12,981,973 | $13,396,745 | $6,842,046 | | Total liabilities | $29,424,700 | $27,208,259 | $69,690,688 | | Total stockholders' equity/(deficit) | $(2,886,599) | $791,767 | $(43,422,456) | - Cash decreased significantly from **$453,162** at December 31, 2024, to **$185,953** at June 30, 2025. Total assets also saw a slight decrease[348](index=348&type=chunk) - Total liabilities increased from **$27,208,259** at December 31, 2024, to **$29,424,700** at June 30, 2025. Stockholders' equity shifted from a positive balance to a deficit[348](index=348&type=chunk) [Non-GAAP Financial Measures](index=70&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures, such as Adjusted Gross Profit/Margin and EBITDA/Adjusted EBITDA, used by management to assess core operational performance - The company uses non-GAAP measures like Adjusted Gross Profit/Margin (excluding unabsorbed overhead) and EBITDA/Adjusted EBITDA to evaluate core operating performance, understand underlying trends, and for planning purposes[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk)[352](index=352&type=chunk) | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | 6 Months Ended June 30, 2025 ($) | 6 Months Ended June 30, 2024 ($) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | GAAP Total Net Sales | $1,321,000 | $1,844,000 | $2,414,000 | $3,549,000 | | GAAP Gross Profit | $225,000 | $745,000 | $499,000 | $1,157,000 | | Unabsorbed Overhead | $607,000 | $511,000 | $1,043,000 | $1,172,000 | | Adjusted Gross Profit excluding unabsorbed overhead | $834,000 | $1,259,000 | $1,542,000 | $2,329,000 | | GAAP Gross Margin | 17.2% | 40.6% | 20.7% | 32.6% | | Adjusted Gross Margin excluding unabsorbed overhead | 63.1% | 68.3% | 63.9% | 65.6% | - Adjusted Gross Margin excluding unabsorbed overhead remained strong at **63.1%** for Q2 2025 and **63.9%** for H1 2025, indicating healthy margins on direct input costs despite overall low GAAP gross margins due to unused production capacity[354](index=354&type=chunk) | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | 6 Months Ended June 30, 2025 ($) | 6 Months Ended June 30, 2024 ($) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Income / (Loss) | $(7,295,000) | $8,407,000 | $(10,328,000) | $8,859,000 | | EBITDA | $(6,423,000) | $9,386,000 | $(8,636,000) | $10,759,000 | | Adjusted EBITDA | $(6,423,000) | $(1,962,000) | $(8,636,000) | $(3,869,000) | - Adjusted EBITDA for Q2 2025 was **$(6,423,000)** and for H1 2025 was **$(8,636,000)**, reflecting significant operating losses after adjusting for non-cash items and fair value changes[356](index=356&type=chunk) [Liquidity and Capital Resources](index=72&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet its short-term and long-term financial obligations, including cash flows, financing activities, and going concern considerations - The company's ability to continue as a going concern is in substantial doubt due to recurring net losses, negative cash flows from operations, and significant outstanding payables (**$6,881,000** as of June 30, 2025)[357](index=357&type=chunk)[358](index=358&type=chunk)[360](index=360&type=chunk) - Primary capital sources have been equity placements, term loans, and convertible debt. The company expects to incur additional losses and higher operating expenses, requiring additional capital in 2025[357](index=357&type=chunk)[360](index=360&type=chunk) - The Silverview Loan covenants were waived and simplified in October/November 2024, and a portion of IPO proceeds was used for repayment. The PPP loan balance of **$2,269,456** is expected to be repaid within **12** months[359](index=359&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk)[376](index=376&type=chunk)[377](index=377&type=chunk) - An Equity Line of Credit (ELOC) was established in February 2025, allowing the sale of up to **$15,000,000** in common stock. A private placement (PIPE) of **$223.8 million** was entered into on August 11, 2025, expected to close in August 2025, with proceeds to be used for general corporate purposes and purchasing **$IP Tokens**[360](index=360&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk)[364](index=364&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk) | Cash Flow Summary | 6 Months Ended June 30, 2025 ($) | 6 Months Ended June 30, 2024 ($) | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net Cash Used in Operating Activities | $(3,544,000) | $(5,383,000) | | Net Cash Provided by Investing Activities | $55,000 | $(287,000) | | Net Cash Provided by Financing Activities | $3,222,000 | $5,744,000 | | Net increase / (decrease) in cash | $(267,000) | $75,000 | - Net cash used in operating activities decreased from **$(5,383,000)** in H1 2024 to **$(3,544,000)** in H1 2025. Net cash provided by financing activities decreased from **$5,744,000** in H1 2024 to **$3,222,000** in H1 2025[378](index=378&type=chunk)[379](index=379&type=chunk)[385](index=385&type=chunk) [Off-Balance Sheet Arrangements](index=76&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms that the company had no off-balance sheet arrangements, obligations, assets, or liabilities during the reported periods - The company had no off-balance sheet arrangements, obligations, assets, or liabilities as of June 30, 2025, or for the periods presented[387](index=387&type=chunk) [Recent Accounting Pronouncements](index=76&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for a discussion of recent accounting pronouncements relevant to the company's financial statements - A discussion of recent accounting pronouncements is included in Note 2 to the condensed consolidated financial statements[388](index=388&type=chunk) [Critical Accounting Estimates](index=76&type=section&id=Critical%20Accounting%20Estimates) This section highlights the significant estimates and judgments made by management in preparing financial statements, particularly regarding long-lived asset impairment - The preparation of financial statements requires management to make estimates and judgments, particularly regarding the impairment of long-lived assets. Assets are evaluated for impairment when circumstances indicate carrying amounts may not be recoverable[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk) - No impairment losses on long-lived assets were recorded for the six months ended June 30, 2025, or 2024[392](index=392&type=chunk) [Emerging Growth Company Status](index=77&type=section&id=Emerging%20Growth%20Company%20Status) This section clarifies the company's status as an 'emerging growth company' under the JOBS Act and its implications for accounting standards and financial reporting comparability - The company is an 'emerging growth company' under the JOBS Act, allowing it to use an extended transition period for new accounting standards. This may result in financial statements not being comparable to other public companies[393](index=393&type=chunk) - The company will cease to be an emerging growth company based on revenue, fiscal year anniversary of IPO, nonconvertible debt issuance, or becoming a large accelerated filer[394](index=394&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=77&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks primarily from fluctuations in interest rates, which could negatively impact its operations and financial condition. Management aims to mitigate these risks through regular operating and financing activities - The company is exposed to market risks from interest rate fluctuations that may adversely affect its financial condition and results of operations[396](index=396&type=chunk) - These risks are managed through regular operating and financing activities[396](index=396&type=chunk) [Item 4. Controls and Procedures](index=77&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were not effective due to material weaknesses, specifically a lack of proper segregation of duties in financial reporting and insufficient personnel resources for review controls. The company is committed to improving its financial organization and increasing accounting personnel - As of June 30, 2025, disclosure controls and procedures were not effective due to material weaknesses[398](index=398&type=chunk) - Material weaknesses include a lack of proper segregation of duties in cash receipts/disbursements, purchase approvals, and accounts payable, and insufficient personnel for adequate review controls[398](index=398&type=chunk) - The company is committed to improving its financial organization and increasing personnel resources and technical accounting expertise[399](index=399&type=chunk) - No changes in internal control over financial reporting occurred during the period ended June 30, 2025, that materially affected or are reasonably likely to materially affect internal control over financial reporting[400](index=400&type=chunk) [Part II - Other Information](index=79&type=section&id=Part%20II%20-%20Other%20Information) This part provides additional disclosures not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=79&type=section&id=Item%201.%20Legal%20Proceedings) The company has settled all previously disclosed litigation. A lawsuit from CFGI, LLC for $730,000 was settled for $500,000 on July 30, 2025. A separate lawsuit from a former co-founder of Thinking Tree Spirits seeking $470,000 was settled for $140,000 on August 4, 2025. No other material litigation is currently pending - All litigation disclosed in the Annual Report on Form 10-K for 2024 has been settled[402](index=402&type=chunk) - Litigation with CFGI, LLC for approximately **$730,000** was settled on July 30, 2025, with the company paying **$500,000**[402](index=402&type=chunk)[403](index=403&type=chunk) - A lawsuit from Kaylon McAlister, a former co-founder of Thinking Tree Spirits, seeking **$470,000**, was settled on August 4, 2025, for **$140,000**[404](index=404&type=chunk) [Item 1A. Risk Factors](index=79&type=section&id=Item%201A.%20Risk%20Factors) As a 'smaller reporting company,' the registrant is not required to provide the information typically required by this Item, which would detail significant risks and uncertainties affecting the business - The company is a 'smaller reporting company' and is not required to provide risk factor disclosures[405](index=405&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=79&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter ended June 30, 2025, the company issued and sold 576,373 shares of Series B Convertible Preferred Stock and warrants to purchase 733,192 common shares to accredited investors for approximately $5,763,747 in gross proceeds, relying on exemptions from registration. Additionally, 629,873 shares of Series B Preferred Stock are expected to be exchanged for common stock and prepaid warrants contingent on a private placement anticipated to close in August 2025 - Issued and sold **576,373** shares of Series B Convertible Preferred Stock and warrants for **733,192** common shares to accredited investors for **$5,763,747** gross proceeds in Q2 2025, under Section 4(a)(2) and Rule 506 of Regulation D[406](index=406&type=chunk) - **629,873** shares of Series B Preferred Stock are contingent on a private placement in August 2025 to be exchanged for **894,856** common shares and **17,002,480** prepaid warrants[407](index=407&type=chunk) [Item 3. Defaults Upon Senior Securities](index=80&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[408](index=408&type=chunk) [Item 4. Mine Safety Disclosures](index=80&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[409](index=409&type=chunk) [Item 5. Other Information](index=80&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - No other information was reported[410](index=410&type=chunk) [Item 6. Exhibits](index=80&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the quarterly report on Form 10-Q, including organizational documents, warrant forms, loan agreements, equity incentive plans, and various certifications - The exhibit index includes organizational documents (Certificates of Incorporation, Bylaws), various warrant forms (common, prepaid, representative's, pre-funded, advisory, placement agent), loan agreements (Silverview), equity incentive plans (2019, 2024), and certifications (CEO, CFO)[411](index=411&type=chunk)[413](index=413&type=chunk)[414](index=414&type=chunk)[415](index=415&type=chunk) [Signatures](index=83&type=section&id=Signatures) This section contains the official signatures of the company's Chief Executive Officer and Chief Financial Officer, certifying the report - The report was signed on August 14, 2025, by Justin Stiefel, Chief Executive Officer, and Michael Carrosino, Chief Financial Officer and Principal Accounting Officer[418](index=418&type=chunk)[419](index=419&type=chunk)[420](index=420&type=chunk)

Core Insights - Heritage Distilling Holding Company, Inc. is integrating cryptocurrency into its operations, highlighted by the release of House of Doge Bourbon™ [1] - The company is exploring financing opportunities related to its Cryptocurrency Treasury Reserve Policy, which may include operations funding, debt reduction, and cryptocurrency acquisitions [2] Company Overview - Heritage Distilling is recognized as North America's most awarded craft distillery, having received accolades for ten consecutive years from the American Distilling Institute [4] - The company produces a variety of spirits and is expanding its market presence through multiple sales channels, including e-commerce and a unique collaboration with Native American tribes via the Tribal Beverage Network [4] Recent Developments - The formation of the Technology and Cryptocurrency Committee on January 7, 2025, and the announcement of the Cryptocurrency Treasury Reserve Policy on January 10, 2025, mark significant steps in the company's strategy [6] - Recent product announcements include the pre-release of Bitcoin Bourbon on June 3, 2025, and the new House of Doge Bourbon on June 9, 2025 [6]

Company Overview - Heritage Distilling Holding Company, Inc. is North America's most awarded craft distillery, recognized for its premium craft spirits and innovative approaches [7] - The company has been awarded by the American Distilling Institute for ten consecutive years, standing out among over 2,600 craft producers [7] - Heritage Distilling offers a diverse range of products including whiskeys, vodkas, gins, rums, and ready-to-drink cocktails [7] Product Launch - Heritage Distilling, in partnership with House of Doge Inc., is set to launch House of Doge™ Bourbon, the world's only Dogecoin-inspired whiskey [1] - This collaboration merges a well-known cryptocurrency brand with a multi-award-winning distillery, aiming to create a product that reflects the blockchain era [1][4] Marketing Campaign - To promote the upcoming bourbon, Heritage Distilling is initiating a "Dogecoin Giveaway," where participants can win the equivalent of 1 Bitcoin in Dogecoins, estimated at 500,000 Dogecoins [2] - The contest is free to enter, encouraging fans to engage with the brand and sign up for the House of Doge Bourbon waitlist [3][2] Strategic Initiatives - Heritage Distilling has adopted a Cryptocurrency Treasury Reserve Policy as part of its digital strategy, exploring crypto payment options across its supply chain [5] - The company aims to reshape customer engagement and transactions in a decentralized future, moving towards becoming a Crypto Product Goods (CPG) company [6] Community Engagement - The partnership with House of Doge is positioned as a celebration of the Dogecoin community, emphasizing fun and mainstream adoption of cryptocurrency for payments [4] - Heritage Distilling is also involved in the Tribal Beverage Network (TBN), collaborating with Native American tribes to develop distilleries and brands that benefit tribal communities [9]

Core Insights - Heritage Distilling Holding Company, Inc. is pioneering a new category called Crypto Product Goods (CPG), becoming the first craft spirits company to accept cryptocurrency as payment for its products [1][2][3] - The company has adopted a Cryptocurrency Treasury Reserve Policy to diversify its sales and treasury operations, with plans to launch Bitcoin Bourbon™, which will be purchasable using Bitcoin [2][4] - CEO Justin Stiefel emphasizes that this transition is about reshaping consumer brand engagement in the digital age, not just accepting crypto payments [3][4] Company Strategy - Heritage is actively developing initiatives such as on-chain loyalty programs, product-linked NFTs, tokenized supply chains, and decentralized consumer engagement tools [7] - The appointment of FinTech veteran Matt Swann to the Board of Directors aims to guide the company's digital roadmap and blockchain strategy [3][4] - The company plans to unveil additional crypto-aligned products and partnerships in the near future, positioning itself as a leader in both the spirits and digital finance sectors [4][6] Market Position - Heritage Distilling is recognized as North America's most awarded craft distillery, having received numerous accolades over the past decade [5] - The company is expanding its presence nationwide through various sales channels, including e-commerce and a unique collaboration with Native American tribes through the Tribal Beverage Network [5][8] - With fewer than 125 public companies adopting crypto treasury strategies, Heritage stands out as a forward-thinking leader in the integration of cryptocurrency within the consumer packaged goods sector [4][6]

Core Insights - Heritage Distilling Holding Company, Inc. is launching Bitcoin Bourbon™, a limited-edition Kentucky straight bourbon whiskey, to celebrate digital currency culture and e-commerce [1][2] - The product will be available exclusively through Heritage's direct-to-consumer e-commerce platform, accepting Bitcoin as a payment method [3][4] Product Details - Bitcoin Bourbon will be released at a proof of 106.15, symbolizing both the whiskey's strength and the concept of financial freedom in Bitcoin [2] - The company plans to reveal additional product details, including age and mash bill, closer to the official release date [3] Strategic Initiatives - The launch of Bitcoin Bourbon is part of a broader digital commerce strategy, integrating cryptocurrency into Heritage's operations [4][5] - Heritage has been recognized as North America's most awarded craft distillery for ten consecutive years, highlighting its reputation in the industry [5] Community Engagement - To promote the launch, Heritage is conducting a Bitcoin Giveaway, allowing participants to win one full Bitcoin, emphasizing community values of ownership and transparency [3][7] - The company is also involved in the Tribal Beverage Network (TBN), collaborating with Native American tribes to develop distilleries and brands, which supports economic and social benefits for tribal communities [5]

Financial Performance - Total net sales for the three months ended March 31, 2025, were approximately $1,092,000, a decrease of approximately $614,000, or 36.0%, compared to $1,706,000 in the same period of 2024[289]. - The company’s net income (loss) for the three months ended March 31, 2025, was $(3,033,047), compared to net income of $452,839 in the same period of 2024, representing a significant decline[288]. - GAAP total net sales were $1,092,000, a decrease from $1,706,000 in 2024, representing a decline of approximately 36%[323]. - GAAP gross profit for the same period was $272,000, down from $409,000 in 2024, indicating a decrease of about 33.5%[323]. - Adjusted gross profit excluding unabsorbed overhead was $733,000 in 2025 compared to $1,071,000 in 2024, reflecting a decline of approximately 31.5%[323]. - Adjusted EBITDA for the three months ended March 31, 2025, was $(2,213,000), compared to $(1,906,000) in 2024, indicating a worsening of approximately 16.1%[327]. Sales and Marketing - Direct-to-consumer sales are conducted in 46 states, covering approximately 96.8% of the U.S. population, allowing for higher-margin sales and valuable consumer data collection[255]. - Sales and marketing expenses are anticipated to increase as the company expands its headcount and marketing campaigns[271]. - Sales and marketing expenses rose to approximately $1,315,000 in Q1 2025, an increase of $125,000 compared to $1,190,000 in Q1 2024[308]. - The Salute Series and Military DtC Spirits saw a unit sales growth of 107.8% year-over-year, while revenue growth was 76.8%, attributed to a broader selection of lower-priced products[295]. Cost Management - The cost of oak barrels has escalated by approximately 30% since early 2022, but prices began to stabilize in 2024[261]. - The company expects gross margins to fluctuate over time due to market conditions, pricing, and cost structure[270]. - The company aims to reduce unabsorbed overhead and improve gross margins by focusing on higher-margin products and optimizing production capacity[301]. - Gross profit excluding unabsorbed overhead for Q1 2025 was approximately $485,000, a decrease of 28.8% from $681,000 in Q1 2024[305]. - Gross margin excluding unabsorbed overhead increased to 67.1% in Q1 2025 from 62.8% in Q1 2024, indicating improved cost management[306]. Operational Challenges - Operating loss for the three months ended March 31, 2025, was $(2,451,177), compared to $(2,226,870) for the same period in 2024, reflecting an increase in operating expenses[288]. - The decrease in net sales of services was approximately $220,000, with third-party production sales dropping from $111,000 in Q1 2024 to $6,000 in Q1 2025, and retail services decreasing from $300,000 to $239,000[294]. - Unabsorbed overhead as a component of product cost was 56.6% in Q1 2025 compared to 54.5% in Q1 2024, indicating ongoing challenges in capacity utilization[300]. Investment and Financing - The company expects to incur additional losses and higher operating expenses as it continues to invest in inventory and assets for growth[328]. - The Silverview Loan, originally maturing on April 15, 2025, has been extended to October 25, 2026, with a fixed interest rate of 15.0% per annum[338]. - As of the IPO date (November 25, 2024), the outstanding principal balance on the Silverview Loan was $12,250,000, with approximately $1,568,000 paid towards principal, leaving an outstanding balance of approximately $10,682,000[340]. - The company expects to remain in compliance with all financial covenants in the Silverview Loan agreement after using approximately $2,375,000 of the net proceeds from the IPO to repay a portion of the loan[341]. Market Position and Growth - The craft spirits segment generated revenues of over $21.4 billion in 2023, with an estimated CAGR of 29.4% from 2024 to 2030[252]. - The craft spirits market is the fastest-growing segment of the overall $288 billion spirits market, positioning the company for significant growth opportunities[252]. - The company has developed a new sales channel in collaboration with Native American tribes, which is expected to broaden brand recognition and sales[257]. Compliance and Regulatory - The company is currently not in compliance with Nasdaq's minimum bid price requirement, with a compliance period until October 13, 2025, to regain compliance[334]. - The provision for income taxes was immaterial for both Q1 2025 and Q1 2024 due to a net loss position[316]. Miscellaneous - The company has recognized an aggregate of $2,684,395 in previously-unrecognized compensation expense for RSU awards upon completion of its IPO[273]. - The company retained a 12.2% ownership interest in Flavored Bourbon, LLC, with a guaranteed payout of $25.3 million upon a third-party sale of the brand[278]. - The company recorded a gain of $3,421,000 on the increase in fair value of its investment in Flavored Bourbon, LLC for the six months ended June 30, 2024[278]. - The company had no off-balance sheet arrangements as of March 31, 2025[352]. - The company is exposed to market risks from fluctuations in interest rates, which may adversely affect operations and financial condition[361].

Core Viewpoint - Heritage Distilling Holding Company aims to lead the craft spirits e-commerce sector by accepting Bitcoin and Dogecoin as payment and holding them as strategic assets [1][2][3] Group 1: Cryptocurrency Policy - The Cryptocurrency Policy allows Heritage to accept Bitcoin and Dogecoin for products and services through its direct-to-consumer e-commerce platform [1][2] - The policy is based on the belief that Bitcoin is a long-term strategic asset, while Dogecoin is gaining popularity for transactions due to its substantial user base [2] - Estimates suggest that between 65 to 86 million Americans hold Bitcoin, and approximately 83 million wallets hold Dogecoin, presenting a growing opportunity for Heritage [2] Group 2: Leadership and Innovation - Matt Swann, chair of the Board's Technology and Cryptocurrency Committee, emphasizes the potential of cryptocurrencies to reduce friction in commerce [3] - CEO Justin Stiefel highlights Heritage's innovative approach in the craft spirits space by preparing to accept cryptocurrencies and leveraging them as assets [3] - The company expects that acceptable margins between retail prices and production costs will mitigate potential volatility in cryptocurrency values [3] Group 3: Company Background - Heritage Distilling is recognized as one of the premier independent craft distilleries in the U.S., offering a diverse range of spirits and has been awarded multiple accolades [4] - The company is expanding its presence nationwide through various sales channels, including e-commerce and a unique collaboration with Native American tribes known as the Tribal Beverage Network [4] - This initiative aims to create economic and social benefits for tribal communities while enhancing Heritage's commitment to innovation and sustainable growth [4]

Core Viewpoint - Heritage Distilling Company is launching a limited edition bourbon, "De Oppresso Liber," to honor the Green Berets, with a portion of sales proceeds going to the Green Beret Foundation, aiming to generate over $500,000 in revenue [3][4]. Group 1: Product Launch and Details - The new bourbon is a 5-year Kentucky straight bourbon bottled at 122 proof (61% ABV), commemorating the year 1961 when President JFK authorized the green beret for the U.S. Army Special Forces [3][4]. - Each bottle is priced at $145, with $20 from each sale donated to the Green Beret Foundation, potentially exceeding $100,000 in total donations if all 5,000 bottles are sold [4][5]. - The launch is part of Heritage's Salute Series, which honors military personnel and first responders, having already contributed over $200,000 to various charities in the past 18 months [5]. Group 2: Company Background - Heritage Distilling is recognized as one of North America's most awarded craft distilleries, having received numerous accolades over the past decade [6]. - The company is expanding its market presence through various sales channels, including e-commerce and partnerships with Native American tribes, enhancing community engagement and economic benefits [6]. Group 3: Partnership with Green Beret Foundation - The Green Beret Foundation is a non-profit organization dedicated to supporting U.S. Army Special Forces soldiers and their families, ensuring they have access to necessary resources [7]. - The partnership with Heritage aims to celebrate the legacy of the Green Berets and provide ongoing support to their community [4][7].