Company: IPST
Filing Date: 2025-02-04
Form Type: 424B3
Source: 0001213900-25-010139
Chunk: 316

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-02-04
Form: 424B3
Chunk 316
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Notes to Consolidated Financial Statements</div>

NOTE 1 — DESCRIPTION OF OPERATIONS AND BASIS OF PRESENTATION (cont.)

In October and November 2023, the holders of the
unsecured 2022 and 2023 convertible notes agreed to exchange the 2022 and 2023 convertible notes and accrued interest for common stock
and prepaid warrants to purchase common stock of the Company. In February 2024, the holders of the Whiskey Notes agreed to exchange the
notes and related warrants and accrued interest for common stock and prepaid warrants to purchase common stock of the Company. The aggregate
fair value of the 2022 and 2023 convertible notes and the Whiskey Notes will be reclassified from Convertible Notes to equity under the
terms of the respective Subscription Exchange Agreements upon the effectiveness of the Company’s anticipated IPO. (See Notes 5 and
16.) Subsequent to December 31, 2023, the Company continued to issue additional Whiskey Special Ops 2023 Notes. (See Note 16.)

The accompanying consolidated financial statements
have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and
settlement of liabilities in the normal course of business and do not include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related
to its ability to continue as a going concern.

Risks and Uncertainties

Management continues to monitor the changing landscape
of global conflicts and their potential impacts on its business. First among these concerns is the ongoing conflict in Ukraine, which
has caused disruption in the grain, natural gas and fertilizer markets, and the result of which is uncertainty in pricing for those commodities.
Because the Company relies on grains for part of its raw inputs, these disruptions could increase the supply costs. However, since the
Company sources all its grain from local or known domestic suppliers, management considers that the impact of the Ukraine war is not significant
based on the Company’s history and relationship with the existing farmers and growers. The other potential conflict the Company
monitors is the threatening military activity between China and Taiwan. The Company used to source its glass bottles from suppliers in
China and has recently migrated this production to Taiwan. Although the Company now has what it considers an adequate supply of its glass
bottles at the current utilization rate, considering the potential disruption in Taiwan, the Company has started to evaluate new producers
who