Company: IPST
Filing Date: 2025-01-27
Form Type: S-1
Source: 0001213900-25-006695
Chunk: 294

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-01-27
Form: S-1
Chunk 294
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, the convertible notes meet other applicable criteria for electing fair value option
under ASC Topic 825.

Fair value measurements— Fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. There is a hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. The
valuation hierarchy contains three levels:

| Level 1 — | Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets.                                                                                                                                                                              |
| Level 2 — | Valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets and other observable inputs directly or indirectly related to the assets or liabilities being measured. |
| Level 3 — | Valuation inputs are unobservable and significant to the fair value measurement.                                                                                                                                                                                                         |

The asset or liability’s fair value measurement
level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation
techniques used need to maximize observable inputs and minimize unobservable inputs.

In determining the appropriate levels, the Company
analyzes the assets and liabilities measured and reported on a fair value basis. At each reporting period, all assets and liabilities
for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

F-50 Heritage Distilling Holding Company, Inc.
Notes to Consolidated Financial Statements NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) The Company’s financial instruments consist primarily of cash, accounts receivable, inventory and accounts payable. The carrying amount of such instruments approximates fair value due to their short-term nature. The carrying value of long-term debt approximates fair value because of the market interest rate of the debt. The convertible notes and warrant liabilities associated with the Company’s convertible promissory notes are carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above. During the years ended December 31, 2023 and 2022, there were notransfers between Level 1, Level 2, and Level 3. Convertible notes— The Company’s convertible promissory notes are recognized initially and subsequently at fair value, inclusive of their respective accrued interest at their stated interest rates, which are included in convertible notes on the Company’s consolidated balance sheets. The changes in the fair value of these convertible notes