Company: IPST
Filing Date: 2025-02-04
Form Type: 424B3
Source: 0001213900-25-010139
Chunk: 346

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-02-04
Form: 424B3
Chunk 346
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 value of
the Convertible Notes (which was $33,849,109 as of September 30, 2023 and $36,283,891 as of December 31, 2023) was exchanged (contingent
upon the consummation of this offering) for common stock and prepaid warrants effective as of June 30, 2023. (See Note 5.).

As further discussed in Note 7, the Convertible
Notes (and related Warrant Liabilities) remain on our balance sheet, and the change in their fair value will continue to be recognized
as Other Income/(Expense) in our Statement of Operations, until subsequent to December 31, 2023 (upon the effectiveness of the Company’s
anticipated IPO — which is the remaining prerequisite for the unconditional conversion of the outstanding indebtedness and related
warrants into equity). (See Note 16.)

Valuation of Convertible Notes — The
fair value of the Convertible Notes at issuance and at each reporting period is estimated based on significant inputs not observable in
the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used a probability weighted expected return
method (“PWERM”) and the Discounted Cash Flow (“DCF”) method to incorporate estimates and assumptions concerning
the Company’s prospects and market indications into a model to estimate the value of the notes. The most significant estimates and
assumptions used as inputs in the PWERM and DCF valuation techniques impacting the fair value of the 2022 Notes are the timing and probability
of an IPO, deSPAC Merger and default scenario outcomes (see the table below). Specifically, the Company discounted the cash flows for
fixed payments that were not sensitive to the equity value of the Company at payment by using annualized discount rates that were applied
across valuation dates from issuance dates of the Convertible Notes to December 31, 2023 and 2022. The discount rates were based
on certain considerations including time to payment, an assessment of the credit position of the Company, market yields of companies with
similar credit risk at the date of valuation estimation, and calibrated rates based on the fair value relative to the original issue price
from the Convertible Notes.

The significant unobservable inputs that are included
in the valuation of the 2022 and 2023 Convertible Notes as of December 31, 2023 and 2022, include:

|                                        |     | December 31, 2023 |