IP Strategy Holdings Inc.
10/23/2026 | Press release | Distributed by Public on 10/23/2026 14:09
Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
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 and other financial information included elsewhere in this 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 this section titled "Risk Factors" and elsewhere in this filing. Unless the context otherwise requires, for the purposes of this section, "IP Strategy," "we," "us," "our," or the "Company" refer to IP Strategy Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries, including its principal operating subsidiary, Heritage Distilling Company, Inc., a Washington corporation ("Heritage," "Heritage Distilling" or "HDC"), Thinking Tree Spirits, Inc., an Oregon corporation, and IP Strategy, LLC, a Nevada limited liability company.
Business Overview
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 acquired 53.2 million $DATA2 tokens in our digital asset treasury. Details of the PIPE transaction are summarized below. The $DATA token is the native cryptocurrency of the DATA Network, running on the DATA layer 1 blockchain. The $DATA protocol and related $DATA tokens can be used to pay for computational services on the DATA 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 addition to our validator operations, we have been developing and implementing digital asset treasury management strategies intended to generate income from our $DATA token holdings while maintaining significant exposure to the underlying digital assets. These activities include our existing covered-call program and the evaluation of additional financial and commercial arrangements designed to generate recurring income, enhance treasury flexibility and support the long-term development of our cryptocurrency and related business segment.
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
In August 2025, we determined to focus our growing cryptocurrency efforts on the native cryptocurrency of the DATA Network referred to as $DATA tokens. As part of this business segment, we established a new validator business related to $DATA tokens, staking 43.5 million of the 53.2 million $DATA tokens we secured in the August 15, 2025 PIPE transaction. To become a network validator, a holder of $DATA tokens is required to put up or "stake" $DATA tokens as collateral (like a security deposit) that shows the DATA 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. In addition to our validator operations, we began generating income from the sale of covered-call contracts in January 2026 as part of our broader digital asset treasury management strategy. We continue to evaluate opportunities to expand these activities through additional option-based strategies, structured financial arrangements, digital asset lending and other market-based opportunities that may allow us to generate income from our $DATA token holdings while maintaining substantial exposure to the DATA ecosystem. In October 2026, The DATA Foundation announced plans to migrate the DATA Network to the Sui blockchain, which is expected to
2 On June 25, 2026, the Story Foundation rebranded as The DATA Foundation, and migrated its $IP tokens to $DATA tokens at a 1:1 ratio. All $IP token references included herein as of and for all periods presented have been changed to $DATA token references to reflect the effect of that June 25, 2026 migration, unless otherwise noted.
result in the wind-down of all existing validator infrastructure. As the network evolves, we intend to evaluate alternative opportunities for generating income through our digital asset treasury activities and potential participation in new network-related services. The availability, timing and economic benefits of these opportunities will depend on market conditions, applicable contractual restrictions and the development of the DATA ecosystem, and there can be no assurance that these activities will generate revenues comparable to those historically generated by our validator operations.
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 continuing to test our 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 has the potential to enhance brand localization, drives trial and awareness, and creates synergies with our wholesale channels as both footprints expand.
Key Factors Affecting Our Operating Results
Management believes that our performance and future success depend on many factors that present significant opportunities, but also pose challenges, including the following:
Pricing, Product Cost and Margins
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 e-commerce platform. Beginning in September 2025, we established a validator program to derive revenue from staking rewards tied to our $DATA token holdings, which has become the primary source of our revenue at margins exceeding approximately 85%. However, on October 12, 2026, the Sui Foundation and DATA Foundation announced that the DATA Network would migrate to the Sui blockchain and that the existing independent DATA blockchain would be retired. The announced migration is expected to eliminate the existing validator infrastructure through which we earn staking rewards. Accordingly, we expect our current validator-related revenue to terminate following completion of the migration, unless alternative revenue-generating arrangements are established. The timing of the migration and the resulting financial impact on our operations remain uncertain. Going forward, as we transition spirits production to third parties, we expect our expenses related to production, sales and marketing of our spirits brands to be mostly eliminated. 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, particularly where we license our brands and recipes to third parties who pay us net license fees.
Cryptocurrency Validator Operations and Announced Transition to Sui
In September 2025, we completed testing and onboarding of a validator to stake a substantial portion of our $DATA token holdings and earn staking rewards. By mid-September 2025, we had completed onboarding the bulk of our tokens onto the validator, through which we began earning daily rewards in the form of additional $DATA tokens. These rewards have become the Company's primary source of revenue and have historically generated margins exceeding approximately 85%. We recognize income from validator activities in U.S. dollars based on the fair value of the $DATA tokens received at the time the rewards are earned, using applicable market pricing information. Recent developments involving the DATA Network, including changes to its underlying blockchain infrastructure, validator participation requirements, staking reward mechanisms and network governance, could adversely affect the Company's ability to continue operating its validator business, the amount and value of staking rewards earned, and the profitability of those operations prior to the anticipated termination of validator services in connection with the migration to Sui.
On October 12, 2026, the Sui Foundation and DATA Foundation announced a strategic transaction under which the DATA Network would migrate from its existing independent blockchain to a protocol operating natively on Sui. The announced migration contemplates retirement of the independent DATA blockchain and elimination of the existing validator infrastructure, including the infrastructure through which the Company currently earns staking rewards. Consequently, upon completion of the migration, we expect our current validator operations and associated revenue stream to terminate.
Although the DATA Foundation has indicated that opportunities may exist for certain infrastructure participants to provide sequencer or similar services under the new network architecture, the Company has not entered into any definitive agreement establishing its eligibility, compensation, responsibilities or right to participate in such activities. There can be no assurance that the Company will obtain a replacement infrastructure role or that any resulting revenue would equal or exceed the revenue currently generated through validator operations.
The timing of the migration, termination of existing validator activities and availability of any alternative revenue opportunities remain uncertain. The loss of our validator revenue without a corresponding replacement could materially adversely affect our future revenue, operating margins, cash flows and results of operations. Management also continues to evaluate new opportunities to expand operating lines and business segments to grow revenue and overall value for the enterprise while also reviewing options to add cash to the balance sheet to improve liquidity.
Key Components of Results of Operations
Net Revenues
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 DATA Network using staking validators we control. In exchange for these validation services, we earn $DATA tokens, the native token of the DATA 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. We recognize blockchain rewards revenue (Staking Revenue) on a gross basis, as we act as principal of our contracts by providing the $DATA tokens required for staking. Blockchain rewards are recorded in crypto 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 $DATA 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. On a go-forward basis, spirits revenue may also include addition licensing fees we earn by licensing out our brands or recipes to third parties to produce, market and sell.
Cost of Revenue
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 Amazon 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, contracted computer programmers to insure validator uptime and the net rewards owed to third parties for which we perform validator services. Specifically, per the agreements of the layer 1 protocol, of the rewards derived from staking on behalf of third parties, we keep 5% of the rewards earned and pay 95% of the rewards to the third party token owners, and this 95% paid out to third parties is treated as an expense. Accounting rules require we book the full revenue associated with the total rewards earned and then deduct as a cost the 95% of the rewards payable to the third party token owners. This has the effect of increasing the total cost of revenue associated with staking and reducing our gross profits and gross margins accordingly.
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.
Gross Profit and Gross Margin
Our gross profit for both our crypto and spirits business is the difference between our revenues and cost of 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 ($DATA 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;
•Market conditions that may impact our pricing;
•Our cost structure for manufacturing operations, including contract manufacturers, relative to volume, and our product support obligations;
•Our capacity utilization and overhead cost absorption rates;
•Our ability to maintain our costs on the components that go into the manufacture of our products;
•Seasonal sales offerings or product promotions in conjunction with plans created with our distributors or retail channels;
•Our closure of our tasting rooms; and
•Our closure of our distillery operations and shift to third-party production.
We expect our gross profit and gross margin to fluctuate over time, depending on the factors described above.
Sales and Marketing
Sales and marketing expenses through June 30, 2026 consisted primarily of employee-related costs for individuals working in our sales and marketing departments and the executives to whom such employees report and the executives whose primary function was sales or marketing. The expenses included 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 included the costs of social media, influencers, and other traditional marketing costs, costs related to trade shows and events and an allocated portion of overhead costs. With the closure of our retail tasting rooms as of December 31, 2025, all staffing, managerial, and sales and marketing expenses related to those operations were eliminated effective January 1, 2026.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses associated with our executive, finance, legal, insurance, information technology and human resources functions, as well as professional fees for legal, audit, accounting and other consulting services, and an allocated portion of overhead costs. We expect our general and administrative expenses will increase on an absolute dollar basis as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as increased expenses for general and director and officer insurance, investor relations, directors fees and other administrative and professional services. In addition, we expect to incur additional costs as we hire additional personnel and enhance our infrastructure to support our crypto and related business and the anticipated growth of our business.
As of June 30, 2026, we had outstanding restricted stock units ("RSUs") that, upon vesting, will settle into an aggregate of 27,904 shares of common stock based upon the grant date fair value of $3,054,775.300. During the three and six months ended June 30, 2026, respectively, we granted 0 and 8,975 RSUs to officers and employees, and 2,250 and 12,250 RSUs to a consultant for investor relations support.
Interest Expense
Interest expenses include cash interest accrued on our secured debt, cash interest and non-cash interest paid or accrued on our notes payable, interest on leased equipment or assets, and costs and interest on credit cards.
Change in Fair Value of Intangible Digital Assets
Our intangible digital assets consist primarily of $DATA 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 condensed consolidated statements of operations. For the three and six months ended June 30, 2026, respectively, we recognized a fair value loss of approximately $11,662,000 and $76,132,000 driven by market fluctuations in the $DATA token. As of June 30, 2026, the fair value of intangible digital assets on our condensed consolidated balance sheet was approximately $12,818,000 using the closing price per $DATA token of $0.2955. As of December 31, 2025, the fair value of intangible digital assets on our condensed consolidated balance sheet was approximately $91,701,000 using the closing price per $DATA token of $1.719. We continue to hold substantially all $DATA tokens for investment and may stake them periodically.
Changes in Fair Value of Investment in Flavored Bourbon, LLC
As of June 30, 2026 and December 31, 2025, respectively, we had a 11.8% and 11.8% ownership interest in Flavored Bourbon, LLC, respectively. For the year ended December 31, 2025, we recorded an impairment charge of approximately $3,357,000 on our investment in Flavored Bourbon LLC.
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 approximately $3,357,000, from the previously recorded approximately $14,285,000 down to approximately $10,928,000 as of December 31, 2025, is the best estimate within a supportable 20%-25% range.
Restructure Costs
On October 23, 2025, we announced that we would close our five owned and operated tasting rooms in Washington and Oregon effective December 31, 2025, along with the transition of our production from in-house production to third party contract producers beginning in the first quarter of 2026 (the "Restructuring"). As of December 31, 2025, we wrote off and expensed approximately $3,393,000 of: property and equipment; operating lease ROU assets and lease liabilities; and other related expenses as part of the Restructuring. During the three and six months ended June 30, 2026, we recorded additional expenses related to the Restructuring of approximately $408,000 and $699,000, respectively, of future lease obligation, and personnel related expenses.
Income Taxes
Section 382 Ownership Changes and Limitation on Net Operating Loss Carryforwards
We engaged an outside accounting firm to perform an analysis under Internal Revenue Code ("IRC") Section 382 to determine whether changes in ownership of our stock could limit the future utilization of our NOL carryforwards and certain tax credits. The analysis covered the period beginning March 22, 2018, when we ceased operating as an S corporation and became a C corporation, through December 31, 2025.
Under IRC Section 382, if a corporation undergoes an "ownership change," generally defined as a cumulative increase of more than 50 percentage points in the ownership of 5% shareholders over a rolling three-year period, the corporation's ability to utilize its pre-change NOLs and certain tax attributes may be subject to an annual limitation. The limitation is generally calculated based on the fair market value of the corporation immediately prior to the ownership change multiplied by the long-term tax-exempt rate, subject to certain adjustments.
Based on the analysis, we experienced ownership changes on November 25, 2024 and August 15, 2025, primarily in connection with our initial public offering and subsequent equity transactions. These ownership changes resulted in limitations on our ability to utilize certain NOL carryforwards and tax credits generated prior to those dates.
As of December 31, 2024, we had approximately $61.5 million of federal NOL carryforwards and approximately $192,000 of federal tax credits subject to Section 382 limitations. During the year ended December 31, 2025, we generated additional federal NOLs of approximately $13.3 million and $32,000 of federal tax credit, resulting in total federal NOL carryforwards of approximately $74.8 million and federal tax credit approximately $224,000 as of December 31, 2025, before consideration of any limitations under Section 382. Following the ownership changes, our ability to utilize our NOLs and certain tax credits is limited on an annual basis.
Based on the Section 382 limitation analysis, we expect that our tax attributes will be released and available for use gradually over multiple years rather than immediately. For example, estimated annual availability includes approximately:
•$0.8 million available in 2024 (partial year following the ownership change);
•approximately $5.4 million per year from 2025 through 2028;
•approximately $4.7 million in 2029; and
•approximately $1.0 million per year thereafter until the remaining attributes are fully utilized.
The additional NOLs generated during 2025 of approximately $13.3 million may also be subject to the Section 382 limitation to the extent such losses are treated as pre-change attributes or otherwise limited under applicable tax rules. As a result, we expect that a portion of our NOL carryforwards, including those generated in 2025, will be usable only over an extended period of time in accordance with the applicable annual limitation amounts.
As reflected in the rollout schedule included in the analysis, a portion of our tax attributes will become available over time through approximately 2044 and subsequent tax years, subject to our generating sufficient taxable income to utilize those attributes.
The analysis also indicates that approximately $189,000 of tax credits may be permanently limited and therefore unavailable for utilization as a result of the Section 382 limitations. We will update this estimate to reflect the impact of additional NOLs generated in 2025 of approximately $13.3 million and any resulting changes in the amount of tax attributes that may be limited or available in future periods.
We will continue to evaluate the impact of these limitations as part of our ASC 740 income tax accounting, including the assessment of deferred tax assets and related valuation allowances. Future ownership changes, additional losses generated in 2025 and subsequent years, or changes in taxable income projections could further impact our ability to utilize our NOL carryforwards and other tax attributes.
Transition of Story Foundation to The DATA Foundation
On June 25, 2026, the Story Foundation announced its transition and rebranding to The DATA Foundation, including the renaming of the Story Network as the DATA Network and the network's native $IP token as $DATA. In connection with the transition, The DATA Foundation stated that existing $IP tokens would migrate to $DATA on a one-for-one basis without requiring action by holders of native $IP tokens. The DATA Foundation described the transition as a strategic refocusing of the network toward infrastructure supporting artificial intelligence training data, including data sourcing, provenance, licensing, auditability and monetization. The DATA Foundation stated that the transition did not involve a change to the underlying blockchain network or technology.
The transition represents an evolution of the Story Foundation's prior focus on programmable intellectual property. According to The DATA Foundation, its experience developing applications across entertainment, creator tools, gaming and other intellectual-property categories led it to identify artificial intelligence training data as an area demonstrating significant demand for its technology. The DATA Foundation has accordingly positioned the DATA Network as infrastructure through which data may be sourced, processed, verified and licensed for use in artificial intelligence applications.
In connection with the June 25, 2026 transition, The DATA Foundation also introduced Trace, a public audit and verification platform designed to create verifiable records relating to the provenance, contributor consent, licensing and other information associated with data made available for artificial intelligence applications. Each contribution registered through the DATA Network is intended to generate a verifiable receipt that may be used to establish an audit trail relating to the underlying data without requiring the underlying data itself to be publicly disclosed.
KLED Integration, AI Training Data and Trace
Also on June 25, 2026, The DATA Foundation launched Trace, a public audit and verification platform designed to create verifiable on-chain records relating to the provenance, consent, licensing and payment history of data registered on
the DATA Network. On the same date, The DATA Foundation announced an integration with KLED.ai ("KLED"), an opt-in marketplace through which individuals may contribute data for licensing and other use by artificial intelligence developers and other data purchasers. In connection with the integration, KLED began onboarding a pool of more than 1.5 billion user-contributed records to the DATA Network. The 1.5 billion figure represents records uploaded to or available through KLED and being onboarded to the DATA ecosystem and should not be interpreted as the number of records that had completed registration on-chain as of June 25, 2026.
The DATA Foundation also invested $3 million in KLED on June 25, 2026. KLED reported that the investment increased its total funding to approximately $14 million. In connection with the relationship, Avi Patel, KLED's founder and Chief Executive Officer, joined The DATA Foundation as Chief Data Officer in an advisory capacity while continuing to lead KLED. The DATA Foundation stated that the relationship is intended to combine KLED's data-sourcing marketplace with the DATA Network's audit and licensing infrastructure.
The DATA Foundation currently reports that KLED has received more than 1.5 billion records uploaded by individual contributors and is receiving more than five million additional uploads per day. Under the integration, KLED's contributor receipts, consent and policy records, provenance information and other audit information may be recorded and verified through Trace and the DATA Network.
The DATA Foundation has described KLED as a significant source of data for the DATA Network and as part of a broader ecosystem of applications intended to address the sourcing, processing, verification and licensing of artificial intelligence training data.
Registration Activity Through June 30, 2026
Following the June 25, 2026 transition and commencement of the KLED integration, registration activity on the DATA Network increased. According to DATA Foundation updates reported following quarter end, more than 10 million records had been registered on the DATA Network as of June 30, 2026.
Management believes that registration activity is a relevant indicator of utilization of the DATA Network because a registration represents the creation of a verifiable receipt associated with a data contribution or record. Registration counts should not, however, be interpreted as equivalent to revenue, unique data assets, customers or completed commercial licensing transactions, and historical registration activity may not be indicative of future network utilization.
Subsequent Network Growth
Following June 30, 2026, The DATA Foundation reported continued growth in DATA Network activity. On July 24, 2026, the DATA Network surpassed 100 million cumulative on-chain data registrations. The DATA Foundation has stated that registration count is an operating metric it uses to evaluate utilization of the network because registrations represent use of the network for the creation of verifiable records relating to data provenance, contributor information and related rights and licensing information.
As of October 13, 2026, The DATA Foundation's publicly-available network reporting indicated approximately 277 million receipts recorded on the protocol, approximately 532,000 contributors and approximately 390 terabytes of data audited through the network. These figures represent growth from the more than 10 million registrations reported as of June 30, 2026 and the more than 100 million cumulative registrations reported on July 24, 2026.
The 277 million receipts reported as of October 13, 2026 should be distinguished from the more than 1.5 billion records reported as uploaded to KLED. The latter represents the broader pool of records uploaded or available for onboarding through KLED, while the receipt count represents records for which a receipt had been recorded on the DATA protocol as of the applicable measurement date.
The DATA Foundation's publicly available information also indicated as of October 13, 2026 that KLED had more than 1.5 billion records uploaded by contributors and was receiving more than five million new uploads per day. The difference between uploaded records and protocol receipts indicates that a substantial inventory of uploaded data remained available for potential processing or registration on the DATA Network. There can be no assurance as to the timing or extent to which uploaded records will ultimately be registered, licensed or otherwise generate economic activity on the network.
Trace serves as the DATA Network's public audit layer and is designed to provide records relating to provenance, contributor consent, applicable policy terms and other information associated with contributed data. The DATA Foundation has positioned Trace, together with KLED and other applications operating on the DATA Network, as infrastructure
intended to enable developers, data purchasers and other parties to evaluate and verify rights and provenance associated with data intended for artificial intelligence applications.
The commercial adoption, utilization and financial impact of the DATA Network, Trace, KLED and related applications remain subject to development, execution, market-adoption and other risks. Registration volume, contributor counts, data volume and other operating metrics are reported by The DATA Foundation and other ecosystem participants and should not be interpreted as an indication or guarantee of future revenue, network activity, token value or financial performance.
On October 12, 2026, The DATA Foundation announced a strategic transaction pursuant to which the Sui Foundation committed to invest approximately $30 million in the DATA Network, becoming its largest institutional stakeholder. In connection with the transaction, The DATA Foundation announced plans to migrate the DATA Network to the Sui blockchain and discontinue operation of its independent Layer 1 blockchain and associated validator infrastructure. The Company currently holds $DATA tokens as part of its digital asset treasury and participates in the network as a validator.
$IP tokens migrated to $DATA tokens on a one-for-one basis as of October 9, 2026 with no other change to existing token supply. It was announced by The DATA Foundation that vesting schedules and lockup restrictions were expected to be preserved, but no details were yet supplied. The DATA Foundation also noted that at some point yet to be determined after migration it is expected there will no longer be a need for third party validators, which would necessarily negate the need for validation services provided by the Company, although it noted opportunities may exist to participate in a sequencer or similar infrastructure role under the new network architecture. The timing, requirements, and economic benefits of any such role have not yet been determined.
The Company continues to evaluate the potential effects of the transaction and planned migration on its digital asset holdings and network activities. As of the date of this filing, the ultimate financial and operational impacts of the transaction and migration remain uncertain.
Reverse Stock Splits
On September 18, 2025, the stockholders approved an amendment to our Second Amended and Restated Certificate of Incorporation, 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 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 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.
Comparison of the Results of Operations for the Three Months Ended June 30, 2026 and 2025
The numbers presented below that have been rounded for presentation purposes 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 (non-rounded) component numbers. In cases where rounding occurred, the amount of the rounding difference is generally $1,000 or less. Such differences are considered to be insignificant.
The following table summarizes our results of operations for the three months ended June 30, 2026 and 2025.
|
For the Three Months Ended June 30, |
|||||||||||||||||
| 2026 | 2025 | Change | |||||||||||||||
| REVENUE | |||||||||||||||||
| Crypto and Related | $ | 554,000 | $ | - | $ | 554,000 | |||||||||||
| Spirits Products | 166,000 | 1,060,000 | (894,000) | ||||||||||||||
| Spirits Services | 16,000 | 261,000 | (245,000) | ||||||||||||||
| Total Net Revenues | 736,000 | 1,322,000 | (586,000) | ||||||||||||||
| COST OF REVENUE | |||||||||||||||||
| Crypto and Related | 134,000 | - | 134,000 | ||||||||||||||
| Spirits Products | 193,000 | 1,083,000 | (890,000) | ||||||||||||||
| Spirits Services | - | 12,000 | (12,000) | ||||||||||||||
| Total Cost of Revenue | 327,000 | 1,095,000 | (767,000) | ||||||||||||||
| Gross Profit | 409,000 | 227,000 | 182,000 | ||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||
| Sales and Marketing | 324,000 | 1,972,000 | (1,647,000) | ||||||||||||||
| General and Administrative | 3,253,000 | 4,904,000 | (1,651,000) | ||||||||||||||
| Change in Fair Value of Intangible Digital Assets | 11,662,000 | - | 11,662,000 | ||||||||||||||
| Total Operating Expenses | 15,240,000 | 6,876,000 | 8,364,000 | ||||||||||||||
| OTHER INCOME / (EXPENSE) | |||||||||||||||||
| Interest Expense | (15,000) | (595,000) | 580,000 | ||||||||||||||
| Restructure Costs Post-Close | (408,000) | - | (408,000) | ||||||||||||||
| Other Income / (Expense) | (192,000) | (48,000) | (145,000) | ||||||||||||||
| Total Other Income / (Expense) | (615,000) | (643,000) | 28,000 | ||||||||||||||
| Income / (Loss) Before Income Taxes | (15,446,000) | (7,292,000) | (8,154,000) | ||||||||||||||
| Income Taxes | (1,000) | (3,000) | 2,000 | ||||||||||||||
| Net Income / (Loss) | $ | (15,447,000) | $ | (7,295,000) | $ | (8,152,000) | |||||||||||
| Net Income / (Loss) Per Share, Basic | $ | (13.30) | $ | (308.12) | $ | 294.82 | |||||||||||
| Weighted Average Common Shares Outstanding, Basic | 1,168,984 | 27,501 | 1,141,483 | ||||||||||||||
| Net Income / (Loss) Per Share, Diluted | $ | (13.30) | $ | (308.12) | $ | 294.82 | |||||||||||
| Weighted Average Common Shares Outstanding, Diluted | 1,168,984 | 27,501 | 1,141,483 | ||||||||||||||
Cost of revenue of approximately $327,000 and $1,095,000, and operating expenses of approximately $15,240,000 and $6,876,000 for the three months ended June 30, 2026 and 2025, respectively, included non-cash share-based compensation for employees (personnel) and consultants of approximately $772,000 and $3,127,000, respectively, as follows:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Non-Cash Share-Based Compensation | 2026 | 2025 | Change | |||||||||||||||||
| Production / Cost of Revenue | $ | 5,000 | $ | 121,000 | $ | (116,000) | ||||||||||||||
| Sales and Marketing | 16,000 | 647,000 | (631,000) | |||||||||||||||||
| General and Administrative - Director Fees | - | 337,000 | (337,000) | |||||||||||||||||
| General and Administrative | 750,000 | 1,810,000 | (1,060,000) | |||||||||||||||||
| Subtotal Employee Compensation | 772,000 | 2,915,000 | (2,143,000) | |||||||||||||||||
| Professional Fees (General and Administrative) | - | 212,000 | (212,000) | |||||||||||||||||
| Total Non-Cash Share-Based Compensation | $ | 772,000 | $ | 3,127,000 | $ | (2,355,000) | ||||||||||||||
Cost of revenue, sales and marketing, and general administrative expense, net of non-cash share-based compensation was as follows:
|
Three Months Ended June 30, 2026 (rounded to $000's) |
Three Months Ended June 30, 2025 (rounded to $000's) |
|||||||||||||||||||||||||||||||||||||
| Expenses Net of Non-Cash Share-Based Compensation | Cost of Revenue | Sales and Marketing | General and Administrative | Cost of Revenue | Sales and Marketing | General and Administrative | ||||||||||||||||||||||||||||||||
| Total Expense | $ | 327,000 | $ | 324,000 | $ | 3,253,000 | $ | 1,095,000 | $ | 1,972,000 | $ | 4,904,000 | ||||||||||||||||||||||||||
| Less: Non-Cash Share-Based Compensation | (5,000) | (16,000) | (750,000) | (121,000) | (647,000) | (2,359,000) | ||||||||||||||||||||||||||||||||
| Total Expense, net of Non-Cash Share-Based Compensation | $ | 322,000 | $ | 308,000 | $ | 2,503,000 | $ | 974,000 | $ | 1,325,000 | $ | 2,546,000 | ||||||||||||||||||||||||||
Net Revenues - Crypto and Related Business
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Net Revenues - Crypto and Related | 2026 | 2025 | Change | |||||||||||||||||
| Staking Revenue | 391,000 | - | 391,000 | |||||||||||||||||
| Covered Call Contracts | 163,000 | - | 163,000 | |||||||||||||||||
| $ | 554,000 | $ | - | $ | 554,000 | |||||||||||||||
Net revenues were approximately $554,000 and $0 for the three months ended June 30, 2026 and 2025, respectively, an increase of approximately $554,000, or 100%, period over period. There were no comparable revenues in the three months ended June 30, 2025 as we began recognizing staking and validator revenues on September 18, 2025 and revenue from sale of covered call contracts in January of 2026. For the three months ended June 30, 2026, substantially all crypto and related validator business revenue was related to self-staking. Net revenues in this segment include all revenues we realize from staking our own tokens and all revenue from the staking of tokens owned by third parties before paying out 95% of the rewards owed to those third party token owners. Of the approximately [$391,000] in Staking Revenue for the three months ended June 30, 2026 [$371,000] was derived from our own staking rewards and approximately [$20,000] was the total realized from staking rewards for tokens owned by third parties, 95% of which, or approximately [$19,000], were paid to the third party token owners and is included in cost of revenue.
Of the total validator business revenues related to cryptocurrency, we drive operational revenues in two ways: 1) self-staking (tokens we own being staked on our own validator); and 2) staking of third-party tokens. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that we control. Validator services were tested in early September and were fully functional as of September 18, 2025, meaning the revenue from this activity was only active for the fourth quarter of 2025, and approximately two weeks of the twelve weeks of the third quarter of 2025. In addition to staking revenue, we also generate crypto and related revenue from the sale of
covered call contracts, which began in January 2026 and totaled approximately $163,000 in covered call premiums for the three months ended June 30, 2026.
Cost of Revenue - Crypto and Related Business
Cost of revenue was approximately $134,000 and $0 for the three months ended June 30, 2026 and 2025, respectively, an increase of approximately $134,000 from $0 period over period. Cost of revenue consisted primarily of: technology platform expenses; external engineering support; consulting services for managing our crypto assets and investment strategies; blockchain transaction fees and blockchain rewards payable to third party delegators related to crypto operating activities; and commissions paid on covered call contracts. Of the blockchain rewards payable to third parties, they are derived from staking on behalf of third parties, for which we keep 5% of the rewards earned and pay 95% of the rewards to the third party token owners. Accounting rules require we book the full revenue associated with the total rewards earned and then deduct as a cost the 95% of the rewards payable to the third party token owners, which has the effect of increasing the total cost of revenue associated with staking and reducing our gross profits and gross margins accordingly. Cost of revenue associated with the 95% of staking rewards owed to third parties was approximately $19,000 of the $119,000 total cost of revenue noted in the table below. There was no comparable cost of revenue in the three months ended June 30, 2025 as we began recognizing revenues from staking and validator activities and covered call contracts; and incurring related cost of revenue once our validator services was operational on September 18, 2025 and we began entering into covered call contracts in January 2026.
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Cost of Revenue - Crypto and Related | 2026 | 2025 | Change | |||||||||||||||||
| Staking Costs | 119,000 | - | 119,000 | |||||||||||||||||
| Covered Call Contract Commissions | 16,000 | - | 16,000 | |||||||||||||||||
| $ | 134,000 | $ | - | $ | 134,000 | |||||||||||||||
Gross Profit - Crypto and Related Business
Gross profit was approximately $419,000 and $0 for the three months ended June 30, 2026 and 2025, respectively, an increase of approximately $419,000, or 100%, period over period, and included:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Profit - Crypto and Related | 2026 | 2025 | Change | |||||||||||||||||
| Staking Gross Profit | 272,000 | - | 272,000 | |||||||||||||||||
| Covered Call Contracts | 147,000 | - | 147,000 | |||||||||||||||||
| $ | 419,000 | $ | - | $ | 419,000 | |||||||||||||||
It is important to note that there were no comparable cost of revenue in the three months ended June 30, 2025 as we began recognizing staking and validator revenues and incurring related cost of revenue upon beginning our validator service on September 18, 2025.
Gross Profit Analysis - Crypto and Related Business
Gross Margin numbers were as follows for the three months ended June 30, 2026 and 2025 as follows:
|
Three Months Ended June 30, |
Change | |||||||||||||||||||
|
Total Gross Margin - Crypto and Related
|
2026 | 2025 | ||||||||||||||||||
|
Staking Profit
|
69.6 | % | - | % | 69.6 | % | ||||||||||||||
| Covered Call Profit | 90.4 | % | - | % | 90.4 | % | ||||||||||||||
| 75.7 | % | - | % | 75.7 | % | |||||||||||||||
Gross margin was approximately 75.7% and 0% for the three months ended June 30, 2026 and 2025, respectively, based upon total net revenues of approximately $554,000 and $0, respectively. As noted above in Cost of Revenue, of the rewards earned for staking third party tokens, 95% is paid out to those third parties, with the net of 5% being recognized by
us. This high cost inflates the overall cost of revenue and reduces our overall gross profit and gross margins. Excluding these third party expenses the cost of operating the validator and earning our own rewards is relatively fixed, consisting primarily of the party consulting services to run the validator and the modest monthly expenses associated with the web service hosting the validator. Because we earn a fairly steady number of tokens in any given period of time from validator services, and because the costa of earning the tokens are relatively fixed, the biggest driver of gross profit and resulting gross margin is the market price of the token itself. The higher the token price the great the gross profit and gross margin. At $1.00 per token the gross profit and gross margin would be much higher than if the token was valued at $0.30 when compared against the same fixed operating costs.
The Gross Profit numbers above were based on the total revenues for the three months ended June 30, 2026 and 2025 as follows:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Net Revenues - Crypto and Related | 2026 | 2025 | Change | |||||||||||||||||
| Staking Revenue | 391,000 | - | 391,000 | |||||||||||||||||
| Covered Call Contracts | 163,000 | - | 163,000 | |||||||||||||||||
| $ | 554,000 | $ | - | $ | 554,000 | |||||||||||||||
Net Revenues - Spirits Business
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Net Revenues - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | $ | 166,000 | $ | 1,060,000 | $ | (894,000) | ||||||||||||||
| Services | 16,000 | 261,000 | (245,000) | |||||||||||||||||
| $ | 182,000 | $ | 1,321,000 | $ | (1,139,000) | |||||||||||||||
Net revenues were approximately $182,000 and $1,321,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of approximately $1,139,000, or 86.2%, period over period.
The approximately $894,000 net decrease in product revenues, period over period, included:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Product Revenues - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Wholesale | $ | 96,000 | $ | 457,000 | $ | (361,000) | ||||||||||||||
| Retail | 70,000 | 603,000 | (533,000) | |||||||||||||||||
| $ | 166,000 | $ | 1,060,000 | $ | (894,000) | |||||||||||||||
The approximately $361,000 decrease in wholesale product revenues was primarily the result of halting production of a selection of lower margin products and the timing of orders through the wholesale channel moving between quarters.
The approximately $533,000 decrease in retail revenues was primarily a result of having closed all of our retail tasting rooms as of December 31, 2025, with no retail revenue being generated in the period ending March 31, 2026.
The approximately $245,000 decrease in net services revenue period over period included:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Services Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Third Party | $ | 2,000 | $ | 8,000 | $ | (6,000) | ||||||||||||||
| Retail | - | 247,000 | (247,000) | |||||||||||||||||
| Consulting and Other | 14,000 | 6,000 | 8,000 | |||||||||||||||||
| $ | 16,000 | $ | 261,000 | $ | (245,000) | |||||||||||||||
Net services revenue decreased by approximately $245,000 period over period, driven by an approximately $247,000 decrease in retail services having closed all of our retail tasting rooms as of December 31, 2025, with no retail services revenue being generated in the three months ended June 30, 2026.
Cost of Revenue - Spirits Business
Cost of revenue was approximately $193,000 and $1,095,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of approximately $902,000, or 82.4%, period over period. Cost of revenue for the three months ended June 30, 2026 and 2025, respectively, included approximately $5,000 and $121,000 of non-cash share-based compensation expenses related to RSU grant awards recognized for production employees.
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Cost of Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | $ | 193,000 | $ | 1,083,000 | $ | (890,000) | ||||||||||||||
| Services | - | 12,000 | (12,000) | |||||||||||||||||
| $ | 193,000 | $ | 1,095,000 | $ | (902,000) | |||||||||||||||
The approximately $902,000 decrease in net spirits business cost of revenue period over period included: a decrease in product cost of approximately $890,000 to approximately $193,000 for the three months ended June 30, 2026, from approximately $1,083,000 for the three months ended June 30, 2025, and a decrease in unabsorbed overhead of approximately $497,000 to approximately $110,000 as of June 30, 2026 from approximately $607,000 as of June 30, 2025. The approximately $890,000 decrease in products costs was driven largely by the closure of all of our retail tasting rooms as of December 31, 2025, with no retail services revenue being generated in the period ending June 30, 2026 and the exiting of certain low margin spirits SKUs in wholesale.
Services cost of revenue decreased by approximately $12,000 to approximately $0 for the three months ended June 30, 2026 from approximately $12,000 for the three months ended June 30, 2025 primarily resulting from us ending a low-margin third-party production contract for another brand and the wind down of barrel production for third parties.
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Components of Products Cost of Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Product Cost (from inventory) | $ | 83,000 | $ | 476,000 | $ | (393,000) | ||||||||||||||
| Overhead - Unabsorbed | 110,000 | 607,000 | (497,000) | |||||||||||||||||
| $ | 193,000 | $ | 1,083,000 | $ | (890,000) | |||||||||||||||
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Components of Products Cost of Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Product Cost (from inventory) | 43.2 | % | 44.0 | % | (0.7) | % | ||||||||||||||
| Overhead - Unabsorbed | 56.8 | % | 56.0 | % | 0.7 | % | ||||||||||||||
| 100.0 | % | 100.0 | % | - | % | |||||||||||||||
Unabsorbed overhead as a component of product cost of revenue of approximately 56.8% and 56.0% for the three months ended June 30, 2026 and 2025, respectively, has been a significant contributors to our overall low products gross margins. Unabsorbed overhead is a function of costs attributable to the excess capacity and associated overhead in our system. As we move to third party production in 2026 there will be a transitionary period where we still report Production Overhead costs carried against lower sales, leading to a higher percentage of costs during this period. Once we complete the transition of our final production lease and equipment disposition in 2026, we expect this cost to be largely eliminated in 2027 and beyond as we move to third party and licensee production. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
The approximately $890,000 decrease in net products cost of revenue period over period is further detailed as follows:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Products Cost of Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Spirits - Wholesale | $ | 83,000 | $ | 303,000 | $ | (220,000) | ||||||||||||||
| Spirits - Retail | - | 141,000 | (141,000) | |||||||||||||||||
| Merchandise and Prepared Food | - | 32,000 | (32,000) | |||||||||||||||||
| Unabsorbed Overhead | 110,000 | 607,000 | (497,000) | |||||||||||||||||
| $ | 193,000 | $ | 1,083,000 | $ | (890,000) | |||||||||||||||
Products cost of revenue decreased by approximately $890,000 period over period, driven primarily by an approximately $220,000 decrease in wholesale product costs as we continued shifting away from lower-margin wholesale volume toward a focus on direct-to-consumer sales, and an approximately $497,000 decrease in unabsorbed overhead reflecting reduced capacity as production focus evolved. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Gross Profit - Spirits Business
Gross profit / (loss) was approximately $(10,000) and $227,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of approximately $237,000, or 104%, period over period, and included:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Profit / (Loss) - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | $ | (26,000) | $ | (23,000) | $ | (3,000) | ||||||||||||||
| Services | 16,000 | 250,000 | (234,000) | |||||||||||||||||
| $ | (10,000) | $ | 227,000 | $ | (237,000) | |||||||||||||||
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Margin - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | (15.7) | % | (2.2) | % | (13.5) | % | ||||||||||||||
| Services | 100.0 | % | 95.8 | % | 4.2 | % | ||||||||||||||
| (5.5) | % | 17.2 | % | (22.7) | % | |||||||||||||||
Gross Margin numbers above are based on the total net revenues for the three months ended June 30, 2026 and 2025 as follows:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Net Revenues - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | $ | 166,000 | $ | 1,060,000 | $ | (894,000) | ||||||||||||||
| Services | 16,000 | 261,000 | (245,000) | |||||||||||||||||
| $ | 182,000 | $ | 1,321,000 | $ | (1,139,000) | |||||||||||||||
For the three months ended June 30, 2026 and 2025, respectively, the approximately $(26,000) and $(23,000) in products gross profit / (loss), and the resulting decline in products gross margin to (15.7)% for the three months ended June 30, 2026 compared to (2.2)% for the three months ended June 30, 2025, shows the impact of our reduction in excess capacity by moving to third-party production, thereby reducing unabsorbed overhead to approximately $110,000 in the three months ended June 30, 2026 from $607,000 during the three months ended June 30, 2025.
Total gross margin decreased to (5.5)% from 17.2% on lower net revenues. Management is undergoing a significant change in focus for the spirits reporting segment of our business by eliminating our own production leases and disposing of equipment to get asset-light, instead working through third-party licensees and producers to produce our products for sale into the market. The use of our brands and recipes by trusted licensees can also generate revenue via licensing fees. License
fee revenues to us can grow as the third-party licensees increase placement and sales of our brands. Because we would not have the obligations or costs associated with production, marketing or sales for such licensed products, any licensing revenue earned by us should come with higher margins than past revenue tied to our own past production and sales efforts. Finally, because we have now removed all of our own production leases and equipment, we expect the unallocated production overhead expenses incurred in the past to be mostly eliminated on a go-forward basis (See also below our comments related to this in more detail in Non-GAAP Financial Measures).
Gross Profit / (Loss) - Analysis of Exclusion of Unabsorbed Overhead - Spirits Business
To provide a more detailed view to our performance for products and services based purely on the direct input costs we remove unabsorbed overhead expenses for the following analysis. Products gross profit excluding unabsorbed overhead was approximately $84,000 and $584,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of approximately $500,000, or 85.7%, period over period, and included:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Profit / (Loss) - Excluding Unabsorbed Overhead | 2026 | 2025 | Change | |||||||||||||||||
| Products Net Revenue | $ | (26,000) | $ | (23,000) | $ | (3,000) | ||||||||||||||
|
Add Back: Unabsorbed Overhead
|
110,000 | 607,000 | (497,000) | |||||||||||||||||
|
Products Gross Profit Excluding Unabsorbed Overhead
|
84,000 | 584,000 | (500,000) | |||||||||||||||||
| Services | 16,000 | 250,000 | (234,000) | |||||||||||||||||
|
Total Gross Profit Excluding Unabsorbed Overhead
|
$ | 100,000 | $ | 834,000 | $ | (734,000) | ||||||||||||||
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Margin - Excluding Unabsorbed Overhead | 2025 | 2025 | Change | |||||||||||||||||
| Products | (15.7) | % | (2.2) | % | (13.5) | % | ||||||||||||||
|
Add Back: Unabsorbed Overhead
|
66.0 | % | 57.3 | % | 8.7 | % | ||||||||||||||
|
Products Gross Margin Excluding Unabsorbed Overhead
|
50.3 | % | 55.1 | % | (4.8) | % | ||||||||||||||
| Services | 100.0 | % | 95.8 | % | 4.2 | % | ||||||||||||||
|
Total Gross Margin Excluding Unabsorbed Overhead
|
54.7 | % | 63.1 | % | (8.4) | % | ||||||||||||||
Products gross margin excluding unabsorbed overhead of 50.3% for the three months ended June 30, 2026 compared to 55.1% for the same period in 2025 shows the impact of our continued transition and the exiting of the higher margin activities that were related to our retail tasting rooms that closed on December 31, 2025.
Sales and Marketing Expenses
Sales and marketing expenses were approximately $324,000 for the three months ended June 30, 2026 compared to approximately $1,972,000 for the three months ended June 30, 2025. This approximately $1,648,000 decrease included:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Sales and Marketing Expense | 2026 | 2025 | Change | |||||||||||||||||
|
Personnel - Cash Wages and Related Expense
|
$ | 185,000 | $ | 826,000 | $ | (641,000) | ||||||||||||||
|
Personnel - Share-Based Compensation
|
16,000 | 647,000 | (631,000) | |||||||||||||||||
| Tasting Room | - | 22,000 | (22,000) | |||||||||||||||||
| Leases and Rentals | - | 188,000 | (188,000) | |||||||||||||||||
| Sales and Marketing Expenses | 10,000 | 82,000 | (72,000) | |||||||||||||||||
| Other | 114,000 | 207,000 | (93,000) | |||||||||||||||||
| $ | 324,000 | $ | 1,972,000 | $ | (1,648,000) | |||||||||||||||
The overall approximately $1,648,000 decrease in sales and marketing expense period over period was the result of a mix of reduced headcount in the wholesale sales team and retail tasting room sales staff as a result of closing the retail tasting rooms on December 31, 2025. This also removed from the cost structure all costs associated with rent and operational overhead associated with the tasting rooms.
General and Administrative Expenses
General and administrative expenses were approximately $3,253,000 for the three months ended June 30, 2026, compared to approximately $4,904,000 for the three months ended June 30, 2025. This approximately $1,651,000 decrease included:
|
Three Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| General and Administrative Expense | 2026 | 2025 | Change | |||||||||||||||||
|
Personnel - Cash Wages and Related Non-Cash Expense
|
$ | 404,000 | $ | 985,000 | $ | (581,000) | ||||||||||||||
|
Personnel - Share-Based Compensation
|
750,000 | 1,810,000 | (1,060,000) | |||||||||||||||||
| Professional Fees | 1,335,000 | 760,000 | 575,000 | |||||||||||||||||
| Professional Fees - Share-Based Compensation | 596,000 | 212,000 | 384,000 | |||||||||||||||||
| Business Insurance | 240,000 | 122,000 | 118,000 | |||||||||||||||||
| Leases and Rentals | 82,000 | 143,000 | (61,000) | |||||||||||||||||
| Depreciation | 16,000 | 228,000 | (212,000) | |||||||||||||||||
| Other | (169,000) | 207,000 | (376,000) | |||||||||||||||||
| Other - Share-Based | - | 437,000 | (437,000) | |||||||||||||||||
| $ | 3,253,000 | $ | 4,904,000 | $ | (1,651,000) | |||||||||||||||
General and administrative expenses decreased by approximately $1,651,000 to approximately $3,253,000 for the three months ended June 30, 2026, from approximately $4,904,000 in the three months ended June 30, 2025, driven primarily by an approximately: $1,060,000 decrease in non-cash personnel share-based compensation, including RSU grants tied to deferred compensation and employee incentives. General and administrative expenses also included a decrease of approximately $212,000 in depreciation;a decrease of approximately $437,000 in other -share based related primarily to director fees; a decrease of approximately 376,000 in other; and a decrease of approximately $61,000 in leases and rentals, primarily a result of reduced warehouse space in the three months ended June 30, 2026 compared to the three months ended June 30, 2025 and the restructuring of the spirits business at the end of 2025. The respective periods also included offsetting approximately $575,000 increase in professional fees incurred related to contract Chief Investment Officer services, other outside professional services management of our crypto currency assets, additional public relations and investor relations expenses via third-party professionals and high accounting and audit preparation services to prepare us for our first audit with new additional cryptocurrency accounting obligations; an approximately $384,000 increase in share-based compensation professional fees related to RSU grants offered to third party service providers; and an approximately $118,000 increase in business insurance.
Interest Expense
Interest expense decreased by approximately $580,000 to approximately $15,000 for the three months ended June 30, 2026, compared to approximately $595,000 for the three months ended June 30, 2025. The decrease was primarily due to the settlement of the Silverview loan in August 2025.
Gain / (Loss) on Intangible Digital Assets
Change in fair value of intangible digital assets resulted in a loss of approximately $11,662,000 for the three months ended June 30, 2026, (based on a closing price on June 30, 2026 of $0.2955 per $DATA token), compared to $0 for the three months ended June 30, 2025, as we had no similar $DATA tokens held for investment as of June 30, 2025 and began recognizing fair value adjustments on $DATA tokens upon closing of the August 15, 2025 PIPE transaction. The loss for the three months ended June 30, 2026 was primarily attributable to unfavorable market movements in the quoted price of $DATA tokens held for investment. We measure fair value using quoted prices in our principal market at the end of each reporting period, with changes recognized in Change in Fair Value of Intangible Digital Assets on the condensed consolidated statements of operations.
During the three months ended March 31, 2026, we sold 1 million $DATA tokens into the market for cash proceeds of approximately $798,000 before deducting any fees or commissions on any such sales, for a loss on sale of intangible digital assets of approximately $2,360,000, which is included in the loss attributed to the change in fair value of intangible digital assets recognized for the same time period.
Restructure Costs
On October 23, 2025, we announced the Restructuring. As of December 31, 2025, we wrote off and expensed approximately $3,393,000 of: property and equipment; operating lease ROU assets and lease liabilities; and other related expenses as part of the Restructuring. During the three and six months ended June 30, 2026, we recorded additional expenses related to the Restructuring of approximately $408,000 and $699,000, respectively, of future lease obligation, and personnel related expenses.
Income Taxes
As of December 31, 2024, we had approximately $61.5 million of federal NOL carryforwards and approximately $192,000 of federal tax credits subject to Section 382 limitations. During the year ended December 31, 2025, we generated additional federal NOLs of approximately $13.3 million, resulting in total federal NOL carryforwards of approximately $74.8 million as of December 31, 2025, before consideration of any limitations under Section 382. Following the ownership changes, our ability to utilize our NOLs and certain tax credits is limited on an annual basis. The analysis determined an initial base annual Section 382 limitation of approximately $1.0 million, which may be increased in certain years by recognized built-in gains attributable to our assets.
Based on the Section 382 limitation analysis, we expect that our tax attributes will be released and available for use gradually over multiple years rather than immediately. For example, estimated annual availability includes approximately:
•$0.8 million available in 2024 (partial year following the ownership change);
•approximately $5.4 million per year from 2025 through 2028;
•approximately $4.7 million in 2029; and
•approximately $1.0 million per year thereafter until the remaining attributes are fully utilized.
The additional NOLs generated during 2025 of approximately $13.3 million may also be subject to the Section 382 limitation to the extent such losses are treated as pre-change attributes or otherwise limited under applicable tax rules. As a result, we expect that a portion of our NOL carryforwards, including those generated in 2025, will be usable only over an extended period of time in accordance with the applicable annual limitation amounts.
As reflected in the rollout schedule included in the analysis, a portion of our tax attributes will become available over time through approximately 2044 and subsequent tax years, subject to our generating sufficient taxable income to utilize those attributes.
The analysis also indicates that approximately $189,000 of tax credits may be permanently limited and therefore unavailable for utilization as a result of the Section 382 limitations. We will update this estimate to reflect the impact of additional NOLs generated in 2025 of approximately $13.3 million and any resulting changes in the amount of tax attributes that may be limited or available in future periods.
We will continue to evaluate the impact of these limitations as part of its ASC 740 income tax accounting, including the assessment of deferred tax assets and related valuation allowances. Future ownership changes, additional losses generated in 2025 and subsequent years, or changes in taxable income projections could further impact our ability to utilize our NOL carryforwards and other tax attributes.
During the three months ended June 30, 2026, we estimate an increase in our tax loss carryforward of approximately $3.2 million for federal income taxes (based on the applicable statutory federal tax rate of 21%) based on our year to date net loss. While we believe that this benefit may be available to offset taxable income in future periods, the amount and timing of its utilization is subject to the Section 382 annual limitation and our ability to generate future taxable income. As a result of these uncertainties, we have elected to fully reserve against the use of these tax benefits in our financial statements as of June 30, 2026, and accordingly no related income tax benefit has been recognized in the accompanying condensed consolidated financial statements.
Comparison of the Results of Operations for the Six Months Ended June 30, 2026 and 2025
The numbers presented below that have been rounded for presentation purposes 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 (non-rounded) component numbers. In cases where rounding occurred, the amount of the rounding difference is generally $1,000 or less. Such differences are considered to be insignificant.
The following table summarizes our results of operations for the six months ended June 30, 2026 and 2025.
|
For the Six Months Ended June 30, |
|||||||||||||||||
| 2026 | 2025 | Change | |||||||||||||||
| REVENUE | |||||||||||||||||
| Crypto and Related | $ | 2,006,000 | $ | - | $ | 2,006,000 | |||||||||||
| Spirits Products | 412,000 | 1,898,000 | (1,486,000) | ||||||||||||||
| Spirits Services | 30,000 | 515,000 | (485,000) | ||||||||||||||
| Total Net Revenues | 2,449,000 | 2,414,000 | 35,000 | ||||||||||||||
| COST OF REVENUE | |||||||||||||||||
| Crypto and Related | 277,000 | - | 277,000 | ||||||||||||||
| Spirits Products | 594,000 | 1,897,000 | (1,304,000) | ||||||||||||||
| Spirits Services | - | 18,000 | (18,000) | ||||||||||||||
| Total Cost of Revenue | 871,000 | 1,915,000 | (1,044,000) | ||||||||||||||
| Gross Profit | 1,578,000 | 499,000 | 1,079,000 | ||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||
| Sales and Marketing | 767,000 | 3,287,000 | (2,521,000) | ||||||||||||||
| General and Administrative | 5,903,000 | 6,312,000 | (408,000) | ||||||||||||||
| Change in Fair Value of Intangible Digital Assets | 76,132,000 | - | 76,132,000 | ||||||||||||||
| Total Operating Expenses | 82,802,000 | 9,599,000 | 73,203,000 | ||||||||||||||
| Operating Loss | (81,224,000) | (9,100,000) | (72,124,000) | ||||||||||||||
| OTHER INCOME / (EXPENSE) | |||||||||||||||||
| Interest Expense | (27,000) | (1,119,000) | 1,091,000 | ||||||||||||||
| Restructure Costs Post-Close | (699,000) | - | (699,000) | ||||||||||||||
| Other Income / (Expense) | (241,000) | (106,000) | (134,000) | ||||||||||||||
| Total Other Income / (Expense) | (968,000) | (1,225,000) | 257,000 | ||||||||||||||
| Income / (Loss) Before Income Taxes | (82,191,000) | (10,325,000) | (71,866,000) | ||||||||||||||
| Income Taxes | (1,000) | (3,000) | 2,000 | ||||||||||||||
| Net Income / (Loss) | $ | (82,192,000) | $ | (10,328,000) | $ | (71,864,000) | |||||||||||
| Net Income / (Loss) Per Share, Basic | $ | (68.10) | $ | (463.63) | $ | 395.53 | |||||||||||
| Weighted Average Common Shares Outstanding, Basic | 1,209,784 | 25,837 | 1,183,947 | ||||||||||||||
| Net Income / (Loss) Per Share, Diluted | $ | (68.10) | $ | (463.63) | $ | 395.53 | |||||||||||
| Weighted Average Common Shares Outstanding, Diluted | 1,209,784 | 25,837 | 1,183,947 | ||||||||||||||
Cost of revenue of approximately $871,000 and $1,915,000, and operating expenses of approximately $82,802,000 and $9,599,000 for the six months ended June 30, 2026 and 2025, respectively, included non-cash share-based compensation for employees (personnel) and consultants of approximately $2,311,000 and $3,127,000, respectively, as follows:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Non-Cash Share-Based Compensation | 2026 | 2025 | Change | |||||||||||||||||
| Production / Cost of Revenue | $ | 11,000 | $ | 121,000 | $ | (110,000) | ||||||||||||||
| Sales and Marketing | 108,000 | 647,000 | (539,000) | |||||||||||||||||
| General and Administrative - Director Fees | - | 337,000 | (337,000) | |||||||||||||||||
| General and Administrative | 1,142,000 | 1,810,000 | (668,000) | |||||||||||||||||
| Subtotal Employee Compensation | 1,260,000 | 2,915,000 | (1,655,000) | |||||||||||||||||
| Professional Fees (General and Administrative) | 1,051,000 | 212,000 | 839,000 | |||||||||||||||||
| Total Non-Cash Share-Based Compensation | $ | 2,311,000 | $ | 3,127,000 | $ | (816,000) | ||||||||||||||
Cost of revenue, sales and marketing, and general administrative expense, net of non-cash share-based compensation is as follows:
|
Six Months Ended June 30, 2026 (rounded to $000's) |
Six Months Ended June 30, 2025 (rounded to $000's) |
|||||||||||||||||||||||||||||||||||||
| Expenses Net of Non-Cash Share-Based Compensation | Cost of Revenue | Sales and Marketing | General and Administrative | Cost of Revenue | Sales and Marketing | General and Administrative | ||||||||||||||||||||||||||||||||
| Total Expense | $ | 871,000 | $ | 767,000 | $ | 5,903,000 | $ | 1,915,000 | $ | 3,287,000 | $ | 6,312,000 | ||||||||||||||||||||||||||
| Less: Non-Cash Share-Based Compensation | (11,000) | (108,000) | (2,193,000) | (121,000) | (647,000) | (2,359,000) | ||||||||||||||||||||||||||||||||
| Total Expense, net of Non-Cash Share-Based Compensation | $ | 860,000 | $ | 659,000 | $ | 3,711,000 | $ | 1,794,000 | $ | 2,640,000 | $ | 3,953,000 | ||||||||||||||||||||||||||
Net Revenues - Crypto and Related Business
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Net Revenues - Crypto and Related | 2026 | 2025 | Change | |||||||||||||||||
| Staking Revenue | 1,603,000 | - | 1,603,000 | |||||||||||||||||
| Covered Call Contracts | 403,000 | - | 403,000 | |||||||||||||||||
| $ | 2,006,000 | $ | - | $ | 2,006,000 | |||||||||||||||
Net revenues were approximately $2,006,000 and $0 for the six months ended June 30, 2026 and 2025, respectively, an increase of approximately $2,006,000, or 100%, period over period. There were no comparable revenues in the six months ended June 30, 2025 as we began recognizing staking and validator revenues on September 18, 2025 and revenue from sale of covered call contracts in January of 2026. For the six months ended June 30, 2026, substantially all crypto and related validator business revenue was related to self-staking. Net revenues in this segment include all revenues we realize from staking our own tokens and all revenue from the staking of tokens owned by third parties before paying out 95% of the rewards owed to those third party token owners. Of the approximately [$1,603,000] in Staking Revenue for the six months ended June 30, 2026 [$1,521,000] was derived from our own staking rewards and approximately [$82,000] was the total realized from staking rewards for tokens owned by third parties, 95% of which, or approximately [$78,000], were paid to the third party token owners and is included in cost of revenue.
Of the total validator business revenues related to cryptocurrency we drive operational revenues in two ways: 1) self-staking (tokens we own being staked on our own validator); and 2) staking of third-party tokens. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that we control. Validator services were tested in early September 2025 and were fully functional as of September 18, 2025, meaning the revenue from this activity was only active for the fourth quarter of 2025, and approximately two weeks of the twelve weeks of the third quarter of 2025. In addition to staking revenue, we also generate crypto and related revenue from
the sale of covered call contracts, which began in January 2026 and totaled approximately $403,000 in covered call premiums for the six months ended June 30, 2026.
Cost of Revenue - Crypto and Related Business
Cost of revenue was approximately $277,000 and $0 for the six months ended June 30, 2026 and 2025, respectively, an increase of approximately $277,000 from $0 period over period. Cost of revenue consisted primarily of: technology platform expenses; external engineering support; consulting services for managing our crypto assets and investment strategies; blockchain transaction fees and blockchain rewards payable to third party delegators related to crypto operating activities; and commissions paid on covered call contracts. Of the blockchain rewards payable to third parties, they are derived from staking on behalf of third parties, for which we keep 5% of the rewards earned and pay 95% of the rewards to the third party token owners. Accounting rules require we book the full revenue associated with the total rewards earned and then deduct as a cost the 95% of the rewards payable to the third party token owners, which has the effect of increasing the total cost of revenue associated with staking and reducing our gross profits and gross margins accordingly. Cost of revenue associated with the 95% of staking rewards owed to third parties was approximately $77,747 of the $243,416 total cost of revenue noted in the table below. There was no comparable cost of revenue in the six months ended June 30, 2025 as we began recognizing revenues from staking and validator activities and covered call contracts; and incurring related cost of revenue once our validator services was operational on September 18, 2025 and we began entering into covered call contracts in January 2026.
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Cost of Revenue - Crypto and Related | 2026 | 2025 | Change | |||||||||||||||||
| Staking Costs | 243,000 | - | 243,000 | |||||||||||||||||
| Covered Call Contract Commissions | 34,000 | - | 34,000 | |||||||||||||||||
| $ | 277,000 | $ | - | $ | 277,000 | |||||||||||||||
Gross Profit - Crypto and Related Business
Gross profit was approximately $1,729,000 and $0 for the six months ended June 30, 2026 and 2025, respectively, an increase of approximately $1,729,000, or 100%, period over period, and included:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Profit - Crypto and Related | 2026 | 2025 | Change | |||||||||||||||||
| Staking Gross Profit | 1,360,000 | - | 1,360,000 | |||||||||||||||||
| Covered Call Contracts | 369,000 | - | 369,000 | |||||||||||||||||
| $ | 1,729,000 | $ | - | $ | 1,729,000 | |||||||||||||||
It is important to note that there were no comparable cost of revenue in the six months ended June 30, 2025 as we began recognizing staking and validator revenues and incurring related cost of revenue upon beginning our validator service on September 18, 2025.
Gross Profit Analysis - Crypto and Related Business
Gross Margin numbers were as follows for the six months ended June 30, 2026 and 2025 as follows:
|
Six Months Ended June 30, |
Change | |||||||||||||||||||
|
Total Gross Margin - Crypto and Related
|
2026 | 2025 | ||||||||||||||||||
|
Staking Profit
|
84.8 | % | - | % | 84.8 | % | ||||||||||||||
| Covered Call Profit | 91.7 | % | - | % | 91.7 | % | ||||||||||||||
| 86.2 | % | - | % | 86.2 | % | |||||||||||||||
Gross margin was approximately 86.2% and 0.0% for the six months ended June 30, 2026 and 2025, respectively, based upon total net revenues of approximately $2,006,000 and $0, respectively. As noted above in Cost of Revenue, of the rewards earned for staking third party tokens, 95% is paid out to those third parties, with the net of 5% being
recognized by us. This high cost inflates the overall cost of revenue and reduces our overall gross profit and gross margins. Excluding these third party expenses the cost of operating the validator and earning our own rewards is relatively fixed, consisting primarily of the party consulting services to run the validator and the modest monthly expenses associated with the web service hosting the validator. Because we earn a fairly steady number of tokens in any given period of time from validator services, and because the costa of earning the tokens are relatively fixed, the biggest driver of gross profit and resulting gross margin is the market price of the token itself. The higher the token price the great the gross profit and gross margin. At $1.00 per token the gross profit and gross margin would be much higher than if the token was valued at $0.30 when compared against the same fixed operating costs.
The Gross Profit numbers above are based on the total revenues for the six months ended June 30, 2026 and 2025 as follows:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Net Revenues - Crypto and Related | 2026 | 2025 | Change | |||||||||||||||||
| Staking Revenue | 1,603,000 | - | 1,603,000 | |||||||||||||||||
| Covered Call Contracts | 403,000 | - | 403,000 | |||||||||||||||||
| $ | 2,006,000 | $ | - | $ | 2,006,000 | |||||||||||||||
Net Revenues - Spirits Business
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Net Revenues - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | $ | 412,000 | $ | 1,899,000 | $ | (1,487,000) | ||||||||||||||
| Services | 30,000 | 515,000 | (485,000) | |||||||||||||||||
| $ | 442,000 | $ | 2,414,000 | $ | (1,972,000) | |||||||||||||||
Net revenues were approximately $442,000 and $2,414,000 for the six months ended June 30, 2026 and 2025, respectively, a decrease of approximately $1,972,000, or (81.7)%, period over period.
The approximately $1,487,000 net decrease in product revenues, period over period, included:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Product Revenues - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Wholesale | $ | 290,000 | $ | 727,000 | $ | (437,000) | ||||||||||||||
| Retail | 122,000 | 1,172,000 | (1,050,000) | |||||||||||||||||
| $ | 412,000 | $ | 1,899,000 | $ | (1,487,000) | |||||||||||||||
The approximately $437,000 decrease in wholesale product revenues was primarily the result of halting production of a selection of lower margin products and the timing of orders through the wholesale channel moving between quarters.
The approximately $1,050,000 decrease in retail revenues was primarily a result of having closed all of our retail tasting rooms as of December 31, 2025, with no retail revenue being generated in the period ending March 31, 2026.
The approximately $485,000 decrease in net services revenue period over period included:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Services Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Third Party | $ | 4,000 | $ | 14,000 | $ | (10,000) | ||||||||||||||
| Retail | - | 485,000 | (485,000) | |||||||||||||||||
| Consulting and Other | 26,000 | 16,000 | 10,000 | |||||||||||||||||
| $ | 30,000 | $ | 515,000 | $ | (485,000) | |||||||||||||||
Net services revenue decreased by approximately $485,000 period over period, driven by an approximately $485,000 decrease in retail services due to the closure of all of our retail tasting rooms as of December 31, 2025, with no retail services revenue being generated in the six months ended June 30, 2026.
Cost of Revenue - Spirits Business
Cost of revenue was approximately $594,000 and $1,915,000 for the six months ended June 30, 2026 and 2025, respectively, a decrease of approximately $1,321,000, or 69.0%, period over period. Cost of revenue for the six months ended June 30, 2026 and 2025, respectively, includes approximately $11,000 and $121,000 of non-cash share-based compensation expenses related to RSU grant awards recognized for production employees.
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Cost of Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | $ | 593,000 | $ | 1,897,000 | $ | (1,304,000) | ||||||||||||||
| Services | - | 18,000 | (18,000) | |||||||||||||||||
| $ | 594,000 | $ | 1,915,000 | $ | (1,321,000) | |||||||||||||||
The approximately $1,321,000 decrease in net spirits business cost of revenue period over period included: a decrease in product cost of approximately $1,304,000 to approximately $593,000 for the six months ended June 30, 2026, from approximately $1,897,000 for the six months ended June 30, 2025, and a decrease in unabsorbed overhead of approximately $656,000 to approximately $387,000 for the six months ended June 30, 2026 from approximately $1,043,000 for the six months ended June 30, 2025. The approximately $1,304,000 decrease in products costs was driven largely by the closure of all of our retail tasting rooms as of December 31, 2025, with no retail services revenue being generated in the period ending June 30, 2026 and the exiting of certain low margin spirits products in wholesale.
Services cost of revenue decreased by approximately $18,000 to $0 for the six months ended June 30, 2026 from approximately $18,000 for the six months ended June 30, 2025 primarily resulting from us ending a low-margin third-party production contract for another brand and the wind down of barrel production for third parties.
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Components of Products Cost of Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Product Cost (from inventory) | $ | 207,000 | $ | 829,000 | $ | (622,000) | ||||||||||||||
| Overhead - Unabsorbed | 387,000 | 1,043,000 | (656,000) | |||||||||||||||||
| $ | 594,000 | $ | 1,872,000 | $ | (1,278,000) | |||||||||||||||
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Components of Products Cost of Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Product Cost (from inventory) | 34.8 | % | 44.3 | % | (9.5) | % | ||||||||||||||
| Overhead - Unabsorbed | 65.2 | % | 55.7 | % | 9.5 | % | ||||||||||||||
| 100.0 | % | 100.0 | % | - | % | |||||||||||||||
Unabsorbed overhead as a component of product cost of approximately 65.2% and 55.7% for the six months ended June 30, 2026 and 2025, respectively, has been a significant contributor to our overall low products gross margins. Unabsorbed overhead is a function of costs attributable to the excess capacity and associated overhead in our system. As we moved to third party production in 2026 there will be a transitionary period where we still have Production Overhead costs carried against lower sales, leading to a higher percentage of costs during this period. Once we complete the transition of our final production lease and equipment disposition in 2026, we expect this cost to be largely eliminated in 2027 and beyond as we move to third party and licensee production. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
The approximately $1,278,000 decrease in net products cost of revenue period over period is further detailed as follows:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Products Cost of Revenue - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Spirits - Wholesale | $ | 207,000 | $ | 477,000 | $ | (270,000) | ||||||||||||||
| Spirits - Retail | - | 287,000 | (287,000) | |||||||||||||||||
| Merchandise and Prepared Food | - | 65,000 | (65,000) | |||||||||||||||||
| Unabsorbed Overhead | 387,000 | 1,043,000 | (656,000) | |||||||||||||||||
| $ | 594,000 | $ | 1,872,000 | $ | (1,278,000) | |||||||||||||||
Products cost of revenue decreased by approximately $1,278,000 period over period, driven primarily by: an approximately $270,000 decrease in wholesale product costs as we continued shifting away from lower-margin wholesale volume toward higher-margin direct-to-consumer sales, the elimination of third-party production costs due to no such activity in 2025; an approximately $287,000 decrease in retail product costs driven largely by the closure of all of our retail tasting rooms; and an approximately $656,000 decrease in unabsorbed overhead reflecting reduced capacity as production focus evolved. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Gross Profit / (Loss) - Spirits Business
Gross profit / (loss) was approximately $(151,000) and $499,000 for the six months ended June 30, 2026 and 2025, respectively, a decrease of approximately $650,000, or 130%, period over period, and included:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Profit / (Loss) - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | $ | (181,000) | $ | 1,000 | $ | (182,000) | ||||||||||||||
| Services | 30,000 | 498,000 | (468,000) | |||||||||||||||||
| $ | (151,000) | $ | 499,000 | $ | (650,000) | |||||||||||||||
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Margin - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | (43.9) | % | 0.1 | % | (44.0) | % | ||||||||||||||
| Services | 100.0 | % | 96.7 | % | 3.3 | % | ||||||||||||||
| (34.2) | % | 20.7 | % | (54.8) | % | |||||||||||||||
Gross Margin numbers above are based on the total net revenues for the six months ended June 30, 2026 and 2025 as follows:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Net Revenues - Spirits Business | 2026 | 2025 | Change | |||||||||||||||||
| Products | $ | 412,000 | $ | 1,899,000 | $ | (1,487,000) | ||||||||||||||
| Services | 30,000 | 515,000 | (485,000) | |||||||||||||||||
| $ | 442,000 | $ | 2,414,000 | $ | (1,972,000) | |||||||||||||||
For the six months ended June 30, 2026 and 2025, respectively, the approximately $(181,000) and $1,000 in products gross profit / (loss), and the resulting decline in products gross margin to (43.9)% for the six months ended June 30, 2026 compared to 0.1% for the six months ended June 30, 2025, shows the impact of our reduction in excess capacity by moving to third-party production, thereby reducing unabsorbed overhead to approximately $387,000 in the six months ended June 30, 2026 from $1,043,000 during the six months ended June 30, 2025.
Total gross margin decreased to (34.2)% from 20.7% on lower net revenues. Management is undergoing a significant change in focus for the spirits reporting segment of our business by eliminating our own production leases and disposing of
equipment to get asset-light, instead working through third-party licensees and producers to produce our products for sale into the market. The use of our brands and recipes by trusted licensees can also generate revenue via licensing fees. License fee revenues to us can grow as the third-party licensees increase placement and sales of our brands. Because we would not have the obligations or costs associated with production, marketing or sales for such licensed products, any licensing revenue earned by us should come with higher margins than past revenue tied to our own past production and sales efforts. Finally, because we have now removed all of our own production leases and equipment, we expect the unallocated production overhead expenses incurred in the past to be mostly eliminated on a go-forward basis. (See also below our comments related to this in more detail in Non-GAAP Financial Measures).
Gross Profit - Analysis of Exclusion of Unabsorbed Overhead - Spirits Business
To provide a more detailed view to our performance for products and services based purely on the direct input costs we remove unabsorbed overhead expenses for the following analysis. Products gross profit excluding unabsorbed overhead was approximately $206,000 and $1,044,000 for the six months ended June 30, 2026 and 2025, respectively, a decrease of approximately $838,000, or 80%, period over period, and included:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Profit / (Loss) - Excluding Unabsorbed Overhead | 2026 | 2025 | Change | |||||||||||||||||
| Products Net Revenue | $ | (181,000) | $ | 1,000 | $ | (182,000) | ||||||||||||||
|
Add Back: Unabsorbed Overhead
|
387,000 | 1,043,000 | (656,000) | |||||||||||||||||
|
Products Gross Profit Excluding Unabsorbed Overhead
|
206,000 | 1,044,000 | (838,000) | |||||||||||||||||
| Services | 30,000 | 498,000 | (468,000) | |||||||||||||||||
|
Total Gross Profit Excluding Unabsorbed Overhead
|
$ | 236,000 | $ | 1,542,000 | $ | (1,306,000) | ||||||||||||||
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Total Gross Margin - Excluding Unabsorbed Overhead | 2025 | 2025 | Change | |||||||||||||||||
| Products | (43.9) | % | 0.1 | % | (44.0) | % | ||||||||||||||
|
Add Back: Unabsorbed Overhead
|
93.9 | % | 54.9 | % | 39.0 | % | ||||||||||||||
|
Products Gross Margin Excluding Unabsorbed Overhead
|
50.0 | % | 55.0 | % | (5.0) | % | ||||||||||||||
| Services | 100.0 | % | 96.7 | % | 3.3 | % | ||||||||||||||
|
Total Gross Margin Excluding Unabsorbed Overhead
|
53.4 | % | 63.9 | % | (10.5) | % | ||||||||||||||
Products gross margin excluding unabsorbed overhead of 50.0% for the six months ended June 30, 2026 compared to 55.0% for the same period in 2025 shows the impact of our continued transition and the exiting of the higher margin activities that were related to our retail tasting rooms that closed on December 31, 2025.
Sales and Marketing Expenses
Sales and marketing expenses were approximately $767,000 for the six months ended June 30, 2026 compared to approximately $3,287,000 for the six months ended June 30, 2025. This approximately $2,520,000 decrease included:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| Sales and Marketing Expense | 2026 | 2025 | Change | |||||||||||||||||
|
Personnel - Cash Wages and Related Expense
|
$ | 298,000 | $ | 1,555,000 | $ | (1,257,000) | ||||||||||||||
|
Personnel - Share-Based Compensation
|
108,000 | 647,000 | (539,000) | |||||||||||||||||
| Tasting Room | - | 44,000 | (44,000) | |||||||||||||||||
| Leases and Rentals | - | 378,000 | (378,000) | |||||||||||||||||
| Sales and Marketing Expenses | 103,000 | 288,000 | (185,000) | |||||||||||||||||
| Other | 257,000 | 375,000 | (118,000) | |||||||||||||||||
| $ | 767,000 | $ | 3,287,000 | $ | (2,520,000) | |||||||||||||||
The overall approximately $2,520,000 decrease in sales and marketing expense period over period was the result of a mix of reduced headcount in the wholesale sales team and retail tasting room sales staff as a result of our closure of the
retail tasting rooms on December 31, 2025. This also removed from the cost structure all costs associated with rent and operational overhead associated with the tasting rooms.
General and Administrative Expenses
General and administrative expenses were approximately $5,903,000 for the six months ended June 30, 2026, compared to approximately $6,312,000 for the six months ended June 30, 2025. This approximately $409,000 decrease included:
|
Six Months Ended June 30, (rounded to $000's) |
||||||||||||||||||||
| General and Administrative Expense | 2026 | 2025 | Change | |||||||||||||||||
|
Personnel - Cash Wages and Related Non-Cash Expense
|
$ | 858,000 | $ | 1,394,000 | $ | (536,000) | ||||||||||||||
|
Personnel - Share-Based Compensation
|
1,142,000 | 1,810,000 | (668,000) | |||||||||||||||||
| Professional Fees | 1,567,000 | 960,000 | 607,000 | |||||||||||||||||
| Professional Fees - Share-Based Compensation | 1,051,000 | 212,000 | 839,000 | |||||||||||||||||
| Business Insurance | 467,000 | 243,000 | 225,000 | |||||||||||||||||
| Leases and Rentals | 133,000 | 285,000 | (152,000) | |||||||||||||||||
| Depreciation | 32,000 | 477,000 | (445,000) | |||||||||||||||||
| Other | 654,000 | 594,000 | 60,000 | |||||||||||||||||
| Other - Share-Based | - | 337,000 | (337,000) | |||||||||||||||||
| $ | 5,903,000 | $ | 6,312,000 | $ | (409,000) | |||||||||||||||
General and administrative expenses decreased by approximately $409,000 to approximately $5,903,000 for the six months ended June 30, 2026, from approximately $6,312,000 in the six months ended June 30, 2025, driven primarily by an approximately: $536,000 decrease in personnel cash wages and related non-cash (payroll) expenses; and $668,000 decrease in non-cash personnel share-based compensation, including RSU grants tied to deferred compensation and employee incentives; . General and administrative expenses also included: a decrease of approximately $445,000 in depreciation; a decrease of approximately $152,000 in leases and rentals primarily a result of reduced warehouse space in the six months ended June 30, 2026 compared to the six months ended June 30, 2025 and the restructuring of the spirits business at the end of 2025;;and a decrease of approximately $337,000 in other-share based related primarily to director fees. Non-cash share-based compensation remained a significant component of general and administrative expense in both periods. The respective periods also included offsetting: approximately $607,000 increase in professional fees incurred related to contract Chief Investment Officer services, other outside professional services management of our crypto currency assets, additional public relations and investor relations expenses via third-party professionals and high accounting and audit preparation services to prepare us for our first audit with new additional cryptocurrency accounting obligations; approximately $839,000 increase in share based compensation professional fees related to RSU grants to third party service providers; approximately $225,000 increase in business insurance; and an increase of approximately $60,000 in other.
Interest Expense
Interest expense decreased by approximately $1,091,000 to approximately $27,000 for the six months ended June 30, 2026, compared to approximately $1,119,000 for the six months ended June 30, 2025. The decrease was primarily due to the settlement of the Silverview loan in August 2025.
Gain / (Loss) on Intangible Digital Assets
Change in fair value of intangible digital assets resulted in a loss of approximately $76.1 million for the six months ended June 30, 2026 (based on a closing price on June 30, 2026 of $0.2955 per $DATA token), compared to $0 for the six months ended June 30, 2025, as we had no similar $DATA tokens held for investment as of June 30, 2025 and began recognizing fair value adjustments on $DATA tokens upon closing of the August 15, 2025 PIPE transaction. The loss for the six months ended June 30, 2026 was primarily attributable to unfavorable market movements in the quoted price of $DATA tokens held for investment. We measure fair value using quoted prices in our principal market at the end of each reporting period, with changes recognized in Change in Fair Value of Intangible Digital Assets on the condensed consolidated statements of operations.
During the six months ended June 30, 2026, we sold 1 million $DATA tokens into the market for cash proceeds of approximately $798,000 before deducting any fees or commissions on any such sales, for a loss on sale of intangible digital
assets of approximately $2,360,000[,which is included in] the loss attributed to the change in fair value of intangible digital assets recognized for the same time period.
Restructure Costs
On October 23, 2025, we announced the Restructuring. As of December 31, 2025, we wrote off and expensed approximately $3,393,000 of: property and equipment; operating lease ROU assets and lease liabilities; and other related expenses as part of the Restructuring. During the three and six months ended June 30, 2026, we recorded additional expenses related to the Restructuring of approximately $408,000 and $699,000, respectively, of future lease obligation, and personnel related expenses.
Income Taxes
As of December 31, 2024, we had approximately $61.5 million of federal NOL carryforwards and approximately $192,000 of federal tax credits subject to Section 382 limitations. During the year ended December 31, 2025, we generated additional federal NOLs of approximately $13.3 million, resulting in total federal NOL carryforwards of approximately $74.8 million as of December 31, 2025, before consideration of any limitations under Section 382. Following the ownership changes, our ability to utilize our NOLs and certain tax credits is limited on an annual basis. The analysis determined an initial base annual Section 382 limitation of approximately $1.0 million, which may be increased in certain years by recognized built-in gains attributable to our assets.
Based on the Section 382 limitation analysis, we expect that our tax attributes will be released and available for use gradually over multiple years rather than immediately. For example, estimated annual availability includes approximately:
•$0.8 million available in 2024 (partial year following the ownership change);
•approximately $5.4 million per year from 2025 through 2028;
•approximately $4.7 million in 2029; and
•approximately $1.0 million per year thereafter until the remaining attributes are fully utilized.
The additional NOLs generated during 2025 of approximately $13.3 million may also be subject to the Section 382 limitation to the extent such losses are treated as pre-change attributes or otherwise limited under applicable tax rules. As a result, we expect that a portion of our NOL carryforwards, including those generated in 2025, will be utilizable only over an extended period of time in accordance with the applicable annual limitation amounts.
As reflected in the rollout schedule included in the analysis, a portion of the Company's tax attributes will become available over time through approximately 2044 and subsequent tax years, subject to the Company generating sufficient taxable income to utilize those attributes.
The analysis also indicates that approximately $189,000 of tax credits may be permanently limited and therefore unavailable for utilization as a result of the Section 382 limitations. We will update this estimate to reflect the impact of additional NOLs generated in 2025 of approximately $13.3 million and any resulting changes in the amount of tax attributes that may be limited or available in future periods.
We will continue to evaluate the impact of these limitations as part of its ASC 740 income tax accounting, including the assessment of deferred tax assets and related valuation allowances. Future ownership changes, additional losses generated in 2025 and subsequent years, or changes in taxable income projections could further impact our ability to utilize our NOL carryforwards and other tax attributes.
During the six months ended June 30, 2026, we estimate an increase in our tax loss carryforward of approximately $17.3 million for federal income taxes (based on the applicable statutory federal tax rate of 21%) based on our year to date net loss. While we believe that this benefit may be available to offset taxable income in future periods, the amount and timing of its utilization is subject to the Section 382 annual limitation and our ability to generate future taxable income. As a result of these uncertainties, we have elected to fully reserve against the use of these tax benefits in our financial statements as of June 30, 2026, and accordingly no related income tax benefit has been recognized in the accompanying condensed consolidated financial statements.
Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other
companies, are presented to enhance investors' overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
EBITDA and Adjusted EBITDA: EBITDA represents GAAP net income / (loss) adjusted for (i) depreciation of property and equipment; (ii) interest expense; (iii) share-based compensation; and (iv) provision for income taxes. Adjusted EBITDA represents EBITDA adjusted for the recognition of share-based compensation, non recurring gains and losses; and other one-time items. We believe that EBITDA and adjusted EBITDA help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we include in GAAP operating loss. These non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of this non-GAAP financial measure compared to the closest comparable GAAP measure. Some of these limitations are that:
•Adjusted Gross Profit, EBITDA and adjusted EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
•Adjusted Gross Profit, EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted Gross Profit, EBITDA and adjusted EBITDA exclude certain recurring, non-cash charges such as depreciation of property and equipment and, although this is a non-cash charge, the assets being depreciated may have to be replaced in the future;
•Adjusted Gross Profit, EBITDA and adjusted EBITDA exclude income tax benefit (expense); and
•Other companies in our industry may calculate non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.
The following table presents a reconciliation of our spirits business GAAP Gross Profit to Adjusted Gross Profit by removing unabsorbed overhead for the three and six months ended June 30, 2026 and 2025. Adjusted Gross Margin excluding unabsorbed overhead is the percentage obtained by dividing Adjusted Gross Profit after removing unabsorbed overhead by our GAAP total net revenue. It is an analysis that assumes all excess production capacity and space has been used in production and generating revenue, assigning all such overhead costs across all production and revenue. It is especially important in forecasting to larger entities that may be looking to acquire brands or entities about the amount of inefficiencies they can wring out of a products or production if such products or ventures were acquired and absorbed into their larger and more efficient systems.
|
Three Months Ended June 30, (rounded to $000's) |
Six Months Ended June 30, (rounded to $000's) |
|||||||||||||||||||||||||
| Gross Profit Analysis Excluding Unabsorbed Overhead - Spirits Business | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| GAAP Total Net Revenue | $ | 736,000 | $ | 1,322,000 | $ | 2,449,000 | $ | 2,414,000 | ||||||||||||||||||
| GAAP Gross Profit | $ | 409,000 | $ | 227,000 | $ | 1,578,000 | $ | 499,000 | ||||||||||||||||||
| GAAP Gross Profit Additions / (Deductions): | ||||||||||||||||||||||||||
| Add Back: Unabsorbed Overhead | 110,000 | 607,000 | 387,000 | 1,043,000 | ||||||||||||||||||||||
| Adjusted Gross Profit Excluding Unabsorbed Overhead | $ | 518,000 | $ | 834,000 | $ | 1,965,000 | $ | 1,542,000 | ||||||||||||||||||
| GAAP Gross Margin | 55.5 | % | 17.2 | % | 64.4 | % | 20.7 | % | ||||||||||||||||||
| Adjusted Gross Margin Excluding Unabsorbed Overhead | 70.4 | % | 63.1 | % | 80.3 | % | 63.9 | % | ||||||||||||||||||
The above Adjusted Gross Margin excluding unabsorbed overhead shows the cost of production of our products and services based on raw inputs and direct labor and overhead, removing all unabsorbed overhead expenses for unused capacity. This allows us to examine the cost of each product and its margin as we evaluate where our areas of product focus should be. Management is undergoing a significant change in focus for the spirits reporting segment of our business by eliminating our own production leases and disposing of equipment to get asset-light, instead working through third-party licensees and producers to produce our products for sale into the market. The use of our brands and recipes by trusted licensees can also generate revenue via licensing fees. License fee revenues to us can grow as the third-party licensees increase placement and sales of our brands. Because we would not have the obligations or costs associated with production, marketing or sales for such licensed products, any licensing revenue earned by us should come with higher margins than past revenue tied to our own past production and sales efforts. Finally, because we have now removed all of our own production leases and equipment, we expect the unallocated production overhead expenses incurred in the past to be mostly eliminated on a go-forward basis.
The following table presents a reconciliation of net income / (loss) to EBITDA and adjusted EBITDA for the three and six months ended June 30, 2026 and 2025:
|
Three Months Ended June 30, (rounded to $000's) |
Six Months Ended June 30, (rounded to $000's) |
|||||||||||||||||||||||||
| EBITDA Analysis | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||
| Net Income / (Loss) | $ | (15,447,000) | $ | (7,295,000) | $ | (82,192,000) | $ | (10,328,000) | ||||||||||||||||||
| Add / (Deduct): | ||||||||||||||||||||||||||
| Income Taxes | 1,000 | 3,000 | - | 3,000 | ||||||||||||||||||||||
| Interest Expense | 15,000 | 595,000 | 27,000 | 1,119,000 | ||||||||||||||||||||||
| Depreciation and Amortization | 64,000 | $ | 250,000 | 64,000 | 570,000 | |||||||||||||||||||||
| EBITDA | $ | (15,367,000) | $ | (6,447,000) | $ | (82,101,000) | $ | (8,636,000) | ||||||||||||||||||
| Change in Fair Value of Intangible Digital Assets | 11,662,000 | - | 76,132,000 | - | ||||||||||||||||||||||
| Share-Based Compensation | 772,000 | 3,127,000 | 2,311,000 | 3,127,000 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | (2,933,000) | $ | (3,320,000) | $ | (3,658,000) | $ | (5,509,000) | ||||||||||||||||||
Liquidity and Capital Resources
We have experienced recurring operating losses, negative operating cash flows, and periods of negative working capital. These factors, along with the volatility in the market price of our digital token holdings, represent conditions that could impact our near-term liquidity if not managed appropriately.
We have evaluated our current operating plan, expected revenues, and cost structure and believe that, based on current projections, existing cash resources and anticipated cash flows from operations are sufficient to support ongoing operations and meet obligations as they come due for at least the next twelve months. These projections assume continued execution of our business plan and stabilization of key revenue drivers.
A significant component of our liquidity is derived from our holdings of digital tokens, the value of which is subject to market conditions and price volatility. Accordingly, our liquidity position is, in part, dependent on the future market price of these tokens.
To mitigate potential liquidity constraints and maintain financial flexibility, we have the ability to monetize a portion of our digital token holdings. We intend to actively monitor token market conditions and, if necessary, may sell tokens in an orderly manner to generate cash and support operations. We believe that this flexibility provides an additional source of liquidity that can be utilized to address potential adverse movements in token prices or other market conditions.
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. Management also continues to evaluate new opportunities to expand operating lines and business segments to grow revenue and overall value for the enterprise while also reviewing options to add cash to the balance sheet to improve liquidity.
Share Repurchase Program - On February 19, 2026, we announced that the Board authorized a share repurchase program whereby we may buy back up to 50,000 shares of its outstanding shares of common stock through December 31, 2026. As of June 30, 2026, we had 721,578 shares of its common stock outstanding. Assuming the full execution of buying back 50,000 shares, this would constitute an approximately 6.93% reduction in the number of outstanding shares of common stock. We may acquire shares through open market purchases or privately negotiated transactions, including through a Rule 10b5-1 plan, at the discretion of management and on terms that we determine to be advisable. As of June 30, 2026, no shares of common stock have been repurchased under the share repurchase program.
Cash Flows
The following table sets forth a summary of cash flows for the periods presented:
| Summary of Cash Flows |
For the Six Months Ended
June 30,
(rounded to $000's)
|
|||||||||||||
| 2026 | 2025 | |||||||||||||
| Net Cash Used in Operating Activities | $ | (4,097,000) | $ | (2,729,000) | ||||||||||
| Net Cash Provided by Investing Activities | 3,904,000 | 55,000 | ||||||||||||
| Net Cash Provided by / (Used in) Financing Activities | (33,000) | 3,222,000 | ||||||||||||
| Net Increase / (Decrease) in Cash | $ | (226,000) | $ | 548,000 | ||||||||||
Net Cash Used in Operating Activities
During the six months ended June 30, 2026 and 2025, net cash used in operating activities was approximately $4,097,000 and $2,729,000, respectively, resulting primarily from net income / (loss) of approximately $(82,192,000) and $(10,328,000), respectively. During the six months ended June 30, 2026 and 2025, approximately $(852,000) and $3,484,000, respectively, of cash was (used) / generated by changes in operating account balances of operating assets and liabilities. Non-cash adjustments to reconcile net income / (loss) to net cash used in operating activities were approximately $78,947,000 and $4,115,000 in the respective periods.
The approximately $78,947,000 of non-cash adjustments for the six months ended June 30, 2026 consisted primarily of approximately: $76,132,000 of change in fair value of intangible digital assets; $64,000 of depreciation expense; $224,000 of non-cash amortization of operating lease right-of-use assets; $2,311,000 of non-cash share-based compensation; and $11,000 of non-cash interest expense primarily associated with our notes payable.
The approximately $4,115,000 of non-cash adjustments in the six months ended June 30, 2025 included approximately: $570,000 of depreciation expense; $201,000 of non-cash amortization of operating lease right-of-use assets; $3,128,000 of non-cash share-based compensation; and $207,000 of non-cash interest expense primarily associated with our notes payable.
Net Cash Provided by / (Used in) Investing Activities
During the six months ended June 30, 2026 and 2025, net cash provided by / (used in) investing activities was approximately $3,904,000 and $55,000, respectively, related primarily to the purchase of property and equipment, net of amounts related to proceeds from sale of assets in both periods, and approximately $3,826,000 of proceeds from sale of intangible digital assets during the six months ended June 30, 2026.
Net Cash Provided By / (Used in) Financing Activities
During the six months ended June 30, 2026 and 2025, net cash provided by / (used in) financing activities was approximately $(33,000) and $3,222,000, respectively. The cash proceeds (used) in the six months ended June 30, 2026 of approximately $(33,000) was primarily comprised of approximately $33,000 of repayment of notes payable. The cash proceeds provided by financing activities in the six months ended June 30, 2025 of approximately $3,222,000 were primarily comprised of approximately: $730,000 from the sale of common stock under the ELOC; and $2,792,000 from the sale of Series B preferred stock (and warrants for the first two non-ELOC Investor subscriptions); offset by repayment of notes payable of $300,000.
Supplemental Cash Flow Information
During the six months ended June 30, 2026, supplemental cash flow activity included approximately: $16,000 of cash paid for interest expense; $7,000 of right-of-use assets obtained in exchange for new operating lease liabilities; and $0 of unpaid property and equipment additions.
During the six months ended June 30, 2025, supplemental cash flow activity included approximately: $911,000 of cash paid for interest expense; $4,093,000 of Series B preferred stock issued in exchange for Series A preferred stock; $559,000 of Series B preferred stock issued in exchange for prepaid warrants; and $182,000 of right-of-use assets obtained in exchange for new operating lease liabilities.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements is included in Note 2 to our condensed consolidated financial statements for the six months ended June 30, 2026 and 2025 included elsewhere in this filing.
Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our condensed consolidated financial statements, we believe that the following estimates are those most critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements.
Valuation of Warrant Liabilities
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. The most significant estimates and assumptions used as inputs in the PWERM and MCS valuation techniques impacting the fair value of the warrant liabilities are the timing and probability of an initial public offering, held to maturity, and default scenario outcomes. The most significant estimates and assumptions used as inputs in the PWERM and MCS valuation techniques impacting the fair value of the warrant liabilities are those utilizing certain weighted average assumptions such as expected stock price volatility, expected term of the warrants, and risk-free interest rates.
Valuation of Future Lease Payments
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. The incremental borrowing rate is calculated by modeling our credit rating on our historical arm's-length secured borrowing facility and estimating an appropriate credit rating for similar secured debt instruments. Our calculated credit rating on secured debt instruments determines the yield curve used. In addition, an incremental credit spread is estimated and applied to reflect our ability to continue as a going concern. Using the spread adjusted yield curve with a maturity equal to the remaining lease term, we determine the borrowing rates for all operating leases.
Stock-Based Compensation
We measure compensation for all stock-based awards at fair value on the grant date and recognize compensation expense over the service period on a straight-line basis for awards expected to vest.
The fair value of options granted is estimated on the grant date using the Black-Scholes option pricing model. We use a third-party valuation firm to assist in calculating the fair value of our options. This valuation model requires us to make assumptions and judgments about the variables used in the calculation, including the volatility of our common stock and assumed risk-free interest rate, expected years until liquidity, and discount for lack of marketability. Since we do not have sufficient trading history of our common stock, we estimate the expected volatility of our options at the grant date by taking the average historical volatility of a group of comparable publicly traded companies over a period equal to the expected term of the options. We use the U.S. Treasury yield for our risk-free interest rate that corresponds with the expected term. We determine the expected term based on the average period the options are expected to remain outstanding using the simplified method, generally calculated as the midpoint of the options' vesting term and contractual expiration period, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. We utilize a dividend yield of zero, as we do not currently issue dividends, nor do we expect to do so in the future. Forfeitures are accounted for and are recognized in calculating net
expense in the period in which they occur. Stock-based compensation from vested options, whether forfeited or not, is not reversed.
Stock option awards generally vest on time-based vesting schedules. Stock-based compensation expense is recognized based on the value of the portion of stock-based payment awards that is ultimately expected to vest and become exercisable during the period. We recognize compensation expense for all stock-based payment awards made to employees, directors, and non-employees using a straight-line method, generally over a service period of four years.
We grant stock options to purchase common stock with exercise prices equal to the value of the underlying stock based on the closing price of our common stock as reported on the date of grant. Prior to our initial public offering of our common stock in November 2024, we granted stock options to purchase common stock with exercise prices equal to the value of the underlying stock, as determined by the Board on the date the equity award was granted.
Income Taxes
We follow the Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 740, "Income Taxes" for establishing and classifying any tax provisions for uncertain tax positions. Our policy is to recognize and include accrued interest and penalties related to unrecognized tax benefits as a component of income tax expenses. We are not aware of any entity level uncertain tax positions.
Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our condensed consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enacted date.
Impairment of Long-Lived Assets
All long-lived assets used are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. When such an event occurs, future cash flows expected to result from the use of the asset and its eventual disposition are estimated. If the undiscounted expected future cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the difference between the asset's fair value and its carrying value. We did not record any impairment losses on long-lived assets for the six months ended June 30, 2026 or 2025.
Off-Balance Sheet Arrangements
We had no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of June 30, 2026 or for the periods presented. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Emerging Growth Company Status
The JOBS Act permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies, and our condensed consolidated financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (ii) the last day of our fiscal year following the fifth
anniversary of the date of the closing of our initial public offering (November 25, 2029), (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Further, even after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company," which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.
IP Strategy Holdings Inc. published this content on October 23, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 23, 2026 at 20:09 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]