Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of our Prospectuses dated May 18, 2026 and July 6, 2026, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Geographic Markets

Substantially all of our net revenues are currently generated in the United States, which represents our primary market across our spirits, wine, and non-alcoholic beverage portfolios. Certain of our agave-based spirits products are produced in Mexico by our fully owned Mexican subsidiary and third-party production arrangements, but we do not currently operate material direct sales or distribution operations outside the United States.

Strategy

Our long-term strategy, customer and market environment, marketing, sales, and distribution is unchanged from the strategy described in the S-1/A. Within the Wine & Spirits segment, our wine strategy is centered on generating consistent cash flow while preserving market positioning and selectively growing key brands that drive long-term enterprise value, and our spirits strategy reflects a disciplined approach, with a near-term deprioritization in 2026 as we position the business for renewed growth in subsequent periods. In the Non-Alcoholic and Functional segment, we are investing behind Good Twin and the launch of AMASS Electrolytes to build our position in the functional non-alcoholic category. In the second quarter of 2026, we completed the Direct Listing of our common stock on the Nasdaq Global Market.

Recent Developments

Results of Operations

The following table highlights summarized components of our unaudited consolidated statements of operations for the three months ended June 30, 2026 compared to three months ended June 30, 2025:

The following table highlights summarized components of our unaudited consolidated statements of operations for the six months ended June 30, 2026 compared to six months ended June 30, 2025:

Comparable Adjustments

Management excludes items that affect comparability from its evaluation of the results of each operating segment as these Comparable Adjustments are not reflective of core operations of the segments. Segment operating performance and the incentive compensation of segment management are evaluated based on core segment operating loss which does not include the impact of these Comparable Adjustments.

As more fully described herein and in the related Notes, the Comparable Adjustments that impacted comparability in our segment results for each period are as follows:

		Three months ended June 30, 2026				Three months ended June 30, 2025				Six months ended June 30, 2026				Six months ended June 30, 2025
Net revenues
Sales of bulk wine (a)			-				-				-				128,736
Comparable adjustments, Net revenues			-				-				-				128,736
Cost of net revenues
Cost of sales of bulk wine (a)			-				-				-				146,565
Cost of write-down of unutilized wine pre-acquisition (b)			-				-				-				168,930
Comparable adjustments, Cost of net revenues			-				-				-				315,495
General and administrative
Stock-based compensation (c)			226,613				176,916				447,545				221,464
Storage on bulk wine (a)			-				88,185				-				146,344
Comparable adjustments, general and administrative			226,613				265,101				447,545				367,808
Impairment loss (d)			339,283				-				449,685				-
Comparable adjustments, Operating loss			(565,896	)			(265,101	)			(897,230	)			(554,567	)

(a) Sales from divested business unit relates to the sale of Winc.com in June 2023. All of those revenues pre-sale and associated costs are not part of our recurring business and are thus excluded from what the CODM views as regular operations, including storage costs incurred on the excess bulk wine. Operating expenses related to these revenues are also excluded from performance evaluations for the segments.

(b) The Company wrote-down inventory that was acquired as part of the Winc acquisition in 2023. When the Company sold the winc.com business, it lost its ability to sell wine unwanted on the wholesale channel through the winc.com channel. As such, excess bulk wine that was identified and written down was not considered to be a core/recurring operation for the business.

(c) The Company does not include stock-based compensation in its evaluation of performance.

(d) The Company does not include impairment loss in its evaluation of performance.

Business Segments

Net revenue

		Six months ended June 30, 2026				Six months ended June 30, 2025				Dollar Change				Percent Change
Wine & Spirits			8,809,142				9,306,617				(497,475	)			-5	%
Non-Alcoholic and Functional			932,945				400,022				532,923					%
Unallocated amounts			-				10,000				(10,000	)			-100	%
Comparable adjustments			-				128,736				(128,736	)			-100	%
Consolidated net revenues			9,742,087				9,845,375				(103,288	)			-1	%

The decline in comparable adjustments for the six-month period is due to the absence in 2026 of bulk wine sales associated with the divested Winc.com business.

Core brands

Net revenues from our core brands grew 12% for the three months and 11% for the six months ended June 30, 2026, and represented 67% of revenue attributable to brands for the second quarter of 2026 compared with 62% in the prior-year quarter. Pizzolato MUSE and Good Twin drove the increase, together with the launch of AMASS Electrolytes, partially offset by Summer Water, which reflects the timing of seasonal shipments. Other brands declined 9% for the quarter and 8% for the six-month period, driven primarily by Biokult, whose sales were disrupted by an inventory quality issue affecting product received at distributors, which resulted in returns and distributor billbacks, together with lower volume across the balance of the imported portfolio and the legacy AMASS wine and spirits labels, partially offset by growth in Calirosa and the launch of the Pizzolato non-alcoholic spritz line. Discontinued brands declined 27% and 52%, consistent with the portfolio optimization described under "Strategy" above, which deprioritized our spirits portfolio and certain legacy wine labels. Beginning with this Report we separately present discontinued brands (Gem&Bolt and the wine labels we have exited or are winding down, including the remaining Winc-legacy labels) so that the performance of the continuing other-brand portfolio is visible. As our core and priority brands become a larger share of total revenue, we expect revenue to become more capital efficient.

Trade spend and other amounts not attributed to a brand consist of trade spend (promotional allowances, distributor billbacks and chargebacks, and similar payments and credits to distributors and retailers that are recorded as reductions of revenue), together with other revenue adjustments that are recorded after the initial sale and are not attributed to an individual brand in our general ledger; they are presented as a single reconciling line rather than allocated to the brand groupings above. These amounts increased 69% to $0.3 million for the second quarter of 2026 and 50% to $0.4 million for the six-month period, reflecting expanded promotional programming behind wholesale placements for our core brands, deductions associated with the discounted sell-through of slower-moving inventory described under "Gross profit, non-GAAP" below, and approximately $0.1 million of nonrecurring distributor chargebacks and reconciliation items ($0.2 million for the six-month period); excluding these nonrecurring items, trade spend was approximately flat year over year.

Channel mix - direct-to-consumer and e-commerce

Our presentation of gross profit is non-GAAP. Segment gross profit is reconciled to gross profit on the consolidated statement of operations with the inclusion of unallocated amounts and comparable adjustments.

Wine & Spirits gross profit, non-GAAP decreased 31% to $1.4 million (27.4% of segment net revenues) for the second quarter of 2026 from $2.1 million (39.0% of segment net revenues) for the second quarter of 2025. The largest drivers of the decline were deliberate, largely one-time actions we took to convert slower-moving inventory to cash and to rationalize the portfolio. First, we cleared slower-moving finished goods at a discount: the sale of Calirosa Añejo to a discount grocery retailer generated a gross loss, and other below-cost clearance sales added approximately $32,000 of gross loss in the quarter. Second, we recognized inventory obsolescence and write-down charges of approximately $0.1 million in the second quarter of 2026 (approximately $0.3 million for the six-month period) as we continued to clear wine inventory associated with brand rationalization and with the bulk wine and finished goods remaining from the sale of the Winc direct-to-consumer business. In addition to these items, recurring cost pressures also weighed on margin: tariffs on imported wine increased landed product cost, and freight rates rose over the prior-year period, together compressing margin on imported brands. The balance of the decline reflects unfavorable inventory variances and brand mix.

Non-Alcoholic and Functional gross profit, non-GAAP was $75 thousand (18.3% of segment net revenues) for the second quarter of 2026, compared with $61 thousand (34.7% of segment net revenues) for the second quarter of 2025; gross profit dollars grew with the revenue base while margin compressed. The compression is concentrated in Good Twin, where tariffs on imported product increased landed cost and we used expedited modes of freight to keep the brand in stock through a period of rapid growth, which increased costs. We expect these pressures to moderate as freight and inventory positions normalize.

Gross margin, non-GAAP, by channel

Gross margin by channel, on the same basis as the channel revenue table above, was as follows. Channel gross margins reflect costs directly attributable to each channel; inventory write-down and variance charges, which are not attributable to a specific channel, are presented separately:

Direct-to-consumer and e-commerce gross margin was 16.7% for the second quarter of 2026 compared with 30.7% in the prior-year quarter, and 11.9% for the six-month period compared with 51.1%. The decline principally reflects outbound parcel freight (the recurring weekly e-commerce shipping cost for Good Twin and AMASS Electrolytes, which ran approximately 44% of direct-to-consumer net revenues in the quarter), together with tariffs on imported product; prior-year margins also reflect a very small revenue base. Wholesale and other gross margin was 33.9% for the second quarter of 2026 compared with 39.0% in the prior-year quarter, and 32.2% for the six-month period compared with 35.8%, reflecting the tariff, freight and clearance-sale dynamics described above.

Product margin, non-GAAP, by brand grouping

Product margin for the brand groupings presented under "Core brands" above, on the same item-level basis as the revenue attributable to brands table, with trade spend and cost of net revenues that are recorded in our general ledger without reference to a specific item (including outbound freight, third-party logistics and fulfillment fees, warehouse labor, excise taxes, and inventory write-down and variance charges) presented as a single reconciling line, was as follows:

Core brands carried a 43.7% product margin for the second quarter of 2026 (44.9% in the prior-year quarter) and 41.6% for the six-month period, while continuing other brands declined to 28.1% from 38.2% for the quarter (reflecting the Biokult disruption, tariffs and the clearance activity described above), and discontinued brands ran at 14.2% as they wind down. The margin pressure on the portfolio is therefore concentrated in the brands we are deprioritizing, while the core brands we are investing behind held their margin profile. The reconciling line reflects where these costs are recorded rather than a judgment that they do not relate to our brands: because they are recorded without item-level detail, they are not allocated to the brand groupings even where they are associated with particular brands. In particular, the line includes the outbound parcel freight and third-party fulfillment costs of our direct-to-consumer channel, which support our non-alcoholic core brands (Good Twin and AMASS Electrolytes); these costs are presented, together with the net revenues they support, in the direct-to-consumer and e-commerce gross profit discussion above.

Management uses product margin to evaluate the underlying unit economics of the brand portfolio and to guide marketing investment and distribution focus among brand groupings, because it isolates item-level profitability from shared fulfillment, logistics and other costs that are managed at the consolidated level. Because product margin excludes these recurring costs, it is not a measure of overall profitability and should not be considered a substitute for gross profit or gross margin determined in accordance with GAAP.

To reduce repetition across our non-GAAP presentations, we present adjusted gross profit and adjusted gross margin within this gross profit discussion. The following bridge presents consolidated gross profit excluding the cost-of-revenue items that are included in the Adjusted EBITDA adjustments described under "Adjusted EBITDA" below (inventory write-downs and variance and bulk wine, net). Adjusted gross margin is computed on consolidated net revenues without adjustment. These measures are non-GAAP; the adjustment amounts agree to the corresponding lines of the Adjusted EBITDA reconciliation.

On this adjusted basis, gross margin was 29.3% for the second quarter of 2026 compared with 39.0% for the prior-year quarter, and 29.1% for the six-month period compared with 36.0% in the prior year. The residual decline reflects: tariffs on imported wine and elevated freight rates; the discounted sell-through of slower-moving finished goods to convert inventory to cash, including the sale of Calirosa Añejo to a discount grocery retailer and other clearance sales made at little or no margin; the increase in trade spend, including the nonrecurring Biokult billbacks described above; and brand and channel mix.

Sales and marketing

		Three months ended June 30, 2026				Three months ended June 30, 2025				Dollar Change				Percent Change
Wine & Spirits			773,713				943,782				(170,069	)			-18	%
Non-Alcoholic and Functional			207,446				31,973				175,473					%
Unallocated amounts			78,718								78,098				12596	%
Comparable adjustments			-				-				-				N/A
Consolidated sales and marketing			1,059,877				976,375				83,502					%

		Six months ended June 30, 2026				Six months ended June 30, 2025				Dollar Change				Percent Change
Wine & Spirits			1,495,438				1,840,388				(344,950	)			-19	%
Non-Alcoholic and Functional			415,168				117,686				297,482					%
Unallocated amounts			116,748				11,706				105,042					%
Comparable adjustments			-				-				-				N/A
Consolidated sales and marketing			2,027,354				1,969,780				57,574					%

Sales and marketing expense, which includes the payroll costs of our sales, marketing and digital teams, was $1.1 million for the second quarter of 2026, an increase of 9% over the prior-year quarter, and $2.0 million for the six-month period, an increase of 3%. Non-Alcoholic and Functional sales and marketing expense increased to $0.4 million for the six months ended June 30, 2026 from $0.1 million in the prior-year period, reflecting deliberate investment behind Good Twin and the AMASS Electrolytes launch, including increased digital media spend. Wine & Spirits sales and marketing expense of $1.5 million for the six-month period decreased 19% year-over-year, reflecting tighter discipline around trade and promotional spend, which partially offset the Non-Alcoholic and Functional investment.

General and administrative

Consolidated G&A expense increased $4.1 million, or 216%, for the second quarter of 2026 versus the prior-year quarter, and $4.5 million, or 112%, for the six-month period. The increase was concentrated in unallocated corporate costs associated with becoming a public company: for the six months ended June 30, 2026, legal expenses of $0.6 million (substantially all incurred in the second quarter), other professional fees of $3.4 million (including $1.9 million of Direct Listing advisory fees settled in shares of Common Stock), investor and public relations fees of $0.5 million, and accounting and tax services of $0.2 million, together with $0.4 million of stock-based compensation (a Comparable Adjustment) and $0.7 million of advisory share-based expense recognized in the first quarter. Segment G&A declined in the Wine & Spirits segment on headcount actions and shared-service consolidation, while Non-Alcoholic and Functional G&A grew with the build-out of the AMASS Electrolytes business.

Research and development

We did not have material research and development costs in the three or six months ended June 30, 2026 or June 30, 2025.

Impairment

In the second quarter of 2026, we recognized a $0.3 million impairment of our investment in Full Glass in connection with the Side Letter Agreement described in Notes 6 and 17 to our unaudited condensed consolidated financial statements. The six-month 2026 period also includes the $0.1 million first-quarter impairment charge on intangible assets associated with our Gem&Bolt acquisition. Both charges are treated as Comparable Adjustments; no impairment was recognized in 2025.

Operating loss

Consolidated loss from operations widened $5.2 million year-over-year for the second quarter and $5.8 million for the six-month period, driven principally by unallocated corporate G&A associated with the Direct Listing, as discussed under "General and Administrative" above. Wine & Spirits segment results moved from operating income of $0.1 million in the second quarter of 2025 to an operating loss of $0.3 million in the second quarter of 2026 on the lower gross profit described above. Non-Alcoholic and Functional segment operating loss widened to $0.3 million for the second quarter of 2026 (from approximately break-even), reflecting the sales and marketing investment behind Good Twin and the AMASS Electrolytes launch ahead of the revenue those investments are intended to build. The increase in unallocated amounts (corporate costs not attributed to either segment) accounted for $4.2 million of the $5.2 million increase in consolidated operating loss for the quarter and $5.0 million of the $5.8 million increase for the six-month period, principally the public-company and Direct Listing-related costs described under "General and administrative" above.

Adjusted EBITDA, non-GAAP

In addition to our results determined in accordance with U.S. GAAP, we use Adjusted EBITDA, a non-GAAP financial measure, to evaluate our operating performance. We define Adjusted EBITDA as net loss before interest, income taxes, depreciation and amortization, further adjusted for a fixed set of add-backs: one-off deal and direct-listing costs; stock-based compensation; stock-settled banker fees; impairment and bad debt, net; inventory write-downs and variance; juice storage; merchant and factoring fees; the net results of bulk wine and of the divested business unit; loss on contracts; and one-time credits, which are deducted. Recurring public-company operating costs (including annual exchange listing fees, directors' and officers' insurance, incremental headcount and ongoing investor-relations costs) are not added back and remain in Adjusted EBITDA.

We present Adjusted EBITDA because management uses it to evaluate operating performance and allocate resources, and because we believe it assists investors in comparing our operating performance across periods by removing items that are non-cash, non-recurring, or not indicative of our ongoing operations. Adjusted EBITDA has limitations as an analytical tool: it excludes interest expense on indebtedness we are obligated to service, it excludes depreciation and amortization of assets that will need to be replaced, and other companies may calculate similarly titled measures differently, limiting comparability. Adjusted EBITDA should be considered in addition to, and not as a substitute for or superior to, net loss or any other measure determined in accordance with U.S. GAAP. The following table reconciles net loss, the most directly comparable GAAP measure, to Adjusted EBITDA:

Other income (expense)

Total other expense was $(1.6) million for the second quarter of 2026 versus $(0.5) million for the prior-year quarter. Interest expense of $1.3 million for the second quarter of 2026 includes the noncash write-off of the remaining unamortized discount on the Convertible Notes (approximately $1.0 million) upon their automatic conversion at the Direct Listing, partially offset by a $0.2 million gain from the change in fair value of derivative liabilities settled in connection with the conversion. For the six-month period, total other expense improved $0.2 million year-over-year, as the prior-year period included interest and late-fee charges on the Secured Promissory Note prior to its restructuring. Other income (expense), net also improved year-over-year, as the prior-year periods included losses on sales of securities at fair value.

Liquidity and Capital Resources

Sources of Liquidity

We have historically funded our operations through issuances of stock, credit facilities, term loans, revenue producing activities, convertible debt, and SAFE agreements. During the second quarter of 2026, we received $7.0 million in aggregate from the issuance of Series C Convertible Preferred Stock and the associated warrant across the First and Second Closings (before a $30,000 transaction expense deduction) under the Streeterville SPA, and our Convertible Notes (aggregate principal of $2.8 million plus accrued interest) converted into common stock, eliminating that indebtedness. As of June 30, 2026, we had cash and cash equivalents of $1.6 million, and the outstanding balance under our ABL was $3.8 million against a maximum credit of $5.0 million (subject to borrowing-base availability).

Based on our recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and the need to raise additional capital to finance our future operations, we have concluded that there is substantial doubt regarding our ability to continue as a going concern within one year after the date of these financial statements.

Cash Flows

Operating activities. Net cash used in operating activities was $6.1 million for the six months ended June 30, 2026, compared with $1.3 million for the prior-year period. The increase in operating cash use reflects the higher net loss, a $1.7 million increase in accounts receivable, a $0.6 million increase in inventory, and a $0.3 million increase in prepaid expenses and other current assets, partially offset by a $1.4 million increase in accounts payable.

Investing activities. Net cash used in investing activities was $1.8 million for the six months ended June 30, 2026, driven by $1.8 million of purchases of related-party investments (the Afterdream and HpO SAFEs), compared with $0.8 million provided in the prior-year period (which included $0.5 million of proceeds from investment sales and $0.3 million from notes receivable).

Financing activities. Net cash provided by financing activities was $8.7 million for the six months ended June 30, 2026, driven by the $7.0 million Series C issuance, $1.4 million of convertible note proceeds received in the first quarter, $0.9 million of warrant and option exercises, and $0.5 million of net ABL draws, partially offset by $0.5 million of offering costs paid in cash, $0.2 million of debt repayments and the $0.4 million settlement of the repurchase obligation.

Streeterville Capital Prepaid Preferred Purchase

Under the SPA, subsequent purchases of Series C Convertible Preferred Stock (up to the $30.0 million commitment) are at our election during the two-year commitment period, subject to conditions including minimum market capitalization, outstanding-balance limits, minimum median and average daily trading volumes, stockholder-equity thresholds, trading-price conditions relative to the Floor Price, and an effective registration statement. Conversions are initially at a fixed price based on the Nasdaq listing valuation and, after the earlier of 180 days post-listing or specified trigger events (a Trigger Event occurred in July 2026 in connection with the Nasdaq notices described under "Recent Developments" above; see Note 17), at an alternate price equal to the lower of the fixed price and 90% of the lowest daily VWAP in the ten trading days prior to conversion, subject to a floor. We believe this facility will enhance near-term liquidity but will also result in dilution to existing stockholders and could constrain other financing alternatives.

Future funding requirements

We anticipate that we will continue to incur net losses for the foreseeable future. As of December 31, 2025, we had $0.8 million in cash and cash equivalents. During the six months ended June 30, 2026, we received $7.0 million from the Series C issuance, $1.4 million from convertible notes (first quarter), and $0.9 million from warrant and option exercises. As of June 30, 2026 we had $1.6 million in cash and cash equivalents. We do not believe that our existing cash and cash equivalents, together with availability under the Streeterville facility and our ABL, will be sufficient to fund our operating plan for the twelve months following the issuance of this Report, and we will require additional capital; see the going-concern discussion below and in Note 2 to our unaudited condensed consolidated financial statements.

Our ability to continue as a going concern for the next twelve months is dependent upon our ability to generate sufficient cash flows from operations to meet our obligations, which we have not been able to accomplish to date, and/or to obtain additional working capital through equity or debt financings, refinancings or extensions of existing obligations, or reductions in operating costs.

Material cash requirements

Our material cash requirements consist primarily of debt obligations, amounts due under SAFEs upon triggering events, leases and licensing fees, payables to inventory suppliers, and payables for professional services. The table below summarizes our material cash requirements as of June 30, 2026, separated between short-term (within the next twelve months) and long-term (thereafter):

(amounts in thousands)

Note: Amounts reflect contractual obligations and known commitments as of June 30, 2026 and do not include discretionary operating expenditures.

(1) Represents scheduled principal and interest payments under our credit facility, assuming renewal of the credit facility in the ordinary course consistent with historical practice. Amounts are based on contractual repayment terms in effect as of the reporting date and do not reflect potential acceleration resulting from covenant breaches or events of default.

(2) Represents scheduled principal and interest payments under our other indebtedness based on contractual terms in effect as of the reporting date, including the Secured Promissory Note installments under Amendment No. 3. The amounts presented do not reflect potential acceleration, extensions, refinancings, or other modifications that management may pursue.

(3) Our SAFEs and convertible instruments do not require scheduled cash repayment and are generally convertible into equity upon the occurrence of a qualifying financing, liquidity event, or other specified triggering events. As a result, no cash payments are reflected in the short-term column; amounts presented in the long-term column reflect potential settlement amounts only in the event that conversion does not occur.

(4) Represents the $42,248 monthly obligation under the Santa Maria warehouse lease through December 2026. We do not have any other material leases or licensing fees.

(5) Represents payables to various suppliers throughout our supply chain. Management continues to negotiate settlements and extended payment plans with certain vendors, including the conversion of a portion of outstanding payables into term debt.

(6) Represents payables to various professional service providers related primarily to legal and transaction services, including amounts payable to our direct-listing legal counsel, which management intends to negotiate and settle over the next several years through a combination of negotiated reductions and conversions to equity.

Contractual Obligations and Commitments - the Full Glass supplier contracts were amended subsequent to quarter-end by the Full Glass Side Letter Agreement dated July 29, 2026, described in Note 17. Bulk wine contracts are otherwise unchanged in substance from the disclosure in our Q1 2026 Form 10-Q, except as described in Notes 6 and 17.

Critical Accounting Policies

Fair Value Option

ASC 825, Financial Instruments (ASC 825), allows for entities to elect the "fair value option," which permits entities to choose, at specified election dates, to measure eligible financial assets and financial liabilities at fair value. The decision to elect the fair value option is: (a) applied on an instrument-by-instrument basis (except as delineated within the guidance of ASC 825); (b) irrevocable, unless a new election date occurs; and (c) applied to an entire instrument. The Company has elected the fair value option on its equity investment in De Soi, Inc. ("De Soi"). Management determined to elect the fair value option on these investments in order to provide more useful information to the shareholders regarding the performance of its investment.

Business combinations

The Company accounts for business combinations under ASC 805, Business Combinations, which requires that the assets acquired and the liabilities assumed be recorded at the date of acquisition at their respective fair value and that direct costs of acquisitions be expensed as they are incurred. The excess purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Inventory

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method and consist of components, finished goods, and products in transit from the Company's suppliers. Costs of finished goods inventories include all costs incurred to bring inventory to its current condition, including inbound freight and duties. If the Company determines that the estimated net realizable value of its inventory is less than the carrying value of such inventory, it records a charge to cost of net revenues to reflect the lower of cost or net realizable value. If actual market conditions are less favorable than those projected by the Company, further adjustments may be required that would increase the cost of goods sold in the period in which such a determination was made.

Impairment of long-lived assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC Subtopic 360-10-35, Property, Plant, and Equipment - Overall - Subsequent Measurement (ASC 360). In accordance with ASC 360, the Company reviews its long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future undiscounted net cash flows that it expects the asset to generate. When an asset is determined to be impaired, the Company recognizes the impairment amount, which is measured by the amount the carrying value of the asset exceeds its fair value. In addition, the Company evaluates goodwill for impairment in accordance with ASC 350, Intangibles-Goodwill and Other (ASC 350). Goodwill is tested at least annually, or more frequently if a triggering event occurs. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess, not to exceed the total amount of goodwill.

Stock-based compensation

The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, advisors, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. Stock-based compensation is recognized as expense over the employee's requisite vesting period and over the nonemployee's period of providing goods or services. The fair value of each stock option and warrant grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information for its stock. Therefore, it estimates its expected stock price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions. The assumptions used in calculating the fair value of stock-based awards represent management's best estimates and involve inherent uncertainties and the application of management's judgment.

Revenue recognition

The Company recognizes revenue under FASB ASC 606, Revenue from Contracts with Customers. The Company derives its revenue primarily through the sale of alcohol and non-alcoholic spirits, wine, seltzers, and personal care products in both wholesale and direct to consumer channels. The Company's revenue generating activities have a single performance obligation and are recognized when the ordered goods are shipped to the end customer, which is when control transfers. Net revenues reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional and advertising allowances, coupons, and rebates. The determination of the reduction of the transaction price for variable consideration requires certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recognized. All such estimates were not material for the three and six months ended June 30, 2026 and June 30, 2025.

Critical estimates

Inventory valuation

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method and includes materials, labor, and applicable overhead. We regularly evaluate inventory for potential obsolescence, slow-moving or excess quantities, spoilage, shrinkage, and changes in net realizable value. These estimates require management judgment and are influenced by factors such as changes in consumer demand, supply chain disruptions, inflation, and raw material price volatility, any of which could materially impact our results. Estimation in the periods presented included expected losses on long-term supply contracts where the net realizable value of certain inventoriable goods are believed to be below the contractual purchase price. As it pertains to the Company's bulk wine purchase, this includes consideration of the varietal, vintage, and volume of product versus the market price.

Long-term contracts

We evaluate long-term supply and purchase contracts to determine whether the expected costs to fulfill our obligations exceed the anticipated economic benefits. When estimated costs under a supply contract exceed its realizable value, we recognize a loss for the difference in accordance with U.S. GAAP. These estimates require management judgment regarding future market prices, utilization, and recoverability, and actual results may differ from those estimates.

Impairment on goodwill

We allocate the purchase price in business combinations to net assets, including identifiable intangible assets and goodwill. Goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment at least annually or whenever indicators of impairment arise. Definite-lived intangible assets are amortized over their useful lives and tested for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Inputs to impairment tests include market multiples, forecasted cash flows, growth rates, margins, allocations between reporting units, and long-term projections.

Intangible asset valuation

The determination of the fair value of identifiable intangible assets acquired in business combinations requires significant management judgment. The Company values trademarks and other brand-related intangible assets using the relief-from-royalty method, which estimates the present value of future after-tax cash flows saved by owning the asset rather than licensing it. Key inputs include projected revenues attributable to the acquired brands, an assumed royalty rate, and a discount rate that reflects the time value of money and the risk characteristics of the underlying cash flows.

Fair value of equity awards

We grant equity-based awards for compensation purposes. The measurement of compensation expense for these awards requires management to estimate the fair value of the underlying common stock (for awards granted prior to our Direct Listing), as well as the awards on the grant date, which require assumptions regarding expected term, volatility, dividend yield, and forfeiture rates. Changes in these assumptions could materially affect the amount of expense recognized in our financial statements.

Fair value measurements of investments

The Company measures certain investments at fair value on a recurring basis under ASC 820, using Level 3 inputs due to significant unobservable assumptions. Fair value is determined using a market-based approach that considers comparable company multiples, liquidity discounts, and recent transactions, including partial investment sales. Changes in these assumptions could materially affect the valuation. There were no changes in valuation methodologies during the six months ended June 30, 2026.

Accounts receivable

Accounts receivable are derived from products and services delivered to customers and are stated at their net realizable value. The Company establishes an allowance for expected credit losses on financial assets, including trade and other receivables, at each reporting date. The allowance reflects management's estimate of lifetime expected credit losses based on historical collection experience, the type and credit quality of the customer, the age of outstanding receivables, and current and expected future economic conditions.

Derivative liabilities

The accounting for the Company's derivative liabilities requires the use of significant estimates and management judgment. These derivative liabilities arise from embedded features within certain convertible debt instruments and associated warrants that do not qualify for equity classification under applicable accounting guidance. The fair value of these derivative instruments is determined using valuation models that incorporate probability-weighted scenarios, including "with and without" methodologies, to estimate potential settlement outcomes. Because these inputs are not directly observable in the market, the derivative liabilities are classified as Level 3 within the fair value hierarchy.

Convertible debt

The accounting for the Company's convertible promissory notes and associated warrants requires the application of complex accounting guidance and the use of significant estimates and assumptions. The Company evaluated the embedded conversion features and related warrants under applicable accounting standards to determine whether these instruments qualify for equity classification or must be accounted for as derivative liabilities. For those features that do not qualify for equity classification, the Company records them at fair value as derivative liabilities, with changes in fair value recognized in earnings until settlement or expiration. The Convertible Notes converted into Common Stock upon the Direct Listing in May 2026 (see Note 10).

SAFE notes

The accounting for the Simple Agreement for Future Equity ("SAFE") issued in connection with the Good Twin business requires the application of significant judgment and the use of estimates. Because the SAFE contains contingent settlement provisions that could require cash settlement upon certain events outside the Company's control, the Company concluded that the instrument should be classified as a liability and measured at fair value, with changes in fair value recognized in earnings until conversion or settlement. Estimating the fair value of the SAFE requires the use of valuation models and significant assumptions, including the estimated equity value of Good Twin, expected volatility, the probability and timing of potential equity financings or liquidity events, and other market-based inputs.

Emerging Growth Company and Smaller Reporting Company Status

The Jumpstart Our Business Startups Act of 2012 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 not to "opt out" of such extended transition period. As a result of this election, our 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.