Company: IPST
Filing Date: 2025-08-14
Form Type: 10-Q
Source: 0001788230-25-000126
Chunk: 302

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-08-14
Form: 10-Q
Item: Part I, Item 2
Chunk 302
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. Likewise, as we add more states into our wholesale distribution channel focused solely on high-margin items, rather than any low-margin well vodka in those states, we expect to see additional margin increases. Also, as we add more cases of production through our system, we expect the unabsorbed overhead costs will be reduced as each additive case of new sales volume begins to carry incremental overhead costs as part of the normal manufacturing cost accounting, which should increase our overall margins. Finally, our third-party production contracts were very low margin for us, which is why management made the decision to end those contracts at the end of January 2024 and phase out producing barrels of whiskey for third parties under contract in late 2024. Moving forward, management will focus on higher-margin activities, which we expect will increase our overall margins.

•Gross margin for Products of (2.3)% (55.0% excluding unabsorbed overhead) for the three months ended June 30, 2025 compared to 23.7% (59.1% excluding unabsorbed overhead) for the three months ended June 30, 2024 are inclusive of low margin production contracts we ended in 2024, the significant amount of unabsorbed overhead we booked (which drags down gross margin based on the amount of unused capacity in our system). As we work to shed some of our excess capacity and overhead, and as we increase our sales of higher margin items, we expect this Products gross margin to increase significantly (See also below our comments related to this in more detail in Non-GAAP Financial Measures).

Sales and Marketing Expenses

Sales and marketing expenses were approximately $1,973,000 for the three months ended June 30, 2025 compared to approximately $1,298,000 for the three months ended June 30, 2024. This approximately $675,000 increase included:

Sales and Marketing ExpenseThree Months Ended June 30, (rounded to $000’s)Change20252024Personnel - Cash Wages and Related Expense$826,000 $664,000 $162,000 Personnel - Share-Based Compensation647,000 — 647,000 Tasting Room22,000 35,000 (13,000)Leases and Rentals188,000 187,000 1,000 Sales and Marketing Expenses82,000 181,000 (99,000)Other208,000 231,000 (23,000)$