Company: IPST
Filing Date: 2025-11-18
Form Type: 10-Q
Source: 0001788230-25-000175
Chunk: 344

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-11-18
Form: 10-Q
Item: Part I, Item 2
Chunk 344
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 the total sales for the three months ended September 30, 2025 and 2024 as follows:

Total Sales - Spirits BusinessThree Months Ended September 30,(rounded to $000’s)Change20252024Products$816,000 $1,375,000 $(559,000)Services265,000 399,000 (134,000) $1,081,000 $1,774,000 $(693,000)

•Gross margin was approximately (2.1)% and 36.2% (65.2% and 63.4%, excluding unabsorbed overhead) for the three months ended September 30, 2025 and 2024, respectively, based upon total net sales of approximately $1,081,000 and $1,774,000, respectively. As we add more Special Operations Salute sales via online channels, we expect to see our overall gross margin increase. 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 move cases of production to third party production and reduce our in-house production capacity, 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 

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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 (31.7)% (57.5% excluding unabsorbed overhead) for the three months ended September 30, 2025 compared to 18.7% (53.7% excluding unabsorbed overhead) for the three months ended September 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 move to third party production in 2026 and we move into 2026 with a significantly reduced headcount, we expect unabsorbed