Company: IPST
Filing Date: 2025-08-14
Form Type: 10-Q
Source: 0001788230-25-000126
Chunk: 116

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-08-14
Form: 10-Q
Item: Part I, Item 1
Chunk 116
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 approximately $12,000 for the three months ended June 30, 2025 from approximately $3,000 for the three months ended June 30, 2024 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.

Components of Products Cost of SalesThree Months Ended June 30,(rounded to $000’s)20252024ChangeProduct Cost (from inventory)$476,000 $590,000 $(114,000)Overhead – Unabsorbed607,000 511,000 96,000  $1,083,000 $1,101,000 $(18,000)

Components of Products Cost of SalesThree Months Ended June 30,(rounded to $000’s)20252024ChangeProduct Cost (from inventory)44.0 %53.6 %(9.6)%Overhead – Unabsorbed56.0 %46.4 %9.6 % 100.0 %100.0 %— %

•Unabsorbed overhead as a component of Product Cost of 56.0% and 46.4% for the three months ended June 30, 2025 and 2024, respectively, are significant contributors to our current overall low products gross margins. Unabsorbed overhead is a function of costs attributable to the excess capacity and associated overhead in our system. While we made progress seeing this cost drop to 41.3% in the full year ended December 31, 2024, from 44.6% in the full year ended December 31, 2023, we have significant opportunities to push this cost component 

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down further in 2025 and beyond by reducing unused capacity and reducing our real estate footprint to get leaner and more efficient. The increase in the unabsorbed overhead percentage in the three months ended June 30, 2025 compared to the fourth quarter 2024 is a reflection of the large product sales and volume we had during in the fourth quarter of 2024 given fourth quarter of a year is typically the strongest quarter and the first quarter is typically the slowest quarter of the year in the spirits industry. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).

The approximately $18,000 decrease in net products cost of sales period over period is further detailed as follows:

Cost of Sales