Company: IPST
Filing Date: 2025-06-13
Form Type: S-1
Source: 0001641172-25-015121
Chunk: 105

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-06-13
Form: S-1
Chunk 105
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4, respectively, based upon total net          
 sales of approximately $1,092,000 and $1,706,000, 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 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 2.8% (57.9% excluding unabsorbed overhead) for the three months ended     
 March 31, 2025 compared to 1.5% (55.3% excluding unabsorbed overhead) for the three              
 months ended March 31, 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), and approximately $2,000 in        
 product inventory write downs in the three months ended March 31, 2025 compared to approximately 
 $79,000 in product inventory write downs and adjustments in the three months ended March         
 31, 2024. 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 $1,315,000 for the three months ended March 31, 2025 compared to approximately $1,190,000 for the three months ended March 31, 2024. This approximately $125,000 increase