Company: IPST
Filing Date: 2025-11-18
Form Type: 10-Q
Source: 0001788230-25-000175
Chunk: 276

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-11-18
Form: 10-Q
Item: Part II, Item 8
Chunk 276
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Cost of Sales — Spirits Business

Cost of sales were approximately $1,104,000 and $1,132,000 for the three months ended September 30, 2025 and 2024, respectively, a decrease of approximately $28,000, or 2.47%, period over period. Cost of sales for the three months ended September 30, 2025 includes approximately $121,000 of non-cash share-based compensation expenses related to RSU grant awards recognized in the three months ended September 30, 2025 for production employees compared to no such award recognition in 2024. Removing the $121,000 in non-cash share-based compensation from the cost of the sales indicates the adjusted cost of sales for the spirits business from an inputs and other overhead perspective was $149,000 less than the same period over period, or a reduction of 13.2%. 

Three Months Ended September 30,(rounded to $000’s)Cost of Sales -Spirits Business20252024ChangeProducts$1,075,000 $1,118,000 $(43,000)Services29,000 14,000 15,000 $1,104,000 $1,132,000 $(28,000)

The approximately $43,000 decrease in net products cost of sales period over period included: a decrease in product cost of approximately $289,000 to approximately $347,000 for the three months ended September 30, 2025, from approximately $636,000 for the three months ended September 30, 2024, and an increase in unabsorbed overhead of approximately $246,000 to approximately $728,000 as of September 30, 2025 from approximately $482,000 as of September 30, 2024. We made the choice to move our sales focus onto higher margin products and away from low margin well-based products, resulting in fewer cases sold in 2025 relative to 2024. Fewer cases of production carrying the same amount of overhead increases the unabsorbed overhead, and the associated cost per case, using standard cost accounting methodologies. Assuming all other factors remain steady in the business, as we work to grow our Salute Series volume 

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sales, which is our highest margin item, we will begin to see reductions in our unabsorbed overhead overall and per case, leading to higher gross margins. This is purely a function of how much excess capacity