Company: IPST
Filing Date: 2025-11-18
Form Type: 10-Q
Source: 0001788230-25-000175
Chunk: 147

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-11-18
Form: 10-Q
Item: Part I, Item 1
Chunk 147
---
 sales indicates the adjusted cost of sales for the spirits business from an inputs and other overhead perspective was $627,000 less than the same period over period, or a reduction of 17.8%. 

Nine Months Ended September 30,(rounded to $000’s)Cost of Sales - Spirits Business20252024ChangeProducts$2,972,000 $3,429,000 $(457,000)Services46,000 95,000 (49,000)$3,018,000 $3,524,000 $(506,000)

The approximately $457,000 decrease in net products cost of sales period over period included: a decrease in product cost of approximately $599,000 to approximately $1,176,000 for the nine months ended September 30, 2025, from approximately $1,775,000 for the nine months ended September 30, 2024, and an increase in unabsorbed overhead of approximately $142,000 to approximately $1,796,000 as of September 30, 2025 from approximately $1,654,000 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 

70

methodologies. Assuming all other factors remain steady in the business, as we work to grow our Salute Series volume 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 we have in our production system at the time while we transition from low margin, but high volume production to higher margin products. 

Services cost of sales decreased by approximately $49,000 to approximately $46,000 for the nine months ended September 30, 2025 from approximately $95,000 for the nine months ended September 30, 2024 primarily resulting from our 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 Sales - Spirits BusinessNine Months Ended September 30,(rounded to $000’s)20252024ChangeProduct Cost (from inventory)$1,176,000 $1