Company: IPST
Filing Date: 2025-04-28
Form Type: 10-K
Source: 0001788230-25-000048
Chunk: 152

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-04-28
Form: 10-K
Item: Item 7
Chunk 152
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 overall low Products gross margins. Unabsorbed overhead is a functions of costs attributable to the excess capacity and associated overhead in our system. While we made progress seeing this cost drop from 44.6% in 2023 to 41.3% in 2024, we have significant opportunities to push this cost component down further in 2025 and beyond by reducing unused capacity and reducing our real estate footprint to get leaner and more efficient. (See below our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).

The approximately $1,210,000 increase in net products cost of sales period over period is further detailed as follows:

Cost of Sales Products SalesYears Ended December 31, (rounded to $000’s)20242023ChangeSpirits – Wholesale$1,143,000 $1,309,000 $(166,000)Spirits – Retail946,000 848,000 98,000 Spirits – Third Party1,116,000 230,000 886,000 Hand Sanitizer— 46,000 (46,000)Merchandise and Prepared Food418,000 318,000 100,000 Unabsorbed Overhead2,550,000 2,212,000 338,000  $6,173,000 $4,963,000 $1,210,000 

•The larger realized increase in third-party production costs include lower margins for pre-existing barrel production contracts that were put into place prior to 2024, but which are now completed. This is part of management’s strategy of moving away from low margin activity to focus on higher margin activities and products, including our efforts to secure more agreements to open more TBN locations, high-margin DtC sales of our Special Operations Salute whiskey and expanded wholesale distribution of our core products in key states. Management is also working with our wholesale sales team to move us out of the low-margin well vodka business in favor of higher-margin premium whiskey products.

•The approximately $46,000 in one-time aggregate hand sanitizer cost of sales for the year ended December 31, 2023 was due to a vendor invoice from 2020 that we did not receive until early 2023 when the vendor audited its billings for prior years. There was no similar expense in the year ended December 31, 2024 and we do not anticipate any future expenses associated with hand sanitizer