Company: IPST
Filing Date: 2025-11-18
Form Type: 10-Q
Source: 0001788230-25-000175
Chunk: 277

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-11-18
Form: 10-Q
Item: Part II, Item 8
Chunk 277
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 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 increased by approximately $15,000 to approximately $29,000 for the three months ended September 30, 2025 from approximately $14,000 for the three months ended September 30, 2024 primarily resulting from increased rent and labor costs associated with our retail spaces.

Components of Products Cost of Sales - Spirits BusinessThree Months Ended September 30,(rounded to $000’s)20252024ChangeProduct Cost (from inventory)$347,000 $636,000 $(289,000)Overhead – Unabsorbed728,000 482,000 246,000  $1,075,000 $1,118,000 $(43,000)

Components of Products Cost of Sales - Spirits BusinessThree Months Ended September 30,20252024ChangeProduct Cost (from inventory)32.3 %56.9 %(24.6)%Overhead – Unabsorbed67.7 %43.1 %24.6 % 100.0 %100.0 %— %

•Unabsorbed overhead as a component of Product Cost of 67.7% and 43.1% for the three months ended September 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 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 September 30, 2025 compared to the fourth quarter 2024 is a reflection of the large product sales and volume we had during in the third quarter of 2024 given versus lower volumes sold during the same period in 2025 as we pulled back on marketing spend while we focused on our cryptocurrency transition. As we move to third party production in 2026 and we move into 2026 with a significantly reduced headcount, we expect