Company: IPST
Filing Date: 2025-11-18
Form Type: 10-Q
Source: 0001788230-25-000175
Chunk: 291

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-11-18
Form: 10-Q
Item: Part II, Item 8
Chunk 291
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 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 $1,775,000 $(599,000)Overhead – Unabsorbed1,796,000 1,654,000 142,000  $2,972,000 $3,429,000 $(457,000)

Components of Products Cost of Sales - Spirits BusinessNine Months Ended September 30,20252024ChangeProduct Cost (from inventory)39.6 %51.8 %(12.2)%Overhead – Unabsorbed60.4 %48.2 %12.2 % 100.0 %100.0 %— %

•Unabsorbed overhead as a component of Product Cost of 60.4% and 48.2% for the nine 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. As we move to third party production in 2026 and we move into 2026 with a significantly reduced headcount, we expect unabsorbed overhead to be greatly reduced on a full year basis in 2026. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).

The approximately $457,000 decrease in net products cost of sales period over period is further detailed as follows:

Cost of Sales Products Sales - Spirits BusinessNine Months Ended September 30,(rounded to $000’s)20252024ChangeSpirits – Wholesale$651,000 $928,000 $(277,000)Spirits – Retail446,000 549,000 (103,000)Spirits – Third Party— 134,000 (134,000)Merchandise and Prepared Food79,000 164,000 (85,000)Unabsor