Company: IPST
Filing Date: 2025-11-18
Form Type: 10-Q
Source: 0001788230-25-000175
Chunk: 366

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-11-18
Form: 10-Q
Item: Part I, Item 2
Chunk 366
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 all excess production capacity and space has been used in production and generating revenue, assigning all such overhead costs across all production and revenue. It is especially important in forecasting to larger entities that may be looking to acquire brands or entities about the amount of inefficiencies they can wring out of a products or production if such products or ventures were acquired and absorbed into their larger and more efficient systems.

Three Months Ended September 30,(rounded to $000’s)Nine Months Ended September 30,(rounded to $000’s)Gross Profit Analysis Excluding Unabsorbed Overhead2025202420252024GAAP Total Net Sales$1,081,000 $1,774,000 $3,494,000 $5,310,000 GAAP Gross Profit$(23,000)$642,000 $476,000 $1,786,000 GAAP Gross Profit Additions/(Deductions):Unabsorbed Overhead728,000 482,000 1,796,000 1,654,000 Adjusted Gross Profit excluding unabsorbed overhead$705,000 $1,124,000 $2,272,000 $3,440,000 GAAP Gross Margin(2.1)%36.2 %13.6 %33.6 %Adjusted Gross Margin excluding unabsorbed overhead65.2 %63.4 %65.0 %64.8 %

The above Adjusted Gross Margin excluding unabsorbed overhead shows the cost of production of our products and services based on raw inputs and direct labor and overhead, removing all unabsorbed overhead expenses for unused capacity. This allows us to examine the cost of each product and its margin as we evaluate where our areas of product focus should be. Considering we had low margin activity in our portfolio through early 2024 (for example, well vodka and third-party production) an Adjusted Gross Margin excluding unabsorbed overhead greater than 50% is remarkable for a craft producer. As we increase the use of unused capacity, reduce capacity and continue to shift away from low margin activities towards our focus on higher margin products, we would expect to see both the GAAP Gross Margin and the Adjusted Gross Margin excluding unabsorbed overhead increase. 

It is important to note specifically that the Adjusted Gross Margin excluding unabsorbed overhead includes revenue from low margin barrel production contracts we had through early 2024 and that we do