Company: IPST
Filing Date: 2025-05-20
Form Type: 10-Q
Source: 0001788230-25-000062
Chunk: 210

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-05-20
Form: 10-Q
Item: Part II, Item 8
Chunk 210
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 carry incremental overhead costs as part of the normal manufacturing cost accounting, which should increase our overall margins. Finally, our third-party production contracts were very low margin for us, which is why management made the decision to end those contracts at the end of January 2024 and phase out producing barrels of whiskey for third parties under contract in late 2024. Moving forward, management will focus on higher-margin activities, which we expect will increase our overall margins.

•Gross margin for Products of 2.8% (57.9% excluding unabsorbed overhead) for the three months ended March 31, 2025 compared to 1.5% (55.3% excluding unabsorbed overhead) for the three months ended March 31, 2024 are inclusive of low margin production contracts we ended in 2024, the significant amount of unabsorbed overhead we booked (which drags down gross margin based on the amount of unused capacity in our system), and approximately $2,000 in product inventory write downs in the three months ended March 31, 2025 compared to approximately $79,000 in product inventory write downs and adjustments in the three months ended March 31, 2024. As we work to shed some of our excess capacity and overhead, and as we increase our sales of higher margin items, we expect this Products gross margin to increase significantly (See also below our comments related to this in more detail in Non-GAAP Financial Measures).

Sales and Marketing Expenses

Sales and marketing expenses were approximately $1,315,000 for the three months ended March 31, 2025 compared to approximately $1,190,000 for the three months ended March 31, 2024. This approximately $125,000 increase included:

Sales and Marketing ExpenseThree Months Ended March 31, (rounded to $000’s)Change20252024Personnel - Cash Wages and Related Expense$729,000 $645,000 $84,000 Tasting Room22,000 34,000 (12,000)Leases and Rentals190,000 166,000 24,000 Sales and Marketing Expenses206,000 96,000 110,000 Other168,000 249,000 (81,000)$1,315,000 $1,190,000 $125,000 

•The approximately $84,000 increase in personnel expense was primarily a result of moving a full time employee into