Company: IPST
Filing Date: 2025-11-18
Form Type: 10-Q
Source: 0001788230-25-000175
Chunk: 266

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-11-18
Form: 10-Q
Item: Part II, Item 8
Chunk 266
---
 obligations are met. Service revenue represents fees for distinct value-added services that we provide to third parties, including production, bottling, marketing, consulting and other services, including for the TBN, aimed at growing and improving brands and sales. Service revenue is recognized over the period in which the service is provided.

Our blockchain rewards revenue is primarily generated through participation in proof-of-stake networks, where we validate or create blocks on the Story Network using staking validators we control. In exchange for these validation services, we earn $IP Tokens—the native token of the Story Network. Revenue is recognized at the point in time when a block is successfully created or validated and the related rewards are transferred to a digital wallet we control. Each block validation represents a distinct performance obligation. For the three and nine months ended September 30, 2025, we recognized blockchain rewards revenue on a gross basis, as we act as principal in the majority of our contracts by providing the $IP Tokens required for staking. Blockchain rewards are recorded in other revenue on the condensed consolidated statements of operations. Revenue is measured based on the number of tokens received and their fair value at contract inception. 

Cost of Sales

We recognize the spirits business cost of sales in the same manner that the related revenue is recognized. Our cost of sales consists of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement costs, fulfillment costs, warehousing costs, and certain allocated costs related to management, facilities and personnel-related expenses associated with supply chain logistics.

We recognize the staking and validator business cost of sales in the same manner that the related revenue is recognized. Our cost of sales consists of AWS data center incidences that run the validator protocol and software, financial software to track each token earned and their value, consulting agreements related to managing the validator work and contracted computer programmers to insure validator uptime.

Gross Profit and Gross Margin

Our gross profit is the difference between our revenues and cost of sales. Gross margin percentage is obtained by dividing gross profit by our revenue. Our gross profit and gross margin are, or may be, influenced by several factors, including:

•Market conditions that may impact our pricing;

•Our cost structure for manufacturing operations, including contract manufacturers, relative to volume, and our product support obligations;

•Our capacity utilization and overhead cost absorption rates;

•Our ability to maintain our costs on the components that go into the manufacture of our products; and

•Seasonal sales offerings or product promotions in conjunction with plans created with