Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this offering. Some of the information contained in this discussion and analysis, including information regarding the strategy and plans for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Copperworks Distilling Co. produces American Single Malt Whiskey, gin, and vodka, all from a base of malted barley. We sell our spirits through our tasting room and retail store on the downtown Seattle waterfront and in distribution to bars, restaurants, grocery stores, and liquor stores throughout Washington State.

Copperworks is nationally recognized as a craft spirits industry leader and as one of the top producers of American Single Malt Whiskey, as indicated by the company being named the “Distillery of the Year” in 2018 by the American Distilling Institute. Our sales history and enthusiastic customer response has proven that our products are exceptional and desirable, and we now plan to scale up production to meet unfulfilled demand and supply markets outside our home state.

Milestones

Big Derby Distilling Company, DBA Copperworks Distilling Co. was incorporated in the State of Washington in January 2011.

Since then, we have:

• More than six years of successful operation with increased annual revenue and sales volume. Best year ever in 2019 with $915,000 in revenue.
• A seasoned industry professional directs the company. Experienced, trained staff and high-capacity equipment allow quick growth.
• Stunning showpiece distillery and tasting room in highly visible waterfront location; 30K+ visitors to the distillery in 2019.
• Located in tourist district: 6.7 million visitors to the Seattle waterfront in 2019; expected to surpass 20 million by 2024.
• Internationally recognized products: Copperworks whiskey and gins have won double-gold medals and scored 94 - 96 points in competitions.
• Thorough distribution in WA State: Placed in 340+ bar/restaurant accounts and 130+ retailer accounts.

Historical Results of Operations

• Revenues & Gross Margin. For the period ended December 31, 2018, the company had revenues of $858,5467 compared to the year ended December 31, 2017, when the Company had revenues of $767,448. Our gross margin was 53.29% in fiscal year 2018, compared to 50.13% in 2017.
• Assets. As of December 31, 2018, the Company had total assets of $2,524,939, including $40,505 in cash. As of December 31, 2017, the Company had $2,369,835 in total assets, including $42,650 in cash.
• Net Income/Loss. The Company has had net losses of $15,544 and $17,886 for the fiscal years ended December 31, 2018 and December 31, 2017, respectively.
• Liabilities. The Company's liabilities totaled $1,875,705 for the fiscal year ended December 31, 2018 and $1,944,974 for the fiscal year ended December 31, 2017.

Related Party Transaction

Refer to Question 26 of this Form C for disclosure of all related party transactions.

Liquidity & Capital Resources

To-date, the company has been financed with $1,433,612 in debt and $1,059,391 in equity.

After the conclusion of this Offering, should we hit our minimum funding target, our projected runway is 24 months before we need to raise further capital.

We plan to use the proceeds as set forth in this Form C under "Use of Funds". We don’t have any other sources of capital in the immediate future.

We will likely require additional financing in excess of the proceeds from the Offering in order to perform operations over the lifetime of the Company. We plan to raise capital in 18 months. Except as otherwise described in this Form C, we do not have additional sources of capital other than the proceeds from the offering and cash flow. Because of the complexities and uncertainties in establishing a new business strategy, it is not possible to adequately project whether the proceeds of this offering will be sufficient to enable us to implement our strategy. This complexity and uncertainty will be increased if less than the maximum amount of securities offered in this offering is sold. The Company intends to raise additional capital in the future from investors. Although capital may be available for early-stage companies, there is no guarantee that the Company will receive any investments from investors.

Runway & Short/Mid Term Expenses

Big Derby Distilling Company, DBA Copperworks Distilling Co. cash in hand is $5,575.28, as of February 2020. Over the last three months, revenues have averaged $79,399.90/month, cost of goods sold has averaged $23,689.86/month, and operational expenses have averaged $55,700.97/month, for an average net margin of $9.07 per month. Our intent is to be profitable in 48 months.

Copperworks took a loan for $30,000 and temporarily reduced our brewing expenses by 75%. We also temporarily reduced production and retail sales staff hours by 20% until we return to the summer months.

Liquor sales are seasonal, and Q1 is the slowest time of year for both retail and wholesale sales. Q2 is generally 1.5x the sales of Q1. Q3 and Q4 account for almost 60% of the year's income.

We have access to more personal loans, should we decide to take them.