James Bay Distillers

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

We distill and produce world-class gold-medal award-winning whiskies, gins and vodkas.

We love whisky and gin! Whiskies and gins have such a wide range of flavors, we can use both our educated intuition and data-driven market research to create products. Industry CAGR is expected to grow 8-34%/year through late 2020s, displacing large producers and making a larger overall market. There is strong potential for our brands to grow.

We produce super-premium whiskies and gins, all with gold-, silver- and other awards. All are sipping spirits, perfect neat or over ice - not requiring a mixer. We are expanding wholesale accounts, online sales and export opportunities in 7 countries. We are the only craft distillery to also operate a US-based free-trade zone to benefit from both US and Canadian spirits regulations. We are also the only craft distillery with UK permits to import, blend and bottle our own Scotch releases.

We hope to reach 50,000 cases of production, and plan for acquisition by a major spirits firm to allow an early exit for investors at an expected 10x return. Industry averages for acquisition of craft spirits firms show an 8.7x multiple of final year revenue. Our Year 5 estimate for gross revenue is $15M, and so we anticipate to sell at our about $90M. We are influenced by venture cap experts and plan for a single raise with no dilution of investor shares. These projections cannot be guaranteed.

Milestones

James Bay Distillers, Ltd. was incorporated in the State of Virginia in February 2014.

Since then, we have:

• Our Galloping Goose Canadian whisky is a popular double-gold and 6x gold-medal award winner and was Canadian Whisky of the Year in 2020 at the Asia International Spirits Competition.
• Our sales are increasing and year-on-year growth is above industry averages.
• We have raised $879,005 with 19 accredited and sophisticated investors under SEC's Reg D 506(b).
• Our gold-medal Summer Gin No. 5 rates higher than national brands from Chicago, Virginia and the UK and is rated "1 of the top 12 gins in the USA.
• Our gins and vodkas are and have been promoted for export in the UK, Canada, South Africa & 4 Asian countries by USDA, the Washington State Agricultural Department, the Western US Agricultural Trade Association & others
• Our strong team includes top level bankers, advisers and industry experts, both in the US and abroad

Historical Results of Operations

• Revenues & Gross Margin. For the period ended December 31, 2022, the Company had revenues of $171,241 compared to the year ended December 31, 2021, when the Company had revenues of $127,090. Our gross margin was 79.4% in fiscal year 2022, compared to 74.4% in 2021.
• Assets. As of December 31, 2022, the Company had total assets of $108,000, including $9,300 in cash. As of December 31, 2021, the Company had $126,054 in total assets, including $29,442 in cash.
• Net Loss. The Company has had net losses of $54,054 and net losses of $46,437 for the fiscal years ended December 31, 2022 and December 31, 2021, respectively.
• Liabilities. The Company's liabilities totaled $0 for the fiscal year ended December 31, 2022 and $0 for the fiscal year ended December 31, 2021.

Liquidity & Capital Resources

To-date, the Company has been financed with $879,005 in equity.  There are no loans financing the Company.

After the conclusion of our initial WeFunder Reg CF Offering, our projected runway was 12 months before we need to raise further capital.

In any future raise, we plan to use the proceeds as set forth in this Form C under "Use of Funds". We do not 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 after 12 months from the initial WeFunder raise.. Except as otherwise described in this Form C, we do not have additional sources of capital other than the proceeds from the offering. 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

James Bay Distillers, Ltd. cash in hand is $9,300, as of December 2022. Over the last three months, revenues have averaged $23,427/month, cost of goods sold has averaged $64/month, and operational expenses have averaged $23,146/month, for an average net margin of $217 per month.  While Q4 is typically the best quarter, our intent is to be profitable by the close of 2023.

Financials for the period above labeled "past 3 months" reflect October-December 2022.   Discussion below focuses on the period after December 2022.

Material changes since 2022 include some minor local closures which remain an issue for restaurant and liquor store sales post-COVID, as well as the post holiday typical slow down in Q1 of each year.   The "Dry January" effect also contributes to a slower start to each year.  

To counter these aspects of the market, we continue to use online sales, expanding wholesale on- and off-premise sales and actively seeking exports.  We now have a new national level online retailer which has requested each of our products for their online store.  We also have a new control-state customer (Montana) which has requested multiple cases of all of our spirits.  These sales will occur in April or May, pending NABCA (National Alcohol Beverage Control Association) and Montana State issuance of the mandatory SKUs for use in their system.

We are actively promoting sales to name brand local destinations and restaurants from Mukilteo to Issaquah.  We host weekly events at the distillery which draw an increasing social media and on-site response with new guests and customers.  Our social media posts generate a 10x to 20x return on advertising spend. 

Several export promotion events have occurred in Taiwan, one of which was a 4-city tour in March 2023 held by a Taiwan firm engaged by our local state agricultural department.  The other Taiwan event is an upcoming (April 2023) in-person visit to Taipei by our company president, also sponsored by the agricultural department.  

Our newest gin: Seattle Dry Gin was released in late February and by late March had earned a 94-point double-gold medal at a competition in San Diego.   We are waiting for a late April update from the NYC-based "Fifty Best"competition, to which all of our gins were invited.  We anticipate more gold medals from this NYC event because some of our gins previously earned gold medals at a similar competition in 2020.  "The above includes forward looking statements which can not be guaranteed."

We expect to achieve more than double the 2022 sales volume due to export sales to Taiwan, sales to Montana and by adding new off-premise and on-premise sales in the Everett and Seattle areas.

Our Q4 sales period is profitable as customers shop for the holidays in the October, November and December.   The Q1 sales period is the slowest of the year, and we rely upon retained earnings to maintain operations in that period.  We currently have 3 separate private-label contracts at one stage or another (two gins are in production, one whiskey is in negotiation).  A fourth private label contract is at the discussion stage with a local premium resort destination for their summer menu and sales outlets.  When all private label projects are in operation we expect each month to show positive net cash flow. 

The company has access to additional funds from co-founders which can be directed to the company when required.

All projections in the above narrative are forward-looking and not guaranteed.