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 use a unique distilling process to preserve the freshness and flavor of our ingredients.  We make award-winning spirits, distilled at natural temperatures, with no sugar or additives for the consumer who cares about how his/her spirits are made. Our two main products are currently gin and vodka. We'll have at least three when the whiskey is ready (which we hope will be in about 6 months of a successful raise). Our spirits are available to buy at the distillery, online and in various bars, restaurants and stores in Illinois, Alaska and Oklahoma.

We hope to become a global brand, sold in all 50 states through distribution (e.g. Southern Glazer, RNDC, etc.) and online, as well as many countries around the world.  Always experimenting, we'll push the boundaries of what spirits can taste like.  We plan to launch (and sell) many brands and specialty products besides our core whiskeys, vodka and gins.  Some early concepts of these will include a unique infused rum, a complex mixology-focused liqueur, and Ready To Drink (RTD) canned cocktails..

Milestones

Skeptic Distillery Co. was incorporated in the State of Illinois in October 2014.

Since then, we have:

• Built a distillery and a cold vacuum distilling system capable of preserving the essence and freshness of our base ingredients by distilling at colder, more natural temperatures.
• In our first competition, we won "Best In Show" for Gin, "Gin of the Year" and "Vodka of the Year." We've since won a dozen more awards including Silver, Gold, Double Gold and Best In Category (Contemporary Gin).
• Developed a brand identity and trademarked it.
• We launched in Alaska, Oklahoma and online, before even having a distributor in our home state of Illinois.
• Launched in May 2019 with Heritage Wine Cellars Spirits Division, a mid-size Illinois distributor with a craft spirit focus
• We will achieve break even next year at approx. 200 cases sold per month, or about $180,000 annual sales, just from vodka and gin.
• We expect that our craft beer whiskey will catapult us to profitability rapidly. Demand is at an all-time high.
• Our founder has a history of success. He turned a company on the edge of bankruptcy into the industry leader with over 80% market share.

Historical Results of Operations

• Revenues & Gross Margin. For the period ended December 31, 2018, the Company had revenues of $36,792.00 compared to the year ended December 31, 2017, when the Company had revenues of $0. Our gross margin was 76% in fiscal year 2018, compared to 0% in 2017.
• Assets. As of December 31, 2018, the Company had total assets of $209,183.00, including $5,240.00 in cash. As of December 31, 2017, the Company had $89,175.00 in total assets, including $12,089.00 in cash.
• Net Income. The Company has had net loss of $63,629.00 and net income of $1,147.00 for the fiscal years ended December 31, 2018 and December 31, 2017, respectively.
• Liabilities. The Company's liabilities totaled $291,142 for the fiscal year ended December 31, 2018 and $107,505 for the fiscal year ended December 31, 2017.  All but $6,027.00 is in the form of a long term note payable to the majority owner of the Company as of December 31, 2018.

Liquidity & Capital Resources

After the conclusion of this Offering, should we hit our minimum funding target, our projected runway is at least 12 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. 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

To date, the company has been financed with $395,426.67 in debt and $25,000 in equity.

Skeptic Distillery Co. cash in hand is $15,285.62, as of October 2019. Over the last three months, revenues have averaged $3,307/month, cost of goods sold has averaged $1,281/month, and operational expenses have averaged $18,175/month, for an average burn rate of $16,149 per month. Our intent is to be profitable in 9 months.

Our financials are not reflective of our imminent growth.  Due to the nature of the three tier distribution system, it is inherently difficult to gain traction with distribution partners during the first year of sales.  Our first few months of distributor sales were not reflective of expectations.  While we expect to continue operating at a loss in the immediate future, we have several things going for us in our favor.  Operating expenses have not been high, except for some recent legal expenses, and have stayed relatively constant since last year, sales are increasing steadily at around 50% month over month as we have improved our distributor relationship dramatically within the past 60 days, interest in our brand is growing quickly, and we are not relying on this capital to improve our existing sales channels which are already growing.  Rather, this fund raise is required to develop new revenue streams that will complement and boost the existing vodka and gin products and add to the bottom line.

We anticipate revenues to increase significantly in the next 6-9 months, regardless of this capital raise.  Expenses are expected to go up slightly (around $2,000.00 per month) when we lease additional space to accommodate the equipment and warehouse space for whiskey and the tasting room.  If the capital raise were unsuccessful, the company would delay plans for whiskey production and the tasting room until sufficient revenues are generated with the existing products.  While this would slow growth significantly, it will not prevent it.  Karl has the ability to float the company using funds from a stock sale at his former company, even if it were to experience zero growth, for another 24 months.  Karl also has other business ventures which are poised to begin generating some passive income beginning around December/January of 2019/2020.