Business update

I need to apologize again for the time lapse between updates. Transparency is very important, but so are containing costs, expanding sales and driving growth. We're working very hard with a thin staff and budget to minimize our expenses. With this update we're ready to declare our strategic pivot from a branded James FC Hyde Sorgho whiskey to a promising related business model - the private barrel whiskey market - behind us. While the overall market for private barrels is flourishing, we bring two unique and attractive offerings to the market. First - we invite our private barrel customers to label their barrel picks with their own private proprietary label. And second we let our customers leverage our sorghum whiskey to create new and unique spirits. They do so by using our empty sorghum whiskey barrels to finish traditional spirits like rye and bourbon, and more recently finishing our sorghum whisky in bourbon barrels.

Our participation in the private barrel market has given us additional insight into the market dynamics driving the market. We've observed several significant customer profiles affording us market opportunities - all of which are excited about the opportunity to promote their own "brand" with their own label. The largest volume of private barrels we sell are to liquor stores who want to sell under their own brand. The second but fastest growing segment are whiskey clubs. And the smallest, segment - are not for profits.

Our private barrel business continues to grow, in spite of inflation and global supply chain problems. Through the first 11 months of 2022 (ending Nov 30, 2022), while operating cash flow positive, our revenues are up over 40% (approx $550K) vs 2021 (approx $380K) - with growth in sales to private whiskey clubs leading the way. We expect growth for the balance of 2022 to accelerate vs. 2021.

While we've accomplished much, we still confront significant challenges. First and foremost is our lack of growth capital. The nature of our new business model is such that our sales are constrained by our on hand inventory of aged and available bourbon and rye barrels for sampling. This inventory is what our private barrel buyers will sample from before making a barrel selection. The more barrels we have for them to choose from, the more likely a potential buyer will select one. With our private barrel suppliers insisting on COD, our inventory is constrained by cash available to dedicate to procurement of such. Furthermore, some of our customers require us to grant them net 60 days terms to pay us. Result, we can pay $6000 in cash for a barrel and then logistics and transportation can delay our receipt of the barrel by three weeks. We can usually get a customer selection within 6 weeks. Then, we work with the customer to develop their label and get it printed. And then we can finally bottle and deliver to complete the sales cycle.

From the time $6000 in cash flows out to buy a barrel to when we get it sold, bottled and delivered, it could easily be 3 to 6 months. Then, if sold to a net 60 customer, we'll have to wait another 60 days to get paid. All in it could take us 6 months or longer to receive $12K in cash from the sale for the $6K we paid earlier. With our contribution margin hovering around 45% of sales on our inventory, it's a model that can be highly profitable - with larger sales volume.

From econ 101 P = S * CM - FC where P = Profit; S = Sales; CM = Contribution Margin and FC = Fixed Cost. :

Examples with $50K & $100K in monthly sales, 45% margin and fixed cost = $20,000:

$50,000 * 45% - $20,000 = $2,500 in monthly profit

$100,000 * 45% - $20,000 = $25,000 in monthly profit

As one can see from the examples, because of the leverage of the relatively high CM of 45%, a 100% increase in monthly sales (from $50K to $100K), results in a 1000% increase in profitability (from $2.5K to $25.0K). We've demonstrated an ability to grow our sales without the benefit of new growth capital. But we've reached a level where growth beyond what we've achieved will be strictly constrained.

We know we've disappointed investors who believed as we did in the James FC Hyde Sorgho Whiskey branded opportunity. We published a prior update one year ago, titled Resetting Expectations Post COVID, in which we said our business model and plan was transitioning - out of economic necessity - to one in which we retreated from developing the market for our own James FC Hyde Sorgho (sorghum) whiskey to selling traditional bourbon and rye whiskey made by others (mostly MGP). Successful brands - like Casamigos - command high multiples of sales when analyzing overall market value. Our initial business plan envisioned following the Casamigos model with our James FC Hyde Sorgho brand. Our new model selling private barrels with customer specific brands moves us closer to our supplier of unbranded whiskey - MGP - and using valuation metrics from its public trading is more appropriate.

Using MGP metrics to estimate our current market cap, using trailing 12 months sales of approximately $600,000 and 3.2 times sales, is about $2 million. After all the dilution from conversions of debt we now have approximately 180 million shares of stock outstanding. Implying a per share value of about $0.01.

Let me be clear, this is not a stock offering. But it is a trial balloon - one intended to determine if our 1,000 plus existing owners /investors would consider investing additional capital to help fuel our potential future growth. Albeit at a valuation more consistent with our present reality and likely in a Preferred Stock. IF - big IF - we decide to seek additional capital, we're of a mind that about $250,000 is the cash level we would seek. You, our investors have been loyal and supportive. We would understand all those that might pass at the opportunity to invest additional capital considering the rough history you and we have endured. But it is a different vision and plan with a different track record executing. So we thought we'd try.

All those shareholders that are interested, please reply with "I would consider addition investment" and add any comments regarding features in a new investment that would make it attractive to you.

Also, even though we are no longer investing in marketing the James FC Hyde brand, it is still selling and available. This being the holiday season, here's a link if you're interested in purchasing any of our 3 James FC Hyde branded products. Our original 86 proof James FC Hyde Sorgho Whiskey. Our 4 year old+ 100 proof Bottled in Bond; and our 4+ yo cask strength James FC Hyde American Whiskey - all made from 100% gluten free American grown sorghum. Our new on line retailer sells to some additional states. Take Your Pick Liquors sells to all states except Iowa, Maine, Mississippi, New Hampshire, North Dakota, South Dakota, Utah and Vermont.

https://www.takeyourpickliquors.com/?s=hyde

Thanks to all those who have supported us to date - regardless of what you decide regarding our future. You given plenty to date, and we appreciate that. Wish all a happy and healthy holiday season, Godspeed.