China Operations Follow Up Dear Shareholders,

China Operations Follow Up

Dear Shareholders,

As a follow up to the recent news regarding the separation of California Grapes International, Inc. (“CGI”) and Beijing Jin Long Fei (“BJLF”), we would like to clarify a few of the recurring questions that we have received.

The first point is related to our ability to import and sell wine in China. CGI has the same ability to import and sell wine in China without BJLF. The ability for CGI to “self-clear” customs will change, but we have worked with other importers and customs brokers before and the process of importing California Wine into China will not be affected.

CGI has already begun discussions with several import companies that will offer a broad level of service including direct distribution sales, warehousing and logistics services. The goal will be to diversify the points of entry into China and provide a more dynamic logistics solution for the sub-distributor networks in multiple cities.

Without the ability to “self-clear” customs at this time, our key focus will be on the process and policy of registration of the wine brands we bring into the country to ensure they are properly registered with the Customs Authority. We will be very selective with the organizations we decide to work with in order to maintain the integrity of the winery’s brands in China.

Second relates to the direct sales force. We are taking a step back with the direct to consumer sales efforts, but we are going to be gaining a much larger indirect sales force focused on restaurant/hotel, private buyer networks and distribution sales channels immediately.

We have a tremendous amount of wineries that are looking for international sales exposure. Without the broader efforts to reach the multiple sales channels, we end up restricting the number of supplier engagements and export opportunities the California Wine Industry has available.

Direct to consumer sales through retail tasting locations will be reestablished very soon. This component of our business requires a focused effort for direct to consumer marketing and education, as well as direct to venue (restaurant, hotel & bar) sales. A retail location that does not incorporate all available sales channels into its daily operation is missing the value of the unregulated market devoid of the 3 tier distribution regulations of the US market.

Lastly, the financial influence on CGI’s decision making was simple. We believe that revenues and profits should outpace expenses and liabilities. CGI should realize a significant reduction in monthly operating costs and gain a greater level of oversight and control on budgets and expenses while being able to much more accurately forecast revenues and growth.

CGI is a business that was established as the exportation solution for the California Wine Industry. Our ability to export/import, establish supplier relations, build alternate sales channels, penetrate new markets and establish marketing and brand recognition internationally will not be hindered.

Sincerely,
California Grapes International, Inc.