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NOTES TO FINANCIAL STATEMENTS
Big Rock Brewery Ltd.
March 31, 1996
1. BASIS OF PRESENTATION

The Company produces and markets its own brands of specialty
draught and bottled beer for sale across Canada and the
United States.
2. SIGNIFICANT ACCOUNTING POLICIES

The financial statements of the Company have been prepared
in accordance with Canadian generally accepted accounting
principles ("GAAP") which, except as described in note 15,
are in accordance with U.S. GAAP. The financial statements,
in management's opinion, have been properly prepared within
reasonable limits of materiality and within the framework of
the accounting policies summarized below.
All figures are reported in Canadian dollars. Exchange
rates between the U.S. and Canadian dollars for each of the
years reported in these financial statements, with bracketed
figures reflecting the average exchange rate for the year
are:
Canadian Equivalent of $1 U.S.
March 31, 1996 1.3652 (1.3726)
March 31, 1995 1.3837 (1.3125)
Inventories
Inventories of raw materials and supplies are valued at
the lower of cost (first-in first-out method) and
replacement cost. Inventories of brews in process and
finished product are valued at the lower of cost (including
direct materials, labour and overhead costs) and net
realizable value.
Returnable glass containers are initially recorded at
cost. In order to charge operations for wear and
disappearance, the cost of bottles is charged to operations
over their estimated useful life.
Capital assets
Capital assets are stated at cost less accumulated
amortization. Amortization is recorded on the straight-line
basis over the estimated useful lives of the assets to their
estimated salvage or residual values. Amortization rates are
as follows:
Buildings 2.5%
Production equipment 3.3% to 15%
Vehicles 25%
Furniture and fixtures 15%
Revenue recognition
Revenue is recognized at the time of shipment at the
gross sales price charged to the purchaser. Invoices for
sales to Canadian customers other than those in British
Columbia are submitted to the respective provincial Liquor
Control Boards who pay the Company after deducting Liquor
Control Board commissions. For sales in British Columbia and
the United States, the Company invoices are paid directly by
the distributors. Excise taxes are assessed on production.
Deferred income taxes
The Company follows the tax allocation method of
accounting for the tax effect of the timing differences
between taxable income and accounting income. Timing
differences result principally from claiming capital cost
allowance for income tax purposes in excess of amortization
on capital assets.
Foreign exchange
Transactions in foreign currencies are recorded in
Canadian dollars at the exchange rates in effect at the date
of the transaction. Monetary assets and liabilities in
foreign currencies have been converted to Canadian dollars
at exchange rates in effect at the balance sheet date.
Foreign exchange gains and losses included in earnings for
the year are not material.
Earnings per share
Earnings per share are calculated using the weighted
average number of shares outstanding during the period.
Fully diluted earnings per share are calculated on the
assumption that outstanding common share options which were
dilutive were exercised at the beginning of the year and the
funds derived therefrom were invested at 5.0% representing
the Company's annual after tax cost of financing.
3. INVENTORIES

1996 1995
$ $
_________ _________
Raw materials and returnable glass 1,078,180 1,027,743
Brews in progress 188,592 196,737
Finished product 336,833 333,509
Promotional goods and dispensing units 112,975 95,053
_________ _________
1,716,580 1,653,042
========= =========
4. CAPITAL ASSETS

1996
__________________________________________
Accumulated Net
Cost Amortization Book Value
$ $ $
_________ ___________ __________
Land 2,033,508 -- 2,033,508
Buildings 2,342,140 362,804 1,979,336
Production equipment 9,600,728 1,492,408 8,108,320
Vehicles 108,401 73,968 34,433
Furniture and fixtures 301,613 99,794 201,819
Assets under construction 8,864,197 -- 8,864,197
__________ ___________ __________
23,250,587 2,028,974 21,221,613
========== =========== ==========
1995
__________________________________________
Accumulated Net
Cost Amortization Book Value
$ $ $
__________ _________ __________
Land 328,200 -- 328,200
Buildings 2,340,840 298,185 2,042,655
Production equipment 8,594,421 925,797 7,668,624
Vehicles 130,451 90,622 39,829
Furniture and fixtures 199,974 69,030 130,944
Equipment deposits 386,216 -- 386,216
__________ _________ __________
11,980,102 1,383,634 10,596,468
========== ========= ==========
At March 31, 1996 the cost of building and equipment
includes capitalized interest and labour totalling $702,438
(1995 - $702,438). Assets under construction includes
capitalized interest of $179,593 and labour of $462,933 for
the year ended March 31,1996.
At March 31, 1996 and 1995 production equipment includes
$114,388 of surplus equipment held for sale which is not
being amortized.
5. DEMAND OPERATING LOAN

The Company has a revolving line of credit to a maximum
limit of $2,500,000 (1995 - $750,000) which bears interest
at Royal Bank prime rate (1995 - prime + 1/8%) (effective
rate at March 31, 1996 - 6.75%; March 31, 1995 - 9.875%). A
general security agreement and a general assignment of book
debts has been provided as collateral.
6. CONSTRUCTION COSTS PAYABLE

Construction costs payable represent amounts payable
relating to the construction of the Company's new brewery.
These amounts were paid subsequent to the year end with
proceeds received under the terms of the Company's long-term
construction loan agreement (see note 7).
7. LONG-TERM DEBT

1996 1995
$ $
___________ __________
Term loan 951,967 1,176,974
Construction loan 8,751,246 --
___________ __________
9,703,213 1,176,974
Less current portion (260,402) (220,476)
___________ __________
9,442,811 956,498
=========== ==========
The term loan, provided by the Royal Bank, is due on
demand and bears interest at prime plus 1/2% per annum.
Scheduled blended interest and principal payments of $26,700
per month are required.
The construction loan represents borrowing made by the
Company under a $15,000,000 revolving term credit, floating
rate facility arranged with Royal Bank for the construction
of a new brewery. The credit facility will be reduced over
five years, by $235,600 monthly, beginning April 30, 1997
and by $2,500,000 on the earlier to occur of June 30, 1997
and the date of the sale of the existing brewery. Should the
new brewery not be completed and demonstrate production
capability of 50% on or before October 31, 1996, the loan
becomes due and payable at that date.
A fixed and floating charge debenture on the lands,
building and equipment, a fixed mortgage and charge against
the new brewery, and an assignment of fire insurance has
been provided as collateral for both loans.
The Company has a number of swap agreements to exchange
floating interest rate for fixed interest on $5,500,000 of
the construction loan at rates varying from 6.81% to 7.19%
until April 1997.
The average interest rate on the facility for the period
ended March 31, 1996 was 7.31%.
Cash interest payments made during 1996 amounted to
$349,935 (1995 - $83,249).
Estimated principal repayments required for subsequent
years are as follows:
Term Construction
loan loan Total
$ $ $
_________ _________ _________
1997 260,402 -- 260,402
1998 279,922 5,362,000 5,641,922
1999 300,904 2,862,000 3,162,904
2000 110,739 527,246 637,985
_________ _________ _________
951,967 8,751,246 9,703,213
========= ========= =========
8. SHARE CAPITAL

Authorized 20,000,000 common shares.
1,000,000 preferred shares which may be issued in one or
more series with rights, privileges, restrictions and
conditions as fixed by the directors prior to the issue of
each series.
Issued and outstanding 1996 1995
_________________________ __________________________
Shares Amount Shares Amount
# $ # $
_________ _________ _________ _________
Beginning of year 4,416,200 5,402,784 4,406,200 5,362,784
Stock options exercised 10,000 41,502 10,000 40,000
in the year _________ _________ _________ _________
End of year 4,426,200 5,444,286 4,416,200 5,402,784
========= ========= ========= =========
As of March 31, 1996, 500,000 common shares were reserved
for the exercise of stock options by staff, directors and a
consultant to the Company. These options are exercisable as
follows:
Expiry Date # of Shares Exercise Value
________________ ___________ ______________
October 31, 1997 100,000 $ 4.00
December 15, 1999 170,500 $14.65
October 16, 2000 165,550 $13.88
April 30, 2000 40,000 $13.50
March 20, 2001 23,950 $12.63
9. INCOME TAXES

The Company is classified as a public company engaged in
manufacturing and processing activities for Canadian income
tax purposes. Statutory tax rates in effect on March 31 1996
were 38.1% (1995 - 37.4%) on taxable income. The Company's
effective tax expense is summarized as follows:
1996 1995
$ $
___________ __________
Income before income tax expense 2,139,923 2,802,332
___________ __________
Income tax expense at statutory
rate of 44.6% (1995 - 44.3%) 955,000 1,242,000
Effect on taxes of
Manufacturing and processing profits deduction (151,000) (197,000)
Non-deductible expenses 22,000 20,000
Large Corporations tax 20,000 --
Other (10,000) (5,000)
___________ __________
836,000 1,060,000
=========== ==========
Current income tax expense 303,600 538,000
Deferred income tax expense 532,400 522,000
___________ __________
836,000 1,060,000
=========== ==========
Income taxes paid in 1996 were $303,600 (1995 - $535,500).
10. EARNINGS PER SHARE
1996 1995
___________ __________
Basic $0.30 $0.40
Weighted average number of common shares 4,419,104 4,408,700
=========== ==========
Fully diluted $0.30 $0.39
Weighted average number of common shares 4,820,608 4,584,533
=========== ==========
11. COMMITMENTS

The Company leases warehouse premises in Edmonton and
Calgary on which the leases expire in August 1996 and 1997
respectively. The Company also leases office equipment and
vehicles. Annual lease payments including estimated
utilities and property taxes are as follows:
$
___________
1997 152,000
1998 72,000
1999 24,000
___________
248,000
===========
12. EXPORT SALES

Sales in the United States, made through independent
distributors, comprise approximately 15.4% of net sales for
the year ended March 31, 1996 and 23.5% for the year ended
March 31, 1995.
13. FINANCIAL INSTRUMENTS

Financial instruments of the Company consist mainly of cash,
accounts receivable, accounts payable and accrued
liabilities, long term debt and interest rate swaps. As at
March 31, 1996, there are no significant differences between
the carrying amounts reported on the balance sheet,
including the interest rate swaps, and their estimated
market values.
The Company is exposed to currency risk on cash and trade
receivables denominated in U.S. dollar, totalling US$690,901
at March 31, 1996.
The Company is also exposed to interest rate variance on
the portion of long term debt not covered by the swap
agreements described in note 7.
The Company has a concentration of credit risk, with
respect to trade receivables due to the receivables from
Provincial Liquor Boards and business with exclusive
distributors for most of its sales in the U.S. and British
Columbia.
14. NET CHANGE IN NON-CASH WORKING CAPITAL

The net change in non-cash working capital relating to
operating activities consist of:
1996 1995
$ $
___________ __________
Accounts receivable (13,573) (303,979)
Inventories (63,538) (710,009)
Prepaid expenses and other (150,469) (18,727)
Accounts payable and accrued liabilities 116,175 (146,618)
Income taxes payable/receivable (331,406) (153,854)
___________ __________
(442,811) (1,333,187)
=========== ==========
15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Generally accepted accounting principles used in the United
States of America ("U.S.") differ in certain respects from
GAAP used in Canada. Differences which materially affect
these financial statements are:
Demand loans
In accordance with Canadian banking practices a portion of
the Company's bank loans are payable on demand but provide
for monthly repayment installments over an assumed term and
accordingly are classified as long-term debt for amounts due
in the following fiscal period. U.S. GAAP classified all
demand loans as current liabilities and not as long-term
debt.
As a result, under U.S. GAAP, current liabilities would
increase at March 31, 1996 by $691,565 (1995 - $956,498) to
$2,812,068 and long-term debt would decrease to $8,751,246
(1995 - nil).
Earnings per share
Net income per share under U.S. GAAP is based upon the
weighted average numbers of shares outstanding during each
year plus common stock equivalents such as common share
purchase options unless they are antidilutive. Primary
income per share is calculated as if common share purchase
options were exercised at the beginning of the year and as
if funds obtained thereby were used to purchase common
shares of the Company for cancellation at the average market
price during the year. Fully diluted net income per share is
calculated as if the proceeds from the exercise of common
share purchase options were used to purchase the Company's
common shares at the higher of the average market price
during the year or the market value at the end of the
year.
Earnings per share in accordance with U.S. GAAP is as
follows:
1996 1995
___________ __________
Primary earnings per share $0.29 $0.38
Weighted average number of common shares 4,490,118 4,626,700
=========== ==========
Fully diluted earnings per share $0.29 $0.38
Weighted average number of common shares 4,490,118 4,626,700
=========== ==========
16. COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to
conform with the current year's presentation.
This Annual Report
Financial
Highlights | Report to
Shareholders
Management Discussion
and Analysis | Auditors'
Report
Financial
Statements and Notes |
Corporate
Information

Big Rock Brewery
5555 76th Ave S.E., Calgary, Alberta,
Canada, Phone: 403-720-3239, Fax: 403-236-7523
ale@bigrockbeer.com
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