Financial Highlights

Net Sales Net Income Earnings per unit/share Unitholders’/ Shareholders‘ Equity

2006

2005

2004

2003

$38,700,675

$40,563,180

$38,789,564

$35,053,324

8,380,065

6,619,876

6,766,908

5,094,964

1.39

1.12

1.17

0.92

30,367,284

29,830,107

29,520,151

26,686,519

Corporate Profile Big Rock Brewery, headquartered in Calgary, Alberta, Canada is a regional producer and marketer of craft, quality beers. Big Rock products are distinctive because they are made with only the finest quality ingredients; pure malt, yeast, hops and water. Big Rock beer is available in draught, bottles and cans. Big Rock is committed to three business fundamentals: • Consistently brewing distinctive, all natural, craft beers; • Constantly providing superior, personalized customer service; and • Creating and sustaining strong community relationships. Big Rock products – eight different beers and an excellent cider - are marketed in across Canada.

Annual Meeting of Unitholders

Table of Contents

The annual and special meeting of unitholders of Big Rock Brewery Income Trust will be held at; Big Rock Brewery 5555 - 76th Avenue S.E., Calgary, Alberta, Canada Friday May 11th, 2007 at 2:00 p.m., local mountain time.

1 Financial Highlights

Big Rock Brewery Income Trust

1

4 Message to Unitholders 8 Management’s Discussion and Analysis 16 Management and Auditors’ Report 18 Financial Statements and Notes

2005 Annual Report

Big Rock Now Served in Korea

“Trad ” to its closest friends, is a deeply satisfying ale noted for its smooth balance between malt and

Last fall 800 kegs of our fine brew were shipped to a new pub in Seoul Korea. The

hops. Its dark copper colour flashes with a tone of

pub opened with a traditional Korean ceremony for opening a new business, which

garnet when held to the light.

included an altar with food, beer, pig head, Traditional Brewing Methods

and prayers for the prosperity of the pub. The

Traditional is brewed solely with choice barley

pub features 35 different kinds of fusion foods

malt, select hops, Rocky Mountain water

on their menu that are intended to complement

additives. Using three separate additions to the brew kettle, the hop character is perfectly balanced with the malt flavours. Factor in Big Rock’s microfiltration process and attention to detail and the result is a smooth, full-bodied soft malt notes and a luscious caramel

A Gold Medal winner in the Brown Ale category at the Canadian Brewing Awards, Traditional Ale truly sets the

senses... in 2007 Big Rock will be enhancing our

exceptionally well. The pub can seat up to 200 people and has already

brewery tour, taking it from an informational

served many local Koreans, Canadians and other foreigners interested in a

session and turning it into an experience that

bit of Canadian flavour. The pub has already been referred to as an oasis in

builds lifetime supporters for Big Rock.

the desert by Canadians travelling in Korea.

In 2006 the Dry Goods Store was rebuilt to reflect a more traditional look; and entice Brewery visitors to shop for Big Rock clothing

gy, “ Tan

aroma that will feed your soul.

the pub has found that Black Amber and McNally’s Extra are doing

and other souvenirs.

tS

ummer B

2006

r ee

English style ale with distinctive but

A brewery experience that appeals to all of the

no ugh ”

ingredients with no preservatives or

the 6 Big Rock beers that the pub offers on tap. Since opening their doors

Bes

and our own special yeast – all natural

ref te res hing & just swee

‘Best Summer Beer’ Grasshöpper is a smooth, easy-drinking wheat ale. Crisp and refreshing, it goes great with a lemon wedge.

The Dry Goods Store

If you ever want a chance to experience

has also brought in

“Hollywood Glamour” without leaving

Wet Goods, which

Alberta, this is your opportunity! The Eddies

Brewing Grasshöpper

gives Brewery visitors

is an annual event held to preview amateur

Grasshöpper is brewed solely with choice wheat and barley malts,

and tourists an opportunity to take six packs of

beer commercials. Organized as a parody on

select hops, Rocky Mountain water and our own special yeast

our freshest beer home with them.

the Oscars, the evening provides for much

– all natural ingredients with no preservative or additives. Big

entertainment, great food, and of course beer.

Rock’s micro-filtration process and attention to detail results in a

standard for brewing excellence.

lightly hopped wheat ale with a bright, clean finish. Ed McNally Founder and Chairman of Big

Additives 0% Preservatives 0% water, malt, hops, yeast 100%

Rock decided in 1994 to take advertising to

Why the Lemon Wedge?

our consumers. He thought “whom better to

Wheat beers are served with lemon to

spread the word about this beer than those

accentuate the fruity notes and acidity of the

who drink it!”

beer’s unique taste. The result is a refreshing beer that is flavourful and thirst quenching.

Look for the new Nutrition Facts

In 2006, Big Rock completed and commissioned a 22,000 sq. ft. warehouse expansion at a capital cost of $1,330,000. The additional space allows Big Rock to discontinue the use of third party warehouse storage thereby reducing costs associated with in-transit product damage and improving efficiencies. 2

back label; we’re the first brewery

Big Rock’s main objective for the Eddies is to

to actually show you what’s in our

encourage innovation and creativity among

beer. Because Big Rock contains no

our fans and to raise money for some very

In 2006, the National Post named

additives or preservatives, we have

deserving charities.

Grasshöpper the best summer beer. “Grasshöpper is the way to go. It’s tangy,

nothing to hide.

refreshing and just sweet enough; accessible and Big Rock tastes great because

unchallenging, but not boring.” -Alison Broverman, NATIONAL POST

of what’s in it, and what isn’t. Big Rock Brewery Income Trust

2006 Annual Report

3

“taste the difference”

Our focus on optimizing our selling expenses was

2005 announcement of an end to the suspension of trust

very successful with a $1.5 million dollar reduction

conversions and the promise by both major political

achieved in 2006. Much of this 2006 reduction will be

parties to leave the status quo if elected during the 2006

reinvested into advertising programs in 2007.

federal election.

Our largest capital project completed in 2006 was a

As the new legislation is finalized and the rules crystallize

22,000 square foot warehouse addition that will allow

in the spring of 2007, Big Rock management will research

us to discontinue the rental of 3rd party space during

the business strategy alternatives and present them to the

the busy May to October time frame. Not only will this

board for their consideration in due course.

be an expense savings, but will simplify the rotation and shipping of beer produced during this busy season.

Industry Trends

The demographics in our key markets have only changed 2006 also saw a number of firsts for the organization

slightly with the population bases of our key markets

including:

growing very slowly. In addition, the average consumer

• Signing on as a key partner with Calgary’s Heritage

Message to Unitholders

seems to have marginally more disposal income available

Park (Canada’s largest living historical park) in their

with weekly earnings rates growing faster than the

multi-million dollar expansion due to open in 2008

Consumer Price Index.

• An industry leading 15 can variety pack for summer

2006 Business Results

During 2006 our strategy to “return to our roots” helped the organization achieve a record net income for

beer trial • A full Compensation Review for all positions within

The robust economy in BC and Alberta seems to have slowed the draught beer decline this year. Draught beer

unitholders. In fact, we saw a 23% increase in Net Income

the organization ensuring that we will be able to

was only down to 9.6% of the total beer market but

on slightly lower sales volumes – a major accomplishment

retain employees in Calgary’s tight labor market

continues to decline annually (down from 9.7% in 2005).

considering the competitive nature of the industry.

• Implementation of production plant productivity measures and targets

Big Rock’s renewed focus on brewing quality, premium

• The completion of an Employee Satisfaction Survey

craft beers by our dedicated and accomplished beer

• A research project to accurately target our

craftsmen has produced the kind of results that we had

advertising strategy

The rest of the beer market remained relatively flat with only a small increase recorded in the total Canadian beer market. The alcohol distribution network in Alberta has seen many challenges in 2006. Problems began in May at the

planned for at the beginning of the year. By maintaining our quality beers and reviewing our sales strategies we were

In September, Big Rock’s Grasshopper Ale was

provincial warehouse facility with many product shorts

able to maximize net income in 2006.

recognized as the Best Patio Beer in Canada by the

and late deliveries. This problem continued to worsen

National Post. Grasshopper was not originally included

as the year progressed and in December the AGLC

Sales softened slightly as we began to phase out the use of

in the comparison, however once a loyal consumer from

announced that a full ordering and distribution review

give-aways (hats, t-shirts, etc.) to encourage consumers to

Montreal heard about the contest he purchased the

would take place in January. While not directly affected

buy our beer. As we reviewed the use of these expensive

beer from an Ontario retailer and submitted it to the

due to self-delivery, Big Rock experienced problems due to

incentives, it became clear that the consumers influenced

National Post for inclusion.

a change in behavior of liquor stores – delivery refusals and ordering delays occurred as liquor stores anticipated long-

to purchase were not loyal and switched to another brand as soon as the give-away offer ended.

On October 31st, the announcement on Income Trusts

awaited liquor and wine deliveries.

caught everyone by surprise considering the November

4

Big Rock Brewery Income Trust

2006 Annual Report

5

The On-Premise channel has seen a continued trend to

The power in retail is slowly shifting over to those retailers

Conversely, Big Rock’s value category strategy has been

consumers. We think that consumer awareness is

national chain restaurants as well as an interesting spike

who are consolidating together or expanding because they are

to increase both volume and price, while minimizing

growing with regards to Big Rock’s distinctive, great

in small, fine dining establishments in the downtown

controlling a greater percentage of the market. They have begun

the selling expenses in order to maximize the overall

tasting beers and believe that our integrity, our process

areas of Western Canada.

to dictate what and how much of various products will be sold.

profitability of the category. We expect to see continued

and our beer artisans make the difference.

volume growth in our value brands until we reach the However, to improve the brand value of the bar or

Retailers are using a number of strategies to maximize their

restaurant, many chain and independent operators are

profitability. They are focused on buying LTOs (limited time

moving to black tap handles or house brand beers. Black

offers) from producers to help control their inventory costs at

As mentioned previously, we will re-invest some of our

and profitable year because of your hard work and

tap handles are draught lines that use an existing lower

retail. Many retailers are moving to Private Label Brands to

selling expense savings back into brand development

dedication.

priced beer as the locations personalized brand. House

protect their margins and help create brand value for their stores.

through a well executed advertising strategy. The

brand beers are created by a brewery for the chain and that chain owns the name of the beer.

optimization point of price and volume.

And finally a big “Thank You” to our staff and management team, together we have had a productive

primary objective will be to move other premium The Value Segment in Alberta seems to have stabilized to

beer drinkers to sample our beer, while encouraging

some degree with volumes remaining at about 40% of the

mainstream beer drinkers to aspire to Big Rock

In addition, many brewers who have lost market share

Alberta market. There continues to be no sign of a minimum

premium craft beers as a secondary objective.

are aggressively pursuing these accounts with hugely

price for beer. The Value Segment is a factor in other

increased programming budgets. These efforts often

provincial markets but not to the same degree as in Alberta

We will continue to use research to better understand

mean that taps change hands more frequently than in

because most provinces have a minimum pricing policy in

our consumers and our customer in retail and on-

the past.

place. There has been a large amount of shifting between

premise locations.

Ed McNally

Ken Barbet

Chairman

President

brands based on individual prices charged at retailers (either Another trend is that consumers in this environment are

regular price or on promotional pricing).

moving toward spirits, wine, and energy drinks mixed

Big Rock will launch a new beer brand for the summer season, our first new beer since 2003. It will be unique

with spirits. This is moving overall beer consumption in

2007

and offer the market an alternative to all the similar

on-premise locations in a downward direction. In fact,

During 2007, Big Rock will continue to translate a number

tasting mainstream beers.

many consumers now load-up at home before heading

of strategies into increased overall corporate profit for

out for a night on the town.

unitholders. Strategic brand and category growth combined

We are extremely proud of the quality of ingredients

with selling expense control will result in a maximization of

that we put into our beer and the fact that our beers

net income.

contain only water, malt, hops, and yeast without

In the retail channel, the number of overall stores is now flat with the continuing consolidation of private liquor

any additives, preservatives, clarifying agents or other Big Rock’s premium craft brand strategy encompasses an

substances that are permitted for use in the brewing

increase in brand education and sampling while decreasing

industry today. To display this pride in our beers, we

Retailer advertising and promotion has been very heavy

dependence on promotional aids. To accomplish this, we

will be voluntarily putting nutritional labels on all of our

in 2006 with a number of retailers moving to use flyers,

will hire and promote sampling in both retail and on-premise

beer packaging in 2007.

newspaper, and radio advertising. Mainstream beer

locations. In the short term, premium craft sales volumes will

manufacturers continued to be heavily advertised on TV

decrease slightly as consumers look for other free offers in the

Big Rock will continue to focus on maximizing

throughout 2006.

marketplace but will rebound in the medium to long term as

corporate profitability while sharing some of the most

these new consumers establish loyalty to these brands.

unique, flavourful, and satisfying beers with our

stores and slow growth of chain grocery liquor retailers.

6

Big Rock Brewery Income Trust

2006 Annual Report

7

Significant Events:

“to create a masterpiece, no compromise can be tolerated”

Management Discussion and Analysis for the year ended December 31, 2006 March 22, 2007 The following discussion and analysis should be read in conjunction with the Big Rock Brewery Income Trust (“Big Rock” or the “Trust”) consolidated financial statements and accompanying notes included therein for the year ended December 31, 2006. The consolidated financial statements of the Trust have been prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”) and are denominated in Canadian dollars. Big Rock is a regional producer, marketer, and distributor of bottles, cans, and kegs of premium quality specialty beers, also known as craft beers, with a brewery located in Calgary, Alberta. Big Rock has sales and distribution facilities at its brewery in Calgary, Alberta as well as in Edmonton, Alberta and has sales representatives resident in British Columbia, Saskatchewan, Manitoba and Ontario. Big Rock products are available in Newfoundland and Nova Scotia through third party agents. Additional information regarding Big Rock Brewery Income Trust, including the Trust’s Annual Information Form is available on SEDAR at www.sedar.com Selected financial information: 2006 Net Sales Revenue Net Income Earnings/unit - basic Cash provided by operating activities Weighted average # of units o/s Distributable cash per unit Distributions per unit Total assets Future income tax

38,700,675 8,380,065 1.39 10,285,824 6,020,891 1.54 1.32 42,170,729 7,426,762

2005 40,563,180 6,619,876 1.12 9,021,553 5,932,849 1.35 1.29 41,786,177 8,060,167

As at March 22, 2007 there were 5,997,474 units and 570,700 options outstanding. 8

Big Rock Brewery Income Trust

During 2006, Big Rock formalized a Vision, Purpose and Culture statement and began to modify operations to concentrate on its strengths as Canada’s premier craft brewer. Management selectively redeployed resources to identify and connect with craft beer drinkers. Throughout the year Big Rock continued to focus on overall corporate profitability. Strategic brand and category growth, combined with selling expense control, resulted in a substantial increase in net income. Big Rock’s evolving premium brand strategy encompasses an increase in brand education and sampling while decreasing dependence on promotional aids. Results are on plan as Management executes its strategy of repositioning Big Rock premium brands by reducing the use of promotional items as an incentive to retail purchasers and by substituting education and assistance to retailers in the positioning and promotion of Big Rock beers. This initiative will improve retailer profitability, build loyalty for premium brands and increase market share over the medium term. As both transportation and distribution costs continue to spiral upwards, Big Rock is focusing on brand strategies that will build a significant presence in selected markets. In March 2006, selling prices were increased an average of 3% to mitigate increasing input costs, particularly transportation and utilities. At the same time the selling prices of various Big Rock brands were harmonized. In April 2006, the Trust introduced a unit appreciation rights plan (“UAR”) to be used as a basis for incentivizing employees. The UAR’s vest after a three year period beginning April 1, 2006 and are exercisable for two years thereafter at a price of $17.00 per Trust Unit (to be settled in cash). At the end of each reporting period, the intrinsic value of the UAR’s, as determined by the difference between the trading price of the Trust Units at that date and the exercise price, is recorded as a liability on the balance sheet, on a pro rata basis, over the vesting period. As at December 31, 2006, 329,500 UAR’s have been issued. As at December 31, 2006 the trading price of the 2006 Annual Report

Trust Units was less than the exercise price of the UAR’s thus no liability has been recorded at year-end. In July 2006, Big Rock introduced a new Big Rock Summer Variety pack (15 cans). This convenient form factor was well received in the western Canadian market place and will likely become an annual addition to the product line complementing Big Rock’s Winter Variety pack (12 bottles). During 2006, Big Rock introduced nutrition information panels on bottles to emphasize the quality and purity of Big Rock’s craft beers and to target increasingly health conscious consumers. More information on this industry first can be obtained on our website at www.bigrockbeer.com In 2006, Big Rock completed and commissioned a 22,000 sq. ft. warehouse expansion at a capital cost of $1,330,000. The additional space allows Big Rock to discontinue the use of third party warehouse storage, thereby improving efficiencies and reducing costs associated with in-transit product damage. A revision to the Excise Act (Canada) effective July 1st, 2006 provided various reductions in excise duty paid by Canadian brewers based on annual volumes produced up to 75,000 hectolitres. This revision was enacted to provide relief to small and mid-sized brewers. Coincidently, the rate of excise duty rate was raised on annual production in excess of 75,000 hectolitres from $27.98 to $31.22/hectolitre Based on Big Rock’s annual production levels the net effect of these changes is not expected to be material. In September 2006, Big Rock announced a proposed reorganization, adopted by a number of other income trusts, which would provide the Trust with a “flow-through” structure that would maximize the cash available for distribution to Unitholders by reducing the income taxes paid under the current structure. The reorganization was to be conditional on obtaining a number of regulatory and third party approvals, including a favourable income tax ruling from Canada Revenue Agency (CRA) and approval of Unitholders of the Trust. To date the advance income ruling has not yet been received. On October 31, 2006 the Honourable Jim Flaherty, Canadian Minister of Finance, proposed changes to the taxation of 9

Canadian income trusts. The relevant measures announced include a proposed tax on distributions paid by publicly traded income trusts and limited partnerships, and will result in less after-tax cash being available for payment to all Unitholders. As an existing income trust, it is important to note that these measures will not apply to Big Rock until January 2011. Under the Government’s proposal the existing tax treatment of distributions will remain in effect during the four-year grace period to 2011. In response to the proposed changes and in the interests of enhancing Unitholder value, the Board of Directors and Management are currently considering all options available to the Trust. On November 15, 2006 the Toronto Stock Exchange approved a Normal Course Issuer Bid whereby the Trust may repurchase up to 2% of the outstanding Units in any 30 day period to a maximum of 5% of the issued and outstanding Trust Units during any 12 month period. During 2006, the Trust repurchased and cancelled 34,600 Trust Units at an average price of $13.58/unit. Results of Operations:

Revenue per hectolitre during the year increased by $9 reflecting an overall increase in Alberta volume as a percentage of total volume year over year. For the year ended December 31, 2006, sales revenue decreased $1,862,505 (5%) to $38,700,675 from $40,563,180 for the year ended December 31, 2005. The reduction in sales revenue results from a decrease in volume offset by an overall sales price increase in March 2006 together with a changing sales mix.

$1,522,782 (13%) to $10,146,950 compared to $11,669,732 last year. As discussed, the reduction in point of sale giveaways which resulted in lower sales volume has positively impacted selling expenditures, resulting in an improved bottom line. Management is currently assessing marketing and sales reinvestment programs in order to target Big Rock consumers more effectively. Selling expenses include delivery costs of $3,604,489 (2005 $3,722,634). While delivery costs were down 3% from last year, sales volume was also down, thus delivery costs actually increased by $1 per hectolitre in 2006 compared to 2005. This is due mainly to increasing trucking rates and fuel costs in Alberta. Increases in recruitment fees, consulting, building security, severance pay, IT systems support and insurance during the year resulted in an increase in general and administrative expenses of $74,438 (2%) to $3,883,020 during the year ending December 31, 2006 from $3,808,582 last year. The income tax provision for the year was a $364,595 compared to an expense of $1,127,036 last year, and is comprised of $998,000 in current income tax expense and $(633,405) in future income tax recovery. The future income tax recovery relates to a reduction in future federal and provincial income tax rates substantively enacted this year. Net income for the year ending December 31, 2006 was $8,380,065 compared to $6,619,876 for the year ended December 31, 2005, a 27% increase due primarily to lower selling expenses and a future income tax recovery.

Cost of sales decreased $1,481,789 (10%) to $13,773,219 this year from $15,255,008 last year. This decrease in production costs is commensurate with the decrease in sales volume. Favourable volume rebates negotiated on packaging materials this year more than offset input cost increases compared with last year.

Net income per unit increased to $1.39 for the year ended December 31, 2006 compared to $1.12 last year. The number of Trust Units outstanding increased by 8,150 units to 6,006,474 units during the year from the exercise of 42,750 options offset by the repurchase and cancellation by the Trust of 34,600 units.

Gross profit for the year was down $380,716 (2%) to $24,927,456 from $25,308,172 last year commensurate with the decrease in sales volume.

Cash distributions declared to unitholders for the year ended December 31, 2006 were $7,947,575 or $1.32 per unit (2005 - $7,655,208 or $1.29 per unit).

Big Rock’s liquidity is positive with $4,336,830 in cash and cash equivalents at year-end (December 31, 2005 - $5,722,465) and no drawings on operating or long-term debt facilities. Big Rock’s balance sheet gained strength again this year as total assets increased by $384,552 to $42,170,729 and Unitholders equity improved by $537,177 compared to December 31, 2005, after paying out cash distributions of $7,946,639. At December 31, 2006, accounts receivable decreased by $614,726 (16%) to $3,233,671 from $3,848,397 as at December 31, 2005. Substantially all of Big Rock’s accounts receivable are from provincial government liquor authorities and the timing of receipts of large balances often causes significant swings in accounts receivable over period ends. Inventories as at December 31, 2006 increased by $661,817 (22%) to $3,710,427 from $3,048,610 as at December 31, 2005. Erratic deliveries of wine and spirits from the Alberta distributor has tied up our customers funds and store space such that they are stocking minimal inventory of beer compared to last year and are relying on Big Rock for frequent “just in time” delivery. This in turn has caused Big Rock’s inventory to increase year-over-year. The net book value of property, plant and equipment increased by $1,556,693 during the year ended December 31, 2006 to $30,171,939 (December 31, 2005 - $28,615,246). A $1,330,000 expansion of the Calgary warehouse was completed during the year which adds 22,000 sq feet of finished goods space and two new loading docks. Big Rock has been using off-site refrigerated storage during peak periods. The additional new space will allow Big Rock to retain all inventory on-site thus reducing transportation costs and attendant damages. Big Rock has a $5,000,000 demand operating facility provided by Alberta Treasury Branches (ATB) which bears interest at ATB prime rate. The balance of this facility will fluctuate as working capital requirements dictate. As at December 31, 2006 no funds were borrowed on this facility. The ATB facilities impose a number of positive and negative covenants on Big Rock including the maintenance of certain

There was a significant decrease in selling and marketing expenses during the year. Selling expenses decreased by 10

Financial Condition:

Big Rock Brewery Income Trust

2006 Annual Report

financial ratios. At December 31, 2006 and 2005 Big Rock was in compliance with all of its debt covenants. Collateral for these borrowings is a general assignment of the Partnership’s assets. At December 31, 2006 accounts payable increased by $73,519 (3%) to $2,819,987 from $2,746,468 as at December 31, 2005. Purchases of raw materials inventory and timing of payments to suppliers generally dictate accounts payable balances at year end. The provision for future income taxes decreased by $633,405 to $7,426,762 as at December 31, 2006 from $8,060,167 as at December 31, 2005. Future income tax reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and the deferral of taxes payable as a result of the Trust’s structure. During the year ended December 31, 2006, 42,750 unit options were exercised for proceeds to the Trust of $498,687. In the year ended December 31, 2005, 138,900 unit options were exercised for proceeds of $1,086,628. Contributed surplus of $345,948 at December 31, 2006 represents the net effect of unit based compensation expense calculated using the Black-Scholes option pricing model net of transfers from the exercise of options. Cash Flows:

For the year ended December 31, 2006, after deducting distributions to Unitholders of $7,946,639 (95% of net income) and investing $3,709,519 in capital assets, Big Rock generated $10,285,824 from operating activities. Cash provided by operating activities increased by $1,264,272 (14%) to $10,285,825 for the year ended December 31, 2006 from $9,021,553 last year. The increase arose primarily from an increase in net income. During the year cash distributions of $7,946,639 (2005 $7,581,394) were paid to Unitholders. all of which are taxable in their hands. A portion of the distributions are characterized as interest and a portion as dividend income. There was no return of capital included in the distributions. 11

During the year, the Trust expended $470,000 to repurchase 34,600 units at an average price of $13.58 under a Normal Course Issuer Bid.

Big Rock continues to enjoy a strong working capital ratio (2.64). Working capital (current assets less current liabilities) decreased by $1,696,909 to $7,177,345 as at December 31, 2006 from $8,874,254 as at December 31, 2005, largely as a result of lower cash at year end.

Cash used in investing activities includes the purchase of plant, property and equipment assets of $3,709,519 (2005 - $3,578,174) expended to complete a warehouse expansion, upgrades to boilers, and the purchase of a several brewing vessels and ancillary equipment.

Big Rock is committed to producing products of the highest quality. In this regard continuous improvements are made to equipment and processes. As at year-end Big Rock had committed to capital expenditures in the amount of $260,000.

Liquidity and Capital Resources:

Big Rock’s cash flow provided by operating activities continues to comfortably service required capital expenditures and cash distributions.

Subsequent to year–end the Trust granted 265,000 options at an exercise price of $15.26 to employees and directors. These options expire in five years and vest immediately.

Summary of Yearly Results: Quarter Ended 31-Dec-06 30-Sep-06 30-Jun-06 31-Mar-06 31-Dec-05 30-Sep-05 30-Jun-05 31-Mar-05

Net Sales $8,603,228 $11,222,738 $10,555,007 $8,319,702 $10,007,311 $11,776,035 $10,831,294 $7,948,540

Earnings per unit Basic Diluted

Net Income $1,883,998 $2,685,263 $2,746,934 $1,063,870 $1,698,890 $2,224,067 $1,695,494 $1,001,425

$0.30 $0.45 $0.46 $0.18 $0.29 $0.37 $0.29 $0.17

Weighted Average Units Outstanding

$0.29 $0.45 $0.46 $0.18 $0.29 $0.37 $0.28 $0.17

6,020,891 6,030,474 6,014,991 6,008,991 5,981,357 5,958,241 5,920,074 5,871,724

Distributable Cash Calculation: 2006 $ Distributable Cash from Operations Less: Productive capacity maintenance Distributable Cash Cash distributed Payout ratio Average Units Outstanding

2005 Per Unit

10,285,824 1,000,000 9,285,824 7,946,639 85.60% 6,020,891

$1.71 $0.17 $1.54 $1.32

$ 9,021,553 1,000,000 8,021,553 7,581,394 94.50% 5,932,849

Per Unit $1.52 $0.17 $1.35 $1.29

The Company’s revolving bank operating line of $5,000,000 is sufficient to fund operating fluctuations in cash requirements throughout the year. Critical Accounting Estimates:

Returnable glass containers 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 the estimated useful life of five years. The Company has purchased $1,447,548 of returnable glass containers since converting to the Industry Standard Bottle in early 2002. Net book value of returnable glass containers as at December 31, 2006 is $795,672 (2005 - $621,470). Stock-based compensation The Trust recognizes compensation expense when options with no cash settlement feature are granted to employees and directors under the option plan. Stock based compensation expense recognized during the year ended December 31, 2006 was $76,000 (2005 - $258,660) based on the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 4%, dividend yield of 7.8%, expected volatility of 24.5% and expected hold period prior to exercise of 2 years. Plant, Property and Equipment (PP&E) Accounting for PP&E involves making estimates of the life of the assets, the selection of an appropriate method of depreciation and determining whether an impairment of Big Rock’s assets exists. These assessments are critical due to their potential impact on earnings. Big Rock completes an assessment of the carrying value of its property, plant and equipment for indications of impairment. If there are indications of impairment, a comparison of carrying value to

For the distributable cash calculation, Big Rock management has allowed $1,000,000 annually for maintenance of productive capacity and is confident that this is sufficient for the brewery equipment to be maintained in excellent operating condition. Big Rock had no debt at December 31, 2006 or December 31, 2005 and all bank covenants have been met. 12

Each month the Board of Director’s sets the cash distribution rate per unit considering the Company’s requirements for capital expenditure and debt servicing requirements. It is Management’s opinion that Big Rock will continue to be able to meet all of its commitments for capital expenditures, debt servicing, and cash distributions to Unitholders from cash flow generated by operations.

Big Rock Brewery Income Trust

2006 Annual Report

the estimated undiscounted future net cash flows from the assets is undertaken. If it is determined that an asset’s undiscounted future net cash flows are less than it’s carrying value, the asset is written down to it’s net realizable value. Risks Related to the Business and the Industry:

Big Rock operates in an environment that is both highly competitive and highly government regulated. Due to the ongoing shifting effects of competition, the ability to predict future sales and profitability with any degree of certainty is limited. There is a continuing entry of premium and super premium beers from other craft breweries and the larger national and multi-national brewers with products that compete directly with craft beers. A large number of imports are also being sold in the same markets where Big Rock competes for business. With the large choice of brands now available, and the advertising initiatives of the major breweries, it is likely that price promotions due to competitive pressures will continue. Big Rock requires various permits, licenses, and approvals from several government agencies in order to operate in its market areas. In Alberta, the Trust’s largest market, the Alberta Gaming and Liquor Commission provides the necessary licensing approvals. Other licenses have been obtained from the British Columbia Liquor Distribution Board, the Saskatchewan Liquor and Gaming Authority, the Manitoba Liquor Control Commission, the Liquor Control Board of Ontario and the Canada Revenue Agency – Excise. Management believes that the Trust is in compliance with all licenses, permits, and approvals. Disclosure Controls and Procedures:

The Trust has established disclosure controls and procedures to ensure timely and accurate preparation of financial and other reports. Disclosure controls and procedures are designed to provide reasonable assurance that material information required to be disclosed is recorded, processed, summarized and reported within the time periods specified by securities regulations and that information required to be disclosed is accumulated and communicated to the appropriate members of management and properly reflected in the Trust’s filings. The Chief Executive Officer and the Chief Financial Officer oversee this evaluation process and have concluded that the design and operation of these disclosure controls and procedures are adequate and 13

effective in ensuring that the information required to be disclosed by the Trust in reports filed with the Canadian Securities Administrators is accurate and complete and filed within the time periods required. The Chief Executive Officer and the Chief Financial Officer have individually signed certifications to this effect.

into effect. The new standards are intended to harmonize Canadian standards with international accounting standards. Management has assessed the impact of these pronouncements on the Trust’s operating results and concluded that they are not material. Forward-looking Statements:

Internal Controls over Financial Reporting:

Big Rock’s management is responsible for establishing and maintaining adequate internal controls over financial reporting. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be designed effectively can provide only reasonable assurance with respect to financial statement preparation and presentation. The Trust has adopted the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework to evaluate the design of internal controls over financial reporting. At December 31, 2006 management assessed the design of the Trust’s internal control over financial reporting and concluded that internal controls over financial reporting are suitably designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. Based on the above, the Chief Executive Officer and the Chief Financial Officer, have concluded that the Trust has designed internal controls over financial reporting as at the end of the period covered by this annual report, in all material respects, after considering the Canadian Securities Administrator’s Multilateral Instrument 52-109 “Certification of Disclosures in Issuers’ Annual and Interim Filings.”

This discussion and analysis contains forward-looking statements relating to future events or future performance. In some cases, forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “expects”, “projects”, “plans”, “anticipates” and similar expressions. These statements represent management’s expectations or beliefs concerning, among other things, future operating results and various components thereof or the economic performance of Big Rock. Undue reliance should not be placed on these forward-looking statements which are based upon management’s assumptions and are subject to known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted. Big Rock undertakes no obligation to update publicly or revise any forward-looking statements contained herein and such statements are expressly qualified by the cautionary statement.

Financials

Pending Accounting Pronouncements:

Financial Instruments - For fiscal years beginning on or after October 1, 2006, the new Canadian Institute of Chartered Accountants (“CICA”) Handbook section 3855 “Financial Instruments – Recognition and Measurement”, section 1530 “Comprehensive Income” and section 3865 “Hedges” that deal with the recognition and measurement of financial instruments at fair value and comprehensive income will come 14

Big Rock Brewery Income Trust

2006 Annual Report

15

Management Report

Auditors’ Report

March 15, 2007

To the Unitholders of

The accompanying consolidated financial statements in the annual report are the responsibility of management. The consolidated financial statements of the Trust have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). In the opinion of management, the financial statements have been prepared within acceptable limits of materiality and, when necessary, management has made informed judgements and estimates in accounting for transactions which were not complete at the balance sheet date. Where alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances as indicated in the notes to the consolidated financial statements. Management maintains appropriate systems of internal control. Policies and procedures are designed to give reasonable assurance that transactions are appropriately authorized, assets are protected and financial records are properly maintained to provide reasonable assurance that financial information is relevant and reliable.

We have audited the consolidated balance sheets of Big Rock Brewery Income Trust as at December 31, 2006 and 2005 and the consolidated statements of operations and undistributed income and cash flows for the years then ended. These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the

The Audit Committee is appointed by the Board of Directors, and is comprised of directors, all of which are not officers or employees of the Company. The Committee meets regularly with management to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues, to satisfy itself that each party is discharging its responsibilities and to review the financial statements and the external auditors’ report. The Audit Committee has approved the financial statements.

16

Big Rock Brewery Income Trust

Ken Barbet

Timothy A. Duffin

President and Chief Executive Officer

Chief Financial Officer

overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Trust as at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Calgary, Canada March 15, 2007

Big Rock Brewery Income Trust

2006 Annual Report

Chartered Accountants

17

Consolidated Balance Sheets

Consolidated Statements of Operations and Undistributed Income

Big Rock Brewery Income Trust

Big Rock Brewery Income Trust

As at December 31,

Year ended December 31

2006 $ ASSETS [note 6] Current Cash and cash equivalents Accounts receivable [note 10] Inventories [note 3] Prepaid expenses and other Property, plant and equipment [note 4] Deferred charges and other assets LIABILITIES AND UNITHOLDERS’ EQUITY Current Accounts payable and accrued liabilities Income taxes payable Distributions payable Future income taxes [note 8]

4,336,830 3,233,671 3,710,427 273,100 11,554,028 30,171,939 444,762 42,170,729

2,819,987 896,004 660,692 4,376,683 7,426,762 11,803,445

2005 $

5,722,465 3,848,397 3,048,610 150,685 12,770,157 28,615,246 400,774 41,786,177

2,746,468 489,679 659,756 3,895,903 8,060,167 11,956,070

Commitments [note 9 ] Unitholders’ equity Trust unitholders’ capital [note 7] Contributed surplus [note 7] Undistributed income

18,282,507 345,948 11,738,829 30,367,284 42,170,729

17,872,741 286,953 11,670,413 29,830,107 41,786,177

2006 $ Revenue Net sales Cost of sales Gross profit

2005 $

38,700,675 13,773,219 24,927,456

40,563,180 15,255,008 25,308,172

10,146,950 3,883,020 2,152,826 — 16,182,796

11,669,732 3,808,582 2,111,375 (28,429) 17,561,260

Income before income taxes Income tax expense [note 8]

8,744,660 364,595

7,746,912 1,127,036

Net income for the year

8,380,065

6,619,876

11,670,413 (7,947,575)

12,705,745 (7,655,208)

(364,074) 11,738,829

— 11,670,413

1.39 1.38

1.12 1.11

Expenses Selling General and administrative Amortization Gain on sale of Kamloops Brewery [note 5]

Undistributed income, beginning of year Cash distributions declared [note 12] Excess of consideration paid over the carrying value of Trust Units repurchased [note 7] Undistributed income, end of year Net income per unit [note 2] Basic Diluted

See accompanying notes

See accompanying notes

On behalf of the Board:

18

E.E. McNally Director

Gordon Tallman Director

Big Rock Brewery Income Trust

2006 Annual Report

19

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Big Rock Brewery Income Trust

Big Rock Brewery Income Trust

Year ended December 31

December 31, 2006 and 2005 2006 $

OPERATING ACTIVITIES Net income for the year Items not affecting cash Amortization Gain on sale of Kamloops Brewery [note 5] Unit based compensation [note 7] Future income taxes [note 8]

2005 $

1. DESCRIPTION OF BUSINESS Big Rock Brewery Income Trust (“Big Rock” or the “Trust”) produces and markets its own brands of specialty draught and bottled beer for sale across Canada. Big Rock operates in only one business segment. Big Rock trust units are listed on The Toronto Stock

8,380,065

6,619,876

Net change in non-cash working capital [note 11] Cash provided by operating activities

2,152,826 — 76,000 (633,405) 9,975,486 310,338 10,285,824

2,111,375 (28,429) 258,660 666,036 9,627,518 (605,965) 9,021,553

FINANCING ACTIVITIES Distribution payments Trust Unit repurchase [note 7] Cash received on exercise of options [note 7] Cash used in financing activities

(7,946,639) (470,000) 498,687 (7,917,952)

(7,581,394) — 1,086,628 (6,494,766)

INVESTING ACTIVITIES Purchase of property, plant and equipment Deferred charges and other assets, net Proceeds on sale of Kamloops Brewery [note 5] Cash provided by (used in) investing activities

(3,709,519) (43,988) — (3,753,507)

(3,578,174) (44,052) 4,724,209 1,101,983

Net increase (decrease) in cash Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year

(1,385,635) 5,722,465 4,336,830

3,628,770 2,93,695 5,722,465

Exchange (the “TSX”). The consolidated financial statements include the accounts of the Trust, Big Rock Brewery Partnership, Big Rock Brewery Ltd. and its wholly owned subsidiary Pine Creek Brewing Company Ltd., (formerly Whistler Brewing Company Ltd. and Kamloops Brewing Company Ltd.) 2. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of the Trust have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ materially from those estimates and assumptions. The consolidated 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. Inventories Inventories of raw materials, promotional and resale goods are valued at the lower of cost (weighted average) and replacement cost. Inventories of brews in progress and finished product are valued at the lower of cost (including direct materials, labour and overhead costs) and net realizable value. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated amortization. Amortization is recorded on the straight-line basis

See accompanying notes

over the estimated useful lives of the assets. Amortization rates per annum are as follows: Buildings Production equipment Vehicles Furniture and fixtures

2.5% 2.3 - 10% 25% 4 - 15.4%

Big Rock completes an assessment of the carrying value of its property, plant and equipment for indications of impairment when events or circumstances arise that would warrant such an evaluation. If there are indications of impairment, a comparison of carrying value to the estimated undiscounted future net cash flows from the assets is undertaken. If it is determined that an asset’s undiscounted future net cash flows are less than it’s carrying value, the asset is written down to it’s net realizable value. Industry standard returnable glass containers purchased are initially recorded at cost. In order to charge operations for wear and disappearance, the cost of new bottles is charged to operations over the estimated useful life of five years. Other containers are recorded as inventory. 20

Big Rock Brewery Income Trust

2006 Annual Report

21

Deferred charges

method based on the quoted price of the Trust’s units. Participants in the plan, upon exercising their options may request to receive

Deferred charges include new product artwork and trademark costs and are stated at cost less accumulated amortization.

either a cash payment equal to the difference between the exercise price and the market price of the Trust’s units or units issued from

Amortization is recorded on a straight-line basis over five to seven years. The deferral of these costs is reviewed periodically for

Treasury. Irrespective of the participant’s request, the Trust may choose to only issue units.

possible revisions to the amortization period or writedown to net realizable value. Cash and cash equivalents Revenue recognition

Short term investments with initial maturity of not more than 90 days are considered to be cash equivalents, and are recorded at cost,

Revenue is recognized upon shipment of product to the purchaser and represents sales to the respective provincial liquor control

which approximates current market value. Cash and cash equivalents at December 31, 2006 include a $4,000,000 term deposit

boards less excise taxes of $5,341,343 (2005 – $5,987,441) which are assessed on beer production at tiered rates up to $31.22

with an interest rate of 4.18%.

per hectoliter (2005 - $27.985 per hectolitre), and provincial liquor control board commissions deducted in arriving at the net proceeds to Big Rock. The commissions cover distribution and other service charges.

3. INVENTORIES

Income taxes The Trust is a mutual fund trust for the purposes of the Income Tax Act, and is only subject to statutory income taxes on taxable income not distributed to unitholders. There is no recognition of future income tax assets or liabilities on temporary differences within the Trust; however, the liability method of accounting for income taxes is followed within the subsidiaries of the Trust. Under

Raw materials and returnable glass containers Brews in progress Finished product Promotional and resale goods

this method, future tax assets and liabilities are determined based on differences between the carrying amount and the tax basis of

2006 $

2005 $

762,916 608,402 1,686,271 652,838 3,710,427

917,577 503,968 1,143,733 483,332 3,048,610

assets and liabilities. Temporary differences arise when the realization of an asset or the settlement of a liability would give rise to either an increase or decrease in income taxes payable. Income tax expense for the period is the tax payable for the period and any

4. PROPERTY, PLANT AND EQUIPMENT

2006

change during the period in future income tax assets and liabilities. Cost $

Future income taxes are recorded at the income tax rates that are expected to apply when the future tax liability is settled or the

Accumulated Amortization $

Net Book Value $

future tax asset is realized. The effect on future income tax assets and liabilities of a change in the tax rates is recognized in income in the period in which the change becomes substantively enacted. Foreign exchange Transactions in foreign currencies are recorded in Canadian dollars at the exchange rates in effect at the date of the transaction.

Land Buildings Production equipment Vehicles Furniture and fixtures

Monetary assets and liabilities in foreign currencies have been converted to Canadian dollars at exchange rates in effect at the

2,396,234 11,132,705 31,023,122 836,872 1,903,525 47,292,458

– 2,123,537 13,204,167 530,600 1,262,215 17,120,519

2,396,234 9,009,168 17,818,955 306,272 641,310 30,171,939

balance sheet date. Foreign exchange gains and losses included in earnings are not material for the periods presented. 2005

Net income per unit The Trust follows the treasury stock method for determining per unit amounts. Under this method proceeds that would arise from

Cost $

the exercise of options would be used to purchase units at the weighted average market price in the determination of diluted per unit amounts. Net income per unit is calculated using the weighted average number of units outstanding during each year which was: basic – 6,020,891(2005 – 5,932,849); diluted – 6,083,027 (2005 – 5,968,310). Unit-based compensation plan The Trust has established a unit option plan whereby options for a maximum of 600,647 units may be granted to employees,

Land Buildings Production equipment Vehicles Furniture and fixtures

2,396,234 9,757,184 29,319,693 707,921 1,403,041 43,584,073

Accumulated Amortization $ — 1,865,642 11,676,399 345,775 1,081,011 14,968,827

Net Book Value $ 2,396,234 7,891,542 17,643,294 362,146 322,030 28,615,246

directors and consultants of the Trust. Options granted under the plan are generally exercisable immediately and expire five years after the grant date. All options are granted at or above the market price of the units on the date of grant. The fair value of options granted are charged to earnings with a corresponding credit to contributed surplus. The fair value of the unit options is determined using the Black-Scholes option pricing model. When direct awards of units are granted they are also accounted for using the fair value 22

Big Rock Brewery Income Trust

2006 Annual Report

23

The following table summarizes information about incentive unit options outstanding at December 31, 2006:

5. KAMLOOPS BREWERY SALE On October 12, 2005, Big Rock sold all the assets used in connection with the brewery located in Kamloops, British Columbia (the “Kamloops Brewery”). Land, building, brewery equipment and intellectual property/goodwill with a net book value of $3,476,239 and inventory with a book value of $1,219,541 were sold for cash proceeds of $4,724,209. After deducting legal and other costs related to the sale in the amount of $242,246 the gain on sale of Kamloops Brewery was $28,429. 6. AVAILABLE CREDIT FACILITY Big Rock has a $5 million available demand revolving credit facility with ATB Financial (“ATB”). Advances under the facility bear interest

Exercise Price $6.35 to $6.70 $7.23 to $8.50 $12.65 to $17.00 $17.01 to $19.07

at ATB prime. The facility imposes a number of positive and negative covenants on Big Rock including the maintenance of certain

Number Outstanding at December 31, 2006 8,950 10,500 57,400 231,250 308,100

Weighted Average Remaining Contractual Life (years) 1.172 1.549 4.113 3.452 3.444

Weighted Average Exercise Price 6.70 8.32 16.44 19.07 17.85

Number Exercisable at December 31, 2006 8,950 10,500 57,400 231,250 308,100

financial ratios. At December 31, 2006 and 2005 Big Rock was in compliance with all of its covenants but had no outstanding Stock based compensation of $76,000 was charged to salary expense during 2006 (2005 - $258,660) with an offsetting credit to

indebtedness. A first floating charge over all of Big Rock’s assets is held as collateral for drawings under the facility.

contributed surplus. 7.TRUST UNITHOLDERS’ CAPITAL Authorized

The weighted average fair value of the options granted has been estimated on the date of the grant using the Black-Scholes option

Unlimited number of Trust Units.

pricing model with the following weighted average assumptions:

Issued and outstanding Units # Balance as at December 31, 2004 Trust units issued on exercise of options Transfer from contributed surplus related to options exercised Balance as at December 31, 2005 Trust units issued on exercise of options Transfer from contributed surplus related to options exercised Trust units repurchased and cancelled Balance as at December 31, 2006

5,859,424 138,900 — 5,998,324 42,750 — (34,600) 6,006,474

Amount $ 16,754,964 1,086,628 31,149 17,872,741 498,687 17,005 (105,926) 18,282,507

On November 15, 2006 the Toronto Stock Exchange approved a Normal Course Issuer Bid whereby Big Rock Brewery Income Trust may repurchase up to 2% of the outstanding Units in any 30 day period to a maximum of 5% during any 12 month period through November 16, 2007. During 2006, the Trust repurchased and cancelled 34,600 units at an average price of $13.58/unit.

Risk free interest rate Dividend yield Expected volatility Expected hold period Fair value of option granted

2006 $

2005 $

4.1% 7.8% 24.5% 2 years $1.52

4% 7% 14.4% 2 years $0.72

Subsequent to year-end the Trust granted 265,000 options at an exercise price of $15.26 to employees and directors. These options expire in five years and vest immediately. On April 1, 2006 the Trust introduced a unit appreciation rights plan (“UAR”) which will be used as a basis for incentive compensation to employees. Under the plan, employees who currently hold incentive unit options previously issued in June 2005 with an exercise price of $19.07 (the “old” options) may exchange each old option for a new UAR. The UAR’s vest after a three year period beginning April 1, 2006 and are exercisable for two years thereafter at a price of $17.00 per Trust unit (to be settled in cash). At the end of

Unit-based compensation plan

each reporting period, the intrinsic value of the UAR’s, as determined by the difference between the trading price of the Trust units at

A summary of the status of the Trust’s incentive option plan as of December 31, 2006 and 2005 and changes during the years then

that date and the exercise price, is recorded as a liability on the balance sheet, on a pro rata basis, over the vesting period. For UAR’s

ended is presented below:

issued in exchange for old options, to the extent this amount is less than the compensation expense originally recorded in 2005

2006

Units Balance, beginning of year Cancelled Granted Exercised Balance, end of year

422,950 (122,100) 50,000 (42,750) 308,100

2005 Weighted Average Exercise Price 17.38 18.07 17.00 11.51 17.85

Units 222,150 (19,550) 359,250 (138,900) 422,950

for the old options, an offsetting amount is charged to contributed surplus. Any liability in excess of the amount previously recorded Weighted Average Exercise Price 8.30 13.41 19.07 7.81 17.38

as compensation expense will be recorded as additional compensation expense in the current period. As at December 31, 2006, 57,500 UAR’s have been issued in exchange for the old options and 272,000 new UAR’s have been issued. As at December 31, 2006 the trading price of the Trust units was less than the exercise price of the UAR’s thus no liability has been recorded. During 2004, the Trust granted an equity appreciation right, the value of which was determined by the change in the price of a unit from the date of grant to the expiry date on June 30, 2005. The fair value of this right was $190,000 using the closing unit price on December 31, 2004. In 2005, the right was exercised and an additional expense of $68,660 was incurred and charged to general and administrative expense.

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Big Rock Brewery Income Trust

2006 Annual Report

25

8. INCOME TAXES

The Trust has also entered into a contract to purchase malt for Big Rock’s 2007 supply requirements at a fixed price of $375 per

Income tax expense varies from the amounts that would be computed by applying the Canadian Federal and Provincial income tax

metric tonne.

rates to earnings before provision for income taxes as shown in the following table: 2005 $ 7,746,912

10. FINANCIAL INSTRUMENTS

Income before income taxes

2006 $ 8,744,660

Income tax expense at statutory rate of 32.93% (34.55% for 2005)

2,879,617

2,676,558

market values.

(1,732,069) 99,737 (79,169) 20,000 (600,693) (222,828) 364,595

(1,831,222) (19,221) 116,075 31,000 (68,604) 222,450 1,127,036

998,000 (633,405) 364,595

461,000 666,036 1,127,036

Effect on taxes of Trust distributions Manufacturing and processing profits deduction Non-deductible expenses Non-taxable portion of capital gain Large Corporation tax Income tax rate adjustments Other Income tax expense Current income tax Future income tax Income tax expense

Future income tax reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Trust’s future income tax liability are as follows:

Future tax assets (liabilities): Capital assets Partnership Deferred charges Share issue costs Net future tax liability

2006 $

Financial instruments of the Trust consist of cash and cash equivalents, accounts receivable, accounts payable and distributions payable. There were no significant differences between the carrying amounts reported on the balance sheet and their estimated

The Trust has a concentration of credit risk because substantially all of its accounts receivable are from government owned provincial liquor boards. 11. NET CHANGE IN NON-CASH WORKING CAPITAL The net change in non-cash working capital relating to operating activities consists of: 2006 $ 614,726 (661,817) — (122,415) 73,519 406,325 310,338

Accounts receivable Inventories Disposition of Kamloops Inventory Prepaid expenses and other Accounts payable and accrued liabilities Income taxes payable

2005 $ (1,090,151) 1,619,340 (1,219,541) 276,484 (429,636) 237,539 (605,965)

2005 $

12. CASH DISTRIBUTIONS DECLARED PER TRUST UNIT (3,983,997) (3,388,763) (57,853) 3,851 (7,426,762)

(4,660,993) (3,393,804) (15,676) 10,306 (8,060,167)

Cash income taxes paid during the year were $572,500 (2005- $241,955). 9. COMMITMENTS Big Rock leases vehicles under operating leases all of which expire in 2007. Annual lease payments for 2007 are $2,883. The Trust has commitments under its capital spending program for plant and equipment amounting to $260,000 as at December 31, 2006. During 2006 the Trust entered into a three year contract to purchase approximately 136,000 GJ of natural gas at a fixed price of $9.58 per GJ for Big Rock’s own use during the period March 1, 2006 to February 28, 2009.

2006 Period Covered January February March April May June July August September October November December Total

Record Date

Distribution Date

Jan 31 Feb 28 Mar 31 Apr 29 May 31 Jun 30 Jul 29 Aug 31 Sep 30 Oct 31 Nov 30 Dec 31

Feb 15 Mar 15 Apr 15 May 16 Jun 15 Jul 15 Aug 15 Sep 15 Oct 14 Nov 15 Dec 15 Jan 16

2005 Per Unit

Record Date

Distribution Date

Per Unit

$0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $1.32

Jan 31 Feb 28 Mar 31 Apr 29 May 31 Jun 30 Jul 29 Aug 31 Sep 30 Oct 31 Nov 30 Dec 31

Feb 15 Mar 15 Apr 15 May 16 Jun 15 Jul 15 Aug 15 Sep 15 Oct 14 Nov 15 Dec 15 Jan 16

$0.10 $0.10 $0.10 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $1.29

On May 1, 2006 the Trust entered into a one year contract to purchase required electricity blocks at a blended block rate of $0.06935 per kilowatt –hour. 26

Big Rock Brewery Income Trust

2006 Annual Report

27

Corporate Information Directors Edward E. McNally

Officers and Senior Personnel Edward E. McNally

Big Rock Brewery Ltd. Calgary, Alberta

Ken Barbet

Chairman

Charles Wilson

Past President & Chief Executive Officer

Shell Canada Limited Evergreen, Colorado James M. Jackson Developer

Jackson & Jackson Durango, Colorado Ken Barbet

President & Chief Executive Officer

Big Rock Brewery Ltd. Calgary, Alberta

Chairman

President & Chief Executive Officer

Timothy A. Duffin

Vice President, Corporate Services & Chief Financial Officer

Larry Kerwin

Vice President, Operations

Oliver Baezner

Vice President, Sales

Christine Fowler

Corporate Secretary

Kathleen McNally-Leitch

Administrator Big Rock Lecture Series

University of Calgary Calgary, Alberta J. Cameron Millikin Chairman

Bay Mount Capital Resources, Inc. Calgary, Alberta Robert H. Hartley Rancher

High River, Alberta Robert G. Peters President

Black Diamond Land & Cattle Ltd. Calgary, Alberta Gordon G. Tallman Chairman

CV Technologies Inc. Calgary, Alberta

Head Office 5555 – 76 Avenue SE Calgary, Alberta T2C 4L8 Canada Telephone: (403) 720 3239 Toll Free: 1 800 242 3107 Facsimile: (403) 236 7523 www.bigrockbeer.com Auditors Ernst & Young LLP Chartered Accountants 1000, 440 – 2 Avenue SW Calgary, Alberta T2P 5E9 Transfer Agents Valiant Trust Company 310, 606 – 4 Street SW Calgary, Alberta T2P 1T1

Lonnie Tate

Chartered Accountant

Calgary, Alberta

28

Big Rock Brewery Income Trust